Kauffman Vs

Kauffman vs. PNB

42 Phil 182 September 29, 1921

Facts:

George A. Kauffman, was the president of a domestic corporation engaged chiefly in the

exportation of hemp from the Philippine Islands and known as the Philippine Fiber and Produce

Company, of which company the plaintiff apparently held in his own right nearly the entire issue

of capital stock. He was based in New York City and as the president of the said company, he

was entitled to receive a dividend; as per instruction, Wicks who worked as the treasurer of the

company, went to the exchange department of PNB and requested a telegraphic transfer of the

money to Kauffman.

The PNB agreed with additional charges for the transaction. The treasurer issued a check to PNB

and it was accepted. The PNB’s representative in New York sent a message suggesting the

advisability of withholding this money from Kauffman, in view of his reluctance to accept

certain bills of the company. PNB acquiesced in this and dispatched to its NY agency a message

to withhold the Kauffman payment as suggested. Meanwhile, Wicks then informed Kauffman

that his dividends had been wired to his credit in the NY agency of PNB. So Kauffman went to

PNB office in NYC and demanded the money, however, he was refused payment. So he filed

this complaint.

Issue:

Whether or not Kauffman has a right of action against PNB?

Held:

Yes. It is a stipulation pour autrui.

Should the contract contain any stipulation in favor of a third person, he may demand its

fulfillment, provided he has given notice of his acceptance to the person bound before the

stipulation has been revoked. (Art. 1257, par. 2, Civ. Code.) In the light of the conclusion thus

stated, the right of the plaintiff to maintain the present action is clear enough; for it is undeniable

that the bank's promise to cause a definite sum of money to be paid to the plaintiff in NYC is a

stipulation in his favor within the meaning of the paragraph above quoted; and the circumstances

under which that promise was given disclose an evident intention on the part of the contracting

parties that the plaintiff should have the money upon demand in NYC. The recognition of this

unqualified right in the plaintiff to receive the money implies in our opinion the right in him to

maintain an action to recover it.

It will be noted that under the paragraph cited a third person seeking to enforce compliance with

a stipulation in his favor must signify his acceptance before it has been revoked. In this case the

plaintiff clearly signified his acceptance to the bank by demanding payment; and although PNB

had already directed its NY agency to withhold payment when this demand was made, the rights

of the plaintiff cannot be considered to as there used, must be understood to imply revocation by

the mutual consent of the contracting parties, or at least by direction of the party purchasing he

exchange. Thus, it was said, "Cable transfers, therefore, mean a method of transmitting money

by cable wherein the seller engages that he has the balance at the point on which the payment is

ordered and that on receipt of the cable directing the transfer his correspondent at such point will

make payment to the beneficiary described in the cable. All these transaction are matters of

purchase and sale create no trust relationship."

Government Service Insurance System v. Court of Appeals

170 SCRA 533, February 23, 1989

Facts:

Private respondents, Mr. and Mrs. Isabelo R. Racho, together with spouses Mr. and Mrs Flaviano

Lagasca, executed a deed of mortgage, dated November 13, 1957, in favor of petitioner GSIS

and subsequently, another deed of mortgage, dated April 14, 1958, in connection with two loans

granted by the latter in the sums of P 11,500.00 and P 3,000.00, respectively. A parcel of land

covered by Transfer Certificate of Title No. 38989 of the Register of Deed of Quezon City, co-

owned by said mortgagor spouses, was given as security under the two deeds. They also

executed a 'promissory note".

On July 11, 1961, the Lagasca spouses executed an instrument denominated "Assumption of

Mortgage," obligating themselves to assume the said obligation to the GSIS and to secure the

release of the mortgage covering that portion of the land belonging to spouses Racho and which

was mortgaged to the GSIS. This undertaking was not fulfilled. Upon failure of the mortgagors

to comply with the conditions of the mortgage, particularly the payment of the amortizations due,

GSIS extrajudicially foreclosed the mortgage and caused the mortgaged property to be sold at

public auction on December 3, 1962.

For more than two years, the spouses Racho filed a complaint against the spouses Lagasca

praying that the extrajudicial foreclosure "made on, their property and all other documents

executed in relation thereto in favor of the Government Service Insurance System" be declared

null and void.

The trial court rendered judgment on February 25, 1968 dismissing the complaint for failure to

establish a cause of action. However, said decision was reversed by the respondent Court of

Appeals, stating that, although formally they are co-mortgagors, the GSIS required their consent

to the mortgage of the entire parcel of land which was covered with only one certificate of title,

with full knowledge that the loans secured were solely for the benefit of the appellant Lagasca

spouses who alone applied for the loan.

Issues:

Whether the respondent court erred in annulling the mortgage as it affected the share of private

respondents in the reconveyance of their property?

Whether private respondents benefited from the loan, the mortgage and the extrajudicial

foreclosure proceedings are valid?

Held:

Both parties relied on the provisions of Section 29 of Act No. 2031, otherwise known as the

Negotiable Instruments Law, which provide that an accommodation party is one who has signed

an instrument as maker, drawer, acceptor of indorser without receiving value therefor, but is held

liable on the instrument to a holder for value although the latter knew him to be only an

accommodation party.

The promissory note, as well as the mortgage deeds subject of this case, are clearly not

negotiable instruments. These documents do not comply with the fourth requisite to be

considered as such under Section 1 of Act No. 2031 because they are neither payable to order nor

to bearer. The note is payable to a specified party, the GSIS. Absent the aforesaid requisite, the

provisions of Act No. 2031 would not apply; governance shall be afforded, instead, by the

provisions of the Civil Code and special laws on mortgages.

