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Cases in Negotiable Instruments (Atty. Carlo Busmente) 1) Philippine Education Co. v. Soriano Issue: Whether the postal money order is a negotiable instrument HELD: Philippine postal statutes were patterned after similar statutes in force in the United States. For this reason, Philippine postal statutes are generally construed in accordance with the construction given in the United States to their own postal statutes, in the absence of any special reason justifying a departure from this policy or practice. The weight of authority in the United Status is that postal money orders are not negotiable instruments, the reason behind this rule being that, in establishing and operating a postal money order system, the government is not engaging in commercial transactions but merely exercises a governmental power for the public benefit. Some of the restrictions imposed upon money orders by postal laws and regulations are inconsistent with the character of negotiable instruments. For instance, such laws and regulations usually provide for not more than one endorsement; payment of money orders may be withheld under a variety of circumstances 2) Caltex Philippines Inc. v. Court of Appeals Issue [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 courts 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. 3) Metropolitan Bank v. Court of Appeals Issue: Whether the treasury warrants in question are negotiable instruments HELD: Clearly stamped on the treasury warrants' face is the word "non-negotiable." Moreover, and this is of equal significance, it is indicated that they are payable from a particular fund, to wit, Fund 501. No conformity with Section 1 of NIL. The indication of Fund 501 as the source of the payment to be made on the treasury warrants makes the order or promise to pay "not unconditional" and the warrants themselves non-negotiable. 4) Sesbreno v. Court of appeals HELD: A non-negotiable instrument may not be negotiated but may be assigned or transferred, absent an express prohibition against assignment or transfer written on the face of the instrument. The legal consequences of negotiation, as distinguished from assignment of a negotiable instrument, are different. "The words 'not negotiable,' stamped on the face of the bill of lading, did not destroy its assignability, but the sole effect was to exempt the bill from the statutory provisions relative thereto, and a bill, though not negotiable, may be transferred by assignment; the assignee taking subject to the equities between the original parties." 5) Firestone Tire & Rubber Co. v. Court of Appeals HELD: It bears stressing that Citibank could not have missed the non-negotiable nature of the withdrawal slips. 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. A bank is under obligation to treat the accounts of its depositors with meticulous care, whether such account consists only


of a few hundred pesos or of millions of pesos. The fact that the other withdrawal slips were honored and paid by respondent bank was no license for Citibank to presume that subsequent slips would be honored and paid immediately. By doing so, it failed in its fiduciary duty to treat the accounts of its clients with the highest degree of care. The withdrawal slips deposited with petitioners current account with Citibank were not checks, as petitioner admits. Citibank was not bound to accept the withdrawal slips as a valid mode of deposit. But having erroneously accepted them as such, Citibank and petitioner as account-holder must bear the risks attendant to the acceptance of these instruments. Petitioner and Citibank could not now shift the risk and hold private respondent liable for their admitted mistake. 6) Ang Tek Lian v. Court of Appeals HELD: Under Section 9 (d), a check drawn payable to the order of cash is a check payable to bearer, and a bank may pay it to the person presenting it for payment without the drawers indorsement. 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." be intended to give effect to the instrument. Herein, the two (2) China Bank checks, numbered 384934 and 384935, 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 corespondents, if the allegations in the complaint are found to be true. 8) Francisco v. CA ISSUE: W/N Francisco acted as an agent of Ong in signing the checks. HELD: Petitioner's alternative defense must similarly fail. 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. Even assuming that Francisco was authorized by HCCC to sign Ong's name, still, Francisco did not indorse the instrument in accordance with law. Instead of signing Ong's name, Francisco should have signed her own name and expressly indicated that she was signing as an agent of HCCC. Thus, the Certification cannot be used by Francisco to validate her act of forger. 9) PBC v. Aruego HELD: S e c t i o n 20 of the Negotiable Instruments Law provides that "Where the instrument contains or a person adds to his s ignature words indicating that he

