ROBERT DINO, vs.

MARIA LUISA JUDAL-LOOT, joined by her husband

VICENTE LOOT
-

A syndicate, one of its members posing as owner of several parcels of land in

Canjulao, Lapu-Lapu City, induced petitioner to lend the group P3M secured
by a mortgage on the properties. A member of the group pretending to be
Vivencia Ompok Consing, offered to execute instead a deed of sale on the
properties. Petitioner agreed, and issued 3 Metrobank checks for P3M, one of
which is Check No. C-MA-142119406-CA postdated 13 February 1993 in the
amount of P1,000,000.00 payable to Vivencia Ompok Consing and/or Fe
Lobitana.
Petitioner discovered that the properties were government properties and
immediately told Metrobank to stop payment on his checks, but only Check
No. C-MA-142119406-CA was stopped, the other two were cashed by the
payees.
Lobitana, indorsed the checks to respondents in exchange for cash
amounting to P948k. Before respondents accepted the check, they inquired
with Metrobank to make sure that the check was funded, to which it
answered in the positive. But when they deposited it with Metrobank, the
same was dishonoured by the drawee bank: PAYMENT STOPPED.
Respondents filed a collection suit against petitioner and Lobitana before the
trial court. In their Complaint, respondents alleged, among other things, that
they are holders in due course and for value of Metrobank Check No. C-MA142119406-CA and that they had no prior information concerning the
transaction between defendants. Petitioner denied respondents allegations
that "on the face of the subject check, no condition or limitation was
imposed" and that respondent are holders in due course and for value of the
check. For her part, Lobitana denied the allegations in the complaint and
basically claimed that the transaction leading to the issuance of the subject
check is a sale of a parcel of land by Vivencia Ompok Consing to petitioner
and that she was made a payee of the check only to facilitate its discounting.
The trial court ruled for respondents. The CA affirmed saying that
respondents were not parties to the transactions between petitioner and
Lobitana, nor did respondents have any knowledge of any infirmity of the title
of the person indorsing it.
Petitioner consistently argues that respondents are not holders in due course
of the subject check, which is one of the possible effects of crossing a check.
The act of crossing a check serves as a warning to the holder that the check
has been issued for a definite purpose so that the holder thereof must inquire
if he has received the check pursuant to that purpose; otherwise, he is not a
holder in due course. Contrary to respondents view, petitioner never
changed his theory, that respondents are not holders in due course of the
subject check, as would violate fundamental rules of justice, fair play, and
due process. Besides, the subject check was presented and admitted as

evidence during the trial and respondents did not and in fact cannot deny
that it is a crossed check.
Section 52 of the Negotiable Instruments Law defines a holder in due course,
thus:
A holder in due course is a holder who has taken the instrument under the
following conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and without notice
that it has been previously dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him, he had no notice of any
infirmity in the instrument or defect in the title of the person negotiating it.

In the case of a crossed check, as in this case, the following principles must
additionally be considered: A crossed check (a) may not be encashed but only
deposited in the bank; (b) may be negotiated only once to one who has an
account with a bank; and (c) warns the holder that it has been issued for a
definite purpose so that the holder thereof must inquire if he has received the
check pursuant to that purpose; otherwise, he is not a holder in due course.
Respondents had the duty to ascertain the indorsers, in this case Lobitanas,
title to the check or the nature of her possession. Respondents verification
from Metrobank on the funding of the check does not amount to
determination of Lobitanas title to the check.
The effect therefore of crossing a check relates to the mode of its
presentment for payment. Under Section 72 of the Negotiable Instruments
Law, presentment for payment to be sufficient must be made (a) by the
holder, or by some person authorized to receive payment on his behalf x x x
As to who the holder or authorized person will be depends on the instructions
stated on the face of the check.
In this case, there is no question that the payees of the check, Lobitana or
Consing, were not the ones who presented the check for payment. Lobitana
negotiated and indorsed the check to respondents in exchange
forP948,000.00. It was respondents who presented the subject check for
payment; however, the check was dishonored for reason "PAYMENT
STOPPED." In other words, it was not the payee who presented the check for
payment; and thus, there was no proper presentment. As a result, liability did
not attach to the drawer. Accordingly, no right of recourse is available to
respondents against the drawer of the check, petitioner herein, since

respondents are not the proper party authorized to make presentment of the
subject check.
The Negotiable Instruments Law does not provide that a holder who is not a
holder in due course may not in any case recover on the instrument. The only
disadvantage of a holder who is not in due course is that the negotiable
instrument is subject to defenses as if it were non-negotiable. Among such
defenses is the absence or failure of consideration, which petitioner
sufficiently established in this case. Petitioner issued the subject check
supposedly for a loan in favor of Consings group, who turned out to be a
syndicate defrauding gullible individuals. Since there is in fact no valid loan to
speak of, there is no consideration for the issuance of the check.
Consequently, petitioner cannot be obliged to pay the face value of the
check.