As earlier indicated, the factual findings of respondent court are that private respondents signed

the documents "only to give their consent to the mortgage as required by GSIS", with the latter

having full knowledge that the loans secured thereby were solely for the benefit of the Lagasca

spouses.

Contrary to the holding of the respondent court, it cannot be said that private respondents are

without liability under the aforesaid mortgage contracts. The factual context of this case is

precisely what is contemplated in the last paragraph of Article 2085 of the Civil Code to the

effect that third persons who are not parties to the principal obligation may secure the latter by

pledging or mortgaging their own property. So long as valid consent was given, the fact that the

loans were solely for the benefit of the Lagasca spouses would not invalidate the mortgage with

respect to private respondents' share in the property.

The respondent court, erred in annulling the mortgage insofar as it affected the share of private

respondents or in directing reconveyance of their property or the payment of the value.

Caltex (Philippines) vs CA

212 SCRA 448 August 10, 1992

Facts:

On various dates, defendant, a commercial banking institution, through its Sucat Branch issued

280 certificates of time deposit (CTDs) in favor of one Angel dela Cruz who is tasked to deposit

aggregate amounts.

One time Mr. dela Cruz delivered the CTDs to Caltex Philippines in connection with his

purchased of fuel products from the latter. However, Sometime in March 1982, he informed Mr.

Timoteo Tiangco, the Sucat Branch Manger, that he lost all the certificates of time deposit in

dispute. Mr. Tiangco advised said depositor to execute and submit a notarized Affidavit of Loss,

as required by defendant bank's procedure, if he desired replacement of said lost CTDs.

Angel dela Cruz negotiated and obtained a loan from defendant bank and executed a notarized

Deed of Assignment of Time Deposit, which stated, among others, that he surrenders to

defendant bank "full control of the indicated time deposits from and after date" of the assignment

and further authorizes said bank to pre-terminate, set-off and "apply the said time deposits to the

payment of whatever amount or amounts may be due" on the loan upon its maturity.

In 1982, Mr. Aranas, Credit Manager of plaintiff Caltex (Phils.) Inc., went to the defendant

bank's Sucat branch and presented for verification the CTDs declared lost by Angel dela Cruz

alleging that the same were delivered to herein plaintiff "as security for purchases made with

Caltex Philippines, Inc." by said depositor.

Mr dela Cruz received a letter from the plaintiff formally informing of its possession of the

CTDs in question and of its decision to pre-terminate the same. ccordingly, defendant bank

rejected the plaintiff's demand and claim for payment of the value of the CTDs in a letter dated

February 7, 1983.

The loan of Angel dela Cruz with the defendant bank matured and fell due and on August 5,

1983, the latter set-off and applied the time deposits in question to the payment of the matured

loan. However, the plaintiff filed the instant complaint, praying that defendant bank be ordered

to pay it the aggregate value of the certificates of time deposit of P1,120,000.00 plus accrued

interest and compounded interest therein at 16% per annum, moral and exemplary damages as

well as attorney's fees.

On appeal, CA affirmed the lower court's dismissal of the complaint, and ruled (1) that the

subject certificates of deposit are non-negotiable despite being clearly negotiable instruments; (2)

that petitioner did not become a holder in due course of the said certificates of deposit; and (3) in

disregarding the pertinent provisions of the Code of Commerce relating to lost instruments

payable to bearer.

Issues:

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

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

c) Whether petitioner can rightfully recover on the CTDs?

Held:

The CTDs in question are not negotiable instruments. Section 1 Act No. 2031, otherwise known

as the Negotiable Instruments Law, enumerates the requisites for an instrument to become

negotiable, viz:

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

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

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

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

(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated

therein with reasonable certainty.

The accepted rule is that the negotiability or non-negotiability of an instrument is determined

from the writing, that is, from the face of the instrument itself. In the construction of a bill or

note, the intention of the parties is to control, if it can be legally ascertained. While the writing

may be read in the light of surrounding circumstances in order to more perfectly understand the

intent and meaning of the parties, yet as they have constituted the writing to be the only outward

and visible expression of their meaning, no other words are to be added to it or substituted in its

stead. The duty of the court in such case is to ascertain, not what the parties may have secretly

intended as contradistinguished from what their words express, but what is the meaning of the

words they have used. What the parties meant must be determined by what they said.

Petitioner's insistence that the CTDs were negotiated to it begs the question. Under the

Negotiable Instruments Law, an instrument is negotiated when it is transferred from one person

to another in such a manner as to constitute the transferee the holder thereof, and a holder may

be the payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof. In the

present case, however, there was no negotiation in the sense of a transfer of the legal title to the

CTDs in favor of petitioner in which situation, for obvious reasons, mere delivery of the bearer

CTDs would have sufficed. Here, the delivery thereof only as security for the purchases of

Angel de la Cruz (and we even disregard the fact that the amount involved was not disclosed)

could at the most constitute petitioner only as a holder for value by reason of his lien.

Accordingly, a negotiation for such purpose cannot be effected by mere delivery of the

instrument since, necessarily, the terms thereof and the subsequent disposition of such security,

in the event of non-payment of the principal obligation, must be contractually provided for.