7) DBP v. Simawei 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: 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


s ig ns for or on behalf of a principal or in a repres entative capacity, he is not liable on the instrument if he was duly authorized; but the mere addition of words des cribing him as an agent or as filing a representative character, without disclos ing his principal, does not exempt him from pers onal liability. Aruego is pers onally liable because nowhere in the draft did he disclose that he was s ig ning as a repres entative of the Phil Education Foundation. Neither did he disclose his principal. As an accommodation party, Arueg o is liable on the instrument to a holder for value, notwithstanding such holder, at the time of the taking of the instrument knew him to be only an accommodation party. Aruego s ig ned as a drawee/acceptor. As drawee, he is primarily liable for the drafts. The contention that the drafts are not bills of exchange but mere pieces of evidence of indebtedness because they were payments were made before acceptance is untenable. As long as a commercial paper conforms with the definition of a bill of exchange, that paper is considered a bill of exchange. The nature of acceptance is determinative of liabilities of the parties but not of the character of a commercial paper. 10) Samsung Construction Company v. Far East Bank and Trust Company [G.R. No 129015, 13 August 2004] HELD: Still, even if the bank performed with utmost diligence, the drawer whose signature was forged may still recover from the bank as long as he or she is not precluded from setting up the defense of forgery. After all, Section 23 of the Negotiable Instruments Law plainly states that no right to enforce the payment of a check can arise out of a forged signature. Since the drawer, Samsung Construction, is not precluded by negligence from setting up the forgery, the general rule should apply. Consequently, if a bank pays a forged check, it must be considered as paying out of its funds and cannot charge the amount so paid to the account of the depositor. A bank is liable, irrespective of its good faith, in paying a forged check. 11) Ilusorio v. Court of Appeals [G.R. No. 139130, 27 November 2002] HELD: Petitioners failure to examine his bank statements appears as the proximate cause of his own damage. Proximate cause is that cause, which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury, and without which the result would not have occurred. In the instant case, the bank was not shown to be remiss in its duty of sending monthly bank statements to petitioner so that any error or discrepancy in the entries therein could be brought to the banks attention at the earliest opportunity. But, petitioner failed to examine these bank statements not because he was prevented by some cause in not doing so, but because he did not pay sufficient attention to the matter. Had he done so, he could have been alerted to any anomaly committed against him. 12) Philippine Commercial International Bank v. Court of Appeals [G.R. No. 121413, 29 January 2001] HELD: Accordingly, we need to determine whether or not the action of Godofredo Rivera, Fords General Ledger Accountant, and/or Alexis Marindo, his assistant, was the proximate cause of the loss or damage. As defined, proximate cause is that which, in the natural and continuous sequence, unbroken by any efficient, intervening cause produces the injury, and without which the result would not have occurred. It appears that although the employees of Ford initiated the transactions attributable to an organized syndicate, in our view, their actions were not the proximate cause of encashing the checks payable to the CIR. The degree of Fords negligence, if any, could not be characterized as the proximate cause of the injury to the parties. The Board of Directors of Ford, we note, did not confirm the request of Godofredo Rivera to recall Citibank Check No. SN-04867. Riveras instruction to replace the said check with PCIBanks Managers Check was not in the ordinary course of business which could have prompted PCIBank to


