nego chapter v notes

7/28/2019 Nego Chapter v Notes

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NEGOTIABLE INSTRUMENTS LAW

Chapter 5: Liabilities of Parties

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A. LIABILITIES OF PRIMARY PARTIES

KINDS OF PARTIES ACCORDING TO LIABILITY1) Primary party Unconditionally liable; the primary party is

bound to pay the holder at the date of maturity, whether or

not the holder demands payment him (Sec 192 NIL)o He is not relieve from liability even if NI should

become overdue due to holders failure to make ademand

a. Makerb. Acceptor of Bill

2) Secondary party Conditionally liable; the secondary partyis not bound to pay unless the following conditions havebeen fulfilled: (a) due presentment or demand to theprimary party for payment or acceptance; (b) its dishonor bythe party; and (c) taking of proceedings required by lawafter dishonor, i.e. notice of dishonor and in case of foreignBills of Exchange, protest of the bill (Sec 70 NIL)

a. Indorsersb. Drawer

PARTIES PRIMARILY LIABLE

1. LIABILITY OF MAKER Under Sec 60, the maker isprimarily liable since he engages to pay the note according toits tenor, subject to no condition whatsoever By executing a PN, the maker warrants that the payee

named in the NI is existing; therefore, he cannot questionthe corporate existence of the payee

Maker also represents to the world that the payee has the

capacity to indorse at the time of the making of PN andthus represents that the payee can transfer a good andvalid title to the PN by indorsemento Maker cannot raise the defense of minority; insanity of

payee or ultra-vires act of corporation

FIRST NATL BANK OF CENTRAL CITY V. UTTERBACK177 Ky. 76, S.W. 534, L.R.A. 1918B, 838 (1917)Subject: Negotiable Promissory noteMaker: UtterbackPayee: Davis Coal Co

FACTS: Utterback issued a promissory note payable to Davis CoalCo. Payee failed to comply with Sec 199b and 571, KentuckyStatute, prior to the execution of the note, which is a requisite forconducting business in Kentucky.

ISSUE: WON payees failure to comply with the Kentuckyprovisions render the PN uncollectible in the hands of HDC

HELD: No. Under the NIL, the defendant (maker) cannot denyeither the existence of the original payee or its capacity toindorse, as against HDC. The NIL does not say that the makeradmits the payees capacity to make the contract for which the PNwas executed. BUT again, the act DOES take from the maker theright to deny the capacity of the payee to indorse and negotiatethe note free from defenses available against the payee, eventhough, as between the original parties, the note was void andunenforceable for any reason.

It has been held in both Colorado and North Dakota that a note toa foreign corporation that he has not complied with the local law,without which it would not do business in the state, is valid againstthe maker in the hands of a holder in due course.

a. STATUS OF DRAWEE PRIOR TO ACCEPTANCE OR

PAYMENT The drawee is not liable on the bill of exchangeor check until he accepts it. Even HDC cannot sue drawerprior to his acceptance

o REASON: Mere issuance of the bill does not renderthe drawee liable because it does not operate asan assignment of the funds in the hands of thedrawee

o When the bill is accepted, the acceptor becomesprimarily liable under Sec 62

o Bank is not liable until it accepts or certifies thecheck. Prior to certification, the drawer may issuea stop payment order

NOTE: If the drawee bank refuses to accept the bill withoutjustifiable reason/s, the drawee may be liable to the drawer forbreach of contract or damages based on tort.


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ARANETA V. BANK OF AMERICA40 SCRA 144 (1971)Drawer: Leopoldo AranetaDrawee: Bank of AmericaSubject: Checks of various amounts

FACTS: Araneta issued a check for $500 drawn against Bank ofAmerica. At the time he had a credit of $523.81 in his account.However the check was dishonored and stamped account closed.Upon inquiry, Bank of America acknowledged the error and sentletter of apology to the payee. However, similar incidentshappened later.

Subsequently, Araneta drew 2 checks for $500 and $150, bothpayable to cash and drawn against the same bank. The check for$500 was indorsed to Rufina Saldana who deposited it in heraccount with First National City Bank of New York which clearedthrough the Federal Reserve Bank. It was actually paid by BA but

it later claimed that it paid by mistake and requested the amountto be re-credited. FNCB informed Saldana but before her reply wasreceived, BA recalled the check from FNCB and honored it.

Due to the foregoing incidents, Araneta filed an action for damages(actual, moral, temperate and exemplary) against Bank ofAmerica. The trial court awarded all the items prayed for by thepetitioner. On appeal, CA eliminated the award of compensatoryand temperate damages and reduced the award of moral damages

ISSUE: WON Bank of America is liable for temperate and moraldamages

HELD: Yes. The financial credit of a businessman is a prizedand valuable asset, it being a significant part of hisbusiness. Any adverse reflection thereon constitutes somematerial loss to him. Injury to ones commercial credit or to

the good will of the business firm is often hard to show withcertainty in terms of money. Temperate damages areawarded where definite proof of pecuniary loss cannot be

offered but the court is convinced that there has been aloss.

While it is true that under Art 2217 NCC, besmirched reputation isa ground upon which moral damages may be claimed, CA hasalready taken this element into consideration when it granted theaward of moral damages.

WOODY V. NATIONAL BANK OF ROCKY MOUNT194 N.C. 549, 140 S.E. 150 (1927)Subject: Check for $6Drawer: WoodyDrawee: Bank of Rocky MountPayee: E.L. HollingworthIndorsee: Kingston GarageDepositing Bank: Kingston Bank

FACTS: Woody issued a check for $6 payable to the order ofHollingworth. The check was indorsed to Kingston Garage, who inturn deposited it with Kingston Bank. At the time deposit, Woodyhad in his account with drawee bank $50. However, the check was

dishonored and marked no account. Woody was arrested andcharged for having issued a worthless check. He was lateracquitted.

As such, Woody filed an action for damages against Bank of RockyMount, alleging that the drawee banks act was willful, negligent,wanton and malicious.

ISSUE: WON Woody may recover compensatory and punitivedamages from drawee bank

HELD: Yes. Upon the refusal or failure of the bank to pay thecheck of its depositor, the bank is liable for a breach of its

contract. The depositor may recover of the bank the amountof his check, with interest and cost; the action being oncontract, the recovery is limited to the amount of the check, withinterest from date of demand and refusal, and, by virtue of thestatute, the costs of the action.

Notwithstanding that the relation of the bank to its depositor isthat of debtor and creditor, a bank may be held liable in tort toits depositor whose check it has wrongfully refused orfailed to pay.


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A depositor, whose check has been wrongfully dishonored by therefusal or failure of the bank on which it was drawn to pay thesame, may maintain an action against the bank, not only incontract but also in tort, to recover the damages which he hassustained, and that the jury may, when the plaintiff is a merchantor trader, assess not only nominal but also substantial damages;when the plaintiff is not a merchant or trader, he may recoversuch sum as special damages as the jury shall find, upon the facts,will compensate him for the injury resulting from the wrong donehim by the defendant.

Even if such actual loss or injury is not shown, yet morethan nominal damages may be given. It can hardly bepossible that a customers check can be wrongfully refusedpayment without some impeachment of his credit, which

must in fact be an actual injury, though he cannot from thenature of the case furnish independent, distinct proof

thereon.

SINGSON V. BPI23 SCRA 1117 (1968)

FACTS: Singson was one of defendants in civil case where judgment wasrendered against him and co-defendants Lobregat and Villa-Abrille, to pay.Singson and Lobregat appealed, but not Villla-Abrille. Writ of garnishmentwas served upon BPI in which Singson had account, insofar as Villa-Abrilles credit against the bank were concerned.

The clerk of the BPI, upon reading name of plaintiff and without informinghimself that garnishment was merely for deposits of Villa-Abrillle and Bona,prepared letter for Bank Presidents signature, informing Singson of thegarnishment of his deposits.

2 checks issued by Singson in favor of Lega Corp, drawn against said bank,were deposited by drawee. Believing that Singson had no more controlover his deposits, bank dishonored the checks. Singson filed an action fordamages against bank and its president for damages because of illegalfreezing of account.

ISSUE: WON the existence of a contract between the parties bars aplaintiffs claim for damages based on tort

HELD: No. The existence of a contract between the parties

does not bar the commission of a tort by the one against

the order and the consequent recovery of damages

therefore. Indeed, this view has been, in effect, reiterated in acomparatively recent case. Thus, inAir France vs. Carrascoso,involving an airplane passenger who, despite his first-class ticket,had been illegally ousted from his first-class accommodation andcompelled to take a seat in the tourist compartment, was heldentitled to recover damages from the air-carrier, upon the groundof tort on the latters part, for, although the relation between apassenger and a carrier is contractual both in origin and nature the act that breaks the contract may also be a tort.

In view, however, of the facts obtaining in the case at bar, andconsidering, particularly, the circumstance, that the wrongdone to the plaintiff was remedied as soon as the Presidentof the bank realized the mistake he and his subordinate

employee had committed, the Court finds that an award ofnominal damagesthe amount of which need not be

provenin the sum of P1,000, in addition to attorneys fees

in the sum of P500, would suffice to vindicate plaintiffsrights.

