A. REQUISITES OF NEGOTIABILITY [SECTION 1] [MEMORIZE] 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.
REQUISITES OF NEGOTIABILITY HSBC LTD. v. COMMISSIONER OF INTERNAL REVENUE
APPLICABILITY OF THE NIL GARCIA v. LLAMAS
Petitioner Garcia and de Jesus borrowed Php 400,000 from respondent Llamas On the same day, Garcia and de Jesus executed a promissory note wherein they bound themselves jointly and severally to pay the loan on or before 23 January 1997 with a 5% interest per month The loan became overdue, despite repeated demands A case was filed against petitioner Garcia and de Jesus Garcia argued that he assumed no liability under the promissory note because he signed it merely as an
accommodation party
RTC ruled in favor of Llamas CA reversed the decision of the RTC
ISSUE: WON the said promissory note is i n accordance with Sec 1 of the NIL. And WON Garcia can use the accommodated party defense under the NIL
HELD:
NO and NO First and foremost, the Court herein ruled that the said promissory note is not a negotiable instrument because the
note was made payable to a specific person rather than to a bearer or to order.
Electronic messages were not signed They do not contain an order to pay a sum certain in money Not payable to order or bearer Not signed
SC: The said electronic messages are not negotiable instruments, the bills of exchange in this case are subject to documentary stamp tax
Second, with the aforementioned ruling, Garcia cannot invoke the liabilities and defense of accommodated party under the NIL simply because the said promissory note is not a negotiable instrument.
FIRESTONE v. CA FACTS: Forjas-Arca purchased products from Firestone and issued special withdrawal slips as payment. Firestone then deposited the withdrawal slips to t heir current account in Citibank. Some of the withdrawal slips were dishonored by LDB as Forjas- Arca’s account did not have sufficient funds. Citibank then debited the amount of the dishonored withdrawal slips from Firestone’s account. Firestone is alleging that these withdrawal slips were treated as checks and should be classified as a negotiable instrument. SC: The essence of negotiability which characterizes a negotiable paper as a credit instrument lies in its freedom to circulate freely as a substitute for money. The withdrawal slips in question lacked this character.
KINDS OF NEGOTIABLE INSTRUMENT
PNB v. RODRIGUEZ
BEARER INSTRUMENT [SEC 9]
SC: The persons whose signatures were forged weren’t fictitious, the drawee bank bears the loss. Negligence negates the defense that the names were fictitious.
“Payable to A or bearer” Mere delivery would suffice negotiation Fictitious person: is meant to be one who, though named as payee in an instrument, has no right to it because the maker or drawer so intended and it matters not, whether the name of the payee used by him be that one living or dead, or one who never existed (Snyder v. Com. Exch. Nat. Bank) o Non-existing person: “Pay to the order of the king of Planet Jupiter” o Name of payee not name of person: “Pay to cash” or “pay to money”
*Fictitious payee = automatically a bearer instrument
ORDER INSTRUMENT [SECTION 8] “to the order of” “or order” Delivery + indorsement is required
A. COMPLETION AND DELIVERY COMPLETE AND DELIVERED
PEOPLE v. WAGAS FACTS: Wagas, according to Ligaray, ordered 200 sacks of rice from him. Wagas assured payment. Ligaray met up with Wagas’ brother -in-law which the latter gave the former a check worth the agreed price for the sacks of rice. The check bounced and Ligaray filed a case of Estafa against Wagas Wagas argued that the check was a bearer instrument (stated in the check “payable to cash”), therefore it shows that he had no intent to defraud Liagaray. SC: The check was a bearer i nstrument. Wagas cannot be guilty of estafa due to the fact that the prosecution failed to show intent to defraud on the part of Wagas. The nature of the check, which was a bearer instrument, shows the lack of i ntent to defraud; the accused, to be guilty of estafa as charged, must have used the check in order to defraud the complainant .
