CONSOLIDATED PLYWOOD INDUSTRIES, INC.

v IFC
LEASING AND ACCEPTANCE CORP.
FACTS
A non-negotiable promissory note was issued:
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 (P 1,093,789.71),
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.
ISSUE
Whether or not a non-negotiable promissory note may be
assigned.
RULING
YES. The subject promissory note may be assigned. It follows
then 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.
FACTS:
Petitioner bought from Atlantic Gulf and Pacific Company,
through its sister company Industrial Products Marketing, two
used tractors. Petitioner was issued a sales invoice for the
two used tractors. At the same time, the deed of sale with
chattel mortgage with promissory note was issued.
Simultaneously, the seller assigned the deed of sale with chattel
mortgage and promissory note to respondent. The used tractors
were then delivered but barely 14 days after, the tractors
broke down. The seller sent mechanics but the tractors were
not repaired accordingly as they were no longer serviceable.
Petitioner would delay the payments on the promissory notes
until the seller completes its obligation under the warranty.
Thereafter, a collection suit was filed against petitioner for the
payment
of
the
promissory
note.

HELD:
It is patent that the seller is liable for the breach in warranty
against the petitioner. This liability as a general rule extends to
the corporation to whom it assigned its rights and interests
unless the assignee is a holder in due course of the
promissory note in question, assuming the note is
negotiable, in which case, the latters rights are based on
a negotiable instrument and assuming further that
the
petitioners
defense
may
not
prevail
against
it.
The promissory note in question
is
not
a
negotiable
instrument.
The promissory note in question lacks the socalled words of negotiability. And as such, it follows that the
respondent can never be a holder in due course
but remains merely an assignee of the note in question.
Thus, the petitioner may raise against the respondents all
defenses available to it against the seller.

BDO v Equitable Banking Corp

FACTS:
BDO drew
checks payable to member establishments.
Subsequently, the checks were deposited in Trencios
account with Equitable. The checks were sent for clearing
and was thereafter cleared.
Afterwards, BDO discovered
that the indorsements in the back of the checks were forged. It
then demanded that Equitable credit its account but the
latter refused to do so. This prompted BDO to file a complaint
against Equitable and PCHC. The trial court and RTC held in
favor
of
the
Equitable
and
PCHC.
HELD:
First, PCHC has jurisdiction over the case in question.
The articles of incorporation of PHHC extended its operation to
clearing checks and other clearing items. No doubt transactions
on non-negotiable checks are within the ambit of its jurisdiction.
Further, the participation of the two banks in the clearing
operations is submission to the jurisdiction of the PCHC.

Petitioner is likewise estopped from raising the nonnegotiability of the checks in issue.
It stamped its
guarantee at the back of the checks and subsequently
presented it for clearing and it was in the basis of these
endorsements by the petitioner that the proceeds were
credited
in
its
clearing account. The petitioner cannot now deny its liability as
it assumed the liability of an indorser by stamping its
guarantee
at
the
back
of
the
checks.
Furthermore, the bank cannot escape liability of an indorser of a
check and which may turn out to be a forged indorsement.
Whenever a bank treats the signature at the back of the checks
as indorsements and thus logically guarantees the same as
such there can be no doubt that said bank had considered
the
checks
as
negotiable.
A long line of cases also held that in the matter of
forgery in endorsements, it is the collecting bank that
generally suffers the loss because it had the dutyh to
ascertain
the
genuineness
of
all
prior indorsements
considering that the act of presenting the check for payment
to the drawee is an assertion that the party making the
presentment has done its duty to ascertain the genuineness of
the indorsements.