SPEROFF V. FIRST-CENTRAL TRUST CO149 Ohio St. 415, 79 N.E. 2d 119 (1948)

FACTS:Vassil Speroff had drawn a check on First-Central Trust Co.(FCTC). He eventually notified FCTC that said check be not paid(stop order). Speroff sued FCTC to recover the amount of saidcheck.

FCTC admitted to the drawing of the check and to having receivedthe notice not to pay. However, it interposed the defense that

Speroff signed a document stating that Speroff agreed toindemnify FCTC against any loss resulting from the nonpayment ofsaid check and that it is expressly understood that it will not beheld responsible if it paid the check through inadvertency oroversight.

The trial court rendered a judgment for FCTC. CA reversed sayingthat said statement of release was void as it was contrary to publicpolicy and void for want of consideration. Hence, this appeal.


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ISSUE: WON the statement of release signed by Speroffconstitutes a valid defense

HELD: No. The Court upheld the CAs two grounds for avoiding thestatement of release.

ON WANT OF CONSIDERATIONUnder the reciprocal rights and obligations inherent in therelationship existing between a bank and its depositors, it was theduty of FCTC NOT to pay after it had received the stop paymentorder of Speroff.

Hence, when Speroff was asked to sign a statement or release tothe effect that the bank would not be held responsible if it wouldpay the check, this was a new element in the relationship. Whatconsideration or benefit was received by Speroff aspromisor and what detriment was suffered by FCTC as

promise as a result of this statement? NONE so clearly there

was no compliance with either of the fundamentalrequirements as to consideration.

ON CONTRARY TO PUBLIC POLICYIt is elementary that a bank is required by law to act in good faithand exercise reasonable care in its relationship with its depositors.

In this case, the obtaining from Speroff of a purportedrelease from liability for inadvertency or oversight as acondition of the order to stop payment of the check was

contrary to public policy and did not relieve FCTC from itsduty to act in good faith and exercise reasonable care.

The Court distinguished that FCTCs defense of purported releasewas a void and invalid defense. However, the FCTCs defense ofexercising good faith and reasonable care (which it interposed inits amended answer) is a valid defense so the Court remanded thecase back to the Court of Common Pleas for trial on that issue.

CHASE NATL BANK OF CITY OF NEW YORK V. BATTATCourt of Appeals of New York 1948297 N.Y. 185, 78 N.E. 2d, 465Subject: Check for $25,000 as payment for the purchase of sugarDrawer: Arbeedee

Drawee: Chase Natl Bank of City of New YorkPayee: Caracanda Bros & Co. Ltd.

FACTS: Arbeedee and Caracanda entered into an agreement forthe purchase of sugar which provided that Arbeedee and shoulddeliver a check for $25,000 to Caracanda to bind the transactionand that an amount would be returned upon receipt by Caracandaof a letter of credit to obtained by Arbeedee. Arbeedee drew sucha check on its account in the plaintiff bank and delivered it toCaracanda. Thereafter Arbeedee requested Chase National Bank tostop payment on the check. Caracanda presented the check forcertification and it was certified by drawee bank by mistake. Thefollowing day, Caracanda presented it for payment and draweebank paid it. When advised of the payment of the check Arbeedeeinsisted that plaintiff make no debit against it account assertingthat Caracanda has no legal right to the money. Plaintiff thereupondemanded payment of the $25,000 from Caracanda butCarancanda refused. The complaint alleges due demand upon both

defendants and nonpayment and prays for judgment in the sum of$25,000 against Arbeedee and/or Caracanda.

ISSUE: WON drawee bank may recover

HELD: No. A defendant may not be held liable unless facts arealleged which constitute a cause of action. The complaint failedto allege ratification by Arbeedee after learning of thepayment by plaintiff to Caracanda and there are noalternative allegations of fact upon which to rest such a

cause ofaction. Our courts have never permitted a bank in acommercial transaction to such as this, after breaching itsdepositor's instructions to involve him against his will in

litigation with a third party in order that the bank mayrecoup a potential loss resulting from its own error. Thedoctrine of subrogation or equitable assignment is notproperly applicable under such circumstances. A bank mayprotect itself by contract with its depositor so as to limit liability ona stop payment order. When that has not been done, the commonlaw liability is absolute in the absence of ratification.

2. LIABILITY OF ACCEPTOR A drawee has no liability onthe bill unless and until he accepts the same. Once he accepts,he becomes primarily liable on the instrument because he


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accepts to pay it according to the tenor of his acceptance,subject to no condition whatsoever Acceptance applies only to bills of exchange Object: to bind the drawee and to make him an actual and

bound party to the instrument

Requisites for valid acceptance (Sec 132)a. It must be in writingb. It must be signed by the draweec. It must not change the implied promise of the acceptor

to pay only in money

NOTE: There can be no valid oral or implied acceptance exceptunder Sec 137 (constructive acceptance)

o Acceptance is made by writing the word accepted or bythe drawees signature alone

LAWLESS V. TEMPLE254 Mass. 395, 150 N.E. 176 (1926)Subject: BillDrawer: Norris TempleDrawee: Maurice TemplePayee: Hazel Lawless

FACTS: Drawer issued a bill for $150.50 drawn against draweeTemple, in favor of Lawless. On the face of the instrument, thedrawee signed his name. Drawee contends that the mere signatureof the name of the drawee on the bill cannot fulfill therequirements that the signification of the assent of the draweemust be in writing and signed

ISSUE: WON the signature of the drawee is sufficient acceptance

HELD: Yes. Acceptance must be in writing because sound policy requiresthat some substantial and tangible evidence of the contract is more reliablein nature than the statement or recollection of witnesses. The commonpractice before the NIL was to write the word "accepted" + the signatureon the face of the bill.

But based on case law, the signature is both writing and signing. The namealone is constantly holden to satisfy the requirement.

A drawee may be charged as acceptor although he writes merely his nameupon the bill and that anyone taking the bill has the right to fill up a blankacceptance on the same principle that a holder may fill up a blankindorsement.

KILGORE NATL BANK V. MOORE BROS LUMBER CO

102 S.W. 2d 200 (1937)Subject 2 checksDrawer: WaddellDrawee: Kilgore National BankPayee: Moore Bros Lumber CoCollecting Bank: Grand Saline Bank

FACTS: Waddell transacted with Moore Brothers, a firm engaged in thelumber business. As payment for the lumber he purchased, Waddell drew 2checks for $350 drawn against Kilgore National Bank. The 2 checks weredeposited by Moore Brothers in Grand Saline Bank for collection. A fewdays later, Grand Saline notified G.J. Moore that the checks had beenreturned by Kilgore Bank unpaid.

Because of this, G.J. Moore brought Waddell to Kilgore Bank whereWaddell, Moore and the cashier of Kilgore Bank had an ORAL agreement.Waddell instructed Kilgore bank to pay Moore. The cashier promised Moorethe payment of said checks once presented again. On the ledger of thebank in connection with Waddell's account, the cashier made the unsignednotation: "Hold for Moore Brothers $350.00"

G.J. Moore ordered Grand Saline to forward the checks to Kilgore again.One of the checks was paid. The other, however, was not. This promptedMoore to file suit against Kilgore Bank to recover amount of the lastmentioned unpaid check.

ISSUE: WON Kilgore is liable for the other check

HELD: No. Section 132 governs.To be a valid acceptance, the followingrequisites must be present:

1) It must be in writing2) It must be signed by the drawee, and3) It must not change the implied promise of acceptor to pay only in

money.Acceptance is usually made by writing "accepted" and signing immediatelybelow. However, the drawee's signature alone is NOT sufficient.

The plain purpose of 132 is to prevent any liability to the holder of acheck from arising from the bare oral promise of the drawee bankto pay the check.


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CAB: The liability of Kilgore Bank to Moore Brothers depends entirely onthe BARE ORAL PROMISE of the drawee bank to pay. As we have said, thisshould have been in writing (and of course, complying as well with theother two requisites). The notation in the bank's ledger "Hold for MooreBrother, $350.00" adds no force to said promise. This statement (as

opposed to the oral promise to pay) does NOT EVEN make any contract,oral or written, to pay. It gave its oral promise to pay the checks, but thisstanding alone, is insufficient under the statutes to charge the bank withliability.

a. CONSTRUCTIVE ACCEPTANCE The drawee has 24 hrsafter presentment to determine whether to accept the bill ornot.o 24 hr-period is counted from time of delivery

If check is returned unaccepted within 24 hrs= not dishonored since drawee still has theremainder of the period to accept or dishonor

If check is returned and fails to accept withinthe remainder of the 24 hrs = dishonored

If check is returned with statement of refusal =dishonored

If drawee destroys the check instead ofreturning or accepting = deemed accepted(Sec 137) unless the destruction is accidental

If the bill is delivered to the drawee whodestroys the same

If the drawee does not return the bill, acceptedor non-accepted within 24 hrs (24-hr rule) orsuch time allowed by holder

o Sec 137 NIL uses the word refuses which clearly

implies a demand for the return of the bill.o Mere failure to return on time is not acceptance; Sec

150 provides if no acceptance is given within theprescribed time, the bill is deemed dishonored

WEISNER V. FIRST NATL BANK OF GALLITZIN220 Pa. 21, 68 Atl. 955 (1908)Subject: 6 ChecksDrawer: Samuel BullockDrawee: First National Bank of GallitzinPayee: Charles Gallaer or orderHolder: Wisner

FACTS: Subject checks were deposited in various banks and then,forwarded by said banks to drawee bank for payment. 5 of the checks werenot returned by the drawee bank to the forwarding banks for more than 2days.Holder of the checks sued the drawee bank for payment on the theory thatits failure to return the checks within 24 hrs after receipt thereof

constituted acceptance. The trial court ruled in favor of drawee bank,saying that mere retention of the checks unaccompanied by its refusal toreturn them, was not acceptance

ISSUE: WON failure to return the checks to the holder or the collectingbank within 24 hrs amounts to acceptance

HELD: Yes. The drawee to whom a bill is delivered for acceptance isdeemed to have accepted it under Section 137 where: 1. he destroys it; 2.where he refuses within 24 hrs after delivery to return the bill accepted ornon-accepted to the holder; and 3. where he refuses within such otherperiod as the holder may allow to return the bill accepted or non-acceptedto the holder.

