Caltex vs.

CA
G. R. No. 97753
Principle: Negotiability; Sec. 1

Facts: On various dates, Security Bank Sucat Branch issued 280 certificate of time deposits
(CTDs) in favor of Angel dela Cruz, who deposited the aggregate amount of P1,120,000.00

Subsequently, Angel delivered the 280 CTDs to Caltex in connection with his purchased of
fuel products from the latter.

Sometime in March 1982, Angel informed the branch manager that he lost all the certificates
of time deposit in dispute. He was advised to execute and submit a notarized Affidavit of Loss,
as required by defendant bank’s procedure, if he desired replacement of said lost CTDs.

He submitted and on the basis of said affidavit of loss, 280 replacement of CTDs were issued
in favor of depositor.

On March 25, 1982, Angel negotiated and obtained a loan from defendant bank in the amount
of P875,000.00. On the same date, said depositorexecuted anotarized Deed of Assignment
of Time Deposit making the CTDs as the security for the loan.

Sometime in November 1982, Mr. Aranas, Credit Manager of plaintiff Caltex wento to the
Sucat Branch and presented for verification the CTDs declared lost by Angel dela Cruz
alleging that the smae were delivered to them “as security for purchases made with Caltex” by
said depositor

Consequently, the petitioner requested ot pre-terminate but the bank refused to accept the
CTDs and instead required Caltex to present documents proving the agreement made by the
depositor with Caltex. Caltex, however, failed to produce said documents.

In April 1943, de la Cruz’ loan with Security bank matured and no payment was made by de
la Cruz. Security Bank eventually set-off the time deposit to pay off the loan.

Petitioner filed a complaint praying that defendant bank be ordered to pay it the aggregate
value of the certificates of time deposit of P1,120,000.00 plus accrued interest and
compounded interest therein.
Issue:
1. Whether or not CTDs in question are negotiable
2. Whether or not petitioner can recover the amount in the subject CTDs

Ruling:

1. Yes. The CTDs in question undoubtedly meet the requirements of the law for negotiability.
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

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

indicated therein with reasonable certainty.

the accepted rule is that the negotiability or non-negotiability of an instrument is determined

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

Contrary to what respondent court held, the CTDs are negotiable instruments. The documents
provide that the amounts deposited shall be repayable to the depositor. And who, according to
the document, is the depositor? It is the "bearer." The documents do not say that the depositor
is Angel de la Cruz and that the amounts deposited are repayable specifically to him. Rather,
the amounts are to be repayable to the bearer of the documents or, for that matter, whosoever
may be the bearer at the time of presentment.

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. On the wordings of the documents, therefore, the amounts deposited
are repayable to whoever may be the bearer thereof.

2. No. The records reveal that Angel de la Cruz, whom petitioner chose not to implead in this
suit for reasons of its own, delivered the CTDs amounting to P1,120,000.00 to petitioner
without informing respondent bank thereof at any time. Unfortunately for petitioner, 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. For, although petitioner seeks to deflect this fact, the CTDs were in reality
delivered to it as a security for De la Cruz' purchases of its fuel products. Any doubt as to
whether the CTDs were delivered as payment for the fuel products or as a security has been
dissipated and resolved in favor of the latter by petitioner's own authorized and responsible
representative himself.
Under the Negotiable Instruments Law, an instrument is negotiated when it is transferred
from one person to another in such a manner as to constitute the transferee the holder
thereof, 21 and a holder may be the payee or indorsee of a bill or note, who is in possession of
it, or the bearer thereof. 22 In the present case, however, 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. Here, the delivery thereof
only as security for the purchases of Angel de la Cruz (and we even disregard the fact that the
amount involved was not disclosed) could at the most constitute petitioner only as a holder for
value by reason of his lien.
Hongkong and Shanghai Banking Corporation Ltd. Vs. CIR
G. R. No. 166018

Facts: The Hongkong and Shanghai Banking Corporation Limited-Philippine Branch

performs custodial services on behalf of its investors-clientsl, corporate individual, resident or
non-resident of the PHilippines, with respect to their passive investments in the country. As
custodian bank, it serves as the collection/payment agent with respect to dividends and other
income derived from investor-clients’ investments. They manage these instruction throught
electronic messages known as SWIFT. In purchasing shares of stock and other investments,
their foreign client would send electronic messages from abroad instructing HSBC to debit
their local or foreign currency accounts and pay the purchase price upon receipt of the
securities/

