Part I: Negotiability

Philippine Education Co. vs. Soriano Facts: Enrique Montinola went to the Manila Post Office seeking to obtain ten Money Orders and offering to pay for them using a private check. However, before the transaction was finished, Montinola was able to get the checks without paying for them. A stop payment order for all the money orders was then issued to all postmasters. In the meanwhile, one of the money orders was received by PECO as part of its sales receipt. It was deposited with the Bank of America which was cleared by the Bureau of Post. Due to the stop payment order issued upon the unpaid money orders, the bank was informed of the irregular issuance of the money orders. However, the Bank of America still deducted the amount on the money order from PECOs account. Issue: Are postal money orders negotiable instruments? Ruling: No. Some restrictions imposed upon postal money orders by postal laws are inconsistent with the characteristics of negotiable instruments. One is that money orders can be withheld for a variety of reasons. Also postal money orders can only be indorsed once. Which is in direct contravention with the characteristic of Negotiable Instruments to pass from hand to hand as substitutes for money. Caltex Philippines vs. Court of Appeals Facts: Security Bank and Trust Co., SEBTC for brevity, issued 280 Certificates of Time Deposits to Anger Dela Cruz to the amount of approximately 1.2 million pesos. Anger Dela Cruz then delivered the said CTDs to Caltex Philippines as guarantees for fuel products he obtained from the latter. On the other hand, Dela Cruz executed an Affidavit of Loss to SEBTC, declaring that said CTDs were lost and new ones be issued to him. Upon issuance, Dela Cruz managed to obtain a loan from the same bank and in turn he issued a Deed of Assignment over the said CTDs to SEBTC. Caltex now then informed SEBTC of the CTDs in their possession and their desire to obtain claims over the CTDs. SEBTC denied Caltexs request. Upon maturity of the loan obtained by Dela Cruz, SEBTC set-off the balance of the loan and the deposits of Dela Cruz with SEBTC. Issue: Are the certificates of time deposits negotiable instruments? Ruling:

Yes. Upon its face the certificates of time deposits were negotiable and complies with all the requirements in Sec. 1 of the Negotiable Instruments Law. The documents provided that the amounts deposited shall be repayable to the depositor. The amounts are to be repayable to the bearer of the documents, i.e. whosoever may be the bearer at the time of presentment. Metrobank vs. Court of Appeals Facts: A certain Eduardo Gomez opened an account with Golden Savings and deposited 32 treasury warrants. The warrants were then indorsed by Gloria Castillo as Cashier of Golden Savings and deposited them to Metrobank to its account with the same. They were sent for clearing. Gomez was then instructed that he would be unable to withdraw his money pending clearing. Despite this, Gomez still wanted to withdraw his money pending clearing. Golden Savings asked Metrobank if the warrants were already cleared and as accommodation for a valued client, Golden Savings withdrew the money on the warrants and gave them to Gomez. The 32 warrants were then dishonoured by the Bureau of Treasury. Metrobank seeks reimbursement from Golden Savings. Issue: Can Metrobank recover the money given to Golden Savings basing on Section 66 of the Negotiable Instruments Law invoking the warranties of a general indorser? Ruling: No. The Negotiable Instruments Law is inapplicable in this case. The treasury warrants were not negotiable under the standards prescribed by Sec. 1 of the Negotiable Instruments Law. It is clear upon its face that the warrants are to be paid out of a particular fund, namely Fund 501. An indication that a sum of money is to be paid out of a particular fund is not an unconditional promise to pay as prescribed by Sec. 1 because it is subject to the condition of the funds sufficiency to pay the said sum of money. Sesbreno vs. Court of Appeals Facts: Raul Sesbreno made a money market placement order with Philippine Underwriters Finance Corporation for the amount of 300,000 pesos. Said corporation then gave Sesbreno a Certifiacte of Confirmation of Sale of Delta Motor Company, a Certificate of Securities Delivery Receipt indicating the sale of the note. The said note was then in the possession of Pilipinas Bank. Upon presentation by Sesbreno of the documents given by the above corporation, Pilipinas Bank refused to give the note to Sesbreno on the ground that the note is non-negotiable. Issue:

