Campos Chapter 6 and 7

[Ch 6&7 - A]
A]
Law 108: Negotiable Instruments First Semester
CHAPTER VI: DISCHARGE

FOX V KROEGER
119 Tex. 511, 35 S.W. (2d) 679 (1931)
~kooky~
FACTS:
SUBJECT: promissory note for $769.03, payable 12 mos.
from June 28, 1921
MAKERS: Mrs. C.M. Fox as principal and J.H. Kroeger as
surety
PAYEE: Levi State Bank & Trust Company
-Mrs. Fox as principal and Kroeger as surety executed
the above note. Mrs. Fox died before its maturity. At
maturity, on agreement with the payee, Kroeger
executed and delivered his own note of the same
amount to the payee. The payee bank then assigned
the principal note to Kroeger. More than two years later
Kroeger sued BJ Fox, executor of Mrs. Foxs estate.
ISSUE:
WON the payment of Kroeger as surety discharged the
obligation
HELD: NO
-Under the Texas statute (Sec 119 and 121 taken
together), the payment by the principal debtor or by
the party accommodated discharges the instrument,
but payment by a party secondarily liable, other than
the principal debtor or party accommodated, does not
extinguish or discharge the debt. By sec 121, the party
accommodated is excluded from those secondarily
liable, payment by whom does not discharge the
instrument. The statute requires payment by the
principal debtor to discharge a negotiable promissory
note, and that the payment thereof by the surety does
not discharge the obligation.
Disposition Affirmed.
NOTE: the other issue in the case is regarding the right
of the surety to collect from the principal what he has
paid the creditor. Court held: where the surety pays the
debt of the principal, he has his election to either
pursue his legal remedies and bring an action on an
assumpsit, or the obligation implied by law in his favor
for reimbursement by the principal; or he can prosecute
an action on the very debt itself, and in either event he
stands in the shoes of the original creditor as to any
securities and rights of priority.
EQUITABLE BANKING CORP V IAC
G.R. No. L-74451, May 25, 1988, 161 SCRA 518
~aida rose~
AY 2008-09
FACTS
-In 1975 Casals (who represented himself as general
manager of Casville Enterprises, a business engaged in
processing and procurement of lumber products) went
to Edward J. Nell Co. and told the companys sales
engineer Claustro of his interest in purchasing a Garrett
skidder, one of the many merchandise the company
was selling.
-Casals was referred to Javier, Nells EVP, who asked for
cash payment for the skidders. Casals said that Casvile
had a credit line with Equitable Bank. Javier then
agreed to have two units of skidders paid by way of
domestic letter of credit instead of cash. Each unit was
to cost P485,000. The domestic letter of credit was to
be payable in 36 months and was to be opened within
90 days after date of shipment of the skidders. The
first installement was to be due 180 days after
shipment and interest was pegged at 14% p.a.
-Casals requested that one unit be delivered to
Cagayan de Oro before April 24, 1976 together with all
its accessories. The letter of credit was to be opened
on or before June 30, 1976. The skidder was shipped
on May 3.
-June 15, 1976 Casals handed Nell Co. a check
amounting to P300,000 postdated August 4, 1976
followed by another check with the same date. Nell Co.
considered the checks as partial payment for the
skidder or as reimbursement for the marginal deposit
due from Casals.
-Casals informed Nell Co. that its application for a letter
of credit had been approved by Equitable but informed
the company that a sum of P400,000 was needed to
stand as collateral in favor of Equitable. The amount
include P100,000 to clear the title of the Estrada
property which was to act as security for the trust
receipts issued by the bank.
To facilitate the
transaction, Nell Co. issued a check for the said amount
in favor of Equitable even if the marginal deposit was
supposed to be produced by Casville.
-Casals wrote Equitable to apply for two letters of credit
(an on sight letter of credit for P485,000, a 36-month
letter of credit for P606,000 and cash marginal deposit
of P300,000) to cover its purchase of the skidders. The
skidders were to be mortgaged as security. The bank
responded favorably, stipulating a required 30% cash
margin deposit, a real estate collateral and chattel
mortgage of the equipment.
-Casville sent three postdated checks to Nell Co.
attached to a letter informing the latter of the bank
requirements. The cash margin deposit was to amount
to P327,300 and adding the P100,000 needed for the
Estrada property, the total amount due to Equitable
was P427,300. The postdated checks from Casville
Prof. Rogelio V. Quevedo
[Ch 6&7 -
were intended to cover the checks issued by Nell Co. to

Equitable.
The postdated checks amounted to
P427,300.
-Nell Co. issued a check worth P427,300 payable to
Equitable Bank. The check was made payable to the
order of Equitable Banking Corp. A/C of Casville
Enterprises. The check was sent to Equitable through
Casals. Casals deposited the check in Equitable Bank
and the teller accepted it as deposit in Casals checking
account. Casals then withdrew the amount deposited.
-Upon presentation for encashment, Nell Co. discovered
that the three checks amounting to P427,300 were all
dishonored for having been drawn against a closed
account. Nell Co. checked the status of the letter of
credit and was informed by Equitable that no letter of
credit had been opened and that the entire amount of
P427,300 had been withdrawn.
-Casals and Casville recognized their liability towards
Nell Co. so they assigned the Garrett skidder to the
latter for the amount of P450,000 as partial
satisfaction.
-In determining the liability of Equitable Bank to Nell
Co., the trial court held that Casals, Casville and
Equitable Bank were solidarily liable to Nell Co. for the
amount of P427,300 erroneously credited by Equitable
to Casvilles account.
ISSUE
WON Equitable is liable to Nell Co.
HELD: NO
-The check was patently ambiguous. By making the
check read Pay to Equitable Banking Corp., order of
A/C of Casville Enterprises, the payee ceased to be
indicated with reasonable certainty. As worded it could
be accepted as deposit to the account of the party
named after the symbols A/C or payable to the bank as
trustee or as agent for Casville Enterprises with the
latter being the ultimate beneficiary. The ambiguity
was to be construed against Nell Co. who caused the
ambiguity.
-The check was also initially negotiable and neither was
it crossed. The crossing of the check and the stamping
of the words non-negotiable were made by the bank
and not by Nell. It simply meant that the same check
would thereafter be no longer negotiated.
-Nells own acts and omissions were the proximate
causes of its own defraudation.
Disposition Petition granted.
IN RE HARNAUGHS ESTATE
320 Pa. 209, 182 Atl. 394 (1936)
~lora~
[Ch 6&7 - B]
B]
FACTS
SUBJECT: P/N in the sum of $7,677.17, due April1, 1919
MAKER: Decedent
PAYEE: Flora Moore, administrator of Peyton Harbaugh
INDORSEE: Jessie P. Harbaugh
-Peyton, claimant and decedent were all children of
Flora Moore.
ISSUE
WON the maker of a negotiable instrument who makes
payment to the payee after the latter, before maturity,
has indorsed the note to another, may be relieved of
liability on the note if evidence is received showing that
the payee acted as the indorsees agent or that
payment was in fact received by the indorsee.
HELD: YES.
-Payment to the payee of a negotiable instrument when
title and possession of the instrument has passed to
another before maturity will not protect the maker.
-If the holder receives payment through an agent or the
surrounding circumstances show that money in
discharge of the instrument actually reached his hands
he cannot recover merely because he retains
possession of the instrument.
-In this case, there is no testimony on record to show
agency and therefore appellee, to sustain her position,
must show that the indorsee received the money in
discharge of the note.
-Payment is always an affirmative defense and the
burden of proving it rests on the party asserting it. It
must be shown by preponderance of evidence.
-The auditor and the court below found that the
claimant indorsee holder had received payment of the
note in question.
-April 4, 1919: decedent gave a check to Flora M. Moore
for $13, 249. 40 which included the amount due on the
note and certain other items payable by decedent to
Flora Moore.
-The findings of fact of an auditor will not be disturbed
unless they are unsupported by the evidence.
Disposition Decision affirmed.
AY 2008-09
[Ch 6&7 -
[Ch 6&7 - C]
C]
JONES ADMRS V COLEMAN

121 Va. 86, 92 S.E. 910 (1917)
~marge~
FACTS
SUBJECT: negotiable promissory note for $500,
allegedly dated 1 Jan 1915, payable at Bank of
Brunswick, Lawrenceville, Virginia, 365 days after date.
Said note waives the benefit of the homestead
exemption.
MAKER: Reps Jones, now deceased
PAYEE: Kate D. Coleman, Jones domestic servant for
15-16 yrs
-Kate presented his claim against WR Jones and Jack
Shell, administrators of [the estate of] Reps Jones. She
moved for judgment on the basis of the notice she filed
in court. [motion for judgment on the pleadings? ^_^]
-Jury was waived. Case was submitted to TC judge.
-To sustain the motion, Kate presented a mutilated
paper, upon which there was neither date nor
signature; both apparently destroyed by burning. The
paper originally was a printed blank form of a
negotiable instrument note, payable at the bank of
Lawrenceville. The mutilated remnant shows that the
figures 500 and 365 as well as the name Kate D.
Coleman and the words five hundred had been
inserted in ink. Evidence showed that these words and
figures were written by Reps Jones himself.
-Kates brother Beverly (an ignorant man) gave a vague
and unsatisfactory testimony re: existence of the
subject note. He testified that sometime in 1914 he
saw in Kates room in a sewing machine drawer a note
for $500 with Reps Jones name on it, and that after
Jones death, Kate showed him a mutilated envelope w/
the subject mutilated (partly burned) paper.
-There was no attempt to explain or account for the
mutilation of the paper.
-TC judge rendered judgment in favor of plaintiff Kate
Coleman.
ISSUE
WON plaintiff may recover on the basis of the mutilated
note
HELD: NO.
-A cancellation made unintentional[ly] or under a
mistake, or w/o the authority of the holder is
inoperative; but where an instrument or any signature
thereon appears to have been cancelled, the burden of
proof lies on the party who alleges that the cancellation
was made unintentionally or under a mistake or without
authority. [Sec. 123, NIL]
AY 2008-09
-It is assumed that the date and the signature were