Q: When is there delivery? ANS: when there is delivery coupled with intention to be bound No defense available for the drawer or maker
INCOMPLETE AND DELIVERED
Section 14 of the NIL It is important to determine whether or not the person is a holder in due course Holder in due course – can enforce the instrument Not a holder in due c ourse – cannot enforce the instrument Personal defense is available (NOTE: Personal defense can only be used if th e holder is not a holder in due course ) Refer to: Alvin Patrimonio vs. Napoleon Gutierrez , et.al., G.R. No. 187769, June 04, 2014
COMPLETE BUT UNDELIVERED
INCOMPLETE AND UNDELIVERED
Section 16 of the NIL Complete instrument but the drawer or maker had no intention to be bound Unenforceable However, if the instrument is delivered to a holder in due course, the drawer is liable Personal defense is available
Section 15 of the NIL Incomplete instrument and no intention to be bound Not enforceable against the drawer or maker Complete or real defense is available (NOTE: even if the holder is a holder in due course, he cannot enforce the instrument to the drawer or maker)
PATRIMONIO CASE vs. BANK OF AMERICA CASE Both cases involve incomplete and delivered instruments (Sec 14). In the Patrimonio case, the Court absolved Alvin Patrimonio of liability because when he issued the said checks, he gave specific instructions to Gutierrez in which the latter chose not to follow when he acquired a loan f rom Marasigan. “The petitioner can validly set up the personal defense that the blanks were not filled up in accordance with the authority he gave. Consequently, Marasigan has no right to enforce payment against the petitioner and the latter cannot be obliged to pay the face value of the check.”
On the other hand, in the Bank of America case, the Court therein ruled that because of their negligence, Bank of America is liable to PRCI but only to a certain extent. The Court herein considered the contributory negligence on the part of the President and Vice President of PRCI which lead to t he unauthorized withdrawal of funds. The Court found the President and Vice President grossly negligent in the pre-signing of the checks.
B. SIGNATURE General Rule: Only persons whose signatures appear on an
instrument are liable thereon.
Exceptions: o
o
o o
o
Where a person signs in a trade name or assumed name (Sec. 18, par. 2) The principal is liable if a duly authorized agent sings on his own behalf (Sec. 19) Forgery; the forger is liable (Sec. 23) Where the acceptor makes his acceptance of a bill on a separate paper (Sec. 134) Where a person makes a written promise to accept the bill before it is drawn (Sec. 135)
SIGNING IN TRADE NAME [SECTION 18] Example: a note signed in the business name by the proprietor
SIGNATURE OF AGENT [SECTIONS 19-20] Agent may escape personal l iability when: He is duly authorized o He adds words to his signature indicating that he o signs in as an agent He discloses the principal o
SIGNATURE BY PROCURATION [SECTION 21]
Procuration – the act by which a principal gives power to another to act in his place as he could himself Similar to an agent or proxy “P.p.” = Per procuration Effect: it gives a warning that the agent has but a limited authority, so that it is the duty of the person dealing with
him to inquire into the extent of his authority
INDORSEMENT BY MINOR OR CORPORATION [SECTION 22] Minor – contracts entered into by minors are voidable. Other incapacitated persons – insane, deaf-mutes who do not know how to write Corporation – indorsement made by a corporation is considered to be an ultra vires act or acts beyond its powers.
Note: Minority is a personal defense which may be set up by parties other than the minor; but it is a real defense available to the minor. The minor may also disaffirm and recover the instrument from a holder in due course.
FORGERY [SECTION 23] [MEMORIZE] Sec. 23. Forged signature; effect of. - 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.
SECTION 23 FORGED SIGNATURE
authorized Gonzaga.