validate the same. As to the preparation of Citibank Checks Nos. SN-10597 and 16508, it was established that these checks were made payable to the CIR. Both were crossed checks. These checks were apparently turned around by Fords employees, who were acting on their own personal capacity. Given these circumstances, the mere fact that the forgery was committed by a drawerpayors confidential employee or agent, who by virtue of his position had unusual facilities for perpetrating the fraud and imposing the forged paper upon the bank, does not entitle the bank to shift the loss to the drawer-payor, in the absence of some circumstance raising estoppel against the drawer. This rule likewise applies to the checks fraudulently negotiated or diverted by the confidential employees who hold them in their possession. Thus, invoking the doctrine of comparative negligence, we are of the view that both PCIBank and Citibank failed in their respective obligations and both were negligent in the selection and supervision of their employees resulting in the encashment of Citibank Check Nos. SN-10597 and 16508. Thus, we are constrained to hold them equally liable for the loss of the proceeds of said checks issued by Ford in favor of the CIR. 14) Associated Bank v. Court of Appeals [G.R. No. 107382, 31 January 1996] HELD: In cases involving checks with forged indorsements, such as the present petition, the chain of liability does not end with the drawee bank. The drawee bank may not debit the account of the drawer but may generally pass liability back through the collection chain to the party who took from the forger and, of course, to the forger himself, if available. In other words, the drawee bank can seek reimbursement or a return of the amount it paid from the presentor bank or person. Theoretically, the latter can demand reimbursement from the person who indorsed the check to it and so on. The loss falls on the party who took the check from the forger, or on the forger himself. More importantly, by reason of the statutory warranty of a general indorser in Section 66 of the Negotiable Instruments Law, a collecting bank which indorses a check bearing a forged indorsement and presents it to the drawee bank guarantees all prior indorsements, including the forged indorsement. It warrants that the instrument is genuine, and that it is valid and subsisting at the time of his indorsement. Because the indorsement is a forgery, the collecting bank commits a breach of this warranty and will be accountable to the drawee bank. The drawee bank is not similarly situated as the collecting bank because the former makes no warranty as to the genuineness of any indorsement. The drawee banks duty is but to verify the genuineness of the drawers signature and not of the indorsement because the drawer is its client. The rule mandates that the checks be returned within twenty-four hours after discovery of the forgery but in no event beyond the period fixed by law for filing a legal action. The rationale of the rule is to give the collecting bank (which indorsed the check) adequate opportunity to proceed against the forger. If prompt notice is not given, the collecting bank may be prejudiced and lose the opportunity to go after its depositor.

13) Republic Bank v. Court of Appeals [G.R. No. 42725, 22 April 1991] HELD: The 24-hour clearing house rule is a valid rule applicable to commercial banks (Republic vs. Equitable Banking Corporation, 10 SCRA 8 [1964]; Metropolitan Bank & Trust Co. vs. First National City Bank, 118 SCRA 537). It is true that when an endorsement is forged, the collecting bank or last endorser, as a general rule, bears the loss (Banco de Oro Savings & Mortgage Bank vs. Equitable Banking Corp., 157 SCRA 188). But the unqualified endorsement of the collecting bank on the check should be read together with the 24-hour regulation on clearing house operation (Metropolitan Bank & Trust Co. vs. First National City Bank, supra). Thus, when the drawee bank fails to return a forged or altered check to the collecting bank within the 24-hour clearing period, the collecting bank is absolved from liability.

15) Gempesaw v. Court of Appeals [G.R. No. 92244, 09 February 1993]


HELD: Gempesaw relied implicitly upon the honesty and loyalty of her bookkeeper, and did not even verify the accuracy of the amounts of the checks she signed against the invoices attached thereto. Although she regularly received her bank statements, she apparently did not carefully examine the same nor the check stubs and the returned checks, and did not compare them with the sales invoices. Otherwise, she could have easily discovered the discrepancies between the checks and the documents serving as bases for the checks. With such discovery, the subsequent forgeries would not have been accomplished. It was not until 2 years after the bookkeeper commenced her fraudulent scheme that Gempesaw discovered that 82 checks were wrongfully charged to her account, at which time she notified PBCom. Gempesaw's failure to make such adequate inquiry constituted negligence which resulted in the bank's honoring of the subsequent checks with forged indorsements. Gempesaw's negligence was the proximate cause of her loss. And since it was her negligence which caused PBCom to honor the forged checks or prevented it from recovering the amount it had already paid on the checks, Gempesaw cannot now complain should the bank refuse to recredit her account with the amount of such checks. Under Section 23 of the NIL, she is now precluded from using the forgery to prevent the bank's debiting of her account. 16) Metropolitan Waterworks and Sewerage System v. Court of Appeals [No. L-62943, 14 July 1986] HELD: We cannot fault the respondent drawee Bank for not having detected the fraudulent encashment of the checks because the printing of the petitioners personalized checks was not done under the supervision and control of the Bank. There is no evidence on record indicating that because of this private printing, the petitioner furnished the respondent Bank with samples of checks, pens, and inks or took other precautionary measures with the PNB to safeguard its interests. Under the circumstances, therefore, the petitioner was in a better position to detect and prevent the fraudulent encashment of its checks. HELD: It can be safely concluded that it is only the negotiation predicated on the forged indorsement that should be declared inoperative. This means that the negotiation of the check in question from Martin Lorenzo, the original payee, to Ramon R. Lorenzo the second indorser, should be declared of no effect, but the negotiation of the aforementioned check from Ramon R. Lorenzo to Adeliada Dominguez, the third indorser, and from Adelaida Dominguez to the defendant-appellant who did not know of the forgery, should be considered valid and enforceable, barring any claim of forgery.