ALLIED BANKING CORPORATION, vs. COURT OF APPEALS, G.G. SPORTSWEAR

MANUFACTURING CORPORATION, NARI GIDWANI, SPOUSES LETICIA AND LEON DE VILLA
AND ALCRON INTERNATIONAL LTD.,

Petitioner Allied Bank, Manila (ALLIED) purchased Export Bill No. BDO-81-002 in the amount
of US $20,085.00 from respondent G.G. Sportswear Mfg. Corporation (GGS). The bill, drawn
under a letter of credit No. BB640549 covered Men's Valvoline Training Suit that was in
transit to West Germany (Uniger via Rotterdam) under Cont. #73/S0299. The export bill was
issued by Chekiang First Bank Ltd., Hongkong. With the purchase of the bill, ALLIED
credited GGS the peso equivalent of the aforementioned bill amounting to P151, 474.52 and
the receipt of which was acknowledged by the latter in its letter dated June 22, 1981.
Respondents Nari Gidwani and Alcron International LTD. Executed letters of Guaranty,
holding themselves responsible for the export bill if it should be dishonoured. The Sps. De
Vill and Nari Gidwani executed a Continuing Guaranty/Comprehensive Surety for any and all
credit accommodation which ALLIED would extend to GGS. When ALLIED negotioated the
bill to Chekiang, the latter refused because of material discrepancies in their presented
documents. ALLIED then demanded payment from all the respondents, but the latter
refused.
Gidwani and GGS refused payment because they claim that they signed blank letters of
Guaranty and Surety, ALLIED merely filled in the blanks. The Spouses, never knew the
existence of an export bill. Alcron maintains that as a foreign corporation in the Philippines
their duties are limited to: acting as a message center between its office in Hongkong and its
clients in the Philippines; conducting credit investigations on Filipino clients; and providing its
office in Hongkong with shipping arrangements and other details in connection with its office
in Hongkong. Respondent Alcron further alleged that neither its liaison office in the
Philippines nor its then representative, Hans-Joachim Schloer, had the authority to issue
Letters of Guaranty for and in behalf of local entities and persons. It also invoked laches
against petitioner ALLIED.
The trial court ruled for petitioner. The CA affirmed but only held GGS liable for the export
bill.
The main issue raised before us is: Can respondents, in their capacity as guarantors
and surety, be held jointly and severally liable under the Letters of Guaranty and

Continuing Guaranty/Comprehensive Surety, in the absence of protest on the bill in

accordance with Section 152 of the Negotiable Instruments Law?
In this case, respondent GGS, as the beneficiary of the export bill, instead of going to
Chekiang First Bank Ltd. (issuing bank), went to petitioner ALLIED, to have the export bill
purchased or discounted. Before ALLIED agreed to purchase the subject export bill, it
required respondents Nari Gidwani and Alcron to execute Letters of Guaranty, holding them
liable on demand,in case the subject export bill was dishonored or retired for any reason.
The surety also contained a clause whereby said sureties waive protest and notice of
dishonor of any and all such instruments, loans, advances, credits and/or obligations. These
letters of guaranty and surety clearly show that respondents undertook and bound
themselves as guarantors and surety to pay the full amount of the export bill.
Respondents claim that the petitioner did not protest upon dishonor of the export bill by
Chekiang First Bank, Ltd. According to respondents, since there was no protest made upon
dishonor of the export bill, all of them, as indorsers were discharged under Section 152 of
the Negotiable Instruments Law.
Section 152 of the Negotiable Instruments Law pertaining to indorsers, relied on by
respondents, is not pertinent to this case. There are well-defined distinctions between the
contract of an indorser and that of a guarantor/surety of a commercial paper, which is what is
involved in this case. Except where required by the provisions of the contract of suretyship, a
demand or notice of default is not required to fix the surety's liability.He cannot complain that
the creditor has not notified him in the absence of a special agreement to that effect in the
contract of suretyship.Therefore, no protest on the export bill is necessary to charge all the
respondents jointly and severally liable with G.G. Sportswear since the respondents held
themselves liable upon demand in case the instrument was dishonored and on the surety,
they even waived notice of dishonor as stipulated in their Letters of Guarantee.
As to respondent Alcron, it is bound by the Letter of Guaranty executed by its representative
Hans-Joachim Schloer. As to the other respondents, not to be overlooked is the fact that, the
"Suretyship Agreement" they executed, expressly contemplated a solidary obligation,
providing as it did that " the sureties hereby guaranteejointly and severally the punctual
payment of any and all such credit accommodations, instruments, loans, which is/are now
or may hereafter become due or owing by the borrower".
As the respondents claim that they signed the document in blank, the natural presumption is
that one does not sign a document without first informing himself of its contents and
consequences. Said presumption acquires greater force in the case at bar where not only
one document but several documents were executed at different times and at different
places by the herein respondent guarantors and sureties.