originally upon the paper presented. There was no
explanation why the same have been destroyed by
burning. The presumption is that the burning was
intentional and done for the purpose of cancelling the
instrument. This presumption can only be overcome by
evidence showing that such burning was done
unintentionally, or under a mistake, or without
authority. Plaintiff failed to sustain this burden.
Disposition Judgment reversed. Kates motion
dismissed.
MANCHESTER V PARSONS
75 W. Va. 93, 84 S.E. 885 (1915)
~anton~
FACTS
SUBJECT: promissory note executed on Sept. 33, 1910,
for $800.
MAKER: L.W. Parsons
PAYEE: Burton & Co. indorsed to Manchester
-L.W. Parsons executed his negotiable note on Sept. 33,
1910, for $800 payable to the order of Burton & Co., 18
months from date, and delivered the same to the payee
for value.
-The note was negotiated to Manchester (plaintiff), for
value about Nov. 1, 1910.
-June 3, 1911: Parsons sold and delivered to the payee
some Percheron Colts
for $1,675, with the
understanding between the parties that this transaction
was to pay the note, and the balance was to be paid for
the execution and delivery by Burton & Co. of their note
payable to Parsons.
-Manchester is suing Parsons for payment. Parsons put
up the defense of payment.
ISSUE:WON there was discharge (payment) of the
instrument.
HELD: NO.
-Negotiable paper in the hands of a holder in due
course is not discharged by payment made to his
transferor, either before or after the transfer.
-The uncontradicted testimony of L.A. Burton (the
surviving partner of Lee Whorton) is that it had been
indorsed to Manchester, for value, on November 1,
[Ch 6&7 -
1910, and therefore the payment to the original holders

did not discharge it. The delivery of the Colts was on
June 3, 1911, almost a year after the indorsement of
the note to Manchester.
-Sec. 119 of the NIL describes how a note may be
discharged. Subsection 4 reads by any other act which
will discharge a simple contract for the payment of
money.
-This provision must be interpreted with reference to
the general purpose of the NIL. Reading Sec. 4, it is
apparent that it was never the legislative intent to
make a radical change in the general law as would be
brought by the literal interpretation argued by Parsons.
The legislature did not contemplate making so vital a
change in the law, as to permit equities between the
original parties to a negotiable instrument to defeat the
title of an innocent holder for value in due course.
-The acts which will discharge a simple contract for
payment of money, in order to effect a discharge of
negotiable paper, must be necessarily limited to such
acts as relate to and affect the holder of the paper
demanding payment of it. It does not include a holder
in due course.
-It would injuriously affect the value of commercial
paper, by putting it on a plane with simple contracts for
the payment of money.
-The elements constituting what a holder in due course
is, and the rights of an HDC must be considered in
construing Sec. 119. The rights of a bona fide assignee
of such a note, in due course, are not affected by the
equities of the maker.
-Payment by Parsons to Burton & Co. before the note
became due, whether before or after they had
negotiated it, could not defeat collection by an innocent
bystander for holder for value who acquired it in due
course.
Disposition Judgment is affirmed.
SCHWARTZMAN V POST
94 App. Div. 474, 84 NYS 922, 87 NYS 872 (1903)
~jonas~
FACTS
-Defendant Post executed a note for $5,000 payable to
his own order on demand, indorsed by him, his father
and by defendant Postawalsky. The note was delivered
to plaintiff Schwartzman in payment of his interest in a
partnership of which he & Postawalsky were members.
-Subequently, Post paid $2,750, & a 3rd party paid
$500. The payment was made on the condition that the
note for $5,000 be surrendered to him.
-Schwartzman sued Post for the balance due on the
note, but as Post had possession of the same, he did
not allege that he was the holder thereof. At the
[Ch 6&7 - D]
D]
AY 2008-09
conclusion of the case, defendant moved to dismiss the

complaint on the ground that the surrender of the note
to defendant constituted a discharge thereof.
ISSUE
WON the oral contract released the maker (and thus
the indorser too)
ISSUE
WON the instrument has been discharged
HELD: YES
-The requirement of writing in Sec 122 pertains only to
renunciation. It does no apply to Sec 119 and 120
which talks about discharge.
Reasoning
-Sec 122, which speaks of renunciation, should be
distinguished from Sec 119 and 120, which speaks of
discharge. Since renunciation and discharge are
separated, it suggests that one is different from the
other. Under S122, renunciation should be in writing. In
S119 and 120, no requirement exists. If there was an
intention to apply the requirement of writing to S199
and 120, why the need to change the terminology
between the two?
-Examining the instances in S119 and S120, it would be
radical and impractical to require writing in the
discharge of the instrument.
-History: French law - obligation by a bill of exchange
could be voluntarily remitted by the holder without
consideration. The principle was approved by Foster v
Dawber and it was held there that it applies to bills and
notes. It was adopted by the English Bills of Exchange
Act, where the written requirement was added. In that
form and meaning it came to our uniform statute. That
meaning cannot be expanded without impringing upon
the intended effect of other provisions of the statute,
particularly S119 and S120. So, we are constrained to
hold that the renunciation, which under S120 must be
in writing, is one accomplished by the unilateral act of
the holder. Ordinarily, but not always, it will be without
consideration.
-Gorin v Wiley: S122 does not apply to novation which
discharged the makers of a note.
-Hall v Wichita: S122 inapplicable to an oral novation.
S122 intended to deal only with the formal and
express release of common law while Sec 119 was
intended to continue in effect other recognized
methods of discharging obligations of this character
-In these cases, it can be seen that the requirement in
S122 was intended to apply only to renunciation and
not extend to discharge in S199 and S120.
HELD: YES
Ratio Subdivision 5 of Section 200 of the Negotiable
Instruments Law provides that a negotiable instrument
is discharged when the principal debtor becomes the
holder of the instrument at or after maturity in his own
right.
Reasoning Post was the maker of the note, & primarily
liable thereon. It was surrendered to him, & he became
the holder thereof without fraud or mistake, in his
own right.
DEFINITIONS:
Holder Sec. 2: Holder means the payee or indorsee
of a bill or note who is in possession of it, or the bearer
thereof.
Person Primarily Liable on Instrument Sec. 3:
The person primarily liable on an instrument is the
person who, by the terms of the instrument, is
absolutely required to pay the same.
In his own right merely excludes such a case as
that of a maker acquiring the instrument in purely a
representative capacity.
Disposition Judgment reversed.
McGLYNN V GRANSTROM
168 Min 164, 210 NW 892 (1926)
~monch~
FACTS
SUBJECT: Promissory note
MAKER: not named
PAYEE: McGlynn
INDORSERS: Granstrom
-The action was brought by payee McGlynn against
indorser Granstorm for recovery of the note. McGlynn
denied liability and said that the payee was a party to
an oral contract between the maker and third parties
which discharged the maker from liability. And
according to Sec 120 of the NIL, if the maker is
discharged, so is the indorser.
-McGlynn relies on Sec 122 of the NIL, saying that such
renunciation must be made in writing and thus the
contract did not have an effect of releasing the maker
from its obligation. There was also no delivery of the
note to the maker.
-The lower court ruled in favor of the indorser.
McCORMICK V SHEA
99 NY Supp. 467 (1906)
~ice~
FACTS
SUBJECT: Promissory Note
MAKER: Thomas Shea
[Ch 6&7 -
PAYEE: John McCormick

INDORSER: Annie Shea
-Before maturity Annie Shea as indorser was cancelled
through the representative of the attorney of Shea in
the presence of McCormick. Defendant claims that the
cancellation was part of their claims against each other
while plaintiff claims that the cancellation was not
authorized and that there was no consideration for such
cancellation. Also, plaintiff claims that even if he did
agree, the effect would only be to release the indorser
as a person secondarily liable.
ISSUE
Who bears the burden of proving the cancellation
without authority?
HELD
-A cancellation made unintentionally or under a mistake
or without the authority of the holder is inoperative;
but where an instrument or any signature thereon
appears to have been cancelled, the burden of proof
lies on the party who alleges that the cancellation was
made unintentionally or under a mistake or without
authority.
-The burden of proof was with the plaintiff
Disposition: Judgment affirmed.
ROBERTS V CHAPPELL
63 Ohio Apple 397, 26 NE 2d 930
~rean~
FACTS
SUBJECT: Promissory note
MAKER: George Daily, Audrey Daily, Lewis Daily
PAYEE/INDORSER: Chappell
HOLDER: Roberts
-George Daily, Audrey Daily, Lewis Daily executed a
note for S237 payable to the order of Chappell. The
latter indorsed it to Roberts. Upon presentment, the
note was dishonored. Roberts sued Chappell
-Defense of Chappell: No claim against the estate of
Lewis Daily (now dead) was filed by Roberts. The estate
has now been administered and closed. Roberts should
have presented the note to the administrator. Since he
failed to do so, Chappell should be discharged.
-Chappell bases his claim on S8225 of the General Code
which says that a person secondarily liable on the
instrument is discharged by the discharge of a prior
party.
ISSUE
WON Chappell was discharged
[Ch 6&7 - E]
E]
HELD: NO
-The discharge of a prior party referred to is a
discharge by an act of the holder and not a discharge
accomplished by operation of law.
Reasoning
- Romero case: discharge in the NIL contemplates
some affirmative act by the holder and does not
contemplate passive conduct. This interpretation is in
accord with the Ohio law relating to suretyship. Under
such law, mere failure to claim of a creditor against the
estate does not discharge the surety. The rule relating
to sureties becomes important since the rights and
duties of sureties correspond to that of indorsers.
-The words discharge by a prior party must be given
its common and accepted meaning. Prior to the
enactment of the law, such meaning refers to a
discharge by an act of the holder and not a discharge
accomplished by operation of law.
CORLEY V FRENCH
154 Tenn. 672, 294 S.W. 513 (1927)
~eva~
FACTS
SUBJECT: Note for $2,500
MAKER: Volunteer Mfg. Co.
PAYEE-HOLDER: Corley
INDORSERS: French Nichol, et al.
-Note contained a waiver of presentment and notice,
and was made payable at the American National Bank.
The note was not presented at this bank on the day of
maturity nor thereafter. The maker had funds on
deposit in this bank at the date of maturity of the note
sufficient to pay it. The maker was later adjudged
bankrupt.
-Corley sued French and other indorsers.
-Defense: discharge by constructive tender of payment
and by laches in failing to collect from the maker.
-Nichol was held liable. The other indorsers were
discharged in bankruptcy.
ISSUE
WON French is liable on the note as indorser.
HELD: YES.
-While the effect of the waiver was to make the
indorser liable without the necessity of presentment,
French did not become technically or strictly primarily
liable (CA found French liable saying that he became
primarily liable). French continued to be secondarily
AY 2008-09
liable, but without the right to interpose the defense