BANCO DE ORO SAVING V. EQUITABLE

157 SCRA 188  

FACTS:

BDO drew  checks payable to member establishments.  Subsequently, the checks  were 

deposited  in  Trencio’s  account  with  Equitable.    The  checks were  sent  for  clearing  and 

was  thereafter  cleared.    Afterwards,  BDO discovered that the indorsements in the back of the

checks were forged.  It then  demanded  that  Equitable  credit  its  account  but  the  latter 

refused  to do so.  This prompted BDO to file a complaint against Equitable and PCHC.  The

trial court and RTC held in favor of the Equitable and PCHC.   

HELD:

First,  PCHC  has  jurisdiction  over  the  case  in  question.    The  articles  of incorporation of

PHHC extended its operation to clearing checks and other clearing items.  No doubt transactions

on non-negotiable checks are within the ambit of its jurisdiction.  Further, the participation of the

two banks in the clearing operations is submission to the jurisdiction of the PCHC.

Petitioner  is  likewise  estopped  from  raising  the  non-negotiability  of  the checks  in 

issue.   It  stamped  its  guarantee  at  the  back  of the  checks  and subsequently  presented  it 

for  clearing  and  it  was  in  the  basis  of  these endorsements  by  the  petitioner  that  the 

proceeds  were  credited  in  its clearing account.  The petitioner cannot now deny its liability as

it assumed the  liability  of  an  indorser  by  stamping  its  guarantee  at  the  back  of  the

checks.   

Furthermore, the bank cannot escape liability of an indorser of a check and which may turn out

to be a forged indorsement.  Whenever a bank treats the signature at the back of the checks as

indorsements and thus logically guarantees  the  same  as  such  there  can  be  no  doubt  that 

said  bank  had considered the checks as negotiable.

A   long   line   of   cases   also   held   that   in   the   matter   of   forgery   in endorsements,  it 

is  the  collecting  bank  that  generally  suffers  the  loss because  it  had  the  dutyh  to  ascertain 

the  genuineness  of  all  prior indorsements considering that the act of presenting the check for

payment to the drawee is an assertion that the party making the presentment has done its duty to

ascertain the genuineness of the indorsements. 

Philippine Bank of Commerce vs. Aruego

GR L-25836-37, 31 January 1981

FACTS:

To facilitate payment of the printing of a periodical called “World Current Events.”, Aruego, its

publisher, obtained a credit accommodation from the Philippine Bank of Commerce. For every

printing of the periodical, the printer collected the cost of printing by drawing a draft against the

bank, said draft being sent later to Aruego for acceptance. As an added security for the payment

of the amounts advanced to the printer, the bank also required Aruego to execute a trust receipt

in favor of the bank wherein Aruego undertook to hold in trust for the bank the periodicals and to

sell the same with the promise to turn over to the bank the proceeds of the sale to answer for the

payment of all obligations arising from the draft. The bank instituted an action against Aruego to

recover the cost of printing of the latter’s periodical.  Aruego however argues that he signed the

supposed bills of exchange only as an agent of the Philippine Education Foundation Company

where he is president.

ISSUES:

Whether Aruego can be held liable by the petitioner although he signed the supposed bills of

exchange only as an agent of Philippine Education Foundation Company.

RULING:

Aruego did not disclose in any of the drafts that he accepted that he was signing as representative

of the Philippine Education Foundation Company. For failure to disclose his principal, Aruego is

personally liable for the drafts he accepted, pursuant to Section 20 of the NIL which provides

that when a person adds to his signature words indicating that he signs for or on behalf of a

principal or in a representative capacity, he is not liable on the instrument if he was duly

authorized; but the mere addition of words describing him as an agent or as filing a

representative character, without disclosing his principal, does not exempt him from personal

liability.

TRADERS ROYAL BANK V. CA  

269 SCRA 15, 3 March 1997

FACTS:

Filriters   through   a   Detached   Agreement   transferred   ownership   to Philfinance a Central

Bank Certificate of Indebtedness.  It was only through one of its  officers by which the CBCI

was conveyed without authorization from  the  company.    Petitioner  and  Philfinance  later 

entered  into  a Repurchase   agreement,   on   which   petitioner   bought   the   CBCI   from

Philfinance.  The latter agreed to repurchase the CBCI but failed to do so. When the petitioner

tried to have it registered in its name in the CB, the latter didn't want to recognize the transfer.  

HELD:

The  CBCI  is  not  a  negotiable  instrument.    The  instrument  provides  for  a promise to pay

the registered owner Filriters.  Very clearly, the instrument was  only  payable  to  Filriters.    It 

lacked  the  words  of  negotiability  which should  have  served  as  an  expression  of  the 

consent  that  the  instrument may be transferred by negotiation.

The  language  of  negotiability  which  characterize  a  negotiable  paper  as  a credit  instrument 

is  its  freedom  to  circulate  as  a  substitute  for  money.     Hence, freedom of negotiability is

the touchstone relating to the protection of holders in due course, and the freedom of

negotiability is the foundation for  the  protection,  which  the  law  throws  around  a  holder 

in due  course. This   freedom   in   negotiability   is   totally   absent   in   a   certificate   of

indebtedness  as  it  merely  acknowledges  to  pay  a  sum  of  money  to  a specified person or

entity for a period of time.

