NEGOTIABLE INSTRUMENTS LAW DIGESTS
JIMENEZ v. BUCOY Golden Savings of the amount it had previously withdrawn,
103 PHIL 40
FACTS:
In the proceedings in the intestate of Luther Young
and Pacita Young who died in 1954 and 1952, respectively,
Pacifica Jimenez presented for payment 4 promissory notes
signed by Pacita for different amounts totalling P21,000.
Acknowledging receipt by Pacita during the Japanese
occupation, in the currency then prevailing, the
Administrator manifested willingness to pay provided
adjustment of the sums be made in line with the Ballantyne
schedule. The claimant objected to the adjustment insisting
on full payment in accordance with the notes. The
Administrator also raised the the defense that the notes
contained no express promise to pay a specified amount.The
court held that the notes should be paid in the currency
prevailing after the war, and thus entitling Jimemez to
recover P21,000 plus P2,000 as attorney’s fees. Hence, the
appeal.
ISSUES:
(1) Whether the amounts should be paid, peso for peso;
or whether a reduction should be made in accordance
with the Ballantyne schedule.
(2) Whether the note contains a “promise to pay”.
HELD:
(1) If the loan was expressly agreed to be payable only
after the war, or after liberation, or became payable
after those dates, no reduction could be effected, and
peso-for-peso payment shall be ordered in Philippine
currency. The Ballantyne Conversion Table does not
apply where the monetary obligation, under the
contract, was not payable during the Japanese
occupation. Herein, the debtor undertook to pay “six
months after the war,” peso for peso payment is
indicated.
(2) Yes. To constitute a good promissory note, no
precise words of contract are necessary, provided they
amount, in legal effect, to a promise to pay. In other
words, if over and above the mere acknowledgment of
the debt there may be collected from the words used a
promise to pay it; the instrument may be regarded as a
promissory note.
Wherefore, in view of the foregoing considerations, the
appealed decision is affirmed, except as to the attorney's
fees which are hereby disapproved. So ordered.
METROPOLITAN BANK V. CA
194 SCRA 169
FACTS:
Eduardo Gomez opened an account with Golden
Savings bank and deposited 38 treasury warrants. All
these warrants were indorsed by Gloria Castillo as
Cashier of Golden Savings and deposited to its Savings
Account in the Metrobank branch in Calapan, Mindoro. They
were then sent for clearing by the branch office to the
principal office of Metrobank, which forwarded them to the
Bureau of Treasury for special clearing. On persistent
inquiries on whether the warrants have been cleared, the
branch manager allowed withdrawal of the warrants, only
to find out later on that the treasury warrants have
been dishonoured. Metrobank demanded the refund by
to make up the deficit in its account.
The demand was rejected. Metrobank then sued
Golden Savings in the Regional Trial Court of Mindoro. The
trial court rendered a decision in favour of the defendant.
The CA affirmed. Hence, this petition.
ISSUE:
Whether the treasury warrants are negotiable
instruments, therefore making Golden Savings Bank liable.
HELD:
The treasury warrants were not negotiable instrume
nts. Clearly, it is indicated that it was non-negotiable
and of equal significance is the indication that they are
payable from a particular fund, Fund 501. This
indication as the source of payment to be made on
the treasury warrant makes the promise to pay
conditional and the warrants themselves non-negotiable.
Metrobank then cannot contend that by indorsing
the warrants in general, GS assumed that they were genuine
and in all respects what they purport it to be, in accordance
to Section 66 of the NIL. The simple reason is that the law
isn’t applicable to the non-negotiable treasury
warrants. The indorsement was made for the purpose
of merely depositing them with Metrobank for clearing.
It was in fact Metrobank which stamped on the back of
the warrants: “All prior indorsements and/or lack of
endorsements guaranteed…”
PHILIPPINE EDUCATION INC v. SORIANO
39 SCRA 587
FACTS:
Enrique Montinola sought to purchase from the
Manila Post Office 10 money orders (P200 each), offering to
pay for them with a private check. Montinola was able to
leave the building with his check and the 10 money orders
without the knowledge of the teller. Upon discovery,
message was sent to all postmasters and banks involving
the unpaid money orders. One of the money orders was
received by the Philippine Education Co. as part of its sales
receipt. It was deposited by the company with the Bank of
America, which cleared it with the Bureau of Post. The
Postmaster, through the Chief of the Money Order Division of
the Manila Post Office informed the bank of the irregular
issuance of the money order. The bank debited the account
of the company. The company moved for reconsideration.
