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Velasco vs.

Tan Liuan

Art. 80

FACTS: The defendant Tan Liuan and Co. executed to the defendant Aw Yong Chiow Soo four
certain promissory notes in the year 1919, and each payable six months after its respective date.
The defendant Aw Yong Chiow Soo drew a bill of exchange or sight draft, for P33,500 Yen on Jing
Kee and Co., in favor of the Philippine National Bank, which at first it refused to cash. The plaintiff
was then induced to, and did, endorse it, and the bank cashed the draft, no part of which plaintiff
received, and it is claimed that all of the money was paid to Tan Liauan and Co. In the ordinary
course of business, the draft was dishonored when presented, and later the plaintiff was requested
to, and did, personally execute to the Philippine National Bank his promissory note, for the amount of
the draft, interest and expenses.
August 18, 1991, Tan Liuan made the following written statement: In consideration for the
indorsement by Jose Velasco at my request of a draft drawn by Aw Yong Chiow Soo on Messrs. Jing
Kee and Co., 2 Kaisandori 5-Chone, Kobe, Japan, for the payment of which he became liable upon
his indorsement for the sum of 33,500 Yen, I promise to pay to Jose Velasco, or oder, within ten days
after he shall have been obligated to pay the amount of said draft, or any part thereof,
August 22, 1919, the defendant Aw Yong Chiow Soo made the following written statement:For value
received and to me in hand paid, I hereby assign, transfer and deliver to Jose Velasco the whole
amount of my credit against Tan Liuan and Co,
Concurrent therewith, the defendant unqualifiedly indorsed the four promissory notes to the plaintiff,
who commenced this action against the defendants. The complaints alleges the execution of the
notes by the defendant Tan Liuan and Co. to the defendant Aw Yong Chiow Soo. That the defendant
Aw Yong Chiow Soo indorsed the notes to the plaintiff; that at their maturity they were duly presented
to Tan Liuan and Co.; and that payment was refused, of which refusal the defendant Aw Yong Chiow
Soo was duly notified.
For answer, Aw Yong Chiow Soo makes a general denial, and, as a further and separate defense,
alleges the drawing of the sight draft, and that it was an accommodation only, and that, conforming
to the agreement, it was duly indorsed by the plaintiff, and Aw Yong Chiow So delivered the money
to the defendant Tan Liuan. Upon such issues, the case was tried, and the lower court rendered
judgment against the defendants Tan Liuan and Co. and Tan Liuan and Uy Tengpiao, for the full
amount of the notes, from which the plaintiff should only receive a sufficient amount to fully
compensate him as an indorser of the draft.
HELD: Although it is claimed taht Tan Liuan and Co. received the proceeds from the draft, its name
does not appear in or upon the draft, and it is very apparent that the written statement of Tan Liuan
and Co., of August 18th, was signed, for the purpose of showing the true relations of that firm to the
transaction, and that within ten days after the plaintiff had assumed and paid the amount of the draft,
with costs and expenses, Tan Liuan and Co. would pay the plaintiff the full amount which plaintiff had
obligated himself to pay. In other words, Tan Liuan and Co., by that writing, assumes all liability for
the amount of the draft and promises to pay the plaintiff and release him from all liability. In legal
effect, plaintiff's written statement of August 18th, is an acknowledgment of the reciept from Aw Yong
Chiow Soo of the four promissory notes as collateral security for his indorsement of the draft, and
that, in the event the plaintiff is released from his liability, he will then reassign the notes to the
defendant, Aw Yong Chiow Soo, and that, if he is required to pay the draft, any amount which he
may receive on account of the promissory notes over and above the amount which he is required to
pay, he will then pay any remainder to the defendant Aw Yong Chiow Soo. The indorsement of Aw

Yong Chiow Soo of the notes to the plaintiff was unqualified, and the law fixes the liability of an
unqualified indorser, and oral testimony is not admisible to vary or contradict the terms of a written
instrument.
Aw Yong Chiow Soo, being an unqualified indorser, the law fixes its liability.
If it was not its purpose or intent to assume and agree to pay the notes, it should have indorsed them
"without recourse," or in such a manner as to discliam any personal liability. When a person makes
an unqualified indorsement of a promissory note, the Negotiable Instruments Law specifies and
defines his liability, and parol testimony is not admissible to explain or defeat such liability. Here, the
bill of exchange was drawn by the defendant, Aw Yong Chiow Soo, and it was the bill of exchange
which was indorsed by the plaintiff, and the testimony is conclusive taht plaintiff's indorsement was
required by the bank as one of the conditions upon which it would cash the draft. Three of the notes
had matured at the time they were indorsed and the written instruments signed. Although the draft
was drawn by Aw Yong Chiow Soo, it was dishonored, and the plaintiff was required by the bank to
execute his note for its amount. At the time of the execution of the notes, Aw Yong Chiow Soo was a
creditor of Tan Liuan and Co. for the amount of the notes.
The action here is not based upon the draft. It is founded upon the promissory notes. The plaintiff did
not receive any part of the proceeds of the draft, but has been required by the bank to make his
promissory note for the amount of the draft. As collateral and to indemnify and protect plaintiff from
any liability, Aw Yong Chiow Soo indorsed the promissory notes, which it held against Tan Liuan and
Co. to the plaintiff and did not in any manner qualify its indorsement,
Three of the notes were past due at the time the written agreements were made, and the testimony
is conclusive that Tan Liuan and Co. was insolvent, and that Aw Yong Chiow Soo knew it, and that
none of the notes would be paid if presented, and the evidence shows that, before they were
indorsed, the first two had been duly presented and dishonored. In other words, at the time the
unqualified indorsement was made, two of the notes had been protested, and Aw Yong Chiow Soo
knew that Tan Liuan and Co. was insolvent, and had no reason to expect that the notes would be
paid if presented. There is no claim or pretense that its claim was prejudiced or that it lost any legal
right, because the last two notes were not protested, the first of which was past due when it was
indorsed.
Decision of lower court affirmed.