SECTION 15 INCOMPLETE AND UNDELIVERED
Material details: available No signature There is an exception
No material detail Signature is present and VALID No exception
EFFECTS
Real defenses (available against any holder) Frees the owner of the instrument from liability
Sempio vouched for the genuineness of Jong’s signature. Satisfied with the genuineness of the signature of Jong, Syfu
the bank’s encashment of the check to
Kyu, discovered the encashment. Kyu examined the checkbook and found that the last blank check was missing. Jong learned of the encashment of the check, and realized that his signature had been forged. Samsung Construction filed a Complaint for violation of Section 23 of the NIL. Both sides presented expert witnesses to determine the genuineness of the signatures. Samsung: NBI Document Expert, Rhoda Flores (FORGED) FEBTC: Rosario C. Perez, a document examiner from the PNP Crime Laboratory (GENUINE)
SC: Forged signature is wholly inoperative and payment made SAMSUNG CONSTRUCTION v. FAR EAST BANK FACTS:
Samsung Construction Company Phils. (Samsung Construction) maintained a current account with Far East Bank and Trust Company (FEBTC). Jong Kyu Lee, its Project Manager, was the sole signatory to the bank’s accounts. The company’s a ccountant, Kyu Yong Lee, kept the checks. A certain Roberto Gonzaga presented for payment an FEBTC Check amounting to P999,500. After making sure that there were enough funds to cover the check, the bank teller (Justiani) compared the signature appearing on the check with the signature card of Jong with the bank.
Justiani was satisfied that the signature was authentic. The same was done by the senior assistant cashier (Velez), and another bank officer (Syfu). Syfu then noticed that Jose Sempio III was also in the bank. Sempio was well known to Syfu and the other bank officers because he is the assistant accountant of Samsung Construction.
through or under such signature is ineffectual. FEBTC was liable because as a bank, it had the duty to determine whether or not a signature on a check is forged
ASSOCIATED BANK v. CA SC: Although the indorsement on the instrument is forged, parties who warrant or admit the genuineness of the signature in question and those who, by their acts, silence or negligence are estopped from setting up the defense of forgery. The act of A ssociated Bank of stamping the words ―all indorsement / lack of indorsement are guaranteed is actually an admission of the instrument‘s validity, hence the defense of forgery i s unavailable to it.
Negligence negates the defense of forgery
TRADERS ROYAL BANK v. RADIO PHILIPPINES NETWORK •
SC: By encashing in favor of unknown persons checks which were on their face payable to the BIR, a government agency which can only act only through its agents, petitioner did so at its peril and must suffer the consequences of the unauthorized or wrongful endorsement.
BPI v. CASA MONTESSORI SC: Banks must observe the highest level of diligence
MWSS v. CA SC: Forgery cannot be presumed. It must be established by clear,
positive, and convincing evidence. This was not done in the present case.
C. CONSIDERATION
EFFECT OF WANT OF CONSIDERATION [SECTION 28]
Absence of consideration – void contract Lack of consideration is a personal defense Knowledge of lack of consideration disqualifies a person to be a holder in due course. Partial payment entitles the person holding the instrument to the partially paid amount only. Pro tanto – to the extent
CAYANAN v. NORTH STAR SC: Upon the issuance of a check, in the absence of evidence to the contrary, it is presumed that it was issued for valuable consideration.
BAYANI v. PEOPLE FACTS:
Alicia Rubia arrived at the grocery store of Dolores Evangelista and subsequently asked the latter to rediscount her PSBank check amounting to Php 55,000 The check was drawn by Leodegario Bayani, petitioner herein, against his account with PSBank and then postdated August 29, 1992
Considering that both Rubia and Bayani were long-time customers and knowing the fact that Bayani is a good man, Evangelista agreed to rediscount the check However, when Evangelista deposited the check in her account with the Far East Bank and Trust company on September 11, 1992, the check was dishonored for the reason that Bayani had closed the said account with PSBank The dishonoring of the check was evidenced by a stamp at its dorsal portion Evangelista then informed Rubia that the said check was dishonored and demanded the return of her Php 55,000 Rubia, in her reply, stated that she was only requested by Bayani to have the check rediscounted A series of finger pointing ensued but ultimately it led to Evangelista filing a case against Bayani for vi olating BP22 Bayani, in his defense stated that there was no valuable consideration when Evangelista issued the check. He did not receive the Php 55,000. It must be noted that Bayani merely stated the fact that he did not receive the money from Evangelista; no further effort was given by Bayani to prove so. RTC: ruled against Bayani CA: confirmed the decision by the RTC
ISSUE: Whether or not Bayani’s defense of lack of valuable consideration is valid
HELD:
NO
Petitioner cannot evade criminal liability by merely stating that he did not receive the money It was shown during the trial that Evangelista rediscounted the check and gave the Php 55,000 to Rubia after the latter endorsed the same; therefore, it must be considered that Evangelista is a holder in due course
According to Section 28 of the NIL, absence or failure of consideration is a matter of defense only as against any person not in due course Moreover in Section 24 of the NIL, it is presumed that there is a valid consideration; mere denial of receipt of the money cannot overcome this presumption
EUFRONICA did not have the money that time, she executed a promissory note.
