NIL1

Sesbreno vs. Court of Appeals

GR 89252, 24 May 1993
FACTS:
Petitioner Sesbreno made a money market placement in the amount of P300,000 with the
Philippine Underwriters Finance Corporation (PhilFinance), with a term of 32 days.
PhilFinance issued to Sesbreno the Certificate of Confirmation of Sale of a Delta Motor
Corporation Promissory Note, the Certificate of Securities Delivery Receipt indicating the
sale of the note with notation that said security was in the custody of Pilipinas Bank, and
postdated checks drawn against the Insular Bank of Asia and America for P304,533.33
payable on March 13, 1981. The checks were dishonored for having been drawn against
insufficient funds. Pilipinas Bank never released the note, nor any instrument related
thereto, to Sesbreno; but Sesbreno learned that the security which was issued on April 10,
1980, maturing on 6 April 1981, has a face value of P2,300,833.33 with PhilFinance as
payee and Delta Motors as maker; and was stamped non-negotiable on its face. As
Sesbreno was unable to collect his investment and interest thereon, he filed an action for
damages against Delta Motors and Pilipinas Bank. Delta Motors contents that said
promissory note was not intended to be negotiated or otherwise transferred by Philfinance
as manifested by the word "non-negotiable" stamped across the face of the Note.

Whether or not Delta and Pilipinas can be held liable for the liability of Philfinance to
petitioner.
RULING
No. In the first place, as already noted, jurisdiction over the person of Philfinance was never
acquired either by the trial court or by the respondent Court of Appeals. Petitioner similarly
did not seek to implead Philfinance in the Petition before us.
Secondly, it is not disputed that Philfinance and private respondents Delta and Pilipinas
have been organized as separate corporate entities. Petitioner asks us to pierce their
separate corporate entities, but has been able only to cite the presence of a common
Director Mr. Ricardo Silverio, Sr., sitting on the Board of Directors of all three (3)
companies. Petitioner has neither alleged nor proved that one or another of the three (3)
concededly related companies used the other two (2) as mere alter egos or that the
corporate affairs of the other two (2) were administered and managed for the benefit of one.
There is simply not enough evidence of record to justify disregarding the separate corporate
personalities of delta and Pilipinas and to hold them liable for any assumed or undetermined
liability of Philfinance to petitioner.

ISSUE:
Whether the non-negotiability of a promissory note prevents its assignment.
RULING:
A negotiable instrument, instead of being negotiated, may also be assigned or transferred.
The legal consequences of negotiation and assignment of the instrument are different. A
non-negotiable instrument may not be negotiated but may be assigned or transferred,
absent an express prohibition against assignment or transfer written in the face of the
instrument. The subject promissory note, while marked "non-negotiable," was not at the
same time stamped "non-transferable" or "non-assignable." It contained no stipulation which
prohibited Philfinance from assigning or transferring such note, in whole or in part.
**A non-negotiable instrument may not be negotiated but may be assigned or transferred,
absent an express prohibition against assignment or transfer written on the face of the
instrument.
ISSUE

BPI V. COURT OF APPEALS

GR 136202, JANUARY 25, 2007
FACTS:
Templonuevo demanded payment from petitioner of a sum of money representing the
aggregate value of three checks which were allegedly payable to him but which
were deposited with the petitioner to Salazars account, without his knowledge and
corresponding endorsement. Finding
merit in the demands of Templonuevo, the bank then froze the account of the engineering
firm as the account of Salazar was already closed or had insufficient funds. Failure of
any settlement between Templonuevo and Salazar, this prompted the bank to debit the
account of Salazar and give back the money to Templonuevo through cashiers check. The
account of Salazar was also debited for whatever charges incurred for the issuance of the
cashiers check.

NIL2
The trial court held in favor of Salazar.
ISSUE:
Does 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 closed?
HELD:
In the present case, the records do not support the finding made by the CA and the trial
court that a prior arrangement existed between Salazar and Templonuevo regarding the
transfer of ownership of the checks. This fact is crucial as Salazars entitlement to the value
of the instruments is based on the assumption that she is a transferee within the
contemplation of Section 49 of the Negotiable Instruments Law.
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.
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 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.
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
guaranteed," thereby making the assurance that it had ascertained the genuineness
of all prior endorsements. Having assumed the liability of a general indorser,
petitioners liability to the designated payee cannot be denied.
Consequently, petitioner, as the collecting bank, had the right to debit Salazars
account for the value of the checks it previously credited in her favor. However, 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 petitioners claim that it merely
made a mistake in crediting the value of the checks to Salazars account and instead
bolsters the conclusion of the CA that petitioner recognized Salazars 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

NIL3
respondent Salazar that the account would remain untouched, pending the resolution
of the controversy between her and Templonuevo. 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 banks negligence may not have been
attended with malice and bad faith, if the former suffered mental anguish, serious
anxiety, embarrassment and humiliation

April 1983, the loan of Angel dela Cruz with Security Bank matured

CALTEX (PHILS.) INC. V. CA AND SECURITY BANK AND TRUST CO. (1992)

W/N the CTDs are negotiable

August 5, 1983: CTD were set-off w/ the matured loan

Caltex filed a complaint praying the bank to pay 1,120,000 plus 16% interest
CA affirmed RTC to dismiss complaint
ISSUE:

G.R. No. 97753 August 10, 1992

FACTS:

W/N Caltex as holder in due course can rightfully recover on the CTDs

Security Bank and Trust Company (Security Bank), a commercial banking institution,
through its Sucat Branch issued 280 certificates of time deposit (CTDs) in favor of Angel
dela Cruz who deposited with Security Bank the total amount of P1,120,000

HELD: Petition is Denied and appealed decision is affirmed.

