1 PATRIMONIO v. GUTIERREZ, 724 SCRA 636, June 4, 2014Holder, Holder for Value and Holder in due course

2 PRUDENCIO v. CA, 143 SCRA 11Holder, Holder for Value and Holder in due course

FACTS:1. Eulalio and Elisa Prudencio (appellants, petitioners) are the

registered owners of a parcel of land in Sampaloc. This property was mortgaged (original mortgage, 1954) to PNB, to guarantee a loan of P1,000 extended to one Domingo Prudencio.

2. 1955: Concepcion & Tamayo Construction Co. (Company) had a pending contract with the Bureau of Public Works for the construction of the municipal building in Palawan for P36,800.

3. Needing the funds for construction, Toribio (relative of the appellants and attorney-in-fact of the Company) asked the appellants to mortgage their property to secure the loan of P10,000 which the Company was negotiating with PNB.

4. 1955: An amended real estate mortgage was signed, mortgaging the said property to PNB to guaranty the loan of P10,000 extended to the Company. The terms of the original mortgage were made integral part of the new mortgage.

5. The promissory note of P10,000 was dated December 29, 1955 maturing on April 27, 1956. Signed by Toribio and the Prudencios.

6. Toribio executed a Deed of Assignment assigning all payments to be made by the Bureau to the Company in favor of PNB.

7. Despite the assignment of credit, the Bureau, however, with the approval of the PNB, conditioned that they should be for labor and materials, made three payments to the Company (P11,234). The Bureau’s last request for P5,000, however, was denied by PNB because the loan was already overdue, therefore, the remaining balance of the contract price should be applied to the loan.

8. Company abandoned the work, as consequence, Bureau rescinded.

9. Appellants wrote to PNB contending that since PNB authorized payments to the Company instead of on account of the loan guaranteed by the mortgage, there was a change in the conditions of the contract without their knowledge, which gave them the right to cancel the mortgage contract.

10. When the mortgage was not cancelled, petitioners filed an action against PNB, Company, Toribio and District Engineer of Palawan seeking for its cancellation. (Action was filed by Prudencios to absolve them from their obligation under the mortgage contract).

Trial Court: Petitioners were ordered to pay solidarily with their co-makers. CA: Affirmed the TC decision. PNB need not inform the petitioners every time it authorized payment to the Company.

ISSUE: Whether or not PNB can be considered a holder for value under Section 29. NO.

RATIO:A holder for value under Section 29 must meet all the

requirements of a holder in due course under Section 52 except notice of want of consideration. If he does not qualify as a holder in due course, then he holds the instrument subject to the same defenses as if it were non-negotiable.

Although as a general rule, a payee may be considered a holder in due course, the Court held that such a role couldn’t apply to PNB. PNB dealt directly with the petitioners knowing fully well that they only signed as accommodation makers and more importantly, it was the Deed of Assignment executed by the Company in favor of PNB which moved the petitioners to sign the promissory note.

Petitioners were made to believe and on that belief entered into an agreement that no other conditions would alter the same.

Despite the assignment, PNB still approved the Bureau’s release of 3 payments directly to the Company instead of paying the same to the Bank. This was in violation of the assignment and without any notice to the petitioners who stood to lose their property once the note falls due because PNB, in effect, waived payments of the three releases.

PNB cannot be regarded as having acted in good faith, which is also a requisite for one to be holder in due course.

Petitioners are absolved from liability. Bank is ordered to release the mortgage constituted on the property.

3 CALTEX (PHILS.) v. CA, 212 SCRA 448Holder for Value

4 GONZALES v. RCBC, 508 SCRA 459In Good Faith

5 HI-CEMENT CORP. v. INSULAR BANK OF ASIA, 534 SCRA 269Crossing a Check; Bad Faith

FACTS: 1. Petitioners Enrique and Lilia Tan were the controlling

stockholders of E.T. Henry & Co., a company engaged in processing and distributing bunker fuel.

2. Hi-Cement, Riverside Mills and Kanebo Cosmetics were among the clients of E.T. Henry. They issue postdated crossed checks to E.T. Henry.

3. Sometime in 1979, respondent Insular Bank of Asia and America granted E.T. Henry a credit facility known as Purchase of Short Term Receivables. Through this arrangement, E.T. Henry was able to encash, with pre-deducted interest, the postdated checks of its clients. In other words, E.T. Henry and respondent were into re-discounting of checks.