The  transfer  of  the  instrument  from  Philfinance  to  TRB  was  merely  an assignment, and is

not governed by the negotiable instruments law.    The pertinent  question  then  is—was  the 

transfer  of  the  CBCI  from  Filriters  to Philfinance  and  subsequently  from  Philfinance  to 

TRB,  in  accord  with existing law, so as to entitle TRB to have the CBCI registered in its name

with  the  Central  Bank?  Clearly  shown  in  the  record  is  the  fact  that Philfinance’s  title 

over  CBCI  is  defective  since  it  acquired  the  instrument from Filriters fictitiously.   

Although the deed of assignment stated that the transfer  was  for  ‘value  received‘,  there  was 

really  no  consideration involved.  What  happened  was  Philfinance  merely  borrowed  CBCI 

from Filriters,  a  sister  corporation.  Thus,  for  lack  of  any  consideration,  the

assignment made is a complete nullity.  Furthermore, the transfer wasn't in conformity  with  the 

regulations  set  by  the  CB.    Giving  more  credence  to rule that there was no valid transfer or

assignment to petitioner.   

Manuel Lim v CA

251 SCRA 409, 19 DEC 1995

Facts:

Manuel Lim and Rosita Lim are the officers of the Rigi Bilt Industries, Inc. (RIGI). RIGI had

been transacting business with Linton Commercial Company, Inc. The Lims ordered 100 pieces

of mild steel plates from Linton and were delivered to the Lim’s place of business which was in

Caloocan. To pay Linton, the Lims issued a postdated check for P51,800.00. On a different date,

the Lims also ordered another 65 pcs of mild steel plates and were delivered in the place of

business. They again issued another postdated check. On that same day, they also ordered purlins

worth P241,800 which were delivered to them on various dates. The Lims issued 7 checks for

this. When the 7 checks were presented to the drawee bank (Solidbank), it was dishonored

because payment for the checks had been stopped and/or insufficiency of funds. So the Lims

were charged with 7 counts of violation of Bouncing Checks Law.

The Malabon trial court held that the Lims were guilty of estafa and violation of BP 22. They

went to CA on appeal.

The CA acquitted the Lims of estafa, on the ground that the checks were not made in payment of

an obligation contracted at the time of their issuance. However, the CA affirmed the finding that

they were guilty 

of violation for BP 22. Motion for Reconsideration to SC.

Issue:

Whether or not the issue was within the jurisdiction of the Malabon Trial Court

Held:

Yes. The venue of jurisdiction lies either in the RTC Caloocan or Malabon Trial Court.

BP 22 is a continuing crime. A person charged with a transitory crime may be validly tried in

any municipality or territory where the offense was partly committed. In determining the proper

venue, the ff. must be considered. 1) 7 checks were issued to Linton in its place of business in

Navotas. 2) The checks were delivered Linton in the same place. 3) The checks were dishonored

in Caloocan 4) The Lims had knowledge 

of their insufficiency of funds.

Under sec 191 of the Negotiable Instruments Law:

ISSUE = 1ST delivery of the instrument complete in form to a person who takes it as a holder

HOLDER = payee or indorsee of a bill/note who is in possession of it or the bearer

The place where the bills were written, signed or dated does not necessarily fix or determine the

place where they were executed. It is the delivery that is important. It is the final act essential to

its consummation of an obligation. An undelivered bill is unoperative. The issuance and delivery

of the check must be to a person who takes it as a holder.

Although Linton sent a collector who received the checks fr. The Lims at their place of business,

the checks were actually issued and delivered to Linton in Navotas. The collector is not a

holder or an agent, he was just an employee.

MONTINOLA V. PNB

88 PHIL 178, 26 FEBRUARY 1951

FACTS:

Ramos, as a disbursing officer of an army division of the USAFE, made cash advancements  w/ 

the  Provincial  Treasurer  of  Lanao.  In  exchange,  the Prov’l Treasurer of Lanao gave him a

P500,000 check.  Thereafter, Ramos presented  the  check  to  Laya  for  encashment.    Laya  in 

his  capacity  as Provincial  Treasurer  of  Misamis  Oriental  as  drawer,  issued  a  check  to

Ramos in the sum of P100000, on the Philippines National Bank as drawee; the P400000 value

of the check was paid in military notes.  

Ramos  was  unable  to  encash  the  said  check  for  he  was  captured  by  the Japanese.  But

after his release, he sold P30000 of the check to Montinola for P90000 Japanese Military notes,

of which only P45000 was paid by the latter.  The  writing  made  by  Ramos  at  the  back  of 

the  check  was  to  the effect that he was assigning only P30000 of the value of the document

with an instruction to the bank to pay P30000 to Montinola and to deposit the balance  to 

Ramos's  credit.  This  writing  was,  however,  mysteriously obliterated and in its place, a

supposed indorsement appearing on the back of the check was made for the whole amount of the

check. At the time of the  transfer  of  this  check  to  Montinola,  the  check  was  long  overdue 

by about 2-1/2 years.

Montinola instituted an action against the PNB and the Provincial Treasurer of  Misamis 

Oriental  to  collect  the  sum  of  P100,000,  the  amount  of  the aforesaid check.  There now

appears on the face of said check the words in parenthesis  "Agent,  Phil.  National  Bank" 

under  the  signature  of  Laya purportedly showing that Laya issued the check as agent of the

Philippine National Bank.

