PNB V. SEETO, 91 SCRA 757FACTS:

Seeto called at a branch of bank and presented a check payable to cash or bearer,  and  drawn  by  Kiao 

against  PBC.    After  consultation  with  the employees, Seeto made a general and qualified indorsement

of the check.  He  was  then  paid  the  amount  of  the  check  by  bank.    The  check  was consequently 

dishonored,  a  letter  was  sent  to  Seeto  and  was  asked  to refund the money given to him.  A second

letter was sent to him and he averred that case against him be deferred while he inquired about why the

check  was  dishonored.    Thereafter,  he  refused  to  pay,  alleging  that  the account against the check

was drawn had sufficient funds when the check was drawn and if the bank didn’t delay in clearing the

check, there would have been sufficient funds.  

The appellate court reversed the lower court in its decision.  It ruled that the bank was guilty of

unreasonably retaining and withholding the check, and that the delay in the presentment was

inexcusable, so that respondent thereby was discharged from liability.

HELD:

Section 84 is applicable, nonetheless, it should be read in correlation with Section  186,  which  says 

that  presentment  should  be  within  reasonable time.

PHILIPPINE NATIONAL BANK VS. COURT OF APPEALS

GR. NO. 107508 April 25, 1996

1st Division Kapunan

FACTS:

Ministry of Education Culture issued a check payable to Abante Marketing and drawn against Philippine National Bank (PNB). AbanteMarketing, deposited the questioned check in its savings account with Capitol City Development Bank (CAPITOL). In turn, Capitol deposited the same in its account with the Philippine Bank of Communications (PBCom) which, in turn, sent the check to PNB for clearing. PNB cleared the check as good and thereafter, PBCom credited Capitol's account for the amount stated in the check. However, PNB returned the check to PBCom and debited PBCom's account for the amount covered by the check, the reason being that there was a "material alteration" of the check number. PBCom, as collecting agent of Capitol, then proceeded to debit the latter's account for the same amount, and subsequently, sent the check back to petitioner. PNB, however, returned the check to PBCom. On the other hand, Capitol could not in turn, debit Abante Marketing's account since the latter had already withdrawn the amount of the check. Capitol sought clarification from PBCom and demanded the re-crediting of the amount. PBCom followed suit by requesting an explanation and re-crediting from PNB. Since the demands of Capitol were not heeded, it filed a civil suit against PBCom which in turn, filed a third-party complaint against PNB for reimbursement/indemnity with respect to the claims of Capitol. PNB, on its part, filed a fourth-party complaint against Abante Marketing.

The Trial Court rendered its decision, ordering PBCom to re-credit or reimburse; PNB to reimburse and indemnify PBCom for whatever amount PBCom pays to Capitol; Abante Marketing to reimburse and indemnify PNB for whatever amount PNB pays to PBCom. The court dismissed the counterclaims of PBCom and PNB. The appellate court modified the appealed judgment by ordering PNB to honor the check. After the check shall have been honored by PNB, the court ordered PBCom to re-credit Capitol's account with it the amount. PNB filed the petition for review on certiorari averring that under Section 125 of the NIL, any change that alters the effect of the instrument is a material alteration.

ISSUE:

WON an alteration of the serial number of a check is a material alteration under the NIL.

HELD:

NO, alteration of a serial number of a check is not a material alteration contemplated under Sec. 125 of the NIL.

RATIO:

An alteration is said to be material if it alters the effect of the instrument. It means an unauthorized change in an instrument that purports to modify in any respect the obligation of a party or an

unauthorized addition of words or numbers or other change to an incomplete instrument relating to the obligation of a party. In other words, a material alteration is one which changes the items which are required to be stated under Section 1 of the Negotiable Instruments Law.

In the present case what was altered is the serial number of the check in question, an item which is not an essential requisite for negotiability under Section 1 of the Negotiable Instruments Law. The aforementioned alteration did not change the relations between the parties. The name of the drawer and the drawee were not altered. The intended payee was the same. The sum of money due to the payee remained the same. The check's serial number is not the sole indication of its origin. The name of the government agency which issued the subject check was prominently printed therein. The check's issuer was therefore insufficiently identified, rendering the referral to the serial number redundant and inconsequential.