Whether a demand from the holder for the return of the bill, and a refusal

on the part of the drawee, are conditions precedent to an acceptanceNo prior demand from holder is required because to require so is not to theconvenience or interest of the holder.

The manifest purpose in requiring prompt return of the bill is in the interestof and for the protection of the holder

If this section had in view the protection of the holder, then it wasevidently the intention of the legislature that the non-return of the billwithin the specified time, regardless of the cause, will make the drawee anacceptor

CAB: The drawee bank, having failed to return the 5 checks to thecollecting bank within 24 hrs after delivery, is deemed to have accepted

the checks, and is therefore, liable for their amount.

URWILLER V. PLATTE VALLEY STATE BANK164 Neb. 630, 83 N.W. 2d 88 (1957)Subject: CheckDrawer: Ira McCordDrawee: Platte Valley State BankPayee: Norton Urwiller

FACTS: As payment for his purchase of hogs, McCord issued toUrwiller a check for P2,491.11. The next day, Urwillers wife


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deposited the check to Ravenna Bank. The bank then forward it forcollection in the usual course of business through regular channels,

The check was received in a cash letter during business hours onSaturday, Dec 12, 1953. The check was proofed on the day it wasreceived and posted for action on the following business day,which was Monday. On Monday it was decided not to pay thecheck, but mark it for 'return,' because the drawer thereof did not

have sufficient funds on deposit in his accountwith PVSB.

Actual return was not made to the Federal Reserve Bank untilWednesday. This delay was caused by the fact that bankexaminers came and assumed control of all the records of thebank, including cash items, on Mon morning. Urwiller was advisedby the Ravenna bank late Thurs afternoon, of the fact thatpayment of the check had been refused although the check wasnot actually returned to him until Saturday. The check has neverbeen paid.

ISSUE: WON retention of a check by a drawee bank for more than24 hours after it is presented to it for payment constitutes anacceptance of the instrument so that the drawee bank is bound topay it

HELD: No. A drawee is allowed 24 hrs after presentment in whichto decide whether or not he will accept the bill. Where a drawee towhom a bill is delivered for acceptance destroys the same orrefuses within 24 hrs after such delivery or within such otherperiod as the holder may allow, to return the bill accepted or non-accepted to the holder, the drawee will be deemed to haveaccepted the same (Sec 137). It will be noted that this Section

applies when a bill is delivered for acceptancenotpayment.

Presentment for payment and presentment for acceptance

are two different acts well known to the law of negotiableinstruments. The difference between the object and effect

of presentation for these respective purposes is verymarked. Payment extinguishes the debt and puts an end tothe paper evidencing the same, while acceptance has thevery opposite effect. It creates a new liability upon the partof the acceptor, and gives new life to the instrument.

In absence of statutory right, holder would be left to his commonlaw rights, for either breach of contract or for tortious breach ofduty, by drawee bank which had refused payment on grounds ofinsufficiency of funds in drawer's account.

SUMCAD V. PROVINCE OF SAMAR52 O.G. 18, 7582 (1956)Subject: Check for P25,000Drawer: Province of SamarDrawee: PNBPayee: Paulino SantosSubsequent Indorsements: Santos indorsed the check to JamesMcGuire then transferred to Sumcad

FACTS: McGuire presented the check to municipal treasurer ofBorongan for payment, the latter did not pay or did not choose topay. McGuire wrote letters to the Bureau of Posts seeking paymentfor check. Director of the Bureau of Posts referred to PNB. (Note:

McGuire did not present check directly to PNB.)

PNB requested photostatic copies of the check which were receivedby bank. At this time, Province of Samar still had P84,287.47.

McGuire requested the Bureau of Post to expedite compliance withthe requirements of PNB so he can encash the check. Before thecheck could be certified, Province of Samar already withdrew fromtheir PNB account P83,504.07 leaving only P743.43. Sumcad(MGuires assignee) et al were not able to encash check so theysued Province of Samar and PNB. PNB was held solidarily liablewith Province of Samar.

ISSUES:1. WON PNB constructively accepted to assume the obligation2. WON PNB is solidarily liable

HELD:FIRST ISSUE: Yes. When PNB requested photostatic copiesof the check from the Bureau of Posts and McGuire topresent check to provincial treasurer and provincial auditorfor certification, it voluntarily assumed the obligation ofholding so much of the deposit of the province of Samar aswould be sufficient to cover the amount of the check, or


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before allowing the withdrawal that exhausted said deposit, ofmaking the necessary inquiry on the matter. It would be an emptygesture if the appellant did not mean to assume the obligation ofpaying the check and holding sufficient deposit of the drawer forthe purpose.SECOND ISSUE: PNBs liability is only subsidiary to that of theProvince of Samar which is primarily liable thereon.

J. PADILLA, DISSENTING: PNB should not be liable at all. When itrequested the Bureau of Posts to furnish it with photostatic copiesof the check, it only means that the original check was notpresented to it for payment! The act of requesting did not createan obligation on the part of PNB.

b. ACCEPTANCE ON A SEPARATE INSTRUMENT Anacceptance is valid even if it is not written on the sameinstrument, e.g. letter or telegram.o Acceptance may be on an existing bill or a future bill:

(1) Extrinsic acceptance acceptance on an existingbill; acceptance may be conditional

(2) Virtual acceptance acceptance on an future bill;acceptance must be unconditional

o To be valid, such acceptance must identify the bill towhich the acceptance and must be clear andunequivocal

o Sec 134 requires that the acceptance be shown andpurchaser take the take the bill for value on the faithof such acceptance

Effect: Subsequent holders acquire the rightsof the relying party from whom they take theNI, applying Sec 58 and 49 NIL

COOLIDGE V. PAYSON2 Wheat. 66, 4 L. Ed. 185 (1817)Drawer: Cornthwaite & CaryDrawee: Coolidge & CoPayee: John RandallIndorsee: Payson & Co

FACTS: Coolidge held proceeds of the cargo of the Hiram, claimedby Cornthwaite. Corthwaite executed bonds of indemnity withscrolls instead of seals, and drew on them for $2,700, payable to

Randall, and endorsed by him to Payson. Coolidge wrote toCorthwaite stating that, since there is no seal to any of thesignatures, it is necessary to ascertain the legality of the scrolls.Coolidge wrote to its friend, William, who was to determinewhether the draft was to be honored. William replied, approvingthe bond.

Cornthwaithe called on Williams to inquire whether he had satisfiedCoolidge respecting the bond. Williams stated the substance of theletter he had written, and read to him a part of it. Payson alsocalled on him to make the same inquiry, to whom he gave thesame information and also read the letter he had written. 2 dayslater, a bill was drawn by Cornthwaite and paid to Payson in partof the protested bill of $2,700.it was presented to Coolidge, whorefused to accept it.

ISSUE: WON Coolidge is deemed to have accepted the bill, henceliable to Payson

HELD: Yes.A promise to accept a bill amounts to an acceptance toa person who has taken it on the credit of that promise, althoughthe promise was made before the existence of the bill, andalthough it is drawn in favor of a person who takes it for a pre-existing debt

Upon a review of several cases, the court holds that a letterwritten within a reasonable time before or after the bill ofexchange, describing it in terms not to be mistaken, and promisingto accept it, is if shown to the person who afterwards takes the billon the credit of the letter, a virtual acceptance binding the personwho makes the promise.

c. KINDS OF ACCEPTANCE(1) General acceptance Sec 140 provides that an

acceptance to pay at a particular place is a generalacceptance UNLESS it expressly states that the bill is tobe paid there only and not elsewhere

(2) Conditional acceptance If any of the following arepresent:(a) Conditional i.e., which makes payment by the

acceptor dependent on the fulfillment of a condition(b) Partial i.e., acceptance only to the part of the anount


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(c) Local i.e., acceptance to pay ONLY at a particularplace

(d) Qualified as to time(e) Acceptance of some one or more of the drawees but

not all

d. TRADE ACCEPTANCE Draft or bill of exchange with adefinite maturity, drawn by seller or buyer for the purchaseof goods, bearing across its face the acceptance of the buyero Generally limited to domestic transactions

e. BANKERS ACCEPTANCE Negotiable time draft or bill ofexchange drawn on and accepted by a commercial banko Generally used for international trade e.g., financial,

import-export transactionso Used when buyer and seller are not known to each

other; acceptance substitutes the banks credit for theunknown firm

o Effect: Accepting bank is unconditionally andirrevocably liable to pay holder at maturity. Drawerand indorsers are subsidiarily liable

f. CHECKS An instrument which is in the form of a bill ofexchange but is always payable on demand and alwaysdrawn on a bank