HELD:

The words "Agent, Phil. National Bank" now appearing on  the face of the check  were  added 

or  placed  in  the  instrument  after  it  was  issued  by  the Provincial  Treasurer  Laya  to 

Ramos.  The  check  was  issued  by  only  as Provincial Treasurer and as an official of the

Government, which was under obligation  to  provide  the  USAFE  with  advance  funds,  and

not  as  agent  of the bank, which had no such obligation.  The addition of those words was made 

after  the  check  had  been  transferred  by  Ramos  to  Montinola.  The insertion  of  the  words 

"Agent,  Phil.  National  Bank,"  which  converts  the bank from a mere drawee to a drawer and

therefore  changes its liability, constitutes  a  material  alteration  of  the  instrument  without 

the  consent  of the parties liable thereon, and so discharges the instrument

CHAN WAN V. TAN KIM

109 PHIL 706 30 SEPTEMBER 1950

FACTS:

Tam Kim issued 11 checks payable to cash or bearer.  Chan Wan presented these  for  payment 

but  were  dishonored  for  insufficiency  of  funds.    This prompted  Chan  Wan  to  institute  an 

action  against  Tam  Kim.    She  didn't take the witness stand and merely presented the checks

for payment.  Tan Kim on the other hand alleged that the checks were for mere receipts only.  

The  trial  court  dismissed  the  complaint  as  Chan  Wan  failed  to  show  that she was a holder

in due course.

HELD:

Eight of the checks were crossed checks specially to Chinabank and should have  been 

presented  for  payment  by  Chinabank  and  not  by  Chan  Wan.  Inasmuch  as  Chan  Wan 

didn't  present  them  for  payment  himself,  there was no proper presentment, and the liability

didn't attach to the drawer. 

The facts show that the checks were indeed deposited with Chinabank and were by the latter

presented for collection to the drawee bank.  But as the account  had no sufficient funds, they

were unpaid and  returned, some  of them stamped “account closed”.  How it reached the hands

of Chan Wan, she  didn't  indicate.    Most  probably,  as  the  trial  court  surmised,  she acquired

them after they have been dishonored.  

Chan Wan is then not a holder in due course.  Nonetheless, it doesn't mean that she couldn't

collect on the checks.  He can still collect against Tan Kim if  the  latter  has  no  valid  excuse 

for  refusing  payment.    The  only disadvantage  for  Chan  Kim  is  that  she  is  susceptible  to 

defenses  of  Tan Kim but what are the defenses of latter?  This has to be further deliberated by

the trial court.  

MESINA V. IAC

145 SCRA 497 13 NOVEMBER 1986

FACTS:

Jose Go purchased from Associate Bank a Cashier’s Check, which he left on top  of  the 

manager’s  desk  when  left  the  bank.    The  bank  manager  then had  it  kept  for  safekeeping 

by  one  of  its  employees.    The  employee  was then in conference with one Alexander Lim. 

He left the check in his desk and  upon  his  return,  Lim  and  the  check  were  gone.    When 

Go  inquired about his check, the same couldn't be found and Go was advised to request for the

stoppage of payment which he did.  He executed also an affidavit of loss as well as reported it to

the police.

The bank then received the check twice for clearing.  For these two times, they  dishonored  the 

payment  by  saying  that payment  has  been  stopped.  After  the  second  time,  a  lawyer 

contacted  it  demanding  payment.    He refused to disclose the name of his client and threatened

to sue.  Later, the name  of  Mesina  was  revealed.    When  asked  by  the  police  on  how  he

possessed the  check, he said  it was paid to him Lim.  An  information for theft was then filed

against Lim. 

A case of interpleader was filed by the bank and Go moved to participate as  intervenor  in  the 

complaint  for  damages.    Mesina  moved  for  the dismissal  of  the  case  but  was  denied.   

The  trial  court  ruled  in  the interpleader case ordering the bank to replace the cashier’s check

in favor of Go.  

HELD:

Petitioner  cannot  raise  as  arguments  that  a  cashier’s  check  cannot  be countermanded  from 

the  hands  of  a  holder  in  due  course  and  that  a cashier’s  check  is  a  check  drawn  by  the 

bank  against  itself.    Petitioner failed  to  substantiate  that  he  was  a  holder  in  due  course.   

Upon

questioning,  he  admitted  that  he  got  the  check  from  Lim  who  stole  the check.  He refused

to disclose how and why it has passed to him.  It simply means that he has notice of the defect of

his title over the check from the start.    The  holder  of  a  cashier’s  check  who  is  not  a 

holder  in  due  course cannot  enforce  payment  against  the  issuing  bank  which  dishonors 

the same.  If a payee of a cashier’s check obtained it from the issuing bank by fraud,  or  if  there 

is  some  other  reason  why  the  payee  is  not  entitled  to collect  the  check,  the  bank  would 

of  course  have  the  right  to  refuse payment of the check when presented by payee, since the

bank was aware of the facts surrounding the loss of the check in question. 

PRUDENCIO V. CA

143 SCRA 7 14 JULY 1986

FACTS:

Appellants  are  the  owners  of  a  property,  which  they  mortgaged  to  help secure a loan of a

certain Domingo Prudencio.  On a later date, they were approached by their relative who was the

attorney-in-fact of a construction company, which was in dire need of funds for the completion

of a municipal building.    After  some  persuasion,  the  appellants  amended  the  mortgage

wherein  the  terms  and  conditions  of  the  original  mortgage  was  made  an integral  part  of 

the  new  mortgage.    The  promissory  note  covering  the “second  loan”  was  signed  by  their 

relative.    It  was  also  signed  by  them, indicating the request that the check be released by the

bank.   