based upon want of presentment, notice and protest.
His obligation by virtue of the waiver became absolute
and unconditional with respect to defenses so
grounded.
-Every indorser who has waived presentment is liable to
the holder without reference to presentment. No steps
need be taken by the holder upon maturity to charge
the waiving indorser, who engages that it shall be paid
according to its tenor, without presentment, and
whether proceedings on dishonor be taken or not.
-The Negotiable Instrument Act provides that when the
instrument is dishonored by non-payment, an
immediate right of recourse to all parties secondarily
liable thereon accrues to the holder. So, without
presentment, the holder has his right of recourse upon
dishonor that is failure to pay, against those primarily
liable, and against those secondarily liable who have
waived presentment, or those as to whom, not having
so waived, the prescribed steps have been taken.
(ON THE TOPIC)
-Defense insists that he is secondarily liable only,
despite his waiver, in the meaning of this term as used
in Sec.120, by which it is provided that one so liable
only is discharged by a valid tender of payment made
by a prior topic, and that constructive tender by the
maker primarily liable took place under the provision
of Sec.70 which states that: If the instrument is, by its
terms, payable at a special place and he (the person
primarily liable) is able and willing to pay it there at
maturity, such ability and willingness are equivalent to
a tender of payment upon his part.
-This section is without direct application to a party to
the instrument who has voluntarily waived presentment
of payment. However, in the instant case, while under
Sec70, presentment was not necessary to charge the
maker, if it appears that the maker had been both able
and willing (as does not appear) to pay the note at the
bank named therein at maturity, a constructive tender
would have accrued as to him, and such tender might
have constituted such a valid tender of payment made
by the prior party as would have operated to
discharge the indorser.
-BUT while there is evidence that the maker had funds
in the bank at the maturity of the note (to show
ability, there is no evidence of willingness on the
part of the maker to have such application made of its
funds of deposit, and these element must concur to be
equivalent to a tender of payment upon his part.
-Sec.87 provides: Where the instrument is made
payable at a bank, it is equivalent to an order to the
bank to pay the same for the account of the principal
debtor thereon. Under this section, it is both the right
[Ch 6&7 -
and the duty of the bank to pay the note from the funds
of the maker on deposit with it, which discharged the
indorser. In the present case, the bank has the right to
so apply its depositors fund only when the bank is the
place of payment and the payee and holder of the
instrument as well. Thus, no tender was made by or on
behalf of the maker primarily liable on the instrument
which operated to discharge the indorser.
Dispositive CA affirmed.
MAGLIONE V PENTA
266 Mass. 413, 165 N.E. 424 (1929)
~javi~
FACTS
SUBJECT: a note secured by mortgage
MAKER/MORTGAGOR: unnamed
PAYEE /INDORSER/DEFENDANT/: PENTA
INDORSEE/HOLDER/PLAINTIFF:MAGLIONE
-Penta is a payee of a note secured by mortgage. Penta
indorsed the note and assigned the mortgage to
Maglione. A subsequent foreclosure (on the mortgage)
was instituted by Maglione. But he dropped the
foreclosure suit (mortgagor paid $300).
-Some months later, Penta inquired of Maglione
whether the note and mortgage have been paid.
Maglione said that he had a satisfactory arrangement
with the maker-mortgagor.
-Maker defaulted so Maglione sued indorser Penta
-Jury found that Maglione had entered into a valid and
binding agreement with maker to extend deadline of
note
ISSUE
WON Penta being secondarily liable for the note, is
discharged from liability in lieu of Magliones
agreement with maker-mortgagor
HELD: YES
-If the plaintiff made a valid and binding agreement
with the makers of the note extending the time of
payment without the knowledge and consent of the
surety, the surety is thereby discharged.
-As an indorser, Penta was secondarily liable. But the
jury found that there was a valid and binding
agreement between Maglione and the makers thereby
discharging Penta from his liability.
CHAPTER VII: OTHER FORMS

OF COMMERCIAL PAPER
[Ch 6&7 - F]
F]
LEE, MICO METALS CORP v. CA and PBC

375 SCRA 579; De Leon, Jr; Feb 1, 2002
~kitik~
FACTS
-A petition for review of the decision of the CA ordering
defendants-appellees jointly and severally to pay
plaintiff PBCom a certain sum arising from ordinary
loans, letters of credit and trust receipt transactions
granted by the plaintiff plus legal interest until fully
paid.
-On March 2, 1979, Charles Lee, as President of MICO
wrote
private
respondent
Philippine
Bank
of
Communications (PBCom) requesting for a grant of a
discounting loan/credit line in the sum of Three Million
Pesos (P3,000,000.00) for the purpose of carrying out
MICOs line of business as well as to maintain its
volume of business.On the same day, Charles Lee
requested for another discounting loan/credit line of
Three Million Pesos (P3,000,000.00) from PBCom for
the purpose of opening letters of credit and trust
receipts.
-On March 26, 1979, MICO availed of the first loan of
One Million Pesos (P1,000,000.00) from PBCom. Upon
maturity of the loan, MICO caused the same to be
renewed, the last renewal of which was made on May
21, 1982 under a promissory note. Two more loans to
complete the three million were availed by MICO under
the same terms.
-As security for the loans, MICO through its VicePresident and General Manager, Mariano Sio, executed
on May 16, 1979 a Deed of Real Estate Mortgage over
its properties situated in Pasig, Metro Manila.
-On March 26, 1979 Charles Lee, Chua Siok Suy,
Mariano Sio, Alfonso Yap and Richard Velasco, in their
personal capacities executed a Surety Agreement in
favor of PBCom whereby the petitioners jointly and
severally, guaranteed the prompt payment on due
dates or at maturity of overdrafts, promissory notes,
discounts, drafts, letters of credit, bills of exchange,
trust receipts, and other obligations of every kind and
nature, for which MICO may be held accountable by
PBCom.
-On July 14, 1980, petitioner Charles Lee, in his capacity
as president of MICO, wrote PBCom and applied for an
additional loan in the sum of Four Million Pesos
(P4,000,000.00). The loan was intended for the
expansion and modernization of the companys
machineries. Upon approval of the said application for
loan, MICO availed of the additional loan of Four Million
Pesos (P4,000,000.00) as evidenced by a promissory
note.
-As per agreement, the proceeds of all the loan
AY 2008-09
availments were credited to MICOs current checking

account with PBCom. To induce the PBCom to increase
the credit line of MICO, Charles Lee, Chua Siok Suy,
Mariano Sio, Alfonso Yap, Richard Velasco and Alfonso
Co (hereinafter referred to as petitioners-sureties),
executed another surety agreement in favor of PBCom
on July 28, 1980, whereby they jointly and severally
guaranteed the prompt payment on due dates or at
maturity of overdrafts, promissory notes, discounts,
drafts, letters of credit, bills of exchange, trust receipts
and all other obligations of any kind and nature for
which MICO may be held accountable by PBCom.
-On two occasions, MICO filed with PBCom an
application for a domestic letter of credit. The
corresponding irrevocable letters of credit was
approved. Thereafter, the domestic letters of credit was
negotiated and accepted by MICO as evidenced by the
corresponding bank draft issued for the purpose. After
the suppliers of the merchandise was paid, trust
receipts upon MICOs own initiative, was executed in
favor of PBCom.
On three occasions MICO applied for authority to open
a foreign letter of credit in favor of various corporations
and thus, the corresponding letter of credits was then
issued by PBCom with cables sent to the beneficiaries
advising that said beneficiaries may draw funds from
the account of PBCom in its correspondent banks New
York Office. As in past transactions, MICO executed in
favor of PBCom a corresponding trust receipt. In all the
transactions involving foreign letters of credit, PBCom
turned over to MICO the necessary documents such as
the bills of lading and commercial invoices to enable
the latter to withdraw the goods from the port of
Manila.
-Upon maturity of all credit availments obtained by
MICO from PBCom, the latter made a demand for
payment. For failure of petitioner MICO to pay the
obligations incurred despite repeated demands, private
respondent PBCom extrajudicially foreclosed MICOs
real estate mortgage. Aside from the unpaid balance of
Five Million Four Hundred Forty-One Thousand Six
Hundred Sixty-Three Pesos and Ninety Centavos
(P5,441,663.90), MICO likewise had another standing
obligation in the sum of Four Hundred Sixty-One
Thousand Six Hundred Pesos and Six Centavos
(P461,600.06) representing its trust receipts liabilities
to private respondent. PBCom then demanded the
settlement of the aforesaid obligations from herein
petitioners-sureties
who,
however,
refused
to
acknowledge their obligations to PBCom under the
surety agreements. Hence, PBCom filed a complaint
with prayer for writ of preliminary attachment before
the Regional Trial Court of Manila.
[Ch 6&7 -
-Petitioners (MICO and herein petitioners-sureties)

