MICHAEL A. OSMEA, petitioner, vs. CITIBANK, N.A.

, ASSOCIATED BANK and

FRANK TAN, respondents.

DECISION
CALLEJO, SR., J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court, as
amended, of the Decision[1] of the Court of Appeals in CA-G.R. CV No. 49529 which
affirmed in toto the Decision[2] of the Regional Trial Court of Makati City, Branch 38, in
Civil Case No. 91-538.
As culled from the records, the appeal at bench stemmed from the following factual
backdrop:
On February 22, 1991, the petitioner filed with the Regional Trial Court of Makati an
action for damages against the respondents Citibank, N.A. and Associated Bank. [3] The
case was docketed as Civil Case No. 91-538. The complaint materially alleged that, on
or about August 25, 1989, the petitioner purchased from the Citibank Managers Check
No. 20-015301 (the check for brevity) in the amount of P1,545,000 payable to
respondent Frank Tan; the petitioner later received information that the aforesaid
managers check was deposited with the respondent Associated Bank, Rosario Branch,
to the account of a certain Julius Dizon under Savings Account No. 19877; the clearing
and/or payment by the respondents of the check to an improper party and the absence
of any indorsement by the payee thereof, respondent Frank Tan, is a clear violation of
the respondents obligations under the Negotiable Instruments Law and standard
banking practice; considering that the petitioners intended payee for the check, the
respondent Frank Tan, did not receive the value thereof, the petitioner demanded from
the respondents Citibank and the Associated Bank the payment or reimbursement of
the value of the check; the respondents, however, obstinately refused to heed his
repeated demands for payment and/or reimbursement of the amount of the check;
hence, the petitioner was compelled to file this complaint praying for the restitution of
the amount of the check, and for moral damages and attorneys fees.
On June 17, 1991, the petitioner, with leave of court, filed an Amended
Complaint[4] impleading Frank Tan as an additional defendant. The petitioner averred
therein that the check was purchased by him as a demand loan to respondent Frank
Tan. Since apparently respondent Frank Tan did not receive the proceeds of the check,
the petitioner might have no right to collect from respondent Frank Tan and is
consequently left with no recourse but to seek payment or reimbursement from either or
both respondents Citibank and/or Associated Bank.
In its answer to the amended complaint, [5] the respondent Associated Bank alleged
that the petitioner was not the real party-in-interest but respondent Frank Tan who was
the payee of the check. The respondent also maintained that the check was deposited
to the account of respondent Frank Tan, a.k.a. Julius Dizon, through its Ayala Head
Office and was credited to the savings account of Julius Dizon; the Ayala office
confirmed with the Rosario Branch that the account of Julius Dizon is also in reality that
of respondent Frank Tan; it never committed any violation of its duties and
responsibilities as the proceeds of the check went and was credited to respondent
Frank Tan, a.k.a. Julius Dizon; the petitioners affirmative allegation of non-payment to
the payee is self-serving; as such, the petitioners claim for damages is baseless,
unfounded and without legal basis.
On the other hand, the respondent Citibank, in answer to the amended complaint,
[6]
alleged that the payment of the check was made by it in due course and in the
exercise of its regular banking function. Since a managers check is normally purchased
in favor of a third party, the identity of whom in most cases is unknown to the issuing
bank, its only responsibility when paying the check was to examine the genuineness of
the check. It had no way of ascertaining the genuineness of the signature of the payee
respondent Frank Tan who was a total stranger to it. If at all, the petitioner had a cause
of action only against the respondent Associated Bank which, as depository or collecting
bank, was obliged to make sure that the check in question was properly endorsed by
the payee. It is not expected of the respondent Citibank to ascertain the genuineness of
the indorsement of the payee or even the lack of indorsement by him, most especially
when the check was presented for payment with the respondent Associated Banks
guaranteeing all prior indorsements or lack thereof.
On March 16, 1992, the trial court declared Frank Tan in default for failure to file his
answer.[7] On June 10, 1992, the pre-trial conference was concluded without the parties
reaching an amicable settlement.[8] Hence, trial on the merits ensued.
After evaluating the evidence adduced by the parties, the trial court resolved that
the preponderance of evidence supports the claim of the petitioner as against
respondent Frank Tan only but not against respondents Banks. Hence, on February 21,
1995, the trial court rendered judgment in favor of the petitioner and against respondent
Frank Tan. The complaints against the respondents Banks were dismissed. The
dispositive portion of the decision reads:

WHEREFORE, judgment is hereby rendered as follows :

1. Ordering defendant Frank Tan to pay plaintiff Michael Osmea the amount of One Million Five
Hundred Forty-Five Thousand (P1,545,000.00) Pesos, Philippine Currency, with interest thereon
at 12% per annum from January 1990, date of extra-judicial demand until the full amount is paid;

2. Dismissing the complaint against defendants Citibank and Associated Bank;

3. Dismissing the counter-claims and the cross-claim of Citibank against Associated Bank for
lack of merit.

With costs against defendant Frank Tan.[9]

