Commrev Case 1

8/10/2019 Commrev Case 1

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Republic of the Philippines

SUPREME COURT

Manila

EN BANC

G.R. No. L-2516 September 25, 1950

ANG TEK LIAN,petitioner,

vs.

THE COURT OF APPEALS,respondent.

Laurel, Sabido, Almario and Laurel for petitioner.

Office of the Solicitor General Felix Bautista Angelo and Solicitor Manuel

Tomacruz for respondent.

BENGZON,J.:

For having issued a rubber check, Ang Tek Lian was convicted of estafain

the Court of First Instance of Manila. The Court of Appeals affirmed the

verdict.

It appears that, knowing he had no funds therefor, Ang Tek Lian drew on

Saturday, November 16, 1946, the check Exhibits A upon the China Banking

Corporation for the sum of P4,000, payable to the order of "cash". He

delivered it to Lee Hua Hong in exchange for money which the latter handed

in act. On November 18, 1946, the next business day, the check was

presented by Lee Hua Hong to the drawee bank for payment, but it was

dishonored for insufficiency of funds, the balance of the deposit of Ang Tek

Lian on both dates being P335 only.

The Court of Appeals believed the version of Lee Huan Hong who testified

that "on November 16, 1946, appellant went to his (complainant's) office, at

1217 Herran, Paco, Manila, and asked him to exchange Exhibit A which

he (appellant) then brought with him with cash alleging that he needed

badly the sum of P4,000 represented by the check, but could not withdraw

it from the bank, it being then already closed; that in view of this request

and relying upon appellant's assurance that he had sufficient funds in the

blank to meet Exhibit A, and because they used to borrow money from each

other, even before the war, and appellant owns a hotel and restaurant

known as the North Bay Hotel, said complainant delivered to him, on the

same date, the sum of P4,000 in cash; that despite repeated efforts tonotify him that the check had been dishonored by the bank, appellant could

not be located any-where, until he was summoned in the City Fiscal's Office

in view of the complaint for estafafiled in connection therewith; and that

appellant has not paid as yet the amount of the check, or any part thereof."

Inasmuch as the findings of fact of the Court of Appeals are final, the only

question of law for decision is whether under the facts found, estafahad

been accomplished.

Article 315, paragraph (d), subsection 2 of the Revised Penal Code, punishes

swindling committed "By post dating a check, or issuing such check in

payment of an obligation the offender knowing that at the time he had no

funds in the bank, or the funds deposited by him in the bank were not

sufficient to cover the amount of the check, and without informing the

payee of such circumstances".

We believe that under this provision of law Ang Tek Lian was properly held

liable. In this connection, it must be stated that, as explained in People vs.

Fernandez(59 Phil., 615), estafais committed by issuing either a postdated

check or an ordinary check to accomplish the deceit.

It is argued, however, that as the check had been made payable to "cash"

and had not been endorsed by Ang Tek Lian, the defendant is not guilty of

the offense charged. Based on the proposition that "by uniform practice of

all banks in the Philippines a check so drawn is invariably dishonored," the

following line of reasoning is advanced in support of the argument:

. . . When, therefore, he (the offended party ) accepted the check

(Exhibit A) from the appellant, he did so with full knowledge that it

would be dishonored upon presentment. In that sense, the

appellant could not be said to have acted fraudulently because the

complainant, in so accepting the check as it was drawn, must beconsidered, by every rational consideration, to have done so fully

aware of the risk he was running thereby." (Brief for the appellant,

p. 11.)

We are not aware of the uniformity of such practice. Instances have

undoubtedly occurred wherein the Bank required the indorsement of the

drawer before honoring a check payable to "cash." But cases there are too,

where no such requirement had been made . It depends upon the

circumstances of each transaction.


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Under the Negotiable Instruments Law (sec. 9 [d], a check drawn payable to

the order of "cash" is a check payable to bearer, and the bank may pay it to

the person presenting it for payment without the drawer's indorsement.

A check payable to the order of cash is a bearer instrument.

Bacal vs.National City Bank of New York (1933), 146 Misc., 732;

262 N. Y. S., 839; Cleary vs.De Beck Plate Glass Co. (1907), 54

Misc., 537; 104 N. Y. S., 831; Massachusetts Bonding & Insurance

Co. vs.Pittsburgh Pipe & Supply Co. (Tex. Civ. App., 1939), 135 S.W. (2d), 818. See alsoH. Cook & Son vs.Moody (1916), 17 Ga.

App., 465; 87 S. E., 713.

Where a check is made payable to the order of "cash", the word

cash "does not purport to be the name of any person", and hence

the instrument is payable to bearer. The drawee bank need not

obtain any indorsement of the check, but may pay it to the person

presenting it without any indorsement. . . . (Zollmann, Banks and

Banking, Permanent Edition, Vol. 6, p. 494.)

Of course, if the bank is not sure of the bearer's identity or financialsolvency, it has the right to demand identification and /or assurance against

possible complications, for instance, (a) forgery of drawer's signature, (b)

loss of the check by the rightful owner, (c) raising of the amount payable,

etc. The bank may therefore require, for its protection, that the

indorsement of the drawer or of some other person known to it be

obtained. But where the Bank is satisfied of the identity and /or the

economic standing of the bearer who tenders the check for collection, it will

pay the instrument without further question; and it would incur no liability

to the drawer in thus acting.