Angel delivered the CTDs to Caltex for his purchase of fuel products

Section 1 Act No. 2031, otherwise known as the Negotiable Instruments Law, enumerates
the requisites for an instrument to become negotiable, viz:

March 18, 1982: Angel informed Mr. Tiangco, the Sucat Branch Manager that he lost all
CTDs, submitted the required Affidavit of Loss and received the replacement
March 25, 1982: Angel dela Cruz negotiated and obtained a loan from Security Bank in the
amount of P875,000 and executed a notarized Deed of Assignment of Time Deposit
November, 1982: Mr. Aranas, Credit Manager of Caltex went to the Sucat branch to verify
the CTDs declared lost by Angel
November 26, 1982: Security Bank received a letter from Caltex formally informing it of its
possession of the CTDs in question and of its decision to pre-terminate the same.

1. YES.

(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 -check
(e) Where the instrument is addressed to a drawee, he must be named or otherwise
indicated therein with reasonable certainty.
The documents provide that the amounts deposited shall be repayable to the depositor

December 8, 1982: Caltex was requested by Security Bank to furnish:

depositor = bearer

a copy of the document evidencing the guarantee agreement with Mr. Angel dela Cruz

If it was really the intention of respondent bank to pay the amount to Angel de la Cruz only, it
could have with facility so expressed that fact in clear and categorical terms in the
documents, instead of having the word "BEARER" stamped on the space provided for the
name of the depositor in each CTD

the details of Mr. Angel's obligation against which Caltex proposed to apply the time
deposits
Security Bank rejected Caltex demand for payment bec. it failed to furnish a copy of its
agreement w/ Angel

NIL4
negotiability or non-negotiability of an instrument is determined from the writing, that is, from
the face of the instrument itself

2. NO.
although the CTDs are bearer instruments, a valid negotiation thereof for the true purpose
and agreement between it and De la Cruz, as ultimately ascertained, requires both delivery
and indorsement
CTDs were in reality delivered to it as a security for De la Cruz' purchases of its fuel
products
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.
Where the holder has a lien on the instrument arising from contract, he is deemed a holder
for value to the extent of his lien.
As such holder of collateral security, he would be a pledgee but the requirements therefor
and the effects thereof, not being provided for by the Negotiable Instruments Law, shall be
governed by the Civil Code provisions on pledge of incorporeal rights:
Art. 2095. Incorporeal rights, evidenced by negotiable instruments, . . . may also be
pledged. The instrument proving the right pledged shall be delivered to the creditor, and if
negotiable, must be indorsed.
Art. 2096. A pledge shall not take effect against third persons if a description of the thing
pledged and the date of the pledge do not appear in a public instrument.
Art. 1625. An assignment of credit, right or action shall produce no effect as against third
persons, unless it appears in a public instrument, or the instrument is recorded in the
Registry of Property in case the assignment involves real property.

CALTEX (PHILIPPINES) INC. VS. CA

GR 97753, 10 August 1992

-negotiability
FACTS:
Security Bank and Trust Co. issued 280 certificates of time deposit (CTD) in favor of one Mr.
Angel dela Cruz who deposited with the bank P1.12 million. Dela Cruz delivered the CTDs
to Caltex in connection with his purchase of fuel products from the latter. Subsequently,
dela Cruz informed the bank that he lost all the CTDs, and thus executed an affidavit of loss
to facilitate the issuance of the replacement CTDs. When Caltex presented said CTDs for
verification with the bank and formally informed the bank of its decision to preterminate the
same, the bank rejected Caltex claim and demand as Caltex failed to furnish copies of
certain requested documents. In 1983, dela Cruz loan matured and the bank set-off and
applied the time deposits as payment for the loan. Caltex filed a complaint which was
dismissed on the ground that the subject certificates of deposit are non-negotiable.
ISSUE:
Whether the Certificates of Time Deposit (CTDs) are negotiable instruments.
RULING:
The CTDs in question are negotiable instruments as they meet the requirements of the law
for negotiability as provided for in Section 1 of the Negotiable Instruments Law. The
documents provide that the amounts deposited shall be repayable to the depositor. And
according to the document, the depositor is the "bearer." The documents do not say that the
depositor is Angel de la Cruz and that the amounts deposited are repayable specifically to
him. Rather, the amounts are to be repayable to the bearer of the documents or, for that
matter, whosoever may be the bearer at the time of presentment. However, petitioner
cannot recover on the CTDs.
Although the CTDs are bearer instruments, a valid
negotiation thereof for the true purpose and agreement between it and dela Cruz, as
ultimately ascertained, requires both delivery and indorsement. In this case, there was no
indorsement as the CTDs were delivered not as payment but only as a security for dela
Cruz' fuel purchases.
**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. The CTDs in
question are negotiable instruments as they meet the requirements of the law for
negotiability as provided for in Section 1 of the Negotiable Instruments Law. The
documents provide that the amounts deposited shall be repayable to the depositor. And
according to the document, the depositor is the "bearer." The documents do not say that the
depositor is Angel de la Cruz and that the amounts deposited are repayable specifically to
him. Rather, the amounts are to be repayable to the bearer of the documents or, for that
matter, whosoever may be the bearer at the time of presentment.