The petitioner appealed the decision, [10] while respondent Frank Tan did not. On
November 26, 1999, the appellate court rendered judgment affirming in toto the decision
of the trial court. Aggrieved, the petitioner assailed the decision in his petition at bar.
 The petitioner contends that:
I. RESPONDENT COURT ERRED IN NOT HOLDING CITIBANK AND
ASSOCIATED BANK LIABLE TO PETITIONER FOR THE ENCASHMENT
OF CITIBANK MANAGERS CHECK NO. 20015301 BY JULIUS DIZON.
II. RESPONDENT COURT ERRED IN HOLDING THAT FRANK TAN AND
JULIUS DIZON ARE ONE AND THE SAME PERSON.
III. THE IDENTITY OF FRANK TAN AS JULIUS DIZON WAS KNOWN ONLY
TO ASSOCIATED BANK AND WAS NOT BINDING ON PETITIONER. [11]
The petition is denied.
The petitioner asserts that the check was payable to the order of respondent
Tan. However, the respondent Associated Bank ordered the check to be deposited to
the account of one Julius Dizon, although the check was not endorsed by respondent
Tan. As Julius Dizon was not a holder of the check in due course, he could not validly
negotiate the check. The latter was not even a transferee in due course because
respondent Tan, the payee, did not endorse the said check. The position of the
respondent Bank is akin to that of a bank accepting a check for deposit wherein the
signature of the payee or endorsee has been forged.
The contention of the petitioner does not hold water.
The fact of the matter is that the check was endorsed by Julius Dizon and was
deposited and credited to Savings Account No. 19877 with the respondent Associated
Bank. But the evidence on record shows that the said account was in the name of Frank
Tan Guan Leng, which is the Chinese name of the respondent Frank Tan, who also
uses the alias Julius Dizon. As correctly ruled by the Court of Appeals:

On the other hand, Associated satisfactorily proved that Tan is using and is also known by his
alias of Julius Dizon. He signed the Agreement On Bills Purchased (Exh. 1) and Continuing
Suretyship Agreement (Exh. 2) both acknowledged on January 16, 1989, where his full name is
stated to be FRANK Tan Guan Leng (aka JULIUS DIZON). Exh. 1 also refers to his Account
No. SA#19877, the very same account to which the P1,545,000.00 from the managers check was
deposited. Osmea countered that such use of an alias is illegal. That is but an irrelevant casuistry
that does not detract from the fact that the payee Tan as Julius Dizon has encashed and deposited
the P1,545,000.00.[12]

The respondent Associated Bank presented preponderant evidence to support its

assertion that respondent Tan, the payee of the check, did receive the proceeds of the
check. It adduced evidence that Julius Dizon and Frank Tan are one and the same
person. Respondent Tan was a regular and trusted client or depositor of the respondent
Associated Bank in its branch at Rosario, Binondo, Manila. As such, respondent Tan
was allowed to maintain two (2) savings accounts therein. [13] The first is Savings
Account No. 20161-3 under his name Frank Tan. [14] The other is Savings Account No.
19877 under his assumed Filipino name Julius Dizon, [15] to which account the check was
deposited in the instant case. Both witnesses for the respondent Associated Bank,
Oscar Luna (signature verifier) and Luz Lagrimas (new accounts clerk), testified that
respondent Tan was using the alias Julius Dizon, and that both names referred to one
and the same person, as Frank Tan himself regularly transacted business at the bank
under both names.[16] This is also evidenced by the Agreement on Bills Purchased [17]and
the Continuing Suretyship Agreement [18] executed between Frank Tan and the
respondent Associated Bank on January 16, 1989. Frank Tans name appears in said
document as FRANK TAN GUAN LENG (a.k.a. JULIUS DIZON). [19] The same
documentary evidence also made reference to Savings Account No. 19877, [20] the very
same account to which the check was deposited and the entire P1,545,000 was
credited. Additionally, Citibank Check No. 075713 [21] which was presented by the
petitioner to prove one of the loans previously extended to respondent Tan showed that
the endorsement of respondent Tan at the dorsal side thereof [22] is strikingly similar to
the signatures of Frank Tan appearing in said agreements.
By seeking to recover the loan from respondent Tan, the petitioner admitted that
respondent Tan received the amount of the check. This apprehension was not without
any basis at all, for after the petitioner attempted to communicate with respondent Tan
on January or February 1990, demanding payment for the loan, respondent Tan
became elusive of the petitioner. [23]As a matter of fact, respondent Tan did not file his
answer to the amended complaint and was never seen or heard of by the petitioner.
[24]
Besides, if it were really a fact that respondent Tan did not receive the proceeds of
the check, he could himself have initiated the instant complaint against respondents
Banks, or in the remotest possibility, joined the petitioner in pursuing the instant claim.
The petitioner initially sought to recover from the respondents Banks the amount
of P1,545,000 corresponding to the loan obtained by respondent Tan from him,
obviously because respondent Tan had no intent to pay the amount. The petitioner
alleges that the respondents Banks were negligent in paying the amount to a certain
Julius Dizon, in relation to the pertinent provisions of the Negotiable Instruments Law,
without the proper indorsement of the payee, Frank Tan. The petitioner cites the ruling
of the Court in Associated Bank v. Court of Appeals,[25]in which we outlined the
respective responsibilities and liabilities of a drawee bank, such as the respondent
Citibank, and a collecting bank, such as the defendant Associated Bank, in the event
that payment of a check to a person not designated as the payee, or who is not a holder
in due course, had been made. However, the ruling of the Court therein does not apply
to the present case for, as has been amply demonstrated, the petitioner failed to
establish that the proceeds of the check was indeed wrongfully paid by the respondents
Banks to a person other than the intended payee. In addition, the Negotiable
Instruments Law was enacted for the purpose of facilitating, not hindering or hampering
transactions in commercial paper. Thus, the said statute should not be tampered with
haphazardly or lightly. Nor should it be brushed aside in order to meet the necessities in
a single case.[26]
Moreover, the chain of events following the purported delivery of the check to
respondent Tan renders even more dubious the petitioners claim that respondent Tan
had not received the proceeds of the check. Thus, the petitioner never bothered to find
out from the said respondent whether the latter received the check from his
messenger. And if it were to be supposed that respondent Tan did not receive the
check, given that his need for the money was urgent, it strains credulity that respondent
Tan never even made an effort to get in touch with the petitioner to inform the latter that
he did not receive the check as agreed upon, and to inquire why the check had not
been delivered to him. The petitioner and respondent Tan saw each other during social
gatherings but they never took the chance to discuss details on the loan or the check.
[27]
Their actuations are not those to be usually expected of friends of 15 years who, as
the petitioner would want to impress upon this Court, were transacting business on the
basis of confidence.[28] In fact, the first time that the petitioner attempted to communicate
with respondent Tan was on January or February 1990, almost five or six months after
the expected delivery of the check, for the purpose of demanding payment for the
loan. And it was only on that occasion that respondent Tan, as the petitioner insinuates,
informed him that he (Frank Tan) had not received the proceeds of the check and
refused to pay his loan. [29] All told, the petitioners allegation that respondent Tan did not
receive the proceeds of the check [30] is belied by the evidence on record and attendant
circumstances.
Conversely, the records would disclose that even the petitioner himself had
misgivings about the truthfulness of his allegation that respondent Tan did not receive
the amount of the check. This is made implicit by respondent Tans being made a party-
defendant to the case when the petitioner filed his amended complaint. In his
memorandum in the case below, the petitioner averred inter alia that:

The amount of P1,545,000.00 is sought to be recovered from:

1. Frank Tan for his failure to pay the loan extended by plaintiff; and

2. Associated Bank and Citibank for having accepted for deposit and/or paid the Citibank
managers check despite the absence of any signature/endorsement by the named payee, Frank
Tan.

The claim of the petitioner that respondent Tans use of an alias is illegal does not
detract a whit from the fact that respondent Tan had been credited by the respondent
Associated Bank for the amount of the check. Respondent Tan did not appeal the
decision of the RTC.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The Decision dated
November 26, 1999 of the Court of Appeals in CA-G.R. CV No. 49529 is hereby
AFFIRMED. Costs against the petitioner.
SO ORDERED.
Metropolitan Bank & Trust Company vs. Court of Appeals

G.R. No. 88866 February, 18, 1991

Cruz, J.:

Facts:
 Eduardo Gomez opened an account with Golden Savings and deposited 38 treasury warrants. All
warrants were subsequently indorsed by Gloria Castillo as Cashier of Golden Savings and deposited to its
Savings account in Metrobank branch in Calapan, Mindoro. They were sent for clearance. Meanwhile,
Gomez is not allowed to withdraw from his account, later, however, “exasperated” over Floria repeated
inquiries and also as an accommodation for a “valued” client Metrobank decided to allow Golden
Savings to withdraw from proceeds of the warrants. In turn, Golden Savings subsequently allowed
Gomez to make withdrawals from his own account. Metrobank informed Golden Savings that 32 of the
warrants had been dishonored by the Bureau of Treasury and demanded the refund by Golden Savings
of the amount it had previously withdrawn, to make up the deficit in its account. The demand was
rejected. Metrobank then sued Golden Savings.

Issue:

1. Whether or not Metrobank can demand refund agaist Golden Savings with regard to the amount
withdraws to make up with the deficit as a result of the dishonored treasury warrants.

2. Whether or not treasury warrants are negotiable instruments

Held:

No. Metrobank is negligent in giving Golden Savings the impression that the treasury warrants
had been cleared and that, consequently, it was safe to allow Gomez to withdraw. Without such
assurance, Golden Savings would not have allowed the withdrawals. Indeed, Golden Savings might even
have incurred liability for its refusal to return the money that all appearances belonged to the depositor,
who could therefore withdraw it anytime and for any reason he saw fit.

It was, in fact, to secure the clearance of the treasury warrants that Golden Savings deposited them to its
account with Metrobank. Golden Savings had no clearing facilities of its own. It relied on Metrobank to
determine the validity of the warrants through its own services. The proceeds of the warrants were
withheld from Gomez until Metrobank allowed Golden Savings itself to withdraw them from its own
deposit.

Metrobank cannot contend that by indorsing the warrants in general, Golden Savings assumed that they
were genuine and in all respects what they purport to be,” in accordance with Sec. 66 of NIL. The simple
reason that NIL is not applicable to non negotiable instruments, treasury warrants.

No. The treasury warrants are not negotiable instruments. Clearly stamped on their face is the
word: non negotiable.” Moreover, and this is equal significance, it is indicated that they are payable from
a particular fund, to wit, Fund 501. An instrument to be negotiable instrument must contain an
unconditional promise or orders to pay a sum certain in money. As provided by Sec 3 of NIL an
unqualified order or promise to pay is unconditional though coupled with: 1st, an indication of a
particular fund out of which reimbursement is to be made or a particular account to be debited with the
amount; or 2nd, a statement of the transaction which give rise to the instrument. But an order to
promise to pay out of particular fund is not unconditional. The indication of Fund 501 as the source of
the payment to be made on the treasury warrants makes the order or promise to pay “not conditional”
and the warrants themselves non-negotiable. There should be no question that the exception on Section
3 of NIL is applicable in the case at bar.