A check payable to bearer is authority for payment to holder.Where a check is in the ordinary form, and is payable to bearer, so

that no indorsement is required, a bank, to which it is presented

for payment, need not have the holder identified, and is not

negligent in falling to do so. . . . (Michie on Banks and Banking,

Permanent Edition, Vol. 5, p. 343.)

. . . Consequently, a drawee bank to which a bearer check is

presented for payment need not necessarily have the holder

identified and ordinarily may not be charged with negligence in

failing to do so. See Opinions 6C:2 and 6C:3 If the bank has no

reasonable cause for suspecting any irregularity, it will beprotected in paying a bearer check, "no matter what facts

unknown to it may have occurred prior to the presentment." 1

Morse, Banks and Banking, sec. 393.

Although a bank is entitled to pay the amount of a bearer check

without further inquiry, it is entirely reasonable for the bank to

insist that holder give satisfactory proof of his identity. . . . (Paton's

Digest, Vol. I, p. 1089.)

Anyway, it is significant, and conclusive, that the form of the check Exhibit A

was totally unconnected with its dishonor. The Court of Appeals declared

that it was returned unsatisfied because the drawer had insufficient funds

not because the drawer's indorsement was lacking.

Wherefore, there being no question as to the correctness of the penalty

imposed on the appellant, the writ ofcertiorariis denied and the decision of

the Court of Appeals is hereby affirmed, with costs.

Moran, C. J., Ozaeta, Paras, Pablo, Tuason, and Reyes, JJ.,concur.


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SUPREME COURT

Manila

SECOND DIVISION

G.R. No. 85419 March 9, 1993

DEVELOPMENT BANK OF RIZAL, plaintiff-petitioner,

vs.

SIMA WEI and/or LEE KIAN HUAT, MARY CHENG UY, SAMSON TUNG,

ASIAN INDUSTRIAL PLASTIC CORPORATION and PRODUCERS BANK OF THE

PHILIPPINES, defendants-respondents.

Yngson & Associates for petitioner.

Henry A. Reyes & Associates for Samso Tung & Asian Industrial Plastic

Corporation.

Eduardo G. Castelo for Sima Wei.

Monsod, Tamargo & Associates for Producers Bank.

Rafael S. Santayana for Mary Cheng Uy.

CAMPOS, JR., J.:

On July 6, 1986, the Development Bank of Rizal (petitioner Bank for brevity)

filed a complaint for a sum of money against respondents Sima Wei and/or

Lee Kian Huat, Mary Cheng Uy, Samson Tung, Asian Industrial Plastic

Corporation (Plastic Corporation for short) and the Producers Bank of the

Philippines, on two causes of action:

(1) To enforce payment of the balance of P1,032,450.02

on a promissory note executed by respondent Sima Wei

on June 9, 1983; and

(2) To enforce payment of two checks executed by Sima

Wei, payable to petitioner, and drawn against the China

Banking Corporation, to pay the balance due on the

promissory note.

Except for Lee Kian Huat, defendants filed their separate Motions to Dismiss

alleging a common ground that the complaint states no cause of action. The

trial court granted the defendants' Motions to Dismiss. The Court of Appeals

affirmed this decision, *to which the petitioner Bank, represented by its

Legal Liquidator, filed this Petition for Review by Certiorari, assigning the

following as the alleged errors of the Court of Appeals:1

(1) THE COURT OF APPEALS ERRED IN HOLDING THAT THE

PLAINTIFF-PETITIONER HAS NO CAUSE OF ACTION

AGAINST DEFENDANTS-RESPONDENTS HEREIN.

(2) THE COURT OF APPEALS ERRED IN HOLDING THAT

SECTION 13, RULE 3 OF THE REVISED RULES OF COURT ON

ALTERNATIVE DEFENDANTS IS NOT APPLICABLE TO

HEREIN DEFENDANTS-RESPONDENTS.

The antecedent facts of this case are as follows:

In consideration for a loan extended by petitioner Bank to respondent Sima

Wei, the latter executed and delivered to the former a promissory note,

engaging to pay the petitioner Bank or order the amount of P1,820,000.00

on or before June 24, 1983 with interest at 32% per annum. Sima Wei madepartial payments on the note, leaving a balance of P1,032,450.02. On

November 18, 1983, Sima Wei issued two crossed checks payable to

petitioner Bank drawn against China Banking Corporation, bearing

respectively the serial numbers 384934, for the amount of P550,000.00 and

384935, for the amount of P500,000.00. The said checks were allegedly

issued in full settlement of the drawer's account evidenced by the

promissory note. These two checks were not delivered to the petitioner-

payee or to any of its authorized representatives. For reasons not shown,

these checks came into the possession of respondent Lee Kian Huat, who

deposited the checks without the petitioner-payee's indorsement (forged or

otherwise) to the account of respondent Plastic Corporation, at theBalintawak branch, Caloocan City, of the Producers Bank. Cheng Uy, Branch


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Manager of the Balintawak branch of Producers Bank, relying on the

assurance of respondent Samson Tung, President of Plastic Corporation,

that the transaction was legal and regular, instructed the cashier of

Producers Bank to accept the checks for deposit and to credit them to the

account of said Plastic Corporation, inspite of the fact that the checks were

crossed and payable to petitioner Bank and bore no indorsement of the

latter. Hence, petitioner filed the complaint as aforestated.

