INTERPRETATION OF INSTRUMENTS1. EQUITABLE BANKING CORP V IAC

In 1975, Liberato Casals, majority stockholder of Casville Enterprises, went to buy two garrett skidders (bulldozers) from Edward J. Nell Company amounting to P970,000.00. To pay the bulldozers, Casals agreed to open a letter of credit with the Equitable Banking Corporation. Pursuant to this, Nell Company shipped one of the bulldozers to Casville. Meanwile, Casville advised Nell Company that in order for the letter of credit to be opened, Casville needs to deposit P427,300.00 with Equitable Bank, and that since Casville is a little short, it requested Nell Company to pay the deposit in the meantime.

Nell Company agreed and so it eventually sent a check in the amount of P427,300.00. The check read:

Pay to the EQUITABLE BANKING CORPORATION Order of A/C OF CASVILLE ENTERPRISES, INC.

Nell Company sent the check to Casville so that it would be the latter who could send it to Equitable Bank to cover the deposit in lieu of the letter of credit. Casals received the check, he went to Equitable Bank, and the teller received the check. The teller, instead of applying the amount as deposit in lieu of the letter of credit, credited the check to Casvilles account with Equitable Bank. Casals later withdrew all the P427,300.00 and appropriated it to himself.

ISSUE: Whether or not Equitable Bank is liable to cover for the loss.

HELD: No. The subject check was equivocal and patently ambiguous. Reading on the wordings of the check, the payee thereon ceased to be indicated with reasonable certainty in contravention of Section 8 of the Negotiable Instruments Law. As worded, it could be accepted as deposit to the account of the party named after the symbols A/C, or payable to the Bank as trustee, or as an agent, for Casville Enterprises, Inc., with the latter being the ultimate beneficiary. That ambiguity is to be taken contra proferentem that is, construed against Nell Company who caused the ambiguity and could have also avoided it by the exercise of a little more care. Thus, Article 1377 of the Civil Code, provides:

Art. 1377. The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity.

2. PNB V CONCEPCION MINING

A promissory note dated march 12, 1954 was executed by Vicente Legarda, president of Concepcion Mining Company, and Jose Sarte. On the face of the promissory note partially reads:

NINETY DAYS after date, for value received, I promise to pay to the order of the Philippine National Bank . . . .

The promissory note matured and without payment from the makers. PNB sued Concepcion Mining and Sarte.

ISSUE: Whether or not the estate of Legarda should be included in the suit.

HELD: No. There is no need for pursuant to Section 17 (g) of the Negotiable Instruments Law:

SEC. 17. Construction where instrument is ambiguous. Where the language of the instrument is ambiguous or there are omissions therein, the following rules of construction apply:

(g) Where an instrument containing the word I promise to pay is signed by two or more persons, they are deemed to be jointly and severally liable thereon.

3. REPUBLIC PLANTERS BANK V CA

In 1979, World Garment Manufacturing, through its board authorized Shozo Yamaguchi (president) and Fermin Canlas (treasurer) to obtain credit facilities from Republic Planters Bank (RPB). For this, 9 promissory notes were executed. Each promissory note was uniformly written in the following manner:

___________, after date, for value received, I/we, jointly and severally promise to pay to the ORDER of the REPUBLIC PLANTERS BANK, at its office in Manila, Philippines, the sum of ___________ PESOS(.) Philippine Currency

Please credit proceeds of this note to:

________ Savings Account ______XX Current Account

No. 1372-00257-6 of WORLDWIDE GARMENT MFG. CORP.

Sgd. Shozo Yamaguchi

Sgd. Fermin Canlas

The note became due and no payment was made. RPB eventually sued Yamaguchi and Canlas. Canlas, in his defense, averred that he should not be held personally liable for such authorized corporate acts that he performed inasmuch as he signed the promissory notes in his capacity as officer of the defunct Worldwide Garment Manufacturing.

ISSUE: Whether or not Canlas should be held liable for the promissory notes.

HELD: Yes. The solidary liability of private respondent Fermin Canlas is made clearer and certain, without reason for ambiguity, by the presence of the phrase joint and several as describing the unconditional promise to pay to the order of Republic Planters Bank. Where an instrument containing the words I promise to pay is signed by two or more persons, they are deemed to be jointly and severally liable thereon.

Canlas is solidarily liable on each of the promissory notes bearing his signature for the following reasons:

The promissory notes are negotiable instruments and must be governed by the Negotiable Instruments Law.

Under the Negotiable lnstruments Law, persons who write their names on the face of promissory notes are makers and are liable as such. By signing the notes, the maker promises to pay to the order of the payee or any holder according to the tenor thereof.

MODES OF TRANSFER

A. ASSIGNMENT V NEGOTIATION1. CONSOLIDATED PLYWOOD V IFC

ACTS: With assurance and warranty, and relying on the seller-assignors skill and judgment, petitioner-corporation through petitioners Wee and Vergara, president and vice-president, respectively, agreed to purchase on installment said two (2) units of Used Allis Crawler Tractors. The seller-assignor issued the sales invoice for the two (2) units of tractors. At the same time, the deed of sale with chattel mortgage with promissory note was executed by Petitioner. Thereafter, the seller-assignor, by means of a deed of assignment assigned its rights and interest in the chattel mortgage in favor of the respondent. Because of the breaking down of the tractors, Wee asked the seller-assignor to pull out the units and have them reconditioned, and thereafter to offer them for sale. Petitioner-corporation advised the seller-assignor that the payments of the installments as listed in the promissory note would be delayed until the seller-assignor completely fulfills its obligation under its warranty. No response was received despite several follow-up calls.

Respondent now sues Petitioner and claims that the defense of breach of warranty, if there is any, as in this case, does not lie in favor of the Corporation and against IFC Leasing who is the assignee of the promissory note and a holder of the same in due course.

ISSUE: Whether or not the promissory note in question is a negotiable instrument so as to bar completely all the available defenses of the petitioner against the respondent-assignee.

HELD: NO. The pertinent portion of the note issued by the Corporation is as follows:

FOR VALUE RECEIVED, I/we jointly and severally promise to pay to the INDUSTRIAL PRODUCTS MARKETING, the sum of (P1,093,789.71), Philippine Currency, the said principal sum, to be payable in 24 monthly installments. . .