HSBC has been religiously paying for the DOcumentary Stamp Tac from September-
December 1997 and January-DEcember 1998 but upon the issuance of BIR RUling No.
132-99 which provides that instructions or advises from abroad on the management of funds
located in the philippines which do not involve transfer of funds from abroad are not subject
to DST anymore; the petitioner seeks for refund of the amount allegedly representing
erroneously paid DST to the BIR.

AS their claim of refund was not acted upon, they bring the matter to the Court of Tax appeals
which favour the petitioner. Accordingly, sections 180-181 of the Tax Code do not apply to
electronic messages which impose DST to bills of exchange issued in the foreign country and
payable in the Philippines. They have also ruled that electronic messaes are not negotiable
instruments as they lack the feature of negotiability. These instructions are considered as mere
memoraNDA AND the actual debitting of payor’s local or foreign currency account is an
actual transaction.

The appellate court, however, rule otherwise stating that Sec. 181 imposes DST not on the
bills of exchange or order of payment of the sum of money but on the acceptance or payment
on the said bill or order. They emphasize that the DST was exacted on HSBC’s privilege
under its drawer-drawee relationship through the execution of a specific instrument, which
petitioner exercises.

ISSUE: WON the electronic messages are considered as bill of exchange and thus subject to
DST

RULING: No the electronic message used by HSBC to their transactions with their
client-investor is not a bill of exchange.
The instructions given through electronic messages that are subjected to DST in these cases
are not negotiable instruments as they (1)ndo not possess the requisites under Sec. 1 of NIL.
The electronic messages are not signed by the investor-clients as supposed drawers of a bill of
exchange; (2) they do not contain an unconditional order to pay a sum certain in money as the
payment is supposed to come from a specific fund or account of the investor-clients; and (3)
they are not payable to order or to beared but to a specifically designated third party.

Furthermore, the acceptance contemplated under Sec. 132 of the NIl applies only to bills of
exchange. In relation to Sec. 230 of the Tax Code which imposes DST as an excise tax on the
privilege of the drawee to accept or pay a bill of exchange or order for the payment of money.
Herein, the presentment for acceptance does not take place in the transaction of HSBC with
their client-investors.

Under the law, therefore,, what is accepted is a bill of exchange, and the acceptance of a bill
of exchange is both the manifestation of the drawee’s consent to the drawer’s order to pay
money and the expression of the drawee’s promise to pay. It is the “act by which the drawee
manifests his consent to comply with the request contained in the bill of exchange directed to
him and it contemplates and engagement or promise to pay.” Applying the above concepts to
the matter subjected to the DST in these cases, the electronic messages received by te HSBC
from its investor-clients abroad instructing the former to debit the latter’s local and foreign
currency accounts and to pay the purchase price of shares of stock or investment in securities
do not properly qualify as either presentment for acceptance or presentment for payment.
There being neither presentment for acceptance nor presentment for payment, then there was
no acceptance or payment that could have been subjected to DST to speak of.
SPS. PEDRO AND FLORENCIA VIOLAGO

vs

BA FINANCE CORPORATION and AVELINO VIOLAGO

VELASCO, JR., J.:

Principle: Negotiability, Section 1

FACTS:

Sometime in 1983, Avelino Violago, President of Violago Motor Sales Corporation (VMSC),
offered to sell a car to his cousin, Pedro F. Violago, and the latters wife, Florencia wherein only a
down payment of Php 60,500 is needed and that the balance would be financed by respondent BA
Finance. The spouses would pay the monthly installments to BA Finance while Avelino would take
care of the documentation and approval of financing of the car. Under these terms, the spouses then
agreed to purchase a Toyota Cressida Model 1983 from VMSC.