After the amendment of the mortgage was executed, a deed of assignment was  made  by 

Toribio,  assigning  all  the  payments  to  the  Bureau  to  the construction company.  This

notwithstanding, the Bureau with approval of the bank, conditioned however that they should be

for labor and materials, made three payments to the company.  The last request was denied by

the bank, averring that the account was long overdue, the remaining balance of the contract price

should be applied to the loan.

The  company  abandoned  the  work  and  as  consequence,  the  Bureau rescinded  the  contract 

and  assumed  the  work.    Later  on,  the  appellants wrote  to  the  PNB  that  since  the  latter 

has  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 the knowledge of

appellants, which entitled the latter to cancel the mortgage contract.   

The trial court held them still liable together with their co-makers.  It has also been held that if

the judgment is not satisfied within a period of time, the mortgaged properties would be

foreclosed and sold in public auction.  

In  their  appeal,  petitioners  contend  that  as  accommodation  makers,  the nature of their

liability is only that of mere sureties instead of solidary co-debtors such that a material alteration

in the principal contract, effected by the creditor without the knowledge and consent of the

sureties, completely discharges the sureties from all liabilities on the contract of suretyship.

HELD:

There is no question that as accommodation makers, petitioners would be primarily and

unconditionally liable on the promissory note to a holder for value, regardless of whether they

stand as sureties or solidary co-debtors since such distinction would be entirely immaterial and

inconsequential as far  as  a  holder  for  value  is  concerned.    Consequently,  the  petitioners

cannot claim to have been released from their obligation simply because at the  time  of 

payment  of  such  obligation  was  temporarily  deferred  by  the

PNB without their knowledge and consent.  There has to be another basis for  their  claim  of 

having  been  freed  from  their  obligation.    It  has  to  be determined if PNB was a holder for

value.

A holder for value is one who meets the requirement of being a holder in due course except the

notice for want of consideration.  In the case at bar, PNB  may  not be  considered  as  a  holder

for  value.   Not  only  was  PNB  an immediate  party  or  privy  to  the  promissory  note, 

knowing  fully  well  that petitioners only signed as accommodation parties, but more

importantly it was  the  Deed  of  Assignment  which  moved  the  petitioners  to  sign  the

promissory note.  Petitioners also relied on the belief that there will be no

alterations to the terms of the agreement.  The deed provided that there will no further conditions

which could possibly alter the agreement without the  consent  of  the  petitioner  such  as  the 

grant  of  greater  priority  to obligations other than the payment of the loan.  This

notwithstanding, the bank  approved  the  release  of  payments  to  the  Company  instead  of 

the same  to  the  bank.    This  was  in  violation  of  the  deed  of  assignment  and prejudiced 

the  rights  of  petitioners.    The  bank  was  not  in  good  faith—a requisite for a holder to be

one in due course.

FOSSUM V. FERNANDEZ

44 PHIL 675

FACTS:

Fernandez  Hermanos  placed  an  order  with  the  products  company  for  the manufacturing of

a chain given a set of specifications.  The chain was duly prepared  and  delivered.    A  draft 

was  drawn  by  the  company  and  was accepted  by  Fernandez  Hermanos.    Thereafter,  the 

draft  was  negotiated with  Fossum  who  demanded payment  on  the  instrument  but  was 

refused by  Fernandez  on  alleged  failure  of  the  chain  delivered  to  satisfy  the specifications

given.

HELD:

It devolved around Fernandez Hermanos to allege and prove its claim that which was delivered

and received didn't comply with the specifications and didn't answer the purposes for which it

was intended.  It alleged that the chain  didn't  meet  the  specifications  given  by  the  contract.   

Nonetheless, there was failure to identify the so-called defects of the chain.  It was

uponFernandez Hermanos to show that indeed the chain was defective.  But as the trial court

found out, there was a failure of proof.

Jai-Alai Corp. of the Phil. vs. Bank of the Phil. Islands

G.R. No. L-29432    August 6, 1975  

FACTS:

Petitioner deposited 10 checks in its current account with BPI.  The checks which were acquired

by petitioner from Ramirez, a sales agent of the Inter-Island Gas were all payable to Inter-Island

Gas Service, Inc. or order.  After the checks had been submitted to Inter-bank clearing, Inter-

Island Gas discovered that all the indorsements made on the checks purportedly by its cashiers

were forgeries.  BPI thus debited the value of the checks against petitioner's current account and

forwarded to the latter the checks containing the forged indorsements which petitioner refused to

accept.

ISSUE:

Whether BPI had the right to debit from petitioner's current account the value of the checks with

the forged indorsements.

HELD:

BPI acted within legal bounds when it debited the petitioner's account.  Having indorsed the

checks to respondent bank, petitioner is deemed to have given the warranty prescribed in Section

66 of the NIL that every single one of those checks "is genuine and in all respects what it

purports to be."  Respondent which relied upon the petitioner's warranty should not be held liable

for the resulting loss.

ANG TIONG V. TING        

22 SCRA 713 22 FEBRUARY 1987

FACTS:

Ting issued a PBCom check payable to cash or bearer.  This was indorsed by Ang at the back

and it was received by plaintiff.  Upon encashment of the  check,  the  same  was  dishonored.   

Plaintiff  moved  that  the  two  make good  the  value  of  the  check  but  despite  demands,  he 

was  unheeded, prompting him to file a complaint.  The trial court decided in his favor.    

