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Lee v CA GR117913 Feb 1 2002FACTSCharles Lee, as President of MICO wrote private respondent Philippine Bank of Communications (PBCom) requesting for a grant of a discounting loan/credit line in the sum of Three Million Pesos (P3,000,000.00) for the purpose of carrying out MICOs line of business as well as to maintain its volume of business. Charles Lee requested for another discounting loan/credit line of Three Million Pesos (P3,000,000.00) from PBCom for the purpose of opening letters of credit and trust receipts. In connection with the requests for discounting loan/credit lines, PBCom was furnished by MICO the following resolution which was adopted unanimously by MICOs Board of Directors. MICO availed of the first loan of One Million Pesos (P1,000,000.00) from PBCom. Upon maturity of the loan, MICO caused the same to be renewed, the last renewal of which was made on May 21, 1982 under Promissory Note. Another loan of One Million Pesos (P1,000,000.00) was availed of by MICO from PBCom which was likewise later on renewed, the last renewal of which was made on May 21, 1982 under Promissory Note BNA No. 26219. To complete MICOs availment of Three Million Pesos (P3,000,000.00) discounting loan/credit line with PBCom, MICO availed of another loan from PBCom in the sum of One Million Pesos (P1,000,000.00) on May 24, 1979. As in previous loans, this was rolled over or renewed, the last renewal of which was made on May 25, 1982 under Promissory Note. As security for the loans, MICO through its Vice-President and General Manager, Mariano Sio, executed a Deed of Real Estate Mortgage over its properties. Charles Lee et. al. in their personal capacities executed a Surety Agreement in favor of PBCom whereby the petitioners jointly and severally, guaranteed the prompt payment on due dates or at maturity of overdrafts, promissory notes, discounts, drafts, letters of credit, bills of exchange, trust receipts, and other obligations of every kind and nature, for which MICO may be held accountable by PBCom. It was provided that the liability of the sureties shall not at any one time exceed the principal amount of Three Million Pesos (P3,000,000.00) plus interest, costs, losses, charges and expenses including attorneys fees incurred by PBCom in connection therewith. Petitioner Charles Lee wrote PBCom and applied for an additional loan in the sum of Four Million Pesos (P4,000,000.00). The loan was intended for the expansion and modernization of the companys machineries. Upon approval of the said application for loan, MICO availed of the additional loan of Four Million Pesos (P4,000,000.00) as evidenced by Promissory Note. As per agreement, the proceeds of all the loan availments were credited to MICOs current checking account with PBCom. To induce the PBCom to increase the credit line of MICO, Charles Lee et. al. executed another surety agreement in favor of PBCom, whereby they jointly and severally guaranteed the prompt payment on due dates or at maturity of overdrafts, promissory notes, discounts, drafts, letters of credit, bills of exchange, trust receipts and all other obligations of any kind and nature for which MICO may be held accountable by PBCom. It was provided that their liability shall not at any one time exceed the sum of Seven Million Five Hundred Thousand Pesos (P7,500,000.00) including interest, costs, charges, expenses and attorneys fees incurred by MICO in connection therewith. MICO furnished PBCom with a notarized certification issued by its corporate secretary, Atty. P.B. Barrera, that Chua Siok Suy was duly authorized by the Board of Directors to negotiate on behalf of MICO for loans and other credit availments from PBCom. MICO filed with PBCom an application for a domestic letter of credit in the sum of Three Hundred Forty-Eight Thousand Pesos (P348,000.00). The corresponding irrevocable letter of credit was approved and opened under LC No. L-16060. Thereafter, the domestic letter of credit was negotiated and accepted by MICO as evidenced by the corresponding bank draft issued for the purpose. After the supplier of the merchandise was paid, a trust receipt upon MICOs own initiative, was executed in favor of PBCom. MICO applied for another domestic letter of credit with PBCom in the sum of Two Hundred Ninety Thousand Pesos (P290,000.00). The corresponding irrevocable letter of credit was issued. After the beneficiary of the said letter of credit was paid by PBCom for the price of the merchandise, the goods were delivered to MICO which executed a corresponding trust receipt in favor of PBCom. MICO applied for authority to open a foreign letter of credit in favor of Ta Jih Enterprises Co., Ltd., and thus, the corresponding letter of credit was then issued by PBCom with a cable sent to the beneficiary, Ta Jih Enterprises Co., Ltd. advising that said beneficiary may draw funds from the account of PBCom in its correspondent banks New York Office. PBCom also informed its corresponding bank in Taiwan, the Irving Trust Company, of the approved letter of credit. The correspondent bank acknowledged PBComs advice through a confirmation letter. MICO executed in favor of PBCom a corresponding trust receipt. MICO applied, for authority to open a foreign letter of credit, with PBCom. Upon approval, the corresponding letter of credit was issued whereupon PBCom advised its correspondent bank and MICO of the same. Negotiation and proper acceptance of the letter of credit were then made by MICO. Again, a corresponding trust receipt was executed by MICO in favor of PBCom. In all the transactions involving foreign letters of credit, PBCom turned over to MICO the necessary documents such as the bills of lading and commercial invoices to enable the latter to withdraw the goods from the port of Manila. MICO obtained from PBCom another loan in the sum of Three Hundred Seventy-Seven Thousand Pesos (P377,000.00) covered by Promissory Note. Upon maturity of all credit availments obtained by MICO from PBCom, the latter made a demand for payment. For

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failure of petitioner MICO to pay the obligations incurred despite repeated demands, private respondent PBCom extrajudicially foreclosed MICOs real estate mortgage and sold the said mortgaged properties in a public auction sale Private respondent PBCom which emerged as the highest bidder in the auction sale, applied the proceeds of the purchase price at public auction of Three Million Pesos (P3,000,000.00) to the expenses of the foreclosure, interest and charges and part of the principal of the loans, leaving an unpaid balance of Five Million Four Hundred Forty-One Thousand Six Hundred Sixty-Three Pesos and Ninety Centavos (P5,441,663.90) exclusive of penalty and interest charges. Aside from the unpaid balance of Five Million Four Hundred Forty-One Thousand Six Hundred Sixty-Three Pesos and Ninety Centavos (P5,441,663.90), MICO likewise had another standing obligation in the sum of Four Hundred Sixty-One Thousand Six Hundred Pesos and Six Centavos (P461,600.06) representing its trust receipts liabilities to private respondent. PBCom then demanded the settlement of the aforesaid obligations from herein petitioners-sureties who, however, refused to acknowledge their obligations to PBCom under the surety agreements. Hence, PBCom filed a complaint with prayer for writ of preliminary attachment before the RTC alleging that MICO was no longer in operation and had no properties to answer for its obligations. PBCom further alleged that petitioner Charles Lee has disposed or concealed his properties with intent to defraud his creditors. Petitioners (MICO and herein petitioners-sureties) denied all the allegations of the complaint filed by respondent PBCom, and alleged that: a) MICO was not granted the alleged loans and neither did it receive the proceeds of the aforesaid loans; b) Chua Siok Suy was never granted any valid Board Resolution to sign for and in behalf of MICO; c) PBCom acted in bad faith in granting the alleged loans and in releasing the proceeds thereof; d) petitioners were never advised of the alleged grant of loans and the subsequent releases therefor, if any; e) since no loan was ever released to or received by MICO, the corresponding real estate mortgage and the surety agreements signed concededly by the petitioners-sureties are null and void. The trial court gave credence to the testimonies of herein petitioners and dismissed the complaint filed by PBCom.ISSUE1)WON the proceeds of the loans and letters of credit transactions were ever delivered to MICO2)WON assuming that MICO transferred possession of the merchandise to PBCom by way of trust receipts, the same would be illegal since PBCom, being a banking institution, is not authorized by law to engage in the business of importing and selling goods