ISSUE:
Whether postal money orders are negotiable
instruments.
HELD:
Philippine postal statutes are patterned from those
of the United States, and the weight of authority in said
country is that Postal money orders are not negotiable
instruments inasmuch as the establishment of a postal
money order is an exercise of governmental power for the
public’s benefit. Furthermore, some of the restrictions
imposed upon money order by postal laws and regulations
are inconsistent with the character of negotiable
instruments. For instance, postal money orders may be
withheld under a variety of circumstances, and which are
restricted to not more than one indorsement.
EQUITABLE BANKING V. IAC
161 SCRA 518
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NEGOTIABLE INSTRUMENTS LAW DIGESTS
FACTS:
Nell Company issued a check to help Casals and
Casville Enterprises obtain a letter of credit from
Equitable Banking in connection with equipment, a
garrett skidder, which Casals and Casville were buying
from Nell. Nell indicated the payee as follows
“EQUITABLE BANKING CORPORATION A/C CASVILLE
ENTERPRISES INC.”
Casals deposited the check with the bank and the
bank teller accepted the same and in accordance with
customary bank practice, stamped in the check the
words “non-negotiable”. The amount was withdrawn
after the deposit.
This prompted Nell to file a case against the
bank, Casals and Casville. While the instant case was
being tried, Casals and Casville assigned the garrett
skidder to plaintiff which credited in favor of defendants the
amount of P450,000, as partial satisfaction of its claim
against them.
HELD:
Equitable is not liable to Nell. Nell should bear the
loss as it was through its own acts, which put it into the
power of Casals and Casville Enterprises to perpetuate the
fraud against it.
The check wasn’t initially non-negotiable.
Neither was it cross-checked. The rubber-stamping
transversally on the face of the check was only made the
bank teller in accordance with customary bank practice, and
not by Nell as the drawer of the check, and simply
meant that thereafter the same check could no longer be
negotiated.
The payee was not indicated with reasonable
certainty in contravention of Section 8. As worded, it could
be accepted as deposit to the account of the party named
therein after the symbols of A/C, or payable to the bank as
trustee, or as an agent, for Casville with the latter
being the ultimate beneficiary.
CALTEX v. CA
212 SCRA 489
FACTS:
On various dates, Security Bank and Trust Co.
(SEBTC), through its Sucat branch, issued 280 certificates of
time deposit (CTD) in favor of one Angel dela Cruz who
deposited with the bank the aggregate amount of P1.12
million. Anger de la Cruz delivered the CTDs to Caltex in
connection with his purchase of fuel products from the
latter. Subsequently, dela Cruz informed the bank that he
lost all the CTDs, and thus executed an affidavit of loss to
facilitate the issuance of the replacement CTDs. De la Cruz
was able to obtain a loan of P875,000 from the bank, and in
turn, he executed a notarized Deed of Assignment of Time
Deposit in favor of the bank. Thereafter, Caltex presented
for verification the CTDs (which were declared lost by de la
Cruz) with the bank. Caltex formally informed the bank of its
possession of the CTDs and its decision to preterminate the
same. The bank rejected Caltex’ claim and demand, after
Caltex failed to furnish copy of the requested documents
evidencing the guarantee agreement, etc. In 1983, de la
Cruz’ loan matured and the bank set-off and applied the
time deposits as payment for the loan. Caltex filed the
complaint, but it was dismissed.
(1) Whether the Certificates of Time Deposit (CTDs)
are negotiable instruments.
(2) Whether the CTDs’ negotiation require delivery
only.
HELD:
(1) The CTDs in question meet the requirements of the
law for negotiability. Contrary to the lower court’s
findings, the CTDs are negotiable instruments (Section
1). Negotiability or non-negotiability of an instrument is
determined from the writing, i.e. from the face of the
instrument itself. 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.
(2) Although the CTDs are bearer instruments, a valid
negotiation thereof for the true purpose and agreement
between it (Caltex) and de la Cruz requires both delivery
and indorsement; as the CTDs were delivered to it as
security for dela Cruz’ purchases of its fuel products,
and not for payment. Herein, there was no negotiation
in the sense of a transfer of title, or legal title, to the
CTDs in which situation mere delivery of the bearer
CTDs would have sufficed. The delivery thereof as
security for the fuel purchases at most constitutes
Caltex as a holder for value by reason of his lien.
