[ch5-A] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. Rogelio V.

Quevedo [Ch5-A]
CHAPTER V: LIABILITY OF PARTIES fuel and other related products from Petrophil banker agrees to pay checks drawn by the depositor
Corporation on a cash on delivery (COD) basis. Orders provided that said depositor has money in the hands of
1st NATL BANK OF CENTRAL CITY V UTTERBACK were made by telephone and payments were effected the bank. Hence, where the bank possesses funds of a
177 Ky. 76, 197 S.W. 534, L.R.A. 1918B, 838 (1917) by personal checks upon delivery. depositor, it is bound to honor his checks to the extent
~mini~ -The Morans maintained 3 joint accounts (1 current and of the amount of his deposits. The failure of a bank to
2 savings accounts). As a special privilege to the pay the check of a merchant or a trader, when the
FACTS Morans, as valued clients, the bank allowed them to deposit is sufficient, entitles the drawer to substantial
SUBJECT: negotiable promissory note maintain a zero balance in their current account. damages without any proof of actual damages.
PAYEE: Davis Coal Company Transfers from one of the savings account to the Conversely, a bank is not liable for its refusal to pay a
-(the only fact I could find) The payee in the note was current account could only be made with prior check on account of insufficient funds, notwithstanding
(probably) required to comply w/ one of 2 certain authorization, while transfers from the other savings the fact that a deposit may be made later in the day.
sections of Kentucky law before it was authorized to do account can be made be the bank automatically Before a bank depositor may maintain a suit to recover
business in the state. through a Pre-Authorized Transfer agreement or PAT. a specific amount from his bank, he must first show
-On 12 December 1983, the Morans, drew a check for that he had on deposit sufficient funds to meet his
ISSUE P50,576.00 payable to Petrophil Corporation. The next demand.
WON the failure of a payee in a negotiable promissory day, the Moran issued another check in the amount of -The available balance on 14 December 1983 was used
note to comply with sections 199b and 571, Kentucky P56,090.00. The totalling to P106,666.00. Petrophil by the bank in determining whether or not there was
Statutes (sorry Campos did not reproduce the statutes deposited the two checks to its account with the sufficient cash deposited to fund the two checks,
themselves but I think the content doesn’t matter) Pandacan branch of PNB, the collecting bank. In turn, although what was stamped on the dorsal side of the
without which it could not do business in the state, PNB presented them for clearing with the Philippine two checks in question was "DAIF/12-15-83," since 15
before the execution of the note, renders it Clearing House Corporation in the afternoon of the December 1983 was the actual date when the checks
uncollectible in the hands of an owner in due course. same day. The records show that on 14 Dec 1983, were processed. When the Morans' checks were
Moran’s Current Account had a zero balance, while dishonored due to insufficiency of funds, the available
HELD: NO Savings Account covered by the PAT had an available balance of Savings Account which was the subject of
-The Negotiable Instruments act (I think. In Kentucky balance of P26,104.30 and the other Savings Account the PAT agreement, was not enough to cover either of
statutes.) says in plain language that the maker of an had P43,268.39. the two checks. On 14 December 1983, when PNB,
instrument, by making it, admits the payee’s capacity -The following day, at around 10am, George Moran Pandacan branch presented the checks for collection,
to indorse it. went to the bank, as was his regular practice, to the available balance for Savings Account 1037001372
-The act does not say, however, that the maker admits personally oversee their daily transactions with the was only P26,104.30 while Current Account 37-0006-7
the payee’s capacity to make the contract for which the bank. He deposited money to the 2 savings account. He had no available balance. It was only on 15 December
note was executed, and hence he may have the right to then withdrew P40k from Savings Account A and 1983 at around 10:00 a.m. that the necessary funds
urge such defense against the original payee. BUT deposited the amount to the current account. P66,666 were deposited, which unfortunately was too late to
again, reiterate the point that the act DOES take from was also transferred from the other Savings Account to prevent the dishonor of the checks.
the maker the right to deny the capacity of the payee the current account through the PAT agreement. -The bank was also under no obligation to give notice
to indorse and negotiate the note free from defenses -Librada (wife) told George that Petrophil refused to before dishonoring checks drawn upon insufficient
available against the payee, even though, as between deliver their orders on a credit basis because the two funds. If ever the spouses Moran on previous occasions
the original parties, the note was void and checks were dishonored due to "insufficiency of funds. were given notices every time a check was presented
unenforceable for any reason. Non-delivery of gasoline forced Morans to temporarily for clearing and payment and there were no adequate
-It has been held in both Colorado and North Dakota stop business operations. In addition, Petrophil funds in their accounts, these were, at most, mere
that a note to a foreign corporation that he has not cancelled their credit accommodation. Furious and accommodations on the part of CityTrust. Legally, the
complied with the local law, without which it would not upset, George Moran demanded an explanation from bank had all the right to dishonor the checks because
do business in the state, is valid against the maker in the bank. He was told that Amy Belen Ragodo, the there were no sufficient funds to speak of in the first
the hands of a holder in due course. customer service officer, had committed a "grave place.
Disposition The judgment overruling the demurrer to error". The Morans filed a complaint for damages. -A drawer must remember his responsibilities every
the amended answer is reversed for proceedings time he issues a check. He must personally keep track
consistent herewith. ISSUE of his available balance in the bank and not rely on the
WON a bank is liable for its refusal to pay a check on bank to notify him of the necessity to fund certain
MORAN V CA, CityTrust Banking Corp. account of insufficient funds but wherein a deposit may checks he previously issued.A check, as distinguished
230 SCRA 799; GR 105836; Regalado; Mar 7, 1994 be made later in the day. from an ordinary bill of exchange, is supposed to be
~ajang~ drawn against a previous deposit of funds for it is
HELD: NO. ordinarily intended for immediate payment. In the
FACTS -The relationship between the bank and the depositor is present case, between the time of issuance of the
-Spouses George and Librada Moran are the owners of that of a debtor and creditor. By virtue of the contract checks on Dec 12 and 13 and presentment on Dec 14,
the Wack-Wack Petron. They regularly purchased bulk of deposit between the banker and its depositor, the
[ch5-B] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. Rogelio V. Quevedo [Ch5-B]
Morans had, at the very least, 24 hours to replenish from the damages recoverable for injury to business
their balance in the bank. reputation. WOODY V NATIONAL BANK OF ROCKY MOUNT
194 N.C. 549, 140 S.E. 150 (1927)
ARANETA V BANK OF AMERICA HELD ~joey~
No. L-25414 July 30, 1971; 40 SCRA 144 1. YES.
~ricky~ Ratio The financial credit of a businessman is a prized FACTS
and valuable asset, it being a significant part of the SUBJECT: check for $6
FACTS foundation of his business. Any adverse reflection DRAWER: Woody
DRAWER: Leopoldo Araneta. thereon constitutes some material loss to him. DRAWEE: Bank of Rocky Mount
DRAWEE: San Francisco main office of the Bank of Reasoning The Bank cites Art 2224 which provides PAYEE: E.L. Hollingworth
America that “temperate or moderate damages, which are more INDORSEE: Kingston Garage
SUBJECT 1: Check for $500 payable to cash. Dishonored than nominal but less that compensatory damages may -The check was dishonored and marked “No Account”
and stamped “Account Closed” despite sufficiency of be recovered when the court finds that some pecuniary by drawee bank although, at that time, drawer had on
drawer’s deposit balance. Upon inquiry, Bank loss has been suffered but its amount cannot, from the deposit $50. Drawer was arrested and tried on the
acknowledged error and sent a letter of apology to nature of the case, be proved with certainty,” and charge of having given a worthless check. He was
payee Harry Gregory of Hongkong and requesting that contends that Araneta failed to show such loss in this acquitted.
no adverse reflection be made on drawer. Matter case which the CA upheld. The question is WON there is -This action for compensatory and punitive damages
considered closed. However, similar events occurred reason to conclude that Araneta did sustain some alleges that drawee’s act was willful, negligent, wanton
later. pecuniary loss although no sufficient proof of the and malicious. Demurrer sustained in TC.
SUBJECT 2: Check for $500 payable to cash drawn amount has been adduced.
against the same bank. Stamped “Account Closed” and -From the nature of some cases, (citing the Code ISSUE
returned to clearing bank despite sufficiency of Commission) definite proof of pecuniary loss cannot be WON drawer may recover compensatory and punitive
drawer’s deposit balance. offered although the court is convinced that there has damages from drawee
SUBSEQUENT INDORSEMENT: To Rufina Saldaña who been such loss. For instance, injury to one’s commercial
deposited it to her account with First National City Bank credit or to the goodwill of a business firm is often hard HELD: YES
of New York which in turn cleared it through the Federal to show with certainty in terms of money. The judge -Upon the refusal or failure of the bank to pay the
Reserve Bank. It was actually paid by the drawee to should be allowed to calculate moderate damages in check of its depositor, the bank is liable for a breach of
First National City Bank but later claimed it was such cases, rather than the plaintiff should suffer, its contract. The depositor may recover of the bank the
inadvertently made and requested the amount be without redress from the defendant’s wrongful act. amount of his check, with interest and cost; the action
credited back. First National in turn wrote Saldaña but -Araneta is a merchant of long standing and good being on contract, the recovery is limited to the amount
before her reply was received, drawee recalled the reputation in the Philippines. His claim for temperate of the check, with interest from date of demand and
check from First National and honored it. (Ano ba damages is legally justified. Considering, however, the refusal, and, by virtue of the statute, the costs of the
talaga, kuya?! ) small size of Araneta’s account with the Bank, the action.
SUBJECT 3: Check for $150 payable to cash drawn amounts of the checks involved & the fact that the -Notwithstanding that the relation of the bank to its
against the same bank. Stamped “Account Closed” and Bank tried to rectify the error, although belatedly, an depositor is that of debtor and creditor, a bank may be
returned to clearing bank (Wells Fargo Bank) despite award of P5T by way of temperate damages is held liable in tort to its depositor whose check it has
sufficiency of drawer’s deposit balance. sufficient. wrongfully refused or failed to pay.
-Because of these incidents, Araneta filed suit for the 2. NO. -A depositor, whose check has been wrongfully
recovery of the ff: (1) Actual damages P30,000; (2) Reasoning Araneta contends that moral damages dishonored by the refusal or failure of the bank on
Moral damages P20,000; (3) Temperate damages should have been granted for the injury to his business which it was drawn to pay the same, may maintain an
P50,000; (4) Exemplary damages P10,000; and (5) standing or commercial credit, separately from his action against the bank, not only in contract but also in
Attorney’s fees P10,000. TC awarded all items. CA wounded feelings and mental anguish. It is true that tort, to recover the damages which he has sustained,
eliminated actual and temperate (for failure to prove an under Art 2217, besmirched reputation is a ground and that the jury may, when the plaintiff is a merchant
alleged purchase of jewels for profit) and reduced upon which moral damages may be claimed but the CA or trader, assess not only nominal but also substantial
moral damages to P8,000, exemplary to P1,000 and did take this element into consideration in adjudging damages; when the plaintiff is not a merchant or
attorney’s fees to P1,000. the sum of P8T in his favor. The CA considered his trader, he may recover such sum as special damages
reputation as an established and well known as the jury shall find, upon the facts, will compensate
ISSUES international trader as well as his wounded feelings and him for the injury resulting from the wrong done him by
1. WON the CA erred in eliminating temperate the mental anguish he suffered which caused his blood the defendant.
damages. pressure to rise beyond unusual limits necessitating -Even if such actual loss or injury is not shown, yet
2. WON the CA erred in not granting moral damages for medical attendance for an extended period. more than nominal damages may be given. It can
mental anguish, besmirched reputation, wounded Disposition Judgment of the CA MODIFIED by hardly be possible that a customer’s check can be
feelings, social humiliation, etc., separate and distinct awarding temperate damages of P5,000 and increasing wrongfully refused payment without some
attorney’s fees to P4,000. impeachment of his credit, which must in fact be an
[ch5-C] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. Rogelio V. Quevedo [Ch5-C]
actual injury, though he cannot from the nature of the held responsible if it paid the check through
case furnish independent, distinct proof thereon. inadvertency or oversight.
Disposition Judgment reversed. -TC rendered a judgment for FCTC. CA reversed saying
that said statement of release was void as it was
SINGSON V BANK OF THE PHIL. ISLANDS contrary to public policy and void for want of
23 SCRA 1117; Concepcion; June 27, 1968 consideration. Hence, this appeal.
~chriscaps~
ISSUE
FACTS WON the statement of release signed by Speroff
-Singson was one of defendants in civil case where constitutes a valid defense
judgment was rendered against him and co-defendants
Lobregat and Villa-Abrille, to pay. Singson and Lobregat HELD: NO.
appealed, but not Villla-Abrille. Writ of garnishment was The Court upheld the CA’s two grounds for avoiding the
served upon BPI in w/c Singson had account, insofar as statement of release.
Villa-Abrille’s credit against the bank were concerned. On want of consideration
-Clerk of bank, upon reading name of plaintiff and w/o -Under the reciprocal rights and obligations inherent in
informing himself that garnishment was merely for the relationship existing between a bank and its
deposits of Villa-Abrillle and Bona, prepared letter for depositors, it was the duty of FCTC NOT to pay after it
Bank President’s signature, informing Singson of the had received the order of Speroff.
garnishment of his deposits. -Hence, when Speroff was asked to sign a statement or
-2 checks issued by Singson in favor of Lega Corp, release to the effect that the bank wouldn’t be held
drawn against said bank, were deposited by drawee. responsible if it would pay the check, this was a new
Believing that Singson had no more control over his element in the relationship. What consideration or
deposits, bank dishonored the checks. benefit was received by Speroff as promisor and what
-Singson commenced present action against bank and detriment was suffered by FCTC as promise as a result
its president for damages because of illegal freezing of of this statement? NONE so clearly there was no
account. CFI dismissed complaint. compliance with either of the fundamental
requirements as to consideration.
ISSUE On contrary to public policy
WON damages may be awarded -It is elementary that a bank is required by law to act in
good faith and exercise reasonable care in its
HELD: YES relationship with its depositors.
-Existence of a contract between parties doesn’t bar -In this case, the obtaining from Speroff of a purported
commission of a tort by one against the other and the release from liability for inadvertency or oversight as a
consequent recovery of damages therefore. condition of the order to stop payment of the check was
contrary to public policy and did not relieve
SPEROFF V FIRST-CENTRAL TRUST CO FCTC from its duty to act in good faith and exercise
140 Ohio st. 415, 79 N.E. 2s 119 (1948) reasonable care.
~’del~ -The Court distinguished that FCTC’s defense of
purported release was a void and invalid defense.
FACTS However, the FCTC’s defense of exercising good faith
-Vassil Speroff had drawn a check on First-Central Trust and reasonable care (which it interposed in its
Co. (FCTC). amended answer) is a valid defense so the Court
-He eventually notified FCTC that said check be not remanded the case back to the Court of Common Pleas
paid. for trial on that issue.
-Now, he sues FCTC to recover the amount of said Disposition Judgment was modified and cause
check. remanded.
-FCTC admitted to the drawing of the check and to
having received the notice not to pay. However, it
interposed the defense that Speroff signed a document
stating that Speroff agreed to indemnify FCTC against
any loss resulting from the nonpayment of said check
and that it is expressly understood that it will not be
[ch5-D] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. Rogelio V. Quevedo [Ch5-D]
CHASE NATL BANK OF CITY OF NY V BATTAT 254 Mass 395, 150 NE 176 (1926) account, the cashier made the unsigned notation: "Hold
Ny Court of Appeals; 297 N.Y. 185, 78 N.E. 2d, 465 ~iNa~ for Moore Brothers $350.00"
(1948) -G.J. Moore ordered Grand Saline to forward the checks
~jaja~ FACTS to Kilgore again. One of the checks was paid. The other,
SUBJECT: bill however, was not. This prompted Moore to file suit
FACTS PAYEE: Hazel Lawless against Kilgore Bank to recover amount of the last
SUBJECT: a check for $25,000 as payment for the DRAWER: Norris J. Temple mentioned unpaid check.
purchase of sugar DRAWEE: Maurice E. Temple -TC and Civil Appeals: in favor of Moore Brothers.
DRAWER: Arbeedee -On the instrument appears ME Temple's signature
PAYEE: Caracanda Bros. Co & Ltd. -ME Temple contends that the mere signature of the ISSUE
DRAWEE: Chase National Bank of City of New York name of the drawee on the bill cannot fulfill the WON Kilgore is liable for the other check
Arbeedee and defendant Caracanda entered into an requirements that the signification of the assent of the
agreement for the purchase of sugar which provided drawee must be in writing and must be signed. HELD: NO. Section 132 governs.
that Arbeedee and should deliver a check for $25,000 Campos enumerates the ff requisites:
to Caracanda to bind the transaction and that an ISSUE 1)it must be in writing
amount would be returned upon receipt by Caracanda WON the signature of the drawee is sufficient 2)it must be signed by the drawee, and
of a letter of credit to obtained by Arbeedee. Arbeedee acceptance 3) it must not change the implied promise of acceptor
drew such a check on its account in the plaintiff bank to pay only in money.
and delivered it to Caracanda. Thereafter Arbeedee HELD: YES Acceptance is usually made by writing "accepted" and
requested plaintiff to stop payment on the check. -Acceptance must be in writing because sound policy signing immediately below. However, the drawee's
Caracanda presented the check for certification and it requires that some substantial and tangible evidence of signature alone is NOT sufficient
was certified by plaintiff through mistake. The following the contract is more reliable in nature than the -The plain purpose of 132 is to prevent any liability to
day, Caracanda presented it for payment and plaintiff statement or recollection of witnesses. The common the holder of a check from arising from the bare oral
paid it. When advised of the payment of the check practice before the NIL was to write the word promise of the drawee bank to pay the check. In the
Arbeedee insisted that plaintiff make no debit against it "accepted" + the signature on the face of the bill. present case, the liability of Kilgore Bank to Moore
account asserting that Caracanda has no legal right to -But based on case law, the signature is both a writing Brothers depends entirely on the BARE ORAL PROMISE
the money. Plaintiff thereupon demanded payment of and signing. The name alone is constantly holden to of the drawee bank to pay. As we have said, this should
the $25,000 from Caracanda. That was refused. The satisfy the requirement. have been in writing (and of course, complying as well
complaint alleges due demand upon both defendants -A drawee may be charged as acceptor although he with the other two requities).
and nonpayment and prays for judgment in the sum of writes merely his name upon the bill and that anyone -The notation in the bank's ledger "Hold for Moore
$25,000 against Arbeedee “and/or” Caracanda. taking the bill has the right to fill up a blank acceptance Brother, $350.00" adds no force to said promise. This
on the same principle that a holder may fill up a blank statement (as opposed to the oral promise to pay) does
ISSUE indorsement. NOT EVEN make any contract, oral or written, to pay.
WON the complaint fails to state a cause of action
against Arbeedee KILGORE NATL BANK V MOORE BROS. LUMBER WISNER V FIRST NATIONAL BANK OF GALLITZIN
102 SW 2d 200 (1937) 220 Pa. 21, 68 Atl. 955 (1908)
HELD: YES ~chrislao~ ~apple~
-The complaint failed to allege ratification by Arbeedee
after learning of the payment by plaintiff to Caracanda FACTS FACTS
and there are no alternative allegations of fact upon -Waddell transacted with Moore Brothers, a firm SUBJECT: 6 checks
which to rest such a cause of action. Our courts have engaged in the lumber business. As payment for the DRAWER: Samuel R. Bullock
never permitted a bank in a commercial transaction to lumber he purchased, Waddell drew 2 checks wroth DRAWEE: First National Bank of Gallitzin
such as this, after breaching its depositor's instructions $350 drawn against Kilgore National Bank. PAYEE: Charles W. Gallaer, Jr. or order
to involve him against his will in litigation with a third -2 checks were deposited by Moore Brothers in Grand -Subject checks were deposited in various banks and
party in order that the bank may recoup a potential loss Saline Bank for collection. A few days later, Grand then, forwarded by said banks to drawee bank for
resulting from its own error. The doctrine of Saline notified G.J. Moore that the checks had been payment
subrogation or equitable assignment is not properly returned by Kilgore Bank unpaid. -5 of the checks were not returned by the drawee bank
applicable under such circumstances. A bank may -Because of this, G.J. Moore brought Waddell to Kilgore to the forwarding banks for more than 2 days
protect itself by contract with its depositor so as to limit Bank where Waddell, Moore and the cashier of Kilgore -Holder of the checks sued the drawee bank for
liability on a stop payment order. When that has not Bank had an ORAL agreement. Waddell instructed payment on the theory that its failure to return the
been done, the common law liability is absolute in the Kilgore bank to pay Moore. The cashier promised Moore checks within 24 hrs after receipt thereof constituted
absence of ratification. Judgment affirmed. the payment of said checks once presented again. On acceptance
the ledger of the bank in connection with Waddell's
LAWLESS V TEMPLE
[ch5-E] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. Rogelio V. Quevedo [Ch5-E]
-TC ruled in favor of drawee bank, saying that mere
retention of the checks unaccompanied by its refusal to
return them, was not acceptance

ISSUE
WON failure to return the checks to the holder or the
collecting bank within 24 hrs amounts to acceptance

HELD: YES.
-The drawee to whom a bill is delivered for acceptance
is deemed to have accepted it under Section 137
where: 1. he destroys it; 2. where he refuses within 24
hrs after delivery to return the bill accepted or non-
accepted to the holder; and 3. where he refuses within
such other period as the holder may allow to return the
bill accepted or non-accepted to the holder.
WON a demand from the holder for the return of the
bill, and a refusal on the part of the drawee, are
conditions precedent to an acceptance
-No prior demand from holder is required because to
require so is not to the convenience or interest of the
holder
-The manifest purpose in requiring prompt return of the
bill is in the interest of and for the protection of the
holder
-If this section had in view the protection of the holder,
then it was evidently the intention of the legislature
that the non-return of the bill within the specified time,
regardless of the cause, will make the drawee an
acceptor
-The drawee bank, having failed to return the 5 checks
to the collecting bank within 24 hrs after delivery, is
deemed to have accepted the checks, and is therefore,
liable for their amount
*After the decision, Pennsylvania amended Section
137, to destroy the effect of the decision. The following
proviso was added: "Provided, that the mere retention
of such bill by the drawee, unless its return has been
demanded, will not amount to an acceptance..."
[ch5-F] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. Rogelio V. Quevedo [Ch5-F]
URWILLER V PLATTE VALLEY STATE BANK and gives new life to the instrument.' certification, it voluntarily assumed the obligation of
SC Nebraska; 164 Neb. 630, 83 N.W.2d 88 (1957) -‘In absence of statutory right, holder would be left to holding so much of the deposit of the province of
~rach~ his common law rights, for either breach of contract or Samar as would be sufficient to cover the amount of
for tortious breach of duty, by drawee bank which had the check, or before allowing the withdrawal that
FACTS refused payment on grounds of insufficiency of funds in exhausted said deposit, of making the necessary
SUBJECT: Holder's action against drawee bank, which drawer's account.’ inquiry on the matter. It would be an empty gesture if
had returned check on account of insufficiency of funds Disposition Trial court was correct in dismissing his the appellant did not mean to assume the obligation of
on deposit in drawer's account. Lower court dismissed petition. We affirm. paying the check and holding sufficient deposit of the
such action; holder appealed. drawer for the purpose.
DRAWER: Ira McCord who had an account in defendant 2. NO.
bank -PNB’s liability is only subsidiary to that of the Province
DRAWEE: Defendant Platte Vlley State Bank of Samar which is primarily liable thereon.
PAYEE: Plaintiff Norton Urwiller Disposition. Decision affirmed.