HELDNO1)Negotiable instruments which are meant to be substitutes for money, must conform to the following requisites to be considered as such a) it must be in writing; b) it must be signed by the maker or drawer; c) it must contain an unconditional promise or order to pay a sum certain in money; d) it must be payable on demand or at a fixed or determinable future time; e) it must be payable to order or bearer; and f) where it is a bill of exchange, the drawee must be named or otherwise indicated with reasonable certainty. Negotiable instruments include promissory notes, bills of exchange and checks. Letters of credit and trust receipts are, however, not negotiable instruments. But drafts issued in connection with letters of credit are negotiable instruments.MICO and petitioners-sureties cited the decision of the trial court which stated that there was no proof that the proceeds of the loans were ever delivered to MICO. Although the private respondents witness, Mr. Gardiola, testified that the proceeds of the loans were deposited in MICOs current account with PBCom, his testimony was allegedly not supported by any bank record, note or memorandum. A careful scrutiny of the record including the transcript of stenographic notes reveals, however, that although private respondent PBCom was willing to produce the corresponding account ledger showing that the proceeds of the loans were credited to MICOs current account with PBCom, MICO in fact vigorously objected to the presentation of said document. The witness’ testimony proved that the proceeds of the loans which were originally availed of in 1979 were delivered to MICO is bolstered by the fact that more than a year later, specifically on July 14, 1980, MICO through its president, petitioner-surety Charles Lee, requested for an additional loan of Four Million Pesos (P4,000,000.00) from PBCom. The fact that MICO was requesting for an additional loan implied that it has already availed of earlier loans from PBCom.

2) A trust receipt is considered as a security transaction intended to aid in financing importers and retail dealers who do not have sufficient funds or resources to finance the importation or purchase of merchandise, and who may not be able to acquire credit except through utilization, as collateral of the merchandise imported or purchased. A trust receipt, therefor, is a document of security pursuant to which a bank acquires a security interest in the goods under trust receipt. Under a letter of credit-trust receipt arrangement, a bank extends a loan covered by a letter of credit, with the

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trust receipt as a security for the loan. The transaction involves a loan feature represented by a letter of credit, and a security feature which is in the covering trust receipt which secures an indebtedness.Petitioners averments with regard to the second issue are no less incredulous. It has not escaped our notice that it was petitioner-surety Charles Lee, as president of MICO Metals Corporation, who first requested for a discounting loan of Three Million Pesos (P3,000,000.00) fromPBCom as evidenced by his letter dated March 2, 1979. On the same day, Charles Lee, as President of MICO, requested for a Letter of Credit and Trust Receipt line in the sum of Three Million Pesos (P3,000,000.00). Still, on the same day, Charles Lee again as President of MICO, wrote another letter to PBCOM requesting for a financing line in the sum of One Million Five Hundred Thousand Pesos (P1,500,000.00) to be used exclusively as marginal deposit for the opening of MICOs foreign and local letters of credit with PBCom. More than a year later, it was also Charles Lee, again in his capacity as president of MICO, who asked for an additional loan in the sum of Four Million Pesos (P4,000,000.00). The claim therefore of petitioners that it was Chua Siok Suy, in connivance with the respondent PBCom, who applied for and obtained the loan transactions and letters of credit strains credulity considering that even the Deed of the Real Estate Mortgage in favor of PBCom was executed by petitioner-surety MarianoSio in his capacity as general manager of MICO to secure the loan accommodations obtained by MICO from PBCom.

Bayani v People 436 scra 113 (2004)FACTSAlicia Rubia arrived at the grocery store of Dolores Evangelista and asked the latter to rediscount Philippine Savings Bank (PSBank) Check No. 054936 in the amount of P55,000.00. The check was drawn by Leodegario Bayani against his account with the PSBank and postdated August 29, 1992. Rubia told Evangelista that Bayani asked her to rediscount the check for him because he needed the money. Evangelista agreed to rediscount the check. After Rubia endorsed the check, Evangelista gave her the amount of P55,000.00. However, when Evangelista deposited the check in her account with the Far East Bank & Trust Company, it was dishonored by the drawee bank for the reason that, Bayani closed his account with the PSBank. The balance of Bayanis account with the bank was P2,414.96. Evangelista then informed Rubia of the dishonor of the check and demanded the return of her P55,000.00. Rubia replied that she was only requested by Bayani to have the check rediscounted and advised Evangelista to see him. When Evangelista talked to Bayani, she was told that Rubia borrowed the check from him. Evangelista, Rubia, Bayani and his wife, Aniceta, had a conference in the office of Atty. Emmanuel Velasco, Evangelistas lawyer. Later, in the Office of the Barangay Captain Nestor Baera, Evangelista showed Bayani a photocopy of the dishonored check and demanded payment thereof. Bayani and Aniceta, on one hand, and Rubia, on the other, pointed to each other and denied liability thereon.Aniceta told Rubia that she should be the one to pay since the P55,000.00 was with her, but the latter insisted that the said amount was in payment of the pieces of jewelry Aniceta purchased from her. Upon Atty. Velascos prodding, Evangelista suggested Bayani and Rubio to pay P25,000.00 each. Still, Bayani and Rubio pointed to the other as the one solely liable for the amount of the check. Rubia reminded Aniceta that she was given the check as payment of the pieces of jewelry Aniceta bought from her. Bayani testified that he was the proprietor of a funeral parlor in Candelaria, Quezon. He maintained an account with the PSBank in Candelaria, Quezon, and was issued a checkbook which was kept by his wife, Aniceta Bayani. Sometime in 1992, he changed his residence. In the process, his wife lost four (4) blank checks. He did not report the loss to the police authorities. He reported such loss to the bank after Evangelista demanded the refund of the P55,000.00 from his wife. He then closed his account with the bank on September 11, 1992, but was informed that he had closed his account much earlier. He denied ever receiving the amount of P55,000.00 from Rubia. Bayani further testified that his wife discovered the loss of the checks when he brought his wife to the office of Atty. Emmanuel Velasco. He did not see Evangelista in the office of the lawyer, and was only later informed by his wife that she had a conference with Evangelista. His wife narrated that according to Evangelista, Rubia had rediscounted a check he issued, which turned out to be the check she (Aniceta) had lost. He was also told that Evangelista had demanded the refund of the amount of the check. He later tried to contact Rubia but failed. He finally testified that he could not recall having affixed his signature on the check. Aniceta Bayani testified that she was invited to go to the office of Atty. Velasco where she, Rubia and Evangelista had a conference. It was only then that she met Evangelista. Rubia admitted that she rediscounted the complainants check with Evangelista. When Evangelista asked her to pay the amount of the check, she asked that the check be shown to her, but Evangelista refused to do so. She further testified that her husband was not with her and was in their office at the time.At the conclusion of the trial, the court rendered judgment finding Bayani guilty beyond reasonable doubt of violation of Section 1 of B.P. Blg. 22.On appeal, the petitioner averred that the prosecution failed to adduce evidence that he affixed his signature on the check, or received from Rubia the amount of P55,000.00, thus negating his guilt of the crime charged.