Firestone vs Ines Chaves, 18 SCRA 356, No. L-17106, October 19, 1966

Posted by Pius Morados on January 12, 2012

(Negotiable Instruments – Issuance of check without funds in bad faith)

Facts: Chaves issued a post dated check for the price of automobile tires, tubes and accessories delivered by Firestone. Said check was subsequently dishonoured.

Firestone filed a suit for collection of the principal amount and the lower court rendered judgment in favor of the former and granted 25% of the principal as attorney’s fees due to the bad faith of Chaves in issuing a check which was subsequently dishonoured.

Chaves contends that they were not in bad faith because Firestone knew that there were no funds to back it up and that such funds would be available when the check becomes due. This fact accordingly has been made known to Firestone.

Issue: WON issuance of a check which was subsequently dishonoured amount to bad faith.

Held: Yes. Where a person issued a post dated check without funds to cover it and informs the payee of that fact, he is not guilty of estafa because there is no deceit.

But, in the case at bar, there was nothing in the record to show that Firestone knew that there were no funds in the bank when it accepted the check, much less that Firestone “agreed” to take the check with knowledge of the lack of funds.

On the contrary, by issuing a check, Chaves in effect represented to Firestone that there were funds in the bank.

GSIS vs Court of Appeals and Mr. & Mrs. Racho, GR No. L-40824 February 23, 1989

Posted by Pius Morados on January 12, 2012

(Negotiable Instruments – payable to order or to bearer)

Facts: Spouses Racho together with Spouses Lagasca executed a deed of mortgage in favor of GSIS in connection with 2 loans granted by the latter in the sums of p11,500.00 and p3,000.00, respectively. A parcel of land co-owned by the mortgagor spouses was govern as security under the aforesaid deeds and executed a promissory note promising to pay the said amounts to GSIS jointly, severally and solidarily.

The Lagasca spouses executed an instrument obligating themselves in the assumption of the aforesaid obligation and to secure the release of the mortgage.

Failing to comply with the conditions of the mortgage, GSIS extrajudicially foreclosed the mortgage and caused the property to be sold at public auction.

More than 2 years after, Spouses Racho filed a complaint against GSIS and Spouses Lagascapraying that the extrajudicial foreclosure be declared null and void. They allege that they signed the mortgage contracts not as sureties for the Lagasca spouses but merely as accommodation party

Issue: WON the promissory note and mortgage deeds are negotiable.

Held: No. Section 29 of the NIL provides that an accommodation party is one who has signed an instrument as maker, drawer, acceptor of indorser without receiving value therefore, but is held liable on the instrument to a holder for value although the latter knew him to be only an accommodation party.

Both parties appears to be misdirected and their reliance misplaced. The promissory note, as well as the mortgage deeds subject of this case, are clearly not negotiable instrument because it did not comply with the fourth requisite to be considered as such under Sec. 1 of the NIL – they are neither payable to order nor to bearer. The note is payable to a specified party, the GSIS.

Caltex vs Court of Appeals and Security Bank and Trust Co., 212 SCRA 449, GR No. 97753, August 10, 1992

Posted by Pius Morados on January 12, 2012

(Negotiable Instruments –Requisites for an instrument to become negotiable)

Facts: Defendant bank issued 280 certificates of time deposits (CTDs) in favor of Angel dela Cruz whom herein defendant acknowledges as a depositor of the aggregate amount of P1,120,000.00.

A sample text if the CTDs is reproduced below.

SECURITY BANK

AND TRUST COMPANY

6778 Ayala Ave., Makati No. 90101

Metro Manila, Philippines

SUCAT OFFICEP 4,000.00

CERTIFICATE OF DEPOSIT

Rate 16%

Date of Maturity FEB. 23, 1984 FEB 22, 1982, 19____

This is to Certify that B E A R E R has deposited in this Bank the sum of PESOS: FOUR THOUSAND ONLY, SECURITY BANK SUCAT OFFICE P4,000& 00 CTS Pesos, Philippine Currency, repayable to said depositor 731 days. after date, upon presentation and surrender of this certificate, with interest at the rate of 16% per cent per annum.

(Sgd. Illegible) (Sgd. Illegible)

—————————— ———————————

AUTHORIZED SIGNATURES

Plaintiff alleged that said CTDs were delivered to them by Angel dela Cruz as security for purchases of fuel products made with Caltex.