NIL5

CONSOLIDATED PLYWOOD INDUSTRIES VS. IFC LEASING & ACCEPTANCE

CORP.149 SCRA 448 (1987)
FACTS: Consolidated Plywood Industries Inc. (CPII) is a corporation engaged in the logging
business. It had for its program of logging activities the opening of additional roads, and
simultaneous logging operations along the route of said roads. With this, it requires two
more units of tractors to attain its objective. Atlantic Gulf and Pacific Company of Manilas
sister company, Industrial Products Marketing (IPM), offered to sell to CPII 2 "Used" Allis
Crawler Tractors. IPM assured CPII that the "Used" Allis Crawler Tractors which were
offered are fit for the job, and gave the corresponding warranty of 90 days performance of
the machines and availability of parts.
The president and vice president of CPII, agreed to purchase on instalment said 2 units of
"Used" Allis Crawler Tractors relying on IPMs guarantee. They paid a down payment of
210,000.00. After issuance of the sales invoice, the deed of sale with chattel mortgage with
promissory note was executed. Simultaneously with the execution of the deed of sale with
chattel mortgage with promissory note, IPM, by means of a deed of assignment, assigned
its rights and interest in the chattel mortgage in favor of IFC Leasing and Acceptance
Corporation. Immediately thereafter, IPM delivered said 2 units of "Used tractors to CPII's
jobsite as agreed upon.
Eventually, one of the tractors broke down, 9 days subsequent to the incident; the other
tractor also broke down. IPM sent mechanics to fix the tractors but was unable to do so as
the units were not serviceable. Due to this, the road building and simultaneous logging
operations were delayed. The Vice President of CPII advised IPM that the payments of the
instalments as listed in the promissory note would likewise be delayed until IPM completely
fulfills its obligation under its warranty. Since the tractors were no longer serviceable, the
President asked IPM to pull out the units and have them reconditioned, and thereafter to
offer them for sale.
The proceeds were to be given to IFC Leasing and the excess, if any, to be divided between
IPM and CPII which offered to bear 1/2 of their conditioning cost. No response to this letter
was received by CPII and despite several follow-up calls; IPM did nothing with regard to the
request, until the complaint in the case was filed by IFC Leasing against CPII. The trial court
rendered judgment, ordering CPII, et al. to pay jointly and severally in their official and
personal capacities the principal sumof P1, 093,798.71 with accrued interest. CPII et al.'s
motion for reconsideration was denied by the Intermediate Appellate Court Hence, this
case.
ISSUE: Whether the promissory note in question is a negotiable instrument?

HELD: The pertinent portion of the note provides that ""FORVALUE RECEIVED, I/we jointly
and severally promise to pay to the INDUSTRIAL PRODUCTS MARKETING, the sum of
ONEMILLION NINETYTHREE THOUSAND SEVEN HUNDRED EIGHTYNINE PESOS &
71/100 only (P1,093,789.71), Philippine Currency, the said principal sum, to be payable in
24 monthly instalments starting July 15, 1978 and every 15th of the month thereafter until
fully paid."
Considering that paragraph (d), Section 1 of the Negotiable Instruments Law requires that a
promissory note "must be payable to order or bearer," it cannot be denied that the
promissory note in question is not a negotiable instrument. 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." These words serve as an expression of consent that the
instrument maybe transferred. This consent is indispensable since a maker assumes
greater risk under a negotiable instrument than under a non-negotiable one. 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.
Therefore, considering that the subject promissory note is not a negotiable instrument, it
follows that IFC Leasing can never be a holder in due course but remains a mere assignee
of the note in question. Thus, CPII may raise against IFC Leasing all defenses available to it
as against IPM. This being so, there was no need for CPII to implead IPM when it was sued
by IFC Leasing because CPII's defenses apply to both or either of them.

Ver#2: Consolidated Plywood Industries, Inc. v. IFC Leasing and Acceptance Corp.,
1987
FACTS:
Industrial Products Marketing (seller-assignor) offered to sell to Petitioner 2 "Used" Allis
Crawler Tractors, the former assuring the latter that tractors which were being offered were
fit for the job, and gave the corresponding warranty of ninety (90) days performance of the
machines and availability of parts.
With said assurance and warranty, and relying on the seller-assignor's skill and
judgment, petitioner agreed to purchase on installment said Tractors.
The seller-assignor issued the sales invoice for the 2 units of a deed of sale with chattel
mortgage with promissory note was executed.