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The petitioner asserts that even Teresita Macabulag, the bank manager of PSB who authenticated his specimen signatures on the signature card he submitted upon opening his account with the bank, failed to testify that the signature on the check was his genuine signature.CA: rendered judgment affirming the decision of the RTC with modification as to the penalty imposed on the petitioner.

ISSUEWON THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING WITH MODIFICATION THE CONVICTION OF PETITIONER BY THE TRIAL COURT FOR ALLEGED VIOLATION OF BATAS PAMBANSA BLG. 22 NOTWITHSTANDING THAT THE PROSECUTION MISERABLY FAILED TO PROVE THAT THE CHECK WAS ISSUED FOR A VALUABLE CONSIDERATIONHELDPETITION DENIEDThe petitioner cannot escape criminal liability by denying that he received the amount of P55,000.00 from Rubia after he issued the check to her. The evidence on record shows that Evangelista rediscounted the check and gave P55,000.00 to Rubia after the latter endorsed the same. As such, Evangelista is a holder of the check in due course. Under Section 28 of the Negotiable Instruments Law (NIL), absence or failure of consideration is a matter of defense only as against any person not a holder in due course, thus: SECTION 28. Effect of want of consideration.—Absence or failure of consideration is a matter of defense as against any person not a holder in due course; and partial failure of consideration is a defense pro tan to, whether the failure is an ascertained and liquidated amount or otherwise.

For the accused to be guilty of violation of Section 1 of B.P. Blg. 22, the prosecution is mandated to prove the essential elements thereof, to wit: 1. That a person makes or draws and issues any check; 2. That the check is made or drawn and issued to apply on account or for value; 3. That the person who makes or draws and issues the check knows at the time of issue that he does not have sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment; 4. That the check is subsequently dishonored by the drawee bank for insufficiency of funds or credit, or would have been dishonored for the same reason had not the drawer, without any valid reason, ordered the bank to stop payment.In this case, the prosecution adduced documentary evidence that when the petitioner issued the subject check on or about August 20, 1992, the balance of his account with the drawee bank was onlyP2,414.96. During the conference in the office of Atty. Emmanuel Velasco, Evangelista showed to the petitioner and his wife a photocopy of the subject check, with the notation at its dorsal portion that it was dishonored for the reason account closed. Despite Evangelistas demands, the petitioner refused to pay the amount of the check and, with his wife, pointed to Rubia as the one liable for the amount. The collective evidence of the prosecution points to the fact that at the time the petitioner drew and issued the check, he knew that the residue of the funds in his account with the drawee bank was insufficient to pay the amount of the check.

Ty v people 439 scra 220 (2004)FACTSTys mother Chua Lao So Un was confined at the Manila Doctors Hospital (hospital) from 30 October 1990 until 4 June 1992. Being the patients daughter, Ty signed the Acknowledgment of Responsibility for Payment in the Contract of Admission dated 30 October 1990. Tys sister, Judy Chua, was also confined at the hospital. Ty executed a promissory note wherein she assumed payment of the obligation in installments. To assure payment of the obligation, she drew several postdated checks against Metrobank payable to the hospital. The seven (7) checks, each covering the amount of P30,000.00, were all deposited on their due dates. But they were all dishonored by the drawee bank and returned unpaid to the hospital due to insufficiency of funds, with the Account Closed advice. The complainant hospital sent demand letters to Ty by registered mail. As the demand letters were not heeded, complainant filed the seven (7) Informations subject of the instant case. Ty claimed that she issued the checks because of an uncontrollable fear of a greater injury. She averred that she was forced to issue the checks to obtain release for her mother whom the hospital inhumanely and harshly treated and would not discharge unless the hospital bills are paid. She alleged that her mother was deprived of room facilities. The debasing treatment, she pointed out, so affected her mothers mental, psychological and physical health that the latter contemplated suicide if she would not be discharged from the hospital. Fearing the worst for her mother, and to comply with the demands of the hospital, Ty was compelled to sign a promissory note, open an account with Metrobank and issue the checks to effect her mother's immediate discharge. The trial court found that Ty issued the

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checks subject of the case in payment of the hospital bills of her mother and rejected the theory of the defense. Thus, rendered a Decision finding Ty guilty of seven (7) counts of violation of B.P. 22 and sentencing her to a prison term. The Court of Appeals rejected Tys defenses of involuntariness in the issuance of the checks and the hospitals knowledge of her checking accounts lack of funds. It held that B.P. 22 makes the mere act of issuing a worthless check punishable as a special offense, it being a malum prohibitum. What the law punishes is the issuance of a bouncing check and not the purpose for which it was issued nor the terms and conditions relating to its issuance. ISSUEWON THE EVIDENCE ON RECORD PATENTLY SHOW[S] ABSENCE OF VALUABLE CONSIDERATION IN THE ISSUANCE OF THE SUBJECT CHECKSHELDPETITION DENIED; VICKY TY IS GUILTY OF VIOLATING BP 22As to the issue of consideration, it is presumed, upon issuance of the checks, in the absence of evidence to the contrary, that the same was issued for valuable consideration. Section 24 of the Negotiable Instruments Law creates a presumption that every party to an instrument acquired the same for a consideration or for value. In alleging otherwise, Ty has the onus to prove that the checks were issued without consideration. She must present convincing evidence to overthrow the presumption.Petitioner failed to discharge her burden of proof. Valuable consideration may in general terms, be said to 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 aide. Valuable consideration means an obligation to give, to do, or not to do in favor of the party who makes the contract, such as the maker or indorser.In this case, Tys mother and sister availed of the services and the facilities of the hospital. For the care given to her kin, Ty had a legitimate obligation to pay the hospital by virtue of her relationship with them and by force of her signature on her mothers Contract of Admission acknowledging responsibility for payment, and on the promissory note she executed in favor of the hospital.