Elements:(1) Contain an unconditional order(2) For payment of money(3) Amount of which is definite and certain(4) May be transferred by indorsement or by delivery

depending if payable to bearer or to order

Kinds of checks:(1) Personal checks most common form(2) Managers (cashiers) check drawn by a bank itself and

has the effect of acceptance. It is more like a promissorynote; as such bank is primarily liable

(3) Memorandum check check where the wordmemorandum or memo is written across its facemeaning that the drawer will pay the holder absolutely,without need of presentment

(4) Travelers check NI upon which holders signature mustappear twice on the instrument: first when issued andagain, when cashed

REPUBLIC V. PNB3 SCRA 851 (1961)

FACTS: Republic filed a complaint for escheat of certain unclaimedbank deposit balances against several banks under Act. 3936which provides that unclaimed balances (which includes creditsor deposits of money, bullion, security and other evidence ofindebtedness of any kind + interest) in favor of persons not heardfrom for 10 years or more, with the increase and proceeds thereof,shall be deposited with the Insular Treasurer to the credit of thePhil. Government. Among these banks was the First National CityBank of New York who argued that some of its credits did not fallwithin the purview of the Act. The court held that cashiers checksand demand drafts fall under the Act but upon MFR changed its

view and excluded drafts, hence this appeal.

ISSUE: WON demand drafts create a creditor-debtor relationshipbetween drawee and payee, thus falling within the meaning ofcredits in Act. 3969

HELD: No. A demand draft is not of the same category as acashiers check which should fall under the Act.

In banking terminology, the term bank draft is usedinterchangeably with a bill of exchange. A bill of exchange

under the NIL (Sec 127) does not operate as an assignmentof funds in the hands of the drawee who is not liable on the

instrument until he accepts. In fact, the law requirespresentment within a reasonable time or else the drawer isdischarged from liability. Since it is admitted in this case that thedrafts in question were never presented either for acceptance orpayment, appellee bank never became a debtor of the payees,hence the drafts never became credits under the Act.

Drafts must however be distinguished from cashierschecks, which is simply a bill of exchange drawn by thebank on itself; it is equivalent to a certified check and its


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deposit passes to the credit of the holder who then

becomes a depositor of that amount.

PAL V. COURT OF APPEALS

G.R. NO 49188 (1990)

FACTS: CFI of Manila rendered judgment in favor of Tan andagainst PAL. PAL appealed and the amount of damages waslowered to a total of P30, 000.00. The judgment became final andexecutory there being no further appeal taken. Tan filed a motionfor the issuance of a writ of execution of the judgment. JudgeGalano issued its order of execution and it was duly referred toDeputy Sheriff Emilio Z. Reyes.

Four months later, Tan moved for the issuance of an alias writ ofexecution stating that the judgment remained unsatisfied. PALfiled an opposition stating that it had already fully paid itsobligation to Tan through the deputy sheriff Reyes as evidenced by

cash vouchers properly signed and receipted by Sheriff Reyes (PALissued a check amounting to P30,000.00 in the name of SherriffReyes and not in the name of Tan). However, Sherriff Reyesencashed the check but failed to surrender the amount to Tan. He,instead, absconded.

Judge Galano granted Tans Motion for Alias Writ of Execution anddirected Special Sheriff del Rosario to levy on execution.Consequently, Del Rosario served a notice of garnishment on thedepository bank of PAL.

ISSUES:

1. WON an alias writ of execution be issued without a prior

return of the original writ by the implementing officer2. WON payment of judgment to the implementing officer as

directed in the writ of execution constitutes satisfaction ofjudgment

HELD:

FIRST ISSUE: Yes. Technicality cannot be countenanced to defeatthe execution of a judgment for execution is the fruit and end ofthe suit and is very aptly called the life of the law. A judgmentcannot be rendered nugatory by the unreasonable application of astrict rule of procedure. Vested rights were never intended to rest

on the requirement of a return, the office of which is merely toinform the court and the parties, of any and all actions takenunder the writ of execution. Where such information can beestablished in some other manner, the absence of an executingofficer's return will not preclude a judgment from being treated asdischarged or being executed through an alias writ of execution as

the case may be.

SECOND ISSUE: Yes.

GENERAL RULE: Payment shall be made to the person in whosefavor the obligation has been constituted, or his successor ininterest, or any person authorized to receive it(Art 1240)

EXCEPTION (under peculiar circumstances like in this case):NO

a. Unless authorized to do so by law or by consent of theobligee, a public officer has no authority to accept anything

other than money in payment of an obligation under ajudgment being executed. Strictly speaking, the acceptanceby the sheriff of the petitioner's checks, in the case at bar,does not, per se, operate as a discharge of the judgmentdebt. Since a negotiable instrument is only a substitute formoney and not money, the delivery of such an instrumentdoes not, by itself, operate as payment (Sec 189, Act 2031on NI; Art. 1249 NCC) A check, whether a manager'scheck or ordinary check, is not legal tender, and anoffer of a check in payment of a debt is not a valid

tender of payment and may be refused receipt by theobligee or creditor. Mere delivery of checks does notdischarge the obligation under a judgment. The obligation is

not extinguished and remains suspended until the paymentby commercial document is actually realized (Art 1249 par3).

b. It is argued that if PAL had paid in cash to Sheriff Reyes,there would have been payment in full legal contemplation.The reasoning is logical but is it valid and proper? Logic hasits limits in decision making. We should not follow rulings totheir logical extremes if in doing so we arrive at unjust orabsurd results.

c. PAL was negligent. Making the checks payable to thejudgment creditor would have prevented the encashment or


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the taking of undue advantage by the sheriff, or any personinto whose hands the checks may have fallen, whetherwrongfully or in behalf of the creditor. The issuance of thechecks in the name of the sheriff clearly made possible themisappropriation of the funds that were withdrawn.

FORTUNADO V. COURT OF APPEALS196 SCRA 269

FACTS: In a civil case, the RTC rendered judgment ordering AngelBautista to pay damages to Alfero Fortunado. Pursuant to saidjudgment, the Sheriff levied upon 2 parcels of land registered inthe name of Bautista, but 1 of the said parcels of land was alreadysold to the National Steel Corporation (NSC). The properties weresold to the petitioner as the only bidder in a public auction.

NSC then gave notice to the sheriff of its intention to redeem the

property it owned. The sheriff suggested as the 2 lots were soldtogether that both of them should be redeemed. NSC filed with thetrial court an urgent motion to redeem, which was opposed by thepetitioners on the ground that the movant did not have thepersonality to intervene.

As the motion remained unresolved, the NSC issued to the sheriffa PNB check for the properties. Bautista sent the sheriff a letterbearing NSC's conformity in which he availed himself of SC's checkto redeem the properties. His letter contained the ff reservation:This redemption is made solely for the purpose of effecting theexecution and delivery to me of the necessary certificate ofredemption and the same shall not be taken to mean my

acknowledgment of the validity of the said writ of execution andsale, both of which I shall continue to contest, nor shall this betaken to mean as a waiver on my part of the legal rights andremedies available to me under the circumstances.

Sheriff issued the certificate of redemption in favor of NSC andBautista. Bautista later on wrote to the sheriff that he would nolonger effect the redemption because there was nothing toredeem, the auction sale being null and void.

Bautista, in an Urgent Motion, prayed that the sum covered by thePNB check be delivered to and kept by the clerk of court until suchtime as all incidents relative to the validity of the auction sale werefinally resolved.

Sheriff notified the petitioners' counsel of the deposit of the PN

check. Counsel told the check that he was rejecting the check as itwas not legal tender.

Respondent court held that NSC's redemption was absolute andunconditional in view of its refusal to join Bautista in contestingthe validity of the sale. However, the validity of the redemptionwas dependent on the validity of the certificate of sale, which stillhas to be resolved by the trial court

ISSUE: WON the payment by check of draft is sufficient to compelredemption

HELD: Yes. In the US, it has been held and recognized thata payment by check or draft or bank bill or currency whichis not legal tender is effective if the officer accepts suchpayment. If in good faith, the redemptioner pays, and the officerreceives before the expiration of the time of redemption, anordinary banker's check, the payment is regarded as sufficient.

The Court does not, by this decision, sanction the use ofcheck for the payment of obligations over the objection ofthe creditor. It is just that a check may be used for the

exercise of the right of redemption, the same being a rightand not an obligation. The tender of a check is sufficient tocompel redemption but it is not in itself a payment that

relieves redemptioner from his liability to pay theredemption price. While the private respondents have properlyexercised their right of redemption, they remain liable for thepayment of the redemption price.

MESINA V. INTERMEDIATE APPELLATE COURT

145 SCRA 499 (1986)

FACTS: Jose Go purchased from Associated Bank a cashiers checkworth P800,000. Accidentally, he left the check on top of the deskof the bank manager when he left the bank. The bank manager


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entrusted the check for safekeeping to bank official, Albert Uy,who then had a visitor, Alexander Lim. Uy had to answer atelephone call, then he went t the mens room. When he returnedto the desk, his visitor Lim was already gone and so was thecheck. When Jose Go returned to the bank, the check wasnowhere to be found. Uy advised Go to accomplish a stop payment

order. Go also executed an affidavit of loss. Uy also went to thepolice station to report the loss, pointing to Alexander Lim as theone who could shed light on it.