MANGAHAS v. BRIOBIO FACTS:
Pacifico Brobio died intestate, leaving 3 parcels of l and. He was survived by his wife, 4 legitimate children and 3 illegitimate children. PETITIONER Carmela Brobio Mangahas is one of the illegitimate children of Pacifico. May 12, 2002: DEED OF EXTRAJUDICIAL SETTLEMENT OF ESTATE of the Late Pacifico Brobio with Waiver was executed by the heirs. The heirs, in consideration of their love and affection to RESPONDENT (Eufrocina Brobio) and the sum of P150,000, waived and ceded their respective shares over the 3 parcels of land to EUFROCINA. CARMELA said that EUFROCINA promised to give her an additional amount for her share i n her father’s estate. After signing the Deed, CARMELA demanded from respondent the promised additional amount, but EUFROCINA refused to pay because she had no money. A year later, EUFRONICA was required to submit an original copy of the Deed for tax declarations with BIR. Since she did not have a copy, she asked CARMELA to countersign a copy of the Deed. CARMELA refused; she demanded Eufrocina to give the additional amount she (Eufrocina) promised. CARMELA asked for 1 Million, but EUFROCINA begged to lower the amount. It was settled at P600,000. Since
When the promissory note fell due, EUFROCINA failed and refused to pay despite demand. Thus, CARMELA filed a Complaint for Specific Performance with Damages against EUFROCINA. EUFROCINA answered that she was forced to sign the promissory note and claimed that the undertaking was nit supported by any consideration.
RTC: ruled in favor of CARMELA. There was no undue influence constituted on the part of Eufrocina’s consent. In fact, Eufrocina acted in bad faith and took advantage of the t rust and confidence Carmela had reposed in her. CA: reversed RTC. There was a complete absence of consideration in the execution of the promissory note, note, which made it inexistent and without any legal force and effect. The real reason why Eufrocina executed the promissory note was to secure Carmela’s signature. The waiver of Carmela’s share in the properties may not be considered as the consideration of the promissory note, since Carmela signed the Deed way back in 2002 and she had already received the consideration of P150,000 for signing the same. The CA also found that intimidation attended the signing of the promissory note. Eufrocina needed the signature of Carmela in order to comply with a BIR requirement, hence, Eufrocina was forced to sign the promissory note to assure Carmela that the money promised to her would be paid.
ISSUE: WON the CA erred when it found that the promissory note was without consideration.
HELD: YES. Section 24 of the NIL provides that “A contract is presumed to be supported by cause or consideration.” The presumption that a contract has sufficient consideration cannot be overthrown by a m ere assertion that it has no consideration.
To overcome the presumption, the alleged lack of consideration must be shown by preponderance of evidence. The burden to prove lack of consideration rests upon whoever alleges it , which, in the present case, is Eufrocina. She failed to prove that the promissory note was not supported by any consideration. From her testimony and her assertions in the pleadings, it is clear that the promissory note was issued f or a cause or consideration, which, at the very least, was Carmela’s s ignature on the document. It may very well be argued that if such was the consideration, it was inadequate. Nonetheless, even if the consideration is inadequate,
the contract would not be invalidated, unless there has b een fraud, mistake, or undue influence (none of which was proven in the case).