The main issue before Us is whether petitioner Bank has a cause of actionagainst any or all of the defendants, in the alternative or otherwise.

A cause of action is defined as an act or omission of one party in violation of

the legal right or rights of another. The essential elements are: (1) legal right

of the plaintiff; (2) correlative obligation of the defendant; and (3) an act or

omission of the defendant in violation of said legal right.2

The normal parties to a check are the drawer, the payee and the drawee

bank. Courts have long recognized the business custom of using printed

checks where blanks are provided for the date of issuance, the name of the

payee, the amount payable and the drawer's signature. All the drawer hasto do when he wishes to issue a check is to properly fill up the blanks and

sign it. However, the mere fact that he has done these does not give rise to

any liability on his part, until and unless the check is delivered to the payee

or his representative. A negotiable instrument, of which a check is, is not

only a written evidence of a contract right but is also a species of property.

Just as a deed to a piece of land must be delivered in order to convey title to

the grantee, so must a negotiable instrument be delivered to the payee in

order to evidence its existence as a binding contract. Section 16 of the

Negotiable Instruments Law, which governs checks, provides in part:

Every contract on a negotiable instrument is incompleteand revocable until delivery of the instrument for the

purpose of giving effect thereto. . . .

Thus, the payee of a negotiable instrument acquires no interest with

respect thereto until its delivery to him.3

Delivery of an instrument means

transfer of possession, actual or constructive, from one person to

another.4

Without the initial delivery of the instrument from the drawer to

the payee, there can be no liability on the instrument. Moreover, such

delivery must be intended to give effect to the instrument.

The allegations of the petitioner in the original complaint show that the two(2) China Bank checks, numbered 384934 and 384935, were not delivered

to the payee, the petitioner herein. Without the delivery of said checks to

petitioner-payee, the former did not acquire any right or interest therein

and cannot therefore assert any cause of action,founded on said checks,

whether against the drawer Sima Wei or against the Producers Bank or any

of the other respondents.

In the original complaint, petitioner Bank, as plaintiff, sued respondent Sima

Wei on the promissory note, and the alternative defendants, including Sima

Wei, on the two checks. On appeal from the orders of dismissal of theRegional Trial Court, petitioner Bank alleged that its cause of action was not

based on collecting the sum of money evidenced by the negotiable

instruments stated but on quasi-delicta claim for damages on the ground

of fraudulent acts and evident bad faith of the alternative respondents. This

was clearly an attempt by the petitioner Bank to change not only the theory

of its case but the basis of his cause of action. It is well-settled that a party

cannot change his theory on appeal, as this would in effect deprive the

other party of his day in court.5

Notwithstanding the above, it does not necessarily follow that the drawer

Sima Wei is freed from liability to petitioner Bank under the loan evidencedby the promissory note agreed to by her. Her allegation that she has paid

the balance of her loan with the two checks payable to petitioner Bank has

no merit for, as We have earlier explained, these checks were never

delivered to petitioner Bank. And even granting, without admitting, that

there was delivery to petitioner Bank, the delivery of checks in payment of

an obligation does not constitute payment unless they are cashed or their

value is impaired through the fault of the creditor.6

None of these

exceptions were alleged by respondent Sima Wei.

Therefore, unless respondent Sima Wei proves that she has been relieved

from liability on the promissory note by some other cause, petitioner Bankhas a right of action against her for the balance due thereon.

However, insofar as the other respondents are concerned, petitioner Bank

has no privity with them. Since petitioner Bank never received the checks

on which it based its action against said respondents, it never owned them

(the checks) nor did it acquire any interest therein. Thus, anything which the

respondents may have done with respect to said checks could not have

prejudiced petitioner Bank. It had no right or interest in the checks which

could have been violated by said respondents. Petitioner Bank has therefore

no cause of action against said respondents, in the alternative or otherwise.

If at all, it is Sima Wei, the drawer, who would have a cause of action against


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her

co-respondents, if the allegations in the complaint are found to be true.

With respect to the second assignment of error raised by petitioner Bank

regarding the applicability of Section 13, Rule 3 of the Rules of Court, We

find it unnecessary to discuss the same in view of Our finding that the

petitioner Bank did not acquire any right or interest in the checks due to

lack of delivery. It therefore has no cause of action against the respondents,

in the alternative or otherwise.

In the light of the foregoing, the judgment of the Court of Appeals

dismissing the petitioner's complaint is AFFIRMED insofar as the second

cause of action is concerned. On the first cause of action, the case is

REMANDED to the trial court for a trial on the merits, consistent with this

decision, in order to determine whether respondent Sima Wei is liable to

the Development Bank of Rizal for any amount under the promissory note

allegedly signed by her.

SO ORDERED.

Narvasa, C.J., Padilla, Regalado and Nocon, JJ., concur.


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SUPREME COURT

Manila

G.R. Nos. L-25836-37 January 31, 1981

THE PHILIPPINE BANK OF COMMERCE, plaintiff-appellee,

vs.

JOSE M. ARUEGO, defendant-appellant.

FERNANDEZ,J.:

The defendant, Jose M. Aruego, appealed to the Court of Appeals from theorder of the Court of First Instance of Manila, Branch XIII, in Civil Case No.