-In payment of his purchase of hogs, McCord issued to
Urwiller his check for the sum of $2,491.11. The next SUMCAD V PROVINCE OF SAMAR PADILLA, dissenting:
day, Urwiller’s wife deposited this to his account in the 52 O.G. 18, 7582 (1956) PNB should not be liable at all. When it requested the
Ravenna Bank. The bank then forwarded the check for ~cHa~ Bureau of Posts to furnish it with photostatic copies of
collection in the usual course of business through the check, it only means that the original check was not
regular channels: Ravenna Bank -> Bank in Lincoln -> FACTS presented to it for payment! The act of requesting did
Omaha branch of the Federal Reserve Bank -> Platte SUBJECT: check for P25k, cannot be paid because of not create an obligation on the part of PNB.
Valley State Bank (PVSB). insufficient funds
-The check was received in a cash letter during DRAWER: Province of Samar
business hours on Saturday, Dec 12, 1953. The check DRAWEE: PNB, Cebu Branch
was proofed on the day it was received and posted for PAYEE: Paulino Santos
action on the following business day, which was SUBSEQUENT INDORSEMENTS: Paulino Santos indorsed
Monday. On Mon it was decided not to pay the check, to James McGuire then transferred to Sumcad et.al. COOLIDGE V PAYSON
but mark it for 'return,' because the drawer thereof did -James McGuire presented the check to municipal 2 Wheat 66, 4 L. Ed. 185 (1817)
not have sufficient funds on deposit in his account with treasurer of Borongan for payment, the latter did not ~jojo~
appellee. pay or did not choose to pay. McGuire wrote letters to
-Actual return was not made to the Federal Reserve the Bureau of Posts seeking payment for check. FACTS
Bank until Wed. This delay was caused by the fact that Director of the Bureau of Posts referred to PNB. DRAWER: Cornhwaite & Cary
bank examiners came and assumed control of all the (Note: McGuire did not present check directly to PNB.) DRAWEE: Collidge & Co. (defendant)
records of the bank, including cash items, on Mon -PNB requested photostatic copies of the check – was PAYEE: John Randall
morning. Urwiller was advised by the Ravenna bank received by bank. (Province of Samar by this time still INDORSEE: Payson & Co. (plaintiff)
late Thurs afternoon, of the fact that payment of the had P84,287.47) - Coolidge held proceeds of the cargo of the Hiram
check had been refused although the check was not -Procedural requirements still asked from McGuire so claimed by Cornthwaite. Corthwaite executed bonds of
actually returned to him until Saturday. The check has by the time the check was transferred to Sumcad et al., indembity an executed srolls and drew on them for
never been paid. Province of Samar already withdrew from their PNB $2,700, payable to Randall, and endorsed by him to
account P83,504.07 leaving only P743.43. Payson. Coolidge wrote to Corthwaite stating that, since
ISSUE -Sumcad et al were not able to encash check so they there is no seal to any of the signatures, it is necessary
WON retention of a check by a drawee bank for more sued Province of Samar and PNB. PNB was held to ascertain the legality of the scrolls. Coolidge wrote to
than 24 hours after it is presented to it for payment solidarily liable with Province of Samar. Hence, this its friend, William, who was to determine whether the
constitutes an acceptance of the instrument so that the appeal. draft was to be honored. William replied, approving the
drawee bank is bound to pay it bond.
ISSUE -Cornthwaithe called on William to inquire whether he
HELD: NO 1. WON PNB constructively accepted to assume the had satisfied Coolidge respecting the bond. Williams
Ratio 'Presentment for payment and presentment for obligation stated the substance of the letter he had written, and
acceptance are two different acts well known to the law 2. WON PNB is solidarily liable read to him a part of it. Payson also called on him to
of negotiable instruments. The difference between the make the same inquiry, to whom he gave the same
object and effect of presentation for these respective HELD information and also read the letter he had written.
purposes is very marked. Payment extinguishes the 1. YES. -2 days later, a bill was drawn by Cornthwaite and paid
debt and puts an end to the paper evidencing the -When PNB requested photostatic copies of the check to Payson in part of the protested bill of $2,700.it was
same, while acceptance has the very opposite effect. It from the Bureau of Posts and McGuire to present check presented to Coolidge, who refused to accept it.
creates a new liability upon the part of the acceptor, to provincial treasurer and provincial auditor for
[ch5-G] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. Rogelio V. Quevedo [Ch5-G]
ISSUE never presented either for acceptance or payment, Ratio Technicality cannot be countenanced to defeat
WON Coolidge is deemed to have accepted the bill, appellee bank never became a debtor of the payees, the execution of a judgment for execution is the fruit
hence liable to Payson hence the drafts never became “credits” under the Act. and end of the suit and is very aptly called the life of
-Drafts must however be distinguished from cashier’s the law. A judgment cannot be rendered nugatory by
HELD: YES checks, which is simply a bill of exchange drawn by the the unreasonable application of a strict rule of
-A promise to accept a bill amounts to an acceptance to bank on itself; it is equivalent to a certified check and procedure. Vested rights were never intended to rest
a person who has taken it on the credit of that promise, its deposit passes to the credit of the holder who then on the requirement of a return, the office of which is
although the promise was made before the existence of becomes a depositor of that amount. merely to inform the court and the parties, of any and
the bill, and although it is drawn in favor of a person Disposition TC decision modified; telegraphic transfer all actions taken under the writ of execution. Where
who takes it for a pre-existing debt payment orders should be escheated to RP (see case such information can be established in some other
-Upon a review of several cases, the court holds that a for telegraphic orders) manner, the absence of an executing officer's return
letter written within a reasonable time before or after will not preclude a judgment from being treated as
the bill of exchange, describing it in terms not to be PAL V CA, Galano, del Rosario, Tan discharged or being executed through an alias writ of
mistaken, and promising to accept it, is if shown to the G.R. No. 24188; Jan 30, 1990; Gutierrez, Jr. execution as the case may be.
person who afterwards takes the bill on the credit of ~athe~ 2. General Rule (under ordinary circumstances):
the letter, a virtual acceptance binding the person who YES
makes the promise. FACTS Article 1240, NCC. "Payment shall be made to the
-Amelia Tan commenced a complaint for damages. The person in whose favor the obligation has been
REPUBLIC V PHIL. NAT’L BANK CFI of Manila rendered judgment in favor of Tan and constituted, or his successor in interest, or any person
L-No. 16106, Dec. 30, 1961; 3 SCRA 851 against PAL. PAL appealed and the amount of damages authorized to receive it."
~kiyo~ was lowered to a total of P30, 000.00. The judgment Exception (under peculiar circumstances like in
became final and executory there being no further this case): NO
FACTS appeal taken. a. Unless authorized to do so by law or by consent of
-RP filed a complaint for escheat of certain unclaimed -Tan filed a motion for the issuance of a writ of the obligee, a public officer has no authority to accept
bank deposit balances against several banks under Act. execution of the judgment. Judge Galano issued its anything other than money in payment of an obligation
3936 which provides that “unclaimed balances” (w/c order of execution and it was duly referred to Deputy under a judgment being executed. Strictly speaking,
includes credits or deposits of money, bullion, security Sheriff Emilio Z. Reyes. the acceptance by the sheriff of the petitioner's checks,
and other evidence of indebtedness of any kind + -Four months later, Tan moved for the issuance of an in the case at bar, does not, per se, operate as a
interest) in favor of persons not heard from for 10 years alias writ of execution stating that the judgment discharge of the judgment debt. Since a negotiable
or more, with the increase and proceeds thereof, shall remained unsatisfied. instrument is only a substitute for money and not
be deposited with the Insular Treasurer to the credit of -PAL filed an opposition stating that it had already fully money, the delivery of such an instrument does not, by
the Phil. Government. Among these banks was the First paid its obligation to Tan through the deputy sheriff itself, operate as payment (Sec. 189, Act 2031 on Negs.
National City Bank of New York who argued that some Reyes as evidenced by cash vouchers properly signed Insts.; Art. 1249, Civil Code) A check, whether a
of its credits didn’t fall within the purview of the Act. and receipted by Sheriff Reyes (PAL issued a check manager's check or ordinary check, is not legal tender,
The court held that cashier’s checks and demand drafts amounting to P30,000.00 in the name of Sherriff Reyes and an offer of a check in payment of a debt is not a
fall under the Act but upon MFR changed its view and and not in the name of Tan). However, Sherriff Reyes valid tender of payment and may be refused receipt by
excluded drafts, hence this appeal. encashed the check but failed to surrender the amount the obligee or creditor. Mere delivery of checks does
to Tan. He, instead, absconded. not discharge the obligation under a judgment. The
ISSUE -Judge Galano granted Tan’s Motion for Alias Writ of obligation is not extinguished and remains suspended
WON demand drafts create a creditor-debtor Execution and directed Special Sheriff del Rosario to until the payment by commercial document is actually
relationship between drawee and payee, thus falling levy on execution. Consequently, Del Rosario served a realized (Art. 1249, Civil Code, par. 3).
within the meaning of “credits” in Act. 3969 notice of garnishment on the depository bank of PAL. b. It is argued that if PAL had paid in cash to Sheriff
Because of this, PAL filed this instant petition Reyes, there would have been payment in full legal
HELD: NO contemplation. The reasoning is logical but is it valid
-A demand draft is not of the same category as a ISSUES and proper? Logic has its limits in decision making. We
cashier’s check which should fall under the Act. 1. WON an alias writ of execution be issued without a should not follow rulings to their logical extremes if in
In banking terminology, the term bank draft is used prior return of the original writ by the implementing doing so we arrive at unjust or absurd results.
interchangeably with a bill of exchange. A bill of officer c. PAL was negligent. Making the checks payable to the
exchange under the NIL (sec. 127) does not operate as 2. WON payment of judgment to the implementing judgment creditor would have prevented the
an assignment of funds in the hands of the drawee who officer as directed in the writ of execution constitutes encashment or the taking of undue advantage by the
is not liable on the instrument until he accepts. In fact, satisfaction of judgment sheriff, or any person into whose hands the checks may
the law requires presentment w/in a reasonable time or have fallen, whether wrongfully or in behalf of the
else the drawer is discharged from liability. Since it is HELD creditor. The issuance of the checks in the name of the
admitted in this case that the drafts in question were 1. YES.
[ch5-H] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. Rogelio V. Quevedo [Ch5-H]
sheriff clearly made possible the misappropriation of GR 78556; 196 SCRA 269; Cruz; April 21, 1991
the funds that were withdrawn. ~giulia~ ISSUE
Disposition Petition dismissed. WON there was valid redemption.
FACTS
NARVASA, Dissenting Opinion -In a civil case, the RTC rendered judgment ordering HELD: YES.
-A sheriff is authorized to receive payments on account Angel Bautista to pay damages to Alfero Fortunado. Although the private respondents in the case did not
of the judgment debt tendered by "a person indebted Pursuant to said judgment, the Sheriff levied upon 2 file a redemption case against the petitioners, NSC filed
to the judgment debtor," and his "receipt shall be a parcels of land registered in the name of Bautista, but 1 an urgent motion for redemption within the redemption
sufficient discharge for the amount so paid or directed of the said parcels of land was already sold to the period.
to be credited by the judgment creditor on the National Steel Corporation (NSC). In the US, it has been held and recognized that a
execution" (sec. 41, Rule 39). The properties were sold to the petitioner as the only payment by check or draft or bank bill or currency
-The sheriff is an adjunct of the court; a court bidder in a public auction. which is not legal tender is effective if the officer
functionary whose competence involves both discretion -NSC then gave notice to the sheriff of its intention to accepts such payment. If in good faith, the
and personal liability. Being an officer of the court and redeem the property it owned. The sheriff suggested as redemptioner pays, and the officer receives before the
acting within the scope of his authorized functions, the the 2 lots were sold together that both of them should expiration of the time of redemption, an ordinary
sheriff's receipt of the checks in payment of the be redeemed. banker's check, the payment is regarded as sufficient.
judgment execution, may be deemed, in legal NSC filed with the TC an urgent motion to redeem, The Court does not, by this decision, sanction the use
contemplation, as received by the court itself. which was opposed by the petitioners on the ground of check for the payment of obligations over the
-If payment had been in cash, no question about its that the movant did not have the personality to objection of the creditor. It is just that a check may be
validity or of the authority and duty of the sheriff to intervene. used for the exercise of the right of redemption, the
accept it in settlement of PAL's judgment obligation -As the motion remained unresolved, the NSC issued to same being a right and not an obligation. The tender of
would even have arisen. Simply because it was made the sheriff a PNB check for the properties.Bautista sent a check is sufficient to compel redemption but it is not
by checks issued in the sheriff's name does not warrant the sheriff a letter bearing NSC's conformity in which he in itself a payment that relieves the redemption bt is
reaching any different conclusion. availed himself of SC's check to redeem the properties. not in itself a payment that relieves the redemtioner
His letter contained the ff reservation: from his liiability t pay the redemption price. While the
FELICIANO, Dissenting Opinion This redemption is made solely for the purpose of private respondents have properly exercised their right
-The risk of the sheriff faithfully performing his duty as effecting the execution and delivery to me of the of redemption, they remain liable for the payment of
a public officer is most appropriately borne NOT by the necessary certificate of redemption and the same the redemption price.
judgment debtor/creditor, nor upon those members of shall not be taen to mean my accknowledgment of the
the general public who are compelled to deal with him, validity of the said writ of execution and sale, both of MESINA V IAC [Gonong, Go and Uy]
but by the STATE itself. The judgment creditor, in which I shall continue to contest, nor shall this be L-70145; Nov. 13, 1986; 145 sCRA 499; Paras
circumstances like those of the instant case, could be taken to mean as a waiverr on my part of the legal ~ajang~
allowed to execute upon the absconding sheriff’s bond. reights and remedies available to me under the
circumstances. FACTS
PADILLA, Dissenting Opinion -Sheriff issued the certificate of redemption in favor of -Jose Go purchased from Associated Bank a cashier’s
-He has underscored the obligation of the sheriff, NSC and Bautista. Bautista later on wrote to the sheriff check worth P800,000. Accidentally, he left the check
imposed upon him by the nature of his office and the that he would no longer effect the redemption because on top of the desk of the bank manager when he left
law, to turn over such legal tender, checks and there was nothing to redeem, the auction sale being the bank. The bank manager entrusted the check for
proceeds of execution sales to the judgment creditor. null and void. safekeeping to bank official, Albert Uy, who then had a
The failure of a sheriff to effect such turnover and his -Bautista, in an Urgent Motion, prayed that the sum visitor, Alexander Lim. Uy had to answer a telephone
conversion of the funds (or goods) held by him to his covered by the PNB check be delivered to and kept by call, then he went t the men’s room. When he returned
own uses, do not have the effect of frustrating payment the clerk of court until such time as all incidents to the desk, his visitor Lim was already gone and so
by and consequent discharge of the judgment debtor. relative to the validity of the auction sale were finally was the check. When Jose Go returned to the bank, the
-If the plaintiff fails to receive it, his only remedy is resolved. check was nowhere to be found.
against the officer. Sheriff notified the petitioners' counsel of the deposit of -Uy advised Go to accomplish a sop payment order. Go
-When PAL delivered the checks to the Sheriff, the the PN check. Counsel told the check that he was also executed an affidavit of loss. Uy also went to the
latter was accompanied by the counsel of Tan. rejecting the check as it was not legal tender. police station to report the loss, pointing to Alexander
Prudence dictates that the counsel of Tan should have -Respondent court held that NSC's redemption was Lim as the one who could shed light on it.
insisted on their immediate encashment by the Sheriff absolute and unconditional in view of its refusal to join -Associated Bank received the lost check 2 days after
with the drawee bank in order to promptly get hold of Bautista in contesting the validity of the sale. However, for clearing, coming from Prudential bank. The check
the amount belonging to his client. the validity of the redemption was dependent on the was immediately dishonored by Associated Bank and
validity of the certificate of sale, which still has to be returned to Prudential with the words, “Stop Payment.”
FORTUNADO V CA, Campano, Bautista, Register resolved by the TC. Motion for partial reconsideration The check was again returned to Associated Bank and
of Deeds, and National Steel Corporation by petitioner was denied. for the 2nd time, it was dishonored.
[ch5-I] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. Rogelio V. Quevedo [Ch5-I]
-Several days later, Associated Bank received a letter P25,000.00 as attorney’s fees, and to pay the cost of
from Atty. Lorenzo Navarro demanding payment for the FACTS suit.
check and threatened to sue. He refuses to reveal who -Spouses Gueco obtained a loan from International -CA: Petition for review on certiorari is hereby DENIED
his client is. Unsure with what to do with the matter, Corporate Bank (now Union Bank of the Philippines) to and the RTC Decision is AFFIRMED in toto as CA
Associated Bank filed for an Interpleader. The client purchase a car – a Nissan Sentra 1600 4DR, 1989 essentially relied on the finality of the findings of facts
turned out to be one named Mesina. He said the check Model. In consideration, the Spouses executed by the lower court and on the latter's finding of the
was paid to him by Alexander Lim in a certain promissory notes which were payable in monthly existence of fraud which constitutes the basis for the
transaction but refused to elucidate further. Mesina installments and chattel mortgage over the car to serve award of damages.
filed a complaint for damages. as security for the notes. The Spouses defaulted in
-TC rendered a decision on the interpleader ordering payment of installments. The Bank filed a civil action ISSUES
Associated Bank to replace Jose Go’s check or pay its for “Sum of Money with Prayer for a Writ of Replevin” 1. WON there was no agreement with respect to the
cash equivalent. Mesina’s complaint on the other hand before MTC Pasay City. Dr. Francis Gueco was served execution of the joint motion to dismiss as a condition
was dismissed. The issue in that case is who between summons and was fetched by the sheriff and for the compromise agreement
Mesina and Go are entitled for the payment of the representative of the bank for a meeting in the bank 2. WON granting moral and exemplary damages and
check. Since this issue had been resolved in the other premises. Desi Tomas, the Bank’s Assistant Vice attorney’s fees in favor of Sps Gueco is proper
case, it has become moot and academic. President demanded payment of the amount of 3. WON the Bank must return the subject car to the
P184,000.00 which represents the unpaid balance for Sps. Gueco, without making any provision for the
ISSUE: the car loan. After some negotiations and computation, issuance of the new manager’s/cashier’s check by the
WON the lower court’s ruling in the interpleader case the amount was lowered to P154,000.00, However, as Spouses in favor of the Bank in lieu of the original
should be set aside. a result of the non-payment of the reduced amount, the cashier’s check that already became stale
car was detained inside the bank’s compound. Dr.
HELD: NO. Gueco went to the bank and talked with its HELD
Mesina invokes theories on causes and effects of a Administrative Support, Auto Loans/Credit Card 1. YES
cashier’s checks such as 1) it cannot be Collection Head, Jefferson Rivera. The negotiations -In support of its claim, The Bank presented the
countermanded in the hands of a holder in due course resulted in the further reduction of the outstanding loan testimony of Mr. Jefferson Rivera who related that Dr.
and 2) a cashier’s check is a bill of exchange drawn by to P150,000.00. Dr. Gueco delivered a manager’s check Gueco was aware that the signing of the draft of the
the bank against itself. But these are general principles in the amount of P150,000.00 but the car was not Joint Motion to Dismiss was one of the conditions set by
which cannot be aptly applied to the case at bar released because of his refusal to sign the Joint Motion the bank for the acceptance of the reduced amount of
without considering other things. to Dismiss. It is their contention that Dr. Gueco need indebtedness and the release of the car. The Spouses,
-Mesina failed to substantiate that he is a holder in due not sign the motion for joint dismissal considering that however, maintained that no such condition was ever
course. He refused to say how and why the check was they had not yet filed their Answer. However, the Bank discussed during said meeting. If it is true that the
passed to him. He therefore had notice of the defect of insisted that the joint motion to dismiss is standard signing of the joint motion was a condition sine qua non
his title over the check from the start. operating procedure in their bank to effect a for the reduction of the Spouses’ obligation, it is only
-Next, the check was bought by Jose Go from the bank compromise and to preclude future filing of claims, reasonable and logical to assume that the joint motion
for purposes of transferring his bank from Associated counterclaims or suits for damages. After several should have been shown to Dr. Gueco in the said
Bank to a nearby bank, thinking that carrying a check demand letters and meetings with bank meeting. Why Dr. Gueco was not given a copy of the
would be safer than carrying cash; it was not issued in representatives, the Spouses initiated a civil action for joint motion on the day of the meeting, for his family or
payment of an obligation. The check was Jose Go’s damages before MTC Quezon City. legal counsel to see to be brought signed, together with
property when it was misplaced or stolen. Bank was -MTC QC: dismissed the complaint for lack of merit. the P150,000.00 in manager’s check form to be
therefore liable to no one else but Jose Go. -RTC QC: MTC decision reversed and held that there submitted on the following day?
-When the payment was stopped, it was not the bank was a meeting of the minds between the parties as to -It is more logical to conclude that only an oral
who did it but Jose Go. The bank could not be the the reduction of the amount of indebtedness and the compromise agreement, whereby the original claim of
drawer and drawee for clearly, Jose Go owns the money release of the car but said agreement did not include the bank of P184,985.09 was reduced to P150,000.00
it represents and he is therefore the drawer and the signing of the joint motion to dismiss as a condition and that upon payment of which, plaintiff was informed
drawee in the same manner as if he has a current sine qua non for the effectivity of the compromise. that the subject motor vehicle would be released to
account and he issued a check against it. No one Also, the Bank is ordered to return the car to the him’ happened during that said meeting.
outside Jose Go can be termed a holder in due course Spouses; the Bank may deposit the Manager’s check – 2. NO
because Go had not indorsed it in due course. the proceeds of which have long been under the control -Fraud has been defined as the deliberate intention to
NOTE: Clear implication from the case is that if Mesina of the issuing bank in favor of the Bank since its cause damage or prejudice. It is the voluntary
had been a holder in due course, the court would have issuance, whereas the funds have long been paid by execution of a wrongful act, or a willful omission,
granted recovery. the Spouses to secure said Manager’s Check, over knowing and intending the effects which naturally and
which the Spouses have no control. Moreover, the Bank necessarily arise from such act or omission; the fraud
INT’L CORPORATE BANK V GUECO is ordered to pay the Spouses the P50,000.00 as moral referred to in Article 1170 of the Civil Code is the
351 SCRA 516; Kapunan; Feb 1, 2001 damages; P25,000.00 as exemplary damages, and deliberate and intentional evasion of the normal
[ch5-J] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. Rogelio V. Quevedo [Ch5-J]
fulfillment of obligation. We fail to see how the act of of the bank’s cashier on his own or another check. In sale, New Timber deposited with the Clerk of Court the
the bank in requiring the Spouses to sign the joint effect, it is a bill of exchange drawn by the cashier of a P50,000 check and P13,130 in cash.
motion to dismiss could constitute as fraud. True, the bank upon the bank itself, and accepted in advance by -Seneris refused to accept check and cash. Sheriff
Bank may have been remiss in informing Dr. Gueco the act of its issuance. It is really the bank’s own check proceeded with the auction sale.
that the signing of a joint motion to dismiss is a and may be treated as a promissory note with the bank
standard operating procedure of the bank. However, as a maker. The check becomes the primary obligation ISSUE
this can not in anyway have prejudiced Dr. Gueco. It of the bank which issues it and constitutes its written WON Seneris can validly refuse acceptance of the
should, likewise, be noted that in cases of breach of promise to pay upon demand. The mere issuance of it payment of the judgment obligation made by New
contract, moral damages may only be awarded when is considered an acceptance thereof. If treated as Timber, consisting of the Cashier’s Check and cash.
the breach was attended by fraud or bad faith. The law promissory note, the drawer would be the maker and in
presumes good faith. which case the holder need not prove presentment for HELD: NO
3. NO payment or present the bill to the drawee for -A Cashier’s Check is deemed as cash. Moreover, since
-The Bank would make us hold that petitioner should acceptance. the check had been certified by the drawee bank, by
return the car or its value and that the latter, because -Even assuming that presentment is needed, failure to the certification, the funds represented by the checks
of its own negligence, should suffer the loss occasioned present for payment within a reasonable time will result are transferred from the credit of the maker to that of
by the fact that the check had become stale. It is their to the discharge of the drawer only to the extent of the the payee or holder, and for all intents and purposes,
position that delivery of the manager’s check produced loss caused by the delay. Failure to present on time, the latter becomes the depositor of the drawee bank,
the effect of payment and, thus, the Bank was thus, does not totally wipe out all liability. In fact, the with rights and duties of one in such situation. The
negligent in opting not to deposit or use said check. legal situation amounts to an acknowledgment of certification is equivalent to acceptance.