On August 4, 1983, the spouses and Avelino signed a promissory note under which they bound
themselves to pay jointly and severally to the order of VMSC the amount of PhP 209,601 in 36
monthly installments of PhP 5,822.25 a month, the first installment to be due and payable on
September 16, 1983. VMSC then issued a sales invoice in favor of the spouses with a detailed
description of the Toyota Cressida car. In turn, the spouses executed a chattel mortgage over the car
in favor of VMSC as security for the amount of PhP 209,601. VMSC, through Avelino, endorsed the
promissory note to BA Finance without recourse. After receiving the amount of PhP 209,601, VMSC
executed a Deed of Assignment of its rights and interests under the promissory note and chattel
mortgage in favor of BA Finance. Meanwhile, the spouses remitted the amount of PhP 60,500 to
VMSC through Avelino.

Without the petitioner’s knowledge, the said car was already sold to Esmeraldo Violago. Despite
the spouses demand for the car and Avelinos repeated assurances, there was no delivery of the
vehicle. Since VMSC failed to deliver the car, Pedro did not pay any monthly amortization to BA
Finance.

BA Finance filed with the RTC a complaint for Replevin with Damages against the spouses. The
complaint prayed for the delivery of the vehicle in favor of BA Finance or, if delivery cannot be
effected, for the payment of Php 199,049.41 plus penalty at the rate of 3% per month from February
15, 1984 until fully paid. The trial court ruled in favor of BA Finance. On appeal, the CA upheld the trial
court’s ruling with some modifications.

The petitioners appealed before the SC contending that Article 1318 of the Civil Code should be
applied since their consent was vitiated by fraud, and thus, the promissory note does not carry any
legal effect despite its negotiation.
Issue:

Whether or not the promissory note is non-negotiable by reason of fraud by Avelino Violago

Ruling:

No. The promissory note is clearly negotiable. The appellate court was correct in finding all the
requisites of a negotiable instrument present. The NIL provides:

Section 1. Form of Negotiable Instruments. 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.

The promissory note signed by petitioners reads:

209,601.00 Makati, Metro Manila, Philippines, August 4, 1983

For value received, I/we, jointly and severally, promise to pay to the order of VIOLAGO
MOTOR SALES CORPORATION, its office, the principal sum of TWO HUNDRED NINE
THOUSAND SIX HUNDRED ONE ONLY Pesos (P209,601.00), Philippines Currency, with
interest at the rate stipulated herein below, in installments as follows:

Thirty Six (36) successive monthly installments of P5,822.25, the first installment to
be paid on 9-16-83, and the succeeding monthly installments on the 16th day of each and
every succeeding month thereafter until the account is fully paid, provided that the penalty
charge of three (3%) per cent per month or a fraction thereof shall be added on each
unpaid installment from maturity thereof until fully paid.

xxxx

Notice of demand, presentment, dishonor and protest are hereby waived.

(Sgd.) (Sgd.)

PEDRO F. VIOLAGO FLORENCIA R. VIOLAGO

763 Constancia St., Sampaloc, Manila same

(Address) (Address)

(Sgd.) (Sgd.)

Marivic Avaria Jesus Tuazon

 (WITNESS) (WITNESS)

PAY TO THE ORDER OF BA FINANCE CORPORATION

WITHOUT RECOURSE

VIOLAGO MOTOR SALES CORPORATION

By: (Sgd.)

AVELINO A. VIOLAGO, Pres.

The promissory note clearly satisfies the requirements of a negotiable instrument under the NIL. It is
in writing; signed by the Violago spouses; has an unconditional promise to pay a certain amount, i.e.,
PhP 209,601, on specific dates in the future which could be determined from the terms of the note;
made payable to the order of VMSC; and names the drawees with certainty. The indorsement by
VMSC to BA Finance appears likewise to be valid and regular.
Clemente, Lance DC. JD 2B

Juanita Salas vs CA et al
G.R. No. 76788
July 21,2008

FACTS:
Juanita Salas bought a motor vehicle from the Violago Motor Sales
Corporation for P58,138.20 as evidenced by a promissory note. This note was
subsequently endorsed to Filinvest Finance & Leasing Corporation which financed
the purchase
Petitioner later on defaulted in her installment payments, allegedly due to the fraud
imputed by VMS in selling her a different vehicle from what was agreed upon which
she discovered when the vehicle was involved in an accident.
This failure to pay prompted private respondent to initiate a Civil Case for a sum of
money against petitioner before the Regional Trial Court of San Fernando, Pampanga.
The trial court decided in favor of Filinvest, to which the appellate court upheld by
increasing the amount to be paid.
Imputing fraud, bad faith and misrepresentation against VMS for having delivered a
different vehicle to petitioner, the latter prayed for a reversal of decision so that she
may be absolved from the obligation under the contract

ISSUE:
Whether the promissory note in question is a negotiable instrument which will
bar completely all the available defenses of the petitioner against private respondent.