18) Jai-Alai Corporation of the Philippines v. Bank of Philippine Islands [No. L-29432, 06 August 1975] HELD: The petitioner was, moreover, grossly recreant in accepting the checks in questions from Ramirez. It could not have escaped the attention of the petitioner that the payee of all the checks was a corporationthe InterIsland Gas Service, Inc. Yet, the petitioner cashed these checks, to a mere individual who was admittedly a habitue at its jai-alai games without making any inquiry as to his authority to exchange checks belonging to the payee-corporation. x x x Any person taking checks made payable to a corporation, which can act only by agents, does so at his peril, and must abide by the consequences if the agent who indorses the same is without authority. It must be noted further that three of the checks in question are crossed checks, namely, exhs. 21, 25 and 27, which may only be deposited, but not encashed; yet, petitioner negligently accepted them for cash. That two of the crossed checks, namely, exhs. 21 and 25, are bearer instruments would not, in our view, exculpate the petitioner from liability with respect to them. The fact that they are bearer checks and at the same time crossed checks should have aroused the petitioners suspicion as to the title of Ramirez over them and his authority to cash them (apparently to purchase jai-alai tickets from the petitioner), it appearing on their face that a corporate entitythe Inter-Island Gas Service, Inc.was the payee thereof.

17) Republic Bank v. Ebrada [No. L-40796, 31 July 1975]

19) Banco de Oro Savings and Mortgage Bank v. Equitable Banking Corporation [No. L-74917, 20 January 1988]


HELD: The petitioner by its own acts and representation can not now deny liability because it assumed the liabilities of an endorser by stamping its guarantee at the back of the checks. The petitioner having stamped its guarantee of all prior endorsements and/or lack of endorsements (Exh. A-3 to F-2) is now estopped from claiming that the checks under consideration are not negotiable instruments. The checks were accepted for deposit by the petitioner stamping thereon its guarantee, in order that it can clear the said checks with the respondent bank. By such deliberate and positive attitude of the petitioner it has for all legal intents and purposes treated the said checks as negotiable instruments and accordingly assumed the warranty of the endorser when it stamped its guarantee of prior endorsements at the back of the checks. It led the said respondent to believe that it was acting as endorser of the checks and on the strength of this guarantee said respondent cleared the checks in question and credited the account of the petitioner. Petitioner is now barred from taking an opposite posture by claiming that the disputed checks are not negotiable instrument. This Court enunciated in Philippine National Bank vs. Court of Appeals, a point relevant to the issue when it statedthe doctrine of estoppel is based upon the grounds of public policy, fair dealing, good faith and justice and its purpose is to forbid one to speak against his own act, representations or commitments to the injury of one to whom they were directed and who reasonably relied thereon. HELD: The aforequoted provision of the Negotiable Instruments Law which holds an accommodation party liable on the instrument to a holder for value, although such holder at the time of taking the instrument knew him to be only an accommodation party, does not include nor apply to corporations which are accommodation parties. This is because the issue or indorsement of negotiable paper by a corporation without consideration and for the accommodation of another is ultra vires. Hence, one who has taken the instrument with knowledge of the accommodation nature thereof cannot recover against a corporation where it is only an accommodation party. If the form of the instrument, or the nature of the transaction, is such as to charge the indorsee with knowledge that the issue or indorsement of the instrument by the corporation is for the accommodation of another, he cannot recover against the corporation thereon.