Considering that paragraph (d), Section 1 of the Negotiable Instruments Law requires that a promissory note must be payable to order or bearer, it cannot be denied that the promissory note in question is not a negotiable instrument.

The instrument in order to be considered negotiable must contain the so called words of negotiability i.e., must be payable to order or bearer. These words serve as an expression of consent that the instrument may be transferred. This consent is indispensable since a maker assumes greater risk under a negotiable instrument than under a non-negotiable one.

There are the only two ways by which an instrument may be made payable to order. There must always be a specified person named in the instrument. It means that the bill or note is to be paid to the person designated in the instrument or to any person to whom he has indorsed and delivered the same. Without the words or order or to the order of, the instrument is payable only to the person designated therein and is therefore non-negotiable. Any subsequent purchaser thereof will not enjoy the advantages of being a holder of a negotiable instrument, but will merely step into the shoes of the person designated in the instrument and will thus be open to all defenses available against the latter.

Therefore, considering that the subject promissory note is not a negotiable instrument, it follows that the respondent can never be a holder in due course but remains a mere assignee of the note in question. Thus, the petitioner may raise against the respondent all defenses available to it as against the seller-assignor, Industrial Products Marketing.

2. SESBRENO V CA

FACTS

On 9 February 1981, Raul Sesbreno made a money market placement in the amount of P300,000 with the Philippine Underwriters Finance Corporation (PhilFinance), with a term of 32 days. PhilFinance issued to Sesbreno the Certificate of Confirmation of Sale of a Delta Motor Corporation Promissory Note (2731), the Certificate of Securities Delivery Receipt indicating the sale of the note with notation that said security was in the custody of Pilipinas Bank, and postdated checks drawn against the Insular Bank of Asia and America for P304,533.33 payable on 13 March 1981. The checks were dishonored for having been drawn against insufficient funds. Pilipinas Bank never released the note, nor any instrument related thereto, to Sesbreno; but Sesbreno learned that the security was issued 10 April 1980, maturing on 6 April 1981, has a face value of P2,300,833.33 with PhilFinance as payee and Delta Motors as maker; and was stamped non-negotiable on its face. As Sesbreno was unable to collect his investment and interest thereon, he filed an action for damages against Delta Motors and Pilipinas Bank.

ISSUE Whether non-negotiability of a promissory note prevents its assignment.

HELD Only an instrument qualifying as a negotiable instrument under the relevant statute may be negotiated either by indorsement thereof coupled with delivery, or by delivery alone if it is in bearer form. A negotiable instrument, instead of being negotiated, may also be assigned or transferred. The legal consequences of negotiation and assignment of the instrument are different. A negotiable instrument may not be negotiated but may be assigned or transferred, absent an express prohibition against assignment or transfer written in the face of the instrument. herein, there was no prohibition stipulated.

ADDITIONAL: AGUILAR V CITY TRUST

Facts: Josephine Aguilar bought a car from World Cars, Incorporated with the agreed price of 370,000 pesos and a term for 90 days. Upon the delivery of the car by agents of World Cars, Inc. namely: Joselito Perez and Vangie Tayag asked Josephine Aguilar to sign the following documents which at that time were blank: a promissory note, chattel mortgage, disclosures and other documents which showed that they would still be obliged to pay on installment in 12 months for the car (deed of assignment to citytrust) even if checks in full payment thereof in 90 days were to be issued. When Aguilar asked what the documents for she was informed that it was ony for formality, for incase the checks were not cleared, the documents would take effect.

Aguilar draw a total of five(5) checks in favor of Joselito Perez and World Cars. There was no official receipt issued by Perez to Josephine for the last check that was issued.

September/ Decemeber 1992 Aguilar received a letter from Citytrust informing her of her account in connection with the purchase of the car.

ISSUE: Whether or not Aguilar is indebted to CITYTRUST?

RULING: The court ruled in the negative: Stating that the check payments made by Aguilar were all under Perez name it will constitute as payment to World Cars. The promissory note, chattel mortgage and other accessory documents they executed which were to take effect only in the event the checks would be dishonored were deemed nullified, all the checks having been cleared. Since the condition for the instruments to become effective was fulfilled, the obligation on the part of the Aguilars to be bound thereby did not arise and World Cars did not acquire rights. Article 1181: In conditional obligations, the acquisition of rights as well as the extinguishment or loss of those already acquired shall depend upon the happening of the event which constitutes the condition. As no rights was acquired by World Cars against the Aguilars under the promissory note and chattel mortgage, it had nothing to assign to CITYTRUST. Thus, the Aguilars are not indebted to CITYTRUST.D.DELIVERY1. LIM V CA

Manuel and Rosita Lim, spouses, and president and treasurer respectively of Rigi Bilt Industries, Inc., allegedly issued 7 Solidbank checks as payment for goods purchased from and delivered by Linton Commercial Company, Inc. When deposited with Rizal Commercial Banking Corporation, said checks were dishonored for insufficiency of funds with the additional notation payment stopped stamped thereon. Despite demand, spouses Lim refused to make good the checks or pay the value of the deliveries. The RTC held spouses Lim guilty of estafa and violation of BP22. On appeal, the CA acquitted accused-appellants of estafa on the ground that the checks were not made in payment of an obligation contracted at the time of their issuance but affirmed the finding that they were guilty of having violated B.P. Blg. 22. In the present case, petitioners maintain that the prosecution failed to prove that any of the essential elements of the crime punishable under B.P. Blg. 22 was committed within the jurisdiction of RTC-Malabon claiming that what was proved was that all the elements of the offense were committed in Kalookan City.

RULING: Under Sec. 191 NIL, the term issue means the first delivery of the instrument complete in form to a person who takes it as a holder. On the other hand, the term holder refers to the payee or indorsee of a bill or note who is in possession of it or the bearer thereof. Although LINTON sent a collector who received the checks from petitioners at their place of business in Kalookan City, they were actually issued and delivered to LINTON at its place of business in Balut, Navotas. The receipt of the checks by the collector of LINTON is not the issuance and delivery to the payee in contemplation of law. The collector was not the person who could take the checks as a holder, i.e., as a payee or indorsee thereof, with the intent to transfer title thereto. Neither could the collector be deemed an agent of LINTON with respect to the checks because he was a mere employee.