Rudimentary sense of justice and fair play would not liability in the sum stated in the check. In this case, the -The object of certifying a check as regards both parties
countenance the Spouses’ position. Spouses have not alleged, much less shown that they is to enable holder to use it, as money. When the
-A stale check is one which has not been presented for or the bank which issued the manager’s check has holder procures the check to be certified, the check
payment within a reasonable time after its issue. It is suffered damage or loss caused by the delay or non- operates as an assignment of a part of the funds to the
valueless and, therefore, should not be paid. Under the presentment. Definitely, the original obligation to pay creditors.
negotiable instruments law, an instrument not payable certainly has not been erased.
on demand must be presented for payment on the day -It has been held that, if the check had become stale, it WACHTEL V ROSEN
it falls due. When the instrument is payable on becomes imperative that the circumstances that 248 NY 386, 164 NE 326
demand, presentment must be made within a caused its non-presentment be determined. In the case ~RPR~
reasonable time after its issue. In the case of a bill of at bar, there is no doubt that the bank held on the
exchange, presentment is sufficient if made within a check and refused to encash the same because of the FACTS
reasonable time after the last negotiation thereof. controversy surrounding the signing of the joint motion Plaintiff received from Arthur Wachtel a check drawn on
-A check must be presented for payment within a to dismiss. We see no bad faith or negligence in this National Park Bank which plaintiff presented to said
reasonable time after its issue, and in determining what position taken by the Bank. bank for certification. The bank refused to certify the
is a “reasonable time,” regard is to be had to the Disposition Petition for review is given due course. check.
nature of the instrument, the usage of trade or CA decision affirming RTC decision is SET ASIDE.
business with respect to such instruments, and the Spouses Gueco is ordered to pay the original obligation ISSUE
facts of the particular case. The test is whether the amounting to P150,000.00 to the Bank upon surrender WON the refusal of the drawee bank to certify the
payee employed such diligence as a prudent man or cancellation of the manager’s check in the latter’s check is equivalent to a dishonor of the check such that
exercises in his own affairs. This is because the nature possession, afterwhich, the Bank is to return the holder may sue the drawer as if the check was
and theory behind the use of a check points to its subject motor vehicle in good working condition. presented for payment and payment had been refused
immediate use and payability. In a case, a check
payable on demand which was long overdue by about NEW PACIFIC TIMBER & SUPPLY CO V SENERIS HELD: NO
two and a half (2-1/2) years was considered a stale L-41764, Dec. 19, 1980; 101 SCRA 686 -The general rule is that a check is of right presentable
check. Failure of a payee to encash a check for more ~glaisa~ only for payment, and that the bank is under no
than ten (10) years undoubtedly resulted in the check obligation to certify, although it may do so.
becoming stale. Thus, even a delay of one (1) week[27] FACTS -When a bank certifies a check at the request of the
or two (2) days, under the specific circumstances of the SUBJECT: Equitable Bank Cashier’s Check for P50k holder, a new obligation is created. Under Section 324,
cited cases constituted unreasonable time as a matter dated Jan. 3, 1975 the drawer and all the endorsers are discharged from
of law. DRAWER: New Pacific Timber liability if the check is accepted or certified. The
-In the case at bar, however, the check involved is not -New Pacific failed to comply with his judgment acceptance of a bill of exchange, on the other hand,
an ordinary bill of exchange but a manager’s check. A obligation. Judge issued writ of execution for P63,130 to does not discharge the liability. The certification differs
manager’s check is one drawn by the bank’s manager which the Sheriff levied upon personal properties and in effect from mere acceptance of bills other than
upon the bank itself. It is similar to a cashier’s check set the auction sale on Jan. 15. Prior to the scheduled checks, in that it is not an added obligation but a
both as to effect and use. A cashier’s check is a check substitute obligation. Certification of the check by the
[ch5-K] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. Rogelio V. Quevedo [Ch5-K]
bank is equivalent to payment. The bank in this case question and after which it would pay its account in full, unconditional act by the obligor of offering legal tender
may not be prepared to substitute itself with the otherwise, judicial action would be resorted to. currency as payment to the obligee for the former's
drawer. -August 27, 1975 > Roman Catholic refused to execute obligation and demanding that the latter accept the
Disposition Judgment affirmed. the deed of absolute sale due to its failure to pay its full same. Thus, tender of payment cannot be presumed by
obligation. Moreover, Roman Catholic denied that a mere inference from surrounding circumstances. At
ROMAN CATHOLIC BISHOP OF MALOLOS, INC V Robes-Francisco had made any tender of payment most, sufficiency of available funds is only affirmative
IAC [Robes-Francisco Realty and Dev’t Corp] whatsoever within the grace period. In view of this of the capacity or ability of the obligor to fulfill his part
G.R. No. 72110; Sarmiento; Nov 16, 1990 alleged breach of contract, Roman Catholic cancelled of the bargain. But whether or not the obligor avails
~owen~ the contract and considered all previous payments himself of such funds to settle his outstanding account
forfeited and the land as ipso facto reconveyed. remains to be proven by independent and credible
FACTS -TC: Failure of Robes-Francisco to present in court the evidence. Tender of payment presupposes not only that
-July 7, 1971 > the subject contract over the land, a certified personal check allegedly tendered as payment the obligor is able, ready, and willing, but more so, in
20,655 sq.m. in Bulacan, issued and registered in the or, at least, its xerox copy, or even bank records the act of performing his obligation. Ab posse ad actu
name of the Roman Catholic Bishop of Malolos which it thereof is fatal. And Robes-Francisco was found to have non vale illatio. "A proof that an act could have been
sold to the Robes-Francisco Realty and Dev’t for insufficient funds to fulfill the entire obligation done is no proof that it was actually done."
P123,930.00). considering that its president, Atty. Francisco, only had 2. NO
in question was executed stipulating for a a savings account deposit of P64,840.00, and although -Although admittedly the documents for the deed of
downpayment of P23,930.00 and the balance of the latter had a money-market placement of absolute sale had not been prepared, the subject
P100,000.00 plus 12% interest per annum to be paid P300,000.00, the same was to mature only after the contract clearly provides that the full payment by the
within four (4) years from execution of the contract, expiration of the 5-day grace period. TC declares the private respondent is an a priori condition for the
that is, on or before July 7, 1975. The contract likewise subject contract cancelled and Robes-Francisco’s execution of the said documents by Roman Catholic.
provides for cancellation, forfeiture of previous downpayment of P23,930.00 forfeited in favor of “That upon complete payment of the agreed
payments, and reconveyance of the land in question in Roman Catholic, and hereby dismisses the complaint consideration by the herein VENDEE, the VENDOR shall
case Robes-Francisco Realty and Development would -IAC: reversed TC decision as Robes-Francisco has a cause the execution of a Deed of Absolute Sale in favor
fail to complete payment within the said period. total available sum of P364,840.00 and their disposal of the VENDEE.”
-March 12, 1973 > Robes-Francisco addressed a letter on or before August 4, 1975 to answer for the -What Robes-Francisco should have done if it was
to Father Vasquez, parish priest of San Jose Del Monte, obligation of the Roman Catholic. It was not correct for indeed desirous of complying with its obligations would
Bulacan, requesting to be furnished with a copy of the the trial court to conclude that Robes-Francisco had have been to pay Roman Catholic within the grace
subject contract and the supporting documents. only about P64,840.00 in savings deposit on or before period and obtain a receipt of such payment duly
-July 17, 1975 > admittedly after the expiration of the August 5, 1975, a sum not enough to pay the issued by the latter. Thereafter, or, allowing a
stipulated period for payment, Robes-Francisco wrote outstanding account of P124,000.00. reasonable time, Robes-Francisco could have
Roman Catholic a formal request that her company be demanded from Roman Catholic the execution of the
allowed to pay the principal amount of P100,000.00 in ISSUES necessary documents. In case Roman Catholic refused,
three (3) equal installments of six (6) months each with 1. WON finding that Robes-Francisco had sufficient Robes-Francisco could have had always resorted to
the first installment and the accrued interest of available funds on or before the grace period for the judicial action for the legit enforcement of its right.
P24,000.00 to be paid immediately upon approval of payment of its obligation is proof that it did tender of 3. NO
the said request. payment for its said obligation within said period -A certified personal check is not legal tender nor the
-July 29, 1975 > Roman Catholic formally denied the 2. WON there is legal obligation on the part of Roman currency stipulated, and therefore, cannot constitute
said request of Robes-Francisco, but granted the latter Catholic to execute a deed of absolute sale in favor of valid tender of payment. The first paragraph of Art.
a grace period of five (5) days from the receipt of the the Robes-Francisco before the latter has actually paid 1249CC provides that "the payment of debts in money
denial to pay the total balance of P124,000.00, the complete consideration of the sale where the shall be made in the currency stipulated, and if it is not
otherwise, the provisions of the contract regarding contract between and executed by the parties possible to deliver such currency, then in the currency
cancellation, forfeiture, and reconveyance would be stipulates which is legal tender in the Philippines.
implemented. 3. WON an offer of a check is a valid tender of payment -PAL v. CA > Since a negotiable instrument is only a
-August 4, 1975 > Robes-Francisco wrote Roman of an obligation under a contract which stipulates that substitute for money and not money, the delivery of
Catholic requesting an extension of 30 days from said the consideration of the sale is in Philippine Currency such an instrument does not, by itself, operate as
date to fully settle its account. payment. A check, whether a manager's check or
-August 7, 1975 > Roman Catholic denied the request HELD ordinary check, is not legal tender, and an offer of a
for an extension of the grace period. 1. NO check in payment of a debt is not a valid tender of
-August 22, 1975 > Robes-Francisco protested alleged -A finding that Robes-Francisco had sufficient available payment and may be refused receipt by the obligee or
refusal of the latter to accept tender of payment funds on or before the grace period for the payment of creditor.
purportedly made by the former on August 5, 1975, the its obligation does not constitute proof of tender of -Hence, where the tender of payment by Robes-
last day of the grace period and demanded the payment by the latter for its obligation within the said Francisco was not valid for failure to comply with the
execution of a deed of absolute sale over the land in period. Tender of payment involves a positive and requisite payment in legal tender or currency stipulated
[ch5-L] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. Rogelio V. Quevedo [Ch5-L]
within the grace period and as such, was validly example, even set up the defense of want of Reasoning: A check may be certified by the bank at
refused receipt by Roman Catholic, the subsequent consideration between the parties. the request of the payee or the holder, when the check
consignation did not operate to discharge the former -the acceptor cannot defend on the ground of want of is certified at the request of the drawer or maker before
from its obligation to the latter. consideration between the drawer and the payee it reaches the hands f the payee therein named. When
Disposition Petition for review on certiorari granted. Disposition Judgment affirmed (Allegheny liable to pay such a certification is made and there is delivery to the
IAC decision set aside and annulled. RTC decision Buillet) payee, under the circumstances and conditions making
reinstated. him a bona fide holder for value, without notice of
SUTTER V SECURITY TRUST CO defects therein then the instrument is beyond recall by
BULLIET V ALLEGHENY TRUST CO 96 N.J. Eq. 644 A. 435, 35 A.L.R. 938 (1924) the maker as against the payee. He may only do so
284 Pa. 561, 131 Atl. 471 (1925) ~da~ (recall) if the payee is not a bona fide holder for value
~maia~ but has obtained the check by fraud perpetrated by
FACTS him upon the maker.
FACTS SUBJECT: Checks -In this case since Mr. Mack is not a holder in due
SUBJECT: a check for $5000 DRAWER: Mr. Sutter course, it is necessary to inquire whether the bank by
DRAWER: Mitchell, as buyer of an oil property DRAWEE: Security Trust Co. reason of its certification would have been justified in
DRAWEE: Allegheny Trust Co PAYEE: Mrs. Sutter making payment to Mrs. Sutter the payee upon proper
PAYEE: Bulliet, as seller of the the oil property INDORSEE: Mr. Mack presentation of the check by her notwithstanding the
-the memorandum of agreement of the parties -Mr. Sutter drew a check in favor of his wife on March service of notice to stop payment by her husband the
provided that the 5000 would be given in escrow in 25 1922 in the amount of $1000 for which he procured maker and the disclosure by him to the bank of the
evidence of good faith that Mitchell would pay the the certification of drawee Security Trust Co. The check conditions upon which the check was obtained by Mrs.
remainder of the purchase price. In the event of was delivered to his wife in consideration of a certain Sutters. There is nothing in the case that indicate that
Mitchell’s failure to pay, the 5000 would be forfeited in agreement between them concerning their separation. Mrs Sutter procured the check by any fraud perpetrated
favor of Buillet. Mitchell made sure with Allegheny that The wife violated said agreement after the delivery of by her to her husband.
it had enough funds. Buillet then sent a telegram to the check to her.
Allegheny inquiring whether it would honor Mitchell’s -On March 27, 1922 Mr. Sutter requested that payment PNB V PICORNELL
check, and the bank replied through wire that it would. be stopped upon the check because of Mrs. Sutter’s Romualdez; 46 Phil. 716 (1922)
-Mitchell did not pay the purchase price. Buillet then violation of their agreement. Mrs Sutter on the same ~bry_sj~
claimed from Allegheny, but the latter refused to pay day went to her brother Mr. Mack and indorsed the
because Mitchell had given a “stop payment order.” check to him and he deposited it in his bank in FACTS
Allegheny also insisted that, putting itself in the Philadelphia. SUBJECT: Bill Of Exchange
position of Mitchell, there was no transfer of title as to -March 30, through the Federal Reserve Bank of DRAWER: Bartolome Picornell
the property being conveyed as there was failure of Philadelphia, the check was presented to Security Trust DRAWEE: Firm Of Hyndman, Tavera And Ventura
consideration, thus it should not be liable to pay since Co for payment which was refused on ground of PAYEE: PNB
Mitchell itself would not be liable to pay. (in effect, “payment stopped”. Respondent told Mr. Sutter that -Bartolome Picornell, following instruction
Allegheny invoked the defense available to Mitchell) the check was in the hands of an innocent third person Hyndman, Tavera & Ventura, bought in Cebu 1,735
for value and that unless he indemnified respondent bales of tobacco. Picornell obtained from the branch of
ISSUE the check would be paid. He refused to indemnify the National Bank in Cebu the sum of P39,529,83, the
WON Allegheny is liable for the amount under the respondent, thus respondent paid the check upon value of the tobacco, together with his commission of 1
circumstances subsequent presentment. Mr. Sutter demanded the real per quintal, having, in turn, drawn a bill of
payment to him of his alleged balance of $1034.41 w/c exchange. This instrument was delivered to the
HELD: YES includes the $1000 drawn w/c was refused except as to branch of the Philippine National Bank (PNB) in
-the reply of Allegheny that it would honor the check balance of $34. Cebu, together with the invoice and bill of lading
amounted to certification of the bank, thus making it of the tobacco, which was shipped in the boat
liable ISSUE Don Ildefonso, on 27 February 1920, consigned
-the effect of the bank’s certifying a check at the WON Security Trust Co. was justified in paying the to Hyndman, Tavera & Ventura at Manila.
request of the holder is to create a new obligation on indorsee Mr. Mack the $1000 value of the check -On 3 March 1920, PNB presented the bill to
the part of the bank to that holder, the amount of the Hyndman, Tavera & Ventura, who accepted it.
check passes to the credit of the holder, who is HELD: YES. The tobacco having arrived at Manila, the firm of
thereafter a depositor to that amount -The Bank was justified and legally called upon to make Tambunting, owner of the ship Don Ildefonso, that
-the obligation of the acceptor is to pay the instrument payment to Mrs. Sutter upon presentation and demand brought the shipment, requested Hyndman, Tavera &
according to the tenor of his acceptance. It has been as against the notice of the maker of the check to stop Ventura to send for the goods, which was done by the
said that an acceptor admits everything essential to the payment, its obligation under the facts was likewise to company without the knowledge of PNB which retained
validity of the bill, and on this ground he cannot, for make the payment to the indorsee holder Mr. Mack and always had in its possession the invoice and bill of
[ch5-M] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. Rogelio V. Quevedo [Ch5-M]
lading of the tobacco, until it presented them as Tavera & Ventura company at Manila, the price of holder gives value to the drawer, and if he is ignorant
evidence at the trial which, together with his commission, was received by of the equities between the drawer and the acceptor,
-Hyndman, Tavera & Ventura proceeded to the him from the branch of the plaintiff bank in Cebu, and he is in the position of a bona fide indorsee. Hence, it is
examination of the tobacco, which was deposited in in consideration whereof he drew the bill in favor of the no defense to a suit against the acceptor of a draft
their warehouses, and wrote and cabled to Picornell, central office of said bank in Manila and against the which has been discounted, and upon which money has
notifying him that of the tobacco received, there was a said Hyndman, Tavera & Ventura company, the been advanced by the plaintiff, that the draft was
certain portion which was of no use and was damaged. consignee of the tobacco. accepted for the accommodation of the drawer. . . ."
Through these communications, therefore, Picornell -Joaquin Pardo de Tavera alleged that the bill in 2. NO.
learned that Hyndman, Tavera & Ventura had in their question was without consideration and that judgment -As to Bartolome Picornell, he warranted, as drawer of
possession the tobacco. should not have been rendered against him. The the bill, that it would be accepted upon proper
-In view of the question raised by the said company as appellant Picornell contended that it should have been presentment and paid in due course, and as it was not
to the quality of the aforesaid tobacco, more taken into account that he merely acted as an agent of paid, he became liable to the payment of its value to
correspondence was exchanged between the company Hyndman, Tavera & Ventura in all these transactions; the holder thereof, which is the plaintiff bank. (Sec. 61,
and Picornell. Picornell requested PNB to extend the that the tobacco was not of inferior quality, as alleged Negotiable Instruments Law.)
time for payment of the bill for P39,529,83 against by the said company; that the condition "D/P" attached -The fact that Picornell was a commission agent
Messrs. Hyndman, Tavera & Ventura of Manila for 30 to the transaction was not modified; that he had the of Hyndman, Tavera & Ventura, in the purchase
days. PNB granted the request of Picornell; wherefore right to complain because the bank consented to the of the tobacco, does not necessarily make him an
Hyndman, Tavera & Ventura reaccepted the bill in the said company taking possession of the tobacco before agent of the company in its obligations arising
terms: "Accepted for thirty days. Due May 2d, 1920. the payment of the bill; that the bank held the tobacco from the drawing of the bill by him. His acts in
Hyndman, Tavera & Ventura, by (Sgd.) J. Pardo de as a deposit; that the bank was not authorized to sell negotiating the bill constitute a different contract from
Tavera, member of the firm." 2 May 1920, arrived and the tobacco, said sale not being allowed either by law that made by his having purchased the tobacco on
the bill was not paid. or by the circumstances; that he should not have been behalf of Hyndman, Tavera & Ventura. Furthermore, he
-On the 4th of the same month, Hyndman, Tavera & ordered to pay the value of the bill without proof that cannot exempt himself from responsibility by the fact
Ventura sent a letter to PNB informing the latter that it he was notified of its dishonor, as required by section of his having been a mere agent of this company,
absolutely refuse to pay draft 2 for P39,529.83, 89 of the Negotiable Instruments Law. BECAUSE NOTHING TO THIS EFFECT WAS INDICATED
referring to 1,871,235 quintals of Leaf Tobacco Barili, OR ADDED TO HIS SIGNATURE ON SIGNING THE BILL.
owing to noncompliance of the contract by the drawer. ISSUES (Sec. 20, Negotiable Instruments Law.)
PNB protested the bill, took possession of the tobacco, 1. WON the bank is subject to the defense of partial -Concerning the notice to Picornell of the dishonor of
and had it appraised on the 12th of the same month, its want of consideration. the bill, it appears from Exhibit C, which is the protest
value having been fixed at P28,790.72. The bank 2. WON Picornell is not liable on the instrument on the for the non-payment thereof, that a copy of such
brought the action for the recovery of the value of the theory that he is merely a commissioned agent. protest was sent by mail in good season addressed to
bill of exchange, and about September 1921, sold the Bartolome Picornell, the presumption, now conclusive,
tobacco, obtaining from the sale P6,708. HELD that the latter received it (secs. 105, 106, Negotiable
-In a decision rendered January 9, 1922, and amended 1. NO. Instruments Law), not having been rebutted, or at least,
by an order of February 18th next, the Court of First -The question whether or not the tobacco was worth contradicted. Upon the non-payment of the bill by the
Instance of Manila sentenced the defendants to pay the value of the bill, does not concern the plaintiff bank. drawee-acceptor, the bank had the right of recourse,
solidarily to the plaintiff bank the sum of P28, 790.72 Such partial want of consideration, if it was, does not which it exercised, against the drawer. (Sec. 84,
with interest at the rte of 9 per centum per annum from exist with respect to the bank which paid to Picornell Negotiable Instruments Law.)
May 3, 1921, and costs; and the defendant Bartolome the full value of said bill of exchange. The bank was a -The drawee, the Hyndman, Tavera & Ventura
Picornell, to pay said plaintiff the sum of P10,739.11 holder in due course, and was such for value full and company, or its successors, J. Pardo de Tavera,
with interest at 9 per centum per annum, all as complete. The Hyndman, Tavera & Ventura company accepted the bill and is primarily liable for the value of
aforesaid, deducting the sum of P6, 708.82 from such cannot escape liability in view of section 28 of the the negotiable instrument, while the drawer, Bartolome
amounts to be paid by the defendants. Negotiable Instruments Law. Picornell, is secondarily liable. However, no question
-This total sum which the defendants are required to “The drawee by acceptance becomes liable to the has been raised about this aspect of the responsibility
pay represents the value of a bill of exchange drawn by payee or his indorsee, and also to the drawer himself. of the defendants.
Bartolome Picornell in favor of the National Bank, But the drawer and acceptor are the immediate parties
plaintiff, against the firm of Hyndman, Tavera & to the consideration, and if the acceptance be without BANCO ATLANTICO V AUDITOR GENERAL
Ventura, now dissolved, its only successor being the consideration, the drawer cannot recover of the G.R. No. L-33549; Fernandez; Jan 31,1978
defendant Joaquin Pardo de Tavera. The sum of acceptor. The payee holds a different relation; he is a ~mel~
P6,708.82, which the trial court ordered stranger to the transaction between the drawer and the
deducted from the value of the bill of exchange, acceptor, and is, therefore, in a legal sense a remote FACTS
is the proceeds received by the bank from the party. In a suit by him against the acceptor, the SUBJECT: Philippine Embassy check dated Oct 31, 1968
sale of a part of a certain quantity of tobacco question as to the consideration between the drawer for US$10,109.10
shipped by Picornell at Cebu to the Hyndman, and the acceptor cannot be inquired into. The payee or
[ch5-N] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. Rogelio V. Quevedo [Ch5-N]
DRAWER: Luis M. Gonzales, its ambassador and by said the three checks in question, stating that the Embassy previously clearing the said checks with the drawee
Virginia Boncan as Finance Officer never maintained any checking account with Banco bank, Philippine National Bank, New York. This is
DRAWEE: Philippine National Bank branch in New York, Atlantico at any time in the past. Only the individual contrary to normal or ordinary banking practice
U.S.A staff members of the Embassy, including Miss Virginia specially so where the drawee bank is a foreign bank
PAYEE: Azucena Pace Boncan, in their personal and private capacities, and the amounts involved were large. The drawer of
INDORSEE: Banco Atlantico, a commercial Bank doing maintained accounts with said bank. It also stated that the aforementioned checks was not even a client of the
business in Madrid while the aforementioned checks of the Embassy may petitioner. There is a showing that Virginia Boncan
-Virginia Boncan, then the Finance Officer of the have appeared valid, payment to Miss Boncan in her enjoyed special treatment from the employees and
Philippine Embassy in Madrid, Spain, negotiated with capacity as endorser and payee of the checks without chiefs of the petitioner's foreign department. It was
Banco Atlantico a Philippine Embassy check signed by clearing them first with the drawee bank is definitely probably because of this special relationship that the
Luis M. Gonzales, its ambassador and by said Virginia not in accordance with normal or ordinary banking petitioner, in of the elementary principle that should
Boncan as Finance Officer, dated October 31, 1968 in practice, especially so in this case where the drawee attend banking transactions, cashed the three (3)
the sum of US$10,109.10 payable to Azucena Pace and bank was a foreign bank, and the amounts involved checks in question without prior clearances from the
drawn against the PNB branch in New York, U.S.A. were quite large. The normal procedure would have drawee bank.