The law punishes the mere act of issuing a bouncing check, not the purpose for which it was issued nor the terms and conditions relating to its issuance. B.P. 22 does not make any distinction as to whether the checks within its contemplation are issued in payment of an obligation or to merely guarantee the obligation. The thrust of the law is to prohibit the making of worthless checks and putting them into circulation. As this Court held in Lim v. People of the Philippines, “what is primordial is that such issued checks were worthless and the fact of its worthlessness is known to the appellant at the time of their issuance, a required element under B.P. Blg. 22.”

Such knowledge is legally presumed from the dishonor of the checks for insufficiency of funds . If not rebutted, it suffices to sustain a conviction. The knowledge of the payee of the insufficiency or lack of funds of the drawer with the drawee bank is immaterial as deceit is not an essential element of an offense penalized by B.P. 22. The gravamen of the offense is the issuance of a bad check, hence, malice and intent in the issuance thereof is inconsequential.

In the case at bar, the checks were issued to cover the receipt of an actual account or for value. Substantial evidence, as found by the trial court and Court of Appeals, has established that the checks were issued in payment of the hospital bills of Tys mother. We agree with the Court of Appeals in deleting the penalty of imprisonment, absent any proof that petitioner was not a first-time offender nor that she acted in bad faith. Administrative Circular 12-2000, adopting the rulings in Vaca v. Court of Appeals and Lim v. People, authorizes the non-imposition of the penalty of imprisonment in B.P. 22 cases subject to certain conditions.

Salas v CA GR76788 Jan 22 1990FACTSPetitioner Juanita Salas bought a car from the Violago Motor Sales Corporation (VMS for brevity) for P58,138.20 as evidenced by a promissory note. This note was subsequently endorsed to respondent Filinvest Finance & Leasing Corporation which financed the purchase. Petitioner defaulted in her installments allegedly due to a discrepancy in the engine and chassis numbers of the vehicle delivered to her and those indicated in the sales invoice, certificate of registration and deed of chattel mortgage, which fact she discovered when the vehicle figured in an accident on 9 May 1980. Private respondent initiated an action for a sum of money against petitioner. RTC favored the plaintiff. Both

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petitioner and private respondent appealed the aforesaid decision to the Court of Appeals. Imputing fraud, bad faith and misrepresentation against VMS for having delivered a different vehicle to petitioner, the latter prayed for a reversal of the trial court's decision so that she may be absolved from the obligation under the contract. The CA affirmed the decision. Petitioner's motion for reconsideration was denied; hence, the present recourse.ISSUEWON the promissory note in question is a negotiable instrument which will bar completely all the available defenses of the petitioner against private respondentHELDDECISION AFFIRMEDYESAmong others, 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’. ” Under Section 8 of the Negotiable Instruments Law, there are only two ways by which an instrument may be made payable to order. There must always be a specified person named in the instrument and 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.

In the case at bar, however, the situation is different. Indubitably, the basis of private respondent's claim against petitioner is a promissory note which bears all the earmarks of negotiability.

A careful study of the questioned promissory note shows that it is a negotiable instrument , having complied with the requisites under the law as follows: [a] it is in writing and signed by the maker Juanita Salas; [b] it contains an unconditional promise to pay the amount of P58,138.20; [c] it is payable at a fixed or determinable future time which is “P1,614.95 monthly for 36 months due and payable on the 21st day of each month starting March 21, 1980 thru and inclusive of Feb. 21, 1983;” [d] it is payable to Violago Motor Sales Corporation, or order and as such, [e] the drawee is named or indicated with certainty.

It was negotiated by indorsement in writing on the instrument itself payable to the Order of Filinvest Finance and Leasing Corporation and it is an indorsement of the entire instrument.

Under the circumstances, there appears to be no question that Filinvest is a holder in due course, having taken the instrument under the following conditions: [a] it is complete and regular upon its face; [b] it became the holder thereof before it was overdue, and without notice that it had previously been dishonored; [c] it took the same in good faith and for value; and [d] when it was negotiated to Filinvest, the latter had no notice of any infirmity in the instrument or defect in the title of VMS Corporation.

Accordingly, respondent corporation holds the instrument free from any defect of title of prior parties, and free from defenses available to prior parties among themselves, and may enforce payment of the instrument for the full amount thereof. This being so, petitioner cannot set up against respondent the defense of nullity of the contract of sale between her and VMS.

BPI v CA 512 scra 620 (2007)FACTSPrivate respondent Salazar had in her possession 3 checks payable to the order of co-private respondent Templonuevo. Despite the lack of endorsement of the designated payee upon such checks, Salazar was able to deposit the checks in her personal savings account with petitioner BPI and encash the same. Templonuevo protested the purportedly unauthorized encashment of the checks after the lapse of one year from the date of the last check. Petitioner BPI decided to debit the amount of the check from Salazar s account and the same was paid to Templonuevo by means of a cashier's check.‟ Salazar filed an action for a sum of money with damages against petitioner BPI.ISSUE

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WON a collecting bank, over the objections of its depositor, have the authority to withdraw unilaterally from such depositors account the amount it had previously paid upon certain unendorsed order instruments deposited by the depositor to another account that she later closedHELDPETITION PARTLY GRANTEDSection 49 of the Negotiable Instruments Law contemplates a situation whereby the payee or indorsee delivers a negotiable instrument for value without indorsing it, thus: Transfer without indorsement; effect of.—Where the holder of an instrument payable to his order transfers it for value without indorsing it, the transfer vests in the transferee such title as the transferor had therein, and the transferee acquires in addition, the right to have the indorsement of the transferor. But for the purpose of determining whether the transferee is a holder in due course, the negotiation takes effect as of the time when the indorsement is actually made. It bears stressing that the above transaction is an equitable assignment and the transferee acquires the instrument subject to defenses and equities available among prior parties. Thus, if the transferor had legal title, the transferee acquires such title and, in addition, the right to have the indorsement of the transferor and also the right, as holder of the legal title, to maintain legal action against the maker or acceptor or other party liable to the transferor. The underlying premise of this provision, however, is that a valid transfer of ownership of the negotiable instrument in question has taken place. Transferees in this situation do not enjoy the presumption of ownership in favor of holders since they are neither payees nor indorsees of such instruments. The weight of authority is that the mere possession of a negotiable instrument does not in itself conclusively establish either the right of the possessor to receive payment, or of the right of one who has made payment to be discharged from liability. Thus, something more than mere possession by persons who are not payees or indorsers of the instrument is necessary to authorize payment to them in the absence of any other facts from which the authority to receive payment may be inferred.