HELD: YES
A careful study of the questioned promissory note shows that it is a negotiable
instrument, having complied with the requisites under the law as follows:
[a] it is in writing and signed by the maker Juanita Salas;
[b] it contains an unconditional promise to pay the amount of P58,138.20;
[c] it is payable at a fixed or determinable future time which is "P1,614.95 monthly
for 36 months due and payable on the 21 st day of each month starting March 21,
1980 thru and inclusive of Feb. 21, 1983;"
[d] it is payable to Violago Motor Sales Corporation, or order and as such,
[e] the drawee is named or indicated with certainty
It was negotiated by indorsement in writing on the instrument itself payable to the
Order of Filinvest Finance and Leasing Corporation 10 and it is an indorsement of the
entire instrument.
Accordingly, respondent corporation holds the instrument free from any defect of title
of prior parties, and free from defenses available to prior parties among themselves,
and may enforce payment of the instrument for the full amount thereof. 13 This being
so, petitioner cannot set up against respondent the defense of nullity of the contract of
sale between her and VMS.
IN VIEW OF THE FOREGOING, the assailed decision is hereby AFFIRMED. With
costs against petitioner.
Traders Royal Bank vs. CA

FActs: In its petition, Traders ROyal Bank (TRB) alleged that Filriters Guaranty Assurance
Corporation (Filriters) executed a Detached Assignment whereby Filriters, as registered
owner, sold, transferred, assigned and delivered to Philippine Underwriters Finance
Corporation (Philfinance) all its rights and title to Central Bank Certificates of Indebtedness
(CBCI). PhilFinance then entered into a Repurchase Agreement with TRB. Owing to the
default of PhilFinance to repurchase, it executed a Detached Assignment to the Central Bank,
however, it failed and refused to register the transfer. Central Bank filed its Counter Claim for
Interpleader thereby calling to fore the Filriters as respondent.

For its Part, Filriters argued that it is the registered owner of CBCI and that TRB had acted in
bad faith and with knowledge of the illegality and invalidity of the assignment. The provision
on transfer of the CBCI and the CB Circular 769, provides that the value of the registered
certificates shall be payable only to the registered owner. Hence, CBCI is not a negotiable
instrument.

Issue: WON CBCI is a negotiable instrument

Ruling: No. THe CBCI is not a negotiable instrument in the absence of words of negotiability
within the meaning of the negotiable instruments law.

The accepted rule is that the negotiability or non-negotiability of an instrument is determined

from the writing, that is, from the face of the instrument itself. A reading of the subject CBCI
indicates that the same os payable to FIlriters Guaranty Assurance Corporation, and to not
one else and not to its order, thus, discounting the petitioner’s submission that the same is a
negotiable instrument. The language of negotiability which characterize a negotiable paper as
a credit instrument is its freedom to circulate as a indebtedness as it merely promise to pay a
sum of money to a specified person or entity for a period of time. It lacks the words of
negotiability which should have served as an expression of consent that the instrument may
be transferred by negotiation. The transfer of the instrument from Philfinance to TRB was
merely an assignment, and is not governed by the negotiable instruments law.
Victoria J. Ilano vs. Hon. Dolores Espaol et al
H. R. No. 161756
Section 6

Facts: Amelia O. Alonzo is a trusted employee of the petitioner. She has been with them for
several years already, and through the years, defendant Alonzo was able to gain the trust and
confidence of petitioner Ilano and her family; that due to these trust and confidence reposed
upon defendant Alonzo, there were occasions when defendant Alonzo was entrusted with
petitioner’s metrobank check book containing either signed or unsigned blank checks,
especially in those times when Ilano left for the United States fo medical check up.