STATE INVESTMENT HOUSE, INC., vs. COURT OF APPEALS and NORA B. MOULIC,

Respondent Moulic issued to Corazaon Victoriano, for security for pieces of

jewellery to be sold on commission, 2 post dated Equitable Banking
Corporation checks for P50k each one dated 8/30/1979 the other
9/30/1979. Thereafter the payee negotiated the checks to petitioner.
Moulic failed to sell the jewellery and returned them before the maturity of
the checks. But the checks were already negotiated; Moulic withdrew her
funds from the drawee bank. When petitioner presented the checks for
payment they were dishonoured. 12/20/1979 State allegedly notified Moulic

of the dishonour and told her to pay them in cash. Moulic claims that notice
was given to her. 10/6/1983 State sued Moulic for the amount. MOULIC
contends that she incurred no obligation on the checks because the jewelry was never sold
and the checks were negotiated without her knowledge and consent. She also instituted a
Third-Party Complaint against Corazon Victoriano, who later assumed full responsibility for
the checks.
The trial court ruled for MOULIC, and ordered STATE to pay. The CA affirmed the trial court.
Whether or not STATE was a holder of the checks in due course.
Sec. 52. What constitutes a holder in due course. A holder in due course is a holder who
has taken the instrument under the following conditions: (a) That it is complete and regular
upon its face; (b) That he became the holder of it before it was overdue, and without notice
that it was previously dishonored, if such was the fact; (c) That he took it in good faith and for
value; (d) That at the time it was negotiated to him he had no notice of any infirmity in the
instrument or defect in the title of the person negotiating it.
The evidence clearly shows that: (a) on their faces the post-dated checks were complete and
regular: (b) petitioner bought these checks from the payee, Corazon Victoriano, before their
due dates; (c) petitioner took these checks in good faith and for value, albeit at a discounted
price; and, (d) petitioner was never informed nor made aware that these checks were merely
issued to payee as security and not for value. Consequently, STATE is indeed a holder in due

course. As such, it holds the instruments free from any defect of title of prior parties, and
from defenses available to prior parties among themselves; STATE may, therefore, enforce
full payment of the checks.
That the post-dated checks were merely issued as security is not a ground for the discharge
of the instrument as against a holder in due course. For the only grounds are those outlined
in Sec. 119 of the Negotiable Instruments Law:
Sec. 119. Instrument; how discharged. A negotiable instrument is discharged: (a) By
payment in due course by or on behalf of the principal debtor; (b) By payment in due course
by the party accommodated, where the instrument is made or accepted for his
accommodation; (c) By the intentional cancellation thereof by the holder; (d) By any other act
which will discharge a simple contract for the payment of money; (e) When the principal
debtor becomes the holder of the instrument at or after maturity in his own right.
MOULIC may only invoke paragraphs (c) and (d) as possible grounds for the discharge of
the instrument. But, the intentional cancellation contemplated under paragraph (c) is that
cancellation effected by destroying the instrument either by tearing it up, burning it, or writing
the word "cancelled" on the instrument. The act of destroying the instrument must also be made
by the holder of the instrument intentionally. The acts which will discharge a simple contract for
the payment of money under paragraph (d) are determined by other existing legislations
since Sec. 119 does not specify what these acts are, e.g., Art. 1231 of the Civil Code.
MOULIC is also not discharged from liability because she withdrew her funds from the
drawee bank. Moreover, the fact that the STATE didnt give a notice of dishonour is
irrelevant. The need for notice is not absolute. there are exceptions under Sec. 114 of the
Negotiable Instruments Law:
Sec. 114. When notice need not be given to drawer. Notice of dishonor is not required to
be given to the drawer in the following cases: (a) Where the drawer and the drawee are the
same person; (b) When the drawee is a fictitious person or a person not having capacity to
contract; (c) When the drawer is the person to whom the instrument is presented for

payment: (d) Where the drawer has no right to expect or require that the drawee or acceptor
will honor the instrument; (e) Where the drawer had countermanded payment.

MOULIC did not retrieve the checks when she returned the jewelry. She simply withdrew her
funds from her drawee bank and transferred them to another to protect herself. After
withdrawing her funds, she could not have expected her checks to be honored. In other
words, she was responsible for the dishonor of her checks, hence, there was no need to
serve her Notice of Dishonor, which is simply bringing to the knowledge of the drawer or
indorser of the instrument, either verbally or by writing, the fact that a specified instrument,
upon proper proceedings taken, has not been accepted or has not been paid, and that the
party notified is expected to pay it.