Section 2 of B.P. Blg. 22 establishes a prima facie evidence of knowledge of insufficient funds as follows:

The making, drawing and issuance of a check payment of which is refused by the bank because of insufficient funds in or credit with such bank, when presented within ninety (90) days from the date of the check, shall be prima facie evidence of knowledge of such insufficiency of funds or credit unless such maker or drawer pays the holder thereof the amount due thereon, or makes arrangement for payment in full by the drawee of such check within five (5) banking days after receiving notice that such check has not been paid by the drawee.

The prima facie evidence has not been overcome by petitioners in the cases before us because they did not pay LINTON the amounts due on the checks; neither did they make arrangements for payment in full by the drawee bank within five (5) banking days after receiving notices that the checks had not been paid by the drawee bank. In People v. Grospe citing People v. Manzanilla we held that . . . knowledge on the part of the maker or drawer of the check of the insufficiency of his funds is by itself a continuing eventuality, whether the accused be within one territory or another. Consequently, venue or jurisdiction lies either in the RTC of Kalookan City or Malabon. Moreover, we ruled in the same Grospe and Manzanilla cases as reiterated in Lim v. Rodrigo that venue or jurisdiction is determined by the allegations in the Information. The Informations in the cases under consideration allege that the offenses were committed in the Municipality of Navotas which is controlling and sufficient to vest jurisdiction upon the Regional Trial Court of Malabon. We therefore sustain likewise the conviction of petitioners by RTC-Malabon for violation of BP22.

2. DELA VICTORIA V BURGOS

Raul Sebreo filed a complaint for damages against Fiscal Bienvenido Mabanto Jr. of Cebu City. Sebreo won and he was awarded the payment of damages. Judge Burgos ordered De La Victoria, custodian of the paychecks of Mabanto, to hold the checks and convey them to Sebreo instead. De La Victoria assailed the order as he said that the paychecks and the amount thereon are not yet the property of Mabanto because they are not yet delivered to him; that since there is no delivery of the checks to Mabanto, the checks are still part of the public funds; and the checks due to the foregoing cannot be the proper subject of garnishment.

ISSUE: Whether or not De La Victoria is correct.

HELD: Yes. Under Section 16 of the Negotiable Instruments Law, every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto. As ordinarily understood, delivery means the transfer of the possession of the instrument by the maker or drawer with intent to transfer title to the payee and recognize him as the holder thereof.

3. DBP V SIMA WEI

FACTS: Respondent Sima Wei executed and delivered to petitioner Bank a promissory note engaging to pay the petitioner Bank or order the amount of P1,820,000.00. Sima Wei subsequently issued two crossed checks payable to petitioner Bank drawn against China Banking Corporation in full settlement of the drawer's account evidenced by the promissory note. These two checks however were not delivered to the petitioner-payee or to any of its authorized representatives but instead came into the possession of respondent Lee Kian Huat, who deposited the checks without the petitioner-payee's indorsement to the account of respondent Plastic Corporation with Producers Bank. Inspite of the fact that the checks were crossed and payable to petitioner Bank and bore no indorsement of the latter, the Branch Manager of Producers Bank authorized the acceptance of the checks for deposit and credited them to the account of said Plastic Corporation.

ISSUE: Whether petitioner Bank has a cause of action against Sima Wei for the undelivered checks.

RULING: No. A negotiable instrument must be delivered to the payee in order to evidence its existence as a binding contract. Section 16 of the NIL provides that every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto. Thus, the payee of a negotiable instrument acquires no interest with respect thereto until its delivery to him. Without the initial delivery of the instrument from the drawer to the payee, there can be no liability on the instrument. Petitioner however has a right of action against Sima Wei for the balance due on the promissory note.

4. RCBC V HI-TRI DEVT CORP

Luz and Manuel Bakunawa are registered owners of 6 parcels of land. Sometime in 1990, Teresita Millan offered to buy said lots for P 6, 724,085.71 with a promise that she will take care of clearing whatever preliminary obstacles to effect completion of sale. Millan failed to comply with the condition. Spouses Bakunawa rescinded the sale and filed a complaint docketed as Civil Case No. Q91-10719 against Millan to return the copies of Transfer of Certificate Titles and ordered to receive the Managers check of P 1,019,514.29 for the down payment made by the latter. Upon advice of their counsel, the spouses retained the custody of the check and are refrained from negotiating and canceling it. Millan was informed that it was available for her withdrawal. On January 31, 2003, during pendency of the above mentioned case and without the knowledge of Hi tri, RCBC reported P 1,019,514.29- credit existing in favor Rosmil to Bureau of Treasury as among its unclaimed balances. On December 14, 2006, OSG filed in the RTC for escheat proceedings. On April 30, =2008, Bakunawa and Millan settled amicably, the former agreed to pay Rosmil and Millan P 3,000,000.00 inclusive of the P 1,019,514.29. However when Bakunawa inquired from RCBC the availability of P 1,019,514.29 the amount was already subject for escheat proceedings. On May 19, 2008, the RTC rendered a decision pursuant to PD 679 declaring the amount as subject for escheat proceedings and ordered the amount to be deposited in favor of the Republic. Consequently, respondents filed an Omnibus Motion seeking partial reconsideration contending that the said amount was subject to an ongoing dispute and that they be include as party defendants allowed to intervene. Motion was denied. The Court of Appeals reversed the decision of RTC and ruled that the banks failure to notify respondents deprived them of an opportunity to intervene in the escheat proceedings and to present evidence to substantiate their claim, in violation of their right to due process. Furthermore, the CA pronounced that the Makati City RTC Clerk of Court failed to issue individual notices directed to all persons claiming interest in the unclaimed balances, as well as to require them to appear after publication and show cause why the unclaimed balances should not be deposited with the Treasurer of the Philippines. Thus, herein a petition for Review on Certiorari. Since there was no delivery, presentment of the check to the bank for payment did not occur. An order to debit the account of respondents was never made. In fact, petitioner confirms that the Managers Check was never negotiated or presented for payment to its Ermita Branch, and that the allocated fund is still held by the bank. As a result, the assigned fund is deemed to remain part of the account of Hi-Tri, which procured the Managers Check. The doctrine that the deposit represented by a managers check automatically passes to the payee is inapplicable, because the instrument although accepted in advance remains undelivered. Hence, respondents should have been informed that the deposit had been left inactive for more than 10 years, and that it may be subjected to escheat proceedings if left unclaimed. 5. DY V PEPLE

FACTS: Since 1990, John Dyunder the business name Dyna MarketinGhas been the distributor of W.L. Food Products (W.L. Foods)

Dy would pay W.L. Foods in either cash or check upon pick up of stocks of snack foods

At times, he would entrust the payment to one of his drivers.