NIL6
The note reads: "FOR VALUE RECEIVED, I/we jointly and severally promise to pay to
the INDUSTRIAL PRODUCTS MARKETING, the sum of ONE MILLION NINETY THREE
THOUSAND SEVEN HUNDRED EIGHTY NINE PESOS & 71/100 only (P1,093,789.71),
Philippine Currency, the said principal sum, to be payable in 24 monthly installments starting
July 15, 1978 and every 15th of the month thereafter until fully paid. . . . ."
Thereafter the seller-assignor, by means of a deed of assignment assigned its rights and
interest in the chattel mortgage in favor of the respondent.
Barely 14 days had elapsed after their delivery when one of the tractors broke down and
after another 9 days, the other tractor likewise broke down.
Attempts to repair the tractors failed and it was found out that the units were no longer
serviceable.
Petitioner advised the seller-assignor that the payments of the installments as listed in
the promissory note would likewise be delayed until the seller-assignor completely fulfills its
obligation under its warranty.
Petitioner asked the seller-assignor to pull out the units and have them reconditioned,
and thereafter to offer them for sale.
The proceeds were to be given to the respondent and the excess, if any, to be divided
between the seller-assignor and petitioner-corporation which offered to bear 1/2 of the
reconditioning cost.
No response was made by seller-assignor and petitioner instead learned that respondent
filed a complaint against the petitioners for the recovery of the sum in the promissory note.
The trial court rendered judgment against the petitioner and denied the MR filed by the
petitioner.
Upon appeal, the IAC affirmed the decision of the lower court holding that the warranty
contended by petitioner lies only between seller-assignor and the petitioner and not against
the private respondent who is the assignee of the promissory note and a holder of the same
in due course.
ISSUE:
Whether the promissory note in question is a negotiable instrument so as to bar completely
all the available defenses of the petitioner against the respondent-assignee.
RULING:

No. Considering that paragraph (d), Section 1 of the Negotiable Instruments Law requires
that a promissory note "must be payable to order or bearer," it cannot be denied that the
promissory note in question is not a negotiable instrument.
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."
Therefore, considering that the subject promissory note is not a negotiable instrument, it
follows that the respondent can never be a holder in due course but remains a mere
assignee of the note in question. Thus, the petitioner may raise against the respondent all
defenses available to it as against the seller-assignor, Industrial Products Marketing.
Even conceding for purposes of discussion that the promissory note in question is a
negotiable instrument, the respondent cannot be a holder in due course because the
respondent had actual knowledge of the fact that the seller-assignor's right to collect the
purchase price was not unconditional, and that it was subject to the condition that the
tractors sold were not defective. The respondent knew that when the tractors turned out to
be defective, it would be subject to the defense of failure of consideration and cannot
recover the purchase price from the petitioners. The respondent took the promissory note
with actual knowledge of the foregoing facts so that its action in taking the instrument
amounted to bad faith, and therefore it is not a holder in due course as provided under
Sections 52 and 56 of the Negotiable Instruments Law. As such, the respondent is subject
to all defenses which the petitioners may raise against the seller-assignor.
VER#3: CONSOLIDATED PLYWOOD INDUSTRIES, INC V. IFC LEASING AND
ACCEPTANCE CORP. (1987)
G.R. No. 72593 April 30, 1987
FACTS: Consolidated (buyer pays promossor note) > IPM (seller-assignor who violated
warranty) > IFC (holder in due course or merely an assignee?)
Consolidated Plywood Industries, Inc (Consolidated) is a corporation engaged in the logging
business
For the purpose of opening of additional roads and simultaneous logging operations along
the route of roads, it needed 2 additional units of tractors

NIL7
Atlantic Gulf & Pacific Company of Manila, through its sister company and marketing arm,
Industrial Products Marketing (IPM) (seller-assignor) offered to sell 2 "Used" Allis Crawler
Tractors

breach of warranty if any, is not a defense available to Consolidated either to withdraw from
the contract and/or demand a proportionate reduction of the price with damages in either
case

IPM inspected the job site and assured that the tractors were fit for the job and gave a 90days performance warranty of the machines and availability of parts.

ISSUE: W/N IFC is a holder in due course of the negotiable promissory note so as to bar
completely all the available defenses of the Consolidated against IPM

Consolidated purchased on instalment.

HELD: CA reversed and set aside

It paid the down payment of P210,000

Consolidated is a victim of warranty

April 5, 1978: IPM issued the sales invoice and the deed of sale with chattel mortgage with
promissory note was executed

The Civil Code provides that:

IPM, by means of a deed of assignment, assigned its rights and interest in the chattel
mortgage in favor of IFC Leasing and Acceptance Corp. (IFC)
After 14 days, one of the tractors broke down and after another 9 days, the other tractor too
Because of the breaking down of the tractors, the road building and simultaneous logging
operations were delayed
Consolidated unilaterally rescinded the contract w/ IPM
April 7, 1979: Wee of Consolidated asked IPM to pull out the units and have them
reconditioned, and thereafter to offer them for sale.
The proceeds were to be given to IFC and the excess will be divided between:
IPM

ART. 1561. The vendor shall be responsible for warranty against the hidden defects which
the thing sold may have, should they render it unfit for the use for which it is intended, or
should they diminish its fitness for such use to such an extent that, had the vendee been
aware thereof, he would not have acquired it or would have given a lower price for it; but
said vendor shall not be answerable for patent defects or those which may be visible, or for
those which are not visible if the vendee is an expert who, by reason of his trade or
profession, should have known them.
ART. 1562. In a sale of goods, there is an implied warranty or condition as to the quality or
fitness of the goods, as follows:
(1) Where the buyer, expressly or by implication makes known to the seller the particular
purpose for which the goods are acquired, and it appears that the buyer relies on the sellers
skill or judge judgment (whether he be the grower or manufacturer or not), there is an
implied warranty that the goods shall be reasonably fit for such purpose;

Consolidated which offered to bear one-half 1/2 of the reconditioning cost

ART. 1564. An implied warranty or condition as to the quality or fitness for a particular
purpose may be annexed by the usage of trade.

IPM didn't do anything

xxx xxx xxx

ART. 1566. The vendor is responsible to the vendee for any hidden faults or defects in the
thing sold even though he was not aware thereof.