denied all the allegations of the complaint filed by
respondent PBCom, and alleged that: a) MICO was not
granted the alleged loans and neither did it receive the
proceeds of the aforesaid loans and since no loan was
ever released to or received by MICO, the
corresponding real estate mortgage and the surety
agreements signed concededly by the petitionerssureties are null and void.
-The trial court gave credence to the testimonies of
herein petitioners and dismissed the complaint filed by
PBCom. In ruling for herein petitioners, the trial court
said that PBCom failed to adequately prove that the
proceeds of the loans were ever delivered to MICO.
Hence, inasmuch as no consideration ever passed from
PBCom to MICO, all the documents involved therein,
such as the promissory notes, real estate mortgage
including the surety agreements were all void or
nonexistent for lack of cause or consideration. The trial
court said that the lack of proof as regards the
existence of the merchandise covered by the letters of
credit bolstered the claim of herein petitioners that no
purchases of the goods were really made and that the
letters of credit transactions were simply resorted to by
the PBCom and Chua Siok Suy to accommodate the
latter in his financial requirements.
-CA reversed the said decision and pronounced: Every
negotiable instrument is deemed prima facie to have
been issued for valuable consideration and every
person whose signature appears thereon to have
become a party thereto for value, the Court of Appeals
said that while the subject promissory notes and letters
of credit issued by the PBCom made no mention of
delivery of cash, it is presumed that said negotiable
instruments were issued for valuable consideration.
-Petitioners contend that there was no proof that the
proceeds of the loans or the goods under the trust
receipts were ever delivered to and received by MICO.
ISSUE
WON the proceeds of the loans and letters of credit
transactions were ever delivered to MICO
HELD: YES
-In civil cases, the party having the burden of proof
must establish his case by preponderance of evidence.
During the trial of an action, the party who has the
burden of proof upon an issue may be aided in
establishing his claim or defense by the operation of a
presumption, or, expressed differently, by the probative
value which the law attaches to a specific state of facts.
A presumption may operate against his adversary who
has not introduced proof to rebut the presumption. The
[Ch 6&7 - G]
G]
effect of a legal presumption upon a burden of proof is

to create the necessity of presenting evidence to meet
the legal presumption or the prima facie case created
thereby, and which if no proof to the contrary is
presented and offered, will prevail. The burden of proof
remains where it is, but by the presumption the one
who has that burden is relieved for the time being from
introducing evidence in support of his averment,
because the presumption stands in the place of
evidence unless rebutted. Under Section 3, Rule 131 of
the Rules of Court the following presumptions, among
others, are satisfactory if uncontradicted: a) That there
was a sufficient consideration for a contract and b) That
a negotiable instrument was given or indorsed for
sufficient consideration. As observed by the Court of
Appeals, a similar presumption is found in Section 24 of
the Negotiable Instruments Law which provides that
every negotiable instrument is deemed prima facie to
have been issued for valuable consideration and every
person whose signature appears thereon to have
become a party for value. Negotiable instruments
which are meant to be substitutes for money, must
conform to the following requisites to be considered as
such a) it must be in writing; b) it must be signed by
the maker or drawer; c) it must contain an
unconditional promise or order to pay a sum certain in
money; d) it must be payable on demand or at a fixed
or determinable future time; e) it must be payable to
order or bearer; and f) where it is a bill of exchange,
the drawee must be named or otherwise indicated with
reasonable certainty. Negotiable instruments include
promissory notes, bills of exchange and checks.
Letters of credit and trust receipts are, however,
not negotiable instruments. But drafts issued in
connection with letters of credit are negotiable
instruments.
-Private respondent PBCom presented the following
documentary evidence to prove petitioners credit
availments and liabilities: Promissory Notes, Irrevocable
letter of credits, drafts, trust receipts.
-The above-cited documents presented have not
merely created a prima facie case but have actually
proved the solidary obligation of MICO and the
petitioners, as sureties of MICO, in favor of respondent
PBCom. While the presumption found under the
Negotiable Instruments Law may not necessarily
be applicable to trust receipts and letters of
credit, the presumption that the drafts drawn in
connection with the letters of credit have
sufficient consideration. Under Section 3(r), Rule
131 of the Rules of Court there is also a
presumption that sufficient consideration was
given in a contract. Hence, petitioners should
AY 2008-09
have presented credible evidence to rebut that

presumption as well as the evidence presented
by private respondent PBCom. The letters of credit
show that the pertinent materials/merchandise have
been received by MICO. The drafts signed by the
beneficiary/suppliers
in
connection
with
the
corresponding letters of credit proved that said
suppliers were paid by PBCom for the account of MICO.
On the other hand, aside from their bare denials
petitioners did not present sufficient and competent
evidence to rebut the evidence of private respondent
PBCom. Petitioner MICO did not proffer a single piece of
evidence, apart from its bare denials, to support its
allegation that the loan transactions, real estate
mortgage, letters of credit and trust receipts were
issued allegedly without any consideration.
MERCER COUNTY V HACKETT
US Supreme Court; 1 Wall. 83; 1863
~brian b~
FACTS
SUBJECT: Bonds issued for stock in Pittsburgh and Erie
(Railroad) Company [PEC] payable in 20 years
MAKERS: County of Mercer, Commonwealth of
Pennsylvania
PAYEE: PEC or bearer
BEARER: Hackett
-Legislature of Pennsylvania authorized Mercers
commissioners to subscribe to stock of PEC, where the
railroad if built would pass through their county and
benefit it. The act, however, had a restriction wherein
the bonds to be issued shall in no case be sold,
assigned, or transferred by the PEC at less than par
value.
-Rightly or wrongly w/ or w/o authority the bonds to
the extent of several thousand of dollars were issued.
The instruments were elegantly engraved, with such
external indications as were calculated to arrest the
eye, and through it to inspire confidence. It was signed
by the Mercer commissioners, attested by their clerk,
and authenticated by the county seal conspicuously
put. It was announced as issued for stock in the PEC.
The pertinent obligatory part, read:
the County of Mercer (Pennsylvania) is indebted
to (PEC) in the full and just sum of ($1k), which sum
said county agrees to pay, (20yrs after date), to
(PEC) or bearer, annually upon delivery of the
coupons severally hereto annexed the faith, credit
and property of the County of Mercer are hereby
solemnly pledged, under the authority of an act of
Assembly of this Commonwealth
[Ch 6&7 -
-A number of bonds were obtained, bona fide and for

value paid, by Hackett. And the coupons, being due and
unpaid, Hackett sued the county of Mercer.
-Circuit Court pointed out the faith, credit and
property part and declared that the instruments
were on their face complete and perfect; exhibiting no
defect in form of substance.
ISSUE
WON evidence of fraud practiced by the railroad
company to whom these bonds were delivered, and by
whom they were paid to bona fide holders for value, or
the fact that they were negotiated at less than their par
value, be received to defeat the recovery of Hackett
HELD: NO
-The species of bonds is a modern invention, intended
to pass by manual delivery, and to have qualities of
negotiable paper; and their value depends mainly upon
this character. Being issued by States and corporations
they are necessarily under seal. But there is nothing
immoral or contrary to good policy in making them
negotiable, if the necessities of commerce require that
they should be so. A mere technical dogma of the
courts cannot prohibit the commercial world from
inventing or using any species of security not known in
the last century. When a corporation covenants by
these means and obtains funds for the accomplishment
of the useful enterprises of the day, it cannot be
allowed to evade payment by parading some obsolete
judicial decision that a bond, for some technical reason,
cannot be made payable to bearer.
-The epidemic insanity of the people, the folly of county
ofiicers, the knavery of railroad speculators are pleas
which might have just weight in an application to
restrain the issue or negotiation of these bonds, but
cannot prevail to authorize their repudiation, after they
have been negotiated and have come into the
possession of bona fide holders
Disposition Judgment affirmed.
MANKER V AMERICAN SAVINGS & TRUST CO
Washington SC, 131 Wash. 430, 230 Pac. 406 (1924)
~mini~
FACTS
SUBJECT: 2 local improvement bonds which were stolen
from the appellants safety deposit box. The bonds
provide that:
- the holders shall have no claim against the city,
except from the special assessment made for the
improvement for which bond was issued
[Ch 6&7 - H]
H]
- the city of seattle promises to pay or bearer out of

the fund established by ordinance No. 36562 of said
city ( local improvement fund district No. 3032) and
not otherwise
- the holders or owners of this bond shall look only to
said fund for the payment of either the principal or
interest in this bond
HOLDER: respondent bank (American Savings)
-The bonds were stolen and came into the possession
of the respondent bank, which purchased it in due
course of business. The respondent City of Seattle has
the funds ready to pay the bonds.
ISSUE
(Who is entitled to the payment on the bonds, appellant
or respondent bank?)
WON these bonds are negotiable instruments
HELD: NO, they are not negotiable instruments.
Therefore the appellant is entitled to payment on
the bonds.
-Negotiable instruments must contain an unconditional
promise or order to pay a sum certain in money. An
order or promise to pay only out of a particular fund is
not unconditional. Therefore, these bonds, which
provide for the particular fund out of which the bonds
are to be paid, are not negotiable.
-Respondent bank argues that these bonds should be
held negotiable as a matter of public policy, because
large sums of money are now invested in securities of
that sort, and to hold them as non-negotiable would be
to destroy their market value, and few persons would
assume the risk incident to purchasing these bonds, if
they are not negotiable. The court cannot decide these
questions upon a matter of public policy, however.
Where the law is as plain as it is here, the decision
must be governed by the law.
Disposition The appellant will be entitled to the
amount held by the city of Seattle for the exctinction of
his bonds.
ENOCH V BRANDON
New York CA; 249 N.Y. 263, 164 N.E. 45; 1928
~ricky~
FACTS
SUBJECT: series of bonds for $7,500,000 payable on
Nov1, 1941 to bearer, or, if registered, to the registered
holder. They are all equally secured by and entitled to
the benefits and subject to the provisions of a trust
mortgage and redeemable at 105% and interest at
AY 2008-09
[Ch 6&7 -
certain dates. The bonds may become due in advance

of maturity in case of default under the mortgage. The
bonds contain a provision allowing it to be registered in
the usual way, and, except where registered, they are
to be treated as negotiable, and all persons are invited
by the company to act accordingly.
MAKER/ISSUER: The Manitoba Power Company. It was
obliged to create a sinking fund to provide for its
purchase and redemption.
CONTROVERSY: It appears from the disposition of the
case that some of these Manitoba bonds were
purchased in due course from a thief; hence, the title of
the purchaser was put in issue. The lower court (called
the Trial Term) held that the bonds were negotiable
hence the purchaser in due course may retain them but
the Appellate Division reversed.
upon the bondholders and limit and explain those

rights. They are speaking solely of security. It would
never occur to a purchaser, scanning the bonds, that
because of something contained in the mortgage he
might be unable to collect the amount due him. It only
means that the bonds are to be issued not only upon
the general credit of the corporation but upon the faith
of some collateral mortgage.
-The acceleration clause in case of the default, the
privilege given the obligor to redeem before maturity at
certain dates, the obligation to create a sinking fund or
the fact that the bonds are payable to bearer, or, if
registered, to the registered holder does not affect the
bonds negotiability.
Disposition Decision of the Appellate Division
reversed and that of the Trial Term affirmed.
ISSUE
WON the bonds are negotiable instruments, hence, a
purchaser in due course from a thief may retain them.
ARANETA V PHIL. NATL BANK