4. For every transaction, respondent required E.T. Henry to execute a promissory note and a deed of assignment bearing the conformity of the client to the re-discounting.

5. From 1979 to 1981, E.T. Henry was able to re-discount its clients' checks with Insular Bank.

6. However, in February 1981, 20 checks of Hi-Cement (which were crossed and which bore the restriction deposit to payees account only) were dishonored. So were the checks of Riverside and Kanebo.

7. Insular Bank filed a complaint for sum of money in the then Court of First Instance of Rizal against E.T. Henry, the spouses Tan, Hi-Cement (including its general manager and its treasurer as signatories of the postdated crossed checks), Riverside and Kanebo.

8. In its complaint, Insular Bank claimed actual damages, exclusive of accrued and accruing interests, charges and penalties such as attorney’s fees and expenses of litigation as follows:

Riverside Mills Corporation- P 115,312.50 Kanebo Cosmetics Philippines, Inc. -5,811,750.00

Hi-Cement Corporation - 10,000,000.00

9. Respondent also sought to collect from E.T. Henry and the spouses Tan other loan obligations (amounting to P1,661,266.51 and P4,900,805, respectively) as deficiencies resulting from the foreclosure of the real estate mortgage on E.T. Henry's property in Sucat, Paranaque.

10. Hi-Cement filed its answer alleging that its general manager and treasurer were not authorized to issue the postdated crossed checks in E.T. Henry's favor; and that respondent was not a holder in due course as it should not have discounted them for being crossed checks.

11. For their part, Riverside and Kanebo sought the dismissal of the case against them, arguing that they were not privy to the re-discounting arrangement between respondent and E.T. Henry.

12. RTC ordered E.T. Henry, Hi-Cement, Riverside and Kanebo to pay Insular Bank

13. CA – Affirmed RTC in toto

ISSUE: Whether or not Hi-Cement is liable to pay the checks to Insular Bank. NO.

RULING: In the case at bar, respondent's claim that it acted in good

faith when it accepted and discounted Hi-Cements postdated crossed checks from E.T. Henry (as payee therein) fails to convince us. Good faith becomes inconsequential amidst proof of respondent's grossly negligent conduct in dealing with the subject checks. 

Respondent was all too aware that subject checks were crossed and bore restrictions that they were for deposit to payee's account only; hence, they could not be further negotiated to it. The records likewise reveal that respondent completely disregarded a telling sign of irregularity in the re-discounting of the checks when the general manager did not acquiesce to it as only the treasurer's signature appeared on the deed of assignment. As a banking

institution, it behooved respondent to act with extraordinary diligence in every transaction. Its business is impressed with public interest, thus, it was not expected to be careless and negligent, specially so where the checks it dealt with were crossed. In Bataan Cigar and Cigarette Factory, Inc., we ruled:  “It is then settled that crossing of checks should put the holder on inquiry and upon him devolves the duty to ascertain the indorsers title to the check or the nature of his possession. Failing in this respect, the holder is declared guilty of gross negligence amounting to legal absence of good faith and as such the consensus of authority is to the effect that the holder of the check is not a holder in due course.”  

Hence the drawer of the postdated crossed checks is not liable to the holder who is deemed not a holder in due course. 

The NIL does not absolutely bar a holder who is not a holder in due course from recovering on the checks. It may recover from the party who indorsed/encashed the checks if the latter has no valid excuse for refusing payment. Here, there was no doubt that it was E.T. Henry that re-discounted Hi-Cement's checks and received their value from respondent. Since E.T. Henry had no justification to refuse payment, it should pay respondent.

6 METROPOLITAN BANK & TRUST CO. v. PHILIPPINE BANK OF COMMUNICATIONS, 536 SCRA 556Crossing a Check; Bad Faith

7 SALAS v. CA, 181 SCRA 296Financing company; Holder in good faith

8 PEOPLE v. GILBERT WAGAS, G.R. No. 157943, September 4, 2013Postdating a check

FACTS: 1. Ligaray claims that Gilbert Wagas placed an order of 200

sacks of rice for delivery.2. Ligaray was met by Cañada, brother in law, of Wagas who

handed him a check payable to cash in the amount of 200, ooo php. It was also Cañada who signed the delivery receipt.