Defendant Alonzo was able to succeed in inducing the petitioner to sign promissory notes
through fraud and deceit; defendant Alonzo in collusion with her co-defendants, Estela
Camaclang, Allan Camaclang and Estelita Legaspi likewise was able to induce plaintiff to
sign several undated blank checks.

A complaiont for revocation/cancellation of promissory notes and bills of exchange (checks)

with damages and prayer for preliminary injunction or TRO against Alonzo et al. Before the
regional trial court of Court. Ilano contends that Alonzo, by means of deceit and abuse of
confidence succeeded in inducing Ilano to sign antedated promissory notes. The RTC
rendered a decision dismissing the complaint for lack of cause of action and failure to allege
the ultimate facts of the case. On appeal, the court of appeals affirmed the dismissal of the
complaint.

The named defendants-herein respondents filed their respective answers invoking, among
other grounds for dismissal, lack of cause of action, for while the checks subject of the
complaint had been issued on account and for value, some had been doshonored due to
“account closed:” and the allegations in the complaint are bare and general. The trial court
dismissed petitioner’s complaint for failure “to allege the ultimate facts”-bases of petitioners
claim that her right was violated and that she suffered damages thereby. The court of appeals
affirmed the trial court’s decision and held that the elements of a cause of action are absent in
the case and petitioner did not deny the genuiness or authencity of her signature on the subject
promissory notes and the allegedly signed bank.

ISSUE: Whether petitioner’s complaint failed to state a cause of action

Ruling: As reflected in the above-quoted allegations in petitioners complaint, petitioner is

seeking twin reliefs, one for revocation/cancellation of promissory notes and checks, and the
other for damages.
Thus, petitioner alleged, among other things, that respondents, throuogh deceit, abuse of
confidence machination, fraud, falsification, forgery, defraudation, and bad faith, and with
malice, malevolence and selfish intent, succeeded in inducing her to sign antedated
promissory notes and some blank checks, and by taking undue advantae of her signature on
some other blank checks, succeeded in procuring them, even if there was no consideration for
all of these instruments on account of which she sufferred anxiety, tension, sleepless nights
wounded feelings and embarassment.

With respect to above-said Check No. 0084078, however, which was drawn against another
account of petitioner, albeit the date of issue bears only the year-1999, its validity and
negotiable character at the time the complaint was filed March 28,2000 was not affected. (see
Sec.6 (a)

However, even if the holder of Check no. 0084078 would have been filled up the month and
daye of issue thereon to be December and 31, respectively, it would have, as it did, become
stale six months or 180 days thereafter, following current banking practice.
\
It is, however, with respect to the questioned promissory notes that the present petition
assumes merit.
Flores, Kirstein Faye R.
JD-2B
PNB vs. Rodriguez
G.R. No. 170325; September 26, 2008

Facts:
Respondents-Spouses Erlando and Norma Rodriguez were clients of petitioner
Philippine National Bank (PNB). The spouses were engaged in the informal lending business.
In line with their business, they had a discounting arrangement with the Philnabank
Employees Savings and Loan Association (PEMSLA), an association of PNB employees.
Naturally, PEMSLA was likewise a client of PNB.

PEMSLA regularly granted loans to its members. Spouses Rodriguez would

rediscount the postdated checks issued to members whenever the association was short of
funds. As was customary, the spouses would replace the postdated checks with their own
checks issued in the name of the members.

It was PEMSLA’s policy not to approve applications for loans of members with
outstanding debts. To subvert this policy, some PEMSLA officers devised a scheme to obtain
additional loans despite their outstanding loan accounts. They took out loans in the names of
unknowing members, without the knowledge or consent of the latter. The PEMSLA checks
issued for these loans were then given to the spouses for rediscounting. The officers carried
this out by forging the indorsement of the named payees in the checks.
Rodriguez checks were deposited directly by PEMSLA to its savings account without
any indorsement from the named payees. From November 1998 to February 1999, the
spouses issued 69 checks, in the total amount of P2,345,804.00. These were payable to 47
individual payees who were all members of PEMSLA. PNB eventually found out about these
fraudulent acts. To put a stop to this scheme, PNB closed the current account of PEMSLA. As
a result, the PEMSLA checks deposited by the spouses were returned or dishonored for the
reason "Account Closed." The corresponding Rodriguez checks, however, were deposited as
usual to the PEMSLA savings account. The amounts were duly debited from the Rodriguez
account.
The spouses filed a civil complaint for damages against PEMSLA, MCP, and PNB.
They argued that PNB credited the checks to the PEMSLA account even without
indorsement , hence, it violated its contractual obligation to them as depositor. The RTC ruled
in favour of the Spouses Rodriguez. Upon appeal by the PNB, the CA reversed and set aside
the RTC disposition. The CA found that the checks were bearer instruments, thus they do not
require indorsement for negotiation. The spouses Rodriguez moved for reconsideration. The
CA reversed its earlier decision.