PHILIPPINE NATIONAL BANK vs. BENITO SEETO

Sec. 84

FACTS: Respondent Benito Seeto called at the branch of the Philippine National Bank, petitioner herein, and
presented a check, in the amount of P5,000 payable to cash or bearer, and drawn by one Gan Yek Kiao against the
Cebu branch of the Philippine National Bank of Communications. After consultation with the employees of the
branch, Seeto made a general and unqualified indorsement of the check, and petitioner's agency accepted it and
paid respondent the amount of P5,000 therefor. The check was mailed to petitioner's Cebu branch on March 20,
1948, and was presented to the drawee bank for payment on April 9, 1948, but the check was dishonored for
"insufficient funds." PNB immediately sent a letter to the respondent herein demanding immediate refund of in the
value of the check. Respondent refused to make the refund demanded, claiming that at the time of the negotiation of
the check the drawer had sufficient funds in the drawee bank, and that the petitioner's Surigao agency not delayed to
forward the check until the drawer's funds were exhausted, the same would have been paid.
The trial court found notwithstanding respondent's denial to the contrary, that the respondent made an undertaking to
refund the amount of the checks in the event of dishonor and therefore, rendered judgment sentencing respondent to
refund the amount he had received for the check. On appeal to the Court of Appeals, this court held that petitioner
was guilty of unreasonably retaining and with-holding the check, and that the delay in the presentment for payment
was inexcusable, so that respondent was thereby discharged from liability. It, therefore, reversed the judgment of the
trial court and dismissed the complaint, with costs.
ISSUE: W/N Court of Appeals erred in applying sections 143 and 144 of the Negotiable Instruments Law and
declaring respondent Benito Seeto discharged of his liability as indorser of the check, and in not admitting parol
evidence to show that respondent made oral assurances to refund the value of the check in case of dishonor.
HELD: NO We have been unable to find any authority sustaining the proposition that an indorser of a check is not
discharged from liability for an unreasonable delay in presentation for payment. This is contrary to the essential
nature and character of negotiable instruments their negotiability. They are supposed to be passed on with
promptness in the ordinary course of business transactions; not to be retained or kept for such time as the holder
may want, otherwise the smooth flow of commercial transactions would be hindered.
The check was drawn payable elsewhere than at the place of business of the drawer, it must be presented for
acceptance or negotiable within a reasonable time, and upon failure to do so the drawer and all indorsers thereof are
discharged pursuant to Section 144 of the law. Against this insinuation the petitioner argues that the application of
sections 143 and 144 is not proper, and that it may not be presumed that the check in question was not drawn and
executed in Cebu, the residence or place of business of the drawer. There is no evidence at all as to the place where
the check was drawn. However, we have already pointed out above that neither Section 143 nor Section 144 is
applicable. But our ruling that respondent was discharged upon the dishonor of the check is based on Sections 84
and 186, the latter expressly requiring that a check must be presented for payment within a reasonable time after
issue. The petitioner concedes the correctness of this conclusion, although for purposes of argument merely. We find
that the conclusion is correct. The fact, admitted by the witnesses for the petitioner, the checks for the drawer issued
subsequent to March 13, 1948, drawn against the same bank and cashed at the same Surigao agency, were not
dishonored positively shows that the drawer had enough funds when he issued the check in question, and that had it
not been for the unreasonable delay in its presentation for payment, the petitioner herein would have been able to
receive payment therefor.
We find, however, that the supposed assurances of refund in case of dishonor of the check are precisely the ordinary
obligations of an indorser, and these obligations are, under the law, considered discharged by an unreasonable delay
in the presentation of the check for payment.
There was no express obligation assumed by the respondent herein that the drawer would always have funds, or that
he (the indorser) would refund the amount of the check even if there was delay in its presentation, so that while the
Court of Appeals may have committed an error in disregarding the evidence submitted by petitioner at the trial of the
assurances made by respondent herein at the time of the negotiation of the check, such error was without prejudice,
because the supposed assurances given were part of his obligations as an indorser, which were discharged by the
unreasonable delay in the presentation of the check for payment.