June 24, 1992: Dy's driver went to the branch office of W.L. Foods to pick up stocks of snack foods.

He introduced himself to the checker, Mary Jane D. Maraca, who upon confirming Dy's credit with the main office, gave him merchandise worthP106,579.60

In return, the driver handed her a blank Far East Bank and Trust Company (FEBTC) Check postdated July 22, 1992 signed by Dy

July 1, 1992: the driver obtained snack foods worth P226,794.36in exchange for a blank FEBTC Check postdated July 31, 1992

In both instances, the driver was issued an unsigned delivery receipt.

When presented for payment, FEBTC dishonored the checks for insufficiency of funds.

Later, Gonzales sent Atty. Jimeno another letteradvising her that FEBTC Check for P106,579.60 was returned to the drawee bank for the reasons stop payment order and drawn against uncollected deposit (DAUD), and not because it was drawn against insufficient funds as stated in the first letter.

Dy's savings deposit account ledger reflected a balance ofP160,659.39 as of July 22, 1992. This, however, included a regional clearing check forP55,000 which he deposited on July 20, 1992, and which took 5 banking days to clear.

When William Lim, owner of W.L. Foods, phoned Dy about the matter, the latter explained that he could not pay since he had no funds yet.

This prompted the former to send petitioner a demand letter, which the latter ignored.

July 16, 1993:Lim charged Dy with 2 counts of estafa under Article 315, paragraph 2(d)of RPC and2 counts of violation ofB.P. Blg. 22

RTC convicted Dy on two counts each of estafa and violation ofB.P. Blg. 22.

CA: affirmed

Dycontends that the checks were ineffectively issued

W.L. Foods' accountant had no authority to fill the amounts

ISSUE: W/N Dy is liable for estafa and in violation of BP 22. Acquitted for the criminal cases in relation to the first check.

HELD: YES but only for the 2nd check.

estafaunder Article 315, paragraph 2(d) of the Revised Penal Code, as amended by Republic Act No. 4885elements

1. postdating or issuance of a check in payment of an obligation contracted at the time the check was issued

2. insufficiency of funds to cover the check - including the uncollected deposit he had more than enough funds to cover the first check

3. damage to the payee

Section 191 of the Negotiable Instruments Law

"issue" - first delivery of an instrument, complete in form, to a person who takes it as a holder

Significantly, delivery is the final act essential to the negotiability of an instrument. Delivery denotes physical transfer of the instrument by the maker or drawer coupled with an intention to convey title to the payee and recognize him as a holder.It means more than handing over to another; it imports such transfer of the instrument to another as to enable the latter to hold it for himself

Even if the checks were given to W.L. Foods in blank, this alone did not make its issuance invalid.

When the checks were delivered to Lim, through his employee, he became a holder withprima facieauthority to fill the blanks

SEC. 14.Blanks; when may be filled.-Where the instrument is wanting in any material particular,the person in possession thereof has aprima facieauthority to complete it by filling up the blankstherein. And a signature on a blank paper delivered by the person making the signature in order that the paper may be converted into a negotiable instrument operates as aprima facieauthority to fill it up as such for any amount.

law merely requires that the instrument be in the possession of a person other than the drawer or maker

From such possession, together with the fact that the instrument is wanting in a material particular, the law presumes agency to fill up the blanks

burden of proving want of authority or that the authority granted was exceeded, is placed on the person questioning such authority - Dy didn't fulfill this

estafa punished under Article 315, paragraph 2(d) of the Revised Penal Code is committed when a check is dishonored for being drawn against insufficient funds or closed account, and not against uncollected deposit.Corollarily, the issuer of the check is not liable for estafa if the remaining balance and the uncollected deposit, which was duly collected, could satisfy the amount of the check when presented for payment. B.P. Blg. 22elements =malum prohibitum

the making, drawing and issuance of any check to apply to account or for value

the knowledge of the maker, drawer or issuer that at the time of issue he does not have sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment

subsequent dishonor of the check by the drawee bank for insufficiency of funds or credit or dishonor for the same reason had not the drawer, without any valid cause, ordered the bank to stop payment -considered by the bank to retroactively have hadP160,659.39 in his account on July 22, 1992 which was more than enough to cover the first check

Dy admitted that he issued the checks, and that the signatures appearing on them were his

Section 2of B.P. Blg. 22, petitioner wasprima faciepresumed to know of the inadequacy of his funds with the bank when he did not pay the value of the goods or make arrangements for their payment in full within 5 banking days upon noticeE. INDORSEMENT1. WETTLAUFER V BAXTERA blank indorsement on a negotiable instrument transforms it into a bearer instrument, but that section has no application to a non-negotiable item. An item which is non-negotiable in its inception remains so. Mere indorsement of such a draft does not change its character. As one court remarked, to sanction any other result would enable an indorser to change the rights and liabilities of the prior parties in a most material fashion.2. METROPOL FINANCING V SAMBOK

Facts: Dr. Javier Villaruel executed a promissory note in favor of Ng Sambok Sons Motors Co., Ltd. Payable in 12 equal monthly installments with interest. It is further provided that in case on non-payment of any of the installments, the total principal sum then remaining unpaid shall become due and payable with an additional interest. Sambok Motors co., a sister company of Ng Sambok Sons negotiated and indorsed the note in favor of Metropol Financing & investment Corporation. Villaruel defaulted in the payment, upon presentment of the promissory note he failed to pay the promissory note as demanded, hence Ng Sambok Sons Motors Co., Ltd. notified Sambok as indorsee that the promissory note has been dishonored and demanded payment. Sambok failed to pay. Ng Sambok Sons filed a complaint for the collection of sum of money. During the pendency of the case Villaruel died. Sambok argues that by adding the words with recourse in the indorsement of the note, it becomes a qualified indorser, thus, it does not warrant that in case that the maker failed to pay upon presentment it will pay the amount to the holder.