-The check was endorsed by Azucena Pace and Virginia been for the Banco Atlantico to clear the three cheeks -SEC. 52. What constitutes a holder in due course A
Bonca. The petitioner, without clearing the check with concerned with the drawee bank before paying Miss holder in due course is a holder who has taken the
the drawn bank in New York, U.S.A., paid the full Boncan. The lower court have gathered enough proof instrument under the following conditions:
amount of US$10,109.10 to Virginia Boncan; that on that Miss Boncan had very special relations with the a. That it is complete and regular on its face;
November 2, 1968, Virginia Boncan negotiated by employees and chiefs of the claimant bank's foreign b. That he became the holder of it before it was
endorsement with the petitioner another embassy department. This personal relationship that existed overdue, and without notice that it has been previously
check signed by Luis M. Gonzales as ambassador and between Miss Boncan and said employees and officers dishonored, if such was the fact;
by her as finance officer in the sum of US$35,000.75 was one thing and ordinary banking transactions were c. That he took it in good faith and for value;
dated November 2, 1968 payable to Virginia Boncan something else. Because of this special relationship, d. That at the time it was negotiated to him he had no
and drawn against the Philippine National Bank branch the bank took a risk and sacrificed normal banking notice of infirmity in the instrument or defect in the title
in New York, U.S.A.; that the petitioner paid the full procedures by cashing the aforementioned checks of the person negotiating it.
amount of the check to Virginia Boncan without without prior clearance from the drawee bank. -All four conditions enumerated under this section must
clearing said check with the drawn bank, that on -Further proof of the special relationship between concur before a holder can be considered as a holder in
November 5, 1968, Virginia Boncan negotiated by claimant bank and Miss Boncan was the leniency of the due course. The absence or failure to comply with any
endorsement with petitioner another embassy check bank towards her when it accepted for deposit to Miss of the conditions set forth under this section will make
signed by Ambassador Luis M. Gonzales and by Finance Boncan's dollar account an Embassy check for one's title to the instrument defective.
Officer Virginia Boncan in the sum of US$90,000.00 US$75.00 payable to Mr. Antonio P. Villamor without his -The check for US$90,000.00 was a demand note.
dated November 5, 1968 payable to Virginia Boncan indorsement. Such leniency on the part of the bank When Miss Boncan the payee of this check, negotiated
and drawn against the Philippine National Bank in New could even lead to the suspicion that there was the same by depositing it in her account, at the game
York, U.S.A.; that the petitioner paid the full amount of collusion between the bank and Miss Boncan A time informing the bank in writing (copy of her letter is
the aforementioned check of US$90,000.00 to Virginia photocopy of this check is enclose for ease of enclosed for ease of reference) that it be not presented
Boncan without clearing said check with the drawn reference. In the particular case of the check for for collection until a later date, Banco Atlantico through
bank; US$90,000.00 we can demonstrate that claimant bank its agent teller or cashier should have been put on
-Upon presentment for acceptance and payment of the likewise has no ewe at all. Section 61 of the Negotiable guard that there was something wrong with the check.
aforementioned checks by Banco Atlantico through its instruments Law can only be availed of by holders in The fact that the amount involved was quite big and it
collecting bank in New York, U.S.A. to the drawn bank, due course and Banco Atlantico cannot be considered was the payee herself who made the request that the
the Philippine National Bank branch in U.S.A., said as one same not be presented for collection until a fixed date
drawee bank dishonored the checks by non-acceptance in the future was proof of a glaring infirmity or defect in
allegedly on the ground that the drawer had ordered ISSUE the instrument. It loudly proclaims, "Take me at your
payments to be stopped; that upon receipt of the notice WON the Philippine Embassy in Madrid is liable, as risk." The interest of the payee was the immediate
of the dishonor, the collecting bank of the petitioner in drawer of the 3 checks in question punishment of the check of which she was the
New York, U.S.A. sent individual notices of protest with beneficiary and not the deferment of the presentment
respect to the checks in question to the Philippine HELD: NO for collection of the same to the drawee bank. This
Embassy in Madrid, Spain and to Virginia Boncan as Ratio: It is apparent that the said three (3) checks being the case, Banco Atlantico was not a holder in due
endorser payee that Virginia Boncan and the Philippine were fraudulently altered by Virginia Boncan as to their course as defined by Sec. 52 of NIL, because it was
Embassy in Madrid, Spain refused to pay the petitioner amounts and, therefore, wholly inoperative. No right of obvious that it had knowledge of the infirmity or defect
the amounts of the aforementioned checks. payment thereof against any party thereto could have of the cheek. The fact that the check was honored by
-Petitioner Banco Atlantico filed corresponding money been acquired by the petitioner. claimant bank was proof not only of their gross
claim with the Auditor General. AUDITOR GENERAL: Reasoning: The petitioner paid the amounts of the negligence but a further manifestation of the special
denied the claim of the petitioner for the amounts of three (3) checks in question to Virginia Boncan without treatment they were according Miss Boncan.
[ch5-O] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. Rogelio V. Quevedo [Ch5-O]
Disposition Decision of Auditor General denying claim circumstances, and so received the proceeds of the drawn as where his check is payable to the order of a
of petitioner for payment of the three checks is check in question, thereby causing loss to the bank. real person. His negligence in so drawing the check is
affirmed immaterial unless directly and proximately affects the
ISSUE conduct of the bank in paying the check.
McCORNACK V CENTARL STATE BANK WON Central State Bank (drawee) is liable. e. On Sec.9521 of Code 1924 (Sec.61 of NIL):
211 N.W. 542, 53 A.L.R. 1297 This provision would seem to be, not for the benefit of
~eva~ HELD: YES. the drawee, nor designed to relieve the drawee of the
a. A check payable to the order of a fictitious person duty to pay out the drawer’s money in accordance with
FACTS with the knowledge of the drawer is payable to bearer. his order, but for the protection of holders of the paper
DRAWER: Peter McCornack But where the fact that it is payable to a fictitious in case the drawee refuses to pay. It provides, not
DRAWEE: Central State Bank person is unknown to the drawer, that bank upon which only that the drawer admits the existence of the
PAYEE: C.R. Kutsman (fictitious person) it is drawn, or paying it, is in no different position than payee and his capacity to indorse, but that he
-(July 1920) Halverson gained the confidence of where it pays a check payable to a real party upon a engages that upon dishonor and the necessary
McCornack and represented to him that he had a client forged instrument. McCornack did not know that the proceedings thereon he will pay the amount to
who wished to borrow money to be secured by payee was fictitious; the check was not, therefore, the holder or any subsequent indorser who may
mortgage on land, and so McCornack consented to payable to bearer, and the bank cannot escape liability be compelled to pay it. There is here no
make the loan. Halverson delivered to McCornack a on that ground. engagement to pay the amount to a drawee who
note purporting to be signed by CR Kutsman and b. Where an impostor represents himself to be another, has honored the check.
secured by a mortgage. McCornack signed a check for whether the person whom he so impersonates be a real -When the payee is a fictitious person and this is
$1,005.50 which he gave to Halverson. Halverson or fictitious person, and procures a check payable to unknown to the drawer the statute does not have the
indorsed the name Kutsman and his own name on the the order of such person, the bank is protected in effect to bind the drawer by an indorsement of the
check and deposited it in his account. The check was paying the check to the impostor, because it made name of the payee by one to whom he did not intend
paid on presentation to Central State Bank and the payment to the person to whom the drawer intended it payment to be made.
amount charged to the account of McCornack. should be made, no matter what name he assumed. -If the drawee demanded a genuine indorsement, as it
-(1924) It was discovered that the note and the But where one represents himself to be the agent of a was its duty to do before honoring the check, since
mortgage were forged instruments and no Kutsman in ficititious person and fraudulently procures the delivery there could be no such thing in the case of a fictitious
fact existed. Halverson, by like fraudulent means, to himself of a check payable to the order of such payee, the check would not have been honored. In such
obtained other checks from McCornack. McCornack fictitious person as payee, and secures the payment of case, an innocent holder, upon taking proper steps,
sued to recover, as for a conversion, the amount paid the check to himself by indorsing the name of the would have been protected by Sec.9521. The purpose
by the bank and charged against its (McCornack) fictitious payee upon it, in the absence of estoppel or of that section was to protect the innocent holder of
account. Court decided in favor of McCornack. Bank negligence on the part of the drawer, the loss must be dishonored paper-not the drawee who paid it in
now appeals. borne by the drawee and not by the drawer. violation of duty.
-Defenses of drawee bank: c. The bank in paying the check was bound to know at
1. check paid to person to whom McCornack intended its own risk that the indorsements by which the holder LOZANO V MARTINEZ
payment to be made of the check claimed title were genuine. Its liability for 146 SCRA 323; Yap; Dec. 18, 1986
2. the bank was not guilty of negligence payment not in accordance with the direction of the ~jat~
3. McCornack was negligent in making the check in that drawer did not depend upon negligence, but upon a
he failed to ascertain that the payee was a fictitious violation of its implied contract with its depositor. The FACTS
person question WON the bank was negligent is immaterial -Petitions arose from cases prosecuted under Batas
4. that by accepting without objection the statement of upon the naked and primary question of its liability for Pambansa Blg.22 (BP 22) or the Bouncing Checks Law.
their bank account with the check in question cancelled having paid a check upon a forged indorsement. Here, Defendants in these cases moved to quash the
and charged against it, there was account stated, and the check was paid by the bank without inquiry as to informations filed against them on ground that BP 22 is
the plaintiffs were thereby estopped to claim that the the indorsement of Kutsman. unconstitutional.
check was improperly paid d. McCornack was not negligent. There is no showing -Arguments against the constitutionality of BP 22:
5. by failing to notify the bank within 6 months after that anything had come to his knowledge respecting 1. it offends the constitutional provision on non-
receiving such statement of the alleged irregularity in Halverson to put him upon inquiry as to his honesty. imprisonment for debt
the payment of the check, the claim was barred by the Moreover, McCornack’s failure to ascertain that the 2. it impairs freedom of contract
statute of limitations payee of his check was a fictitious person did not 3. it contravenes the equal protection clause
6. McCornacks were guilty of negligence in not sooner induce or contribute to the payment of the check by the 4. it is an undue delegation of legislative and executive
notifying the bank of the alleged error in the payment bank. The drawer of the check, who, through failure to powers
of the check, for the reason that they knew, or should discover the fraud that is being practiced upon him, 5. during its passage, the interim Batasan violated the
have known, that Halverson was receiving the proceeds makes a check payable to the order of a fictitious constitutional provision prohibiting amendments to a
of checks turned over to him under similar payee in ignorance of that fact, stands in the same bill on 3rd reading
position with reference to the bank upon which it is
[ch5-P] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. Rogelio V. Quevedo [Ch5-P]
BACKGROUND ON BP 22: c. RPC Art. 315, Par. 2(d) punishes anyone who welfare. It is within the police power of the state
BP 22 punishes postdates a check or issues a check in payment (making & issuing of worthless checks is a public
a. Anyone who makes/draws & issues any check on of an obligation knowing that at the time he had nuisance to be abated by the imposition of penal
account or for value, knowing at the time of issue no/insufficient funds in the bank without sanctions). Court cannot question its wisdom. It’s
that he does not have sufficient funds in or credit informing the payee of such circumstances. sufficient that there be a reasonable nexus between
with the drawee bank for the payment of said However, this provision did not cover checks issued to the means & end. A check is a convenient substitute for
check, in full, upon presentment, which check is pay pre-existing obligations since the deceit that currency in commercial & financial transactions due to
subsequently dishonored by the drawee bank for causes the defrauding must be prior to or simultaneous the assurance that it will be paid upon presentation.
insufficiency of funds/credit or would have been with the commission of the fraud. In this case, payee Central Bank reports show that 1/3 of the entire money
dishonored for the same reason had not the already parted with his money/property before the supply of the country consists of peso demand deposits
drawer, w/o any valid reason, ordered the bank to check was issued thus he’s not defrauded by means of (funds against w/c commercial papers like checks are
stop payment. a prior or simultaneous deceit. Drawer on the other drawn). Considering these facts and that there are
b. Anyone who has sufficient funds in or credit with hand did not derive any material benefit in return for approximately 50-80 million pesos worth of bouncing
bank when he makes/draws & issues a check but check’s issuance. checks per day, we can see that the State has a
fails to keep sufficient funds or maintain a credit to d. Aiming to cover checks issued to pay pre-existing legitimate purpose in protecting checks. Any practice
cover full amount if presented w/in 90 days from obligations, RA 4885 amended Art. 315 2(d) by tending to destroy the confidence in checks should be
date appearing on check resulting to the bank removing the requirement of drawer’s knowledge of deterred since it would injure trade & commerce,
dishonoring the check. insufficiency of funds and by giving the drawer 3 days banking system, the nation’s economy & eventually the
Penalty: imprisonment of not less than 30 days nor from receipt of notice of dishonor to deposit the welfare of the society & the public interest. It would be
more than 1 yr or a fine of not less than the amt of the amount necessary to cover the check. Failure to do so mistaken charity of judgment to place this felony
check nor more than double said amount, but it should would be a prima facie evidence of deceit. But SC ruled alongside a felony committed by an honest man unable
not exceed P200k or both fine & imprisonment at in People vs. Sabio that the amended provision still did to pay his debts.
court’s discretion. not cover pre-existing obligations. WON BP 22 impairs freedom of contract.
Essential element: knowledge of the insufficiency of e. BP 22 was enacted to cover checks issued to -NO. The Constitution only protects the freedom to
funds. pay pre-existing debts, which statistically enter into LAWFUL contracts & not those which
Prima facie presumption of knowledge: when check is constituted the greater bulk of dishonored checks. contravene public policy. Besides, a check is not a
refused by bank due to insufficient funds/credit when contract. It’s a commercial instrument used as a
presented within 90 days from date of the check. ISSUE substitute for money forming part of the banking
Presumption will not arise if within 5 days from receipt WON BP 22 is constitutional system & thus not entirely free from state’s regulatory
of notice of dishonor, the maker/drawer makes power.
arrangements for payment of check by bank/pays the HELD: YES.
holder the amount of the check. BP 22 is clear and broad enough to cover all kinds of WON BP 22 denies equal protection of the laws or is
Prima facie proof of dishonor: introduction as evidence checks whether present or postdated, or whether discriminatory since it penalizes the drawer of the
of unpaid and dishonored check with drawee bank’s issued in payment of a pre-existing obligation or given check but not the payee.
refusal to pay stamped/written thereon or attached in mutual or simultaneous exchange for something of -NO. It would be absurd to punish the person swindled.
thereto, giving the reason thereof. value. No sense in talking about swindled’s indispensable
Purpose of the statute: stop/curb practice of issuing participation in the commission of the crime.
WON it violates the constitutional prohibition on non- Classification per se is valid as long as it is not
worthless checks due to the injury it causes to the imprisonment for debt
public interests. unreasonable/arbitrary.
-NO. Those who assail the statute claim that the felony
History of provisions covering bouncing checks: is consummated only upon the dishonor/non-payment WON BP 22 constitutes undue/improper delegation of
a. Penal Code of Spain Art. 335 penalized act of of check. That it is really a bad debt law rather than a legislative/executive powers since completion of act is
defrauding another by falsely pretending to possess bad check law. It punishes the non-payment of the dependent on the will of the payee.
any power, influence, qualification, property, credit, check & not the act of issuing it. It is a veiled device to -NO. What cannot be delegated is the power to
agency or business or by means of similar deceit. coerce payment of a debt under the threat of penal legislate, or the power to make laws, which means, as
b. 1926, Phil Legislature amended PC Art. 335 sanction. applied to the present case, the power to define the
penalizing anyone who: 1) issues a check in payment of -BP 22 punishes making & issuing a worthless check offense sought to be punished and to prescribe the
a debt or for other valuable consideration knowing at and not the non-payment of an obligation. It does not penalty. The power to define the crime and prescribe
the time of its issuance that he does not have sufficient intend to coerce a debtor to pay his debt. It’s punished the penalty therefore has not been in any manner
funds in the bank to cover its amount; 2) maliciously because of its deleterious effects on the public interest. delegated to the payee. Nor is the power to enforce the
signs check differently from his authentic signature as It punishes the act not as an offense against property, statute delegated to the offended party.
registered at the bank in order that the latter would but an offense against public order. WON BP 22 violates Art. VII Sec. 9(2) of the 1973 Consti
dishonor it; 3) issues a postdated check & at the date -Although the legislature cannot penalize a person for w/c prohibits the introduction of the amendments to a
set for its payment doesn’t have sufficient deposit to non-payment of a debt ex-contractu, it can proscribe bill during the 3rd reading.
cover the same. certain acts deemed pernicious & inimical to public
[ch5-Q] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. Rogelio V. Quevedo [Ch5-Q]
-NO. Although there was confusion among Batasan presentment, is generally accepted by the bank. It does of his customers. Although these customers had
Members regarding this matter, a Special Committee not matter for whatever purpose it was issued, for the already paid their respective orders, Wong claimed LPI
investigated the matter & found that there were mere act of issuing a worthless check is malum did not return the said checks to him.
actually no amendments introduced during the 3rd prohibitum. -RTC: guilty. CA: guilty
reading. Amendment in question was made during the -a memorandum check may carry with it the
2nd reading. understanding that it is not to be presented at the bank ISSUE
but will be redeemed by the maker when the loan falls WON Wong should be convicted considering that the
due. However, with BP 22, this may no longer prevail to checks were issued as guaranty and the accounts that
exempt it from penal sanction imposed by the law. To said checks supposedly guaranteed have already been
require that the agreement surrounding the issuance of paid by the customers
check be first looked into and thereafter exempt such
PEOPLE V NITAFAN issuance from the punitive provision of BP 22 on the HELD: YES
G.R. No. 75954; Oct 22, 1992; 215 SCRA 79 basis of such agreement or understanding would -Wong contends that LPI is not a "holder for value"
~kooky~ frustrate the very purpose for which the law was considering that the checks were deposited by LPI after
enacted --to stem the proliferation of unfunded checks. the customers already paid their orders. Instead of
FACTS Disposition Petition granted. RTC ordered to proceed. depositing the checks, LPI should have returned the
SUBJECT: memorandum check dated Feb 9, 1985 checks to him.
DRAWER: K.T. Lim alias Mariano Lim WONG V COURT OF APPEALS, People -the lowers courts found that although initially intended
DRAWEE: Philipppine Trust Company 351 SCRA 100; Quisumbing; Feb 2, 2001 to be used as guarantee for the purchase orders of
PAYEE: Fatima Cortez Sasaki ~maia~ customers, the checks were eventually used to settle
-K.T. Lim was charged with violation of BP 22. for the the remaining obligations of Wong with LPI. Besides, in
check he issued to Sasaki for P143,000 which was FACTS Llamado v. Court of Appeals, it was held that “[t]o
dishonored by drawee for insufficiency of funds. -Wong was an agent of Limtong Press. Inc. (LPI), a determine the reason for which checks are issued, or
Despite notice of dishonor, Lim did not pay within 5 manufacturer of calendars. LPI would print sample the terms and conditions for their issuance, will greatly
days. calendars, then give them to agents to present to erode the faith the public reposes in the stability and
-Failing in his argument that BP 22 is unconstitutional, customers. The agents would get the purchase orders commercial value of checks as currency substitutes,
Lim now argues that the memorandum check he issued of customers and forward them to LPI. After printing the and bring about havoc in trade and in banking
is in the nature of a PN, hence, outside the purview of calendars, LPI would ship the calendars directly to the communities. So what the law punishes is the issuance
the statute. customers. Thereafter, the agents would come around of a bouncing check and not the purpose for which it
to collect the payments. Wong, however, had a history was issued nor the terms and conditions relating to its
ISSUE of unremitted collections, thus his customers were issuance. The mere act of issuing a worthless check is
WON a memorandum check is within the coverage of required to issue postdated checks before LPI would malum prohibitum.”
BP 22 accept their purchase orders. -2 ways of violating BP 22: (1) by making or drawing
-In December 1985, Wong issued 6 postdated checks and issuing a check to apply on account or for value
HELD: YES totaling P18,025.00. These checks were initially knowing at the time of issue that the check is not
-A memorandum check is in the form of an ordinary intended to guarantee the calendar orders of sufficiently funded; and (2) by having sufficient funds in
check, with the word "memorandum", "memo" or customers who failed to issue post-dated checks. or credit with the drawee bank at the time of issue but
"mem" written across its face, signifying that the maker However, LPI refused to accept the checks as failing to keep sufficient funds therein or credit with
or drawer engages to pay the bona fide holder guarantees. Instead, the parties agreed to apply the said bank to cover the full amount of the check when
absolutely, without any condition concerning its checks to the payment of Wong’s unremitted presented to the drawee bank within a period of ninety
presentment. Such a check is an evidence of debt collections for 1984 amounting to P18,077.07. LPI (90) days.
against the drawer, and although may not be intended waived the P52.07 difference. -The elements of BP 22 under the first situation are: (1)
to be presented, has the same effect as an ordinary -Before the maturity of the checks, Wong told LPI not to The making, drawing and issuance of any check to
check, and if passed to the third person, will be valid in deposit the checks and promised to replace them apply for account or for value; (2) The knowledge of the
his hands like any other check. It is still drawn on a within 30 days. However, Wong reneged on his maker, drawer, or issuer that at the time of issue he
bank and should be distinguished from PN. In the promise. On June 5, 1986, LPI deposited the checks does not have sufficient funds in or credit with the
business community a PN has less impact and with RCBC. The checks were returned for the reason drawee bank for the payment of such check in full upon
persuadability than a check. “account closed.” its presentment; and (3) The subsequent dishonor of
-a memorandum check comes within Sec 185 NIL which -LPI through counsel notified Wong of the dishonor. the check by the drawee bank for insufficiency of funds
defines a check as "a bill of exchange drawn on a bank Wong failed to make arrangements for payment within or credit or dishonor for the same reason had not the
payable on demand." It must therefore fall within the 5 banking days. Thus, Wong was charged with violation drawer, without any valid cause, ordered the bank to
ambit of BP 22 which does not distinguish but merely of BP 22 (bouncing checks law) stop payment.
provides that "[a]ny person who makes or draws and -According to Wong, he issued the checks not as -Wong contends that the 1st element does not exist
issues any check …” -A memorandum check, upon payment for any obligation, but to guarantee the orders because the checks were not issued to apply for
[ch5-R] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. Rogelio V. Quevedo [Ch5-R]
account or for value since the checks were issued as 157 days after the date of the check. Hence said checks, which amount is more than the total obligation
guarantee and the obligations they were supposed to checks are not stale. Only the presumption of of Sarangani, Inc. which was accommodated by him.
guarantee were already paid. This argument has no knowledge of insufficiency of funds was lost, but such -It is the contention of ALBERTO that with the full
legal basis, for what BP 22 punishes is the issuance of a knowledge could still be proven by direct or payment of the accommodated obligation, the twelve
bouncing check and not the purpose for which it was circumstantial evidence. Here, LPI did not deposit the checks subject of the present case have no valuable
issued nor the terms and conditions relating to its checks because of the reassurance of Wong that he consideration.
issuance. would issue new checks. Upon his failure to do so, LPI -Trial court rendered a decision finding ALBERTO guilty
-As to the 2nd element, BP 22 creates a presumption was constrained to deposit the said checks. After the of violation of B.P. Blg. 22 in each of the twelve cases.
juris tantum that the 2nd element prima facie exists checks were dishonored, Wong was duly notified of ALBERTO filed a motion for reconsideration which was
when the 1st and 3rd elements of the offense are such fact but failed to make arrangements for full denied, Court of Appeals affirmed in toto the decision of
present. Thus, the drawer’s knowledge is presumed payment within 5 banking days thereof. There is the trial court.
from the dishonor. Wong avers that since LPI deposited sufficient evidence that Wong had knowledge of the
the checks 157 days after the Dec 30, 1985 maturity insufficiency of his funds in or credit with the drawee ISSUE
date, the presumption of knowledge of lack of funds bank at the time of issuance of the checks. WON ALBERTO is not guilty of violating BP22
under Sec21 of BP 22 should not apply to him (as the subject checks lack valuable consideration)
-However, an essential element of the offense is
“knowledge” on the part of the drawer of the LIM V PEOPLE HELD: NO.
insufficiency of his funds in or credit with the bank. G.R. No. 143231; D avide; Oct 26, 2001 -Upon issuance of the said checks, it is presumed, in
Since this involves a state of mind difficult to establish, ~da~ the absence of evidence to the contrary, that the same
the statute itself creates a prima facie presumption was issued for valuable consideration.