The CA and the trial court surmised that the subject checks belonged to private respondent Salazar based on the pre-trial stipulation that Templonuevo incurred a one-year delay in demanding reimbursement for the proceeds of the same. To the Courts mind, however, such period of delay is not of such unreasonable length as to estop Templonuevo from asserting ownership over the checks especially considering that it was readily apparent on the face of the instruments that these were crossed checks. In State Investment House v. IAC, the Court enumerated the effects of crossing a check, thus: (1) that the check may not be encashed but only deposited in the bank; (2) that the check may be negotiated only once - to one who has an account with a bank; and (3) that the act of crossing the check serves as a warning to the holder that the check has been issued for a definite purpose so that such holder must inquire if the check has been received pursuant to that purpose. Thus, even if the delay in the demand for reimbursement is taken in conjunction with Salazars possession of the checks, it cannot be said that the presumption of ownership in Templonuevos favor as the designated payee therein was sufficiently overcome. This is consistent with the principle that if instruments payable to named payees or to their order have not been indorsed in blank, only such payees or their indorsees can be holders and entitled to receive payment in their own right.

The presumption under Section 131(s) of the Rules of Court stating that a negotiable instrument was given for a sufficient consideration will not inure to the benefit of Salazar because the term “given” does not pertain merely to a transfer of physical possession of the instrument. The phrase “given or indorsed” in the context of a negotiable instrument refers to the manner in which such instrument may be negotiated. Negotiable instruments are negotiated by “transfer to one person or another in such a manner as to constitute the transferee the holder thereof. If payable to bearer it is negotiated by delivery. If payable to order it is negotiated by the indorsement completed by delivery.” The present case involves checks payable to order. Not being a payee or indorsee of the checks, private respondent Salazar could not be a holder thereof.

It is an exception to the general rule for a payee of an order instrument to transfer the instrument without indorsement. Precisely because the situation is abnormal, it is but fair to the maker and to prior holders to require possessors to prove without the aid of an initial presumption in their favor, that they came into possession by virtue of a legitimate transaction with the last holder. Salazar failed to discharge this burden, and the return of the check proceeds to Templonuevo was therefore warranted under the circumstances despite the fact that Templonuevo may not have clearly demonstrated that he never authorized Salazar to deposit the checks or to encash the same. Noteworthy also is the fact that petitioner stamped on the back of the checks the words: “All prior endorsements and/or lack of endorsements

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guaranteed,” thereby making the assurance that it had ascertained the genuineness of all prior endorsements. Having assumed the liability of a general indorser, petitioner’s liability to the designated payee cannot be denied.Petitioner, collecting bank, had the right to debit Salazars account for the value of the checks it previously credited in her favor.

A bank generally has a right of set-off over the deposits therein for the payment of any withdrawals on the part of a depositor. The right of a collecting bank to debit a client’s account for the value of a dishonored check that has previously been credited has fairly been established by jurisprudence. To begin with, Article 1980 of the Civil Code provides that “[f]ixed, savings, and current deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan.” Hence, the relationship between banks and depositors has been held to be that of creditor and debtor. Thus, legal compensation under Article 1278 of the Civil Code may take place “when all the requisites mentioned in Article 1279 are present,” as follows: (1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other; (2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated; (3) That the two debts be due; (4) That they be liquidated and demandable; (5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor.

It is conceded that petitioner had the right of set-off over the amount it paid to Templonuevo against the deposit of Salazar, the issue of whether it acted judiciously is an entirely different matter. As businesses affected with public interest, and because of the nature of their functions, banks are under obligation to treat the accounts of their depositors with meticulous care, always having in mind the fiduciary nature of their relationship. In this regard, petitioner was clearly remiss in its duty to private respondent Salazar as its depositor.

To begin with, the irregularity appeared plainly on the face of the checks. Despite the obvious lack of indorsement thereon, petitioner permitted the encashment of these checks three times on three separate occasions. This negates petitioner’s claim that it merely made a mistake in crediting the value of the checks to Salazar’s account and instead bolsters the conclusion of the CA that petitioner recognized Salazar’s claim of ownership of checks and acted deliberately in paying the same, contrary to ordinary banking policy and practice. It must be emphasized that the law imposes a duty of diligence on the collecting bank to scrutinize checks deposited with it, for the purpose of determining their genuineness and regularity. The collecting bank, being primarily engaged in banking, holds itself out to the public as the expert on this field, and the law thus holds it to a high standard of conduct. The taking and collection of a check without the proper indorsement amount to a conversion of the check by the bank.

More importantly, however, solely upon the prompting of Templonuevo, and with full knowledge of the brewing dispute between Salazar and Templonuevo, petitioner debited the account held in the name of the sole proprietorship of Salazar without even serving due notice upon her. This ran contrary to petitioners assurances to private respondent Salazar that the account would remain untouched, pending the resolution of the controversy between her and Templonuevo. The records further bear out the fact that respondent Salazar had issued several checks drawn against the account of A.A. Salazar Construction and Engineering Services prior to any notice of deduction being served. These checks, it must be emphasized, were subsequently dishonored, thereby causing private respondent Salazar undue embarrassment and inflicting damage to her standing in the business community. Under the circumstances, she was clearly not given the opportunity to protect her interest when petitioner unilaterally withdrew the above amount from her account without informing her that it had already done so.

For the above reasons, the Court finds no reason to disturb the award of damages granted by the CA against petitioner. This whole incident would have been avoided had petitioner adhered to the standard of diligence expected of one engaged in the banking business. A depositor has the right to recover reasonable moral damages even if the bank’s negligence may not have been attended with malice and bad faith, if the former suffered mental anguish, serious anxiety, embarrassment and humiliation. Moral damages are not meant to enrich a complainant at the expense of defendant. It is only intended to alleviate the moral suffering she has undergone. The award of exemplary damages is justified, on the other hand, when the acts of the bank are attended by malice, bad faith or gross negligence. The award of reasonable attorney’s fees is proper where exemplary damages are awarded. It is proper where depositors are compelled to litigate to protect their interest.

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Ocampo & Co. v Gatchalian 3 scra 596 (1961)

Doctrine: Where a holder’s title is defective or suspicious, it cannot be stated that the payee acquired the check without the knowledge, of said defect in holder’s title, and for this reason the presumption that it is a holder in due course or that it acquired the instrument in good faith does not exist.