Salas V. CA (1990)
G.R. No. 76788 January 22,1990

Lessons Applicable: Introduction to Negotiable Instruments (Negotiable Instruments

Law)

FACTS:

 February 6, 1980: Juanita Salas bought a motor vehicle from the Violago Motor
Sales Corp. (VMS) for P58,138.20 as evidence by a promissory note
 This note was subsequently endorsed to Filinvest Finance &Leasing Corp.
(FFLC)
 May 21, 1980: Salas defaulted in her installments allegedly due to discrepancies
in the engine and chassis number of the vehicle delivered and discovery of
certificate of reg. and deed of mortgage
 VMS initiated for a sum of money at the RTC
 RTC: favored VMS
 CA: Affirmed
ISSUE: W/N the promissory note is a negotiable which will bar completely all defenses of
Salas against VMS

HELD: YES. Affirmed

 Requisites under the law (Sec. 1 of Negotiable Instruments Law)

 it is in writing and signed by the maker (Salas)
 it contains an unconditional promise to pay the amount P58,138.20
  it is payable at a fixed or determinable future time which is P1,614.95
monthly for 36 months due and payable on the 21st day of each month starting
March 21, 1980 thru and inclusive of Feb 21 1983
 It is payable to VMS or order and as such
 drawee is named or indicated with certainty
 Filinvest = holder in due course

TRADERS ROYAL BANK V CA G.R. No. 93397 March 3, 1997

FACTS:

Filriters registered owner of Central Bank Certificate of Indebtedness (CBCI). Filriters

transferred it to Philfinance by one of its officers without authorization from the company.
Subsequently, Philfinance transferred same CBCI to Traders Royal Bank (TRB) under a
repurchase agreement. When Philfinance failed to do so, The TRB tried to register in its
name in the CBCI. The Central Bank did not want to recognize the transfer.

Docketed as Civil Case No. 83-17966 in the Regional Trial Court of Manila, Branch 32, the
action was originally filed as a Petition for Mandamus 5 under Rule 65 of the Rules of Court,
to compel the Central Bank of the Philippines to register the transfer of the subject CBCI to
petitioner Traders Royal Bank (TRB).

DECISION OF LOWER COURTS: * RTC: transfer is null and void. * CA: The appellate court
ruled that the subject CBCI is not a negotiable instrument. Philfinance acquired no title or
rights under CBCI No. D891 which it could assign or transfer to Traders Royal Bank and
which the latter can register with the Central Bank. Thus, the transfer of the instrument
from Philfinance to TRB was merely an assignment, and is not governed by the negotiable
instruments law.

APPLICABLE LAWS:

Under section 1 of Act no. 2031 an instrument to be negotiable must conform to the
following requirements: (a) It must be in writing and signed by the maker or drawer; (b)
Must contain an unconditional promise or order to pay a sum certain in money; (c) Must be
payable on demand, or at a fixed or determinable future time; (d) Must be payable to order
or to bearer; and (e) Where the instrument is addressed to a drawee, he must be named or
otherwise indicated therein with reasonable certainty.

Under section 3, Article V of Rules and Regulations Governing Central Bank Certificates of
Indebtedness states that the assignment of registered certificates shall not be valid unless
made at the office where the same have been issued and registered or at the Securities
Servicing Department, Central Bank of the Philippines, and by the registered owner thereof,
in person or by his representative, duly authorized in writing. For this purpose, the
transferee may be designated as the representative of the registered owner. ISSUES &
RULING: 1. Whether the CBCI is negotiable instrument or not.

The pertinent portions of the subject CBCI read:

xxx xxx xxx

The Central Bank of the Philippines (the Bank) for value received, hereby promises to pay
bearer, of if this Certificate of indebtedness be registered, to FILRITERS GUARANTY
ASSURANCE CORPORATION, the registered owner hereof, the principal sum of FIVE
HUNDRED THOUSAND PESOS.

NO. The CBCI is not a negotiable instrument, since the instrument clearly stated that it was
payable to Filriters, and the certificate lacked the words of negotiability which serve as an
expression of consent that the instrument may be transferred by negotiation.

Before the instruments become negotiable instruments, the instrument must conform to the
requirements under the Negotiable Instrument Law. Otherwise instrument shall not bind the
parties.

2. Whether the Assignment of registered certificate is valid or null and void.

IT'S NULL AND VOID. Obviously the Assignment of certificate from Filriters to Philfinance
was null and void. One of officers who signed the deed of assignment in behalf of Filriters
did not have the necessary written authorization from the Board of Directors of Filriters. For
lack of such authority the assignment is considered null and void.

Clearly shown in the record is the fact that Philfinance's title over CBCI is defective
since it acquired the instrument from Filriters fictitiously. Under 1409 of the Civil Code
those contracts which are absolutely simulated or fictitious are considered void and
inexistent from the beginning.

Petitioner knew that Philfinance is not registered owner of the CBCI No. D891. The fact that
a non-owner was disposing of the registered CBCI owned by another entity was a good
reason for petitioner to verify of inquire as to the title Philfinance to dispose to the CBCI.

OTHER NOTES:
1. the mere ownership by a single stockholder or by another corporation of all or nearly all
of the capital stock of a corporation is not of itself a sufficient reason for disregarding the
fiction of separate corporate personalities.

Caltex (Phils.) Inc. V. CA And Security Bank And Trust Co. (1992)

G.R. No. 97753 August 10, 1992

Lessons Applicable: Requisites of negotiability to antedated and postdated instruments

(Negotiable Instrument Law)

FACTS:

 Security Bank and Trust Company (Security Bank), a commercial banking

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

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

 March 18, 1982: Angel informed Mr. Tiangco, the Sucat Branch Manager that he
lost all CTDs, submitted the required Affidavit of Loss and received the replacement

 March 25, 1982: Angel dela Cruz negotiated and obtained a loan from Security
Bank in the amount of P875,000 and executed a notarized Deed of Assignment of
Time Deposit

 November, 1982: Mr. Aranas, Credit Manager of Caltex went to the Sucat branch
to verify the CTDs declared lost by Angel

 November 26, 1982: Security Bank received a letter from Caltex formally
informing it of its possession of the CTDs in question and of its decision to pre-
terminate the same.

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

 a copy of the document evidencing the guarantee agreement with Mr.