Nowhere in said provision does the law require a maker FACTS -BP Blg. 22 punishes the issuance of a bouncing check.
to maintain funds in his bank account for only 90 days. SUBJECT: Checks It is not the non-payment of an obligation which the law
Rather, the clear import of the law is to establish a DRAWER: ALBERTO LIM punishes, but the act of making and issuing a check
prima facie presumption of knowledge of such DRAWEE: Metrobank that is dishonored upon presentment for payment. The
insufficiency of funds under the ff conditions: (1) PAYEE: ROBERT LU purpose for which it was issued and the terms and
presentment within 90 days from date of the check, -Sometime in May 1992, ALBERTO issued to private conditions relating to its issuance are immaterial. What
and (2) dishonor of check and failure of maker to make complainant Robert Lu for purpose of rediscounting, is primordial is that such issued checks were worthless
arrangements for payment in full within 5 days after sixty-four (64) Metrobank checks, including the 12 and the fact of its worthlessness is known to appellant
notice checks subject of the informations filed in these cases. at the time of their issuance, a required element under
-That the check must be deposited within 90 days is Upon respective dates of maturity, each of the 12 B.P. Blg. 22. This is because the mere act of issuing a
simply one of the conditions for the prima facie checks were deposited by ROBERT at the Roosevelt worthless check is malum prohibitum
presumption of knowledge of lack of funds to arise. It is Branch of the United Coconut Planters Bank, which -The law enumerates the elements of B.P. Blg. 22 to be
not an element of the offense nor does it discharge were all dishonored by the drawee bank for the reason (1) the making, drawing and issuance of any check to
Wong from his duty to maintain sufficient funds in the "Account Closed." apply for account or for value; (2) the knowledge of the
account -ROBERT informed ALBERTO of the dishonor and maker, drawer, or issuer that at the time of issue he
-Under Section 186 of NIL: “a check must be presented demanded payment but despite receipt of notice of does not have sufficient funds in or credit with the
for payment within a reasonable time after its issue or such dishonor ALBERTO failed pay.ROBERT thru his drawee bank for the payment of the check in full upon
the drawer will be discharged from liability thereon to lawyer sent a demand letter dated 29 December 1992 its presentment; and (3) the subsequent dishonor of
the extent of the loss caused by the delay.” By current to ALBERTO. ALBERTO received the demand letter on 9 the check by the drawee bank for insufficiency of funds
banking practice, a check becomes stale after more January 1993. For failure to settle his account within the or credit or dishonor for the same reason had not the
than 6 months or 180 days. LPI deposited the checks seven days grace period provided in the demand letter, drawer, without any valid cause, ordered the bank to
ALBERTO caused the filing of the 12 informations stop payment.
1 subject of the instant case. -The issuance of the twelve checks and its subsequent
Evidence of knowledge of insufficient funds. -The -ALBERTO alleged that sometime in 1989, Sarangani dishonor were admitted by ALBERTO. His defense rests
making, drawing and issuance of a check payment of Commercial, Inc. (hereafter Sarangani Inc.) issued to solely on the payment of the obligation by Sarangani,
which is refused by the drawee because of insufficient ROBERT seven checks as payment for its obligation to Inc. including its interests, which was allegedly
funds in or credit with such bank, when presented the latter in the amount of P1,600,000. accommodated by him. ALBERTO insists that as a
within ninety (90) days from the date of the check, shall -ALBERTO affixed his signature , as guarantor. When guarantor, he merely issued the twelve checks to
be prima facie evidence of knowledge of such the said seven checks bounced, ALBERTO issued more replace the bad checks that were previously issued by
insufficiency of funds or credit unless such maker or than three hundred checks, including the twelve checks Sarangani, Inc., and considering that the total amount
drawer pays the holder thereof the amount due which were the subject of the present case, as of the checks encashed by ROBERT have exceeded the
thereon, or makes arrangements for payment in full by replacements. amount of the bad checks including the interest, then
the drawee of such check within five (5) banking days -that ROBERT had already received the total amount of the twelve checks already lack valuable consideration.
after receiving notice that such check has not been P4,021,000 from the proceeds of the replacements
paid by the drawee.
[ch5-S] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. Rogelio V. Quevedo [Ch5-S]
-The seven(7) checks issued by Sarangani, Inc. were all
dated and dishonored in September 1989. The twelve
(12) checks including the other fifty-two (52) checks
were all dated November 1992, hence the same cannot
be a replacement of the bad checks which were
dishonored as far back as three years ago.Even the
corresponding amount of the checks negates said
conclusion. The total amount of the seven (7) checks,
representing the obligations of Sarangani, Inc., is only
P1,600,000, while the sum total of the twelve (12)
checks and the remaining fifty-two checks is
P7,455,000. If we add the P7,455,000 to the value of
the more than three hundred checks, which ALBERTO
alleged to have been issued also in payment of the said
obligation then the total amount of all the replacement
checks will be P111,476,000.
-Moreover, records show that the twelve(12) checks
and the other fifty-two (52) checks were issued
sometime May 1992 and all postdated 1992, whereas
the 330 checks which were submitted to prove the fact
of payment were all encashed before the issuance of
the said checks. Thus, if full payment was made as
early as July 22, 1991, the date of the last check of the
330 checks, why would ALBERTO issue the twelve (12)
checks and the fifty-two (52) checks, if not for a
consideration other than to answer for an obligation
which was already paid. Hence, the 330 checks
submitted by the defense did not prove that the twelve
checks were not issued for valuable consideration. On
the contrary, it supported the version of the
prosecution that the checks were issued for
rediscounting and not as replacements for the bad
checks of Sarangani, Inc., as claimed by ALBERTO.
-Further, if indeed it were true as claimed by ALBERTO
that the indebtedness covered by the checks sued
upon has been paid, the petitioner should have
redeemed or taken the checks back in the ordinary
course of business. But the same checks remained in
the possession of the complainant who asked for the
satisfaction of the obligations involved when said
checks became due, without the petitioner heeding the
demand for him to redeem his checks which bounced.
[ch5-T] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. Rogelio V. Quevedo [Ch5-T]
MERIZ V PEOPLE (3) subsequent dishonor of the check by the drawee ~kitik~
Vitug; 368 SCRA 524 (2001) bank for insufficiency of funds or credit or dishonor for
~bry_sj~ the same reason had not the drawer, without any valid FACTS
cause, ordered the bank to stop payment." -This is a petition for review of the CA decision of CA
FACTS -The Court has since said that a "check issued as an which affirmed the RTC decision finding accused-
SUBJECT: 4 checks evidence of debt, although not intended for petitioner guilty of six counts of violation of BP 22.
DRAWER/ISSUER: Celia Meriz encashment, has the same effect like any other -Accused Gloria Elena Lagman, purchased from the
DRAWEE: Pilipinas Bank check" and must thus be held to be "within the private complainant Delia Almarines, various pieces of
PAYEE: Amelia SANTOS contemplation of BP 22." Once a check is presented jewelry worth P700,250.00 from October, 1985 to
-Petitioner MERIZ was engaged in the business of for payment, the drawee bank gives it the usual course December, 1985. As guarantee for the payment of the
manufacturing garments for export using the name and whether issued in payment of an obligation or just as a jewelries, the accused issued to the private
style of "Hi-Marc Needlecraft." During the course of her guaranty of an obligation. BP 22 does not appear to complainant several checks. First, she issued twenty
business undertakings, she obtained a number of loans concern itself with what might actually be envisioned nine (29) postdated checks in the total sum of
from Amelia Santos (Santos) and Summit Financing by the parties, its primordial intention being to instead P591,916.00. All the checks bounced either for
Corporation. Sometime in 1988, petitioner issued in ensure the stability and commercial value of checks as insufficiency of funds or for the reason that the account
favor of Santos four Pilipinas Bank Checks in the being virtual substitutes for currency. It is a policy that of the accused-drawer had been closed. As
aggregate amount of P188,400.00. Santos deposited can easily be eroded if one has yet to determine the replacement for said checks she issued eight checks. Of
the checks with her bank. The checks, however, were reason for which checks are issued, or the terms and the eight (8) checks, only two became good, more
later returned, with the notation "Insufficient Funds" conditions for their issuance, before an appropriate particularly, the April 22, 1991 check and the May 2,
stamped on the dorsal portion of each check, by the application of the legislative enactment can be made. 1991 check. The other six (6) other checks were
depositary bank. The gravamen of the offense under BP 22 is the dishonored. The reason for the dishonor of the checks,
-Santos, through her counsel, sent a telegram to act of making or issuing a worthless check or a is: “IF” or insufficiency of funds.
petitioner, warning her that criminal action will be check that is dishonored upon presentment for -Despite demand, the accused failed to make good or
instituted unless the obligation was paid in cash. MERIZ payment. The act effectively declares the offense pay for the value of the six (6) checks which had been
however was not able to do so due to difficulties to be one of malum prohibitum. The only valid dishonored. Accused-petitioner was charged with thirty-
encountered in her business. Santos filed a complaint query then is whether the law has been five counts for violation of B.P. 22. She was found guilty
against Meriz, which resulted in the filing of several breached, i.e., by the mere act of issuing a bad for issuing six of the last set of checks issued.
informations charging her with violation of the check, without so much regard as to the criminal -Accused-petitioner claims that the six checks subject
Bouncing Checks Law. Trial ensured and Meriz was intent of the issuer. of the present cases were issued as mere guarantees in
convicted. -The element of "knowledge" involves a state of mind replacement of several bounced checks she had
-Petitioner Meriz in the instant appeal, would have it that obviously would be difficult to establish; hence, the previously issued, and private complainant was
that there was an absolute lack of consideration for the statute itself creates a prima facie presumption of sufficiently warned that these checks were not to be
subject checks which were issued only as a condition knowledge on the insufficiency of funds or credit deposited or encashed. Relying on the case of Magno
for the grant of loan in her favor and that the requisite coincidental with the attendance of the two other vs. Court of Appeals, accused-petitioner maintains that
element of notice was not complied with. elements. she cannot be held liable because she expressly and
-The prima facie presumption that the drawer has repeatedly informed private complainant that she
ISSUE knowledge of the insufficiency of funds or credit at the would not be able to maintain sufficient funds in or
WON absolute lack of consideration for the issuance of time of the issuance, or on the presentment for credit with the drawee banks for the payment of the
checks is a valid defense in a prosecution for violation payment, of the check might be rebutted by payment checks due to financial constraints.
of BP 22 of the value of the check either by the drawer or by the
drawee bank within five banking days from notice of ISSUE
HELD: NO. the dishonor given to the drawer. The payment could WON the fact that the subject checks were not
Ratio The cause or reason for the issuance of the thus be a complete defense that would lie intended as payments but as mere guarantees of
check is inconsequential in determining criminal regardless of the strength of the evidence petitioner’s obligations exempt her from liability
culpability under BP 22 offered by the prosecution. It must be presupposed
-The essential elements of the offense penalized under then that the issuer receives a notice of dishonor and HELD: NO
BP 22 are that, within five days from receipt thereof, he would -The act sought to be prevented by BP 22, or the
(1) making, drawing & issuance of any check to apply have failed to pay the amount of the check or to make Bouncing Check’s Law, is the act of making and issuing
to account or for value; arrangement for its payment. a check with the knowledge that at the time of issue,
(2) the knowledge of the maker, drawer or issuer that NOTE: Court deleted prison sentence, the drawer does not have sufficient funds in or credit
at the time of issue he does not have sufficient funds in imposed a fine of P94,200 against Meriz with the bank for payment and the check was
or credit with the drawee bank for the payment of such subsequently dishonored upon presentment. What the
check in full upon its presentment; and LAGMAN V PEOPLE law punishes is the issuance of a worthless check and
371 SCRA 679; Kapunan; Dec 7, 2001 not the purpose for which such check was issued nor
[ch5-U] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. Rogelio V. Quevedo [Ch5-U]
the terms or conditions relating to its issuance. sufficient funds in the bank but on some other grounds.
Accused-petitioner’s contention that the checks were -In the case under consideration, accused-petitioner
merely issued to guarantee payment of her obligation failed to adduce any evidence to substantiate her claim
to private complainant is not persuasive. As held in the that private respondent knew that she had difficulty
case of Que v. People of the Philippines, B.P. Blg. 22 maintaining sufficient funds in or credit with the bank.
“applies even in cases where dishonored checks are
issued merely in the form of a deposit or guarantee and
does not make any distinction as to whether the checks
within its contemplation are issued in payment of an
obligation or merely to guarantee the said obligation.”
-The records of the case belie accused-petitioner’s
allegation that the checks were merely issued as
guarantees. Evidence shows that the six checks subject
of the present appeal were issued by herein accused-
petitioner to private respondent in the sala of Judge
Domingo Garcia of the Pasig RTC, Branch 157 in
settlement of the 29 cases pending before the said
court which arose from the issuance of 29 bounced
checks. When these six replacement checks also
bounced, they became the subject of six criminal cases
which were filed before Judge Trampe. Later on, these
six cases were consolidated with the 29 cases before
Judge Garcia. During trial, counsels for herein accused-
petitioner and private respondent were in agreement
that these six checks were issued in settlement of some
of the pending 29 cases.
-Based on the records, therefore, the six checks were
issued in partial settlement of the 29 B.P. Blg. 22 cases
pending before Judge Garcia. We find nothing in the
records that would show that these six checks were
issued as mere guarantees. Accused-petitioner herself
acknowledged that these eight (8) postdated checks
“were issued as replacements of the previous checks”
which bounced upon presentment. There is, thus,
overwhelming evidence contradicting accused-
petitioner’s posture that the six checks subject of this
appeal were mere guarantees.
-The case of Magno v. Court of Appeals relied upon by
accused-petitioner, does not find application to the
present case. In Magno, we held that there was no
violation of the bouncing checks law because there was
evidence that complainant was told by the drawer that
he did not have sufficient funds in the bank. The
drawer, from the very beginning, never hid the fact that
he did not have funds with which to put up the
warranty deposit and openly intimidated the same to
complainant. Although the ruling in Magno was
reiterated in the case of Idos v. Court of Appeals, again,
we note that in Idos, petitioner repeatedly notified the
complainant of the insufficency of funds. In both cases,
the complainant was duly notified by the drawer of the
insufficiency of funds. It also serves to emphasize that
in Idos, petitioner’s acquittal was not based on
complainant’s knowledge that petitioner did not have
[ch5-V] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. Rogelio V. Quevedo [Ch5-V]
ADOLPH RAMISH, INC. V WOODRUFF bearing upon the original execution, along with taking
2 Cal. (2d) 190, 28 P. (2d) 360; 1934 cognizance of all the equities between the original HOROWITZ V WOLLOWITZ
~aida rose~ parties, would destroy their commercial value. 59 Misc. 520, 110 NY Supp. 972 (1908)
-The evidence is conflicting with regard to Woodruff’s ~marge~
FACTS argument that the note was delivered for inspection
SUBJECT: Question on proper indorsement of P/N to and investigation purposes, along with an allegation FACTS
Adolph Ramish that there was no meeting of the minds and that there SUBJECT: promissory note prepared by Barnet Cohen
MAKER: Woodruff was no authorization to deliver the note as collateral on 18 Dec 1906: worded as follows: “Six months and
PAYEE: Craig security. five days date I promise to pay the order of myself five
INDORSEE: Adolph Ramish, Inc. Disposition Judgment reversed. hundred dollars at 16-1/2 Carmine St. Value received.”
-Adolph Ramish held the promissory note of Craig for -Said note was delivered to Jacob Jormack.
$13,000. Said note matured on Feb 1932. Craig and -At the time of making said note, and prior to its
Woodruff exchanged their own negotiable notes (each delivery to Horowitz, Louis Wollowitz indorsed it w/
for $10,000) dated February 19 and due in 90 days. intent to charge himself as first indorser. Thereafter
-Craig indorsed the note from Woodruff but it was WACHIOVA BANK & TRUST CO V CRAFTON and before maturity, Jormack indorsed the note to
uncertain as to whether or not it was for collateral 181 N.C. 404, 107 S.E. 316 (1921) Horowitz for value.
security for Craig’s indebtedness to Adolph Ramish and ~lora~ -Horowitz presented the note for payment. Unpaid, he
was thus treated as an issue in the case. filed suit in court.
-Adolph Ramish sued Woodruff. Woodruff admitted the FACTS -Defendants [C, J, and W] set up the defense that the
note’s execution but denied title of Adolph Ramish, SUBJECT: promissory note note was tainted with usury in its inception, and was
saying that the note was delivered for inspection and MAKER: J.M. Carver therefore null and void.
investigation only. He also alleged that note served as PAYEE/INDORSER: J.W. Crafton
collateral security for the $6,820 balance of the note INDORSEE/HDC: Wachovia Bank and Trust Co. ISSUE
and that Adolph Ramish was not a holder in due course -The defendant, the indorser, denied liability, alleging WON an indorser may raise the defense that note is
because it did not take the note by negotiation under that the P/N was for an amount won in a gambling void for usury
proper indorsement and thus was subject to the transaction hence, void.
available defenses. -Lower court ruled in favor of defendant. Plaintiff HELD: NO.
-According to Woodruff, the indorsement by Craig did appealed. -It is not necessary to pass upon the question of the
not amount to a commercial indorsement but was availability to the maker of the defense of usury as
merely a guaranty which does not operate as a transfer ISSUE against HIDCs, because defendants herein were sued in
cutting off the defenses of the maker. WON the indorsee, a HDC can recover from a P/N which their capacity, not as makers, but as indorsers of the
was for an amount won in a gambling transaction note in question.
ISSUE hence, void. -Sec116, US law (Sec 66, NIL): Every indorser who
WON the note had been indorsed in accordance with indorses w/o qualification warrants to all subsequent
the law (as an ordinary commercial endorsement) HELD: YES. holders in due course: xxx (b) that the instrument is, at
-Statutes applicable render this and all notes and the time of his indorsement, valid and subsisting.”
HELD: YES contracts in like cases void and no action thereon can -Under the language of the statute, as applied by the
-There are two views with regard to this matter: be sustained. The principle however, is allowed to decisions in Packard v Windholz and Lennon v Grauer, it
Minority view: A guaranty placed on a bill or note does prevail only where the action is on the note to enforce must be held that in indorsing the note the defendant
not constitute a commercial negotiation. The guaranty its obligations, and does not affect or extend to suits by warranted its validity, and he cannot be heard now to
is considered a separate contract. an innocent indorsee for value and HDC against the assert that it is void for usury, any more than for
Majority view: These are the better reasoned indorser on his contract of indorsement. forgery or any other cause.
arguments and are in accordance with the policy of free -The contract of indorsement is a substantive contract, -It is an established rule that the obligation of an
circulation of commercial paper as a substitute for separable and independent of the instrument on which indorser is a new and independent contract, separate
money. it appears, and where it has been made without and distinct from that evidenced by the note.
-A person placing his signature in the instrument, aside ratification, and for value, it guarantees to a HDC, Disposition Judgment reversed. New trial ordered.
from doing so as maker, drawer or acceptor is deemed among other things that the instrument, at the time of
to be an indorser unless there is a clear indication the indorsement, is a valid and subsisting obligation. INGALLS V MARSTON
through the words of being bound in another capacity. -The law which renders these contracts void was 121 Me. 182, 116 Atl. 216 (1922)
-The tendency of the law is to resolve all doubtful cases enacted for the suppression of gambling but it would ~anton~
towards holding the same to be a commercial tend rather to encourage the vice if a successful
indorsement in due course. gambler could procure the value of such a note on his FACTS
-Commercial instruments take the place of money and indorsement. PROMISSORS: Herbert L. Marston, Almeda E. Marston
requiring every assignee to inquire into circumstances Disposition Judgment Reversed.
[ch5-W] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. Rogelio V. Quevedo [Ch5-W]
INDORSERS: Howard W. Smith and Walter H. Foss, but before delivery he is liable as an indorser, in 1. WON defendants are bound on the note
they signed at the note’s inception, hence the issue accordance with the following rules: 2. WON the liability of the defendants is primary &
whether they are mere indorsers or co-promissors. (1) If the instrument is payable to the order of a third absolute
PAYEE: Ingalls person, he is liable to the payee and to all subsequent
-Herbert L. and Almeda E. Marston signed the note parties.” HELD
on its face. In the present case the note was made payable to the 1. YES
-Howard W. Smith and Walter H. Foss placed their order of a third person, and therefore this section Ratio If the note was given to plaintiff bank merely as
signatures on the back of the note at its inception, applies, and these irregular indorsers were made liable a semblance of collateral security, the result was to
and before the delivery to the payee, Ingalls (plaintiff). to the payee Ingalls and to all other subsequent parties. effect a scheme to deceive the bank examiner. If so, it
-The first instalment was not demanded of the makers, But their liability is that of “indorsers” as the section was an illegal transaction, and it is against public policy
Herbert and Almeda (at maturity), and notice of unequivocally provides. These necessarily imply the to permit defendants to rely upon it as a defense. In
dishonor was not given o Smith and Foss. inherent elements of demand and notice of dishonor. such circumstances, the defendants are bound as the
Plaintiff’s Claim: All four were original promissors, and Disposition Smith and Foss are not liable as makers, face of the note discloses.
therefore liable. but only as indorsers, which requires prior demand and Reasoning Transactions with banks are affected with
Defendants’ Comment: Smith and Foss were merely due notice. an unusual public interest. It is of public importance
indorsers, and therefore free from liability because of that all dealings with banks be conducted with integrity
want of demand and notice. WEST RUSTLAND TRUST CO V HOUSTON & honesty.