Whether non-negotiability of a promissory note prohibits its transfer through assignment. Ruling: No. Despite the fact that indicated in the note that it is not negotiable, it can still be transferred through assignment. A negotiable instrument can be transferred through negotiation by indorsement and delivery or delivery alone if it is an order or bearer instrument, respectively. A negotiable instrument on the other hand can also be transferred through assignment. Absent any specific prohibition against transfer through assignment, it is allowed. Negotiation and assignment are distinct from each other. Firestone Tire & Rubber Company vs. Court of Appeals Facts: Fojas-Arca Enterprises Company has a special account with Luzon Development Bank which allowed the Fojas-Arca to withdraw funds from its account through the medium of special withdrawal slips. Fojas-Arca then purchased on credit some products from Firestone. In payment of these purchases, Fojas-Arca delivered to Firestone six special withdrawal slips drawn upon the Luzon Development Bank. These were then deposited by the plaintiff with its current account with Citibank. All of them were honored and paid. However, in a another transaction where the same medium of payment through withdrawal slips by Fojas-Arca to Firestone was made. Unfortunately, these withdrawal slips were dishonored and not paid by Luzon Development Bank. Issue: Whether Luzon Development Bank should be held liable due to the late notice of non-payment over the said withdrawal slips. Ruling: No. The essence of negotiability which characterizes a negotiable paper as a credit instrument lies in its freedom to circulate freely as a substitute for money. The withdrawal slips in question lacked this character. As the withdrawal slips in question were non-negotiable, the rules governing the giving of immediate notice of dishonor of negotiable instruments do not apply. Payment or notice of dishonor from respondent bank could not be expected immediately, in contrast to the situation involving checks.

Part II: Payable to Bearer

Ang Tek Lian vs. Court of Appeals Facts: Ang Tek Lian drew a check payable to cash for the amount of 4,000 pesos knowing that he had insufficient funds in his account which only amounted to 335 pesos. He delivered said check to Hong for which the latter handed him money. When the check was presented for payment it was dishonored for insufficiency of funds. An information for the crime of estafa was filed against Ang Tek Lian. Ang Tek Lia however argues that he is not guilty of the offense charged because he did not indorse the check which was made payable to cash and thus cannot be said to have intentionally negotiate the same to Hong. Issue: An instrument payable to cash needs indorsement. Ruling: NO. Under the Negotiable Instruments Law sec. 9 [d], a check drawn payable to the order of cash is a check payable to bearer. Where a check is made payable to the order of cash, the word cash does not purport to be the name of any person, and hence the instrument is payable to bearer. The drawee bank need not obtain any indorsement of the check, but may pay it to the person presenting it without any indorsement.

Part III: Complete but Undelivered

Development Bank of the Pilippines vs. Sima Wei Facts: Sima Wei executed and delivered to Development Bank a promissory note engaging to pay Development Bank or order a certain amount. Sima Wei subsequently issued two crossed checks payable to DBP drawn against China Banking Corporation in for payment on the promissory note to DBP. These two checks however were not delivered to DBP or to any of its authorized representatives. In some way, it came into the possession of a certain Lee Kian Huat, who deposited the checks to another bank. DBP sued Sima Wei over the incident. Issue: Does the Development Bank of the Philippines have a cause of action against Sima Wei? Ruling: No. A negotiable instrument must be delivered to the payee in order to evidence its existence. Mere writing of an instrument does not effectuate an issuance of the same. A negotiable instrument must be delivered first by the drawer or a maker to the payee to bring about its existence. Thus, the payee of a negotiable instrument has no interest with respect thereto until its delivery to him. Without the initial delivery of the instrument from the drawer to the payee, there can be no liability on the instrument. DBP however has a right of action against Sima Wei for the balance due on the promissory note.