FACTSAnita Gatchalian was interested in buying a car when she was offered by Manuel Gonzales to a car owned by the Ocampo Clinic. Gonzales claim that he was duly authorized to look for a buyer, negotiate and accomplish the sale by the Ocampo Clinic. Anita accepted the offer and insisted to deliver the car with thecertificate of registration the next day but Gonzales advised that the owners would only comply only upon showing of interest on the part of the buyer. Gonzales recommended issuing a check (P600 / payable-to-bearer /cross-checked) as evidence of the buyer’s good faith. Gonzales added that it will only be for safekeeping and will be returned to her the following day.The next day, Gonzales never appeared. The failure of Gonzales to appeal resulted in Gatchalian to issue a STOP PAYMENT ORDER on the check. It was later found out that Gonzales used the check as payment to the Vicente de Ocampo (Ocampo Clinic) for the hospitalization fees of his wife (the fees were only P441.75, so he got a refund of P158.25). De Ocampo now demands payment for the check, which Gatchalian refused, arguing that de Ocampo is not a holder in due course and that there is no negotiation of the check.The Court of First Instance ordered Gatchalian to pay the amount of the check to De Ocampo. Hence this case.ISSUEWON De Ocampo is a holder in due courseHELDNO. Section 52(c) provides that a holder in due course is one who takes the instrument “in good faith and for value”; Section 59, “that every holder is deemed prima facie to be a holder in due course”; and Section 52(d), that in order that one may be a holder in due course it is necessary that “at the time the instrument was negotiated to him he had no notice of any x x x defect in the title of the person negotiating it”; and lastly Section 59, that every holder is deemed prima facie to be a holder in due course. In the case at bar the rule that a possessor of the instrument is prima faciea holder in due course does not apply because there was a defect in the title of the holder (Manuel Gonzales), because the instrument is not payable to him or to bearer.

When the case has taken such shape that the plaintiff is called upon to prove himself a holder in due course to be entitled to recover, he is required to establish the conditions entitling him to standing as such, including good faith in taking the instrument. It devolves upon him to disclose the facts and circumstances attending the transfer, from which good or bad faith in the transaction may be inferred.In the case at bar as the payee acquired the check under circumstances which should have put it to inquiry, why the holder had the check and used it to pay his own personal account, the duty devolved upon it, plaintiff-appellee, to prove that it actually acquired said check in good faith. The stipulation of facts contains no statement of such good faith, hence we are forced to the conclusion that plaintiff payee has not proved that it acquired the check in good faith and may not be deemed a holder in due course thereof.

De Ocampo was negligent in his acquisition of the check. There were many instances that arouse suspicion: the drawer in the check (Gatchalian) has no liability with de Ocampo ; it was cross-checked(only for deposit) but was used a payment by Gonzales; it was not the exact amount of the medical fees. The circumstancesshould have led him to inquire on the validity of the check. However, he failed to exercise reasonable prudence and caution.In showing a person had knowledge of facts that his action in taking the instrument amounted to bad faith need not prove that he knows the exact fraud. It is sufficient to show that the person had NOTICE that there was something wrong. The bad faith here means bad faith in the commercial sense – obtaining an instrument with no questions asked or no further inquiry upon suspicion. The presumption of good faith did not apply to de Ocampo because the defect was apparent on the instruments face – it was not payable to Gonzales or bearer. Hence, the holder’s title is defective or suspicious. Being the case, de Ocampo had the burden of proving he was a holder in due course, but failed.

Jai Alai v BPI GR 29432, Jan 22 1990FACTS

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Petitioner deposited in its current account with respondent bank several checks, all acquired from Antonio J. Ramirez, a regular bettor at the jai-alai games and a sale agent of the Inter-Island Gas Service, Inc., the payee of the checks. The deposits were all temporarily credited to petitioner's account. Subsequently, Ramirez resigned and after the checks had been submitted to inter-bank clearing, the Inter-Island Gas discovered that all the indorsement made on the cheeks were forgeries. It informed petitioner, the respondent, the drawers and the drawee banks of the said checks and forgeries and filed a criminal complaint against its former employee. In view of these circumstances, the respondent Bank debited the petitioner's current account and forwarded to the latter the checks containing the forged indorsements, which petitioner refused to accept. Later, petitioner drew against its current account a check. This check was dishonored by respondent as its records showed that petitioner's balance after netting out the value of the checks with the forged indorsement, was insufficient to cover the value of the check drawn. A complaint was filed by petitioner in the CFI but the same was dismissed, as well as by the Court of Appeals, on appeal. Hence, this petition for review.ISSUEWON the respondent had the right to debit the petitioner's current account and therefore cannot be held liable for damagesHELDYes, respondent acted within legal bounds when it debited the petitioner's account.When the petitioner deposited the checks with the respondent, the nature of the relationship created at that stage was one of agency, that is, the bank was to collect from the drawee of the checks the corresponding proceeds. It is true that the respondent had already collected the proceeds of the checks when it debited the petitioner’s account, so that following the rule in Gullas vs. Philippine National Bank it might be argued that the relationship between the parties had become that of creditor and debtor as to preclude the respondent from using the petitioner’s funds to make payments not authorized by the latter. It is our view nonetheless that no creditor-debtor relationship was created between the parties. x x x Since under Section 23 of the NIL, a forged signature in a negotiable instrument is wholly inoperative and no right to discharge it or enforce its payment can be acquired through or under the forged signature except against a party who cannot invoke the forgery, it stands to reason, that the respondent, as a collecting bank which indorsed the checks to the drawee-banks for clearing, should be liable to the latter for reimbursement, for, as found by the court a quo and by the appellate court, the indorsements on the checks had been forged prior to their delivery to the petitioner. In legal contemplation, therefore, the payments made by the drawee-banks to the respondent on account of the said checks were ineffective; and, such being the case, the relationship of creditor and debtor between the petitioner and the respondent had not been validly effected, the checks not having been properly and legitimately converted into cash.It is the obligation of the collecting bank to reimburse the drawee-bank the value of the checks subsequently found to contain the forged indorsement of the payee. The reason is that the bank with which the check was deposited has no right to pay the sum stated therein to the forger "or anyone else upon a forged signature." "It was its duty to know," that [the payee's] endorsement was genuine before cashing the check." The petitioner must in turn shoulder the loss of the amounts which the respondent; as its collecting agent, had to reimburse to the drawee-banks.At all events, under Section 67 of the NIL, "Where a person places his indorsement on an instrument negotiable by delivery he incurs all the liability of an indorser," and under Section 66 of the same statute a general indorser warrants that the instrument "is genuine and in all respects what it purports to be." Considering that the petitioner indorsed the said checks when it deposited them with the respondent, the petitioner as an indorser guaranteed the genuineness of all prior indorsements thereon. The respondent which relied upon the petitioner's warranty should not be held liable for the resulting loss. Under Section 65 of the NIL, "Every person negotiating an instrument by delivery . . . warrants (a) That the instrument is genuine and in all respects what it purports to be." Under that same section this warranty "extends in favor of no holder other than the immediate transferee," which, in the case at bar, would be the respondent.CA judgment affirmed.