Plaintiff formally informed the defendant bank of its possession of the CTDs and claim payment of its value.

Defendant bank rejected the plaintiff’s demand and claim for payment of the value of the CTDs after the latter failed to furnish the former a copy of the document evidencing the guarantee agreement with Angel dela Cruz, as well as details of obligation of Angel dela Cruz as requested.

The respondent court dismissed the complaint of plaintiff for payment of the value of the CTDs on the ground that the CTDs are non-negotiable instruments and that petitioner did not become a holder in due course of the said certificates of deposit.

Issue:

WON the CTDs are negotiable instruments.

WON petitioner can rightfully recover the CTDs.

Held:

1. YES. The CTDs in question are negotiable instruments for it meets the requirements of the law for negotiability. Section 1 Act No. 2031 enumerates the requisites for an instrument to become negotiable:

(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.

The documents provide that the amounts deposited shall be repayable to the depositor – the “bearer.” The documents do not say that the depositor is Angel de la Cruz and that the amounts deposited are repayable specifically to him. Rather, the amounts are to be repayable to the bearer of the documents or, for that matter, whosoever may be the bearer at the time of presentment.

2. No. 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 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.

BPI vs Court of Appeals, 538 SCRA 184, GR No. 123498, November 23, 2007

Posted by Pius Morados on January 12, 2012

(Negotiable Instruments – Money as a medium of exchange)

Facts: Franco opened 3 accounts with BPI with the total amount of P2,000,000.00. The said amount used to open these accounts is traceable to a check issued by Tevesteco. The funding for the P2,000,000.00 check was part of the P80,000,000.00 debited by BPI from FMIC’s account (with a deposit of P100,000,000.00) and credited to Tevesteco’s account pursuant to an Authority to Debit which was allegedly forged as claimed by FMIC.

Tevesteco effected several withdrawals already from its account amounting to P37,455,410.54 including the P2,000,000.00 paid to Franco.

Franco issued two checks which were dishonoured upon presentment for payment due to garnishment of his account filed by BPI.

BPI claimed that it had a better right to the amounts which consisted of part of the money allegedly fraudulently withdrawn from it by Tevesteco and ending up in Franco’s account. BPI urges us that the legal consequence of FMIC’s forgery claim is that the money transferred by BPI to Tevesteco is its own, and considering that it was able to recover possession of the same when the money was redeposited by Franco, it had the right to set up its ownership thereon and freeze Franco’s accounts.

Issue: WON the bank has a better right to the deposits in Franco’s account.

Held: No. Significantly, while Article 559 permits an owner who has lost or has been unlawfully deprived of a movable to recover the exact same thing from the current possessor, BPI simply claims ownership of the equivalent amount of money, i.e., the value thereof, which it had mistakenly debited from FMIC’s account and credited to Tevesteco’s, and subsequently traced to Franco’s account.

Money bears no earmarks of peculiar ownership, and this characteristic is all the more manifest in the instant case which involves money in a banking transaction gone awry. Its primary function is to pass from hand to hand as a medium of exchange, without other evidence of its title. Money, which had been

passed through various transactions in the general course of banking business, even if of traceable origin, is no exception.

Moran vs Court of Appeals, 230 SCRA 799, GR No. 105836, March 7, 1994

Posted by Pius Morados on January 12, 2012

(Negotiable Instruments –Checks)

Facts: M who regularly purchased bulk fuel from P maintained 3 joint accounts with Citytrust Bank, namely: Current Account No. 1 (CA1), Savings Account No. 1 (SA1), and Savings Account No. 2 (SA2).

M had a pre-authorized transfer (PAT) agreement with Citytrust wherein the former have written authority to the latter to automatically transfer funds from their SA1 to their CA1 at any time whenever the funds in their current account were insufficient to meet withdrawals from said current account.

On December 12, 1983, M drew a check for P50, 576.00 payable to P.

On December 13, 1983, M issued another check in the amount of P56, 090.00 in favor of the same.

On December 14, 1983, P deposited the 2 aforementioned check to its account with the PNB. In turn, PNB presented them for clearing and the record shows that on December 14, 1983, the accounts has insufficient funds (CA1 had a zero balance, while SA1 [covered by PAT] had an available balance of P26, 104.30 and SA2 had an available balance of P43, 268.39). Hence the checks were dishonoured.