HELD:

Even  on  the  assumption  that  the  appellant  was  an  accommodation indorser, as he professes

to be, he is nevertheless by the clear mandate of section 29, liable on the instrument to a holder

for value, notwithstanding that such  holder at the time of taking the instrument knew him to be

an accommodation  party.    And  assuming  that  he  was  an  accommodation party,  he  may 

obtain  security  from  the  maker  to  protect  himself  against the danger of insolvency of the

latter but this doesn't affect his liability to the appellee, as the said remedy is a matter of recourse

between him and the maker.  

CLARK V. SELINER

42 PHIL 384

FACTS:

Sellner with two other persons, signed a promissory note solidarily binding themselves  to  pay 

to  the  order  of  R.N  Clark.    The  note  matured  but  the amount  wasn't  paid.    The 

defendant  alleges  that  he  didn't  receive  any amount  of  the  debt;  that  the  instrument 

wasn't  presented  to  him  forpayment  and  being  an  accommodation  party,  he  is  not  liable 

unless  the note is negotiated, which wasn't done. 

HELD:

On the first issue, the liability of Sellner as one of the signers of the note, is not dependent on

whether he has  or has not, received  any part of the debt.    The  defendant  is  really  and 

expressly  one  of  the  joint  and  several debtors of the note and as such he is liable under the

provisions of Section 60 of the Negotiable Instruments Law.

As to the presentment for payment, such action is not necessary  in order to charge the person

primarily  liable, as is the defendant Sellner

As to whether or not Sellner is an accommodation party, it should be taken into account that by

putting his signature to the note, he lent his name, not to the creditor, but to those who signed

with him placing him in the same position and with the same liability as the said signers.  It

should be noted that  the  phrase”without  receiving  value  therefore”  as  used  in  section  29

means “without receiving value by virtue of the instrument” and not, as it apparently is supposed

to mean, “without receiving payment for lending his name.”  It is immaterial as far as the

creditor is concerned, whether one of the signers has or has not received anything in payment for

the use of his name.  In this case, the legal situation of Sellner is that of a joint surety who  upon 

the  maturity  of  the  note,  pay  the  debt,  demand  the  collateral

security and dispose of it to his benefit.  As to the plaintiff, he is a holder for value.

MAULINI V. SERRANO

28 PHIL 640  

FACTS: This is an appeal from a judgment of the Court of First Instance of the city of  Manila  in  favor  of  the  plaintiff  for  the  sum  of  P3,000,  with  interest thereon  at  the  rate  of  11⁄2  per  cent  month  from  September  5,  1912, together with the costs.  The  action  was  brought  by  the plaintiff  upon  the  contract  of  indorsement alleged to have been made in his favor by the defendant upon the following promissory note:  

3,000.      

         Due 5th of September, 1912. We  jointly  and  severally  agree  to  pay  to  the  order  of  Don  Antonio  G. 

Serrano  on  or  before  the  5th  day  of  September,  1912,  the  sum  of  three thousand  pesos  (P3,000)  for  value  received  for  commercial  operations. Notice  and  protest  renounced.  If  the  sum  herein  mentioned  is  not 

completely  paid  on  the  5th  day  of  September,  1912,  this  instrument  will draw interest at the rate of 11⁄2 per cent per month from the date when 

due  until  the  date  of  its  complete  payment.  The  makers  hereof  agree  to pay the additional sum of P500 as attorney's fees in case of failure to pay 

the note.  

Manila, June 5, 1912.  

(Sgd.) For Padern, Moreno & Co., by F. Moreno, member of the firm. For Jose Padern, by F. Moreno. Angel Gimenez. 

 The note was indorsed on the back as follows:  

Pay  note  to  the  order  of  Don  Fernando  Maulini,  value  received.  Manila, June 5, 1912. (Sgd.) A.G. Serrano. 

HELD:

1.    The  accommodation  to  which  reference  is  made  in  Section  29  is not one to the person

who takes the note but one to the maker or indorser of the note.  It is true, that in the case at bar,

it was an

accommodation to the plaintiff, in the popular sense, to have the defendant  indorse  the  note; 

but  it  wasn't  the  accommodation described in the law but rather a mere favor to him and one

which in   no   way   bound   Serrano.      In   cases   of   accommodation indorsement,   the  

indorser   makes   the   indorsement   for   the accommodation  of the maker.  Such an

indorsement is generally for the purpose of better securing the payment of the note—that is, he

lends his name to the maker and not the holder.

2.    Parol  evidence  is  admissible  for  the  purposes  named.    The prohibiton against parol

evidence is to prevent alteration, change, modification, or contradiction of the term of a written

instrument, admittedly existing, by the use of some parol evidence except in cases specifically

named in the action.  The case at bar is not one where the evidence offered varies, alters,

modifies, or contradicts the  terms  of  the  indorsement  admittedly  existing.    The  evidence

was not offered for that purpose.  The purpose was to show that the  contract  of  indorsement 

ever  existed;  that  the  minds  of  the parties never met on the terms of such contract; that they

never mutually agreed to enter into such contract; and that there never

existed  a  consideration  upon  which  such  an  agreement  could  be founded.  

PNB V. MAZA AND MECENAS  

48 PHIL 207

FACTS:

Maza and Macenas executed a total of five promissory notes.  These were not paid at maturity. 