IFC filed against Consolidated for the recovery of the principal sum P1,093,789.71, interest
and attorney's fees
RTC and CA: favored IFC

This provision shall not apply if the contrary has been stipulated, and the vendor was not
aware of the hidden faults or defects in the thing sold. (Emphasis supplied).
GR: extends to the corporation to whom it assigned its rights and interests
EX: assignee is a holder in due course of the promissory note

NIL8
assuming the note is negotiable
Consolidated's defenses may not prevail against it.
Articles 1191 and 1567 of the Civil Code provide that:
ART. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation
with the payment of damages in either case. He may also seek rescission, even after he
has chosen fulfillment, if the latter should become impossible.
xxx xxx xxx
ART. 1567. In the cases of articles 1561, 1562, 1564, 1565 and 1566, the vendee may elect
between withdrawing from the contract and demanding a proportionate reduction of the
price, with damages in either case. (Emphasis supplied)
Consolidated, having unilaterally and extrajudicially rescinded its contract with the sellerassignor, can no longer sue IPM except by way of counterclaim if IPM sues it because of
the rescission

Even conceding for purposes of discussion that the promissory note in question is a
negotiable instrument, the IFC cannot be a holder in due course due to absence of GF for
knowing that the tractors were defective
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:
xxx xxx xxx
(c) That he took it in good faith and for value
(d) That the time it was negotiated by him he had no notice of any infirmity in the instrument
of deffect in the title of the person negotiating it
SEC. 56. WHAT CONSTITUTES NOTICE OF DEFFECT. - To constitute notice of an
infirmity in the instrument or defect in the title of the person negotiating the same, the
person to whom it is negotiated must have had actual knowledge of the infirmity or defect,
or knowledge of such facts that his action in taking the instrument amounts to bad faith.
(Emphasis supplied)
We believe the finance company is better able to bear the risk of the dealer's insolvency
than the buyer and in a far better position to protect his interests against unscrupulous and
insolvent dealers.

Considering that paragraph (d), Section 1 of the Negotiable Instruments Law requires that a
promissory note "must be payable to order or bearer" - in this case it is non-negotiable

CHAN WAN v TAN KIM 109 PHIL 706

= expression of consent that the instrument may be transferred

FACTS:

consent is indispensable since a maker assumes greater risk under a negotiable instrument
than under a non-negotiable one

Tan Kim and her husband (Chen So) issued 11 checks payable to cash or bearer to be
drawn against their account with the Equitable Banking Corporation. The checks were
negotiated to the White House Shoe Supply (company). White House then deposited the
checks to their China Bank account. China Bank then presented the checks to Equitable
Bank but the checks were returned because Equitable Bank then had no funds to cover the
checks. China Bank then stamped the checks with Account Closed and Non negotiable
China Bank Corporation.

When instrument is payable to order

SEC. 8. WHEN PAYABLE TO ORDER. - The instrument is payable to order where it is
drawn payable to the order of a specified person or to him or his order. . . .
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

But somehow, Chan Wan got hold of these checks (Chan Wan was not able to explain in
court how he got hold of the checks). Chan Wan now wants to encash the checks but
Equitable Bank refused accept the said checks.
ISSUE: Whether or not Chan Wan is a holder in due course.

NIL9
HELD: No. As a general rule, a dishonored check/instrument may still be negotiated either
by indorsement or delivery and the holder may be a holder in due course provided that he
received no notice regarding the dishonor of the instrument. In this case, the checks were
already crossed on their face hence Chan Wan was properly notified of the dishonor of the
checks at the time of his acquisition.
But may Chan Wan still recover?
Yes. 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 holder may recover
directly from the drawee, in this case Tan Kim and Chen So, unless the drawees have a
valid excuse in refusing payment. The only disadvantage of a holder who is not a holder in
due course is that the negotiable instrument is subject to defense as if it were nonnegotiable. The case was remanded to the lower court for a proper determination as to how
Chan Wan acquired the checks and to determine if he is indeed entitled to payment based
on some other transactions involving those checks.

DE OCAMPO VS. GATCHALIAN (3 SCRA 596)

FACTS: Anita Gatchalian was interested in buying a car when she was offered by Manuel
Gonzales to a car owned by the Ocampo Clinic. Gonzales claims 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 the certificate 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 / payableto-bearer /cross-checked) as evidence of the buyers good faith. Gonzales added that it will
only be for safekeeping and will be returned to her the following day.

HELD: NO. De Ocampo is not a holder in due course. 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 circumstances should 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
holders title is defective or suspicious. Being the case, de Ocampo had the burden of
proving he was a holder in due course, but failed.
GREEN v LOPEZ
FACTS:
A negotiable note was issued by defendant to a payee which the latter later on indorsed
to the present holders, the plaintiffs.
The defendant refused to pay the note alleging that plaintiffs were not bona fide holders
of the note by indorsement, because they had knowledge of the existence of certain
equitable defenses which the makers were entitled to set up as against the payee of the
noted, before they acquired it by indorsement from the payee.

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 plaintiff on the other hand claims that he sent an employee to call upon the makers
of the note to inquire whether it was a good note which would be paid at maturity, and that
upon his return this employee stated that he had been informed by the makers of the note
that it was a good note duly executed by them and that it would be paid when due.

The Court of First Instance ordered Gatchalian to pay the amount of the check to De
Ocampo. Hence this case.

Whether the defendant could refuse payment on the note.

ISSUE: Whether or not De Ocampo is a holder in due course.