95 Phil. 160 (1954)
~joey~
HELD: YES.
Ratio The NIL deals with the form of the instrument
with what a mere inspection of its face should disclose.
Reference to the paper itself said to be negotiable
determines its character.
Reasoning If in the bond or note anything appears
requiring reference to another document to determine
whether in fact the unconditional promise to pay a fixed
sum at a future date is modified or subject to some
contingency, then the promise is no longer
unconditional. The rule itself is not a difficult one. The
trouble lies in its application to particular facts. There is
no infallible test as to whether there is a modification of
the promise. Because of differences in the words used,
or in the arrangement of paragraphs, sentences, or
clauses, each instrument must be interpreted by itself.
The instrument must be considered as a whole and
when the meaning is doubtful, the construction most
favorable to the bondholder must be adopted.
-The bonds in this case, speaking of possible
redemption, of acceleration of payment, of a sinking
fund, and notice, it continues: All as provided in the
trust mortgage, to which reference is hereby made for
a description of the property mortgaged and pledged,
the nature and extent of the security, the rights of the
holders of the bonds with respect thereto, the manner
in which notice may be given to such holders, and the
terms and conditions under which said bonds are
issued and secured.
-There is no modification of the promise to pay made in
explicit terms. The provisions all have to do with the
trust mortgage. They refer to the rights conferred by it
FACTS
-PNB granted Aranetas application for a commercial
letter of credit in favor of Allied National Corporation for
$7,440.
-A draft for $4,013.13 was negotiated by PNBs
correspondent bank in London, Barclays Bank Ltd.,
against Aranetas credit. PNB paid Barclays the amount
of the draft.
-By the time the draft matured, the British pound was
devaluated from the rate of $4.0325 to $2.80124.
-On the first business day after the maturity of the
draft, PNB sent Araneta a bill of P33,727.92 and on the
same date Araneta forwarded to PNB a check for
P23,194.37 in full payment of its indebtedness.
-The check was returned without acknowledgment.
Araneta re-transmitted the check. PNB issued a receipt
stating that it was received as partial payment and that
there was still a P10,533.55 balance.
-PNB debited Aranetas overdraft with the amount of
the balance. Hence, Araneta filed present complaint.
-CFI dismissed complaint
ISSUE
WON Araneta should be liable for the value of the draft
under the devauated exhange rate
HELD: NO
-Aranetas application for a commercial letter of credit,
as granted by PNB, is the contract between the parties.
-Although the plaintiffs application provides for
payment at maturity of the draft, this refers merely to
the time when the plaintiff was bound to pay, and not
[Ch 6&7 - I]
I]
to the rate of exchange at which the draft was drawn

and presented or negotiated.
-The application provides that the plaintiff promised
and agreed to pay at maturity in Philippine currency,
the equivalent of any amount that might be drawn or
paid upon the faith of the plaintiffs credit and that the
plaintiff agreed to reimburse the defendant bank in
said manner.
-It is admitted that the PNB actually paid for the draft in
question was P33,727.92. Moreover, the tern
reimburse requires the return of something paid.
Disposition Appealed judgment is affirmed.
NATL RICE & CORN CORP V PAN-PHIL SHIPPING

(CA) 51 O.G. No. 11, 5564; Sanchez
~chriscaps~
FACTS
-The parties entered into contract of purchase and sale,
where Pan-Phil agreed to sell & deliver to NARIC 850
metric tons of Ecuadorian Fortuna Canilla rice at US
$12.51, per 100 pounds net shipped weight final, CIF
Manila.
-Goods were shipped in good condition fr Ecuador.
-Contract calls for bond of P20K by Pan-Phil in favor of
Naric. In accordance w/ this, Pan-Phil, as principal, and
RF Navarro w/ Julian Salgado (deceased), as sureties,
executed a bond. Appellants obligated themselves,
jointly and severally, to answer for faithful performance
by Pan-Phil of its obligations.
-The contract also provides that Naric agrees to open
by cable an irrevocable letter of credit (LC) against full
shipping docs w/ certificate of quality issued by
representative of Naric, in favor of Nicholas Graver &
Sons (agent of Pan-Phil), of California and/or assignee,
for $2,579,155.42, payable in New York negotiation of
drafts to expire not later than Jan 31, 1947.
-Accdg to contract, in case of non-shipment by Nov 30,
1948, except force majeure beyond control of Pan-Phil,
Pan-Phil shall pay/reimburse Naric for bank commission
and miscellaneous banking charges in connection w/
contract.
-Naric applied to PNB for opening of LC.
-PNB, on same date of contract, arranged w/ and
transmitted by cable to Anglo-California Natl Bank
irrevocable LC No. 25865, payable on sight against
complete shipping docs w/ certificate as to weight,
quality and moisture content of the rice.
-PNB charged Naric P12,907.77 for the opening of the
AY 2008-09
LC; PNB debited Narics account.

-Pan-Phil failed to ship the rice.
ISSUE
WON Pan-Phil is liable
HELD: YES
-Naric complied w/ its obligations. Pan-Phil says nonshipment was due to causes beyond its control that
the rice wasnt shipped bec Nicholas Graver & Sons
relinquished its interest in the LC upon alleged ground
that its terms didnt conform w/ conditions of the
contract. But one thing is certain. The LC is in accord
with the contract. Mere refusal of beneficiary to use LC
cant be force majeur w/in meaning of the law. PanPhils liability to reimburse Naric for bank expenses is
inescapable.
-Pan-Phil claims the LC was subsequently cancelled.
But the LC, being irrevocable and in favor of a specified
party, cant be changed by Naric or the bank w/o
consent of the beneficiary and Pan-Phil.
-Its a banking practice for bank to collect commission
& charges for its svcs in opening of LC irrespective of
WON beneficiary uses the LC. First, because svcs were
actually rendered by bank in negotiation of LC w/ the
banks addressee at San Francisco and second,
because the minute the said bank cabled the LC to its
correspondent at San Francisco, the former became
exposed to liability thereon until it was cancelled.
BPI V DE RENY FABRIC INDUSTRIES
35 SCRA 256; Castro; Sept 16, 1970
~del~
FACTS
-On 4 different occasions in 1961, De Reny through
Aurora Carcereny (aka Aurora Gonzales), president and
Aurora Tuyo, secretary of the corporation, applied to
the BPI for 4 irrevocable commercial letters of credit
(L/C) to cover the purchase of goods such as dyestuffs
from their supplier J. B. Distributing Co.
-All the applications of the corporation were approved
and the corresponding commercial L/C agreements
were executed pursuant to banking procedures.
-Under the agreements, the aforementioned officers
bound themselves personally as joint and solidary
debtors with the corporation.
-As per bank regulations then in force, De Reny
delivered to BPI peso marginal deposits as each L/C
was opened.
-BPI then issued irrevocable commercial L/Cs addressed
to its correspondent banks in the US with uniform
[Ch 6&7 -
instructions for them to notify the beneficiary thereof,

JB Distributing Co, that they have been authorized to
negotiate the latters sight drafts up to the amounts
mentioned therein, if accompanied upon presentation,
by full set of negotiable clean on board ocean bills of
lading, covering the merchandise appearing on the L/Cs
(ie dyestuffs).
-Consequently, the corresponding banks debited the
account of BPI w/ them up to the full value of the drafts
presented by the JB Dist. Co. plus commission thereon,
and thereafter, endorsed and forwarded all documents
to BPI.
-As each of the shipments arrived, De Reny made
partial payments to BPI however, further payments
were discontinued subsequently as a result of the
chemical test wherein it was found that the goods that
arrived in Manila were not dyestuffs but were colored
chalks.
-De Reny refused to take possession of the goods so
BPI caused them to be deposited w/ a bonded
warehouse and sued De Reny.
-The lower court ordered the defendants to pay BPI w/
interest.
ISSUE
WON it was the duty of the correspondent banks of BPI
to take the necessary precaution to ensure that the
goods shipped under the covering L/C conformed w/ the
item appearing therein TF having failed to do so, no
claim for recoupment could be had against the
defendants
HELD: NO, defendants are liable for recoupment.
-Under the terms and conditions of their commercial
L/C agreement with BPI, the defendants agreed that BPI
shall not be responsible for the existence, character,
quality, quantity, conditions, packing, value or delivery
of the property purporting to be represented by
documents; for any difference in character, quality,
quantity, condition, or value of the property from that
expressed in documents, or for partial or incomplete
shipment, or failure or omission to ship any or all the
property referred to in the Credit, as well as for any
deviation from instructions, delay, default, or fraud by
the shipper or anyone else in connection with the
property
the
shippers
or
vendors
and
ourselves(purchasers) or any of us.
-Having agreed to these terms, the defendants have to
comply w/ their covenant.
-But even w/o said stipulation, they are still liable
because banks, in providing financing in intl business
transactions such as those entered into by the
defendants, do NOT deal with the property to be
[Ch 6&7 - J]
J]
exported or shipped to the importer but deal