And to recover the amounts stated on the face of the promissory  notes,  PNB  initiated  an 

action  against  the  two.  The  special defense  posed  by  the  two  is  that  the  promissory 

notes  were  delivered  to them  in  blank  by  a  certain  Enchaus  and  were  made  to  sign  the 

notes  so that the latter could secure a loan from the bank.  They also alleged that they never

negotiated the notes with the bank nor have they received any value  thereof.    They  also 

prayed  that  Enchaus  be  impleaded  in  the complaint  but  such  was  denied.    The  trial 

court  then  held in  favor  of  the bank.

HELD:

The  defendants  attested  to  the  genuineness  of  the  instruments  sued  on.  Neither  did  they 

point  out  any  mistake  in  regard  to  the  amount  and interest  that  the  lower  court 

sentenced  them  to  pay.    Given  such,  the defendants are liable.  They appear as the makers of

the promissory notes and as such, they must keep their engagement and pay as promised. 

And assuming that they are accommodation parties, the defendants having signed the

instruments without receiving value thereof, for the purpose of lending their names to some other

person, are still liable for the promissory notes.  The law now is such that an accommodation

party cannot claim no benefit  as  such,  but  he  is  liable  according  to  the  face  of  his 

undertaking, the same as he himself financially interest in the transaction.  It is also no defense to

say that they didn't receive the value of the notes.  To fasten liability however to an

accommodation maker, it is not necessary that any consideration should move to him.  The

accommodation which supports the promise  of  the  accommodation  maker  is  that  parted 

with  by  the  person taking the note and received by the person accommodated.  

Town Savings and Loan Bank vs CA

Facts:

In 1983, the Hipolitos applied for and were granted a loan in the amount of Php 700,000.00 with

interest of 24% P.A. for which they executed and delivered to Town Savings Loan Bank a

promissory note with maturity period of 3 years and with acceleration clause.  Thy defaulted,

subsequently, demand for payment were sent to them.

The Hipolitos denied being personally liable on the Php 700,000.00 promissory note which they

executed.  The loan was allegedly for the account of Pilarita H. Reyes, the sister of Miguel

Hipolito.  She was the real party-in-interest.  They argued that they are mere guarantors and not

as accommodation party, not having received any part of the loan. 

Issue:

Whether or not the Hipolitos are accommodation party?

HELD:

Yes.  Under the Negotiable Instruments Law, an accommodation party is one who has signed the

instrument as maker, drawer, indorser, without receiving value therefore and for the purpose of

lending his name to some other person.  Such person is liable on the instrument to a holder for

value, not withstanding such holder, at the time of the taking of the instrument knew him to be

only an accommodation party.  In lending his name to the accommodated party, the

accommodation party is in effect a surety for the latter.  He lends his name to enable the

accommodated party to obtain credit or to raise money.  He receives no part of the consideration

for the instrument but assumes liability to the other parties thereto because he wants to

accommodate another.

In the case at bar, there is no question that the private respondent signed the promissory note in

order to enable Pilarita to borrow money from TSLB.  As observed by both the trial and

appellate court, the actual beneficiary was Pilarity Reyes and no other.   The Hipolitos

accommodated her by signing a promissory note for half of the loan that she applied for because

TSLB may not lend any single borrower more than the authorized limit of its loan portfolio.  

Under Section 29 of NIL, the Hipolitos are liable to the bank on the promissory note that they

signed to accommodate Pilarita. 

ESTMONT BANK V. ONG

373 SCRA 212

FACTS:

Ong  was  supposed  to  be  the  payee  of  the  checks  issued  by  Island Securities.  Ong has a

current account with petitioner bank.  He opted to sell  his  shares  of  stock  through  Island 

Securities.    The  company  in  turn issued checks in favor of Ong but unfortunately, the latter

wasn't able to receive any.  His signatures were forged by Tamlinco and the checks were

deposited  in  his  own  account  with  petitioner.    Ong  then  sought  to  collect the money from

the family of Tamlinco first before filing a complaint with the Central Bank.  As his efforts were

futile to recover his money, he filed an  action  against  the  petitioner.    The  trial  and 

appellate  court  decided  in favor of Ong.  

HELD:

Since  the  signature  of  the  payee  was  forged,  such  signature  should  be deemed 

inoperative  and  ineffectual.    Petitioner,  as  the  collecting  bank, grossly erred in making

payment by virtue of said forged  signature.  The payee, herein respondent, should therefore be

allowed to collect from the collecting bank.

It should be liable for the loss because it is its legal duty to ascertain that the  payee’s 

endorsement  was  genuine  before  cashing  the  check.    As  a general rule, a bank or

corporation who has obtained possession of a check with an unauthorized or forged indorsement

of the payee’s signature and who collects the amount of the check other from the drawee, is

liable for the proceeds thereof to the payee or the other owner, notwithstanding that the  amount 

has  been  paid  to  the  person  from  whom  the  check  was obtained.  

DOCTRINE OF DESIRABLE SHORT CUT—plaintiff uses one action to reach, by 

desirable  short  cut,  the  person  who  ought  to  be  ultimately  liable  as among the innocent

persons involved in the transaction.  In other words, the payee ought to be allowed to recover

directly from the collecting bank, regardless of whether the check was delivered to the payee or

not.

On the issue of laches, Ong didn't sit on his rights.  He immediately sought the intervention of

Tamlinco’s family to collect the sum of money, and later the  Central  Bank.    Only  after 

exhausting  all  the  measures  to  settle  the issue amicably did he file the action. 

CASES

IN

NEGOTIABLE INSTRUMENT

MARK JOSEPH T. MUPAS