Issue: Whether or not Sambok Motors Co is a qualified indorser, thus it is not liable upon the failure of payment of the maker.

Held: No. A qualified indorserment constitutes the indorser a mere assignor of the title to the instrument. It may be made by adding to the indorsers signature the words without recourse or any words of similar import. Such indorsement relieves the indorser of the general obligation to pay if the instrument is dishonored but not of the liability arising from warranties on the instrument as provided by section 65 of NIL. However, Sambok indorsed the note with recourse and even waived the notice of demand, dishonor, protest and presentment.

Recourse means resort to a person who is secondarily liable after the default of the person who is primarily liable. Sambok by indorsing the note with recourse does not make itself a qualified indorser but a general indorser who is secondarily liable, because by such indorsement, it agreed that if Villaruel fails to pay the not the holder can go after it. The effect of such indorsement is that the note was indorsed witout qualification. A person who indorses without qualification engages that on due presentment, the note shall be accepted or paid, or both as the case maybe, and that if it be dishonored, he will pay the amount thereof to the holder. The words added by Sambok do not limit his liability, but rather confirm his obligation as general indorser.

3. GEMPESAW V CA

FACTS: Gempesaw owns and operates four grocery stores

to pay their debts of her supplies, she draws checks against her account

she signed each and every crossed check without bothering to verify the accuracy of the checks against the corresponding invoices because she reposed full and implicit trust and confidence on her bookkeeper.

although the Bank notified her of all checks presented to and paid by the bank, petitioner did not verify he correctness of the returned checks, much less check if the payees actually received the checks in payment for the supplies she received

It was only after the lapse of more 2 years that petitioner found out about the fraudulent manipulations of her bookkeeper

November 7, 1984:Gempesawmade a written demand on respondent drawee Bank to credit her account with the money value of the 82 checks totalling P1,208.606.89 for having been wrongfully charged against her account

January 23, 1985:Gempesawfiled against Philippine Bank of Communications (drawee Bank) for recovery of the money value of 82 checks charged against theGempesaw's account on the ground that the payees' indorsements were forgeries

RTC: dismissed the complaint

CA: affirmed

Gempesaw gross negligence = promixate cause of the loss

ISSUE: W/NGempesaw has a right to recover the amount attributable to the forgeries

HELD: NO.REMANDED to the trial court for the reception of evidence to determine the exact amount of loss suffered by the petitioner, considering that she partly benefited from the issuance of the questioned checks since the obligation for which she issued them were apparently extinguished, such that only the excess amount over and above the total of these actual obligations must be considered as loss of which one half must be paid by respondent drawee bank to herein petitioner.

Petitioner completed the checks by signing them as drawer and thereafter authorized her employee Alicia Galang to deliver to payees

GR: drawee bank who has paid a check on which an indorsement has been forged cannot charge the drawer's account for the amount of said check

EX: where the drawer is guilty of such negligence which causes the bank to honor such a check or checks.

Under the NIL, the only kind of indorsement which stops the further negotiation of an instrument is a restrictive indorsement which prohibits the further negotiation thereof.

Sec. 36. When indorsement restrictive. - An indorsement is restrictive which eitherchanrobles virtual law library

(a) Prohibits further negotiation of the instrument; or

xxx xxx xxx

In this kind of restrictive indorsement, the prohibition to transfer or negotiate must be written in express words at the back of the instrument, so that any subsequent party may be forewarned that ceases to be negotiable.

However, the restrictive indorsee acquires the right to receive payment and bring any action thereon as any indorser, but he can no longer transfer his rights as such indorsee where the form of the indorsement does not authorize him to do so.

When it violated its internal rules that second endorsements are not to be accepted without the approval of its branch managers and it did accept the same upon the mere approval of Boon, a chief accountant, it contravened the tenor of its obligation at the very least, if it were not actually guilty of fraud or negligence

drawee Bank did not discover the irregularity with respect to the acceptance of checks with second indorsement for deposit even without the approval of the branch manager despite periodic inspection conducted by a team of auditors from the main office constitutes negligence on the part of the bank in carrying out its obligations to its depositors 4. FAR EAST BANK V GOLD PALACEFACTS:

June 1998: Samuel Tagoe, a foreigner, purchased from Gold Palace Jewellery Co.'s (Gold Palace's) store at SM-North EDSA several pieces of jewelry valued at P258,000

paid w/ Foreign Draft issued by the United Overseas Bank (Malaysia) to Land Bank of the Philippines, Manila (LBP) for P380,000

Teller of Far East Bank, next door tenant, informedJulie Yang-Go (manager of Gold Palace) that a foreign draft has similar nature to amanager's check, but advised her not to release the pieces of jewelry until the draft had been cleared

Yang issued Cash Invoice so the jewelries can be released

Yang deposited the draft in the company's account with the Far East on June 2, 1998

When Far East, the collecting bank, presented the draft for clearing to LBP, the drawee bank, cleared the itand Gold Palace's account with Far East was credited

June 6, 1998:The foreigner eventually returned to claim the purchased goods.

After ascertaining that the draft had been cleared, Yang released the pieces of jewelry and his change, Far East Check ofP122,000paid by the bank

June 26, 1998: LBP informed Far East that the Foreign Draft had been materially altered from P300 to P300,000and that it was returning the same

Far East refunded the amount to LBP and debit only P168,053.36 of the amount left in Gold Palace' accountwithout a prior written notice to the account holder

Far East only notified by phone the representatives of the Gold Palace

August 12, 1998: Far East demanded from Gold Palace the payment of balance and upon refusal filed in the RTC

RTC:in favor of Far East on the basis that Gold Palace was liable under the liabilities of a general indorser

CA: reversed sinceFar East failed to undergo the proceedings on the protest of the foreign draft or to notify Gold Palace of the draft's dishonor; thus, Far East could not charge Gold Palace on its secondary liability as an indorser

ISSUE: W/N Gold Palace should be liable for the altered Foreign Draft

HELD: NO. AFFIRMED WITH THE MODIFICATIONthat the award of exemplary damages and attorney's fees isDELETED

Act No. 2031, or the Negotiable Instruments Law (NIL), explicitly provides that the acceptor, by accepting the instrument, engages that he will pay itaccording to the tenor of his acceptance.