Accordingly, a negotiation for such purpose cannot be
effected by mere delivery of the instrument since the
terms thereof and the subsequent disposition of such
security, in the event of non-payment of the principal
obligation, must be contractually provided for.
MUELLER & MARTIN v. LIBERTY INSURANCE
219 SW 465
FACTS:
The corporation Mueller & Martin was defrauded by
George L. Martin, one of its authorized signatories. Martin
drew seven checks payable to the German Savings Fund
Company Building Association (GSFCBA) amounting to
$2,972.50 against the account of the corporation without
authority from the latter. Martin was also an officer of the
GSFCBA but did not have signing authority. At the back of
the checks, Martin placed the rubber stamp of the GSFCBA
and signed his own name as endorsement. He then
successfully drew the funds from Liberty Insurance Bank for
his own personal profit. When the corporation filed an
action against the bank to recover the amount of the
checks, the claim was denied.
ISSUE:
Whether the Bank is liable even if there was a
fictitious payee.
HELD:
The US Supreme Court held in Mueller that when
the person making the check so payable did not intend for
the specified payee to have any part in the transactions, the
payee is considered as a fictitious payee. The check is then
considered as a bearer instrument to be validly negotiated
by mere delivery. Thus, the US Supreme Court held that
Liberty Insurance Bank, as drawee, was authorized to make
payment to the bearer of the check, regardless of whether
prior indorsements were genuine or not.
AMERICAN SASH v COMMERCE TRUST
56 SW 2D 1034
FACTS:
The plaintiff-appellant sues the defendant-respondent
trust company for $2226.30, the amount of fifty certain
payroll checks, which it is alleged the defendant wrongfully
charged to the plaintiff's deposit account during the three
months' period between September 15 and December 15,
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NEGOTIABLE INSTRUMENTS LAW DIGESTS
1922, the indorsements of the payees' names having been
forged on the backs of said checks, and the defendant trust
company having paid the amounts thereof to persons not
entitled thereto.
The defendant's answer was a general denial coupled
with a plea of the affirmative defense that at the end of each
of said three months it had returned to plaintiff all cancelled
checks paid during the month together with a statement of
the account showing all debits and credits, on which was
printed a notice or stipulation that if no errors were reported
in ten days the account would be considered correct. The
answer avers this constituted an account stated; that the
plaintiff negligently failed to discover and report the forged
indorsements or that the checks "were in any manner
incorrectly charged against the plaintiff's account," within
said ten days; and further failed to report said forged
indorsements within a reasonable time, as a result of which
the defendant trust company was deprived of an opportunity
to protect itself against loss.
ISSUE:
1) Whether the bank is liable for the
fraudulent payroll checks with fictitious payees
2) Whether the negligence of the
depositor is a valid defense.
HELD:
1) The word "person" used in Section 2638, Revised
Statutes 1929, means the maker of the paper; the
depositor not being bound by the guilty knowledge of its
payroll clerk, who caused the checks to be made out to
persons not entitled to the money, the intent of the
payroll clerk did not make such checks payable to
bearer.
Where a payroll clerk had no authority to execute
checks but fraudulently induced his principal to issue
checks to persons not entitled to them, the maker was
not bound by the guilty knowledge of the agent; the
padding of the payroll by the agent was not the
proximate cause of cashing of the checks.
Where checks were executed to persons not entitled
to them through fraudulent payroll list made out by the
depositor's payroll clerk, the fact that such clerk
delivered the checks payable to employees does not
constitute a part of the making of such checks, where
the payroll clerk had no authority to utter the checks nor
discretion as to whom they should be delivered.
2) Where the authorized officer of a corporation
draws a check in ignorance of the fact that the payee is
fictitious or nonexistent, and the check is put in
circulation by an employee acting outside the scope of
his authority, the statute, Section 2639, Revised
Statutes 1929, relating to checks payable to bearer does
not apply because the corporation would be without
actual or constructive knowledge of the fictitious status
of the payee.
