PHILIPPINE BANK OF COMMERCE VS.

ARUEGO

GR L-25836-37, 31 JANUARY 1981, 102 SCRA 530

--AGENTS

FACTS:

To facilitate payment of the printing of a periodical called “World Current Events.”, Aruego, its publisher,
obtained a credit accommodation from the Philippine Bank of Commerce. For every printing of the
periodical, the printer collected the cost of printing by drawing a draft against the bank, said draft being
sent later to Aruego for acceptance. As an added security for the payment of the amounts advanced to
the printer, the bank also required Aruego to execute a trust receipt in favor of the bank wherein
Aruego undertook to hold in trust for the bank the periodicals and to sell the same with the promise to
turn over to the bank the proceeds of the sale to answer for the payment of all obligations arising from
the draft. The bank instituted an action against Aruego to recover the cost of printing of the latter’s
periodical. Aruego however argues that he signed the supposed bills of exchange only as an agent of
the Philippine Education Foundation Company where he is president.

ISSUES:

Whether Aruego can be held liable by the petitioner although he signed the supposed bills of exchange
only as an agent of Philippine Education Foundation Company.

RULING:

Aruego did not disclose in any of the drafts that he accepted that he was signing as representative of the
Philippine Education Foundation Company. For failure to disclose his principal, Aruego is personally
liable for the drafts he accepted, pursuant to Section 20 of the NIL which provides that when a person
adds to his signature words indicating that he signs for or on behalf of a principal or in a representative
capacity, he is not liable on the instrument if he was duly authorized; but the mere addition of words
describing him as an agent or as filing a representative character, without disclosing his principal, does
not exempt him from personal liability.
BATAAN CIGAR V. CA (1994)

G.R. NO. 93048 MARCH 3, 1994

FACTS:

• Bataan Cigar & Cigarette Factory, Inc. (BCCFI), a corporation involved in the manufacturing of
cigarettes purchased from King Tim Pua George (George King) 2,000 bales of tobacco leaf to be
delivered starting October 1978.

o July 13, 1978: it issued crossed checks post dated sometime in March 1979 in the total amount
of P820K

• George represented that he would complete delivery w/in 3 months from Dec 5 1978 so BCCFI
agreed to purchase additional 2,500 bales of tobacco leaves, despite the previous failure in delivery

o It issued post dated crossed checks in the total amount of P1.1M payable sometime in
September 1979.

• July 19, 1978: George sold to SIHI at a discount check amounting to P164K, post dated March
31, 1979, drawn by BCCFI w/ George as payee.

• December 19 and 26, 1978: George sold 2 checks both in the amount of P100K, post dated
September 15 & 30, 1979 respectively, drawn by BCCFI w/ George as payee

• Upon failure to deliver, BCCFI issued on March 30, 1979 and September 14 & 28, 1979 a stop
payment order for all checks

• SIHI failing to claim, filed a claim against BCCFI

• RTC: SIHI = holder in due course. Non-inclusion of Gearoge as party is immaterial to the case

ISSUE: W/N SIHI is a holder in due course beign a second indorser and a holder of crossed checks

HELD: YES. GRANTED. RTC reversed.

• Sec. 52

1. That it is complete and regular upon its face

2. That he became the holder of it before it was overdue, and without notice that it had been
previously dishonored, if such was the fact

3. That he took it in good faith and for value

4. That at the time it was negotiated to him he had no notice of any infirmity in the instrument or
defect in the title of the person negotiating it

• Sec. 59

o every holder is deemed prima facie a holder in due course

o However, when it is shown that the title of any person who has negotiated the instrument was
defective, the burden is on the holder to prove that he or some person under whom he claims, acquired
the title as holder in due course.

• effect of crossing of a check

1. check may not be encashed but only deposited in the bank

2. check may be negotiated only once — to one who has an account with a bank

3. act of crossing the check serves as warning to the holder that the check has been issued for a
definite purpose - he must inquire if he has received the check pursuant to that purpose, otherwise, he
is not a holder in due course

• crossing of checks should put the holder on inquiry and upon him devolves the duty to ascertain
the indorser's title to the check or the nature of his possession - failure = guilty of gross negligence
amounting to legal absence of good faith, contrary to Sec. 52(c) of the Negotiable Instruments Law

• SIHI is not a holder in due course. Consequently, BCCFI cannot be obliged to pay the checks.
However, that SIHI could not recover from the checks. The only disadvantage of a holder who is not a
holder in due course is that the instrument is subject to defenses as if it were non-negotiable. Hence,
SIHI can collect from the immediate indorser, George

STELCO MARKETING VS. CA

GR 96160, 17 JUNE 1992, 210 SCRA 51

--ACCOMMODATION PARTY

FACTS:

Stelco Marketing Corporation sold structural steel bars to RYL Construction Inc. RYL gave Stelco’s “sister
corporation,” Armstrong Industries, a MetroBank check from Steelweld Corporation. The check was
issued by Steelweld’s President to Romeo Lim, President of RYL, by way of accommodation, as a
guaranty and not in payment of an obligation. When Armstrong deposited the check at its bank, it was
dishonored because it was drawn against insufficient funds. When so deposited, the check bore two
indorsements, i.e. RYL and Armstrong. Subsequently, Stelco filed a civil case against RYL and Steelweld
to recover the value of the steel products.

ISSUE:

Whether Steelweld as an accommodating party can be held liable by Stelco for the dishonored check.