Ilusorio v CA 393 scra 89 (2002)FACTSIlusorio was a businessman who was in charge of 20 or so corporations. He was a depositor in good standing of Manila Banking Corporation. As he was in charge of a big number of corporations, he was usually out of the country for business. He then entrusted his credit cards, checkbook, blank checks, passbooks, etc to his secretary, Katherine Eugenio. Eugenio was also in charge of verifying and reconciling the statements of Ilusorio’s checking account.

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Eugenio was able to encash and deposit to her personal account checks drawn against Ilusorio’s account with an aggregate amount of 119K. Ilusorio didn’t bother to check his statement of account until a business partner informed him that he saw Eugenio using his credit cards. Ilusorio then fired her and instituted criminal case of Estafa thru falsification against Eugenio. Manila Banking Corp. also instituted a complaint of estafa against Eugenio based on the affidavit of Dante Razon, an employee. Razon stated that he personally examined and scrutinized the encashed checks in accordance with their verification procedures.Manila Bank sought the expertise of NBI in determining the genuineness of the checks but Ilusorio failed to submit specimen signatures and thus, NBI could not conduct the examination.ISSUEWON Manila Bank is liable for damages for failing to detect a forged checkHELDNo. To be entitled to damages, Ilusorio has the burden of poving that the bank was negligent in failing to detect the discrepancy in the signatures on the checks. Ilusorio had to establish the fact of forgery which he failed to do by failing to submit his specimen signatures for NBI to conclusively establish forgery.

Furthermore, the Bank was not negligent in verifying the checks as they verified the drawer’s signatures against their specimen signatures and in doubt, referred to more experienced verifier for further verification.

On the contrary, it was Ilusorio who was found to be negligent. He accorded his secretary with an unusual degree of trust and unrestricted access to his finances. Furthermore, despite the fact that the bank was regularly sending statements of account, he failed to check them until he found out that his secretary was using his credit cards.

Sec. 23 of the Negotiable Instruments law provides that a forged check is inoperative, meaning there was no right to enforce payment against any party. But it also provides an exception: “unless the party against whom it is sought enforce such right is precluded from setting up the forgery or want of authority”. This case falls under the exception since Ilusorio is precluded from setting up forgery due to his own negligence considering that he allowed his secretary access to his credit cards, checkbook, and allowed his secretary to verify his statements of account.

Allied Bank v Lim Sio Wan 549 scra 504FACTSRespondent Lim Sio Wan deposited with petitioner Allied at a money market placement. A person claiming to be Lim Sio Wan called up Allied to pre-terminate the money market placement and to issue a manager's check representing the proceeds of the placement. The bank issued Manager's Check in the name of Lim Sio Wan, as payee and the same was cross-checked "For Payee's Account Only" and given to a certain Santos. Thereafter, the manager's check was deposited in the account of FCC at respondent Metrobank, with the forged signature of Lim Sio Wan as indorser. The Allied check was deposited with Metrobank in the account of FCC as Producers Bank's payment of its obligation to FCC when the latter demanded the payment of the proceeds of its placement with Producers Bank. To clear the check, Metrobank stamped a guaranty on the check, which reads: "All prior endorsements and/or lack of endorsement guaranteed." The check was sent to Allied through the PCHC. Upon the presentment of the check, Allied funded the check even without checking the authenticity of Lim Sio Wan's purported indorsement. Thus, the amount on the face of the check was credited to the account of FCC. When Allied refused to pay Lim Sio Wan, claiming that the latter had authorized the pre-termination of the placement and its subsequent release to Santos, Lim Sio Wan filed the instant case.ISSUE

HELDProducers Bank must be held liable to Allied and Metrobank for the amount of the check which Allied and Metrobank are adjudged to pay Lim Sio Wan based on a proportion of 60:40.Lim Sio Wan, as creditor of the bank for her money market placement, is entitled to payment upon her request, or upon maturity of the placement, or until the bank is released from its obligation as debtor. Until any such event, the obligation of Allied to Lim Sio Wan remains unextinguished.In the instant case, the trial court correctly found Allied negligent in issuing the manager's check and in transmitting it to Santos without even a written authorization. In fact, Allied did not even ask for the certificate evidencing the money market placement or call up Lim Sio Wan at her residence or office to confirm her instructions. Both actions could have

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prevented the whole fraudulent transaction from unfolding. Allied's negligence must be considered as the proximate cause of the resulting loss.The liability of Allied, however, is concurrent with that of Metrobank as the last indorser of the check. When Metrobank indorsed the check in compliance with the PCHC Rules and Regulations without verifying the authenticity of Lim Sio Wan's indorsement and when it accepted the check despite the fact that it was cross-checked payable to payee's account only, its negligent and cavalier indorsement contributed to the easier release of Lim Sio Wan's money and perpetuation of the fraud. Given the relative participation of Allied and Metrobank to the instant case, both banks cannot be adjudged as equally liable. Hence, the 60:40 ratio of the liabilities of Allied and Metrobank, as ruled by the CA, must be upheld. Considering however that Producers Bank was unjustly enriched at the expense of Lim Sio Wan, Producers Bank should reimburse Allied and Metrobank for the amounts the two latter banks are ordered to pay Lim Sio Wan. With the payment of FCC s money market placement and interest in Producers Bank, Producers Bank's indebtedness to FCC was‟ extinguished, thereby benefitting the former. Clearly, Producers Bank was unjustly enriched at the expense of Lim Sio.Traders Royal Bank v RPN GR 138510 Oct 10, 2002FACTSRPN, IBC and BBC were all assessed for tax by the BIR. To pay the assessed taxes, they bought manager’s checks from petitioner bank. None of these checks were paid to the BIR. They were found to have been deposited in the account of a third person in Security Bank. As the taxes remained unpaid, the BIR issued a levy, distraint and garnishment against the three networks. An action was filed wherein it was decided that the networks should be reimbursed for the amounts of the checks by petitioner bank and the latter in turn, must be reimbursed by Security Bank. In the appellate court, it was held that Traders Bank should be the only bank liable. ISSUEWhether or not a collecting bank is precluded from setting up the forgery against the drawee bank.HELDYES. A collecting bank where a check is deposited and which indorses the check upon presentment with the drawee bank, is such an indorser. So even if the indorsement on the check deposited by the bank’s client is forged, the collecting bank is bound by his warranties as an indorser and cannot set up the defense of forgery as against the drawee bank.