ISSUE:

RULING:

NIL10
No. The court ruled that the allegations of the defendant were either wholly false or he failed
to make himself understood resulting to the fact that no knowledge of the existence of
equitable defenses was made known to the plaintiff, the purchaser of the note.
There was nothing on the face of the note to put the purchasers on notice of the existence
of such equitable defenses. It was entirely regular in form and came into their possession in
the usual course of business. Under these circumstances the burden of proof was
manifestly upon the maker of the note to establish the fact of knowledge of the equitable
defenses before they could be permitted to rely upon such defenses as against the
purchasers.
Equitable defenses of this nature can in no event defeat the right of the holders of a
negotiable note by indorsement and for valuable consideration, until and unless knowledge
of the existence of such equitable defenses is brought home to them, or until it appears that
the holders had such knowledge of the existence of defects in the instrument as to charge
them with bad faith in acquiring it under all the attendant circumstances.

Whether Fossum has indeed derived his titled through a holder in due course and thus he
could collect on the draft.
RULING:
No. It was incumbent on the plaintiff to show, that the person under whom the plaintiff claims
(i. e., the bank) was a holder in due course. The presumption to the effect that every holder
is deemed prima facie to be a holder in due course expressed in Section 59 of the NIL
arises only in favor of a person who is a holder in the same defined in section 191 of the
same law, that is, a payee or indorse is in possession of the draft, or the bearer thereof.
Under this definition, in order to be a holder, one must be in possession of the note or the
bearer thereof. If this action had been instituted by the bank itself, the presumption that the
bank was a holder in due course would have arisen from the tenor of the draft and the fact
that it was in the bank's possession; but when the instrument passed out the possession of
the bank and into the possession of the present plaintiff, no presumption arises as to the
character in which the bank held the paper.
TRAVEL-ON, INC. V. CA, 1992

FOSSUM V. HERMANOS, 1923

FACTS:

FACTS:

Travel-On filed suit before to collect on six (6) checks issued by private respondent with a
total face amount of P115,000.00.

Hermanos placed an order for a tail shaft of a vessel with Fossums Company, providing
the latter of the specifications and the purpose for its use.
Plaintiff drawn a time draft upon defendant payable to PNB.
Said draft was presented to Hermanos and was accepted.
When the shaft arrived, the same was found not to be in conformity with the
specifications and thus Hermanos refused to pay the draft.
Having been dishonored, PNB indorsed the draft in blank, without consideration, and
delivered it to Fossum.
Fossum instituted the present action for the recovery of the amount in the draft.
Fossum argues that he may still recover against the person primarily liable where it
appears that he derives his title through a holder in due course.
ISSUE:

Petitioner sold and delivered various airline tickets to respondent at a total price of
P278,201.57;
Petitioner alleged in the complaint that to settle said account, private respondent paid
various amounts in cash and in kind, and thereafter issued six (6) postdated checks
amounting to P115,000.00 which were all dishonored by the drawee banks and that private
respondent made another payment of P10,000.00 reducing his indebtedness to
P105,000.00.
Private respondent claimed that he had already fully paid and even overpaid his
obligations and that refunds were in fact due to him. He argued that he had issued the
postdated checks for purposes of accommodation, as he had in the past accorded similar
favors to petitioner.
ISSUE:
Whether the postdated checks are per se evidence of liability on the part of private
respondent and that even assuming that the checks were for accommodation, private
respondent is still liable thereunder considering that petitioner is a holder for value.

NIL11
Issues:
RULING:

1. Whether or not State Investment House inc. was a holder of the check in due course

Yes, the checks clearly established private respondent's indebtedness to petitioner and that
private respondent was liable thereunder.

2. Whether or not Moulic can set up against the petitioner the defense that there was failure
or absence of consideration

A check which is regular on its face is deemed prima facie to have been issued for a
valuable consideration and every person whose signature appears thereon is deemed to
have become a party thereto for value. Thus, the mere introduction of the instrument sued
on in evidence prima facie entitles the plaintiff to recovery. Further, a negotiable instrument
is presumed to have been given or indorsed for a sufficient consideration unless otherwise
contradicted and overcome by other competent evidence. Thus, it was up to private
respondent to show that he had indeed issued the checks without sufficient consideration.

Held:

Further, while the NIL does refer to accommodation transactions, no such transaction was
shown in the case at bar. In the case at hand, Travel-On was payee of all six (6) checks; it
presented these checks for payment at the drawee bank but the checks bounced. Travel-On
obviously was not an accommodated party; it realized no value on the checks which
bounced.
Thus, private respondent must be held liable on the six (6) checks here involved. Those
checks in themselves constituted evidence of indebtedness of private respondent, evidence
not successfully overturned or rebutted by private respondent.

STATE INVESTMENT HOUSE INC. VS. CA

GR No. 101163 January 11, 1993
Facts:
Nora Moulic issued to Corazon Victoriano, as security for pieces of jewellery to be sold on
commission, two postdated checks in the amount of fifty thousand each. Thereafter,
Victoriano negotiated the checks to State Investment House, Inc. When Moulic failed to sell
the jewellry, she returned it to Victoriano before the maturity of the checks. However, the
checks cannot be retrieved as they have been negotiated. Before the maturity date Moulic
withdrew her funds from the bank contesting that she incurred no obligation on the checks
because the jewellery was never sold and the checks are negotiated without her knowledge
and consent. Upon presentment of for payment, the checks were dishonoured for
insufficiency of funds.