Issue:
Whether the subject checks are payable to order or to bearer and who bears the loss.
Ruling:
The subject checks are payable to order.
As a rule, when the payee is fictitious or not intended to be the true recipient of the
proceeds, the check is considered as a bearer instrument. A check is "a bill of exchange drawn
on a bank payable on demand." It is either an order or a bearer instrument.
The distinction between bearer and order instruments lies in their manner of
negotiation. A check that is payable to a specified payee is an order instrument. However,
under Section 9(c) of the NIL, a check payable to a specified payee may nevertheless be
considered as a bearer instrument if it is payable to the order of a fictitious or non-existing
person, and such fact is known to the person making it so payable.
In the case under review, the Rodriguez checks were payable to specified payees. It is
unrefuted that the 69 checks were payable to specific persons. Likewise, it is uncontroverted
that the payees were actual, existing, and living persons who were members of PEMSLA that
had a rediscounting arrangement with spouses Rodriguez. What remains to be determined is if
the payees, though existing persons, were "fictitious" in its broader context. For the
fictitious-payee rule to be available as a defense, PNB must show that the makers did not
intend for the named payees to be part of the transaction involving the checks. At most, the
bank’s thesis shows that the payees did not have knowledge of the existence of the checks.
This lack of knowledge on the part of the payees, however, was not tantamount to a lack of
intention on the part of respondents-spouses that the payees would not receive the checks’
proceeds. Considering that respondents-spouses were transacting with PEMSLA and not the
individual payees, it is understandable that they relied on the information given by the officers
of PEMSLA that the payees would be receiving the checks.
A bank that has been remiss in its duty must suffer the consequences of its negligence.
Being issued to named payees, PNB was duty-bound by law and by banking rules and
procedure to require that the checks be properly indorsed before accepting them for deposit
and payment. In fine, PNB should be held liable for the amounts of the checks.
The assailed decision is affirmed.
Quirino Gonzales Logging Concessionaire, et al vs. CA et al
G. R. No. 126568

Principle: Sec. 1 and Sec. 24

Facts: Petitioner QGLC, through Quirino Gonzales, applied for credit accomodations for the
expansion of its loggng business with respondent Republic Planters Bank which the latter
approved. The obligations were secured by real estate mortgage.

Petitioners issued promissory notes to secure certain advances from the Bank in connection
with the exportation of logs. The notes were payable 30 days after the date and provided for
the solidary liability of petitioners and attorney’s fees in the event of their non-payment at
maturity.

Petitioners defaulted in the payment of their obligations under the credit line, the bank
foreclosed the mortgage and bought the properties covered thereby, it being the highest bidder
in the auction sale,

The bank filed a complaint for “sum of money” against petitioners before the RTC alleging
non-payment of the balance of QGLC’s obligation after the proceeds of the foreclosure sale
were applied thereto, and non-payment of the promissory notes despite repeated demands.

Gonzales spouses claimed that they signed the documents in question in blank and they had
not received the value of said notes.

RTC ruled in facor of the petitioners. The CA, however, reversed the decision of the trial
court. It upheld the validity of the promissory notes.

ISSUE; WON the promissory notes were valid

Ruling: Yes, the notes were valid.

Section 14 of the NIL allows the prima facie authority of the person in possession of the
instruments, to fill in the blanks, to complete an incomplete instrument.
 Furthermore, a signature on a blank paper delivered in order that it may be converted into
a negotiable instrument operates a prima facie authority to fill up as such for any amount.