42066 denying his motion to set aside the order declaring him in

default,1and from the order of said court in the same case denying his

motion to set aside the judgment rendered after he was declared in

default.2These two appeals of the defendant were docketed as CA-G.R.

NO. 27734-R and CA-G.R. NO. 27940-R, respectively.

Upon motion of the defendant on July 25, 1960,3he was allowed by the

Court of Appeals to file one consolidated record on appeal of CA-G.R. NO.

27734-R and CA-G.R. NO. 27940-R.4

In a resolution promulgated on March 1, 1966, the Court of Appeals, First

Division, certified the consolidated appeal to the Supreme Court on the

ground that only questions of law are involved.5

On December 1, 1959, the Philippine Bank of Commerce instituted against

Jose M. Aruego Civil Case No. 42066 for the recovery of the total sum of

about P35,000.00 with daily interest thereon from November 17, 1959 until

fully paid and commission equivalent to 3/8% for every thirty (30) days or

fraction thereof plus attorney's fees equivalent to 10% of the total amount

due and costs.6The complaint filed by the Philippine Bank of Commerce

contains twenty-two (22) causes of action referring to twenty-two (22)

transactions entered into by the said Bank and Aruego on different dates

covering the period from August 28, 1950 to March 14, 1951.7The sum

sought to be recovered represents the cost of the printing of "World

Current Events," a periodical published by the defendant. To facilitate the

payment of the printing the defendant obtained a credit accommodation

from the plaintiff. Thus, for every printing of the "World Current Events,"

the printer, Encal Press and Photo Engraving, collected the cost of printing

by drawing a draft against the plaintiff, said draft being sent later to the

defendant for acceptance. As an added security for the payment of the

amounts advanced to Encal Press and Photo-Engraving, the plaintiff bankalso required defendant Aruego to execute a trust receipt in favor of said

bank wherein said defendant undertook to hold in trust for plaintiff the

periodicals and to sell the same with the promise to turn over to the

plaintiff the proceeds of the sale of said publication to answer for the

payment of all obligations arising from the draft.8

Aruego received a copy of the complaint together with the summons on

December 2, 1959.9On December 14, 1959 defendant filed an urgent

motion for extension of time to plead, and set the hearing on December 16,

1959.10

At the hearing, the court denied defendant's motion for extension.

Whereupon, the defendant filed a motion to dismiss the complaint onDecember 17, 1959 on the ground that the complaint states no cause of

action because:

a) When the various bills of exchange were presented to the defendant as

drawee for acceptance, the amounts thereof had already been paid by the

plaintiff to the drawer (Encal Press and Photo Engraving), without

knowledge or consent of the defendant drawee.

b) In the case of a bill of exchange, like those involved in the case at bar, the

defendant drawee is an accommodating party only for the drawer (Encal

Press and Photo-Engraving) and win be liable in the event that theaccommodating party (drawer) fails to pay its obligation to the plaintiff.11

The complaint was dismissed in an order dated December 22, 1959, copy of

which was received by the defendant on December 24, 1959.12

On January 13, 1960, the plaintiff filed a motion for reconsideration.13

On

March 7, 1960, acting upon the motion for reconsideration filed by the

plaintiff, the trial court set aside its order dismissing the complaint and set

the case for hearing on March 15, 1960 at 8:00 in the morning.14

A copy of

the order setting aside the order of dismissal was received by the defendant

on March 11, 1960 at 5:00 o'clock in the afternoon according to the affidavit

of the deputy sheriff of Manila, Mamerto de la Cruz. On the following day,


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March 12, 1960, the defendant filed a motion to postpone the trial of the

case on the ground that there having been no answer as yet, the issues had

not yet been joined.15

On the same date, the defendant filed his answer to

the complaint interposing the following defenses: That he signed the

document upon which the plaintiff sues in his capacity as President of the

Philippine Education Foundation; that his liability is only secondary; and that

he believed that he was signing only as an accommodation party.16

On March 15, 1960, the plaintiff filed an ex partemotion to declare thedefendant in default on the ground that the defendant should have filed his

answer on March 11, 1960. He contends that by filing his answer on March

12, 1960, defendant was one day late.17

On March 19, 1960 the trial court

declared the defendant in default.18

The defendant learned of the order

declaring him in default on March 21, 1960. On March 22, 1960 the

defendant filed a motion to set aside the order of default alleging that

although the order of the court dated March 7, 1960 was received on March

11, 1960 at 5:00 in the afternoon, it could not have been reasonably

expected of the defendant to file his answer on the last day of the

reglementary period, March 11, 1960, within office hours, especially

because the order of the court dated March 7, 1960 was brought to theattention of counsel only in the early hours of March 12, 1960. The

defendant also alleged that he has a good and substantial defense. Attached

to the motion are the affidavits of deputy sheriff Mamerto de la Cruz that

he served the order of the court dated March 7, 1960 on March 11, 1960, at

5:00 o'clock in the afternoon and the affidavit of the defendant Aruego that

he has a good and substantial defense.19

The trial court denied the

defendant's motion on March 25, 1960.20

On May 6, 1960, the trial court

rendered judgment sentencing the defendant to pay to the plaintiff the sum

of P35,444.35 representing the total amount of his obligation to the said

plaintiff under the twenty-two (22) causes of action alleged in the complaint

as of November 15, 1957 and the sum of P10,000.00 as attorney's fees.21

On May 9, 1960 the defendant filed a notice of appeal from the order dated

March 25, 1961 denying his motion to set aside the order declaring him in

default, an appeal bond in the amount of P60.00, and his record on appeal.