Upon presentment of the aforesaid checks for payment, they were dishonored by the bank for having been drawn against insufficient funds or closed account. Santia thus demanded payment from PLCC and Aglibot of the face value of the checks, but neither of them heeded his demand.
SC: By issuing her own p ost-dated checks, Aglibot thereby bound herself personally and solidarily to pay Santia, and dismissed her claim that she issued her said checks in her official capacity as PLCC’s manager merely to guarantee the i nvestment of Santia.
SC: No vitiated consent. Mangahas merely took advantage of the
It noted that she could have issued PLCC’s checks, but instead she chose to issue her own checks, drawn against her personal account with Metrobank.
situation because she already experienced being on the short end of the deal.
LIM v. SABAN
E. ACCOMMODATION PARTY [SECTION 29]
SC: In order to be an accommodation party, one must meet all three
Exception to SECTION 28 regarding pro tanto. The holder in due course can ask for the f ull payment. An accommodation party acts like a surety. An accommodation party signs on behalf of another for the purpose of lending his name. When the accommodation party makes payment to the holder of a note, he has the right to sue the accommodated party for reimbursement.
AGLIBOT v. SANTIA FACTS:
Private respondent-complainant Engr. Ingersol L. Santia (Santia) loaned the amount of P2,500,000.00 to Pacific Lending & Capital Corporation (PLCC), through its Manager, petitioner Fideliza J. Aglibot ( Aglibot). The loan was evidenced by a Promissory Note dated July 1, 2003, issued by Aglibot in behalf of PLCC, payable in one year subject to interest at 24% per annum.
requisites, viz: (1) He signed the instrument as maker, drawer, acceptor, or indorser; (2) He did not receive value for the signature; and (3) He signed for the purpose of lending his name to some other person.
F. NEGOTIATION NEGOTIATION v. ASSIGNMENT 1. NEGOTIATION [SECTION 30] SITUATION: Php 10,000.00 Promissory Note Maker: A Holder: E
A B C D E
Php 10,000.00 Promissory Note dated December 30,
E can collect from A because he possesses the rights of a holder
2017 Maker: A Holder: F obtained the instrument December 15, 2017
2. ASSIGNMENT SITUATION: Php 10,000.00 Non-Negotiable Promissory Note Maker: A Holder: E
A B C D E F *F rediscounted the money to A for Php 9,800.00 on December 16, 2017 (needed money ASAP)
A B C D E
According to Section 50 of th e NIL, reacquiring of original party is ALLOWED and can still be negotiated provided that the instrument itself has not yet matured.
E cannot collect from A. Notification is needed. In this case, A had no prior notification regarding the assignment of D to E. There is no privity of contract
between A and E. *A re-issues the check to X, X issues the instrument to Y, Y to Z
3. STRIKING OUT INDORSEMENTS [SECTION 48] SITUATION: Php 10,000.00 Promissory Note Maker: A Holder: F
A B C D E F A maker; re-issues it to X Y Z Z can ask payment from A upon maturity of the instrument. A cannot go after the prior indorsers for it will result to a multiplicity of actions [SECTION 50]
A B C D E F *F strikes out the indorsement of C
MODES OF NEGOTIATION A B C (x)
D
(x)
E
(x)
F
PRESUMPTION OF DELIVERY o
According to Section 48 of the NIL, the subsequent indorses after C will not be liable anymore as to the i nstrument.
4. WHEN PRIOR PARTY MAY NEGOTIATE INSTRUMENT [SECTION 50] SITUATION:
o
Where the instrument is no l onger in the possession of a party whose signature appears thereon, a valid and intentional delivery by him is presumed until the contrary is proven If it is in the hands of a holder in due course, the presumption is conclusive.