Yes, Section 52 of the NIL provides what constitutes a holder in due course. The evidence
shows that: on the faces of the post dated checks were complete and regular; that State
Investment House Inc. bought the checks from Victoriano before the due dates; that it was
taken in good faith and for value; and there was no knowledge with regard that the checks
were issued as security and not for value. A prima facie presumption exists that a holder of
a negotiable instrument is a holder in due course. Moulic failed to prove the contrary.
No, Moulic can only invoke this defense against the petitioner if it was a privy to the purpose
for which they were issued and therefore is not a holder in due course.

No, Section 119 of NIL provides how an instruments be discharged. Moulic can only invoke
paragraphs c and d as possible grounds for the discharge of the instruments. Since Moulic
failed to get back the possession of the checks as provided by paragraph c, intentional
cancellation of instrument is impossible. As provided by paragraph d, the acts which will
discharge a simple contract of payment of money will discharge the instrument. Correlating
Article 1231 of the Civil Code which enumerates the modes of extinguishing obligation,
none of those modes outlined therein is applicable in the instant case. Thus, Moulic may not
unilaterally discharge herself from her liability by mere expediency of withdrawing her funds
from the drawee bank. She is thus liable as she has no legal basis to excuse herself from
liability on her check to a holder in due course. Moreover, the fact that the petitioner failed to
give notice of dishonor is of no moment. The need for such notice is not absolute; there are
exceptions provided by Sec 114 of NIL.
STATE INVESTMENT HOUSE V. CA [217 SCRA 32]
FACTS:
Moulic issued checks as security to Victoriano, for pieces of jewelry to be sold on
commission.
Moulic failed to sell the pieces of jewelry, so she returned them to
Victoriano. The checks however could not be recovered by Moulic as these have been
discounted already in favor of petitioner. Consequently, before the maturity dates,
Moulic withdrew her funds from her account. Thereafter, petitioner presented the checks

NIL12
for payment but these were dishonored. This prompted the petitioner to initiate an action
against Moulic.

disadvantage of holder who is not a holder in due course is that the negotiable instrument is
subject to defense as if it were non- negotiable.

HELD:

FAR EAST BANK V. GOLD PALACE JEWELLERY CO., 2008

A prima facie presumption exists that a holder of a negotiable instrument is a holder in due
course. The burden of proving that State is not a holder in due course is upon Moulic. In
this regard, she failed to do so.

Samuel Tagoe, purchased from the respondent Gold Palace's store several pieces of
jewelry

The evidence shows that the dated checks were complete and regular; petitioner
bought the checks from Victoriano before their due dates; it took the checks in good faith
and for value; and it was never informed nor made aware that these checks were merely
issued to payee as security.

In payment of the same, he offered a Foreign Draft issued by the United Overseas Bank
(Malaysia) BHD Medan Pasar, Kuala Lumpur Branch (UOB), addressed to the Land Bank of
the Philippines, Manila (LBP), and payable to the respondent company.
When Far East, the collecting bank, presented the draft for clearing to LBP, the drawee
bank, the latter cleared the same

Consequently, State is a holder in due course. Moulic cannot set up the defense
that there was failure or want of consideration. It can only invoke the defense if State was a
privy to the purpose for which they were issued and therefore is not a holder in due course.

UOB's account with LBP was debited, and Gold Palace's account with Far East was
credited with the amount stated in the draft.

Furthermore, the mere fact that the checks were issued as security is not sufficient ground
to discharge the instrument as against a holder in due course.

After around 3 weeks, LBP informed Far East that the amount in Foreign Draft had been
materially altered and that it was returning the same.

And also, Moulic was responsible for the dishonor of her checks. She withdrew her
funds from her account and could not have expected her checks to be honored by
then.

After refunding the amount earlier paid by LBP, Far East demanded from Gold Palace the
payment of the difference between the amount in the materially altered draft and the amount
debited from the respondent company's account.

CHAN WAN V. TAN KIM [G.R. No. L-15380. September 30, 1960]

Failure to heed Far East demand, Far East instituted the present action for recovery of
sum of money with damages.

FACTS
Checks payable to cash or bearer were drawn by defendant Tan Kim and were all
presented for payment by Chan Wan to the drawee bank, but they were all dishonored.
Defendant argued that plaintiff is a holder not in due course.
ISSUE
Whether or not a holder not in due course is barred from collecting the value of checks
issued to him.
RULING
NO. It does not that simply because he was not a holder in due course Chan Wan could not
recover on the checks. 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

Issue:
Whether Far East could debit Gold Palaces account for the amount refunded to LBP.
Ruling:
No. The drawee bank LBP cleared and paid the subject foreign draft and forwarded the
amount thereof to the collecting bank Far East. The latter then credited to Gold Palace's
account the payment it received. Under the law, the drawee, by the said payment,
recognized and complied with its obligation to pay in accordance with the tenor of his
acceptance. The tenor of the acceptance is determined by the terms of the bill as it is when
the drawee accepts. Stated simply, LBP was liable on its payment of the check according to
the tenor of the check at the time of payment, which was the raised amount.