Where a bank rendered monthly statements to its
depositors with the cancelled checks which had printed
thereon a request that the depositor "examine this
statement" and report any error, in an action by the
depositor for a balance due which the bank had paid out
on forged endorsements, negligence of the depositor in
failing to detect the forgery was an affirmative defense
which the facts in the record show was not supported by
the evidence.
The fact that the secretary and treasurer of the
depositor who signed checks, payable to persons not
entitled to them by reason of a padded payroll made by
the payroll clerk, and knew that one person named as
payee in a check was not entitled to the money, his
negligence in failing to note the name of such payee
was not a defense, where he signed payroll checks by
the hundred relying on the payroll information
presented to him by the payroll clerk.
ANG TEK LIAN V. CA
87 PHIL 383
FACTS:
Knowing he had insufficient funds, Ang Tek Lian issued a
check for P4000, payable to cash. This was given to
Lee Hua Hong in exchange for cash. Upon presentment
of the check, it was dishonoured for having insufficient
funds. It is argued that the check, being payable to cash,
wasn’t indorsed by the defendant, and thus, isn’t guilty of
the crime charged.
ISSUE:
Whether the bank is negligent when it failed to
ascertain the identity of the holder of the check.
HELD:
A check drawn to the order of “cash” is
payable to bearer, and the bank may pay it to the
person presenting it for payment without the drawer’s
indorsement. Of course, if the bank is not sure of the
bearer’s identity or financial solvency, it has the right to
demand for identification and/or assurance against
possible complications—for instance, forgery of the
drawer’s signature, loss of the check by the rightful
owner, raising the amount payable, etc. The bank
therefore, requires for its protection that the indorsement
of the drawer—or some other persons known to it—be
obtained. A check payable to bearer is authority for
payment to the holder. Where a check is in the ordinary
form and is payable to bearer so that no indorsement is
required, a bank to which it is presented for payment
need not have the holder identified, and is not negligent in
failing to do so.
CHING v. NICDAO
522 SCRA 310
FACTS:
Petitioner Ching averred that the checks were
issued to him by respondent Nicdao as security for the loans
that she obtained from him. They agreed that respondent
Nicdao would leave the checks undated and that she would
pay the loans within one year. However, when petitioner
Ching went to see her after the lapse of one year to ask for
payment, respondent Nicdao allegedly said that she had no
cash.
Petitioner Ching claimed that he went back to respondent
Nicdao several times more but every time, she would tell
him that she had no money. The checks were dishonored by
the bank for being "DAIF." Shortly thereafter, petitioner
Ching, together with Emma Nuguid, wrote a demand letter
to respondent Nicdao which, however, went unheeded.
Accordingly, they separately filed the criminal complaints for
violation of BP 22 against the latter.
The MCTC held that there was indeed a violation of
BP 22. The MCTC further ruled that there was no evidence to
show that petitioner Ching was not a holder in due course as
to cause it (the MCTC) to believe that the said check was not
issued to him. Respondent Nicdao’s admission of
indebtedness was sufficient to prove that there was
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NEGOTIABLE INSTRUMENTS LAW DIGESTS
consideration for the issuance of the checks. RTC affirmed.
Nicdao filed an appeal to the Court of Appeals.
CA reversed the decision and acquitted accused
upon finding that the checks were incomplete and
undelivered.
Ching is now appealing the civil aspect of the case
to the Supreme Court.
ISSUE:
Whether Nicdao is liable civilly, the checks being
incomplete and undelivered.
HELD:
The P20,000,000.00 check was a stolen check which
was never issued nor delivered by respondent Nicdao to
petitioner Ching. As such, according to the CA, petitioner
Ching "did not acquire any right or interest over Check No.
002524 and cannot assert any cause of action founded on
said check,"41 and that respondent Nicdao "has no obligation
to make good the stolen check and cannot, therefore, be
held liable for violation of B.P. Blg. 22."
With respect to the ten (10) other checks, the CA
established that the loans secured by these checks had
already been extinguished after full payment had been
made by respondent Nicdao. In this connection, the second
element for the crime under BP 22, i.e., "that the check is
made or drawn and issued to apply on account or for value,"
is not present.
WHEREFORE, premises considered, the Petition is
DENIED for lack of merit. SO ORDERED.
DBR v. SIMA WEI
219 SCRA 736
FACTS:
In consideration for a loan extended by the
Development Bank of Rizal (DBR) to Sima Wei, the latter
executed and delivered to the former a promissory note,
engaging to pay DBR or order the amount of P1,820,000.00
on or before 24 June 1983 with interest at 32% per annum.