PRESUMPTION AS TO DATE o
Date is not an essential element of negotiability
o
An undated instrument is considered to be dated as of the time it was issued
PAYABLE TO ORDER o o
Delivery + indorsement is required If it cannot be indorsed anymore more specifically, it is already impossible to sign or i ndorse the instrument due to the number of indorsers, the
holder must attach a piece of p aper (alonge) if he wants to negotiate the instrument futher o
The alonge must be permanently attached to the instrument for it to be valid
PAYABLE TO BEARER o
Delivery alone would suffice
CALTEX v. CA (supra)
SC: 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. Accordingly, a negotiation for such purpose cannot be effected by mere delivery of the i nstrument since, necessarily, the terms thereof and the subsequent disposition of such security, in the event of nonpayment of the principal obligation, must be contractually provided for.
SESBREÑO v. CA FACTS:
Petitioner Raul Sesbreño made a money market placement in the amount of P300,000.00 with the Philippine Underwriters Finance Corporation ("Philfinance"), Cebu Branch; the placement, with a term of t hirty-two (32) days, would mature on 13 March 1981, Philfinance, also on 9 February 1981, issued a Certificate of Confirmation of Sale, Certificate of
Securities delivery receipt, and post-dated checks payable on March 13, 1981. On 13 March 1981, petitioner sought to encash the postdated checks issued by Philfinance. However, the checks were dishonored for having been drawn against insufficient funds. On 26 March 1981, Philfinance delivered to petitioner the DCR No. 10805 issued by priv ate respondent Pilipinas Bank. Petitioner approached Ms. Elizabeth de Villa of private respondent Pilipinas, Makati Branch, and handed her a demand letter informing the bank that his placement with Philfinance had remained unpaid and outstanding, and that he in effect was asking for the physical delivery of the underlying promissory note. Petitioner also made a written demand on 14 July 1981 upon private respondent Delta for the partial satisfaction of DMC PN No. 2731. Delta, however, denied any liability to petitioner on the promissory note, and explained in turn that it had previously agreed with Philfinance to offset its DMC PN No. 2731 (along with DMC PN No. 2730) against Philfinance PN No. 143-A issued in favor of Delta. Philfinance, on 18 June 1981, was placed under the joint management of the Securities and Exchange Commission ("SEC") and the Central Bank. Pilipinas delivered to the SEC DMC PN No. 2731. As petitioner had failed to collect his investment and interest thereon, he filed on 28 September 1982 an action for damages with the Regional Trial Court ("RTC") of Cebu City, Branch 21, against private respondents Delta and Pilipinas. Complaint was dismissed. Petitioner appealed to respondent Court of Appeals. The Court of Appeals denied the appeal.
ISSUE: WON a non-negotiable promissory note is assigned HELD:
Yes. It is important to bear in mind that the negotiation of a
negotiable instrument must be distinguished from the assignment or transfer of an instrument whether that be
negotiable or non-negotiable. Only an instrument qualifying as a negotiable instrument under the relevant statute may be nego tiated either by indorsement thereof coupled with delivery, or by delivery alone where the negotiable instrument is in bearer form. A negotiable instrument may, however, instead of being negotiated, also be assigned or trans ferred . The l egal consequences
5. Conditional Indorsement
of negotiation as distinguished from assignment of a negotiable instrument are, of course, different. A non-
negotiable instrument may, obviously, not be negotiated; but it may be assigned or transferred, absent an express prohibition against assignment or transfer written in the face of the instrument.
DMC PN No. 2731, while marked "non-negotiable," was not at the same time stamped "non-transferable" or "nonassignable." It contained no stipulation which prohibited Philfinance from assigning or transferring, in whole or in part, that Note.