3. The Check was dishonored for insufficiency of funds by Solid Bank.

4. Despite repeated demands, no payment to Ligaray was made.

5. Ligaray filed a criminal complaint for estafa against Wagas.6. RTC convicted Wagas for estafa.

ISSUE: WON Wagas is guilty beyond reasonable doubt of the crime of estafa. NO.

RULING: In order to constitute estafa under estafa, the act of

postdating or issuing a check in payment of an obligation must be the efficient cause of the defraudation. This means that the offender must be able to obtain money or property from the offended party by reason of the issuance of the check, whether dated or postdated. In other words, the Prosecution must show that the person to whom the check was delivered would not have parted with his money or property were it not for the issuance of the check by the offender.

The Prosecution established that Ligaray had released the goods to Cañada because of the postdated check the latter had given to him; and that the check was dishonored when presented for payment because of the insufficiency of funds.

In every criminal prosecution, however, the identity of the offender, like the crime itself, must be established by proof beyond reasonable doubt. In that regard, the Prosecution did not establish beyond reasonable doubt that it was Wagas who had defrauded Ligaray by issuing the check.

Firstly, Ligaray expressly admitted that he did not personally meet the person with whom he was transacting over the telephone

Secondly, the check delivered to Ligaray was made payable to cash. Under the Negotiable Instruments Law, this type of check was payable to the bearer and could be negotiated by mere delivery without the need of an indorsement. This rendered it highly probable that Wagas had issued the check not to Ligaray, but to somebody else like Cañada, his brother-in-law, who then negotiated it to Ligaray. Relevantly, Ligaray confirmed that he did not himself see or meet Wagas at the time of the transaction and thereafter.

Wagas could not be held guilty of estafa simply because he had issued the check used to defraud Ligaray. The proof of guilt must still clearly show that it had been Wagas as the drawer who had defrauded Ligaray by means of the check.

Thirdly, Ligaray admitted that it was Cañada who received the rice from him and who delivered the check to him. Considering that the records are bereft of any showing that Cañada was then acting on behalf of Wagas, the RTC had no factual and legal bases to conclude and find that Cañada hadbeen acting for Wagas.

9 STATE INVESTMENT HOUSE v. CA, 217 SCRA 32Postdating a check

10 VICENTE DE OCAMPO & CO. v. GATCHALIAN, 3 SCRA 596Suspicious Circumstances

11 LEONARDO BOGNOT v. RRI LENDING CORPORATON, G.R. No. 180144, September 24, 2014Complete and Regular; Material Alteration

12 INTERNATIONAL CORPORATE BANK v. CA, 501 SCRA 20Complete and Regular; Material Alteration

FACTS:1. The Ministry of Education and Culture issued 15 checks

drawn against PNB which International Corporate Bank (ICB) accepted for deposit.

2. After 24 hours from submission of the checks to PNB for clearing, ICB paid the value of the checks and allowed withdrawals of the deposits.

3. However, after a few days, PNB returned all the checks to ICB without clearing them on them on the ground that they were materially altered. The alterations in the checks were made on their serial numbers.

4. ICB instituted an action for collection of sums of money against PNB to recover the value of the checks.

Trial Court: PNB cannot be faulted for the delay in clearing the checks considering the ingenuity in which the alterations were affected. ICB, as collecting bank, could have inquired about the status of the checks before paying their value. ICB not entitled to recover the value of the checks.Court of Appeals: CA reversed the decision of the TC, PNB declared liable for the value of the checks (P1,447,920). Applying CB-Circular No. 580, checks that were materially altered shall be returned within 24 hrs. after discovery of alteration. CA rejected the TC opinion that ICB could hav verified the status by telephone call since such imposition is not required under the CB rules.But after a motion for reconsideration, AFFIRMED the decision of TC. (Because they failed to appreciate the rule on the return of altered checks within 24 hours from discovery).

ISSUE: Whether or not the checks were materially altered. NO.

RATIO: Alteration of the serial number of a check is not a material

alteration.

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 number or other change to an incomplete instrument relating to the obligation of a party.

Simply put, a material alteration is one which changes the items which are required to be stated under Section 1 of NIL.

A serial number is not an essential requisite for the negotiability of an instrument. The alteration did not change the relations between the parties.

Sections 124 and 125 of the Negotiable Instruments cited.

PNB is liable to ICB for the value of the checks amounting to P1,447,920 with legal interest.