only with documents (as per Art 10 of the
Uniform Customs and Practices for Commercial
Documentary Credits Fixed for the 13th Congress
of Intl Chamber of Commerce)
-Having proved that there exists a custom in intl
banking and financing circles negating any duty on the
part of a bank to verify whether what has been
described in the L/Cs or drafts or shipping docs actually
tallies with what was loaded in the ship, the defendants
are bound by said established usage.
Disposition Judgment affirmed.
SANTAMARIA V HSBC
Bautista-Angelo; 89 Phil. 780 (1951)
~jaja~
FACTS
-Santamaria bought 10,000 shares of the Batangas
Minerals through the offices of Woo, Uy-Tioco & Naftaly,
a stock brokerage firm and paid therefore the sum of
P8,014.20 as shown by receipt Exh. B. The buyer
received Stock Certificate No. 517, Exh. E, issued in
the name of Woo Uy-Tioco & Naftaly and indorsed in
blank by this firm. On March 9, 1937, Mrs. Santamaria
placed an order for the purchase of 10,000 shares of
the Crown Mines Inc. with R.J. Campos & Co. a
brokerage firm and delivered Certificate No. 517 to the
latter as security therefor with the understanding that
said certificate would be returned to her upon payment
of the 10,000 Crown Mines, Inc. shares. Exh. D is the
receipt of the certificates in question signed by one Mr.
Coscolluela, manager of the R.J. Campos & Co., Inc.
According to certificate, Exh. E, R.J. Campos & Co.,
Inc. bought for Mrs. Josefa T. Santamaria 10,000 shares
of the Crown Mines, Inc. at .225 a share, or the total
amount of P2,250.00.
-At the time of the delivery of Stock Certificate No. 517
to R.J. Campos & Co., Inc. this certificate was in the
same condition as that when Mrs. Santamaria received
it from Woo, Uy-Tioco & Naftaly, with the sole
difference that her name was later written in lead
pencil on the upper right hand corner thereof.
-Two days later, on March 11, Mrs. Santamaria went to
R.J. Campos & Co., Inc. to pay for her order of 10,000
Crown Mines shares and to get back Certificate No.
517. Coscolluela then informed her that R.J. Campos &
Co., Inc. was no longer allowed to transact business due
to the prohibition order from the Securities and
Exchange Commission. She was also informed that her
stock certificate was in the possession of the Hongkong
& Shanghai Banking Corporation (HSBC). Certificate No.
517 came into the possession of the HSBC because R.J.
AY 2008-09
Campos & Co., Inc. had opened an overdraft account

with this bank and to this effect it had executed on
April 16, 1936 a document of hypothecation, Exh. I,
by the term of which pledged to the said bank all the
stocks, shares, and securities which I/We may hereafter
come into their possession on my/our account and
whether originally deposited for sale custody or for any
other purpose whatever or which may hereafter be
deposited by me/us in lieu of or in addition to the
Stocks, Shares and Securities now deposited for any
other purposes whatsoever.
-On March 11, 1937, as shown by Exh. G, Certificate
No. 517, already indorsed by R.J. Campos & Co., Inc. to
the HSBC, was sent by the latter to the office of the
Batangas Minerals, Inc. with the request that the same
be cancelled and a new certificate be issued in the
name of R.W. Taplin as trustee and nominee of the
banking corporation. Taplin was an officer of this
institution in charge of the securities belonging to or
claimed by the bank. As per this request the Batangas
Minerals, Inc. on March 12, 1937, issued Certificate No.
715 in lieu of Certificate No. 517, in the name of Taplin
as trustee and nominee of the HSBC.
-Mrs. Santamaria said she made the claim to the bank
for her certificate, though she did not remember the
exact date, but it was most likely on the following day
of that when she went to Coscolluela for the purpose of
paying her order for 10,000 shares of the Crown Mines,
Inc. or else on March 13, 1937. In her interview with
Taplin, the banks representatives, she informed him
that the certificate belonged to her and she demanded
that it be returned to her. Taplin then replied that the
bank did not know anything about the transaction had
between her and and R.J. Campos & Co., Inc. and that
he could not do anything until the case of the bank with
Campos shall have been terminated. This declaration
was not contradicted by the adverse party.
-In Civil Case No. 51224, R.J. Campos & Co., Inc. was
declared insolvent, and on July 12, 1937, the HSBC
asked permission in the insolvency courts to sell the
R.J. Campos & Co., Inc. securities listed in its motion by
virtue of the document of hypothecation, court granted
this motion.
-On June 13, 1938, the 10,000 shares of Batangas
Minerals, Inc. represented by Certificate No. 715 were
sold to the same bank by the Sheriff for P300.00 at the
foreclosure sale authorized by said order. R.J. Campos,
the president of R.J. Campos & Co., Inc. was prosecuted
for estafa and found guilty of this crime and was
sentenced by the Manila Court of First Instance in
Criminal Case No. 54428, to an imprisonment and to
indemnify the offended party, Mrs. Josefa Santamaria,
in the amountof P8,041.20 representing the value of
[Ch 6&7 -
the 10,000 shares of Batangas Minerals, Inc. (Exhs. I

and J). The offended party and RW Taplin were
among the witnesses for the prosecution in this
criminal case No. 54428.
-When Mrs. Santamaria failed in her efforts to force the
civil judgment rendered in her favor in the criminal
case because the accused became insolvent, she filed
her complaint in this case on October 11, 1940. At the
trial both parties agreed that the 10,000 Batangas
Minerals shares formerly represented by Certificate No.
517 and thereafter by Certificate No. 715, have no
actual market value. Defendants-appellants contend in
the first place that the trial court erred in finding that
the plaintiff-appellee was not chargeable with
negligence in the transaction which gave rise to this
case.
ISSUE
WON defendant bank was obligated to inquire who the
real owner of the shares represented by the certificate
of stock was
HELD: NO.
-The certificate of stock in question was issued in the
name of the brokerage firmWoo, Uy-Tioco & Naftaly
and that said indorsement was guaranteed by R.J.
Campos & Co., Inc., which in turn indorsed it in blank.
This certificate is what is known as street certificate.
Upon its face, the holder was entitled to demand its
transfer into his name from the issuing corporation. The
Bank was not obligated to look beyond the certificate to
ascertain the ownership of the stock at the time it
received the same from R.J. Campos & Co., Inc. for it
was given to the Bank pursuant to their letter of
hypothecation. Even if said certificate had been in the
name of the plaintiff but indorsed in blank, the Bank
would still have been justified in believing that R.J.
Campos & Co. Inc. had the title thereto for the reason
that it is a well-known practice that a certificate of
stock, indorsed in blank, is deemed quasi negotiable,
and as such the transferee thereof is justified in
believing that it belongs to the holder and transferor.
-A mere claim of ownership does not establish the fact
of ownership. The right of the plaintiff in such a case
would be against the transferor. The fact that on the
right margin of said certificate the name of the plaintiff
appeared written, granting it to be true, cannot be
considered sufficient reason to indicate that its owner
was the plaintiff considering that said certificate was
indorsed in blank by R.J. Campos & Co., Inc. and was
transferred in due course by the latter to the Bank
under their letter of hypothecation. Said indicium could
[Ch 6&7 - K]
K]
at best give the impression that the plaintiff was the

original holder of the certificate.
Disposition Decision modified in the sense of ordering
the defendant to deliver to the plaintiff certificate of
stock No. 715
DELOS SANTOS V McGRATH
96 Phil 577 (1955)
~iNa~
FACTS
-Plaintiff is claiming ownership of 1.6 M shares of stock
of Lepanto Consolidated Mining Co., Inc. covered by
several stock certificates issued in favor of Vicente
Madrigal, who is the registered owner in the books of
Lepanto and whose indorsement in blank appears on
the back of said certificates. The certificates except
one, covering 55k shares, are in plaintiff's possession.
-Santos claims he bought the shares from different
persons (Campos and Hess) in 1942. Ownership of said
shares was vested in the Alien Property Custodian of
the US by virtue of an order in 1945. The Administrator
denied plaintiff's claim on the ground that the stocks
were bought by Madrigal in trust for and for the benefit
of Mistui Busaan Kaisha (a Japanese corp); that Mitsui
kept the certificates in its office in Manila until
liberation; and that the certificates were never sold or
otherwise disposed of so that they were probably stolen
during the war.
-Plaintiff couldn't produce as witnesses the persons
from whom he bought the stocks because they died in
the war.
ISSUES
1. WON plaintiff had purchased the shares of stock
2. WON stock certificates are negotiable instruments
HELD
1. NO.
-Even if Campos and Hess did sell the shares, the
result, insofar as plaintiff is concerned, would be the
same. The shares were registered, and are still, in the
name of Madrigal. It was not disputed that he was a
mere trustee. It was proven that Mitsui never sold or
otherwise disposed of the shares.
-According to the Corporation Law, a share of stock
may be transferred by endorsement of the
corresponding stock certificate, coupled with its
delivery. However, the transfer shall not be valid,
except as between the parties, until it is entered and
noted upon the books of the corporation. Therefore, the
alleged sale by Campos and Hess is not valid except as
AY 2008-09
between them and plaintiff. It doesn't bind Madrigal of

Mitsui.
2. NO
-Although a stock certificate is sometimes regarded as
quasi-negotiable, in the sense that it may be
transferred by endorsement, coupled with delivery, the
instrument is non-negotiable, because the holder
thereof takes it without prejudice to such rights or
defenses as the registered owner may have under the
law, except if the circumstances properly call for
application of estoppel.
-Even if the owner of the certificate has endorsed it in
blank, and it is stolen from him, no title is acquired by
an innocent purchaser for value.
-The title of the true owner of a lost or stolen certificate
may be asserted against any one subsequently
obtaining possession although the holder may be a
bona fide purchaser.
CAPCO V MACASAET
L-9088; 189 SCRA 561; Sept 13, 1990
~chrislao~
FACTS
-Capco was a stockholder, director & executive VP of
Monte Oro Mineral, a local mining company.
-He owned shares of capital stock of Monte Oro. It's
total value was over 565K.
-Capco INDORSED and delivered his 2 stock
certificates (02 and 26) to Macasaet, President of Monte
Oro.
Macasaet
received
it
with
an
ACKNOWLEDGMENT
RECEIPT
wherein
he
acknowledged that he received said certificates in trust
and for safekeeping only to be delivered to Capco ON
DEMAND.
-Capco demanded the return of his certificates.
Macasaet replaced cert 26 with his own. As for the
other certificate, it was returned later than cert26. Note
that both certificates were not returned on demand.
-Capco filed a complaint saying that because of the
delay, he lost over 300K.
-Macasaet said that there was delay because Feliciano,
the person to whom he entrusted the certificates, failed
to return the same.
-TC in favor of Capco. CA reversed.
ISSUE
WON CA erred.
HELD: NO. CA did not err.
-Certificates of stocks are considered "quasinegotiable"
instruments.
When
the
owner/shareholder of these certificates signs the
[Ch 6&7 -
printed form of sale /assignment at the back of every

stock certificate without filling in the blanks provided
for the name of the transferee and name of atty-in-fact,
the said owner/stockholder, in effect, confers on
another all the indicia of ownership of said certificates.
-In the case at bar, Capco signed the printed form at
the back of both certificates without filling in the
blanks. Capco's acts of indorsement and delivery
conferred on Macasaet the right to hold them as though
they were his own. Because of this, there was nothing
irregular about Macasaet delivering the certificates to
Feliciano for a consideration in connection with the
contemplated business tie-up.
-This is the way to look at the case, notwithstanding the
Acknowledgment Receipt.
ROMAN V ASIA BANKING CORP