The plaintiff filed his opposition to the approval of defendant's record on

appeal on May 13, 1960. The following day, May 14, 1960, the lower court

dismissed defendant's appeal from the order dated March 25, 1960 denying

his motion to set aside the order of default.22

On May 19, 1960, the

defendant filed a motion for reconsideration of the trial court's order

dismissing his appeal.23

The plaintiff, on May 20, 1960, opposed the

defendant's motion for reconsideration of the order dismissing

appeal. 24On May 21, 1960, the trial court reconsidered its previous order

dismissing the appeal and approved the defendant's record on appeal.25

On

May 30, 1960, the defendant received a copy of a notice from the Clerk of

Court dated May 26, 1960, informing the defendant that the record on

appeal filed ed by the defendant was forwarded to the Clerk of Court of

Appeals.26

On June 1, 1960 Aruego filed a motion to set aside the judgment rendered

after he was declared in default reiterating the same ground previously

advanced by him in his motion for relief from the order of default. 27Uponopposition of the plaintiff filed on June 3, 1960,

28the trial court denied the

defendant's motion to set aside the judgment by default in an order of June

11, 1960.29

On June 20, 1960, the defendant filed his notice of appeal from

the order of the court denying his motion to set aside the judgment by

default, his appeal bond, and his record on appeal. The defendant's record

on appeal was approved by the trial court on June 25, 1960.30

Thus, the

defendant had two appeals with the Court of Appeals: (1) Appeal from the

order of the lower court denying his motion to set aside the order of default

docketed as CA-G.R. NO. 27734-R; (2) Appeal from the order denying his

motion to set aside the judgment by default docketed as CA-G.R. NO.

27940-R.

In his brief, the defendant-appellant assigned the following errors:

I

THE LOWER COURT ERRED IN HOLDING THAT THE

DEFENDANT WAS IN DEFAULT.

II

THE LOWER COURT ERRED IN ENTERTAINING THEMOTION TO DECLARE DEFENDANT IN DEFAULT

ALTHOUGH AT THE TIME THERE WAS ALREADY ON FILE

AN ANSWER BY HIM WITHOUT FIRST DISPOSING OF SAID

ANSWER IN AN APPROPRIATE ACTION.

III

THE LOWER COURT ERRED IN DENYING DEFENDANT'S

PETITION FOR RELIEF OF ORDER OF DEFAULT AND FROM

JUDGMENT BY DEFAULT AGAINST DEFENDANT.31


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It has been held that to entitle a party to relief from a judgment taken

against him through his mistake, inadvertence, surprise or excusable

neglect, he must show to the court that he has a meritorious defense.32

In

other words, in order to set aside the order of default, the defendant must

not only show that his failure to answer was due to fraud, accident, mistake

or excusable negligence but also that he has a meritorious defense.

The record discloses that Aruego received a copy of the complaint together

with the summons on December 2, 1960; that on December 17, 1960, thelast day for filing his answer, Aruego filed a motion to dismiss; that on

December 22, 1960 the lower court dismissed the complaint; that on

January 23, 1960, the plaintiff filed a motion for reconsideration and on

March 7, 1960, acting upon the motion for reconsideration, the trial court

issued an order setting aside the order of dismissal; that a copy of the order

was received by the defendant on March 11, 1960 at 5:00 o'clock in the

afternoon as shown in the affidavit of the deputy sheriff; and that on the

following day, March 12, 1960, the defendant filed his answer to the

complaint.

The failure then of the defendant to file his answer on the last day forpleading is excusable. The order setting aside the dismissal of the complaint

was received at 5:00 o'clock in the afternoon. It was therefore impossible

for him to have filed his answer on that same day because the courts then

held office only up to 5:00 o'clock in the afternoon. Moreover, the

defendant immediately filed his answer on the following day.

However, while the defendant successfully proved that his failure to answer

was due to excusable negligence, he has failed to show that he has a

meritorious defense. The defendant does not have a good and substantial

defense.

Defendant Aruego's defenses consist of the following:

a) The defendant signed the bills of exchange referred to in the plaintiff's

complaint in a representative capacity, as the then President of the

Philippine Education Foundation Company, publisher of "World Current

Events and Decision Law Journal," printed by Encal Press and Photo-

Engraving, drawer of the said bills of exchange in favor of the plaintiff bank;

b) The defendant signed these bills of exchange not as principal obligor, but

as accommodation or additional party obligor, to add to the security of said

plaintiff bank. The reason for this statement is that unlike real bills ofexchange, where payment of the face value is advanced to the drawer only

upon acceptance of the same by the drawee, in the case in question,

payment for the supposed bills of exchange were made before acceptance;

so that in effect, although these documents are labelled bills of exchange,

legally they are not bills of exchange but mere instruments evidencing

indebtedness of the drawee who received the face value thereof, with the

defendant as only additional security of the same.33

The first defense of the defendant is that he signed the supposed bills of

exchange as an agent of the Philippine Education Foundation Companywhere he is president. Section 20 of the Negotiable Instruments Law

provides that "Where the instrument contains or a person adds to his

signature words indicating that he signs for or on behalf of a principal or in a

representative capacity, he is not liable on the instrument if he was duly

authorized; but the mere addition of words describing him as an agent or as

filing a representative character, without disclosing his principal, does not

exempt him from personal liability."