Part IV: Liability of Persons Signing as an Agent

Philippine Bank of Commerce vs. Aruego Facts: Aruego is a publisher for the periodical called World Current Events. For the printing expenses, he had a credit accommodation with Philippine Bank of Commerce. Where the printer of the periodical would draw a draft against PBC and Aruego will accept the draft and the same would be paid by PBC. PBC would then require Aruego to issue trust receipts over the printed periodicals for the security of the payment made to the printer, where the proceeds of the sale of periodicals would be used to pay the balance with PBC. In one instance, PBC demanded from Aruego reimbursement for the money paid to the printer. Aruego said that he was not liable as he was merely an agent of World Current Events. PBC followed suit. Issue: Is Aruego personally liable to PBC? Ruling: Yes. Aruego in accepting the drafts and signing them, he became personally liable over the bills of exchange. He cannot be constituted as merely an agent for World Current Events as he failed to complete the steps to hold his principal liable. In order to render an agents principal liable, the agent must sign with an indication that he is merely signing as an agent and that he should disclose who his principal is. The latter requirement being absent, he cannot be exempt from being personally liable. Francisco vs Court of Appeals Issue: Francisco is the president of A. Francisco Realty & Development Corporation (AFRDC). AFRDC entered into a contract with Herby Commercial & Construction Corporation (HCCC), represented by its President and General Manager Ong. Under the contract, HCCC was to be paid on the basis of the completed houses and developed lands delivered to and accepted by AFRDC. During the course of their agreement, Ong discovered that Francisco had executed and signed seven checks of various dates and amounts payable to HCCC for completed and delivered work under the contract. Ong, however, claimed that these checks were never delivered to HCCC. It was then discovered that Francisco forged the signature of Ong and indorsed the same to her. She then deposited said checks in her savings account. Ong now seeks to recover the value of the said checks. Francisco however claims that she was acting as an agent of Ong as Francisco was authorized to collect and receive such checks for HCCC.

Issue: Whether or not Francisco can be held liable on the questioned checks. Ruling: Yes. The Negotiable Instruments Law provides that where any person is under obligation to indorse in a representative capacity, he may indorse in such terms as to negative personal liability. An agent, when so signing, should indicate that he is merely signing in behalf of the principal and must disclose the name of his principal; otherwise he shall be held personally liable. Francisco did not indicate that she was merely signing as an agent of HCCC nor did she disclose the principal to whom she was representing.

Part V: Forgery
Jai-Alai vs Bank of the Philippine Islands Facts: A certain Ramirez, a mere collector of Inter-Island Gas Corporation was a regular bettor at JaiAlai. Ramirez incurred debts from such betting. As payment to Jai-Alai, he negotiated checks payable to the order of Inter-Island Gas Corporation. Jai-alai accepted the checks and deposited them to its account with BPI for clearing. It was then discovered after clearing that the indorsement of Ramirez were all forgeries. The clearing house informed Inter-Island Gas of the discovery. BPI then debited the amount of the accepted forged checks from the account of JaiAlai. Jai-alai then issued a check but was subsequently dishonoured for insufficient funds due to the debit of BPI over the account in line with the formerly accepted forged checks. Jai-Alai followed suit. Issue: Whether or not BPI acted within legal capacity when the same debited the account of Jai-Alai over forged checks. Ruling: BPI acted within legal bounds when it debited the Jai-Alai's account. Having indorsed by being a depositor of the checks to BPI, petitioner is deemed to have given the warranty prescribed in Section 66 of the NIL that every single one of those checks "is genuine and in all respects what it purports to be." BPI, which relied upon the Jai-Alai's warranty should not be held liable for the resulting loss. Forged signatures in a check render the same wholly inoperative and no right to discharge or enforce payment may result from it except those who are bound by Section 66 of the same law for reasons already stated. Republic Bank vs. Court of Appeals Facts: Mauricia Ebrada encashed a check worth 1246.08 pesos to Republic Bank. However, the Bureau of Treasury which issued the check advised Republic Bank that the signature of one Martin Lorenzo on the check was a forgery as he was already dead for quite some time already. Upon notice, Republic Bank then refunded the Bureau of Treasury for the amount on the check and subsequently demanded from Mauricia the same amount to which the bank paid her earlier. Issue: Whether or not Mauricia may be liable over the check as she is the last indorser. Ruling:

Republic Bank should suffer the loss when it paid the amount of the check in question to Ebrada but it has the remedy to recover from the latter the amount it paid to her because as last indorser of the check, she has warranted that she has good title to it even if in fact she did not because the payee of the check was already dead 11 years before the check was issued. On the other hand, when there are already multiple negotiations and somewhere along the way a negotiation is to be discovered to be based on a forged signature, only the negotiation based on the forged signature will be of no effect. MWSS vs. Court of Appeals Facts: Metropolitan Waterworks and Sewerage System maintained an account with the Philippine National Bank. MWSS obtained permission from the latter to use their own personalized checks in dealing business. MWSS in the course of their usual business, issued 23 checks worth roughly 300,000 pesos. A couple of months after, another set of 23 checks were issued by MWSS, but these checks were found out to be actually forged checks. The sum total of the forged checks amounted to around 3.5 million pesos. Upon discovery of such forged checks, MWSS demanded from PNB to restore the 3.5 million pesos to their account. PNB refused. MWSS followed suit. Issue: Is PNB liable over the forged checks? Ruling: No. It was decided by the Court that MWSS was barred from enforcing the defense of forgery because MWSS was guilty of gross negligence. The Court ruled such because because it was found out that MWSS did not keep a proper record of their business transactions when it came to issuance of checks, where if they did, they would have detected the existence of the forged checks as they had the exact same serial numbers as the previously issued checks. Furthermore, MWSS failed to provide PNB with the adequate knowledge on security measures to allow PNB to detect for themselves the authenticity of their checks. Banco de Oro vs. Equitable Bank Facts: Banco de Oro issued six crossed checks payable to certain member established under Visa. These checks were then deposited by a certain Aida Trencio to respondent bank: Equitable Bank. Banco de Oro was then presented the checks by Equitable Bank. Banco de Oro sent the checks to Philippine Clearing House Corporation. BDO then paid the value on the said crossed checks to Equitable Bank. The latter then credited it to Aida Trencio However, it was then found out by BDO that the payees, were forged or fictitious. BDO now then asks Equitable Bank to reimburse the amount paid by BDO.

Issue: Can BDO compel Equitable Bank to reimburse the latter for the paid amount on the forged checks? Ruling: Yes. When a collecting bank endorses a check to the drawee bank, it stamps at the back of the check the phrase: all prior endorsements/the lack thereof guaranteed. With this, it is the collecting bank, or Equitable Bank in the case at bar, that is ultimately liable for the said checks because it has the greatest opportunity and mandate to scrutinize and investigate the genuiness and authenticity of said checks. As stated earlier, by stamping at the back of the checks the phrase, all prior endorsements/the lack thereof guaranteed it has now warranted the genuiness of the said checks and must necessarily liable for them if ever they turn out to be forged. Gempesaw vs. Court of Appeals Facts: One Natividad Gempesaw issued 82 checks which were all prepared by her bookkeeper for the purchase of certain supplies. After 2 years, she then discovered that her bookkeeper had been fraudulently forging the checks indorsements which were allegedly made by the payee. The checks were distrutedly deposited in Philippine National Bank. The chief accountant in the said bank deposited the checks to the accounts of Alfredo Romero and one Benito Lan. Gempesaw now demands that the bank return the money debited from her account. Issue: Can Natividad Gempesaw recover the amount debited from her checking account? Ruling: The Court ruled in the negative. It was determined by the Court that Gempesaws failure to maintain the normal level of prudent care of her banking accounts is equated to gross negligence. Due to her irresponsible practice of managing her financial matters, it was only after 2 years that she was able to discover the fraudulent activities of her bookkeeper. Where the standard used by the Court is the required amount of care that a reasonably prudent businessman would take in handling financial matters. However, it was noted that it cannot be blamed totally on Gempesaws negligence as the chief accountant of PNB has a share in the happening of the misfortune. It is contrary to banking practice to accept for deposit checks with second indorsements. All things considered, the bank ruled that the chief accountant and Gempesaw share the liability, 50:50. Associated Bank vs Court of Appeals Facts:

The Province of Tarlac donated a certain amount of funds to the Concepcion Emergency Hospital in the form of checks. However, through a post-audit done by the local government of Tarlac, it was found out that the said checks never went to the donee hospital. Furthermore, it was discovered that a certain Pangilinan, a former cashier of the hospital, encashed the said checks through forged indorsements, to the detriment of the Province of Tarlacs account with Philippine National Bank. Associated Bank acted as the collecting bank for Pangilinan. Issue: Who will be liable over the said checks, PNB or Associated Bank? Ruling: Associated Bank. The collecting bank, generally, is the one who is liable in handling forgeries over checks. This is primarily because of the guarantees they stamp at the back of checks which are then relied upon by drawee banks in the determination whether the checks are genuine or not. It is the collecting bank also who is the last party charged with the determination of the authenticity of checks and must necessarily exercise a great amount of care in such dealings. In the case at bar, Associated Bank must bear the loss and must reimburse the amount paid by PNB in the past.