Ostrand; 46 Phil. 705 (1922)
~apple~
FACTS
-Umberto de Poli purchased 2,777 bales of tobacco
from Felisa Roman
-Of the P78,815.69 total value, de Poli paid P15,000 in
cash. He executed 4 notes of P15,953.92 each for the
balance
-On November 18, 1920, de Poli, for value received,
issued a negotiable receipt (quedan) covering 576
bales of tobacco, to the Asia Banking Corporation
-De Poli became insolvent and insolvency proceedings
were filed
-In said proceeding, the CFI declared the vendor's lien
claimed by Felisa Roman on the 576 bales of tobacco
superior to that claimed by Asia Banking Corporation
-Hence, this appeal
ISSUE
WON Felisa Roman's right over the 576 bales of
tobacco is superior to that of Asia Banking Corporation
HELD: NO.
-Sec 49 of Act No. 2138 provides: Where a negotiable
receipt has been issued for goods, no seller's lien or
right of stoppage in transitu shall defeat the rights of
any purchaser for value in good faith to whom such
receipt has been negotiated, whether such negotiation
be prior or subsequent to the notification to the
warehouseman who issued such receipt of the seller's
claim to a lien or right of stoppage in transitu. Nor shall
the warehouseman be obliged to deliver or be justified
[Ch 6&7 - L]
L]
in delivering the goods to an unpaid seller unless the

receipt is first surrendered for cancellation.
-There can be no doubt that if the quedan or the
warehouse receipt in question is negotiable, the
vendor's lien of Felisa Roman cannot prevail over the
rights of Asia Banking Corporation as the indorsee of
the receipt.
-The question of whether or not the receipt issued in
favor of Asia Banking Corporation is negotiable is not
entirely free from doubt because the receipt is not
perfect. It recited that the merchandise is deposited in
the warehouse, "por orden" instead of "a la orden" or
sujeto ala orden" of the depositor and it contains no
other direct statement showing whether the goods
received are to be delivered to the bearer, to a
specified person, or his order.
-The SC held that it must be considered a negotiable
receipt.
-A warehouse receipt, like any other document, must
be interpreted according to its evident intent
-It is quite obvious that the deposit evidenced by the
receipt was intended to be made subject to the order of
the depositor and therefore, negotiable.
-The instrument must be construed to mean that de
Poli was the person authorized to endorse and deliver
the receipt; any other interpretation would mean that
no one had such power and the clause, as well as the
entire receipt, would be rendered nugatory
-Also, the receipt was not marked "non-negotiable."
Modern statutes have enlarged the negotiability of
warehouse receipts, making such receipts negotiable
unless marked "non-negotiable."
-Sec 7 of our Warehouse Receipts Act says: "A nonnegotiable receipt shall plainly place upon it's face by
the warehouseman issuing it 'non-negotiable,' or 'not
negotiable.' In case of the warehouseman's failure to do
so, a holder of the receipt who purchased it for value
supposing it to be negotiable may, at his option, treat
such receipt as imposing upon the warehouseman the
same liabilities he would have incurred had the receipt
been negotiable."
JOHN S. HALE & CO V BELEY COTTON CO
Tennessee SC; 154 Tenn 689, 200 SW 994 (1927)
~rach~
FACTS
-Hale Co. sold to the Beley Cotton Co. 222 bales of
cotton represented by warehouse receipts and bills of
lading. These documents of title were delivered by Hale
to the Beley Cotton upon receipt of checks of that
company, aggregating $33,738.83, drawn on Union and
Planters Bank. All these checks were dishonored.
AY 2008-09
-In exchange for warehouse receipts thus acquired by

Beley Cotton, issued by a Memphis warehouse, the
Beley Co. procured clearance certificates. Beley Cotton
then attached these clearance certificates, the
remaining warehouse receipts, and the bills of lading to
drafts drawn by it on customers and deposited these
drafts to the credit of its account in defendant bank.
Beleys credit with the bank had been exhausted by
other checks, so that, the checks for Hale were
returned unpaid.
ISSUE: WON the bank acquired the title to the goods
(being an innocent purchaser for value from Beley
Cotton of the said documents of title)
HELD: NO. Transferee of order bills of lading, not
indorsed by person to whom goods were deliverable,
took no better title than transferor. Transferee of
"order" warehouse receipts, not indorsed by person to
whose order goods were deliverable, acquired no
greater title than transferor.
Re: FIRST LOT represented by warehouse
receipts-Beley Cotton did not undertake to negotiate
these receipts to the bank, but, exchanged said
receipts with the Memphis warehouse, which issued
them for clearance certificates of that warehouse, and
pinned the clearance certificates to the draft made on
account of this lot of cotton and deposited with the
bank. The clearance certificates recited on their face
that they were not negotiable. Under these
circumstances, the bank acquired no better title to this
lot of cotton than the Beley Cotton Company
possessed. The Beley Cotton Company, however, could
not pass a title which it did not have, except by an
instrument to which the law gave negotiability, and the
clearance certificates were expressly nonnegotiable.
Re: SECOND LOT represented by warehouse
receipts-The bank got no better title to the cotton
represented by these warehouse receipts than was
possessed by the Beley Cotton. Beley acquired no title
by reason of the fact that its checks given for the
cotton were dishonored. Since the receipts we are
considering had not been indorsed by the person to
whose order the goods were deliverable, they could not
be indorsed and negotiated by anyone else. Although
Beley Cotton did indorse the receipts, such
indorsement by it was not effective for purposes of
negotiation.
Re: THIRD LOT represented by bills of lading-The
bills of lading in controversy had not been indorsed by
Manget Bros., the persons to whom the carrier had
undertaken to deliver the goods, when they came into
the hands of the bank. They were not in such shape
[Ch 6&7 -
that they might be negotiated by delivery. They were

not in negotiable form at all.
Disposition No error in CA decision; certiorari denied.
SOUTHERN PAC. CO V BANK OF AMERICA
District Court of Illinois; 23 Fed. 939; 1928
~cHa~
FACTS
Subject: crab meat from Japan, bill of lading, warehouse
receipts
Shipper (presumably also the consignor): Ono & Co.,
sold and assigned the bill of lading and sight draft for
$37k to Pacific National Bank (PNB)
Vendee: definitely not PNB. unnamed
Carrier: Southern Pacific Railway Company
-how Bank of America (BA) obtained the
warehouse receipts: the vendee fraudulently made
SouthPacs agents to deliver to them the crab meat
without the production of the bill of lading (in violation
of the condition that the crab meat should not be
delivered until the bill should be surrendered). Vendee
deposited goods in a public warehouse, taking
warehouse receipts. BA loaned the vendee $34k, and
the negotiable warehouse receipt is the security for the
loan. BA not aware that vendee fraudulently acquired
the goods.
-how SouthPac had title over goods: PNB found out
that the vendee fraudulently obtained the goods,
demanded from SouthPac to pay for it. SouthPac took
the assignment of the bill of lading and draft for $37k.
*so SouthPac now wants to recover the goods from BA,
instituted replevin suit
-claims of SouthPac: (1) Ono & Cos title never
passed to BA; (2)SouthPac had superior title over BA
who obtained title from a fraudulent vendee
-claims of BA: SouthPac ESTOPPED: (1) SouthPacs
agents wrongfully delivered the goods, made possible
the negotiation of the warehouse receipts (2) SouthPac
knew at the time when it obtained the title from PNB
that its agent wrongfully delivered the goods to the
vendee and that the vendee assigned the warehouse
receipts to BA for value
ISSUE
WON SouthPac could acquire the goods from BA
HELD: NO. For BA.
-It would be contrary to the established law to allow
Southern Pac, who has purchased his title with full
knowledge of the facts, to prevail against a bona fide
purchaser, for its act (through its agent) made possible
the procurement of the negotiable warehouse receipts
and the sale thereof by the vendee
[Ch 6&7 - M]
M]
Ratio. No owner of merchandise may be deprived of