Angel dela Cruz

 the details of Mr. Angel's obligation against which Caltex proposed to

apply the time deposits

 Security Bank rejected Caltex demand for payment bec. it failed to furnish a
copy of its agreement w/ Angel

 April 1983, the loan of Angel dela Cruz with Security Bank matured
 August 5, 1983: CTD were set-off w/ the matured loan

 Caltex filed a complaint praying the bank to pay 1,120,000 plus 16% interest

 CA affirmed RTC to dismiss complaint

ISSUE:

1. W/N the CTDs are negotiable

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

HELD: Petition is Denied and appealed decision is affirmed.

1. YES.

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

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

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

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

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

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

indicated therein with reasonable certainty.
 The documents provide that the amounts deposited shall be repayable to the
depositor

 depositor = bearer

 If it was really the intention of respondent bank to pay the amount

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

 negotiability or non-negotiability of an instrument is determined from the

writing, that is, from the face of the instrument itself

2. NO.

 although the CTDs are bearer instruments, a valid negotiation thereof for the
true purpose and agreement between it and De la Cruz, as ultimately ascertained,
requires both delivery and indorsement

 CTDs were in reality delivered to it as a security for De la Cruz' purchases

of its fuel products

 There was no negotiation in the sense of a transfer of the legal title to the
CTDs in favor of petitioner in which situation, for obvious reasons, mere delivery of
the bearer CTDs would have sufficed.

 Where the holder has a lien on the instrument arising from contract, he is
deemed a holder for value to the extent of his lien.

 As such holder of collateral security, he would be a pledgee but the

requirements therefor and the effects thereof, not being provided for by the
Negotiable Instruments Law, shall be governed by the Civil Code provisions on
pledge of incorporeal rights:
Art. 2095. Incorporeal rights, evidenced by negotiable instruments, . . . may also be
pledged. The instrument proving the right pledged shall be delivered to the creditor,
and if negotiable, must be indorsed.

Art. 2096. A pledge shall not take effect against third persons if a description of the
thing pledged and the date of the pledge do not appear in a public instrument.

Art. 1625. An assignment of credit, right or action shall produce no effect as against
third persons, unless it appears in a public instrument, or the instrument is recorded in
the Registry of Property in case the assignment involves real property.

NAL
PHILIPPINE NATIONAL BANK vs.

MANILA OIL REFINING & BY-PRODUCTS COMPANY, INC.

G.R. No. L-18103

June 8, 1922

FACTS:

This case concerns the validity of a provision in a Php61,000.00 promissory note

whereby in case the same is not paid at maturity, the maker (Manila Oil) authorizes any attorney

to appear and confess judgment thereon for the principal amount, with interest, costs, and

attorney's fees, and waives all errors, rights to inquisition, and appeal, and all property

exceptions.

On May 8, 1920, the manager and the treasurer of the Manila Oil executed and delivered

to the PNB the promissory note in question. When they defaulted, PNB brought action to the CFI

of Manila to recover the Php61,000.00. They brought with them Atty. Elias Rector, an attorney
associated with PNB, to enter in representation of Manila Oil. He filed a motion of confessing

judgment. The defendant, however, in a sworn declaration, objected strongly to the unsolicited

representation of attorney Recto. Later, attorney Antonio Gonzalez appeared for the defendant

and filed a demurrer, and when this was overruled, presented an answer. The trial judge rendered

judgment on the motion of attorney Recto in the terms of the complaint.

ISSUE:

Whether the promissory note in question is valid.

HELD:

No it is not. After hearing the opinion of experts, the Court arrived at this decision.

Warrants of attorney to confess judgment are not authorized nor contemplated by our law.

Provisions in notes authorizing attorneys to appear and confess judgments against makers should

not be recognized in this jurisdiction by implication and should only be considered as valid when

given express legislative sanction.

Although the NIL mentions of the validity of the promissory note despite the presence of

a provision of a confession of judgment, the Court points out the conclusion of the article: “But

nothing in this section shall validate any provision or stipulation otherwise illegal." If

confessions of judgment were allowed, the debtor will be deprived of his right to be heard.

Moreover, it is not the policy of the law to place a debtor in the absolute power of his creditor.

The field for fraud is too far enlarged by such an instrument.

 GEMPESAW V. CA

218 SCRA 682

FACTS:
Gempensaw was the owner of many grocery stores. She paid her suppliers
through the issuance of checks drawn against her checking account with
respondent bank. The checks were prepared by her bookkeeper Galang.
In the signing of the checks prepared by Galang, Gempensaw didn't bother
herself in verifying to whom the checks were being paid and if the
issuances were necessary. She didn't even verify the returned checks of
the bank when the latter notifies her of the same. During her two years in
business, there were incidents shown that the amounts paid for were in
excess of what should have been paid. It was also shown that even if the checks
were crossed, the intended payees didn't receive the amount of the checks.
This prompted Gempensaw to demand the bank to credit her account for
the amount of the forged checks. The bank refused to do so and this prompted
her to file the case against the bank.

HELD:
Forgery is a real defense by the party whose signature was forged. A party
whose signature was forged was never a party and never gave his consent to
the instrument. Since his signature doesn’t appear in the instrument, the
same cannot be enforced against him even by a holder in due course. The
drawee bank cannot charge the account of the drawer whose signature was
forged because he never gave the bank the order to pay.

In the case at bar the checks were filled up by petitioner’s employee

Galang and were later given to her for signature. Her signing the checks made
the negotiable instruments complete. Prior to signing of the checks, there was
no valid contract yet. Petitioner completed the checks by signing them and
thereafter authorized Galang to deliver the same to their respective payees.
The checks were then indorsed, forged indorsements thereon.
As a rule, a drawee bank who has paid a check on which an indorsement has
been forged cannot debit the account of a drawer for the amount of said
check. An exception to this rule is when the drawer is guilty of
negligence which causes the bank to honor such checks. Petitioner in this case
has relied solely on the honesty and loyalty of her bookkeeper and never
bothered to verify the accuracy of the amounts of the checks she signed
the invoices attached thereto. And though she received her bank
statements, she didn't carefully examine the same to double-check her
payments. Petitioner didn't exercise reasonable diligence which eventually led
to the fruition of her bookkeeper’s fraudulent schemes.