104 Vt. 104, 158 Atl. 69, 80 ALR 664 (1932) 2. YES
ISSUE ~jonas~ Ratio Under the Uniform Act, one who takes a
WON Smith and Foss became original promissors when negotiable note as collateral to secure a pre-existing
they signed the instrument on its back. FACTS debt takes for value, even though no independent
-The note in suit is a promissory note, signed by consideration is given. An accommodation party cannot
HELD: NO defendant Buck, an employee of the Buck Lumber claim the benefit of being treated as a surety as against
Ratio Nature of liability must be expressly stated in Company, as MAKER then INDORSED by defendant a holder for value, but is liable as if he were financially
instances where the instrument was signed other than Houston. This note is a renewal of another note, also interested in the transaction. It follows that the liability
on its face. signed by Buck as maker & indorsed by Houston, which of the defendants on the note is primary & absolute
Reasoning was delivered to plaintiff bank as collateral security for and that there was no error in the direction of a verdict
-Before the enactment of the NIL, the law was firmly the indebtedness of the Buck Lumber Company to it. against them.
settled in states by judicial decisions, that one who -Buck testified that before the note was signed, he had Reasoning Under the Negotiable Instruments Act, the
signed his name on the back of a note at its inception a talk with F.L. Jones, treasurer of the plaintiff bank. previous rule to the effect that, if a holder for value
was a joint or joint and several makers with who signed Jones told him that the bank examiner was expected to knew a party had signed for accommodation only he
on the face, so far as necessity for demand and notice visit the bank very soon, & that he wanted a new note, must be treated as a surety, has been abolished. An
of non-payment was concerned. The passage of the to be held by the bank as collateral, as he thought that accommodation party is now primarily & absolutely
NIL abrogated this rule of commercial law. the indebtedness of the Buck Lumber Company to the liable on the instrument to a holder for value.
-Sec. 63, NIL: A person placing his signature upon an bank was larger than the bank examiner would like. Sec. 25 provides that “xxx an antecedent or pre-
instrument otherwise than as maker, drawer, or Jones explained that he was afraid not to have some existing debt constitutes value xxx”
acceptor, is deemed to be an indorser, unless he clearly extra collateral to show the examiner, & that the note Sec. 27 provides that “xxx where the holder has a lien
indicates by appropriate words his intention to be would be held only until the examiner had examined on the instrument, xxx he is deemed a holder for value
bound in some other capacity. the books & then returned to either of the defendants. to the extent of his lien xxx”.
-Smith and Foss placed their signatures, not on the face Houston testified that he spoke with Buck about signing Disposition Judgment affirmed.
(as makers), but on the back—meaning “other than the note in suit, & he was told the purpose of the note,
makers”—and they did not indicate by any words, after which he signed it. GOODMAN V GAUL
appropriate or otherwise, any intention to be bound in -NOTE: the bank examiner is sent by the commissioner 244 Mass 528, 138 NE 910 (1923)
some other capacity. of banking & insurance to oversee & inspect banks in ~monch~
-However Ingalls seeks to differentiate between order to protect the public interest.
regular and irregular indorsers. According to him, -The receiver of the plaintiff bank (it appears the bank FACTS
regular endorsers are entitled to have demand made to was subsequently placed in receivership) brought an SUBJECT: Promissory note
the maker first, with due notice of dishonour given to action to recover from the defendants, as makers. The MAKER: Bennie Bean
him (indorser). Such right is not available to irregular trial was by jury, and at the close of the evidence, a PAYEE: D. Goodman
indorsers. This interpretation however would revert the verdict was directed for plaintiff. The defendants INDORSERS: Goodman, Gaull
law back to the time before the NIL was enacted. excepted to the direction of the verdict & to the -Bean signed the not and handed it to Goodman. The
-Sec. 64, NIL: Where a person not otherwise a party to judgment thereon. latter then saw Gaull at his place of business and asked
an instrument, place thereon his signature in blank him if he will indorse a note for Bennie Bean. Gaull
ISSUE/S agreed and signed the note.
[ch5-X] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. Rogelio V. Quevedo [Ch5-X]
-Goodman instituted the action to recover from Gaull as 1. WON he is liable. indorsed on the back as follows: "Pay to the order of
indorser the amount in the promissory note. 2. WON presentment is necessary. Don Fernando Maulini, value received. Manila, June 5,
3. WON he is merely an accommodation party. 1912. (Sgd.) A. G. Serrano."
ISSUE -CFI: (1) By verbal agreement between the indorser
WON Gaull is liable HELD Serrano and the indorsee Maulini, the indorser, in
1. YES. It is not dependent on whether or not he has making the indorsement, was acting as agent for the
HELD: NO received any or part of his debt. So long as he is one of indorsee, as a mere vehicle for the transference of
Ratio An accommodation party is liable to all the joint and several debtors which he is, makes him naked title, and that his indorsement was wholly
subsequent parties except to the party whom he liable. without consideration. (2) It was immaterial whether
accommodated. 2. NO. There is no requirement for presentment. there was a consideration for the transfer or not, as the
Reasoning 3. NO. By putting his signature to the note, he lent his indorser, under the evidence offered, was an
-The circumstances will show if Gaull was indeed an name not to the creditor, but to those who signed with accommodation indorser. So Maulini appealed.
accommodation party. It appears Bean did not ask for him placing himself with respect to the creditor in the
the defendant’s indorsement, or authorized the plaintiff same position and with the same liability as the said ISSUES
to obtain it, or that defendant’s signature was agreed signers. It should be noted that the phrase “witout 1 WON CFI erred in ruling that the indorsement was
upon to be affixed for the instrument to become receiving value therefor,” as used in Sec. 29 of the without consideration,
complete. aforesaid Act, means “without receiving payment for 2 WON CFI erred in holding that Serrano was an
-It is clear from the record that defendant signed in lending out his name.” If, as in the case, a sume of accommodation indorser.
accommodation of the plaintiff. The party for whose money was received by virtue of the note, it is
accommodation a not is given cannot enforce it against immaterial, so far as the creditor is concerned, whether HELD
the accommodator. It is a mere gratuity. one of the signers has, or has not, received anything for 1 YES
-The plaintiff asks to be allowed to amend and to the use of his name. In reality the legal situation of the -It seems that Serrano was a broker doing business in
proceed on the indorsement as a written guaranty. But defendant in this case may properly be regarded as Manila and that part of his business consisted in looking
the contract itseld fails to show any conract of that of a joint surety, rather than that of an up and ascertaining persons who had money to loan as
guaranty. His signature being on the note, he is accommodation party. well as those who desired to borrow money and, acting
presumed to be a indorser, unless by some words he The defendant as a joint surety, may, upon the maturity as a mediary, negotiate a loan between the two.
indicates his intention to be bound by another capacity. of the note, pay the debt, demand the collateral According to his custom in transactions of this kind, and
Such is lacking in the case. security and dispose of it to his benefit; but there is no the arrangement made in this particular case, Serrano
proof whatsoever that this was done. As to the plaintiff, obtained compensation for his services of the borrower,
CLARK V SELLNER he is the “holder for value” under the phrase of said the lender paying nothing. Sometimes this was a
42 Phil. 384 (1921) Sec. 29 for he had paid the money to the signers at the certain % of the sum loaned; at other times it was a
~ice~ time the note was executed and delivered to him. Who part of the interest which the borrower was to pay, the
is the “holder” is defined in section 191 of the said law latter paying 1% per mo.for use of the money, the
FACTS thus: lender taking 1% and the broker 1/2%. According to the
SUBJECT: Promissory Note “Holder” means the payee or indorsee of a bill or note, method usually followed in these transactions, and the
MAKER: Sellner and two others who is in possession of it, or the bearer thereof.” procedure in this particular case, the broker Serrano
PAYEE: Clark And as such holder, he has the right to demand delivered the money personally to the borrower, took
-Sellner and two others signed a note in favor of Clark. payment of the debt from the signer of the note, even the note in his own name and immediately transferred
The note reads: though he knows that sai signer is merely an it by indorsement to the lender. In this case, this was
“Php.12,000 Manila, July 1, 1914 accommodation party (Sec. 29 above cited), assuming done at the special request of the indorsee Maulini and
“Six months after date, for value received….xxx the subject to be such, which as has been stated, is not simply as a favor to him, Maulini stating to Serrano that
(Sgd.) W.H. Clarke, the case. he did not wish his name to appear on the books of the
“John Maye. Disposition: Judgment reversed. borrowing company as a lender of money and that he
“By W.H. Clarke, his desired that the broker take the note in his own name,
attorney. MAULINI V SERRANO immediately transferring to him title thereto by
(Internal Revenue Stamp) “Geo C. Sellner.” 28 Phil. 640; Moreland; Dec 16, 1914 indorsement. This was done, the note being at once
-The note matured but was not paid. Defendant argued ~rean~ transferred to the lender.
that he did not receive or the whole of the amount of -There never was a moment when Serrano was the real
the debt; also, that the instrument was not presented FACTS owner of the note. It was always the note of the
to him for payment; finally that he is an -The action was brought by plaintiff Maulini upon the indorsee Maulini, he having furnished the money which
accommodation party thus failure to negotiate means contract of indorsement alleged to have been made in was the consideration for the note directly to the maker
lack of liability. his favor by defendant Serrano upon a PN. A PN was and being the only person who had the slightest
issued by Padern, Moreno and Gimenez in favor of interest therein, Serrano, the broker, acting solely as an
ISSUES Serrano for P3K due on Sept. 5 1912. The note was agent, a vehicle by which the naked title to the note
[ch5-Y] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. Rogelio V. Quevedo [Ch5-Y]
passed from the borrower to the lender. The only SUBJECT: five promissory notes of ten thousand pesos Disposition Judgment affirmed
payment that the broker received was for his services each
in negotiating the loan. He was paid absolutely nothing MAKER: Ramon Maza and Francisco Mecenas ACUÑA V VELOSO
for becoming responsible as an indorser on the paper, PAYEE: PNB 50 Phil 241; Street; 1927
nor did the indorsee lose, pay or forego anything, or -The notes were not taken up by Maza and Mecenas at ~javi~
alter his position thereby. maturity. To recover the amounts on the face of the
2. YES. Defendant Serrano was not an accommodation notes with interest, action was begun by PNB against FACTS
indorser. Maza and Mecenas in CFI Iloilo. -Xavier is an agent working in Manila of Veloso. Veloso
Ratio Where an indorsement is made as a favor to the -Defendants’ defense was that has certain properties in Manila but is based in Cebu.
indorsee, who requests it, not to secure payment, but a.) the notes were went in blank to them by Enrique Xavier on his own, is in the practice of trading real
to relieve himself from a distasteful situation, and Echaus with the request that they sign them so that he, estate as far as his credit allowed. Xavier wanted to
where the only consideration for such indorsement Echaus might negotiate them with PNB in case of need; purchase a property in Legarda for which he lacked
passes from the indorser to the indorsee, the situation b.) defendants have not negotiated the notes with the P25000 for partial purchase. He asked assistance from
does not present one creating an accommodation bank, nor have they received the value thereof, or Veloso. They approached Gonzalez and Gonzalez
indorsement, nor one where there is a consideration delivered them to the bank in payment of any pre- agreed to lend the money on two conditions: 1)Xavier
sufficient to sustain an action on the indorsement. existing debt and Veloso execute a joint and several note in the
Reasoning c.) it was Echaus who negotiated the notes with the amount lent by Gonzalez; 2) that Xavier (only)
-Sec. 29 of NIL defines an accommodation party as bank and who is accordingly the real party in interest purchases ½ interest which Gonzalez had in a
"one who has signed the instrument as maker, drawer, and the party liable for the payment of the notes. mortgage credit on a property in Pangasinan.
acceptor, or indorser, w/o receiving value, and for the -Trial judge rendered judgment in favor of plaintiff and -Acuna sued Veloso and Xavier for the amount in the
purpose of lending his name to some other person. against defendants jointly and severally note and interests. TC gave judgment jointly and
Such a person is liable on the instrument to a holder for severally against the defendants. TC having found that
value, notwithstanding such holder at the time of ISSUE Veloso was a mere accommodation maker as regards
taking the instrument knew the same to be only an WON The defendants are liable to pay the amount on Xavier, gave judgment over in favor of Veloso against
accommodation party." the promissory note (considering that they are Xavier for whatever the former should pay upon the
-CFI misunderstood this definition. The accommodation accommodation parties) judgment, and lastly ordered that Veloso be subrogated
to which reference is made in Sec29 is not one to the to the rights of the plaintiff Acuna in a mortgage given
person who takes the note i.e., the payee or indorsee, HELD: YES. Their liability on the instruments is primary by Xavier to secure the debt.
but one to the maker or indorser of the note. It is true and unconditional. Echaus is merely secondarily liable. -after execution of note, it was found that the Legarda
that in this case it was an accommodation to the -The most plausible and reasonable stand for the property was already encumbered with a mortgage to
plaintiff, in a popular sense, to have the defendant defendant sis that they are accommodation parties. But another bank. Thus to secure himself further, Gonzalez
indorse the note; but it was not the accommodation as accommodation parties, the defendants having asked Xavier to execute a second mortgage to him
described in the law, but, rather, a mere favor to him signed the instruments without receiving value upon the Legarda property. The encumbrance on the
and one which in no way bound Serrano. In cases of therefore and for the purpose of lending their names to Legarda property was now 25000 plus 22,070 (1/2
accommodation indorsement, the indorser makes the some other person, are still liable on the instruments. interest in the Pangasinan property)
indorsement for the accommodation of the maker. Such The law now is that the accommodation party can claim *Acuna is a transferee of the note executed by Xavier
an indorsement is generally for the purpose of better no benefit as such, but he is liable according to the face and Veloso. But he is said to be a holder only and not a
securing the payment of the note – i.e., he lends his of his undertaking the same as if he were himself holder in due course for although he purchased the
name to the maker, not to the holder. financially interested in the transaction. note for value, he purchased the note 2 years after it
-In other words: An accommodation note is one to -Even if defendants never received the value of the fell due. (the court discussed the case by putting
which the accommodation party has put his name, notes, even assuming that it is fundamental that an Gonzalez in the shoes of Acuna.
without consideration, for the purpose of instrument given without consideration does not create
accommodating some other party who is to use it and any obligation in favor of the payee, however, to ISSUE
is expected to pay it. The credit given to the fasten liability upon an accommodation maker, it WON Veloso is jointly and severably liable with Xavier
accommodation party is sufficient consideration to bind is not necessary that any consideration should
the accommodation maker. move to him. The consideration which supports HELD: YES
Disposition Judgment reversed and complaint the promise of the accommodation maker is that -In this case the accommodating party and the
dismissed. parted with by the person taking the note and accommodated party unite in making a joint and
received by the person accommodated. several note to a person who advances the face value
PHIL. NAT’L BANK V MAZA *When accommodation parties make payment to the of the note to one of its makers at the very time of its
Malcolm; 48 Phil. 207 (1925) holder of the notes, they have a right to sue the creation. The consideration for the note, as regards
~mel~ accommodated party for reimbursement, since the both makers, was the money which the payee
relation between them in effect is that principal and advanced to Xavier; and it cannot be said that the note
FACTS sureties, the accommodation parties being the sureties. was lacking in consideration as to Veloso because he
[ch5-Z] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. Rogelio V. Quevedo [Ch5-Z]
himself received non of this money. Value was given for appropriate words his intention to be bound in some the others the share which is proportionally owing from
the note, and this was enough. In equity as between other capacity (Sec. 63, NIL) him.
Veloso and Xavier, the former is entitled to all the -Even assuming that appellant is just an If any of the guarantors should be insolvent, the
rights of surety, and Xavier is the real debtor; but as to accommodation party, he is still liable to HDC even if share shall be borne by the others, including the payer,
the creditor, both Veloso and Xavier are mere joint and the latter, at the time of taking the instrument, knew in the same proportion.
several makers. him to be only an accommodation party (Sec. 29) The provisions of this article shall not be applicable
*however the Court noted that the second mortgage -Again assuming that Art. 2071, CC applies (being an unless the payment has been made in virtue of a
was already under foreclosure. Thus it held that if the accommodation indorser, he may obtain security from judicial demand or unless the principal debtor is
amount received for the foreclosure of such property is the maker to protect himself against the danger of insolvent.”
enough to cover the indebtedness of Xavier and Veloso, insolvency of the latter,) said remedy is between -Based on that provision, a joint and several
Gonzales would thus be fully paid and that would end accommodation indorser and accommodated party only accommodation maker who pays on a promissory note
the matter. and cannot diminish nor defeat the rights of a holder may directly demand reimbursement from his co-
*issue of Veloso’s subrogation (Veloso on appeal raised for value. accommodation maker without first directing his action
the issue of his right to be subrogated to the rights of Disposition Judgment affirmed. against the principal debtor provided that (a) he made
Gonzalez in case amount after foreclosure of Legarda the payment by virtue of a judicial demand or (b) the
property was not enough) SADAYA V SEVILLA principal debtor is insolvent.
-“ Veloso's right of subrogation in case enough is not L-17845, April 27, 1967; 19 SCRA 924 -In this case, Sadaya’s payment to the bank was made
realized to pay off the whole, must be understood to ~mini~ voluntarily and w/out any judicial demand, and there is
extend to such proportion of the proceeds of the no evidence showing Varona is insolvent.
contemplated foreclosure sale of the mortgaged FACTS Disposition CA judgment affirmed.
property on Legarda Street as the amount of the note, SUBJECT: promissory note for P15k, with ineterest at
and interest, bears to the entire secured 6% per annum, payable on demand PRUDENCIO V CA
indebtedness.” MAKERS: Sevilla, Varona and Sadaya, jointly and L-34339 July 1, 1986; 143 SCRA 7
*if hindi nyo maintindihan and feeling nyo kulang sa severally ~ricky~
details, feel free to approach me. Mejo magulo talaga PAYEE: BPI
yung case and may stuff na hindi nilagay si Campos. INDORSEE: C.I.T. Corp, a holder for value in due course FACTS
-Sevilla and Sadaya signed as co-makers as a favor to SUBJECT: Promissory note (PN) for P10,000 payable to
ANG TIONG V TING Varona. The proceeds of the note, P15k, was received PNB secured by a real estate mortgage on the property
L-26767, February 22, 1968; 22 SCRA 713 by Varona alone. As of June 15, 1950, the outstanding of the Prudencios. Concepcion & Tamayo Construction
~brian b~ balance was at P4,850. No payment was made after Company (Company) had a pending contract with the
that date. Bureau of Public Works for the construction of the
FACTS -The bank collected the balance plus interest from municipal building of Puerto Princesa, Palawan. As the
SUBJECT: PBCom check for P4k, payable to “cash or Sadaya. Varona didn’t reimburse him. Company needed funds for the construction, Toribio, a
bearer” -Sevilla died. Sadaya filed a creditor’s claim against his relative of the Prudencios and the attorney-in-fact of
DRAWER: Lorenzo Ting estate for the sum Sadaya paid on the note. The the Company, prevailed upon the Prudencios to
INDORSER: Felipe Ang (indorsement in blank) administrator resisted the claim saying that the mortgage their property to secure the loan of P10,000
BEARER: Ang Tiong, presented check to drawee bank. deceased Sevilla did not receive any amount as being negotiated with PNB. They were finally persuaded
When the check was dishonored, he made written consideration for the promissory note, and that he as Toribio also signed on the day of the signing of the
demands to Lorenzo and Felipe. Unheeded, he filed signed it only as surety for Varona. PN a Deed of Assignment (DA) assigning all payments
collection suit in Manila MTC. from the Bureau to the Company in favor of PNB.
-MTC ruled in his favor. CFI affirmed. Case was elevated ISSUE MAKER: Jose Toribio as attorney-in-fact of the Company
to CA, but the latter certified the same to SC since it WON Sadaya can demand reimbursement for the and the Spouses Prudencio as accommodation parties.
involves pure questions of law. amount he paid on the note from his co-accomodation PAYEE: PNB
maker, Sevilla -Unknown to the Prudencios and contrary to the DA, the
ISSUE Bureau, with the approval of PNB, made 3 payments
WON Felipe is liable HELD: NO totaling P11,234.40 directly to the Company for labor
-The court goes to the Civil Code for this case, because and materials. Another payment for P5,000 was,
HELD: YES nothing extant in the Negotiable Instruments Law however, denied by PNB as the loan was already
-A check is a negotiable instrument governed by NIL defines the right of one accommodation maker to seek overdue. The Company abandoned the work and
(Secs. 1 and 185). reimbursement from another. subsequently, its life as a partnership expired. The
TF, appellant’s reliance on Art. 2071, CC is irrelevant -Sevilla and Sadaya are, in themselves, co-guarantors Bureau rescinded the contract and assumed the work.
-A person placing his signature upon an instrument of Varona, so their case is covered by Art. 2073: “When The Prudencios wrote PNB requesting the cancellation
otherwise than as a maker, drawer or acceptor is a there are two or more guarantors of the same debt, the of the mortgage since the conditions of the contract
general indorser unless he clearly indicates by one among them who has paid may demand of each of were changed without their knowledge when PNB
[ch5-AA] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. Rogelio V. Quevedo [Ch5-AA]
allowed payment to the Company instead of on account first three releases. PNB cannot be regarded as having -We do not understand how the fact of authorization
of the loan. PNB refused. The trial court ruled for PNB acted in good faith which is also one of the requisites of could be proved in any case where it was not
and ordered the Prudencios to pay jointly and severally a holder in due course. Thus, the Prudencios can validly established by the instrument except by extraneous
with the owners of the Company, Concepcion and set up their personal defense of release from the real evidence. The body of the check does not contain any
Tamayo. The CA affirmed. estate mortgage against PNB. reference to the State Street Grocery as the drawer of
Disposition Petition is GRANTED. Decision of the CA the check. But this section of the statute does not say
ISSUES reversed. that the words indicating the relation in which Gross
1. WON the CA erred in holding the Prudencios as signed the check must appear in the body of the check.
solidary co-debtors instead of sureties. AUSTIN, NICHOLS & CO V GROSS -If words appear on any part of the check indicating
2. WON the CA erred in not holding that the Prudencios 98 Conn. 782, 120 Atl. 596 (1923) that Gross signed in behalf of the State Street Grocery,
were released from their obligation when PNB, without ~joey~ that will be sufficient, whether the words appear at the
their knowledge and consent, changed the tenor and head of the check or on its margin. All that is necessary
condition of the assignment of payments made by the FACTS between the original parties is that these words should
principal debtor and released to such principal debtor SUBJECT: check in payment for goods by State Street be such as to reasonably apprise or put on notice the
payments from the Bureau which were more than Grocery payee that it was or might be the check of the
enough to wipe out the indebtedness to the PNB. DRAWER: (?) State Street Grocery/ Gross, principal company, and not of Gross. By such proof the true
stockholder contract is revealed, and the intention of the parties
HELD DRAWEE: Pallotti, Andretta & Co., Bankers effected.