Associated Bank received the lost check 2 days after for clearing,coming from Prudential bank. The check was immediatelydishonored by Associated Bank and returned to Prudential with thewords, Stop Payment. The check was again returned toAssociated Bank and for the 2nd time, it was dishonored.

Several days later, Associated Bank received a letter from Atty.Lorenzo Navarro demanding payment for the check and threatened

to sue. He refuses to reveal who his client is. Unsure with what todo with the matter, Associated Bank filed for an Interpleader. Theclient turned out to be one named Mesina. He said the check waspaid to him by Alexander Lim in a certain transaction but refusedto elucidate further. Mesina filed a complaint for damages.

The rendered a decision on the interpleader ordering AssociatedBank to replace Jose Gos check or pay its cash equivalent.Mesinas complaint on the other hand was dismissed. The issue inthat case is who between Mesina and Go are entitled for thepayment of the check. Since this issue had been resolved in theother case, it has become moot and academic

ISSUE: WON the lower courts ruling in the interpleader caseshould be set aside.

HELD: No. Mesina invokes theories on causes and effects ofacashiers checks such as 1) it cannot be countermanded in thehands of a holder in due course and 2) a cashiers check is a bill ofexchange drawn by the bank against itself. But these are generalprinciples which cannot be aptly applied to the case at bar withoutconsidering other things.

Mesina failed to substantiate that he is a holder in due course. Herefused to say how and why the check was passed to him. Hetherefore had notice of the defect of his title over the check fromthe start.

Next, the check was bought by Jose Go from the bank for purposes

of transferring his bank from Associated Bank to a nearby bank,thinking that carrying a check would be safer than carrying cash; itwas not issued in payment of an obligation. The check was JoseGos property when it was misplaced or stolen. Bank was thereforeliable to no one else but Jose Go.

When the payment was stopped, it was not the bank who did it butJose Go. The bank could not be the drawer and drawee for clearly,Jose Go owns the money it represents and he is therefore thedrawer and drawee in the same manner as if he has a currentaccount and he issued a check against it. No one outside JoseGo can be termed a holder in due course because Go had

not indorsed it in due course.

NOTE: Clear implication from the case is that if Mesina had been aholder in due course, the court would have granted recovery.

(a) Certification and its effects Under Sec 187, certificationof a check by a bank is equivalent to acceptance.

Certification is an agreement by which the bankpromises to pay the check at any time it ispresented for payment

Prior to certification = bank is not liable to holder(no privity)

Certification must be in writing; may be made on

the check or on another instrument Refusal to certify is NOT equivalent to dishonor

Effects: Certification at the request of holder = bank is

solidary debtor and drawer and indorsers aredischarged. Stop order by drawer is void

Certification at the request of the drawer =secondary parties are not released fromliability. Stop order from drawer preventspayment


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Sec 188 applies only to indorsers at the time ofcertification and cannot be deemed to operate as arelease of subsequent indorser

Effect: A bank who certified a check makes thesame warranties as an acceptor under Sec 62

NEW PACIFIC TIMBER & SUPPLY CO V. SENERIS101 SCRA 686 (1980)Subject: Equitable Banks cashiers check for P50,000 datedJanuary 3, 1975Drawer: New Pacific Timber

FACTS: New Pacific failed to comply with his judgment obligation.Judge issued writ of execution for P63,130 to which the Sherifflevied upon personal properties and set the auction sale onJanuary 15. Prior to the scheduled sale, New Timber depositedwith the Clerk of Court the P50,000 check and P13,130 in cash.Seneris refused to accept check and cash. Sheriff proceeded with

the auction sale.

ISSUE: WON Seneris can validly refuse acceptance of the paymentof the judgment obligation made by New Timber, consisting of theCashiers check and cash.

HELD: Yes. Sec 63 of Central Bank act provides that checksrepresenting money are not considered legal tender andacceptance is at the option of the creditor. However, a check thathas been cleared and credited to the account of the creditor isequivalent to delivery of cash.

What was issued is a cashiers check from a bank of good standing

and reputation. It is a well-known and accepted practice inbusiness that a cashiers check is deemed as cash. Moreover, sincethe check had been certified by the drawee bank, by thecertification, the funds represented by the checks are transferredfrom the credit of the maker to that of the payee or holder, and forall intents and purposes, the latter becomes the depositor of thedrawee bank, with rights and duties of one in such situation. Thecertification is equivalent to acceptance.

Said certification implies that the check is drawn uponsufficient funds the hands of the drawee, that they have

been set apart for its satisfaction, and that they shall be so

applied whenever the check is presented for payment. Theobject of certifying a check as to both parties is to enablethe holder to use it as money.

CAB: The present case is an except to Sec 63 Central Bank Act

WACHTEL V. ROSEN249 N.Y. 386, 164 N.E. 326 (1928)

FACTS: Plaintiff received from Arthur Wachtel a check drawn onNational Park Bank which plaintiff presented to said bank forcertification. The bank refused to certify the check.

ISSUE: WON the refusal of the drawee bank to certify the check isequivalent to a dishonor of the check such that holder may sue thedrawer as if the check was presented for payment and paymenthad been refused

HELD: No. The general rule is that a check is of right presentableonly for payment, and that the bank is under no obligation tocertify, although it may do so.

When a bank certifies a check at the request of the holder,a new obligation is created. Under Sec 324 324, the drawer

and all the endorsers are discharged from liability if thecheck is accepted or certified. The acceptance of a bill ofexchange, on the other hand, does not discharge the liability. Thecertification differs in effect from mere acceptance of bills otherthan checks, in that it is not an added obligation but a substituteobligation. Certification of the check by the bank is

equivalent to payment. The bank in this case may not beprepared to substitute itself with the drawer.

ROMAN CATHOLIC BISHOP OF MALOLOS V. IAC

G.R. NO 7211 (1990)

FACTS: Plaintiff sold a parcel of land to Robes-Francisco Realtyand Devt Corp for P123,930. The contract stipulated a downpayment of P23,930 and the balance shall be paid per annumwithin 4 years plus interest. The contract likewise provides forcancellation, forfeiture of previous payments, and reconveyance of


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the land in question in case Robes-Francisco Realty andDevelopment would fail to complete payment within the saidperiod.

After the expiration of the stipulated period for payment, Robes-Francisco wrote Roman Catholic a formal request that her

company be allowed to pay the principal amount of P100,000.00 in3 equal installments of 6 months each with the first installmentand the accrued interest of P24,000.00 to be paid immediatelyupon approval of the said request. Roman Catholic denied the saidrequest of Robes-Francisco, but granted the latter a grace periodof 5 days from the receipt of the denial to pay the total balance ofP124,000.00, otherwise, the provisions of the contract regardingcancellation, forfeiture, and reconveyance would be implemented.

Robes-Francisco protested alleged refusal of the latter to accepttender of payment purportedly made by the former on August 5,1975, the last day of the grace period and demanded theexecution of a deed of absolute sale over the land in question andafter which it would pay its account in full, otherwise, judicialaction would be resorted to.

Roman Catholic refused to execute the deed of absolute sale dueto its failure to pay its full obligation. Moreover, Roman Catholicdenied that Robes-Francisco had made any tender of paymentwhatsoever within the grace period. In view of this alleged breachof contract, Roman Catholic cancelled the contract and consideredall previous payments forfeited and the land as ipso factoreconveyed.

The trial court held in favor of plaintiff. Failure of Robes-

Francisco to present in court the certified personal checkallegedly tendered as payment or, at least, its Xerox copy,or even bank records thereof is fatal. And Robes-Franciscowas found to have insufficient funds to fulfill the entire

obligation considering that its president, Atty. Francisco,only had a savings account deposit of P64,840.00, and

although the latter had a money-market placement ofP300,000.00, the same was to mature only after theexpiration of the 5-day grace period. The trial court declaredthe subject contract cancelled and Robes-Franciscos down

payment of P23,930.00 forfeited in favor of Roman Catholic, anddismissed the complaint

On appeal, IAC reversed the trial court decision as Robes-Franciscohas a total available sum of P364,840 and their disposal on orbefore August 4, 1975 to answer for the obligation of the Roman

Catholic. It was not correct for the trial court to conclude thatRobes-Francisco had only about P64,840 in savings deposit on orbefore August 5, 1975, a sum not enough to pay the outstandingaccount of P124,000.

ISSUES:

1. WON finding that Robes-Francisco had sufficient availablefunds on or before the grace period for the payment of itsobligation is proof that it did tender of payment for its saidobligation within said period

2. WON there is legal obligation on the part of RomanCatholic to execute a deed of absolute sale in favor of theRobes-Francisco before the latter has actually paid thecomplete consideration of the sale where the contractbetween and executed by the parties stipulates

3. WON an offer of a check is a valid tender of payment of anobligation under a contract which stipulates that theconsideration of the sale is in Philippine Currency

HELD:FIRST ISSUE: No. A finding that Robes-Francisco had sufficientavailable funds on or before the grace period for the payment of itsobligation does not constitute proof of tender of payment by thelatter for its obligation within the said period. Tender of paymentinvolves a positive and unconditional act by the obligor of

offering legal tender currency as payment to the obligee forthe former's obligation and demanding that the latteraccept the same. Thus, tender of payment cannot be presumedby a mere inference from surrounding circumstances. At most,sufficiency of available funds is only affirmative of the capacity orability of the obligor to fulfill his part of the bargain. But whetheror not the obligor avails himself of such funds to settle hisoutstanding account remains to be proven by independent andcredible evidence. Tender of payment presupposes not only thatthe obligor is able, ready, and willing, but more so, in the act ofperforming his obligation.