The SC noted that the petitioners admitted the genuiness and due execution of the
promissory notes. The promissory notes, howevere, appeared to be negotiable as they meet
the requirements of Section 1 of the NIL. Such being the case, the notes were prima facie
deemed to have been issued for consideration. It bears noting that no sufficient evidence was
adduced by petitioners to show otherwise.

The court explained that, in order that any such instrument when completed may be enforced
against a person whoi became a party thereto prior to its completion, it must be filled up
strictly in accordance with the authority given and within a reasonable time. BUt if any such
instrument, after completion, is negotiated to a holder in due course, it is valid and effectual
for all purposes in his hands, and he may enforce it as if it had been filled up strictly in
accordance with the authority given and within a reasonable time.
Metropolitan Waterworks and Sewerage System vs. Court of Appeals
G.R. No. L-62943
July 14, 1986

Facts:
The Philippine National Bank (PNB) is the depository bank of Metropolitan
Waterworks and Sewerage System (MWSS) and its predecessor-in-interest NWSA. Among
the several accounts of NWSA with PNB is NWSA Account No. 6. The authorized signature
for said Account No. 6 were those of MWSS treasurer Jose Sanchez, its auditor Pedro Aguilar,
and its acting General Manager Victor L. Recio. By special arrangement with the PNB, the
MWSS used personalized checks in drawing from this account. These checks were printed for
MWSS by its printer, F. Mesina Enterprises, located at 1775 Rizal Extension, Caloocan City.
During the months of March, April and May 1969, twenty-three (23) checks in the
aggregate amount of P320, 636 were prepared, processed, issued and released by NWSA, all
of which were paid and cleared by PNB and debited by PNB against NWSA Account No. 6.
During the same months of March, April and May 1969, another twenty-three (23) checks
bearing the same numbers as the aforementioned NWSA checks were likewise paid and
cleared by PNB and debited against NWSA Account No. 6. These checks were deposited by
the payees Raul Dizon, Arturo Sison and Antonio Mendoza in their respective current
accounts with the Philippine Commercial and Industrial Bank (PCIB) and Philippine Bank of
Commerce (PBC) in the months of March, April and May 1969.
Subsequent investigation however, conducted by the NBI showed that Raul Dizon,
Arturo Sison and Antonio Mendoza were all fictitious persons.
On June 11, 1969, NWSA addressed a letter to PNB requesting the immediate restoration
to its Account No. 6, of the total sum of P3,457,903.00 corresponding to the total amount of
these twenty-three (23) checks claimed by NWSA to be forged and/or spurious checks.
In view of the refusal of PNB to credit back to Account No. 6 the said total sum of
P3,457,903.00 MWSS filed the instant complaint on November 10, 1972 before the Court of
First Instance of Manila.
The Court of First Instance of Manila rendered judgment in favor of the MWSS. The
respondent court reversed the decision of the Court of First Instance of Manila and rendered
judgment in favor of the respondent Philippine National Bank.
Issue:
Whether or not the signatures on the checks are forgeries.
Ruling:
No, the signatures on the checks are not forgeries.
We have carefully reviewed the documents cited by the petitioner. There is no
express and categorical finding in these documents that the twenty-three (23) questioned
checks were indeed signed by persons other than the authorized MWSS signatories. On the
contrary, the findings of the National Bureau of Investigation in its Report dated November 2,
1970 show that the MWSS fraud was an “inside job” and that the petitioner’s delay in the
reconciliation of bank statements and the laxity and loose records control in the printing of its
personalized checks facilitated the fraud. Likewise, the questioned Documents Report No,
159-1074 dated November 21, 1974 of the National Bureau of Investigation does not declare
or prove that the signatures appearing on the questioned checks are forgeries. The report
merely mentions the alleged differences in the typeface, checkwriting, and printing
characteristics appearing in the standard or submitted models and the questioned typewritings.
The NBI Chemistry Report No. C-74-891 merely describes the inks and pens used in writing
the alleged forged signatures. It is clear that these three (3) NBI Reports relied upon by the
petitioner are inadequate to sustain its allegations of forgery. These reports did not touch on
the inherent qualities of the signatures which are indispensable in the determination of the
existence of forgery. There must be conclusive findings that there is a variance in the inherent
characteristics of the signatures and that they were written by two or more different persons.
The records show that at the time the twenty-three (23) checks were prepared,
negotiated, and encashed, the petitioner was using its own personalized checks, instead of the
official PNB Commercial blank checks. In the exercise of this special privilege, however, the
petitioner failed to provide the needed security measures. There was gross negligence in the
printing of its personalized checks.
Even if the twenty-three (23) checks in question are considered forgeries, considering the
petitioner’s gross negligence, it is barred from setting up the defense of forgery under Section
23 of the Negotiable Instruments Law.
Suan, Charmine V. Negotiable Instrument Law
JD-2B Judge Jaime V.
Samonte