1. NO. PAYEE: Austin, Nichols & Co. Inc. Disposition A new trial is in order.
Ratio In lending his name to the accommodated party, -The check had the following tenor:
the accommodation party is in effect a surety. “Pay to the order of Austin, Nichols & Co., Inc., $334 NEW GEORGIA NATL BANK OF ALBANY V
However, unlike a contract of suretyship, the liability of 86/100, three hundred thirty-four 86/100 dollars. M. J&G LIPPMANN
the accommodation party remains not only primary but Gross.” 249 NY 307, 164 NE 108, 80 ALR 1344 (1927)
also unconditional to a holder for value such that even “State Street Grocery Co. ~chriscaps~
if the accommodated party receives an extension of the Inc.”
period for payment without the consent of the -The check was duly presented for payment and has FACTS
accommodation party, the latter is still liable for the not been paid. At this time, plaintiff had no account Plaintiff is owner thru indorsement of promissory note
whole obligation and such extension does not release with Gross personally. signed J&G Lippmann, LJ Lippmann, Pres. It asks for
him because as far as a holder for value is concerned, -Plaintiff sued Gross, not State Street Grocery. judgment in the alternative against corporation (maker
he is a solidary co-debtor. -Parol evidence, offered by Gross for the purpose of of note) or against the president personally if he acted
2. YES. showing that the check sued on was the check of the w/o authority.
Ratio Between the immediate parties to a negotiable State Street Grocery
instrument – the parties between whom there is privity Co., was excluded. Judgment against Gross. ISSUE
– the consideration may be inquired into; and as to WON the president should be personally liable
them the only superiority of a bill or note over other ISSUE
unsealed evidence of debt is that it prima facie imports WON parol evidence is admissible to prove that the HELD: YES
a consideration. signature “M. Gross” was not an individual signature -At common law, remedy against agent signing a note
Reasoning Although as a general rule, a payee may be but was the signature of State Street Grocery Co. Inc. w/o authority was not upon note itself, but for breach of
considered a holder in due course, in this case, such a implied warranty.
rule cannot apply to PNB. Not only was PNB an HELD: YES -The proviso that the agent or representative shall not
immediate party or in privy to the PN, that is, it had -The decision must be based upon the terms of Sec. 20 be liable on instrument if he was authorized to sign,
dealt directly with the Prudencios knowing fully well of the Negotiable Instruments Law. This section covers carries w/ it a fair implication that he shall be liable if
that the latter only signed as accommodation makers at least five classes of cases. The instant case falls not authorized.
but more important, it was the DA executed by the under the fifth class: “Where the negotiable instrument -Held in a case: a note bearing name of corp in margin,
Company in favor of PNB which principally moved the contains words indicating that one has signed for or on signed by pres and treas in own names w/ addition of
Prudencios to sign the PN also in favor of PNB. Under behalf of a principal, or in a representative capacity, he official titles, and discounted by a bank w/o notice
the terms of the DA, it is clear that there are no further is not liable if he was duly authorized.” dehors the instrument, was in law the individual
conditions which could possibly alter the agreement -Whether defendant Gross was authorized to sign or promise.
without the consent of the Prudencios. Yet, PNB not, and whether the check contains words indicating -The statute doesn’t distinguish between cases where
approved the Bureau’s release of 3 payments directly that he signed for and in behalf of a principal or in a he has indicated his intention unmistakably and where
to the Company in violation of the DA and without representative capacity, might be proved by evidence he has done so more obscurely. Liability is imposed
notice to the Prudencios who stood to lose their outside the check for the purpose of carrying out the upon agent, not in the aid of his intention, for the
property once the PN falls due without it having been intention of the parties and establishing just what the hypothesis intention to the contrary has been
paid because PNB, in effect, waived payment of the contract was, not to vary it, but to ascertain it.
[ch5-BB] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. Rogelio V. Quevedo [Ch5-BB]
adequately revealed. Liability exists as a duty imposed to charge the principal, although the agent WON the bank is responsible to the drug company for
by law. executed the instrument as an agent. the amounts represented by the checks
-If agent signing w/o authority isn’t liable, there might -This exception to the rule is based upon the reason
be a failure of justice when note wrongfully issued was that each party who takes a negotiable instrument HELD: YES
in the hands of later holders. No doubt a remedy in tort makes his contract with the parties who appear on its -The bank could tell by the checks themselves that the
is available to such holder if agent had misrepresented face to be bound for its payment; and in suits upon money belonged to the Insular Drug Co., Inc., and not
his authority as to be guilty of fraud. negotiable instruments no evidence to charge any to Foerster or his wife or his clerk. When the bank
-In proportion as the agent was relieved of liability if he principal thereto unless his name in some way is credited those checks to the personal account of
acted w/ authority, there was need to charge him w/ disclosed on the instrument itself. Foerster and permitted Foerster and his wife to make
liability if authority was lacking. -The instrument in question here was a negotiable withdrawals without there being made authority from
instrument (even if it was secured by a deed of trust as the drug company to do so, the bank made itself
PRATT V HOPPER it is negotiable in form). To go beyond the face of the responsible to the drug company for the amounts
12 Cal App.(2d) 291, 55 P. 2d 517 (1936) instrument is to nullify Sec. 3099 of the US CC. represented by the checks. The bank could relieve itself
~’del~ Disposition Judgment affirmed. from responsibility by pleading and proving that after
the money was withdrawn from the bank it passed to
FACTS INSULAR DRUG CO V PHIL. NAT’L BANK the drug company which thus suffered no loss, but the
-Mabel Pratt conveyed a tract of land to Mitchell Mayer. Malcolm; G.R. No. L-38816 58 Phil. 684 (1933) bank has not done so. The bank will have to stand the
-Mayer then executed a deed of trust to the California ~jaja~ loss occasioned by the negligence of its agents.
Trust Co.(CTC) as trustee and Pratt as beneficiary Disposition Judgment affirmed.
therein. FACTS
-Mayer also executed a deed of the property to Hopper -The Insular Drug Co., Inc., is a Philippine corporation PBCOM V ARUEGO
and Payne. with offices in the City of Manila. U.E. Foerster was L-25736, Jan 31, 1981; 102 SCRA 530
-Trimble carried on the negotiations for the purchase of formerly a salesman of drug company for the Islands of ~iNa~
the property for the parties. Panay and Negros. Foerster also acted as a collector for
-The trust from Mayer to the CTC secured the payment the company. He was instructed to take the checks NATURE
of a note representing a portion of the purchase price. which came to his hands for the drug company to the Appeal from an order of trial court denying motion to
-Said note was signed by Mayer in his individual Iloilo branch of the Chartered Bank of India, Australia set aside order of default. (Remember requirements to
capacity and not designating himself as an agent. and China and deposit the amounts to the credit of the set aside default order: failure to answer was due to
Neither did he disclose in the note the names of any of drug company. Instead, Foerster deposited checks, FAME and that defendant has meritorious defense.) The
the other interested parties in the transaction. including those of Juan Llorente, Dolores Salcedo, SC found that failure was due to E; but defendant
-Pratt sued Mayer, Hopper, Payne and Trimble to Estanislao Salcedo, and a fourth party, with the Iloilo (Aruego) does not have a meritorious defense.
recover a deficiency on the note. branch of the Philippine National Bank. The checks
were in that bank placed in the personal account of FACTS
ISSUE Foerster. Some of the checks were drawn against the -Involves 22 transactions between Bank and Aruego for
WON Mayer is liable on the instrument as agent Bank of Philippine National Bank. After the indorsement the printing of defendant's periodical. Defendant had a
on the checks was written "Received payment prior credit accommodation with Bank. The printers would
HELD: NO. indorsement guaranteed by Philippine National bank, collect the cost of printing from Bank. The total amount
-All the exhibits show that Mayer signed in his Iloilo Branch, Angel Padilla, Manager." The indorsement demanded was P35k.
individual capacity and not as agent for other on the checks took various forms. In this connection it -The instruments were signed: "Jose Aruego (Acceptor)
defendants. The exhibits don’t show either that a trade- should be explained that Carmen E. de Foerster was his (Sgd.) Jose Aruego"
name was used or that the parties thereto were stenographer. As a consequence of the indorsements Aruego's defenses:
partners. on checks the amounts therein stated were 1. he signed in his capacity as President of Philippine
-An undisclosed principal has been held liable except in subsequently withdrawn by U. E., Foerster and Carmen Education Foundation (PEFC), publisher of the
cases of negotiable instruments and specialties, but the E. de Foerster. periodical
law seems well settled that in the case of negotiable -Eventually the Manila office of the drug company 2. he's not a principal obligor, but only an
instruments an undisclosed principal could not be investigated the transactions of Foerster. Upon the accommodation party
charged at any time. discovery of anomalies, Foerster committed suicide. 3. the documents are not legally bills of exchange but
-In the case of negotiable instruments, this restriction But there is no evidence showing that the bank knew only instruments evidencing indebtedness because
arises, not by reason of the status of the parties, but by that Foerster was misappropriating the funds of his payments were made before acceptance
reason of the character of the instrument. When a principal. The Insular Drug Company claims that it
negotiable instrument is executed by an agent never received the face value of 132 checks here in the ISSUES
without sufficiently indicating on its face who the question covering a total of P18,285.92. 1. WON Aruego is a mere representative
principal is, parol evidence cannot be introduced 2. WON Aruego is a primarily liable
ISSUE 3. WON the documents are bills of exchange
[ch5-CC] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. Rogelio V. Quevedo [Ch5-CC]
presented the said draft to drawee bank for payment, WON an action on a check can be had against the
HELD NOT the time when Bowen let go of the draft) drawer without presentment and demand on the
1. NO -Bowen unqualifiedly indorsed the draft and put it in drawee
-Sec. 20 of NIL says that an agent who does not circulation by sending it to Trabert at a distant part of
disclose his principal is not exempt from liability. the country and probably knowing that Trabert was HELD: NO.
Aruego did not disclose that he was signing as a travelling to San Francisco where he would negotiate -Fick cited a number of cases to support his contention
representative of PEFC. For failure to disclose his the paper. At any rate, the important thing is that after that failure to present a check to the drawee does not
principal, Aruego is personally liable. Trabert negotiated the draft, said draft was release the drawer unless he sustains loss or injury in
2. YES immediately presented for payment. consequence of such failure
-Accomodation party = one who signs instrument as *Note that this case involves a draft which is a bill of -However, these cases go only to the extent of holding
maker, drawer, indorser, without receiving value for the exchange. In the case of a bill of exchange, that the debt, which the check was designed to pay, is
purpose of lending his name = surety; therefore, presentment for payment will be sufficient if made charged only to the extent that the drawer has
primarily liable. within a reasonable time after the last negotiation sustained loss by the failure or negligent delay of the
-The defendant who is a lawyer should not have signed thereof. As to what constitutes reasonable time is a payee to present the check to the drawee for payment
as an acceptor/drawee. In doing so, he became question of fact. In the case at bar, the court is satisfied -Issue of loss or injury to drawer arises only when he
primarily and personally liable for the drafts. that the draft was presented for payment within a claims the debt is discharged by reason of negligence
3. YES reasonable time. of payee in presenting the check for payment--this is
-As long as a commercial paper conforms with the Campos Notes: Under Sec. 71 (on demand nego not the case
definition of a bill of exchange, that paper is considered instruments), the liability of the drawer and indorsers -Such cases do not encroach upon the rule that
a bill of exchange. The nature of acceptance is (emphasis by me), of a demand bill can be preserved presentment, demand and notice of dishonor are
important only in the determination of the kind of indefinitely, provided presentment is made WITHIN A essential prerequisites to an action against the drawer
liabilities of the parties involved, but not in the REASONABLE TIME FOR LAST NEGOTATION. But take on a check
determination of whether a commercial paper is a bill note, under Sec. 53, where an instrument payable on Disposition Judgment reversed, case remanded, with
of exchange or not. demand is negotiated in an unreasonable length of direction to dismiss.
time after issue, the holder is NOT a HDC. THUS (as a
COLUMBIAN BANKING CO V BOWEN way of reconciling the two), although a reasonable GORDON V LEVINE
134 Wis. 218, 114 N.W. 451 (1908) time may not have elapsed between the last Morton; 194 Mass. 418, 80 NE 505; (1907)
~chrislao~ negotiation and presentment for payment of a demand ~rach~
bill (and so the secondary parties remain liable), the
FACTS holder who takes the instrument after the lapse of a FACTS
-Farmer's Merchant Bank (drawer) sold $400 draft reasonable time from issue, will be subject to personal SUBJECT: Check dated December 30, 1905, Saturday
drawn on National Bank of North America (drawee) defenses. DRAWER: Max Levine, defendant
payable to Bowen (payee). DRAWEE: Provident Securities & Banking Company
-Bowen indorsed and forwarded by mail the draft to FICK V JONES PAYEE: Samuel Gordon, plaintiff
Trabert, a traveler. The endorsement was made on 185 Wash. 365, 55 P. 2d 334 (1936) -Gordon’s version: Levine asked him not to present the
June 16, 1903. ~apple~ check for a couple of days; still, he presented it on
-Trabert indorsed the draft to Columbian Banking Co. Monday morning and was told there were no funds.
Columbian presented the draft to drawee bank for FACTS Gordon then passed the check to one Saievitz in
payment. This was refused. Columbian demanded SUBJECT: Check payment of a bill. On Tues, Saievitz indorsed it to one
payment from Bowen. DRAWER: J.W. Jones Rootstein who deposited it on Thurs, in the Faneuil Hall
DRAWEE: People's Bank and Trust Company National Bank, Boston, for collection. On Friday, that
ISSUE PAYEE: E.P. Fick bank's messenger then went to the bank on which the
WON Bowen (as an indorser, hence, secondarily liable) -Fick brought an action on the check against Jones check was drawn, the Provident Securities & Banking
was released from liability on the draft because of -Judgment was rendered in Fick's favor [*it was neither Company, and found its doors closed. Hence, with this
period intervening between his indorsement and the alleged nor proven that the check was ever presented non-payment, Levine should still be liable.
presentation to drawee for payment. to the drawee for payment: the TC found it had not -Levine’s version: When the check was drawn, he had
been presented to drawee but to drawer in 1933 (check sufficient funds on deposit at the bank to meet it, and
HELD: NO. Bowen was NOT released from dated 1929), who refused to pay it] continued to maintain such account. The check should
liability. -Jones appealed on the ground that an action on a have been presented for payment within a reasonable
-The only time to be considered here is the time check cannot be had against the drawer without time -the check in suit should have been presented
intervening between the last negotiation and the allegation and proof of presentment and demand on before the close of banking hours on Mon, Jan 1.
presentment (meaning between time when Trabert the drawee -The court refused to instruct the jury that the transfer
negotiated it to Columbia and the time when Columbia to successive holders would not extend the time, or
ISSUE that a presentment on Friday was not within a
[ch5-DD] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. Rogelio V. Quevedo [Ch5-DD]
reasonable time. Defendant seeks exceptions from this presented check January 1958, payment refused, duly making inquiries about the reasons for the dishonor of
ruling. protested, notice given to McCartney. the check. Thereafter, Seeto refused to make the
refund demanded, claiming that at the time of the
ISSUE ISSUE negotiation of the check the drawer had sufficient funds
WON there was proper diligence in presentment WON Morrison was entitled to recover, notwithstanding in the drawee bank PBC, and that had PNB's Surigao
their failure to present the check on the day after it was agency not delayed to forward the check until the
HELD: NO endorsed to them, upon showing that the drawer drawer's funds were exhausted, the same would have
-Where the drawer, the drawee and the payee of a sustained no injury by the delay, and that before suit, been paid.
check are all in the same city or town, the check should brought, and within a reasonable time, demand,
be presented for payment before the close of banking protest, and notice were duly given ISSUE
hours on the day after its delivery, and its circulation WON indorsee Seetois liable for the refund demanded
from hand to hand by indorsement does not extend the HELD: YES by PNB
time for its presentment. If it is presented and paid -The drawer is treated as in some sort of principal
afterwards the drawer suffers no harm. But if not debtor, and he is not discharged by any laches of the HELD:NO.
presented within the time thus fixed, and there is a loss holder in not making due presentment thereof, or in not -Section 84 of the Negotiable Instrument Law is
it falls not on him but on the holder. giving him notice of the dishonor, unless he has applicable, but its application is subject to the condition
-The general rule is that a check must be presented for suffered some loss or injury thereby, and then only pro imposed by Section 186, to the effect that the check
payment within a reasonable time after it is issued. If it tanto. must be presented for payment within a reasonable
is not so presented and the drawer sustains a loss by -The drawer is the principal debtor. The check is the time after its issue.
reason of the failure of the drawee, he will be acknowledgement of a certain sum due. It is an SEC. 84. Liability of person secondarily liable, when
discharged from liability to the extent of such loss, absolute appropriation of so much money in the hands instrument dishonored. Subject to the provisions of this
continuing liable otherwise. This results from the nature of his banker to the holder if the check, and there it Act, when the instrument is dishonored by
of the instrument which though defined in the ought to remain till called for; and unless the drawer nonpayment, an immediate right of recourse to all
negotiable instruments act as 'a bill of exchange drawn actually suffers by the delay, as by the intermediate parties secondarily liable thereon accrues to the holder.
on a bank payable on demand' is intended for failure of his banker, he has no reason to complain of SEC. 186. Within what time a check must be presented.
immediate use and not to circulate as a promissory delay not unreasonably protracted. If the holder does A check must be presented for payment within a
note, and it consequently would be unjust to subject so unreasonably delay, he assumes the risk of the reasonable time after its issue or the drawer will be
the drawer to the loss if any resulting from failure to drawee’s failure, and he may, under circumstances, be discharged from liability thereon to the extent of the
present it for payment within a reasonable time. deemed to have made the check his own to the loss caused by the delay.
-'In determining what is a 'reasonable time' or an discharge of the drawer. -The silence of Sec. 186 as to the indorser is due to the
'unreasonable time' regard is to be had to the nature of Disposition. Judgment for plaintiff is affirmed. fact that his discharge is already expressly covered by
the instrument, the usage of trade or business, if any, the provision of Section 84, the indorser being a person
with respect to such instruments and the facts of the PHIL. NAT’L BANK V SEETO secondarily liable on the instrument. The reason for the
particular case.' Labrador; 91 Phil. 756 (1952) difference between the liability of the indorser and that
Disposition Exceptions sustained. ~jojo~ of the drawer in case of dishonor is that the drawer is
not probably or necessarily prejudiced thereby, while
MORRISON V McCARTNEY FACTS an indorser is, actually or by legal presumption.
30 Mo. 183 On March 13, 1948, Benito Seeto called at the Surigao -There is no authority sustaining the proposition that an
~cHa~ Branch of PNB, and presented a check in the amount of indorser of a check is not discharged from liability for
P5,000, payable to cash or bearer, and drawn by one an unreasonable delay in presentation for payment.
FACTS Gan Yek Kiao against the Cebu branch of the Philippine This is contrary to the essential nature and character of
SUBJECT: check delivered and transferred on Oct.2, Bank of Communications (PBC). After consultation with negotiable instruments -their negotiability. They are
1957 the employees of the branch, Seeto made a general supposed to be passed on with promptness in the
but was presented only on January 1958 and unqualified indorsement of the check, and PNB's ordinary course of business transactions; not to be
DRAWER: McCartney agency accepted it and paid Seeto the amount of retained or kept for such time as the holder may want,
DRAWEE: E.W. Clark & Brothers (C&B) P5,000 therefor. The check was mailed to PNB's Cebu otherwise the smooth flow of commercial transactions
PAYEE: Bohn & Co. branch on March 20, 1948, and was presented to PBC would be hindered.
SUBSEQUENT INDORSEMENTS: Bohn & Co. to Morrison for payment on April 9, 1948, but the check was -It is not claimed by PNB that the conclusion of the CA
-Check was not presented Oct.3 because C&B was dishonored for "insufficient funds." So the check was that there was unreasonable delay in the presentation
closed or stopped payment. On Oct.6, McCartney who returned to PNB's Surigao agency, and upon receipt of the check for payment at the drawee bank is
previously commenced suits by attachment thereof by it on April 14, 1948, said branch sent two erroneous. The fact, admitted by the witnesses for the
compromised the suits, settled with the C&B then letters to Seeto demanding immediate refund of the petitioner, that checks of the drawer issued subsequent
withdrew his deposits with C&B. Morrison only value of the check, to Seeto answered asking that to March 13, 1948, drawn against the same bank and
PNB's contemplated suit be deferred while he was cashed at the same Surigao agency, were not
[ch5-EE] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. Rogelio V. Quevedo [Ch5-EE]
dishonored positively shows that the drawer had CHAN WAN V TAN KIM Reyes sued the petitioners to which RTC rendered a
enough funds when he issued the check in question, Bengzon; 50 O.G. 1554 (1960) decision requiring the petitioners to pay the
and that had it not been for the unreasonable delay in ~athe~ respondehnt the total value of the checks.
its presentation for payment, the petitioner herein Petitioners appealed saying that the the respondent
would have been able to receive payment therefor. The FACTS had no cause of action and should have proceeded
check is dated March 10 and was cashed by the -Tan Kim drew 11 checks payable to “cash or bearer” against the companies instead. CA affirmed the
petitioner's agency on March 13, 1948. It was not upon the Equitable Banking Corp payable to Pinong and judgment of the RTC.
mailed until seven days thereafter, or ten days after Muy for some shoes the former had promised (8 of
issue. No excuse was given for this delay. Assuming these checks bear two parallel lines between which ISSUE
that it took one week, or say ten days, or until March these words are written: non-negotiable-China Banking WON Reyes had cause of action against the petitioners
30, for the check to reach Cebu, neither can there be Corporation).
any excuse for not presenting it for payment at the -The checks were deposited with the CBC and the latter HELD: YES.
drawee bank until -- The supposed assurances of refund presented to the drawee for collection. However, as the There being no evidence that the crossed checks were
in case of dishonor of the check are precisely the drawee had no funds they were unpaid and returned. acutally received by the respondent, she would have a
ordinary obligations of an indorser, and these -The checks reached the hands of Chan Wan. He right of action against the drawer companies, which in
obligations are, under the law, considered discharged presented them to the drawee bank (EBC) but they turn could sue the petitioner as a collecting bank. In a
by an unreasonable delay in the presentation of the were all dishonored on the ground that the plaintiff (a) similar situationn, to simplify the proceedings, tha
check for payment. failed to prove he was a holder in due course, and (b) payee of the illegally encashed checks could be allowed
the checks been crossed checks should not have been to recover directly from the bank responsible for such
CRYSTAL V CA [Ocang, de Gracia] presented to the drawee for “payment”, but should encashment regardless of whether or not the checks
L-No. 35767, June 18, 1976; 71 SCRA 443 have been deposited instead with the bank mentioned were actually delivered to the payee.
~kiyo~ in the crossing. Crossing a check is special where the name of a bank
or a business institution is written between 2 parallel
FACTS HELD lines, which means that the drawee should pay only
-The SC affirmed a CA decision, holding that Raymundo -Chan Wan is indeed not a holder in due course since with the intervention of that company. This means that
Crystal’s redemption of the 4 parcels of land in he knew that the checks had already been dishonored. the drawee should not encash the check but merely
question acquired by Pelagia Ocang, et al, was invalid However, it does not follow that simply because he was accept it for deposit.
as the check which Crystal used in paying the not a HDC, he could not recover on the checks. His only In State Investment House v IAC the court held that the
redemption price of P11,200 had been either disadvantage is that the negotiable instrument is effects of crossing a check are: (1) that the check may
dishonored or had become stale hence, the value of the subject to defenses as if it were non-negotiable. But not be encashed but only deposited in the bank; and
check was never realized. Crystal filed and MFR. since lower court did not mention what defenses Tan (2) that the check may be negotiated only once – to
Kin prove, the case was remanded to the trial court for one who has account with a bank and; (3) that the act
ISSUE determination of whether any defense existed between of crossing the chec serves as a warning to the holder
WON the conflicting circumstances of the check being the original parties. that the check has been issued for a definite purpose
dishonored and becoming stale affect the validity of the so that he must inquire if he ahs received the check
redemption sale ASSOCIATED BANK, Cruz V CA, Reyes pursuant to that purpose.