On December 15, 1983 at 10:00 AM, M went to the bank as was his regular practice and deposited in their SA2 the amounts of P10, 874.58 and P6, 754.25, and he deposited likewise in the SA1 the amounts of P5, 900.00, P35, 100.00 and 30.00. The amount of P40,000.00 was then transferred by him from SA2 to their CA1. At the same time, the amount of P66,666.00 was transferred from SA1 to the same current account through PAT agreement.

Sometime on December 15 or 16, 1983 M was informed that that P refused to deliver their orders on a credit basis because the two checks they had previously issued were dishonored upon presentment for payment due to “insufficiency of funds.” The non-delivery of orders forced petitioners to stop business operations, allegedly causing them to suffer loss of earnings.

On December 16 or 17, 1983, P got the signature of M on an application for a manager’s check so that the dishonoured checks could be redeemed and presented the checks in payment for the two dishonoured checks.

On July 24, 1984, claimed P1,000,000.00 for moral damages.

Issue: WON the bank is liable for damages for its refusal to pay a check on account of insufficient funds considering the fact that a deposit may be made later in the day.

Held: No, Petitioners had no sufficient funds in their accounts when the bank dishonoured the checks in question.

First, a check is a bill of exchange drawn on a bank payable on demand. Thus, a check is a written order addressed to a bank or persons carrying on the business of banking, by a party having money in their hands, requesting them to pay on presentment, to a person named therein or to bearer or order, a named sum of money.

Second, the relationship between the bank and the depositor is that of a debtor and creditor. By virtue of the contract of deposit between the banker and its depositor, the banker agrees to pay checks drawn by the depositor provided that said depositor has money in the hands of the bank.

Thirdly, where the bank possesses funds of the depositor, it is bound to honor his checks to the extent of the amount deposits. The failure of a bank to pay the check of a merchant or a trader, when the deposit is sufficient, entitles the drawer to substantial damages without any proof of actual damages. Conversely, a bank is not liable for its refusal to pay a check on account of insufficient funds, notwithstanding the fact that a deposit may be made later in the day. Before a bank depositor may maintain a suit to recover a specific amount form his bank, he must first show that he had on deposit sufficient funds to meet demand.

Considering the clearing process adopted, it is clear that the available balance on December 14, 1983 was used by the bank in determining whether or not there was sufficient cash deposited to fund the two checks. When M’s checks were dishonored due to insufficiency of funds, the available balance of SA1 which was the subject of the PAT agreement was not enough to cover either of the two checks. On

December 14, 1983, when PNB presented the checks for collection, the available balance for SA1 was only P26, 104.30 while CA1had no available balance. It was only on December 15, 1983 at around 10:00 AM that the necessary funds were deposited, which unfortunately was too late to prevent the dishonour of the checks.

Kauffman vs PNB, GR No. 16454 September 29, 1921, digested

Posted by Pius Morados on January 4, 2012

(Negotiable Instruments)

Facts: Plaintiff was entitled to the sum of P98,000 from the surplus earnings of Philippine Fiber & Produce Company (PFPC) which was placed to his credit on the company’s books. The PFPC treasurer requested from PNB Manila that a telegraphic transfer of S45,000 should be made to the plaintiff in NY upon account of PFPC. The treasurer drew and delivered a check for the amount of P90,355 on the PNB which is the total costs o said transfer. As evidence, a document was made out and delivered to the PFPC treasurer which is referred to by the bank’s assistant cashier as it’s official receipt.

On the same day the Philippine National Bank dispatched to its New York agency a cablegram to the following effect:

Pay George A. Kauffman, New York, account Philippine Fiber Produce Co., $45,000. (Sgd.) PHILIPPINE NATIONAL BANK, Manila.

Upon receipt of the telegraphic message, the bank’s representative advised the withholding of the money from Kauffman, in view of his reluctance to accept certain bills of the PFPC. The PNB agreed and sent to its NY agency another message to withhold the payment as suggested.

Upon advice of the PFPC treasurer that S45,000 had been placed to his credit, he presented himself at the PNB NY and demanded the money but was refused due to the direction of the withholding of payment.