BPI v. CA
G.R. No. 136202January 25, 2007Related topic: Sec. 49, NIL (Delivery
without endorsement of an order instrument)
FACTS:
Salazar had in her possession three crossed checks with an aggregate
amount of P267,692.50. These checks were payable to the order of JRT
Construction and Trading which was thename of Templonuevo’s business. Despite
lack of knowledge and endorsement of Templonuevo,Salazar was able to deposit
the checks in her personal savings account with BPI and encash thesame.
The three checks were deposited in three di
ff
erent occasions over the span of eightmonths. A year after the last
encashment, Templonuevo protested the purportedly
unauthorizedencashments and demanded from BPI the aggregate amount of
the checks.BPI complied with Templonuevo’s demand. Since the money could no
longer be debitedfrom the account of Salazar where she deposited the checks,
they froze her other account withthem. Later on, BPI issued a cashier’s check
in favor of Templonuevo for the aggregate amountand debited P267, 707.70
from Salazar’s account representing the aggregate amount and thebank charges for
the cashier’s check.Salazar filed a complaint against BPI. Trial court ruled in
favor of her which was a
ffi
rmedby CA.Hence, this petition.

ISSUE/S:
1.Did BPI have the authority to unilaterally withdraw from Salazar’s
account the amount it haspreviously paid upon certain unendorsed order
instrument?2.Did BPI act judiciously in debiting Salazar’s account?

HELD:
1 . Y e s . Records show that no prior arrangement existed between
Salazar and Templonuevoregarding the transfer of ownership of the checks.
This fact is crucial as Salazar’s entitlement tothe value of the instruments is
based on the assumption that she is a transferee within thecontemplation of
Section 49 of the NIL.Section 49 of the NIL contemplates a situation where
the payee or endorsee delivers anegotiable instrument for value without
endorsing it. The underlying premise of this provision,however, is that a valid
transfer of ownership of the negotiable instrument in question has
takenplace. Transferees in this situation do not enjoy the presumption of
ownership in favor of holderssince they are neither payees nor endorsees of
such instruments. Mere possession of anegotiable instrument does not in
itself conclusively establish either the right of the possessor toreceive
payment, or of the right of one who has made payment to be discharged
from liability.Something more than mere possession is necessary to authorize
payment to such possessor.

VICENTE R. DE OCAMPO & CO. v. ANITA GATCHALIAN.

G.R. No. L-15126. November 30, 1961.
FACTS:

Anita Gatchalian was interested in buying a car. Manuel Gonzales offered to her a car owned by
plaintiff. Gonzales claimed that he was authorized by the plaintiff to sell the car. Gonzales order
defendant to issue a cross-check to comply on showing interest in buying the car. Gonzales promised
to return the check the next day.

When Gonzales never appeared after, defendant issue a stop payment order on the check. She found
out that Gonzales used the check as payment to plaintiff's clinic for his wife's fees. Plaintiff now
demands defendant for payment of the check, in which defendant refused citing that plaintiff is a not
a holder in due course.

The lower court held that defendant should pay plaintiff.

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

RULING:

The SC held that plaintiff is a not a holder in due course. There were obvious instances to show that
the check was negligently acquired like plaintiff having no liability with defendant and that the check
was crossed. Plaintiff failed to exercise prudence and caution. Plaintiff should have asked questions
to further inquire upon suspicion.

The presumption of good faith did not apply to plaintiff because the defect was apparent on the
instruments face – it was not payable to defendant or bearer.

State Investment House v. Intermediate Appellate Court [G.R. No. 72764. July 13, 1989]
FACTS
New Sikatuna Wood Industries, Inc. (NSWI) secured a loan from respondent Anita Chua in the form of
crossed checks. NWSI negotiated the checks to petitioner. The checks were dishonored.

ISSUE
Whether or not petitioner may be considered a holder in due course.

RULING
NO. Petitioner’s failure to inquire from the holder, party defendant NWSI, the purpose for which the three
checks were cross despite the warning of the crossing, prevents him from being considered in good faith
and thus he is not a holder in due course. Being not a holder in due course, plaintiff is subject to personal
defenses, such as lack of consideration between appellants and New Sikatuna Wood Industries.

G.R. No. 72764 July 13, 1989

STATE INVESTMENT HOUSE, petitioner,

vs.
INTERMEDIATE APPELLATE COURT, ANITA PEÑA CHUA and HARRIS CHUA, respondents.

Macalino, Salonga & Associates for petitioner.

Edgardo F. Sundiam for respondents.

FERNAN, C.J.:

Petitioner State Investment House seeks a review of the decision of respondent Intermediate
Appellate Court (now Court of Appeals) in AC-G.R. CV No. 04523 reversing the decision of the
Regional Trial Court of Manila, Branch XXXVII dated April 30, 1984 and dismissing the complaint for
collection filed by petitioner against private respondents Spouses Anita Pena Chua and Harris Chua.

It appears that shortly before September 5, 1980, New Sikatuna Wood Industries, Inc. requested for
a loan from private respondent Harris Chua. The latter agreed to grant the same subject to the
condition that the former should wait until December 1980 when he would have the money. In view
of this agreement, private respondent-wife, Anita Pena Chua issued three (3) crossed checks
payable to New Sikatuna Wood Industries, Inc. all postdated December 22, 1980 as follows:

DRAWEE BANK CHECK NO. DATE AMOUNT

 1. China Banking Corporation 589053 Dec. 22, 1980 P98,750.00

2. International Corporate Bank 04045549 Dec. 22, 1980 102,313.00

3. Metropolitan Bank & Trust Co. 036512 Dec. 22, 1980 98,387.00

The total value of the three (3) postdated checks amounted to P 299,450.00.