This provision applies with equal force in case the drawee pays a bill without having previously accepted it.

Actual payment by the drawee is greater than his acceptance, which is merely a promise in writing to pay

The payment of a check includes its acceptance

Thetenor of the acceptanceis determined by the terms of the bill as it is when the drawee accepts.

LBP was liable on its payment of the check according to the tenor of the check at the time of payment, which was the raised amount.

Gold Palace was not a participant in the alteration of the draft, was not negligent, and was a holder in due course

LBP, having the most convenient means to correspond with UOB, did not first verify the amount of the draft before it cleared and paid the same

Gold Palace had no facility to ascertain with the drawer, UOB Malaysia, the true amount in the draft. It was left with no option but to rely on the representations of LBP that the draft was good Principle that the drawee bank, having paid to an innocent holder the amount of an uncertified, altered check in good faith and without negligence which contributed to the loss, could recover from the person to whom payment was made as for money paid by mistake - NOT applicable

The Court is also aware that under the Uniform Commercial Code in the United States of America,if an unaccepted draft is presented to a drawee for payment or acceptance and the drawee pays or accepts the draft, the person obtaining payment or acceptance, at the time of presentment, and a previous transferor of the draft, at the time of transfer, warrant to the drawee making payment or accepting the draft in good faith that the draft has not been altered -absent any similar provision in our law, cannot extend the same preferential treatment to the paying bank

Gold Palace is protected by Section 62 of the NIL, its collecting agent, Far East, should not have debited the money paid by the drawee bank from respondent company's account. When Gold Palace deposited the check with Far East, it, under the terms of the deposit and the provisions of the NIL, became an agent of the Gold Palace for the collection of the amount in the draft

The subsequent payment by the drawee bank and the collection of the amount by the collecting bank closed the transaction insofar as the drawee and the holder of the check or his agent are concerned, converted the check into a mere voucher,and, as already discussed, foreclosed the recovery by the drawee of the amount paid. This closure of the transaction is a matter of course; otherwise, uncertainty in commercial transactions, delay and annoyance will arise if a bank at some future time will call on the payee for the return of the money paid to him on the check

As the transaction in this case had been closed and the principal-agent relationship between the payee and the collecting bank had already ceased, the latter in returning the amount to the drawee bank was already acting on its own and should now be responsible for its own actions. Neither can petitioner be considered to have acted as the representative of the drawee bank when it debited respondent's account, because, as already explained, the drawee bank had no right to recover what it paid. Likewise, Far East cannot invoke the warranty of the payee/depositor who indorsed the instrument for collection to shift the burden it brought upon itself. This is precisely because the said indorsement is only for purposes of collection which, under Section 36 of the NIL, is a restrictive indorsement. It did not in any way transfer the title of the instrument to the collecting bank. Far East did not own the draft, it merely presented it for payment. Considering that the warranties of a general indorser as provided in Section 66 of the NIL are based upon a transfer of title and are available only to holders in due course,these warranties did not attach to the indorsement for deposit and collection made by Gold Palace to Far East. Without any legal right to do so, the collecting bank, therefore, could not debit respondent's account for the amount it refunded to the drawee bank.

CONSIDERATION1. VICKY TY V PEOPLE

Facts: Tys mother was confined in Manila Doctor's Hospital to which a medical bill amounting to 600,000 pesos was made to be paid to TY, after signing a contract of responsibility with the hospital. Ty, issued 7 checks to cover the said expenses, all of which were dishonored for being drawn against a closed a account. Manila Doctors Hospital then instituted criminal actions against Ty for violation of BP22. In her defense she alleged that she issued the checks involuntarily because her mother threatened to commit suicide due to the inhumane treatment she allegedly suffered while confined in the hospital. She further claimed that no consideration was obtained by her because all the checks were made as payment to the medical bills.

Issue: Whether or not valuable consideration exists.

Held: Under Section 24 of the Negotiable Instruments Law, it is presumed that valuable consideration exist upon the issuance of a check in the absence of evidence to the contrary.Valuable consideration is any benefit, interest or profit accruing to the party. The use of the hospital facilities and services may be deemed as such.

2. NGO V PEOPLE

This case stemmed from the filing of 7Informationsfor violation of B.P. 22 against Ty before the RTC of Manila. The said accused drew and issue to Manila Doctors Hospital to apply on account or for value to Editha L. Vecino several post-dated checks. The said accused well knowing that at the time of issue she did not have sufficient funds in or credit with the drawee bank for payment of such checks in full upon its presentment, which check when presented for payment within ninety (90) days from the date hereof, was subsequently dishonored by the drawee bank for Account Closed and despite receipt of notice of such dishonor, said accused failed to pay said Manila Doctors Hospital the amount of the checks or to make arrangement for full payment of the same within five (5) banking days after receiving said notice.

Ty claimed that she issued the checks because of an uncontrollable fear of a greater injury.She claims that she was forced to issue the checks to obtain release of her mother whom the hospital inhumanely and harshly treated, and would not discharge unless the hospital bills are paid.

The trial court rendered judgment against Ty. Ty interposed an appeal with the CA and reiterated her defense that she issued the checks under the impulse of an uncontrollable fear of a greater injury or in avoidance of a greater evil or injury. The appellate court affirmed the judgment of the trial court with modification.It set aside the penalty of imprisonment and instead sentenced Ty to pay a fine of sixty thousand pesos P 60,000.00 equivalent to double the amount of the check, in each case.

Issue: Whether or not valuable consideration exists.

Held: Under Section 24 of the Negotiable Instruments Law, it is presumed that valuable consideration exist upon the issuance of a check in the absence of evidence to the contrary.Valuable consideration is any benefit, interest or profit accruing to the party. The use of the hospital facilities and services may be deemed as such.