Issue: WON plaintiff has a right over the money withhold.

Held: No. Provisions of the NIL can come into operation there must be a document in existence of the character described in section 1 of the Law; and no rights properly speaking arise in respect to said instrument until it is delivered.

The order transmitted by PNB to its NY branch, for the payment of a specified sum of money to the plaintiff was not made payable “to order” or “to bearer”, as required in subsection (d) of that Act; and inasmuch as it never left he possession of the bank, or its representative in NY, there was no delivery in the sense intended in section 16 of the same Law.

In connection, it is unnecessary to point out that the official receipt delivered by the bank to the purchaser of the telegraphic order cannot itself be viewed in the light of a negotiable instrument, although it affords complete proof of the obligation actually assumed by the bank.

New Pacific Timber & Supply Co, IncvsSeneris, 101 SCRA 686; GR No. L-41764, December 19, 1980, digested

Posted by Pius Morados on December 1, 2011

(Credit Transactions; Negotiable Instruments – Check; Remedial Law – Judgments)

Doctrine:

Cashier’s check deemed as cash.

Certification of check by drawee bank equivalent to acceptance.

Facts: In a complaint for a collection of sum of money, petitioner failed to comply with his judgment obligation in an amicable settlement with the respondent. Hence, a writ of execution was issued for the amount of P63, 140.00 pursuant to which, petitioner’s properties were levied and was set for an auction sale. Prior to the set date for the auction sale, petitioner deposited with the Clerk of Court, CFI, in his capacity as Ex-Officio Sheriff, the sum of P63, 130.00 for payment of the judgment obligation, consisting of P50, 000.00 Cashier’s Check and P13,130.00 in cash.

Private respondent refused to accept the check as well as the cash deposit and requested the scheduled auction sale. Respondent judge uphold private respondent’s claim that he has the right to refuse payment by means of a check and cited Section 63 of the Central Bank Act:

“Sec 63. Legal Character – Checks representing deposit money do not have legal tender power and their acceptance in payment of debts, both public and private, is at the option of the creditor. Provided, however, that a check which has been cleared and credited to the account of the creditor shall be equivalent to a delivery to the creditor in cash in an amount equal to the amount credited to his account.”

And Article 1249 of the New Civil Code which provides for payment of debts in money shall be made in the currency stipulated or the currency that is legal tender in the Philippines.

Likewise, respondent judge sustained the contention of the private respondent that he has a right to refuse payment of the amount of P13, 130 in cash because the said amount is less than the judgment obligation, which is a partial payment as provided in Article 1248 of the New Civil Code.

Petitioner filed an ex-parte motion for issuance of certificate of satisfaction of judgment after his levied properties were all sold during the auction sale. Petitioner question the order of the judge for denial of the said motion alleging that said judge capriciously and whimsically abused his discretion on the ground that there was already a full satisfaction of the judgment before the auction sale was conducted.

Issue: WON there was a valid refusal to accept the payment of the judgment obligation made by the petitioner consisting of P50, 000.00 in Cashier’s Check and P13, 130.00 in cash.

Held: No. A cashier’s check of the Equitable Bank Corporation is not an ordinary check. It is a well-known and accepted practice in the business sector that a Cashier’s Check is deemed as cash.

Where a check is certified by the bank on which it is drawn, the certification is equivalent to acceptance. By the certification of drawee bank, the funds represented by the check are transferred from the credit of the maker to that of the payee or holder, and for all intents and purposes, the latter becomes the depositor of the drawee bank. Said certification implies that the check is drawn upon sufficient funds in the hands of the drawee that they have been set apart for its satisfaction, that they shall be so applied whenever the check is presented for payment. The object of certifying a check, as regards to both parties, is to enable the holder to use it as money. When the holder procures the check to be certified, the check operates as an assignment of a part of the funds to the creditors. Certification of a check is an exception to the rule enunciated under Sec 63 of the CB Act.

Considering that the whole amount deposited by the petitioner consisting of Cashier’s Check of P50, 000.00 and P13, 130.00 in cash covers the judgment obligation of P63,000.00 as mentioned in the writ of execution, then, we see no valid reason for the private respondent to have refused acceptance of the payment of the obligation in his favor.