An inspection of the drafts accepted by the defendant shows that nowhere

has he disclosed that he was signing as a representative of the Philippine

Education Foundation Company.34

He merely signed as follows: "JOSEARUEGO (Acceptor) (SGD) JOSE ARGUEGO For failure to d isclose his

principal, Aruego is personally liable for the drafts he accepted.

The defendant also contends that he signed the drafts only as an

accommodation party and as such, should be made liable only after a

showing that the drawer is incapable of paying. This contention is also

without merit.

An accommodation party is one who has signed the instrument as maker,

drawer, indorser, without receiving value therefor and for the purpose of

lending his name to some other person. Such person is liable on theinstrument to a holder for value, notwithstanding such holder, at the time

of the taking of the instrument knew him to be only an accommodation

party.35

In lending his name to the accommodated party, the

accommodation party is in effect a surety for the latter. He lends his name

to enable the accommodated party to obtain credit or to raise money. He

receives no part of the consideration for the instrument but assumes

liability to the other parties thereto because he wants to accommodate

another. In the instant case, the defendant signed as a drawee/acceptor.

Under the Negotiable Instrument Law, a drawee is primarily liable. Thus, if

the defendant who is a lawyer, he should not have signed as an

acceptor/drawee. In doing so, he became primarily and personally liable for

the drafts.


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The defendant also contends that the drafts signed by him were not really

bills of exchange but mere pieces of evidence of indebtedness because

payments were made before acceptance. This is also without merit. Under

the Negotiable Instruments Law, a bill of exchange is an unconditional order

in writting addressed by one person to another, signed by the person giving

it, requiring the person to whom it is addressed to pay on demand or at a

fixed or determinable future time a sum certain in money to order or to

bearer.36

As long as a commercial paper conforms with the definition of a

bill of exchange, that paper is considered a bill of exchange. The nature ofacceptance is important only in the determination of the kind of liabilities of

the parties involved, but not in the determination of whether a commercial

paper is a bill of exchange or not.

It is evident then that the defendant's appeal can not prosper. To grant the

defendant's prayer will result in a new trial which will serve no purpose and

will just waste the time of the courts as well as of the parties because the

defense is nil or ineffective.37

WHEREFORE, the order appealed from in Civil Case No. 42066 of the Court

of First Instance of Manila denying the petition for relief from the judgmentrendered in said case is hereby affirmed, without pronouncement as to

costs.

SO ORDERED.

Teehankee (Chairman), Makasiar, Guerrero and Melencio-Herrera JJ.,

concur.


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SECOND DIVISION

[G.R. No. 139130. November 27, 2002]

RAMON K. ILUSORIO,petitioner, vs. HON. COURT OF APPEALS, and THEMANILA BANKINGCORPORATION,respondents.

D E C I S I O N

QUISUMBING,J.:

This petition for review seeks to reverse the decision[1]

promulgated

on January 28, 1999 by the Court of Appeals in CA-G.R. CV No. 47942,

affirming the decision of the then Court of First Instance of Rizal, Branch XV

(now the Regional Trial Court of Makati, Branch 138) dismissing Civil Case

No. 43907, for damages.

The facts as summarized by the Court of Appeals are as follows:

Petitioner is a prominent businessman who, at the time material to

this case, was the Managing Director of Multinational Investment

Bancorporation and the Chairman and/or President of several other

corporations. He was a depositor in good standing of respondent bank, the

Manila Banking Corporation, under current Checking Account No. 06-09037-

0. As he was then running about 20 corporations, and was going out of the

country a number of times, petitioner entrusted to his secretary,

Katherine[2]

E. Eugenio, his credit cards and his checkbook with blank

checks. It was also Eugenio who verified and reconciled the statements of

said checking account.[3]

Between the dates September 5, 1980 and January 23, 1981, Eugenio

was able to encash and deposit to her personal account about seventeen

(17) checks drawn against the account of the petitioner at the respondent

bank, with an aggregate amount of P119,634.34. Petitioner did not bother

to check his statement of account until a business partner apprised him that

he saw Eugenio use his credit cards. Petitioner fired Eugenio immediately,

and instituted a criminal action against her for estafa thru falsification

before the Office of the Provincial Fiscal of Rizal. Private respondent,

through an affidavit executed by its employee, Mr. Dante Razon, also

lodged a complaint for estafa thru falsification of commercial documents

against Eugenio on the basis of petit ioners statement that his signatures in

the checks were forged.[4]

Mr. Razons affidavit states:

That I have examined and scrutinized the following checks in accordance

with prescribed verification procedures with utmost care and diligence by

comparing the signatures affixed thereat against the specimen signatures of

Mr. Ramon K. Ilusorio which we have on file at our said office on such dates,

x x x

That the aforementioned checks were among those issued by Manilabank in

favor of its client MR. RAMON K. ILUSORIO,

That the same were personally encashed by KATHERINE E. ESTEBAN, an

executive secretary of MR. RAMON K. ILUSORIO in said Investment

Corporation;