22) Stelco Marketing Corporation v. Court of Appeals [G.R. No. 96160, 17 June 1992]

20) Intestate Estate of Sevilla v. Sevilla [No. L17845, 27 April 1967] HELD: Where a solidary accommodation maker paid to the bank the balance due on a promissory note, he may seek contribution from the other solidary accommodation maker, in the absence of a contrary agreement between them. This right springs from an implied promise between the accommodation makers to share equally the burdens resulting from their execution of the note. They are joint guarantors of the principal debtors. 21) Crisologo-Jose v. Court of Appeals [ G.R. No. 80599, 15 September 1989]

HELD: The record does show that after the check had been deposited and dishonored, STELCO came into possession of it in some way, and was able, several years after the dishonor of the check, to give it in evidence at the trial of the civil case it had instituted against the drawers of the check (Limson and Torres) and RYL. But, as already pointed out, possession of a negotiable instrument after presentment and dishonor, or payment, is utterly inconsequential; it does not make the possessor a holder for value within the meaning of the law; it gives rise to no liability on the part of the maker or drawer and indorsers. It is clear from the relevant circumstances that STELCO cannot be deemed a holder of the check for value. It does not meet two of the essential requisites prescribed by the statute. It did not become the holder of it before it was overdue, and without notice that it had been previously dishonored, and it did not take the check in good faith and for value.


23) Travel-on, Inc. v. Court of Appeals [G.R. No. 56169, 26 June 1992] HELD: Travel-On was entitled to the benefit of the statutory presumption that it was a holder in due course, that the checks were supported by valuable consideration. Private respondent maker of the checks did not successfully rebut these presumptions. The only evidence aliunde that private respondent offered was his own self-serving uncorroborated testimony. He claimed that he had issued the checks to Travel-On as payee to accommodate its General Manager who allegedly wished to show those checks to the Board of Directors of Travel-On to prove that Travel-Ons account receivables were somehow still good. It will be seen that this claim was in fact a claim that the checks were merely simulated, that private respondent did not intend to bind himself thereon. Only evidence of the clearest and most convincing kind will suffice for that purpose; no such evidence was submitted by private respondent. The latters explanation was denied by Travel-Ons General Manager; that explanation, in any case, appears merely contrived and quite hollow to us. Upon the other hand, the accommodation or assistance extended to TravelOns passengers abroad as testified by petitioners General Manager involved, not the accommodation transactions recognized by the NIL, but rather the circumvention of then existing foreign exchange regulations by passengers booked by Travel-On, which incidentally involved receipt of full consideration by private respondent. clear from Rule No. 6 set out by petitioner so that, for the protection of the banks interest and as a reminder to the depositor, the withdrawal shall be entered in the depositors passbook. The fact that private respondents passbook was not presented during the withdrawal is evidenced by the entries therein showing that the last transaction that he made with the bank was on September 3, 1984, the date he deposited the controversial check in the amount of $2,500.00. 25) Agro Conglomerates, Inc. v. Court of Appeals [G.R. No. 117660, 18 December 2000] HELD: By this time, we note a subsidiary contract of suretyship had taken effect since petitioners signed the promissory notes as maker and accommodation party for the benefit of Wonderland. Petitioners became liable as accommodation party. An accommodation party is a person who has signed the instrument as maker, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person and is liable on the instrument to a holder for value, notwithstanding such holder at the time of taking the instrument knew (the signatory) to be an accommodation party. He has the right, after paying the holder, to obtain reimbursement from the party accommodated, since the relation between them has in effect become one of principal and surety, the accommodation party being the surety. Suretyship is defined as the relation which exists where one person has undertaken an obligation and another person is also under the obligation or other duty to the obligee, who is entitled to but one performance, and as between the two who are bound, one rather than the other should perform. The suretys liability to the creditor or promisee of the principal is said to be direct, primary and absolute; in other words, he is directly and equally bound with the principal. And the creditor may proceed against any one of the solidary debtors.

24) Bank of the Philippine Islands v. Court of Appeals [G.R. No. 112392, 29 February 2000] HELD: Bank was negligent. The withdrawal slip contains a boxed warning that states: This receipt must be signed and presented with the corresponding foreign currency savings passbook by the depositor in person. For withdrawals thru a representative, depositor should accomplish the authority at the back. The requirement of presentation of the passbook when withdrawing an amount cannot be given mere lip service even though the person making the withdrawal is authorized by the depositor to do so. This is