PCI Bank v CA & Ford Phil. 350 scra 446 (2001)FACTSFord Philippines filed actions to recover from the drawee bank Citibank and collecting bank PCIB the value of several checks payable to the Commissioner of Internal Revenue which were embezzled allegedly by an organized syndicate. What prompted this action was the drawing of a check by Ford, which it deposited to PCIB as payment and was debited from their Citibank account. It later on found out that the payment wasn’t received by the Commissioner. Meanwhile, according to the NBI report, one of the checks issued by petitioner was withdrawn from PCIB for alleged mistake in the amount to be paid. This was replaced with manager’s check by PCIB, which were allegedly stolen by the syndicate and deposited in their own account. The trial court decided in favor of Ford.ISSUEWON Ford the right to recover the value of the checks intended as payment to CIRHELDThe checks were drawn against the drawee bank but the title of the person negotiating the same was allegedly defective because the instrument was obtained by fraud and unlawful means, and the proceeds of the checks were not remitted to the payee. It was established that instead paying the Commissioner, the checks were diverted and encashed for the eventual distribution among members of the syndicate.

Pursuant to this, it is vital to show that the negotiation is made by the perpetrator in breach of faith amounting to fraud. The person negotiating the checks must have gone beyond the authority given by his principal. If the principal could prove that there was no negligence in the performance of his duties, he may set up the personal defense to escape liability and recover from other parties who, through their own negligence, allowed the commission of the crime.

It should be resolved if Ford is guilty of the imputed contributory negligence that would defeat its claim for reimbursement, bearing in mind that its employees were among the members of the syndicate. It appears although the employees of Ford initiated the transactions attributable to the organized syndicate, their actions were not the proximate cause of encashing the checks payable to CIR. The degree of Ford’s negligence couldn’t be

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characterized as the proximate cause of the injury to parties. The mere fact that the forgery was committed by a drawer-payor’s confidential employee or agent, who by virtue of his position had unusual facilities for perpetrating the fraud and imposing the forged paper upon the bank, doesn’t entitle the bank to shift the loss to the drawer-payor, in the absence of some circumstance raising estoppel against the drawer.

Note: not only PCIB but also Citibank is responsible for negligence. Citibank was negligent in the performance of its duties as a drawee bank. It failed to establish its payments of Ford’s checks were made in due course and legally in order.

Associated Bank v CA 252 scra 620 (1996)FACTSThe Province of Tarlac maintains a current account with the Philippine National Bank (PNB Tarlac Branch) where the provincial funds are deposited. Portions of the funds were allocated to the Concepcion Emergency Hospital. Checks were issued to it and were received by the hospital s administrative officer and cashier (Fausto Pangilinan). Pangilinan,‟ through the help of Associated Bank but after forging the signature of the hospital s chief (Adena Canlas), was able to‟ deposit the checks in his personal account. All the checks bore the stamp “All prior endorsement guaranteed Associated Bank.” Through post-audit, the province discovered that the hospital did not receive several allotted checks, and sought the restoration of the debited amounts from PNB. In turn, PNB demanded reimbursement from Associated Bank. Both banks resisted payment. Hence, the present action.ISSUEWON HELDPNB is not negligent as it is not required to return the check to the collecting bank within 24 hours as the banks involved are covered by Central Bank Circular 580 and not the rules of the Philippine Clearing House. Associated Bank, and not PNB, is the one duty-bound to warrant the instrument as genuine, valid and subsisting at the time of indorsement pursuant to Section 66 of the Negotiable Instruments Law. The stamp guaranteeing prior indorsement is not an empty rubric; the collecting bank is held accountable for checks deposited by its customers. However, due to the fact that the Province of Tarlac is equally negligent in permitting Pangilinan to collect the checks when he was no longer connected with the hospital, it shares the burden of loss from the checks bearing a forged indorsement. Therefore, the Province can only recover 50% of the amount from the drawee bank (PNB), and the collecting bank (Associated Bank) is liable to PNB for 50% of the same amount.

Osmena v Citibank GR141278 Mar 23 2004FACTSThe petitioner filed an action for damages against the respondents Citibank, N.A. and Associated Bank. The complaint materially alleged that the petitioner purchased from the Citibank Managers Check (the check for brevity) in the amount of P1,545,000 payable to respondent Frank Tan; the petitioner later received information that the aforesaid managers check was deposited with the respondent Associated Bank, Rosario Branch, to the account of a certain Julius Dizon under Savings Account No. 19877; the clearing and/or payment by the respondents of the check to an improper party and the absence of any indorsement by the payee thereof, respondent Frank Tan, is a clear violation of the respondents obligations under the Negotiable Instruments Law and standard banking practice; considering that the petitioners intended payee for the check, the respondent Frank Tan, did not receive the value thereof, the petitioner demanded from the respondents Citibank and the Associated Bank the payment or reimbursement of the value of the check; the respondents, however, obstinately refused to heed his repeated demands for payment and/or reimbursement of the amount of the check; hence, the petitioner was compelled to file this complaint praying for the restitution of the amount of the check, and for moral damages and attorneys fees.The petitioner averred therein that the check was purchased by him as a demand loan to respondent Frank Tan. Since apparently respondent Frank Tan did not receive the proceeds of the check, the petitioner might have no right to collect from respondent Frank Tan and is consequently left with no recourse but to seek payment or reimbursement from either or both respondents Citibank and/or Associated Bank. The respondent Associated Bank alleged that the petitioner was not the real party-in-interest but respondent Frank Tan who was the payee of the check. The respondent also maintained that the check was deposited to the account of respondent Frank Tan, a.k.a. Julius Dizon, through its Ayala Head Office and was credited to the savings account of Julius Dizon; the Ayala office confirmed with the Rosario Branch that the account of

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Julius Dizon is also in reality that of respondent Frank Tan; it never committed any violation of its duties and responsibilities as the proceeds of the check went and was credited to respondent Frank Tan, a.k.a. Julius Dizon; the petitioners affirmative allegation of non-payment to the payee is self-serving; as such, the petitioners claim for damages is baseless, unfounded and without legal basis. The trial court rendered judgment in favor of the petitioner and against respondent Frank Tan. The complaints against the respondents Banks were dismissed.ISSUEWON HELDConversely, the records would disclose that even the petitioner himself had misgivings about the truthfulness of his allegation that respondent Tan did not receive the amount of the check. This is made implicit by respondent Tans being made a party-defendant to the case when the petitioner filed his amended complaint.