FACTS
Equitable Bank drew six crossed managers check payable to
certain member establishments of Visa Card. Subsequently, the
checks were deposited with Banco De Oro (BDO) to the credit of
its depositor. Following normal procedures and after stamping at
the back of the checks the usual endorsements,BDOsent the
checks for clearing through the Philippine Clearing House
Corporation (PCHC). Accordingly, Equitable Banking paid the
checks; its clearing account was debited for the value of the
checks and BDOs clearing account was credited for the same
amount. Thereafter, Equitable Banking 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.Equitable Banking presented the checks directly to BDO
for the purpose of claiming reimbursement from the latter.
However, BDO refused to accept such direct presentation and to
reimburse Equitable Banking for the value of the checks.
ISSUES
(a) Whether or not BDO is estopped from claiming that checks
under consideration are non-negotiable instruments.
(b) Whether or not BDO can escape liability by reasons of
forgery.
(c) Whether or not only negotiable checks are within the
jurisdiction of PCHC.
RULING
(a) YES. BDO 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
negotiable instruments. The checks were accepted for deposit by
the petitioner stamping thereon its guarantee, in order that it
can clear the said checks with the respondent bank. By such
deliberate and positive attitude of the petitioner it has for all
legal intents and purposes treated the said cheeks as negotiable
instruments and accordingly assumed the warranty of the
endorser when it stamped its guarantee of prior endorsements
at the back of the checks. 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.
(b) NO. 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.
(c) NO. PCHCs jurisdiction is not limited to negotiable checks
only. The term check as used in the said Articles of Incorporation
of PCHC can only connote checks in general use in commercial
and business activities. Thus, no distinction. Ubi lex non
distinguit, nec nos distinguere debemus. Checks are used
between banks and bankers and their customers, and are
designed to facilitate banking operations. It is of the essence to
be payable on demand, because the contract between the banker
and the customer is that the money is needed on demand.

VICENTA P. TOLENTINO and JOSE TOLENTINO vs CA

FACTS:
Ceferino de la Cruz, the owner of a homestead land, died in
1960; his heirs sold the land to the Tolentino spouses in 1962. In
1967, the de la Cruzes filed an action with the Court of First
Instance in Davao to repurchase the land, since the law allows a
five year period for repurchase of homestead lots. They said they
had tried to repurchase the land several times extrajudicially,
but
the
Tolentinos
refused.
By that time, however, the Tolentinos had taken two mortgages
on the land. When the first mortgage with BPI fell due, the land
was auctioned, with BPI as the highest bidder. In 1969, it was
registered to BPI.
However, the lower court decided in favor of the de la Cruzes,
and they were allowed to repurchase the land from BPI for
P16,000, and eventually acquired possession of the land in Sept.
1969.
Issue: In the case of a mortgage, is consignation necessary or is
tender of payment enough? May a check be used for tender of
payment and if so, when is the obligation extinguished? When
the check is filled out or when it is encashed?
Facts of the case: After a homestead lot they had bought and
mortgaged were ordered re-sold to the original owners by the

court, Vicenta Tolentino went to BPI with a check for P16,000,

trying to redeem the land. She was told that it was sold a year
ago, when the court decision became final. However, the
Tolentinos were told they could still redeem two other lots they
had mortgaged with BPI after paying P75,995.07, the balance of
the loan after the de la Cruzes had paid P16,000 for the
homestead lot.
Instead of redeeming the two other lots, Vicenta consigned
payment to the court, giving a crossed PNB check for
P91,995.07, for the redemption of the three lots, including the
homestead lot. However, she ordered payment stopped on the
check the following day, upon advice of counsel and to protect
her rights, she said. She said this was to prevent BPI from
encashing the check without returning all the foreclosed
properties. Then she filed a redemption case against BPI,
imputing bad faith for failing to return all the foreclosed
properties.
The complaint was dismissed. On appeal, one of the issues
raised was the mode of consignation. Art. 1249 says that debts
should be paid in the currency stipulated or, if it is not specified,
then in legal tender. Since a check is not legal tender, BPI was
not compelled to accept it.
Ratio: The court ruled that Art. 1249 does not apply in this case
because the Tolentinos debt was extinguished when the
property was foreclosed and sold to satisfy the debt. What
remained was their right to redeem said properties, which is not
an obligation but a privilege. Once they exercise the right to
redeem, they would then have an obligation to pay, but that
obligation would be extinguished only when the check is
encashed.
Since the formal offer to redeem was made during the period of
redemption prescribed by law, the Tolentinos may redeem the
two other properties mortgaged to BPI.
They were not allowed to redeem the homestead lot because the
decision of the lower court was already final and there was no
finding of grave abuse of jurisdiction that would justify a
reversal of the decision.
Judgment: Tolentinos allowed to redeem the properties within 30
days from entry of judgment, plus 1% per month interest up to