3. BPI V CA

Facts: Marasigan, who is a lawyer by profession, was a complimentary member of BECC from February 1988 to February 1989 and was issued Credit Card No. 100-012-5534 with a credit limit of P3,000.00 and with a monthly billing every 27th of the month (Exh. N), subject to the terms and conditions stipulated in the contract (Exh. 1-b). His membership was renewed for another year and the credit limit was increased to P5,000.00. Oftentimes he exceeded his credit limits but this was never taken against him by the defendant and even his mode of paying his monthly bills in check was tolerated. Their contractual relations went on smoothly until his statement of account for October 1989 amounting to P8,987.84 was not paid in due time. On November 28, 2989, defendant served plaintiff a letter by ordinary mail informing him of the temporary suspension of the privileges of his credit card and the inclusion of his account number in their Caution List. He was also told to refrain from further use of his credit card to avoid any inconvenience/embarrassment and that unless he settles his outstanding account with the defendant within 5 days from receipt of the letter, his membership will be permanently cancelled. There is no showing that the plaintiff received this letter before December 8, 1989.

Confidential that he had settled his account with the issuance of the postdated check, plaintiff invited some guests on December 8, 1989 and entertained them at Caf Adriatico. When he presented his credit card to Caf Adriatico for the bill amounting to P735.32, said card was dishonored. One of his guests, Mary Ellen Ringler, paid the bill by using her own credit card a Unibankard. Marasigan filed a case for damages against the bank. RTC ruled for Marasigans damage claim but ordered him to pay his obligations.

Issues:

1. WON there was indeed an agreement or arrangement entered into between the parties wherein the Bank required Marasigan to issue a postdated check in the amount of P15K as payment of his overdue accounts, with the condition that his credit card will not be suspended?

2. Was the issuance of the check effective payment?

3. Was the bank in bad faith in cancelling Marasigans card?

Held:

1. No. We agree with the findings of the respondent court, that there was an arrangement between the parties, wherein the petitioner required the private respondent to issue a check worth P15,000.00 as payment for the latters billings. However we find that the private respondent was not able to comply with this obligation. Clearly the purpose of the arrangement between the parties on November 22, 1989, was for the immediate payment of the private respondents outstanding account, in order that his credit card would not be suspended.

2. No. Settled is the doctrine that a check is only a substitute for money and not money, the delivery of such an instrument does not, by itself operate as payment. This is especially true in the case of a postdated check. Thus, the issuance by the private respondent of the postdated check was not effective payment. It did not comply with his obligation under the arrangement with Miss Lorenzo. Petitioner corporation was therefore justified in suspending his credit card.

3. No. Good faith is presumed and the burden of proving bad faith is on the party alleging it. This private respondent failed to do. In fact, the action of the petitioner belies the existence of bad faith. As early as 28 October 1989, petitioner could have suspended private respondents card outright. Instead, petitioner allowed private respondent to use his card for several weeks. Petitioner had even notified private respondent of the impending suspension of his credit card and made special accommodations for him for setting his outstanding account. As such, petitioner cannot be said to have capriciously and arbitrarily canceled the private respondents credit card.

It was petitioners failure to settle his obligation which caused the suspension of his credit card and subsequent dishonor at Caf Adriatico. He can not now pass the blame to the petitioner for not notifying him of the suspension of his card. As quoted earlier, the application contained the stipulation that the petitioner could automatically suspend a card whose billing has not been paid for more than thirty days. Nowhere is it stated in the terms and conditions of the application that there is a need of notice before suspension may be affected as private respondent claims.

4. ENGR CAYANAN V NORTH STAR

Check; issuance for consideration. Upon issuance of a check, in the absence of evidence to the contrary, it is presumed that the same was issued for valuable consideration which may consist either in some right, interest, profit or benefit accruing to the party who makes the contract, or some forbearance, detriment, loss or some responsibility, to act, or labor, or service given, suffered or undertaken by the other side. Under the Negotiable Instruments Law, it is presumed that every party to an instrument acquires the same for a consideration or for value. As petitioner alleged that there was no consideration for the issuance of the subject checks, it devolved upon him to present convincing evidence to overthrow the presumption and prove that the checks were in fact issued without valuable consideration. Sadly, however, petitioner has not presented any credible evidence to rebut the presumption, as well as North Stars assertion, that the checks were issued as payment for the US$85,000 petitioner owed.

Facts: North Star International Travel Incorporated (North Star) is a corporation engaged in the travel agency business while petitioner is the owner/general manager of JEAC International Management and Contractor Services, a recruitment agency. Virginia Balagtas, the General Manager of North Star, in accommodation and upon the instruction of its client, petitioner herein, sent the amount of US$60,000 to View Sea Ventures Ltd., in Nigeria from her personal account in Citibank Makati. On March 29, 1994, Virginia again sent US$40,000 to View Sea Ventures by telegraphic transfer,[4] with US$15,000 coming from petitioner. Likewise, on various dates, North Star extended credit to petitioner for the airplane tickets of his clients, with the total amount of such indebtedness under the credit extensions eventually reaching P510,035.47.

To cover payment of the obligations, petitioner issued five checks to North Star. When presented for payment, the checks in the amount of P1,500,000 and P35,000 were dishonored for insufficiency of funds while the other three checks were dishonored because of a stop payment order from petitioner. North Star, through its counsel, wrote petitioner informing him that the checks he issued had been dishonored. North Star demanded payment, but petitioner failed to settle his obligations.

Hence, North Star instituted Criminal Case Nos. 166549-53 charging petitioner with violation of Batas Pambansa Blg. 22, or the Bouncing Checks Law, before the Metropolitan Trial Court (MeTC) of Makati City. After trial, the MeTC found petitioner guilty beyond reasonable doubt of violation of B.P. 22. On appeal, the Regional Trial Court (RTC) acquitted petitioner of the criminal charges. The RTC also held that there is no basis for the imposition of the civil liability on petitioner. The Court of Appeals reversed the ruling of the RTC and held petitioner civilly liable for the value of the subject checks.Issue: Whether or not the petitioner should be civilly liable to North Star for the value of the checksHeld: Affirmative. Petitioner argues that the CA erred in holding him civilly liable to North Star for the value of the checks since North Star did not give any valuable consideration for the checks. He insists that the US$85,000 sent to View Sea Ventures was not sent for the account of North Star but for the account of Virginia as her investment. He points out that said amount was taken from Virginias personal dollar account in Citibank and not from North Stars corporate account.