SAMSUNG CONSTRUCTION COMPANY PHILIPPINES, petitioner,

vs.
FAR EAST BANK AND TRUST COMPANY, respondent.
Tinga, J.:
Principle: Sec. 23 of the Negotiable Instruments Law states that:
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.

Facts:
Petitioner Samsung Construction maintained a current account with defendant Far
East Bank and Trust Company (FEBTC) at the latter Bel-Air, Makati Branch. The
sole signatory to Samsung Constructions account was Jong Kyu Lee (Jong), its
Project Manager, while the checks remained in the custody of the company’s
accountant, Kyu Yong Lee (Kyu).
A certain Roberto Gonzaga presented for payment an FEBTC check to the bank’s
branch in Bel-Air, Makati. The check was payable to cash and drawn against
Samsung Constructions current account, amounting to Nine Hundred Ninety-Nine
Thousand Five Hundred (P 999,500.00) Pesos. The bank teller, Cleofe Justiani and
Gemma Velez, a bank officer, satisfied with the genuineness of Jong’s signature in
the check and approve for its encashment. Velez then forwarded the check and
signature card to Shirley Syfu, another bank officer, for approval. Syfu then noticed
that Jose Sempio III (Sempio), the assistant accountant of Samsung Construction, was
also in the bank. Syfu showed the check to Sempio to confirmed its genuineness.
Then, Sempio vouched for the genuineness of Jong’s signature and confirming the
identity of Gonzaga. Syfu authorized the banks encashment of the check to Gonzaga,
after being satisfied with the genuineness of Jong’s signature.
The accountant of Samsung Construction, Kyu, found out the next day, the last
blank check was missing. He reported the matter to Jong, who then proceeded to the
bank. Jong learned that the check was encashed with his signature being forged.
Samsung Construction, through counsel, demanded that FEBTC credit to it the
amount of P 999,500.00, with interest. In response, FEBTC said that it was still
investigating on the matter. Unsatisfied, Samsung Construction filed a complaint for
violation of Section 23 of the Negotiable Instrument Law against FEBTC.
RTC held that Jong’s signature on the check was forged and accordingly directed
the bank to pay Samsung Construction. During an appeal, the Court of Appeals
reversed the findings of the trial court and ruled to the genuineness of Jong’s signature.
The petitioner appeals to the Supreme Court, based on the ground that the Court of
Appeals had seriously misapprehended the facts when it overturned the RTC’s finding
of forgery. It also contends that the appellate court erred in finding that it had been
negligent in safekeeping the check.
Issue:
Whether or not petitioner may recover from the drawee bank.
Ruling:
Yes, the petitioner may recover from the drawee bank.
Under Sec. 23 of the 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.
Therefore, even if the bank performed with utmost diligence, the drawer whose
signature was forged may still recover from the bank as long as he is not precluded
from setting up the defense of forgery. After all, Section 23 of the Negotiable
Instruments Law plainly states that no right to enforce the payment of a check can
arise out of a forged signature. Since the drawer, Samsung Construction, is not
precluded by negligence from setting up the forgery, the general rule should apply.
Consequently, if the bank pays a forged check, it must be considered as paying out of
its fund and cannot charge the amount so paid to the account of the depositor. A bank
is liable, irrespective of its god faith, in paying a forged check.
The Petition is Granted. The Decision of the Court of Appeals is Reversed and
the Decision of the RTC is Reinstated. Costs against respondent.