the time of redemption, together with taxes or assessments BPI

may have paid after purchase.
FIRESTONE TIRE v. CA
FACTS:
Fojas Arca and Firestone Tire entered into a franchising
agreement wherein the former had the privilege to purchase on
credit the latters products. In paying for these products, the
former could pay through special withdrawal slips. In turn,
Firestone would deposit these slips with Citibank. Citibank
would
then
honor
and
pay
the
slips.
Citibank
automatically credits the account of Firestone then merely
waited for the same to be honored and paid by Luzon
Development Bank.
As this was the circumstances,
Firestone believed in the sufficient funding of the slips
until there was a time that Citibank informed it that one
of the slips was dishonored.
It wrote then a demand
letter to Fojas Arca for the payment and damages but the
latter refused to pay, prompting Firestone to file an action
against
it.
HELD:
The withdrawal slips, at the outset, are non-negotiable. Hence,
the rule on immediate notice of dishonor is non-applicable to the
case at hand. Thus, the bank was under no obligation to give
immediate notice that it wouldn't make payment on the
subject withdrawal slips. Citibank should have known that
withdrawal slips are not negotiable instruments. It couldn't
expect then the slips be treated like checks by other entities.
Payment or notice of dishonor from respondent bank couldn't be
expected immediately in contrast to the situation involving
checks.
In the case at bar, Citibank relied on the fact that LDB honored
and paid the withdrawal slips which made it automatically
credit the account of Firestone with the amount of the
subject withdrawal slips then merely waited for LDB to honor
and pay the same.
It bears stressing though that

Citibank couldn't
the slips.

have missed the non-negotiable character of

The
essence
of
negotiability
which
characterizes
a
negotiable paper as a credit instrument lies in its freedom
to be a substitute for money.
The withdrawal slips in
question lacked this character.
The withdrawal slips deposited were not checks as
Firestone admits and Citibank generally was not bound to
accept the withdrawal slips as a valid mode of deposit.
Nonetheless, Citibank erroneously accepted the same as such
and thus, must bear the risks attendant to the acceptance
of the instruments. Firestone and Citibank could not now shift
the risk to LDB for their committed mistake.

REPUBLIC PLANTERS BANK v. CA

FACTS:
Yamaguchi and Canlas are officers of the Worldwide
Garment Manufacturing, which later changed its name to Pinch
Manufacturing. They were authorized to apply for credit
facilities with the petitioner bank. The two officers signed the
promissory notes issued to secure the payment of the
obligations.
Later, the bank instituted an action for
collection of money, impleading also the two officers. The
trial court held the two officers personally liable also.

HELD:
Canlass is solidarily liable on each of the promissory notes
to which his signature appears. The promissory notes in
question are negotiable instruments and thus, governed by the
Negotiable Instruments Law.

Under the Negotiable Instruments Law, persons who write their

names in the instrument are makers are liable as such. By
signing the note, the maker promises to pay to the order of the
payee or any holder the tenor of the obligation. Based on the
above provisions of the law, there is no denying that Canlass is
one of the co-makers of the promissory note.

CHARLES LEE, CHUA SIOK SUY, MARIANO SIO, ALFONSO YAP,

RICHARD VELASCO and ALFONSO CO, petitioners, vs. COURT
OF APPEALS and PHILIPPINE BANK OF COMMUNICATIONS,
respondents.
Facts:
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.
As per agreement, the proceeds of all the loan availments were
credited to MICOs current checking account with PBCom. To
induce the PBCom to increase the credit line of MICO,
petitioners 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.
Upon maturity of all credit availments obtained by MICO from
PBCom, the latter made a demand for payment. Private
respondent PBCom extrajudicially foreclosed MICOs real estate
mortgage upon repeated demands & emerged as the highest
bidder. For the unpaid balance, PBCom then demanded the

settlement of the aforesaid obligations from herein petitionerssureties 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.
Petitioners (MICO and herein petitioners-sureties) denied all the
allegations of the complaint filed by respondent PBCom, and
alleged that: a) MICO was not granted the alleged loans and
neither did it receive the proceeds of the aforesaid loans; b)
Chua Siok Suy was never granted any valid Board Resolution to
sign for and in behalf of MICO; c) PBCom acted in bad faith in
granting the alleged loans and in releasing the proceeds thereof;
d) petitioners were never advised of the alleged grant of loans
and the subsequent releases therefor, if any; e) since no loan was
ever released to or received by MICO, the corresponding real
estate mortgage and the surety agreements signed concededly
by the petitioners-sureties are null and void.
Issue: WON the proceeds of the loans or the goods under the
trust receipts were ever delivered to and received by MICO.
Held: It is clear that letters of credit, being usually bank to bank
transactions, involve more than just one bank. Consequently,
there is nothing unusual in the fact that the drafts presented in
evidence by respondent bank were not made payable to PBCom.
A trust receipt is considered as a security transaction intended
to aid in financing importers and retail dealers who do not have
sufficient funds or resources to finance the importation or
purchase of merchandise, and who may not be able to acquire
credit except through utilization, as collateral of the
merchandise imported or purchased.
A trust receipt, therefor, is a document of security pursuant to
which a bank acquires a security interest in the goods under
trust receipt. Under a letter of credit-trust receipt arrangement,
a bank extends a loan covered by a letter of credit, with the trust
receipt as a security for the loan. The transaction involves a loan
feature represented by a letter of credit, and a security feature
which is in the covering trust receipt which secures an
indebtedness.