RULING:

Steelweld may be held liable but not by Stelco. Under Section 29 of the NIL, Steelweld Corp. can be held
liable for having issued the subject check for the accommodation of Romeo Lim. An accommodation
party is one who has singed the instrument as maker, drawer, acceptor, or indorser, without receiving
valued therefor, and for the purpose of lending his name to some other person. Such a person is liable
on the instrument to a holder for value, notwithstanding such holder, at the time of taking the
instrument, knew him to be only an accommodation party. Stelco however, cannot be deemed a
holder of the check for value as it does not meet two essential requisites prescribed by statute, i.e. that
it did not become “the holder of it before it was overdue, and without notice that it had been previously
dishonored,” and that it did not take the check “in good faith and for value.”

Negotiable Instruments Law – Rights of the Holder – 3 SCRA 596 – What Constitutes a Holder in Due
Course – Is a payee a holder in due course?

Matilde Gonzales was a patient of the De Ocampo Clinic. She incurred a debt amounting to P441.75. Her
husband, Manuel Gonzales designed a scheme in order to pay off this debt: In 1953, Manuel went to a
certain Anita Gatchalian. Manuel purported himself to be selling the car of De Ocampo. Gatchalian was
interested in buying said car but Manuel told her that De Ocampo will only sell the car if Gatchalian
shows her willingness to pay for it. Manuel advised Gatchalian to draw a check of P600.00 payable to De
Ocampo so that Manuel may show it to De Ocampo and that Manuel in the meantime will hold it for
safekeeping. Gatchalian agreed and gave Manuel the check. After that, Manuel never showed himself to
Gatchalian.

Meanwhile, Manuel gave the check to his wife who in turn gave the check to De Ocampo as payment of
her bills with the clinic. De Ocampo received the check and even gave Matilde her change (sukli). On the
other hand, since Gatchalian never saw Manuel again, she placed a stop-payment on the P600.00 check
so De Ocampo was not able to cash on the check. Eventually, the issue reached the courts and the trial
court ordered Gatchalian to pay de Ocampo the amount of the check.

Gatchalian argued that De Ocampo is not entitled to payment because there was no valid indorsement.
De Ocampo argued tha he is a holder in due course because he is the named payee.

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

HELD: No. Section 52 of the Negotiable Instruments Law, defines holder in due course, thus:

A holder in due course is a holder who has taken the instrument under the following conditions:

(a) That it is complete and regular upon its face;

(b) That he became the holder of it before it was overdue, and without notice that it had been
previously dishonored, if such was the fact;

(c) That he took it in good faith and for value;

(d) That at the time it was negotiated to him he had no notice of any infirmity in the instrument or
defect in the title of the person negotiating it.

The Supreme Court emphasized that if one is such a holder in due course, it is immaterial that he was
the payee and an immediate party to the instrument. The Supreme Court however ruled that De
Ocampo is not a holder in due course for his lack of good faith. De Ocampo should have inquired as to
the legal title of Manuel to the said check. The fact that Gatchalian has no obligation to De Ocampo and
yet he’s named as the payee in the check hould have apprised De Ocampo; that the check did not
correspond to Matilde Gonzales’ obligation with the clinic because of the fact that it was for P600.00 –
more than the indebtedness; that why was Manuel in possession of the check – all these gave De
Ocampo the duty to ascertain from the holder Manuel Gonzales what the nature of the latter’s title to
the check was or the nature of his possession.
GREAT EASTERN LIFE INS. CO. V. HONGKONG SHANGHAI BANK (1922)

G.R. NO. L-18657 AUGUST 23, 1922

FACTS:

• May 3, 1920: Great Eastern Life Ins. Co. (Eastern) drew its check for P2,000 on the Hongkong
and Shanghai Banking Corporation (HSBC) payable to the order of Lazaro Melicor.

• E. M. Maasim fraudulently obtained possession of the check, forged Melicor's signature, as an

endorser, and then personally endorsed and presented it to the Philippine National Bank (PNB) and it
was placed to his credit.

• Next day: PNB endorsed the check to the HSBC who paid it

• HSBC sent a bank statement to the Eastern showing the amount of the check was charged to its
account, and no objection was made

• 4 months after the check was charged, it developed that Lazaro Melicor, to whom the check was
made payable, had never received it, and that his signature, as an endorser, was forged by Maasim,

• Eastern promptly made a demand upon the HSBC to credit the amount of the forged check

• Eastern filed against HSBC and PNB

• RTC: dismissed the case

ISSUES: W/N Eastern has the right to recover the amount of the forged check
HELD: YES. lower court is reversed. Eastern against HSBC who can claim against PNB

• forgery was that of Melicor (payees and NOT the maker)

o Eastern received it banks statement, it had a right to assume that Melicor had personally
endorsed the check, and that, otherwise, the bank would not have paid it

• Section 23 of Negotiable Instruments Law:

When a signature is forged or made without the authority of the person whose signature it purports to
be, it is wholly inoperative, and no right to retain the instrument, or to give a discharge therefor, or to
enforce payment thereof against any party thereto, can be acquired through or under such signature,
unless the party against whom it is sought to enforce such right is precluded from setting up the forgery
or want of authority.

• The Philippine National Bank had no license or authority to pay the money to Maasim or anyone
else upon a forge signature.

o Its remedy is against Maasim to whom it paid the money.