KINDS OF INDORSEMENTS 1. Special Indorsement
Where the name of the payee is specified Also known as “specific indorsement” or “indorsement in full” Unqualified indorsements
2. Blank Indorsement
Specifies no particular indorsee Payable to bearer Checked payable to the order of a named person and indorsed by him in blank makes it a bearer instrument
3. Restrictive Indorsement
Worded that it either restricts or prohibits entirely the further negotiation of an i nstrument, or modifies the rights of the holder or the liabilities of the i ndorser Limits the rights of indorsee Destroyes the negotiability of instrument
4. Qualified Indorsement
Constitutes the indorser as a mere assignor of the title to the i nstrument The indorser imposes some other condition to his liability, or on the indorsee’s right to collect t he proceeds of the instrument Does not prohibit future negotiation regardless of whether the condition has been fulfilled or not
PCIB v. CA FACTS: Ford Philippines drew and issued Citibank Check. No. SN 04867 on October 19, 1977, Citibank Check No. SN 10597 on July 19, 1978 and Citibank Check No. SN-16508 on April 20, 1979, all in favor of the Commissioner of Internal Revenue (CIR) for payment of its percentage taxes. The checks were crossed and deposited with t he IBAA, now PCIB, BIR's authorized collecting bank. The first check was cleared containing an indorsement that "all prior indorsements and/or lack of indorsements guaranteed." The same, however, was replaced with two (2) IBAA's managers' checks based on a call and letter request made by Godofredo Rivera, Ford's General Ledger Accountant, on an alleged error in the computation of the tax due without IBAA verifying the authority of Rivera. These manager's checks were later deposited in another bank and misappropriated by the syndicate. The last two checks were cleared by the Citibank but failed to discover that t he clearing stamps do not bear any initials. The proceeds of the checks were also illegally diverted or switched by officers of PCIB — members of the syndicate, who eventually encashed them. Ford, which was compelled to pay anew the percentage taxes, sued in two actions f or collection against the two banks on January 20, 1983, barely six years from the date the first check was returned to the drawer. The direct perpetrators of the crime are now fugitives from justice. In the first case, the trial court held that Citibank and IBAA were jointly and severally liable for the checks, but on review by certiorari, the Court of Appeals held only IBAA (PCIB) solely liable for the amount of the first check. In the second case involving the last two checks, the trial court absolved PCIB from liability and held that only the Citibank is liable for the
checks issued by Ford. However, on appeal, t he Court of Appeals held both banks liable for negligence in the selection and supervision of their employees resulting in the erroneous encashment of t he checks. These two rulings became the subject of the present recourse.
SC: The relationship between a holder of a commercial paper and the bank to which it is sent for collection is that of a principal and an agent and the diversion of the amount of the check is justified only by proof of authority from the drawer; that in crossed checks, the collecting bank is bound to scrutinize the check and know its depositors before clearing indorsement; that as a general rule, banks are liable for wrongful or tortuous acts of its agents within the scope and in the course of their employment; that failure of the drawee bank to seasonably discover irregularity in the checks constitutes negligence and renders the bank liable for loss of proceeds of the checks; that an action upon a check prescribes in ten (10) years; and that the contributory negligence of t he drawer shall reduce the damages he may recover against the collecting bank.
Indeed, the crossing of the check with the phrase "Payee's Account Only," is a warning that the check should be deposited only in the account of the CIR. Thus, it is the duty of the collecting bank PCIBank to ascertain that the check be deposited in payee's account only. Therefore, it is the collecting bank (PCIBank) which is bound to scrutinize the check and to know its depositors before it could make the clearing indorsement "all prior indorsements and/or lack of indorsement guaranteed."
METROBANK v. BA FINANCE SC: The last indorser, generally suffers the loss because it has the duty to ascertain the genuineness of all prior indorsements considering that the act of presenting the check for payment to the drawee is an assertion that the party making the presentment has done its duty to ascertain the genuineness of prior indorsements.
CREDITS: 1. The Law on Negotiable Instruments by Hector De Leon (2016) 2. UP College of Law BOC (Commercial Law Reviewer 2015) 3. Digests and Lecture notes from Negotiable Instruments G03 1ST SEM, AY-2017-2018 DLSU College of Law