NIL13
Because of that engagement, LBP could no longer repudiate the payment it erroneously
made to a due course holder. Gold Palace was not a participant in the alteration of the draft,
was not negligent, and was a holder in due course. Having relied on the drawee bank's
clearance and payment of the draft and not being negligent, respondent is amply protected
by Section 62 of the NIL. Gold Palace, had no facility to ascertain with the drawer, UOB
Malaysia, the true amount in the draft. It was left with no option but to rely on the
representations of LBP that the draft was good.
Far East cannot invoke the warranty of the payee/depositor who indorsed the instrument for
collection to shift the burden it brought upon itself. This is precisely because the said
indorsement is only for purposes of collection which, under Section 36 of the NIL, is a
restrictive indorsement. Without any legal right to do so, the collecting bank, therefore, could
not debit respondent's account for the amount it refunded to the drawee bank.
Far East's remedy under the law is not against Gold Palace but against the drawee-bank or
the person responsible for the alteration.
ASSOCIATED BANK V. CA, 1996
Facts: The 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 hospitals administrative officer and cashier (Fausto Pangilinan).
Pangilinan, through the help of Associated Bank but after forging the signature of the
hospitals 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.
Issue: Who shall bear the loss resulting from the forged checks.
Held: PNB 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 dutybound 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.
Banco De Oro v. Equitable Bank, 1988
Facts:
Banco De Oro drew six crossed Manager's check payable to certain member
establishments of Visa Card.
The Checks were deposited with Equitable Bank to the credit of its depositor, a certain
Aida Trencio.
After stamping at the back of the Checks the usual endorsements: 'All prior and/or lack of
endorsement guaranteed' the defendant sent the checks for clearing through the Philippine
Clearing House Corporation (PCHC).
Banco De Oro paid the Checks and its clearing account was debited for the value of the
Checks and Equitable Banks clearing account was credited for the same amount.
Thereafter, Banco De Oro discovered that the endorsements appearing at the back of the
Checks and purporting to be that of the payees were forged and/or unauthorized or
otherwise belong to persons other than the payees.
Banco De Oro presented the Checks directly to Equitable Bank for the purpose of
claiming reimbursement from the latter.
However, defendant refused to accept such direct presentation and to reimburse Banco
De Oro for the value of the Checks
Hence, this case.
Issue:
Whether Banco De Oro could collect reimbursement from Equitable Bank.
Ruling:
Yes. The petitioner having stamped its guarantee of "all prior endorsements and/or lack of
endorsements" is now estopped from claiming that the checks under consideration are not

NIL14
negotiable instruments. It led the said respondent to believe that it was acting as endorser
of the checks and on the strength of this guarantee said respondent cleared the checks in
question and credited the account of the petitioner. Petitioner is now barred from taking an
opposite posture by claiming that the disputed checks are not negotiable instrument.
A commercial bank cannot escape the liability of an endorser of a check and which may turn
out to be a forged endorsement. Whenever any bank treats the signature at the back of the
checks as endorsements and thus logically guarantees the same as such there can be no
doubt said bank has considered the checks as negotiable.
The collecting bank or last endorser generally suffers the loss because it has the duty to
ascertain the genuineness of all prior endorsements 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 endorsements.
While the drawer generally owes no duty of diligence to the collecting bank, 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 and the law holds it to a high
standard of conduct.
BPI VS. COURT OF APPEALS AND NAPIZA
G.R. No. 112392. February 29, 2000, 326 scra 641
*accommodation party
**liability of general indorser
FACTS:
A certain Henry Chan owned a Continental Bank Managers Check payable to "cash" in the
amount of Two Thousand Five Hundred Dollars ($2,500.00). Chan went to the office of
Benjamin Napiza and requested him to deposit the check in his dollar account by way of
accommodation and for the purpose of clearing the same. Private respondent acceded, and
agreed to deliver to Chan a signed blank withdrawal slip, with the understanding that as

soon as the check is cleared, both of them would go to the bank to withdraw the amount of
the check upon private respondents presentation to the bank of his passbook. Napiza thus
endorsed the check and deposited it in a Foreign Currency Deposit Unit (FCDU) Savings
Account he maintained with BPI. Using the blank withdrawal slip given by private
respondent to Chan, one Ruben Gayon, Jr. was able to withdraw the amount of $2,541.67
from Napiza's FCDU account. It turned out that said check deposited by private respondent
was a counterfeit check.
*When BPI demanded the return of $2,500.00, private respondent claimed that he
deposited the check "for clearing purposes" only to accommodate Chan.
**Petitioner claims that private respondent, having affixed his signature at the dorsal side of
the check, should be liable for the amount stated therein in accordance with the provision of
the Negotiable Instruments Law on the liability of a general indorser (Sec. 66).
ISSUE:
Whether private respondent is obliged to return the money paid out by BPI on a counterfeit
check even if he deposited the check "for clearing purposes" only to accommodate Chan.
ISSUE:**
Whether or not respondent Napiza is liable under his warranties as a general indorser.
RULING:
Ordinarily private respondent may be held liable as an indorser of the check or even as an
accommodation party. However, petitioner BPI, in allowing the withdrawal of private
respondents deposit, failed to exercise the diligence of a good father of a family. BPI
violated its own rules by allowing the withdrawal of an amount that is definitely over and
above the aggregate amount of private respondents dollar deposits that had yet to be
cleared. The proximate cause of the eventual loss of the amount of $2,500.00 on BPI's part
was its personnels negligence in allowing such withdrawal in disregard of its own rules and
the clearing requirement in the banking system. In so doing, BPI assumed the risk of
incurring a loss on account of a forged or counterfeit foreign check and hence, it should
suffer the resulting damage.