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SECOND ISSUE: No. Although admittedly the documents for thedeed of absolute sale had not been prepared, the subjectcontract clearly provides that the full payment by the

private respondent is an a priori condition for the executionof the said documents by Roman Catholic.

What Robes-Francisco should have done if it was indeed desirousof complying with its obligations would have been to pay RomanCatholic within the grace period and obtain a receipt of suchpayment duly issued by the latter. Thereafter, or, allowing areasonable time, Robes-Francisco could have demanded fromRoman Catholic the execution of the necessary documents. In caseRoman Catholic refused, Robes-Francisco could have had alwaysresorted to judicial action for the legit enforcement of its right.

THIRD ISSUE: No. A certified personal check is not legaltender nor the currency stipulated, and therefore, cannotconstitute valid tender of payment as provided under Art1249 NCC. The first paragraph of Art 1249 provides that "thepayment of debts in money shall be made in the currencystipulated, and if it is not possible to deliver such currency, then inthe currency which is legal tender in the Philippines.

In PAL v. CA, the SC held that since a negotiable instrument isonly a substitute for money and not money, the delivery ofsuch an instrument does not, by itself, operate as payment.A check, whether a manager's check or ordinary check, is

not legal tender, and an offer of a check in payment of adebt is not a valid tender of payment and may be refusedreceipt by the obligee or creditor.

CAB: Hence, the tender of payment by Robes-Francisco was notvalid for failure to comply with the requisite payment in legaltender or currency stipulated within the grace period and as such,was validly refused receipt by Roman Catholic, the subsequentconsignation did not operate to discharge the former from itsobligation to the latter.

BULLIET V. ALLEGHENY TRUST CO284 Pa. 561, 131 Atl. 471 (1925)Subject: Check for $5000

Drawer: Mitchell, as buyer of an oil propertyDrawee: Allegheny Trust CoPayee: Bulliet, as seller of the the oil property

FACTS: Mitchell and Bulliet executed a memorandum ofagreement (MOA) over the sale of oil property. The MOA provided

that the $5,000 would be given in escrow in evidence of good faiththat Mitchell would pay the remainder of the purchase price. In theevent of Mitchells failure to pay, the $5.000 would be forfeited infavor of Buillet. Mitchell made sure with Allegheny that it hadenough funds. Buillet then sent a telegram to Allegheny inquiringwhether it would honor Mitchells check, and the bank repliedthrough wire that it would.

Mitchell did not pay the purchase price. Buillet then claimed fromAllegheny, but the latter refused to pay because Mitchell had givena stop payment order. Allegheny also insisted that, putting itselfin the position of Mitchell, there was no transfer of title as to theproperty being conveyed as there was failure of consideration,thus it should not be liable to pay since Mitchell itself would not beliable to pay. (In effect, Allegheny invoked the defense available toMitchell)

ISSUE: WON Allegheny is liable for the amount under thecircumstances

HELD: Yes. The reply of Allegheny that it would honor the checkamounted to certification of the bank, thus making it liable.

Sec 189 NIL provides that a check does not operate as anassignment of funds unless the drawee bank certifies it. And the

bank is not liable to the holder unless and until he accepts orcertifies the check. The effect of the banks certifying a checkat the request of the holder is to create a new obligation on

the part of the bank to that holder, the amount of the checkpasses to the credit of the holder, who is thereafter adepositor to that amount.

The obligation of the acceptor is to pay the instrument accordingto the tenor of his acceptance. It has been said that an acceptoradmits everything essential to the validity of the bill, and on this


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ground he cannot even set up the defense of want of considerationbetween the parties.

SUTTER V. SECURITY TRUST CO

96 N.J. Eq. 644, 126 a. 435, 35 A.L.R. 938 (1924)Subject: ChecksDrawer: SutterDrawee: Security Trust CoPayee: Mrs. SutterIndorser Mack

FACTS: Mr. Sutter drew a check in favor of his wife on March 251922 in the amount of $1000 for which he procured thecertification of drawee Security Trust Co. The check was deliveredto his wife in consideration of a certain agreement between themconcerning their separation. The wife violated said agreement afterthe delivery of the check to her.

On March 27, 1922 Mr. Sutter requested that payment be stoppedupon the check because of Mrs. Sutters violation of theiragreement. Mrs. Sutter on the same day went to her brother Mr.Mack and indorsed the check to him and he deposited it in hisbank in Philadelphia.

On March 30, through the Federal Reserve Bank of Philadelphia,the check was presented to Security Trust Co for payment whichwas refused on ground ofpayment stopped. Respondent told Mr.Sutter that the check was in the hands of an innocent third personfor value and that unless he indemnified respondent the checkwould be paid. He refused to indemnify respondent, thusrespondent paid the check upon subsequent presentment. Mr.

Sutter demanded the payment to him of his alleged balance of$1034.41 which includes the $1000 drawn which was refusedexcept as to balance of $34.

ISSUE: WON Security Trust Co was justified in paying theindorsee Mr. Mack the $1000 value of the check

HELD: Yes. The Bank was justified and legally called upon to makepayment to Mrs. Sutter upon presentation and demand, as againstthe notice of the maker of the check to stop payment, its

obligation under the facts was likewise to make the payment tothe indorsee holder Mr. Mack.

A check may be certified by the bank at the request of the payeeor the holder, when the check is certified at the request of thedrawer or maker before it reaches the hands f the payee therein

named. When such a certification is made and there is delivery tothe payee, under the circumstances and conditions making him abona fide holder for value, without notice of defects therein thenthe instrument is beyond recall by the maker as against the payee.He may only do so (recall) if the payee is not a bona fide holder forvalue but has obtained the check by fraud perpetrated by himupon the maker.

CAB: Since Mr. Mack is not a holder in due course, it is necessaryto inquire whether the bank by reason of its certification wouldhave been justified in making payment to Mrs. Sutter the payeeupon proper presentation of the check by her notwithstanding theservice of notice to stop payment by her husband the maker andthe disclosure by him to the bank of the conditions upon which thecheck was obtained by Mrs. Sutters. There is nothing in the casethat indicate that Mrs Sutter procured the check by any fraudperpetrated by her to her husband.

(b) Distinction between surrender of check upon payment andnegotiation The delivery of check by holder to draweebank upon its payment is not negotiation.

Reason: Holder is not transferring title to bank butis merely demanding that the bank discharge itscontractual obligation to the holder

Signature of drawee bank on such is

acknowledgment of receipt of payment of the same Effect: NI is extinguished and becomes a merevoucher

If check is deposited by holder to a bank otherthan drawee bank = indorsement

Effect: holder is negotiating check to depositarybank who will collect from the drawee bankthrough the clearing house


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(c) Clearing of checks Central Bank has a clearing housewhere representatives of different banks meet everyafternoon of every business day

o Checks are given to the reps of respective draweebanks where they are examined and cleared

o If check as sufficient funds and is not defective =

clearedo If defective check or no funds = returned to

collective bank the next day

B. LIABILITY OF SECONDARY PARTIES The partiessecondarily liable are the drawer and indorser. They cannot beliable unless the check was presented and subsequentlydishonored.

1. LIABILITY OF DRAWER The liability of drawer isconditional; he is liable only if the following conditions arepresent:

a) Presentmentb) Dishonor of NI; andc) Taking of the necessary proceedings for dishonor

1) Protest for foreign bills2) Notice of dishonor

o Drawer WARRANTS:1) Existence of payee2) Payees capacity to indorse the NI at the time of its

issuance

PNB V. PICORNELL46 PHIL 716 (1922)Subject: Bill of ExchangeDrawer: PicornellDrawee: Firm of Hyndman, Tavera & VenturaPayee: PNB

FACTS: A bill of exchange was drawn by Picornell in favor of PNBagainst the firm of Hyndman, Tavera & Ventura, succeeded by J.Pardo de Tavera. Said bill of exchange was for the amountobtained by Picornell for the purchase of some bales of tobacco inCebu on the instructions of his principal, Hyndman, Tavera &Ventura. This instrument, together with the invoice and bill of

lading of the tobacco, were to be delivered to Hyndman uponpayment of the bill.

The central office of PNB in Manila received the bill and thedocuments attached and presented the bill to Hyndman, whoaccepted it. Upon examination of the tobacco, Hyndman notified

Picornell that a portion of the tobacco was damaged.

Thereafter, Hyndman informed PNB that it refused to pay the billof exchange because of the noncompliance of the drawer Picornell.