208 SCRA 465; Cruz; May 27, 1992 Under Sec 72,NIL, presentment of payment, to be
HELD ~giulia~ sufficient, must be made by the holder or by some
-For a check to be dishonored upon presentment and to person authorized to receive payment on his behalf.
be stale for not being presented at all in time are FACTS Who the holder or authorized person is depends on the
incompatible developments that have variant legal Reyes in engaged in the business of RTW garments instruction stated on the face of the check.
consequences. If indeed the questioned check was under the firm name 'Melissa's RTW.' The companies The possession of a check on a forged or unauthorized
dishonored, the redemption was null and void. If it had she deals with issue in payment crossed checks indorsement is wrongful, and when the money is
only become stale, it becomes imperative that the payable to Melissa's RTW. collected on the check, the bank can be held for
circumstances that caused its non-presentment be When Reyes went to the companies to collect on what moneys had and received.
determined, for if it was not due to the fault of the she thought were still unpaid accounts, she was The bank was negligent.
drawer, it would be unfair to deprive him of the rights informed of the issuance of the crossed checks. Further The petitioners also argued that the respondent's
he had acquired as redemptioner. In this case, there is inquiry revealed that the said checks had been husband was the one who indorsed the check.
a strong showing that the check was not dishonored, deposited with the Associated Bank (bank) and Assuming that he did, the bank would still be liable
although it became stale, and that Pelagia Ocang had subsequently paid to Sayson. According too the branch because the husband was not authorized to make the
actually been paid the full value thereof. manager, Cruz, Sayson had not been authorized by the indorsements. There is no substantial difference
Disposition SC decision is reconsidered and the case private respondent to deposit and encash the said between an actual forging of a name to a check as an
remanded to the TC. checks. endorsement by a person not authorized to make the
[ch5-FF] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. Rogelio V. Quevedo [Ch5-FF]
signature and the affixing of a name to a check as an checks. It must be noted that Gullas was merely an -Arterburn drew a check for $1,000 payable to JH and
indorsement by a peson not authorized to indorse it. indorser of the treasury warrant. As to an indorser, the HA Wakefield and delivered the same for value. The
situation is different, notice should actually have been check was dishonored on presentment. The payee
GULLAS V PHIL. NAT’L BANK given to him in order that he might protect his interest. sued. As defense, the maker alleged that since the
Malcolm; 62 Phil 519 (1935) 2. YES. petition did not aver that notice [of the non-payment of
~ajang~ -Atty. Gullas should be awarded nominal damages, the check when presented at the bank] was given to
P250, because of the premature action of the bank him, no cause of action was stated. Arterburn argued
FACTS against Gullas, he had no means of protection. that a check is a bill of exchange and hence a notice
-Atty. Gullas has a current account with PNB. The must be given the drawer; otherwise, maker is
treasurer of the U.S. for the United Veterans Bureau STATE BANK OF EAST MOLINE V STANDAERT discharged. In support of this contention the defendant
issued a treasury warrant worth $361 payable to the 335 Ill. App. 519, 82 N.E. 2d 393 cited two provisions of the law as follows:
order of Sabectoria Bacos. Atty. Gullas and Pedro Lopez ~glaisa~ “356.185. Check defined. A check is a bill of
signed as indorsers of this check. Thereupon, it was exchange drawn on a bank payable on demand. Except
cashed by PNB. However, the treasury warrant was FACTS as herein otherwise provided, the provisions of this
dishonored by the Insular Treasury, so PNB sent notices SUBJECT: a promissory note chapter applicable to a bill of exchange payable on
by mail to Gullas which could not be delivered to him at MAKERS: Alfons and Lena Standaert demand apply to a check.
that time because he was in Manila. In the letter, the INDORSEES: Alois and Anna de Vos “356.089. Notice of dishonor. Except as otherwise
bank said that in view of the fact that the treasury -Alfons and Lena made and delivered the PN to Alois provided in this chapter, when a negotiable instrument
warrant was dishonored, the bank has applied the and Anna. The note recited it was secured by real has been dishonored by non-acceptance or non-
outstanding balances of his current accounts (worth estate mortgage. payment, notice of dishonor must be given to the
P509) to the part payment of the check. -Alois and Anna sold the note and the mortgage to the drawer and to each indorser, and any drawer or
-When Atty. Gullas went back to Cebu, he received the plaintiff bank. Note was not paid. Bank sued the makers indorser to whom such notice is not given is
notice of dishonor and immediately paid the unpaid and the indorsees. discharged.”
balance of the treasury warrant. -During trial, bank offered the testimony of its teller-
-However, Atty. Gullas was inconvenieced because of bookkeeper who said that it was unswerving custom of ISSUE
this. Check including one for his insurance was not paid the bank to send to the parties, 10 days prior to its WON in an action on a check the petition must aver
because of lack of funds. Also, periodicals in the vicinity maturity date. that the maker of the check was given notice that it
gave prominence to this news, to great mortification of -Anna maintains she did not receive any notice that the was dishonored
Gullas. note was dishonored.
HELD: NO
ISSUES: ISSUE -The two sections quoted by the defendant, when taken
1. WON PNB had right to apply a deposit to debt of the WON the plaintiff bank gave the indorser notice of independent of the other provisions, would seem to
depositor to the bank dishonor as required under the Negotiable Instruments imply that a failure to give notice of dishonor of a check
2. WON award for damages should be given to Atty. Law discharges the maker. However, several provisions of
Gullas the NIL stand in pari material and must be construed as
HELD: NO to give each a field of operation. While Article 356.185
HELD -To charge an indorser with the payment of the note, makes a check a bill of exchange, it does not so
1. YES. the plaintiff must establish that the notice of dishonor unqualifiedly but only “except as herein otherwise
-As a general rule, a bank has a right of set off of the was addressed and was actually made which may be provided”. On the other hand, Article 356.186 seem to
deposits in its hands for the payment of any proven by direct or circumstantial evidence. create a distinction between a check and a bill of
indebtedness to it on the part of the depositor. In -In the case, other that the description of the general exchange in that the maker of the check is released
Louisiana however, the rule is denied and it is held that custom of the bank of notifying indorser, the only upon the delay of the payee in presenting a check
a bank has no such right without an order from or evidence tending to prove, even circumstantially, that payment but only to the extent of the loss caused by
special assent of the depositor. The basis of this the notice of dishonor was prepared and mailed to the the delay.
doctrine is the theory of confidential contracts arising defendant was the inference from the teller- -Even assuming that he is entitled to notice, the
from irregular deposits e.g. the deposit of money with a bookkeeper’s self-serving declaration that she always following provision of Article 356.114 would apply:
banker. The court decided to adopt the general rule as did her duty and never failed to send out notice of “356.114. When notice to drawer not required. Notice
more in harmony with modern banking practice. dishonor. of dishonor is not required to be given to the drawer in
From this premise that PNB had the right, the next either of the following cases: (1) Where the drawer and
question is whether the bank properly enforced such ARTERBURN V WAKEFIELD the drawee are the same person; (2) Where the drawee
right. The bank mailed the notice of dishonor, but made 309 Ky. 212, 217 S.W. 2nd 203 (1949) is a fictitious person or a person not having capacity to
use of the money standing in hi saccount without ~RPR~ contract; (3) Where the drawer is the person to whom
waiting for any action by Gullas. Thus, Gullas didn’t the instrument is presented for payment; (4) Where the
have any notice of the set off when he issued the other FACTS drawer has no right to expect or require that the
[ch5-GG] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. Rogelio V. Quevedo [Ch5-GG]
drawee or acceptor will honor the instrument; (5) promptly report the fact to its principal, and the
Where the drawer has countermanded payment” principal may then notify those to be charged.
-Banks would normally not pay or dishonor a check due PASSAIC as a mere agent of PATERSON for effecting
to insufficiency of funds in the account of the maker or collection (sub-agent)
to a stop payment order by the maker. In which case, if 1. bound to make legal demand on promisor of
the dishonor or non-payment of the check is due to the payment
stop payment order, then it is covered by the fifth 2. and upon non-payment, to give due notice of the
condition of Article 356.114. If on the other hand, non- dishonor to PATERSON
payment is due to lack of funds, he has no right to >>to hold PASSAIC to a greater duty would be most
expect or require the bank to pay his check. This unreasonable because it had not discounted the paper
situation is covered by the fourth condition of Article and presumable knew nothing of the indorsers or their
356.114. residences. If Ruth Simon desired PASSAIC to notify the
Disposition Judgment affirmed. indorsers, she could have given SPECIFIC
INSTRUCTIONS (Phipps v Milbury Bank)
PATERSON as mere AGENT for Ruth Simon for collection
>>knew nothing of their indorsers or their residences
>>duty as agent fully performed when it gave TIMELY
NOTICE if the dishonor of the note so she could notify
SIMON V PEOPLE’S BANK & TRUST CO the prior parties. It does not matter that a notice placed
116 N.J.L. 390, 184 Atl. 793 (1936) in the mail is not received
~owen~ -Section 94 NIL: Where the instrument has been
dishonored in the hands of an agent, he may either
FACTS himself give notice to the parties liable thereon, or he
DRAWER: Robert H. Simon may give notice to his principal; if he gives notice to his
PAYEE/INDORSER: Frucht principal, he must do so within the same time as if he
INDORSEE/HDC: Ruth Simon were the holder, and the principal upon receipt of such
DRAWEE BANK (payable at): People’s Bank & Trust notice has himself the same time for giving the notice
Company of PASSAIC as if the agent has been an independent holder.
COLLECTING BANK: Hamilton Trust Company of -Mailing of notices to the principal is sufficient to relieve
PATERSON the agent. Any other rule would cast too great an
The note, which was sent to the Federal Reserve Bank, obligation upon banks.
was presented to PASSAIC for payment but it was Disposition Judgment is reversed.
dishonored. The notice of dishonor was mailed,
addressed to each party liable thereon, in the care of
PATERSON. These notices were received by PATERSON
the next day. Thereupon, the notices were mailed to
Ruth Simon, who failed to collect against the Robert H.
Simon and Frucht, brought an action against PASSAIC,
its cashier, and PATERSON for negligence
District Court: in favor of PASSAIC et al
Supreme Court on appeal: reserved judgment

ISSUE
WON PASSAIC, its cashier, and PATERSON are liable as
agents because they did not give sufficient notice

HELD: NO
Ratio The holder of a note taking it to a bank for
collection is familiar with the financial responsibility of
the maker and indorsers, and can easily disclose the
addresses of those to be charged and request that they
be notified in event of default. In the absence of
specific instructions, the bank need do no more than
[ch5-HH] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. Rogelio V. Quevedo [Ch5-HH]
PEOPLE’S NATL BANK OF YPSILANTI V DICKS -prior to NIL, there was no such distinction. The effect (a) Where the drawer and the drawee are the same
258 Mich. 441; 242 NW 825 (1932) of a waiver appearing at the back of an instrument has person;
~maia~ the same effect as that of one appearing at the back (b) When the drawee is a fictitious person or a person
thereof, i.e. binds all indorsers. Now, there is a not having capacity to contract;
FACTS distinction. (c) When the drawer is the person to whom the
SUBJECT: promissory note -here, Dicks was an indorser, thus he is not bound by instrument is presented for payment:
MAKER: Ives the printed guaranty of payment or waiver of the note. (d) Where the drawer has no right to expect or
HOLDER: People’s National Bank (substituted by Deake Nothing indicates that Dicks signed, accepted, or require that the drawee or acceptor will honor the
et al. as plaintiffs) approved of the printing upon the instrument. No instrument;
INDORSER: Dicks presentment, demand, or notice of dishonor was given (e) Where the drawer had countermanded payment.
-People’s National Bank sued Dicks and Ives for the defendant, thus he is not bound by the same. -Indeed, MOULIC'S actuations leave much to be desired.
promissory note. The note was signed on its face by She did not retrieve the checks when she returned the
Ives and Dicks. Opposite the signatures and directly jewelry. She simply withdrew her funds from her
opposite Dicks’ name was stamped the word drawee bank and transferred them to another to
“indorsed.” protect herself. After withdrawing her funds, she could
-Above the signatures of the parties, there was no STATE INVESTMENT HOUSE V CA not have expected her checks to be honored. In other
guaranty of payment, no waiver of demand or notice of G.R. No. 101163; Bellosillo: Jan 11, 1993 words, she was responsible for the dishonor of her
non-payment or protest, and no waiver of extension. ~da~ checks, hence, there was no need to serve her Notice
Such waiver was on the face of another part of the note of Dishonor, which is simply bringing to the knowledge
(the back of the instrument). FACTS: of the drawer or indorser of the instrument, either
-there was no presentment of the note for payment to SUBJECT: 2 Post dated checks verbally or by writing, the fact that a specified
Ives, no demand of payment made to him, no dishonor DRAWER: Nora Moulic instrument, upon proper proceedings taken, has not
by Ives, no notice of dishonor to Dicks, no protest on DRAWEE: been accepted or has not been paid, and that the party
the note. Thus, if Dicks was a joint maker of the note he PAYEE: Corazon Victoriano notified is expected to pay it.
is liable. If he is an indorser and is bound by the waiver Indorsee: SIHI
printed on the note, he is likewise liable. If he is a mere -Nora B. Moulic issued to Corazon Victoriano, as
indorser, not bound by the warranty or guaranty security for pieces of jewelry to be sold on commission,
printed on the note, he is not liable. two (2) post-dated Equitable Banking Corporation
checks in the amount of Fifty Thousand Pesos ELLENBOGEN V STATE BANK
ISSUE (P50,000.00) each who thereafter negotiated the 197 N.Y. Supp. 278 (1922)
WON Dicks was liable checks to State Investment House. Inc. (STATE).MOULIC ~bry_sj~
failed to sell the pieces of jewelry, so she returned
HELD: NO them to Victoriano before maturity of the checks. The FACTS
-when the waiver is embodied in the instrument itself it checks could no longer be retrieved since they had SUBJECT: draft
is binding upon all parties; but when it is written above already been negotiated. Before their maturity dates, DRAWER: State Bank
the signature of an indorser, it binds him only. MOULIC withdrew her funds from the drawee bank. DRAWEE: Polish National Loan Bank
“Embodied in the instrument” means embodied in the -The checks were dishonored for insufficiency of funds. PAYEE: Meyer Ellenbogen’s agent
original contract, not in detached words on the back of On 20 December 1979, STATE allegedly notified -Ellenbogen sued to recover $1650 on a draft drawn by
the instrument. MOULIC of the dishonor of the checks and requested defendant to the order of her agent for the equivalent
-in the construction of negotiable instruments, the NIL that it be paid in cash instead, although MOULIC avers of Polish money of that sum. Ellenbogen alleged that
provides that where the signature is so placed upon the that no such notice was given her. the check was duly presented to the Polish National
instrument that it is not clear in what capacity the Bank but said bank refused payment for the reason
person making it intended to sign, he is deemed an ISSUE that the defendant had no money on deposit in
indorser. WON MOULIC is liable for the value of the checks even the bank with which to pay the check.
-further, Sec. 109 provides that notice of dishonor may if STATE failed to give her notice of dishonor -The trial court dismissed the complaint because it was
be waived, either before the time of giving notice has not pleaded that the draft was protested citing section
arrived, or after the omission to give notice, and the HELD: YES. 260 of the Negotiable Instruments Law, which provides
waiver may be express or implied. -The fact that STATE failed to give Notice of Dishonor to that a foreign bill of exchange, appearing on its face to
-the NIL has intended to make a distinction between MOULIC is of no moment. The need for such notice is be such, which is dishonored for nonpayment, must be
waivers appearing on the body of the instrument itself, not absolute; there are exceptions under -Sec. 114 of duly protested for nonpayment, and that if it is not so
and those appearing at the back thereof above the NIL: When notice need not be given to drawer. Notice of protested the drawers and indorsers are discharged.
signature of the indorser. An indorser is not bound in all dishonor is not required to be given to the drawer in
events by a waiver that is not embodied in the body of the following cases: ISSUE
the instrument, but placed at the back thereof.
[ch5-II] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. Rogelio V. Quevedo [Ch5-II]
WON the lower court erred in holding that protest is a and the shop of Buhang tot he Chinaman Lim Joco and p[plaintiff to recover upon said bill of exchange without
condition precedent to recovery against the drawer Tim Bico; and by reason by such transfers it was agreed the same having been duly protested. The action was
between them that the said Chinamen to whom the two not brought upon the bill of exchange; the bill of
HELD: NO. should had been transferred would become liable for exchange was used only as evidence of the
-Section 185 of the NIL provides that notice of dishonor the debt of the plaintiff directly in connection with the indebtedness. We believe, however, that inasmuch as
is not required to be given to the drawer, if the drawer said two shops, one being for the sum of about 600 the defendant had himself ordered the drawee not to
has no right to expect or require that the drawee or pesos and the under these conditions, the plaintiff can pay the said bill of exchange, that protest and notice of
acceptor will honor the instrument and under Section not now be held to the liable for the 2,390 odd pesos nonpayment under these conditions was unnecessary
267 (which is only required in the case of foreign bills of claimed by the defendants in their counterclaim; they in order to render the drawer, or defendant in this case,
exchange) is dispensed with by any circumstances must look for payment of this sum to the Chinamen in liable.
which would dispense with the notice of dishonor. whose favor the two shops were transferred. Disposition: The judgment of the lower court is
Further, under Section 139, presentment for payment is -When the draft in question was presented by the affirmed
not required, in order to charge the drawer, where he plaintiff in Manila for payment, having failed to collect
has no right to expect or require that the drawee or the amount,. he did not cause the protest to be drawn BISHOP V DEXTER
acceptor will pay the instrument. up in the manner provided by the Code of Commerce. 2 Conn. 419 (1817)
-It follows that neither presentment nor dishonor was Whether this draft or check is considered as a bill of ~eva~
necessary in light of the facts pleaded by the plaintiff exchange, it is my opinion that said draft or check
and therefore, protest was not required. should the plaintiff should therefore be relieved from FACTS
the formalities of the protest for want of payment of the Maker: Wittlesey
TAN LEONCO V GO INQUI same, as provided for with regard to bills of exchange. Payee/First Indorser: Dexter
Johnson; 8 Phil. 531 (Sept 13, 1907) The lower court indicated a sentence in the cause Indorsees: Converse, then indorsed to Judd, indorsed
~mel~ against the defendant and in favor of the plaintiff for finally to Bishop
the sum of 800 pesos, Mexican currency, or its value in -Dexter indorsed a negotiable note to Converse after it
FACTS the Conant, at the rate of P1.30, with interest 6 per was due
SUBJECT: bill of exchange worth P800 cent from 3d day of march, 1901, and costs, including -after indorsement by Dexter, no demand was ever
DRAWER: Go Inqui, as representative of the plaintiff’s the fees of the arbitrators appointed at its request of made of Whittlesey and no notice ever given to Dexter.
mercantile co, "J.C.," the respective the counterclaim presented by the -Bishop claims he has a right to recover of Dexter on
DRAWEE: Lim Uyco, of Manila. defendant. his indorsement, the note never having been paid by
PAYEE: Tan Leonco Whittlesey
-In the year 1897 the plaintiff left the Philippine for ISSUE
China, and prior to his departure turned over to Tan 1. WON defendant received the hemp so as to ISSUES
Tonguan, for his management, the plantations of abaca constitute consideration for the bill of exchange. 1. WON Dexter is liable.
(hemp) which the plaintiff then possessed in this 2. WON the plaintiff has a right to recover upon said bill 2. WON when a note is indorsed by the payee after due,
province. While the plaintiff was in China, Tan Tonguan of exchange without the same having been duly a subsequent indorsee without knowledge that the first
worked the abaca and obtained 800 pesos worth of protested. indorsement was made after the note was due, has a
fiber, which he caused to be stored, by direction of the right to presume that a proper demand had been made
defendants, in a warehouse in Buhang, and after HELD and notice given when it fell due.
storing the draft or check in question, handing it to the 1. YES
plaintiff, who in the mean time had returned from -It is not disputed that the warehouse in which the HELD
China. The plaintiff then, desiring to leave again for hemp was deposited was the warehouse of the 1. NO.
China, presented the draft for payment in Manila, but defendant. The hemp became the property of the The indorsement of a bill or note after due is equivalent
as the defendants had suspended the payment of the defendant upon the delivery thereof in the warehouse to drawing a new bill payable at sight; and demand
same, the plaintiff was unable to collect the amount of the defendant (arts. 1462 and 1463, Civil Code), and must be made by the indorsee of the drawer of the bill,
thereof. When the said abaca was stored by Tan was property of the defendant at the time a complete or maker of the note, and notice given to the indorser,
Tonguan in Buhang it became the property of the delivery of the said abaca to the defendant, and the as in cases of bills payable at sight. It appears that no
defendants (although it did not go through their hands), loss occuring thereafter,. without any fault of the demand was ever made of Whittlesey, by any of the
and on the face of the draft they acknowledge having plaintiff, was loss of the defendant . We that the indorsees of the note, and no notice ever given to the
received the amount of said draft. Therefore, it is delivery of the hemp as above stated was duly made to defendant for non-payment; of course, he became
evident that the defendants can not alleged now that the defendant and constituted a valuable consideration discharged of any liability on his indorsement.
they had not received the amount of the said draft. for the said bill of exchange or check. 2. NO.
-In the years 1896 and 1897 the plaintiff entered into 2. YES To hold that the indorsee has a right to presume is not
an agreement with the then head of the firm, of J.C., -It was alleged that he said bill of exchange, after being only repugnant to the principle that the indorsement
wherein it was agreed that the plaintiff could transfer presented to the drawee in Manila, was not protested after due is equivalent to drawing a new bill, and must
the shop at San Isidro to the Chinaman Tan Tonguan, and that there is some question of the right of the be proceeded with as such; but would lead to the
[ch5-JJ] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. Rogelio V. Quevedo [Ch5-JJ]
practice of the grossest fraud, for the first indorsee payment in order to charge the maker, failure of which
might neglect to make demand, and give notice, by discharges the maker from liability
which the liability of his indorser would be discharged,
and then, by a subsequent indorsement, he might HELD: NO.
create a new right in his indorsee to recover against Sec.87 should be interpreted in light of the other
the first indorser, after the note had been lost by his provisions of the NIL.
negligence. -Although Sec.87 authorizes a bank, at which an
-That the note had been put in suit would not excuse instrument is made payable, to pay the same for the
demand and notice. account of the principal debtor, its language must not
**With respect to the necessity of demand on the be so expanded to mean that it converts the maker into
maker by the indorsee, the reasonable notice to the a drawer.
indorser, there can exist no serious question. A bill may -The duty of the holder of a note toward the maker
be negotiated after it has become due. The cannot be assimilated to the duty of a holder of a check
indorsement of it afterwards is equivalent to the act of toward the drawer:
drawing a bill payable at sight. The indorser is a new (1) The maker is primarily liable, while the drawer is
drawer, and has the right to insist, that the same steps only liable after dishonor.
should be resorted to for the collection of it, as he had (2) Sec.70 excuses presentment of the instrument as to
been the drawer of the bill originally. By drawing, he the maker of a note, but the same does not apply to
incurs the same legal obligation. the drawer of a check or bill of exchange
(3) Sec.186 places an absolute duty upon the holder of
a check to present the instrument for payment at the
BINGHAMPTON PHARMACY V FIRST NATL BANK place where it is payable, within a reasonable time
131 Tenn. 711, 176 S.W. 1038, 2 A.L.R. 1377 (1915) otherwise the drawer is discharged from liability. No
~jat~ such duty rests upon the holder of a note with respect
to presentment because the maker of a note, by the
FACTS terms of the instrument, is absolutely required to pay.
-Binghampton Pharmacy and Kilpatrick brothers W.A. His obligation as the maker is not a conditional promise
Kilpatrick and L.H. Kilpatrick (makers) executed a note to pay only at a special place, but is a promise to pay
payable to the order of “ourselves,” due on Dec.29, generally, even though a place of payment is named.
1912 and PAYABLE AT the Chickasaw Bank and Trust. Disposition Petition for certiorari denied.
The note was indorsed in blank and discounted at said
Chickasaw Bank, which later rediscounted the same
note at First Natl. Bank before it became due.
-First Natl. Bank did not present the note for payment
at Chickasaw Bank on Dec.29 and instead presented
the note on Jan.1, 1913.
-Because Chickasaw Bank failed to pay, First Natl. Bank
demanded payment from the makers who declined,
their defense being that they are discharged from
liability on the note because of the omission of the First
Natl. Bank to present it for payment at the Chickasaw
Bank, where the note was made payable, when it fell
due.
-First Natl. Bank instituted action against the makers in
the lower court, which decided in its favor. The makers
then filed this certiorari, invoking chapter 94 of the
Tennessee Act (Sec.87 NIL) as their defense. They
argue that Sec.87 puts upon the holder of a note
payable at a bank the same duties as those upon the
holder of an ordinary check.

ISSUES
WON Sec. 87 should be interpreted to mean that a note
made payable at a bank requires presentment for