Sima Wei made partial payments on the note, leaving a
balance of P1,032,450.02. On 18 November 1983, Sima Wei
issued two crossed checks payable to DBR drawn against
China Banking Corporation, bearing respectively the serial
numbers 384934, for the amount of P550,000.00 and
384935, for the amount of P500,000.00. The said checks
were allegedly issued in full settlement of the drawer's
account evidenced by the promissory note. These two
checks were not delivered to DBR or to any of its authorized
representatives. For reasons not shown, these checks came
into the possession of Lee Kian Huat, who deposited the
checks without DBR's indorsement (forged or otherwise) to
the account of the Asian Industrial Plastic Corporation, at the
Balintawak branch, Caloocan City, of the Producers Bank.
Cheng Uy, Branch Manager of the Balintawak Branch of
Producers Bank, relying on the assurance of Samson Tung,
President of Plastic Corporation, that the transaction was
legal and regular, instructed the cashier of Producers Bank
to accept the checks for deposit and to credit them to the
account of said Plastic Corporation, inspite of the fact that
the checks were crossed and payable to DBR and bore no
indorsement of the latter. On 5 July 1986, DBR filed the
complaint for a sum of money against Sima Wei and/or Lee
Kian Huat, Mary Cheng Uy, Samson Tung, Asian Industrial
Plastic Corporation and the Producers Bank of the
Philippines, on two causes of actionL (1) To enforce payment
of the balance of P1,032,450.02 on a promissory note
executed by Sima Wei on 9 June 1983; and (2) To enforce
payment of two checks executed by Sima Wei, payable to
DBR, and drawn against the China Banking Corporation, to
pay the balance due on the promissory note. Except for Lee
Kian Huat, Sima Wei, et al. filed their separate Motions to
Dismiss alleging a common ground that the complaint states
no cause of action. The trial court granted the Motions to
Dismiss. The Court of Appeals affirmed the decision, to
which DBR, represented by its Legal Liquidator, filed the
Petition for Review by Certiorari.
ISSUE:
Whether DBR, as the intended payee of the
instrument, has a cause of action against any or all of the
defendants, in the alternative or otherwise.
HELD:
The normal parties to a check are the drawer, the
payee and the drawee bank. Courts have long recognized
the business custom of using printed checks where blanks
are provided for the date of issuance, the name of the
payee, the amount payable and the drawer's signature. All
the drawer has to do when he wishes to issue a check is to
properly fill up the blanks and sign it. However, the mere
fact that he has done these does not give rise to any liability
on his part, until and unless the check is delivered to the
payee or his representative. A negotiable instrument, of
which a check is, is not only a written evidence of a contract
right but is also a species of property. Just as a deed to a
piece of land must be delivered in order to convey title to
the grantee, so must a negotiable instrument be delivered
to the payee in order to evidence its existence as a binding
contract. Section 16 of the Negotiable Instruments Law,
which governs checks, provides in part that "Every contract
on a negotiable instrument is incomplete and revocable until
delivery of the instrument for the purpose of giving effect
thereto." Thus, the payee of a negotiable instrument
acquires no interest with respect thereto until its delivery to
him. Delivery of an instrument means transfer of possession,
actual or constructive, from one person to another. Without
the initial delivery of the instrument from the drawer to the
payee, there can be no liability on the instrument. Moreover,
such delivery must be intended to give effect to the
instrument. Herein, the two (2) China Bank checks, were not
delivered to the payee, DBR. Without the delivery of said
checks to DBR, the former did not acquire any right or
interest therein and cannot therefore assert any cause of
action, founded on said checks, whether against the drawer
Sima Wei or against the Producers Bank or any of the other
respondents. Since DBR never received the checks on which
it based its action against said respondents, it never owned
them (the checks) nor did it acquire any interest therein.
Thus, anything which the respondents may have done with
respect to said checks could not have prejudiced DBR. It had
no right or interest in the checks which could have been
violated by said respondents. DBR has therefore no cause of
action against said respondents, in the alternative or
otherwise. If at all, it is Sima Wei, the drawer, who would
have a cause of action against her co-respondents, if the
allegations in the complaint are found to be true.
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