title thereto, except by his consent, or by the existence
of such facts as will create an estoppel against him to
assert his title. A thief can convey no title to a bona fide
purchaser, nor can a trespasser, or other tortuous taker
of merchandise, convey a good title thereto. However,
one who secures title to property by fraudulent
misrepresentations may convey good title to a bona
fide purchaser. The vendor is there stopped to assert
its rights.
-The purchaser whom the act protects is he who is
entitled to assume that the carrier has not delivered
the goods and will not thereafter deliver them except to
a person who holds the bill of lading.
Reasoning. Here, by its fraudulent representations,
the vendee persuaded the delivering carrier to
surrender the goods. That delivery was a conscious,
voluntary delivery, induced by fraud, true it is, but none
the less a delivery consciously and voluntarily made, a
delivery within the apparent scope of the plaintiffs
agents authority. The goods were not stolen; they were
not received by the vendee as a result of a trespass,
but consent to delivery was fraudulently procured. It
follows that the purchaser from the vendee stands in
the position of the purchaser from any fraudulent
vendee, whose rights by virtue of the doctrine of
estoppel are well recognized as being superior to those
of the vendor or parties in privity with him.
W.S. BROWN MERCANTILE CO V
YIELDING BROS. DEPT STORE
SC of Alabama (1917)
~jojo~
FACTS
-Franklin, a tenant farmer, gave a chattel mortgage on
his cotton crop to Yielding Bros., which was recorded in
the office of the probate judge of the county where said
cotton was grown and stored. Subsequently, Franklin
stored the cotton in the Warrant Warehouse Co. and
took a negotiable receipt. Said receipt was sold by
Franklin for the full cash value of the cotton to W.S.
Brown, which had no actual knowledge of the prior
chattel mortgage. The chattel mortgagee (Yielding
Bros.) sued the purchaser of the warehouse receipt
(W.S. Brown) for $ 1,050, the value of the cotton.
-Under the provisions of Sec. 3373, Code 1907, the
recording of the mortgage operated as a notice of the
contents thereof.
ISSUE
WON the Warehouse Receipts Act, providing for the
negotiability of such warehouse receipts, is repealed by
AY 2008-09
Code 1907
HELD: NO.
-Yielding Bros., as chattel mortgagee, is entitled to the
value of the cotton.
Sec. 41, Warehouse Receipt Act
A person to whom a negotiable receipt has been duly
negotiated acquires thereby (a) Such title to the
goods as the person negotiating the receipt to him had
or had ability to convey to a purchaser in good faith for
value, and also such title to the goods as the depositor
or person whose order the good were to be delivered
by the terms of the receipt had or had ability to convey
to a purchaser in good faith for value, and (2) the
direct obligation of the warehouseman to hold
possession of the goods for him according to the terms
of the receipt as fully as if the warehouseman had
contracted directly with him.
-The phrase or had ability to convey to a purchaser in
good faith for value means provided such person was
such purchaser in good faith for value. If the purchaser
had actual notice, no one would contend that he was a
purchaser in good faith. Registration laws were enacted
for the purpose of giving notice, and the mortgage
herein, having been duly recorded gave the purchaser
a constructive notice so as to prevent him from being a
purchaser in good faith.
[Ch 6&7 -
[Ch 6&7 - N]
N]
AY 2008-09
DUNAGAN V GRIFFIN
CA of Texas, 151 S.W. 2d 250 (1941)
~kiyo~
ISSUE
WON Section 25 of the WRA includes an action of
replevin
FACTS
-Dunagan employed Whitehead to haul beer from
Houston to Big Springs, Texas, and gave him a check
payable to Gulf Brewing Co. as payment upon receipt of
the goods. Whitehead hauled the beer to Fort Worth for
storage in defendant Storage Companys warehouse
and received a warehouse receipt in his own name.
Defendants refused to deliver to plaintiff. Company
alleged it was told Griffin was the owner and holder of
the receipt; Griffin was interpleaded, filed intervention
stating he loaned money to Whitehead and took the
receipt as security in good faith and for value ($730).
Judgment in favor of Griffin.
HELD: YES.
The whole purpose of the section is to protect the
warehouseman who comes into possession of the
property from being liable to two parties. Moreover,
under all the evidence, Franklin was a person whose
actwould bind the owner. Harrison was a purchaser
in good faith. He had no reason to doubt the authority
of Franklin to sell the cotton as the latter was running
the ranch and selling the products for three or four
years.
SIY CONG BIENG & CO V HSBC
55 Phil. 598 (1932)
~giulia~
ISSUE
WON Griffin acquired rights to the beer
NATURE
Recovery of money for P31,645, the value of 464 bales
of hemp deposited in certain bonded warehouse as
evidence by the quedans (warehouse receipts)
HELD: NO
-Article 5616 of the Uniform Warehouse Receipts Act
provides that an indorsee of a negotiable receipt
acquires such title as the indorser or depositor had (or
the latters ability to convey to a purchaser in good
faith and for value).
-Griffin, despite his good faith, could acquire no better
title than Whitehead, who was in possession of the beer
only by virtue of his contract to transport it. Griffin only
received such title as Whitehead could have conveyed
to a purchaser of the goods in good faith and for value.
LUHRS V VALLEY RANCH CO., INC
SC of Arizona; 27 Ariz. 306. P. 1014
~athe~
FACTS
-Franklin, the person in-charge of the ranch of Luhrs
sold to Harrison four bales of cotton. Harrison, in turn,
delivered it to Valley Ranch for ginning and storage,
and held defendants negotiable warehouse receipts
therefor.
-Luhrs instituted and action in replevin to recover
possession of the bales but the defendant refused by
virtue of the Uniform Warehouse Receipts Act (Section
25 ), providing that it could not be compelled to
surrender the seized property until the receipts were
either surrendered or impounded by the court . Luhrs,
on the other hand, argues that Section 25 of the WRA
does not cover an action of replevin by the real owner
of the goods.
FACTS
-Ranft called at the office of the plaintiff to purchase
hemp (abaca)and he was offered the bales of hemp as
described in the quedans. Together with the covering
invoice, the quedans were sent to Ranft, without having
paid for the hemp, but the plaintiff's understanding was
that the payment would be made against the same
quedans, and it appears that in previous transactions of
the same kind, quedans were paid on or 2 days after
their delivery.On the date the quedans were delivered
to the defendant, Ranft died, and when the plaintiff's
found that such was the case, it immediately
demanded the return of the quedans, or the payment
of value, but was told that the quedans haed been sent
to the defendant soon as they were received by Ranft.
-Shortly after, the plaintiff files a claim for the said sum
in the intestate proceedings of the estate of the
deceased. In the mean time, demand had been made
by the plaintiff on the defendant bank for the return of
the quedans or their value, which was refused by the
bank on the ground that it was the holder of the
quedans in due course.
There upon, the plaintiff filed its first complaint against
the defendant, wherein it alleged that it had sold the
quedans to the deceased for cash, but that the
deceased had not fulfilled the conditions of the sale.
Lter on, plaintiff filed an amended complaint wherein
they changed the word 'sold' to 'attempted to sell'.
-TC rendered in favor of the plaintiff on the ground that
the defendant bank could not have acted in good faith
[Ch 6&7 -
for the reason that according to the statement of his

own witness, the quedans were delivered to the bank in
order to secure the debts of Ranftfor the payment of
their value and from which it might be deducted that
the said bank knew that the value fo the said quedans
had not been paid when it was endorsed to them.
ISSUE
WON the defendant bank is a holder in due course
HELD: YES.
-TC decision is not tenable. First, the quedans were in
negotiable in form. Second, that they were pledged by
Ranft to the defendant bank to secure the payment of
debt t bank. Third, that such of the quedans were
issued in the name of the plaintiff were duly endorsed
in blank by the plaintiff and Ranft. Fourth, that the 2
remaining quedans which were issued directly in the
name of Ranft were also duly endorsed in blank to him.
When the quedans were negotiated, Ranft was
indebted to HSBC, which indebtedness was partly
covered by quedans. Since the quedans were
negotiable in form and duly endorsed in blank by the
plaintiff and Ranft, it follows that on the delivery to the
bank they were no longer the property of the indorser
unless he liquidated his debt with the bank.
-Nothing in the record would compel the bank to
investigate the indorser. The bank had perfect right to
act.
-The warehouse receipt represents the goods, but the
entrusting of the receipt is more than the mere delivery
of the goods; it is a representation that the one to
whom the possession of the receipt has been so
entrusted has the title to the foods. The importance of
Sec 47 and Sec 41 is that if the owner of the goods
permits another to have the possession or custody of
negotiable warehouse receipts running to the order of
the latter, or to bearer, it is a representation of title
upon which bone fide purchasers for value are entitled
to reply, despite breaches of trust or violations of the
agreement on the part of the apparent owner.

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[Ch 6&7 - A]

Law 108: Negotiable Instruments First Semester

CHAPTER VI: DISCHARGE

Prof. Rogelio V. Quevedo

were intended to cover the checks issued by Nell Co. to

Law 108: Negotiable Instruments First Semester

Prof. Rogelio V. Quevedo

Law 108: Negotiable Instruments First Semester

JONES ADMRS V COLEMAN

-It is assumed that the date and the signature were

Prof. Rogelio V. Quevedo

1910, and therefore the payment to the original holders

Law 108: Negotiable Instruments First Semester

conclusion of the case, defendant moved to dismiss the

Prof. Rogelio V. Quevedo

PAYEE: John McCormick

Law 108: Negotiable Instruments First Semester

liable, but without the right to interpose the defense

Prof. Rogelio V. Quevedo

CHAPTER VII: OTHER FORMS

Law 108: Negotiable Instruments First Semester

LEE, MICO METALS CORP v. CA and PBC

availments were credited to MICOs current checking

Prof. Rogelio V. Quevedo

-Petitioners (MICO and herein petitioners-sureties)

Law 108: Negotiable Instruments First Semester

effect of a legal presumption upon a burden of proof is

have presented credible evidence to rebut that

Prof. Rogelio V. Quevedo

-A number of bonds were obtained, bona fide and for

Law 108: Negotiable Instruments First Semester

- the city of seattle promises to pay or bearer out of

Prof. Rogelio V. Quevedo

certain dates. The bonds may become due in advance

upon the bondholders and limit and explain those

ARANETA V PHIL. NATL BANK

Law 108: Negotiable Instruments First Semester

to the rate of exchange at which the draft was drawn

NATL RICE & CORN CORP V PAN-PHIL SHIPPING

LC; PNB debited Narics account.

Prof. Rogelio V. Quevedo

instructions for them to notify the beneficiary thereof,

Law 108: Negotiable Instruments First Semester

exported or shipped to the importer but deal

Campos & Co., Inc. had opened an overdraft account

Prof. Rogelio V. Quevedo

the 10,000 shares of Batangas Minerals, Inc. (Exhs. I

Law 108: Negotiable Instruments First Semester

at best give the impression that the plaintiff was the

between them and plaintiff. It doesn't bind Madrigal of

Prof. Rogelio V. Quevedo

printed form of sale /assignment at the back of every

ROMAN V ASIA BANKING CORP

Law 108: Negotiable Instruments First Semester

in delivering the goods to an unpaid seller unless the

-In exchange for warehouse receipts thus acquired by

Prof. Rogelio V. Quevedo

that they might be negotiated by delivery. They were

Law 108: Negotiable Instruments First Semester

Ratio. No owner of merchandise may be deprived of

Prof. Rogelio V. Quevedo

Law 108: Negotiable Instruments First Semester

Prof. Rogelio V. Quevedo