DEVELOPMENT BANK OF RIZAL V. SIMA WEI

219 SCRA 736
FACTS:
Sima Wei executed a promissory note in consideration of a
loan secured from petitioner bank. She was able to pay
partially for the loan but failed to pay for the balance. She
then issued two checks to pay the unpaid balance but for
some unexplainable reason, the checks were not received by
the bank but ended up in the hands of someone else.
The bank instituted actions against Sima Wei and other
people.
The trial court dismissed the case and the CA affirmed this
decision.

HELD:
A negotiable instrument, of which a check is, is not only a
written evidence of a contract right but is also a species of
property. Just as a deed to a piece of land must be delivered in
order to convey title to the grantee, so must a negotiable
instrument be delivered to the payee in order to evidence
its existence as a binding contract. Section 16 provides
that every contract on a negotiable instrument is incomplete and
revocable until delivery of the instrument for the purpose of
giving
effect
thereto.
Thus,
the payee of the negotiable instrument acquires no interest
with respect thereto until its delivery to him. Delivery of an
instrument from the drawer to the payee, there can be no
liability on the instrument. Moreover, such delivery must be
intended to give effect to the instrument.
FACTS:

Respondent Sima Wei executed and delivered to petitioner Bank

a promissory note engaging to pay the petitioner Bank or order
the amount of P1,820,000.00. Sima Wei subsequently issued two
crossed checks payable to petitioner Bank drawn against China
Banking Corporation in full settlement of the drawer's account
evidenced by the promissory note. These two checks however
were not delivered to the petitioner-payee or to any of its
authorized representatives but instead came into the possession
of respondent Lee Kian Huat, who deposited the checks without
the petitioner-payee's indorsement to the account of respondent
Plastic Corporation with Producers Bank. Inspite of the fact that
the checks were crossed and payable to petitioner Bank and
bore no indorsement of the latter, the Branch Manager of
Producers Bank authorized the acceptance of the checks for
deposit and credited them to the account of said Plastic
Corporation.
ISSUE:
Whether petitioner Bank has a cause of action against Sima Wei
for the undelivered checks.
RULING:
No. A negotiable instrument must be delivered to the payee in
order to evidence its existence as a binding contract. Section 16
of the NIL provides that every contract on a negotiable
instrument is incomplete and revocable until delivery of the
instrument for the purpose of giving effect thereto. Thus, the
payee of a negotiable instrument acquires no interest with
respect thereto until its delivery to him. Without the initial
delivery of the instrument from the drawer to the payee, there
can be no liability on the instrument. Petitioner however has a
right of action against Sima Wei for the balance due on the
promissory note.
NEW PACIFIC TIMBER & SUPPLY CO., INC VS. SENERIS [No.
L-41764. December19, 1980.]
FACTS:

Herein petitioner was the defendant in a complaint for collection

of a sum of money filed by the private respondent. On July 19,
1974, a compromise judgment was rendered by the respondent
Judge in accordance with an amicable settlement entered into by
the parties. For failure of the petitioner to comply with his
judgment obligation, the respondent Judge, issued an order for
the issuance of a writ of execution. Accordingly, writ of execution
was issued for the amount of P63,130.00 pursuant to which, the
Ex Officio Sheriff levied upon the following personal properties
of the petitioner and set the auction sale thereof on January 15,
1975. Prior to January 15, 1975, petitioner deposited with the
Clerk of CFI the sum of P63,130.00 for the payment of the
judgment obligation, consisting of the following. (1) P50,000.00
in Cashier's Checks No. S314361 dated January 3, 1975 of the
Equitable Banking Corporation; and (2) P13,130.00 in cash. The
private respondent refused to accept the check as well as the
cash deposit. The respondent judge upheld private respondent's
claim that he has the right to refuse payment by means of a
check, the respondent Judge citing Section 63 of the Central
Bank Act, and Article 1249 of the New Civil Code.
ISSUE:
Whether or not the private respondent can validly refuse
acceptance of the payment of the judgment obligation made by
the petitioner consisting of P50,000.00 in Cashier's Check and
P13,130.00 in cash which it deposited with the Ex-Officio Sheriff
before the date of the scheduled auction sale.
HELD:
It is to be emphasized in this connection that the check
deposited by the petitioner in the amount of P50.000.00 is not an
ordinary check but a Cashier's Check of the Equitable Banking
Corporation, a bank of good standing and reputation. Where a
check is certified by the bank on which it is drawn, the
certification is equivalent to acceptance. The object of certifying
a check, as regards both parties, is to enable the holder to use it
as money. When the holder procures the check to be certified,
"the check operates as an assignment of a part of the funds to
the creditors". The exception to the rule enunciated under
Section 63 of the Central Bank Act to the effect "that a check

which has been cleared and credited to the account of the

creditor shall be equivalent to a delivery to the creditor in cash
in an amount equal to the amount credited to his account" shall
apply in this case. Petition was granted ordering the private
respondent to accept the sum of P63,130.00 under deposit as
payment of the judgment obligation in his favor. Considering
that the whole amount deposited by the petitioner consisting of
Cashier's Check of P60;000.00 and P13,130.00 in cash covers
the judgment obligation of P63,000.00 as mentioned in the writ
of execution, then. We see no valid reason for the private
respondent to have refused acceptance of the payment of the
obligation in his favor.

FACTS:
Petitioner, New Pacific Timber & Supply Co. Inc. was the
defendant in a complaint for collection of money filed by private
respondent, Ricardo A. Tong. In this complaint, respondent
Judge rendered a compromise judgment based on the amicable
settlement entered by the parties wherein petitioner will pay to
private respondent P54,500.00 at 6% interest per annum and
P6,000.00 as attorneys fee of which P5,000.00 has been paid.
Upon failure of the petitioner to pay the judgment obligation, a
writ of execution worth P63,130.00 was issued levied on the
personal properties of the petitioner. Before the date of the
auction sale, petitioner deposited with the Clerk of Court in his
capacity as the Ex-Officio Sheriff P50,000.00 in Cashiers Check
of the Equitable Banking Corporation and P13,130.00 in cash for
a total of P63,130.00.
Private respondent refused to accept the check and the cash and
requested for the auction sale to proceed. The properties were
sold for P50,000.00 to the highest bidder with a deficiency of
P13,130.00. Petitioner subsequently filed an ex-parte motion for
issuance of certificate of satisfaction of judgment which was
denied by the respondent Judge. Hence this present petition,
alleging that the respondent Judge capriciously and whimsically
abused his discretion in not granting the requested motion for
the reason that the judgment obligation was fully satisfied before
the auction sale with the deposit made by the petitioner to the
Ex-Officio Sheriff.

In upholding the refusal of the private respondent

to accept the check, the respondent Judge cited Article 1249 of
the New Civil Code which provides that payments of debts shall
be made in the currency which is the legal tender of the
Philippines and Section 63 of the Central Bank Act which
provides that checks representing deposit money do not have
legal tender power. In sustaining the contention of the private
respondent to refuse the acceptance of the cash, the respondent
Judge cited Article 1248 of the New Civil Code which provides
that creditor cannot be compelled to accept partial payment
unless there is an express stipulation to the contrary.
ISSUE: Can the check be considered a valid payment of the
judgment
obligation?
RULING:
Yes. It is to be emphasized that it is a well-known and accepted
practice in the business sector that a Cashiers Check is deemed
cash. Moreover, since the check has been certified by the
drawee bank, this certification implies that the check is
sufficiently funded in the drawee bank and the funds will be
applied whenever the check is presented for payment. The
object of certifying a check is to enable the holder to use it as
money. When the holder procures the check to be certified, it
operates as an assignment of a part of the funds to the creditors.
Hence, the exception provided in Section 63 of the Central Bank
Act which states that checks which have been cleared and
credited to the account of the creditor shall be equivalent to a
delivery to the creditor in cash the amount equal to that which is
credited to his account. The Cashiers Check and the cash are
valid payment of the obligation of the petitioner. The private
respondent has no valid reason to refuse the acceptance of the
check and cash as full payment of the obligation