Subsequently, New Sikatuna Wood Industries, Inc. entered into an agreement with herein petitioner
State Investment House, Inc. whereby for and in consideration of the sum of Pl,047,402.91 under a
deed of sale, the former assigned and discounted with petitioner eleven (11) postdated checks
including the aforementioned three (3) postdated checks issued by herein private respondent-wife
Anita Peña Chua to New Sikatuna Wood Industries, Inc.

When the three checks issued by private respondent Anita Pena Chua were allegedly deposited by
petitioner, these checks were dishonored by reason of "insufficient funds", "stop payment" and
"account closed", respectively. Petitioner claims that despite demands on private respondent Anita
Peña to make good said checks, the latter failed to pay the same necessitating the former to file an
action for collection against the latter and her husband Harris Chua before the Regional Trial Court
of Manila, Branch XXXVII docketed as Civil Case No. 82-10547.

Private respondents-defendants filed a third party complaint against New Sikatuna Wood Industries,
Inc. for reimbursement and indemnification in the event that they be held liable to petitioner-plaintiff.
For failure of third party defendant to answer the third party complaint despite due service of
summons, the latter was declared in default.

On April 30, 1984, the lower court 1 rendered judgment against herein private respondents spouses, the
dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff or against the

defendants ordering the defendants to pay jointly and severally to the plaintiff the
following amounts:

1. P 229,450.00 with interest at the rate of 12% per annum from

February 24,1981 until fully paid;

2. P 29,945.00 as and for attorney's fees; and

3. the costs of suit.

On the third party complaint, third party defendant New Sikatuna Wood Industries,
Inc. is ordered to pay third party plaintiffs Anita Pena Chua and Harris Chua all
amounts said defendants' third- party plaintiffs may pay to the plaintiff on account of
this case. 2
On appeal filed by private respondents in AC-G.R. CV No. 04523, the Intermediate Appellate
Court 3 (now Court of Appeals) reversed the lower court's judgment in the now assailed decision, the
dispositive portion of which reads:

WHEREFORE, finding this appeal meritorious, We Reverse and Set Aside the
appealed judgment, dated April 30, 1984 and a new judgment is hereby rendered
dismissing the complaint, with costs against plaintiff-appellee. 4

Hence, this petition.

The pivotal issue in this case is whether or not petitioner is a holder in due course as to entitle it to
proceed against private respondents for the amount stated in the dishonored checks.

Section 52(c) of the Negotiable Instruments Law defines a holder in due course as one who takes
the instrument "in good faith and for value". On the other hand, Section 52(d) provides that in order
that one may be a holder in due course, it is necessary that "at the time the instrument was
negotiated to him he had no notice of any x x x defect in the title of the person negotiating it."
However, under Section 59 every holder is deemed prima facie to be a holder in due course.

Admittedly, the Negotiable Instruments Law regulating the issuance of negotiable checks as well as
the lights and liabilities arising therefrom, does not mention "crossed checks". But this Court has
taken cognizance of the practice that a check with two parallel lines in the upper left hand corner
means that it could only be deposited and may not be converted into cash. Consequently, such
circumstance should put the payee on inquiry and upon him devolves the duty to ascertain the
holder's title to the check or the nature of his possession. Failing in this respect, the payee is
declared guilty of gross negligence amounting to legal absence of good faith and as such the
consensus of authority is to the effect that the holder of the check is not a holder in good faith. 5

Petitioner submits that at the time of the negotiation and endorsement of the checks in question by
New Sikatuna Wood Industries, it had no knowledge of the transaction and/or arrangement made
between the latter and private respondents.

We agree with respondent appellate court.

Relying on the ruling in Ocampo v. Gatchalian (supra), the Intermediate Appellate Court (now Court
of Appeals), correctly elucidated that the effects of crossing a check are: the check may not be
encashed but only deposited in the bank; the check may be negotiated only once to one who has an
account with a bank; and the act of crossing the check serves as a warning to the holder that the
check has been issued for a definite purpose so that he must inquire if he has received the check
pursuant to that purpose, otherwise he is not a holder in due course. Further, the appellate court
said:

It results therefore that when appellee rediscounted the check knowing that it was a
crossed check he was knowingly violating the avowed intention of crossing the
check. Furthermore, his failure to inquire from the holder, party defendant New
Sikatuna Wood Industries, Inc., the purpose for which the three checks were cross
despite the warning of the crossing, prevents him from being considered in good faith
and thus he is not a holder in due course. Being not a holder in due course, plaintiff
is subject to personal defenses, such as lack of consideration between appellants
and New Sikatuna Wood Industries. Note that under the facts the checks were
postdated and issued only as a loan to New Sikatuna Wood Industries, Inc. if and
when deposits were made to back up the checks. Such deposits were not made,
 hence no loan was made, hence the three checks are without consideration (Sec. 28,
Negotiable Instruments Law).

Likewise New Sikatuna Wood Industries negotiated the three checks in breach of
faith in violation of Article (sic) 55, Negotiable Instruments Law, which is a personal
defense available to the drawer of the check. 6

In addition, such instruments are mentioned in Section 541 of the Negotiable Instruments Law as
follows:

Sec. 541. The maker or any legal holder of a check shall be entitled to indicate
therein that it be paid to a certain banker or institution, which he shall do by writing
across the face the name of said banker or institution, or only the words "and
company."

The payment made to a person other than the banker or institution shall not exempt
the person on whom it is drawn, if the payment was not correctly made.