Respondent North Star, for its part, counters that petitioner is liable for the value of the five subject checks as they were issued for value. Respondent insists that petitioner owes North Star plus interest.Upon issuance of a check, in the absence of evidence to the contrary, it is presumed that the same was issued for valuable consideration which may consist either in some right, interest, profit or benefit accruing to the party who makes the contract, or some forbearance, detriment, loss or some responsibility, to act, or labor, or service given, suffered or undertaken by the other side. Under the Negotiable Instruments Law, it is presumed that every party to an instrument acquires the same for a consideration or for value. As petitioner alleged that there was no consideration for the issuance of the subject checks, it devolved upon him to present convincing evidence to overthrow the presumption and prove that the checks were in fact issued without valuable consideration. Sadly, however, petitioner has not presented any credible evidence to rebut the presumption, as well as North Stars assertion, that the checks were issued as payment for the US$85,000 petitioner owed.

Petitioner claims that North Star did not give any valuable consideration for the checks since the money was taken from the personal dollar account of Virginia and not the corporate funds of North Star. The contention, however, deserves scant consideration. The subject checks, bearing petitioners signature, speak for themselves. The fact that petitioner himself specifically named North Star as the payee of the checks is an admission of his liability to North Star and not to Virginia Balagtas, who as manager merely facilitated the transfer of funds. Indeed, it is highly inconceivable that an experienced businessman like petitioner would issue various checks in sizeable amounts to a payee if these are without consideration. 5. CALTEX PHIL V CAFacts: On various dates, defendant, a commercial banking institution, through its Sucat Branch issued 280 certificates of time deposit (CTDs) in favor of one Angel dela Cruz who is tasked to deposit aggregate amounts. One time Mr. dela Cruz delivered the CTDs to Caltex Philippines in connection with his purchased of fuel products from the latter. However, Sometime in March 1982, he informed Mr. Timoteo Tiangco, the Sucat Branch Manger, that he lost all the certificates of time deposit in dispute. Mr. Tiangco advised said depositor to execute and submit a notarized Affidavit of Loss, as required by defendant bank's procedure, if he desired replacement of said lost CTDs. Angel dela Cruz negotiated and obtained a loan from defendant bank and executed a notarized Deed of Assignment of Time Deposit, which stated, among others, that he surrenders to defendant bank "full control of the indicated time deposits from and after date" of the assignment and further authorizes said bank to pre-terminate, set-off and "apply the said time deposits to the payment of whatever amount or amounts may be due" on the loan upon its maturity. In 1982, Mr. Aranas, Credit Manager of plaintiff Caltex (Phils.) Inc., went to the defendant bank's Sucat branch and presented for verification the CTDs declared lost by Angel dela Cruz alleging that the same were delivered to herein plaintiff "as security for purchases made with Caltex Philippines, Inc." by said depositor. Mr dela Cruz received a letter from the plaintiff formally informing of its possession of the CTDs in question and of its decision to pre-terminate the same. ccordingly, defendant bank rejected the plaintiff's demand and claim for payment of the value of the CTDs in a letter dated February 7, 1983.

The loan of Angel dela Cruz with the defendant bank matured and fell due and on August 5, 1983, the latter set-off and applied the time deposits in question to the payment of the matured loan. However, the plaintiff filed the instant complaint, praying that defendant bank be ordered to pay it the aggregate value of the certificates of time deposit of P1,120,000.00 plus accrued interest and compounded interest therein at 16% per annum, moral and exemplary damages as well as attorney's fees. On appeal, CA affirmed the lower court's dismissal of the complaint, and ruled (1) that the subject certificates of deposit are non-negotiable despite being clearly negotiable instruments; (2) that petitioner did not become a holder in due course of the said certificates of deposit; and (3) in disregarding the pertinent provisions of the Code of Commerce relating to lost instruments payable to bearer.

Issues:

a) Whether certificates of time deposit (CTDs) are negotiable instruments?

b) Is the depositor also the bearer of the document?

c) Whether petitioner can rightfully recover on the CTDs?

Held:

The CTDs in question are not negotiable instruments. Section 1 Act No. 2031, otherwise known as the Negotiable Instruments Law, enumerates the requisites for an instrument to become negotiable, viz:

(a) It must be in writing and signed by the maker or drawer;

(b) Must contain an unconditional promise or order to pay a sum certain in money;

(c) Must be payable on demand, or at a fixed or determinable future time;

(d) Must be payable to order or to bearer; and

(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty.

The accepted rule is that the negotiability or non-negotiability of an instrument is determined from the writing, that is, from the face of the instrument itself. In the construction of a bill or note, the intention of the parties is to control, if it can be legally ascertained. While the writing may be read in the light of surrounding circumstances in order to more perfectly understand the intent and meaning of the parties, yet as they have constituted the writing to be the only outward and visible expression of their meaning, no other words are to be added to it or substituted in its stead. The duty of the court in such case is to ascertain, not what the parties may have secretly intended as contradistinguished from what their words express, but what is the meaning of the words they have used. What the parties meant must be determined by what they said. Petitioner's insistence that the CTDs were negotiated to it begs the question. Under the Negotiable Instruments Law, an instrument is negotiated when it is transferred from one person to another in such a manner as to constitute the transferee the holder thereof, and a holder may be the payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof. In the present case, however, there was no negotiation in the sense of a transfer of the legal title to the CTDs in favor of petitioner in which situation, for obvious reasons, mere delivery of the bearer CTDs would have sufficed. Here, the delivery thereof only as security for the purchases of Angel de la Cruz (and we even disregard the fact that the amount involved was not disclosed) could at the most constitute petitioner only as a holder for value by reason of his lien. Accordingly, a negotiation for such purpose cannot be effected by mere delivery of the instrument since, necessarily, the terms thereof and the subsequent disposition of such security, in the event of non-payment of the principal obligation, must be contractually provided for.