ISSUES

1. WON the bank is subject to the defense of partial want ofconsideration.

2. WON Picornell is not l iable on the instrument on the theorythat he is merely a commissioned agent.

HELD

FIRST ISSUE: No. The question whether or not the tobacco wasworth the value of the bill, does not concern the plaintiff bank.Such partial want of consideration, if it was, does not exist withrespect to the bank which paid to Picornell the full value of said billof exchange. The bank was a holder in due course, and wassuch for value full and complete. The Hyndman, Tavera &

Ventura company cannot escape liability in view of section28 of the Negotiable Instruments Law.

The drawee by acceptance becomes liable to the payee or hisindorsee, and also to the drawer himself. But the drawer andacceptor are the immediate parties to the consideration, and if theacceptance be without consideration, the drawer cannot recover of

the acceptor. The payee holds a different relation; he is a strangerto the transaction between the drawer and the acceptor, and is,therefore, in a legal sense a remote party. In a suit by himagainst the acceptor, the question as to the consideration

between the drawer and the acceptor cannot be inquiredinto. The payee or holder gives value to the drawer, and if he isignorant of the equities between the drawer and the acceptor, heis in the position of a bona fide indorsee. Hence, it is no defense toa suit against the acceptor of a draft which has been discounted,and upon which money has been advanced by the plaintiff, thatthe draft was accepted for the accommodation of the drawer.


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SECOND ISSUE: No. As to Picornell, he warranted, as drawer ofthe bill, that it would be accepted upon proper presentment andpaid in due course, and as it was not paid, he became liable to thepayment of its value to the holder thereof, which is the plaintiffbank. (Sec. 61, Negotiable Instruments Law.)

The fact that Picornell was a commission agent ofHyndman, Tavera & Ventura, in the purchase of the tobacco,

does not necessarily make him an agent of the company inits obligations arising from the drawing of the bill by him.His acts in negotiating the bill constitute a different contract fromthat made by his having purchased the tobacco on behalf ofHyndman, Tavera & Ventura. Furthermore, he cannot exempthimself from responsibility by the fact of his having been a mereagent of this company, BECAUSE NOTHING TO THIS EFFECTWAS INDICATED OR ADDED TO HIS SIGNATURE ONSIGNING THE BILL (Sec 20 NIL).

Concerning the notice to Picornell of the dishonor of the bill, itappears from Exhibit C, which is the protest for the non-paymentthereof, that a copy of such protest was sent by mail in goodseason addressed to Picornell, the presumption, now conclusive,that the latter received it (Ses. 105-106, NIL), not having beenrebutted, or at least, contradicted. Upon the non-payment of thebill by the drawee-acceptor, the bank had the right of recourse,which it exercised, against the drawer (Sec 84).

CAB: The drawee, the Hyndman, Tavera & Ventura, or itssuccessors, J. Pardo de Tavera, accepted the bill and is primarilyliable for the value of the negotiable instrument, while the drawer,Picornell, is secondarily liable.

BANCO ATLANTICO V. AUDITOR GENERAL81 SCRA 335 (1978)Subject: Phil Embassy check for US$10,109.10Drawer: Gonzales (Ambassador) and Boncan (Finance Officer)Drawee: PNB New York branchPayee: Azuecena PaceIndorsee: Banco Atlantico Madrid

FACTS: Boncan, then the Finance Officer of the PhilippineEmbassy in Madrid, negotiated with Banco Atlantico a Philippine

Embassy check signed by Luis M. Gonzales, its ambassador and bysaid Virginia Boncan as Finance Officer, dated October 31, 1968 inthe sum of US$10,109.10 payable to Azucena Pace and drawnagainst the PNB branch in New York, U.S.A.

The check was endorsed by Azucena Pace and Virginia Bonca. The

petitioner, without clearing the check with the drawn bank in NewYork, U.S.A., paid the full amount of US$10,109.10 to VirginiaBoncan; that on November 2, 1968, Virginia Boncan in the sum ofUS$35,000.75 dated November 2, 1968 payable to Virginia Boncanand drawn against the PNB New York.; that the petitioner paid thefull amount of the check to Virginia Boncan without clearing saidcheck with the drawee bank.

Upon presentment for acceptance and payment of theaforementioned checks by Banco Atlantico through its collectingbank in New York, U.S.A. to the drawn bank, the PhilippineNational Bank branch in U.S.A., said drawee bank dishonoredthe checks by non-acceptance allegedly on the ground thatthe drawer had ordered payments to be stopped; that uponreceipt of the notice of the dishonor, the collecting bank (PNB NewYork) sent individual notices of protest with respect to the checksin question to the Philippine Embassy in Madrid, Spain and toVirginia Boncan as endorser payee that Virginia Boncan and thePhilippine Embassy in Madrid, Spain refused to pay the petitionerthe amounts of the aforementioned checks.

ISSUE: WON the Philippine Embassy in Madrid is liable, as drawerof the 3 checks in question

HELD: No. It is apparent that the said 3 checks were fraudulently

altered by Virginia Boncan as to their amounts and, therefore,wholly inoperative. No right of payment thereof against any partythereto could have been acquired by the petitioner.

The petitioner paid the amounts of the 3 checks in questionto Boncan without previously clearing the said checks with

the drawee bank, PNB. This is contrary to normal orordinary banking practice specially so where the draweebank is a foreign bank and the amounts involved werelarge. The drawer of the aforementioned checks was noteven a client of the petitioner. There is a showing that Virginia


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Boncan enjoyed special treatment from the employees and chiefsof the petitioner's foreign department. It was probably because ofthis special relationship that the petitioner cashed the 3 checks inquestion without prior clearances from the drawee bank.

SEC. 52. What constitutes a holder in due course A holder in due

course is a holder who has taken the instrument under thefollowing conditions:

a. That it is complete and regular on its face;b. That he became the holder of it before it was overdue, and

without notice that it has been previously dishonored, ifsuch 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 infirmity in the instrument or defect in the title of theperson negotiating it.

All four conditions enumerated under this section must concurbefore a holder can be considered as a holder in due course. Theabsence or failure to comply with any of the conditions set forthunder this section will make one's title to the instrument defective.

CAB: The check for US$90,000.00 was a demand note. When MissBoncan the payee of this check, negotiated the same by depositingit in her account, at the same time informing the bank in writing(copy of her letter is enclosed for ease of reference) that it be notpresented for collection until a later date, Banco Atlanticothrough its agent teller or cashier should have been put onguard that there was something wrong with the check. Thefact that the amount involved was quite big and it was thepayee herself who made the request that the same not bepresented for collection until a fixed date in the future was

proof of a glaring infirmity or defect in the instrument. Itloudly proclaims, "Take me at your risk." The interest of thepayee was the immediate encashment of the check of whichshe was the beneficiary and not the deferment of the

presentment for collection of the same to the drawee bank.This being the case, Banco Atlantico was not a holder in due

course as defined by Sec. 52 of NIL, because it was obviousthat it had knowledge of the infirmity or defect of thecheck. The fact that the check was honored by claimant bank wasproof not only of their gross negligence but a further manifestationof the special treatment they were according Miss Boncan.

McCORNACK V. CENTRAL STATE BANK211 N.W. 542, 53 A.L.R. 1297Drawer: McCornackDrawee: Central State BankPayee: C.R. Kutsman (fictitious person)

FACTS: Halverson gained the confidence of McCornack andrepresented to him that he had a client who wished to borrowmoney to be secured by mortgage on land, and so McCornackconsented to make the loan. Halverson delivered to McCornack anote purporting to be signed by CR Kutsman and secured by amortgage. McCornack signed a check for $1,005.50 which he gaveto Halverson. Halverson indorsed the name Kutsman and his ownname on the check and deposited it in his account. The check waspaid on presentation to Central State Bank and the amountcharged to the account of McCornack.Later it was discovered that the note and the mortgage wereforged instruments and no Kutsman in fact existed. Halverson, by

like fraudulent means, obtained other checks from McCornack.McCornack sued to recover, as for a conversion, the amount paidby the bank and charged against its (McCornack) account. Courtdecided in favor of McCornack.

Defenses of drawee bank:1. Check paid to person to whom McCornack intended payment

to be made2. The bank was not guilty of negligence3. McCornack was negligent in making the check in that he

failed to ascertain that the payee was a fictitious person4. By accepting without objection the statement of their bank

account with the check in question cancelled and charged

against it, there was account stated, and the plaintiffs werethereby estopped to claim that the check was improperlypaid

5. By failing to notify the bank within 6 months after receivingsuch statement of the alleged irregularity in the payment ofthe check, the claim was barred by the statute of limitations

6. McCornacks were guilty of negligence in not sooner notifyingthe bank of the alleged error in the payment of the check,for the reason that they knew, or should have known, thatHalverson was receiving the proceeds of checks turned overto him under similar circumstances, and so received the


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proceeds of the check in question, thereby causing loss tothe bank.

ISSUE: WON Central State Bank (drawee) is liable

HELD: Yes. A check payable to the order of a fictitious person with

the knowledge of the drawer is payable to bearer. But where thefact that it is payable to a fictitious person is unknown to thedrawer, that bank upon which it is drawn, or paying it, is in nodifferent position than where it pays a check payable to a realparty upon a forged instrument. McCornack did not know that thepayee was fictitious; the check was not, therefore, payable tobearer, and the bank cannot escape liability on that ground.Where an impostor represents himself to be another, whether theperson whom he so impersonates be a real or fictitious person,and procures a check payable to the order of such person, thebank is protected in paying the check to the impostor, because itmade payment to the person to whom the drawer intended itshould be made, no matter what name he assumed. But whereone represents himself to be the agent of a fictitious person andfraudulently procures the delivery to himself of a check payable tothe order of such fictitious person as payee, and secures thepayment of the check to himself by indorsing the name of thefictitious payee upon it, in the absence of estoppel or negligenceon the part of the drawer, the loss must be borne by the draweeand not by the drawer.