Under usual practice, crossing a check is done by placing two parallel lines diagonally on the left top
portion of the check. The crossing may be special wherein between the two parallel lines is written
the name of a bank or a business institution, in which case the drawee should pay only with the
intervention of that bank or company, or crossing may be general wherein between two parallel
diagonal lines are written the words "and Co." or none at all as in the case at bar, in which case the
drawee should not encash the same but merely accept the same for deposit.

The effect therefore of crossing a check relates to the mode of its presentment for payment. Under
Section 72 of the Negotiable Instruments Law, presentment for payment to be sufficient must be
made (a) by the holder, or by some person authorized to receive payment on his behalf ... As to who
the holder or authorized person will be depends on the instructions stated on the face of the check.

The three subject checks in the case at bar had been crossed generally and issued payable to New
Sikatuna Wood Industries, Inc. which could only mean that the drawer had intended the same for
deposit only by the rightful person, i.e., the payee named therein. Apparently, it was not the payee
who presented the same for payment and therefore, there was no proper presentment, and the
liability did not attach to the drawer.

Thus, in the absence of due presentment, the drawer did not become liable. 7 Consequently, no right
of recourse is available to petitioner against the drawer of the subject checks, private respondent wife,
considering that petitioner is not the proper party authorized to make presentment of the checks in
question.

Yet it does not follow as a legal proposition that simply because petitioner was not a holder in due
course as found by the appellate court for having taken the instruments in question with notice that
the same is for deposit only to the account of payee named in the subject checks, petitioner could
not recover on the checks. The Negotiable Instruments Law does not provide that a holder who is
not a holder in due course may not in any case recover on the instrument for in the case at bar,
petitioner may recover from the New Sikatuna Wood Industries, Inc. if the latter has no valid excuse
for refusing payment. The only disadvantage of a holder who is not in due course is that the
negotiable instrument is subject to defenses as if it were non-negotiable. 8

That the subject checks had been issued subject to the condition that private respondents on due
date would make the back up deposit for said checks but which condition apparently was not made,
thus resulting in the non-consummation of the loan intended to be granted by private respondents to
New Sikatuna Wood Industries, Inc., constitutes a good defense against petitioner who is not a
holder in due course.

WHEREFORE, the decision appealed from is hereby AFFIRMED with costs against petitioner.

SO ORDERED.

Cely Yang vs. Court of Appeals, et, al. - GR No. 138074 Case Digest

Facts:

Petitioner Cely Yang agreed with private respondent Prem Chandiramani to procure from Equitable
Banking Corp. and Far east Bank and Trust Company (FEBTC) two cashier’s checks in the amount of
P2.087 million each, payable to Fernando david and FEBTC dollar draft in the amount of US$200,000.00
payable to PCIB FCDU account No. 4195-01165-2. Yang gave the checks and the draft to Danilo Ranigo to
be delivered to Chandiramani. Ranigo was to meet Chandiramani to turn over the checks and the dollar
draft, and the latter would in turn deliver to the former Phil.

Commercial International Bank (PCIB) manager’s check in the sum of P4.2 million and the dollar draft in
the same amount to be issued by Hang Seng Bank Ltd. of HongKong. But Chandiramani did not appear at
the rendezvous and Ranigo allegedly lost the two cashier’s checks and the dollar draft.

The loss was then reported to the police. It transpired, however that the checks and the dollar draft were
never lost, for Chandiramani was able to get hold of them without delivering the exchange consideration
consisting of PCIB Manager’s checks. Two hours after Chandiramani was able to meet Ranigo, the former
delivered to David the two cashier’s checks of Yang and, in exchange, got US $360,000 from David, who
in turn deposited them. Chandiramani also deposited the dollar draft in
PCIG FCDU No. 4194-0165-2.

Meanwhile, Yang requested FEBTC and Equitable to stop payment on the instruments she believed to be
lost. Both Banks complied with her request, but upon the representation of PCIB, FEBTC subsequently
lifted the stop payment order on FEBTC Dollar Draft No. 4771, thus, enabling the holder PCIB FCDU
Account No. 4194-0165-2 to received the amount of US $ 200, 000.

Issue:

(1) Whether or not David may be considered a holder in due course.

(2) Whether or not the presumption that every party to an instrument acquired the same for a
consideration is applicable in this case.

Held:
(1) Every holder of a negotiable instrument is deemed prima facie a holder in due course. However, this
presumption arises only in favor of a person who is a holder as defined in Section 191 of the Negotiable
Instruments Law, meaning a “payee or indorsee of a bill or note, who is in possession of it, or the bearer
thereof.”

In the present case, it is not disputed that David was the payee of the checks in question. The weight of
authority sustains the view that a payee may be a holder in due course. Hence, the presumption that he
is a prima facie holder in due course applies in his favor.

(2) The presumption is that every party to an instrument acquired the same for a consideration.
However, said presumption may be rebutted. Hence, what is vital to the resolution of this issue is
whether David took possession of the checks under the conditions provided for in Section 52 of the
Negotiable Instruments Law. All the requisites provided for in Section 52 must concur in David’s case,
otherwise he cannot be deemed a holder in due course.

Section 24 of the Negotiable Instruments Law creates a presumption that every party to an instrument
acquired the same for a consideration or for value. Thus, the law itself creates a presumption in David’s
favor that he gave valuable consideration for the checks in question. In alleging otherwise, the petitioner
has the onus to prove that David got hold of the checks absent said consideration. However, petitioner
failed to discharge her burden of proof. The petitioner’s averment that David did not give valuable
consideration when he took possession of the checks is unsupported, devoid of any concrete proof to
sustain it. Note that both the trial court and the appellate court found that David did not receive the
checks gratis, but instead gave Chandiramani US$ 360,000 as consideration for the said instruments.