The bank in paying the check was bound to know at its own riskthat the indorsements by which the holder of the check claimedtitle were genuine. Its liability for payment not in accordance withthe direction of the drawer did not depend upon negligence, but

upon a violation of its implied contract with its depositor. Thequestion WON the bank was negligent is immaterial upon thenaked and primary question of its liability for having paid a checkupon a forged indorsement. Here, the check was paid by the bankwithout inquiry as to the indorsement of Kutsman.

McCornack was not negligent. There is no showing that anythinghad come to his knowledge respecting Halverson to put him uponinquiry as to his honesty. Moreover, McCornacks failure toascertain that the payee of his check was a fictitious person didnot induce or contribute to the payment of the check by the bank.

The drawer of the check, who, through failure to discover the fraudthat is being practiced upon him, makes a check payable to theorder of a fictitious payee in ignorance of that fact, stands in thesame position with reference to the bank upon which it is drawn aswhere his check is payable to the order of a real person. Hisnegligence in so drawing the check is immaterial unless directly

and proximately affects the conduct of the bank in paying thecheck.

On Sec 9521 of Code 1924 (Sec 61 NIL):This provision would seem to be, not for the benefit of the drawee,nor designed to relieve the drawee of the duty to pay out thedrawers money in accordance with his order, but for theprotection of holders of the paper in case the drawee refuses topay. It provides, not only that the drawer admits theexistence of the payee and his capacity to indorse, but thathe engages that upon dishonor and the necessary

proceedings thereon he will pay the amount to the holder orany subsequent indorser who may be compelled to pay it.There is here no engagement to pay the amount to adrawee who has honored the check.

When the payee is a fictitious person and this is unknown to thedrawer the statute does not have the effect to bind the drawer byan indorsement of the name of the payee by one to whom he didnot intend payment to be made.

If the drawee demanded a genuine indorsement, as it was its dutyto do before honoring the check, since there could be no suchthing in the case of a fictitious payee, the check would not havebeen honored. In such case, an innocent holder, upon taking

proper steps, would have been protected by Sec 9521. Thepurpose of that section was to protect the innocent holder ofdishonored paper-not the drawee who paid it in violation of duty.

a. CRIMINAL LIABILITY FOR BOUNCING CHECKS (BP 22) If check is dishonored of insufficient funds, the drawer maybe held civilly liable (under NIL) and criminally liable underBP 22.o Purpose: To prevent increase in the number of

worthless checks issued by unscrupulous persons


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causing prejudice to the banking system and to theflow of business and tradeActs punishable:1) Making, drawing or issuing a check knowing at the

time of issue that the drawer has no sufficientfunds/credit with the drawee bank knowledge of

insufficient funds is essential2) Failure to keep sufficient funds to cover the check

for 90 days from date of check drawing andissuance of said check is prima facie evidence ofdrawers knowledge of insufficient funds EXCEPT if Drawer pays holder the amount of

the check within 5 banking days after notice ofdishonor or makes arrangement for payment infull by the drawee (same period)

Payment within 5 banking days does notremove criminal liability

o To dishonor check = write reason for dishonor in thecheck and in the notice of dishonor (prima facieevidence of issuance, due presentment and dishonor ofcheck)

o If check is presented after 90 days and dishonored =no criminal liability

o Check is presented on account or for value

b. ESTAFA UNDER RPC By express provision of BP22,prosecution of said law is without prejudice to any liabilityunder RPC, particularly Art 315(d) Deceit is necessaryElements

1) Offender issued a postdated check or issued a check inpayment of an obligation

2) Such postdating or issuing a check was done whenoffender had no funds in the bank or his fundsdeposited therein were not sufficient to cover theamount of the check

NOTE:o Good faith is a defense in a charge of estafa by

postdating or issuing a checko the drawers failure to cover the issued check within 3

days from notice of dishonor is prima facie evidence ofdeceit

o If the check was issued in payment of pre-existingdebt, there is NO estafa

o Offender must be able to obtain something from theoffended party by means of the check he issues anddelivers (for value or consideration)

o If postdating a check issued as mere

guarantee/promissory note, there is NO estafa

LOZANO V. MARTINEZ146 SCRA 323 (1986)

FACTS: Petitions arose from cases prosecuted under BP 22 or theBouncing Checks Law. Defendants in these cases moved to quashthe informations filed against them on ground that BP 22 isunconstitutional.

Arguments against the constitutionality of BP 22:

1. It offends the constitutional provision on non-imprisonment

for debt2. It impairs freedom of contract3. It contravenes the equal protection clause4. It is an undue delegation of legislative and executive powers5. During its passage, the interim Batasan violated the

constitutional provision prohibiting amendments to a bill on3rd reading

BACKGROUND ON BP 22:Acts punishable

1. Anyone who makes/draws & issues any check on account orfor value, knowing at the time of issue that he does not havesufficient funds in or credit with the drawee bank for the

payment of said check, in full, upon presentment, whichcheck is subsequently dishonored by the drawee bank forinsufficiency of funds/credit or would have been dishonoredfor the same reason had not the drawer, w/o any validreason, ordered the bank to stop payment.

2. Anyone who has sufficient funds in or credit with bank whenhe makes/draws & issues a check but fails to keep sufficientfunds or maintain a credit to cover full amount if presentedw/in 90 days from date appearing on check resulting to thebank dishonoring the check.


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Penalty: imprisonment of not less than 30 days nor more than 1 yror a fine of not less than the amt of the check nor more thandouble said amount, but it should not exceed P200k or both fine &imprisonment at courts discretion.

Essential element: knowledge of the insufficiency of funds.

Prima facie presumption of knowledge: when check is refused bybank due to insufficient funds/credit when presented within 90days from date of the check. Presumption will not arise if within 5days from receipt of notice of dishonor, the maker/drawer makesarrangements for payment of check by bank/pays the holder theamount of the check.

Prima facie proof of dishonor: introduction as evidence of unpaidand dishonored check with drawee banks refusal to paystamped/written thereon or attached thereto, giving the reasonthereof.

Purpose of the statute: stop/curb practice of issuing worthlesschecks due to the injury it causes to the public interests.

History of provisions covering bouncing checks:a. Penal Code of Spain Art. 335 penalized act of defrauding

another by falsely pretending to possess any power,influence, qualification, property, credit, agency or businessor by means of similar deceit.

b. 1926, Phil Legislature amended PC Art. 335 penalizinganyone who: 1) issues a check in payment of a debt or forother valuable consideration knowing at the time of itsissuance that he does not have sufficient funds in the bankto cover its amount; 2) maliciously signs check differently

from his authentic signature as registered at the bank inorder that the latter would dishonor it; 3) issues a postdatedcheck & at the date set for its payment doesnt havesufficient deposit to cover the same.

c. RPC Art. 315, Par. 2(d) punishes anyone whopostdates a check or issues a check in payment of an

obligation knowing that at the time he hadno/insufficient funds in the bank without informingthe payee of such circumstances. However, this provisiondid not cover checks issued to pay pre-existing obligationssince the deceit that causes the defrauding must be prior to

or simultaneous with the commission of the fraud. In thiscase, payee already parted with his money/property beforethe check was issued thus hes not defrauded by means of aprior or simultaneous deceit. Drawer on the other hand didnot derive any material benefit in return for checksissuance.

d. Aiming to cover checks issued to pay pre-existingobligations, RA 4885 amended Art. 315 2(d) by removingthe requirement of drawers knowledge of insufficiency offunds and by giving the drawer 3 days from receipt of noticeof dishonor to deposit the amount necessary to cover thecheck. Failure to do so would be a prima facie evidence ofdeceit. But SC ruled in People vs. Sabio that the amendedprovision still did not cover pre-existing obligations.

e. BP 22 was enacted to cover checks issued to pay pre-existing debts, which statistically constituted the greaterbulk of dishonored checks.

ISSUE: WON BP 22 is constitutional

HELD: Yes. BP 22 is clear and broad enough to cover all kinds ofchecks whether present or postdated, or whether issued inpayment of a pre-existing obligation or given in mutual orsimultaneous exchange for something of value.

WON it violates the constitutional prohibition on non-imprisonmentfor debt

No. Those who assail the statute claim that the felony isconsummated only upon the dishonor/non-payment of check. Thatit is really a bad debt law rather than a bad check law. It punishesthe non-payment of the check & not the act of issuing it. It is a

veiled device to coerce payment of a debt under the threat ofpenal sanction.

BP 22 punishes making & issuing a worthless check and not

the non-payment of an obligation. It does not intend tocoerce a debtor to pay his debt. It is punished because of itsdeleterious effects on the public interest. It punishes the act not asan offense against property, but an offense against public order.

Although the legislature cannot penalize a person for non-paymentof a debt ex-contractu, it can proscribe certain acts deemed


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pernicious & inimical to public welfare. It is within the polic

nego chapter v notes

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