That I have met and known her as KATHERINE E. ESTEBAN the attending

verifier when she personally encashed the above-mentioned checks at our

said office;

That MR. RAMON K. ILUSORIO executed an affidavit expressly disowning his

signature appearing on the checks further alleged to have not authorized

the issuance and encashment of the same.[5]

Petitioner then requested the respondent bank to credit back and

restore to its account the value of the checks which were wrongfully

encashed but respondent bank refused.Hence, petitioner filed the instant

case.[6]

At the trial, petitioner testified on his own behalf, attesting to the

truth of the circumstances as narrated above, and how he discovered the

alleged forgeries. Several employees of Manila Bank were also called to the

witness stand as hostile witnesses. They testified that it is the banks

standard operating procedure that whenever a check is presented for

encashment or clearing, the signature on the check is first verified against

the specimen signature cards on file with the bank.

Manila Bank also sought the expertise of the National Bureau of

Investigation (NBI) in determining the genuineness of the signatures

appearing on the checks. However, in a letter dated March 25, 1987, the

NBI informed the trial court that they could not conduct the desired

examination for the reason that the standard specimens submitted were

not sufficient for purposes of rendering a definitive opinion. The NBI then

suggested that petitioner be asked to submit seven (7) or more additional

standard signatures executed before or about, and immediately after the

dates of the questioned checks. Petitioner, however, failed to comply with

this request.
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After evaluating the evidence on both sides, the court a quorendered

judgment on May 12, 1994 with the following dispositive portion:

WHEREFORE, finding no sufficient basis for plaintiff's cause herein against

defendant bank, in the light of the foregoing considerations and established

facts, this case would have to be, as it is hereby DISMISSED.

Defendants counterclaim is likewise DISMISSED for lack of sufficient basis.

SO ORDERED.[7]

Aggrieved, petitioner elevated the case to the Court of Appeals by wayof a petition for review but without success. The appellate court held that

petitioners own negligence was the proximate cause of his loss. The

appellate court disposed as follows:

WHEREFORE, the judgment appealed from is AFFIRMED. Costs against the

appellant.

SO ORDERED.[8]

Before us, petitioner ascribes the following errors to the Court of

Appeals:

A. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE

RESPONDENT BANK IS ESTOPPED FROM RAISING THE

DEFENSE THAT THERE WAS NO FORGERY OF THE SIGNATURES

OF THE PETITIONER IN THE CHECK BECAUSE THE

RESPONDENT FILED A CRIMINAL COMPLAINT FOR ESTAFA

THRU FALSIFICATION OF COMMERCIAL DOCUMENTS

AGAINST KATHERINE EUGENIO USING THE AFFIDAVIT OF

PETITIONER STATING THAT HIS SIGNATURES WERE FORGED

AS PART OF THE AFFIDAVIT-COMPLAINT.[9]

B. THE COURT OF APPEALS ERRED IN NOT APPLYING SEC. 23,

NEGOTIABLE INSTRUMENTS LAW.[10]

C. THE COURT OF APPEALS ERRED IN NOT HOLDING THE BURDEN

OF PROOF IS WITH THE RESPONDENT BANK TO PROVE THE

DUE DILIGENCE TO PREVENT DAMAGE, TO THE PETITIONER,

AND THAT IT WAS NOT NEGLIGENT IN THE SELECTION AND

SUPERVISION OF ITS EMPLOYEES.[11]

D. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT

RESPONDENT BANK SHOULD BEAR THE LOSS, AND SHOULD

BE MADE TO PAY PETITIONER, WITH RECOURSE AGAINST

KATHERINE EUGENIO ESTEBAN.[12]

Essentially the issues in this case are: (1) whether or not petitioner has

a cause of action against private respondent; and (2) whether or not private

respondent, in filing an estafa case against petitioners secretary, is barred

from raising the defense that the fact of forgery was not established.

Petitioner contends that Manila Bank is liable for damages for its

negligence in failing to detect the discrepant checks. He adds that as a

general rule a bank which has obtained possession of a check upon an

unauthorized or forged endorsement of the payees signature and which

collects the amount of the check from the drawee is liable for the proceeds

thereof to the payee. Petitioner invokes the doctrine of estoppel, saying

that having itself instituted a forgery case against Eugenio, Manila Bank is

now estopped from asserting that the fact of forgery was never proven.

For its part, Manila Bank contends that respondent appellate court did

not depart from the accepted and usual course of judicial proceedings,

hence there is no reason for the reversal of its ruling. Manila Bank

additionally points out that Section 23[13]

of the Negotiable Instruments Law

is inapplicable, considering that the fact of forgery was never proven. Lastly,

the bank negates petitioners claim of estoppel.[14]

On thefirst issue, we find that petitioner has no cause of action against

Manila Bank. To be entitled to damages, petitioner has the burden of

proving negligence on the part of the bank for failure to detect the

discrepancy in the signatures on the checks. It is incumbent upon petitioner

to establish the fact of forgery, i.e., by submitting his specimen signatures

and comparing them with those on the questioned checks. Curiously

though, petitioner failed to submit additional specimen signatures as

requested by the National Bureau of Investigation from which to draw a

conclusive finding regarding forgery. The Court of Appeals found that

petitioner, by his own inaction, was precluded from setting up forgery. Said

the appellate court:

We cannot fault the court a quofor such declaration, considering that the

plaintiffs evidence on the alleged forgery is not convincing enough. The

burden to prove forgery was upon the plaintiff, which burden he failed to

discharge. Aside from his own testimony, the appellant presented no other

evidence to prove the fact of forgery. He did not even submit his own

specimen signatures, taken on or about the date of the questioned checks,

for examination and comparison with those of the subject checks. On the

other hand, the appellee presented specimen signature cards of the

appellant, taken at various years, namely, in 1976, 1979 and 1981 (Exhibits

1, 2, 3 and 7), showing variances in the appellants unquestioned

signatures. The evidence further shows that the appellee, as soon as it was

informed by the appellant about his questioned signatures, sought to

borrow the questioned checks from the appellant for purposes of analysis

and examination (Exhibit 9), but the same was denied by the appellant. It
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was also the former which sought the assistance of the NBI for an expert

analysis of the signatures on the questioned checks, but the same was

unsuccessful for lack of sufficient specimen signatures.[15]

Moreover,petitioners contention that Manila Bank was remiss in the

exercise of its duty as drawee lacks factual basis. Consistently, the CA and

the RTC found that Manila Bank employees exercised due diligence in

cashing the checks. The banks employees in the present case did not have

a hint as to Eugeniosmodus operandibecause she was a regular customer

of the bank, having been designated by petitioner himself to transact in his

behalf. According to the appellate court, the employees of the bank

exercised due diligence in the performance of their duties. Thus, it found

that:

The evidence on both sides indicates that TMBCs employees exercised due

diligence before encashing the checks. Its verifiers first verified the

drawers signatures thereon as against his specimen signature cards, and

when in doubt, the verifier went further, such as by referring to a more

experienced verifier for further verification. In some instances the verifier

made a confirmation by calling the depositor by phone. It is only after

taking such precautionary measures that the subject checks were given tothe teller for payment.

Of course it is possible that the verifiers of TMBC might have made a

mistake in failing to detect any forgery -- if indeed there was. However, a

mistake is not equivalent to negligence if they were honest mistakes. In the

instant case, we believe and so hold that if there were mistakes, the same

were not deliberate, since the bank took all the precautions.[16]

As borne by the records, it was petitioner, not the bank, who was

negligent. Negligence is the omission to do something which a reasonable

man, guided by those considerations which ordinarily regulate the conduct

of human affairs, would do, or the doing of something which a prudent and

reasonable man would do.[17]

In the present case, it appears that petitioneraccorded his secretary unusual degree of trust and unrestricted access to

his credit cards, passbooks, check books, bank statements, including

custody and possession of cancelled checks and reconciliation of

accounts. Said the Court of Appeals on this matter:

Moreover, the appellant had introduced his secretary to the bank for

purposes of reconciliation of his account, through a letter dated July 14,

1980 (Exhibit 8). Thus, the said secretary became a familiar figure in the

bank. What is worse, whenever the bank verifiers call the office of the

appellant, it is the same secretary who answers and confirms the checks.

The trouble is, the appellant had put so much trust and confidence in the

said secretary, by entrusting not only his credit cards with her but also his

checkbook with blank checks. He also entrusted to her the verification and

reconciliation of his account. Further adding to his injury was the fact that

while the bank was sending him the monthly Statements of Accounts, he

was not personally checking the same. His testimony did not indicate that

he was out of the country during the period covered by the checks. Thus,

he had all the opportunities to verify his account as well as the cancelled

checks issued thereunder -- month after month. But he did not, until his

partner asked him whether he had entrusted his credit card to his secretary

because the said partner had seen her use the same. It was only then thathe was minded to verify the records of his account.

[18]

The abovecited findings are binding upon the reviewing court. We

stress the rule that the factual findings of a trial court, especially when

affirmed by the appellate court, are binding upon us[19]

and entitled to

utmost respect[20]

and even finality. We find no palpable error that would

warrant a reversal of the appellate courts assessment of facts anchored

upon the evidence on record.

Petitioners failure to examine his bank statements appears as the

proximate cause of his own damage. Proximate cause is that cause, which,

in natural and continuous sequence, unbroken by any efficient interveningcause, produces the injury, and without which the result would not have

occurred.[21]

In the instant case, the bank was not shown to be remiss in its

duty of sending monthly bank statements to petitioner so that any error or

discrepancy in the entries therein could be brought to the banks attention

at the earliest opportunity. But, petitioner failed to examine these bank

statements not because he was prevented by some cause in not doing so,

but because he did not pay sufficient attention to the matter. Had he done

so, he could have been alerted to any anomaly committed against him. In

other words, petitioner had sufficient opportunity to prevent or detect any

misappropriation by his secretary had he only reviewed the status of his

accounts based on the bank statements sent to him regularly. In view of

Article 2179 of the New Civil Code,[22]when the plaintiffs own negligence

was the immediate and proximate cause of his injury, no recovery could be

had for damages.

Petitioner further contends that under Section 23 of the Negotiable

Instruments Law a forged check is inoperative, and that Manila Bank had no

authority to pay the forged checks. True, it is a rule that when a signature is

forged or made without the authority of the person whose signature it

purports to be, the check is wholly inoperative. No right to retain the

instrument, or to give a discharge therefor, or to enforce payment thereof

against any party, can be acquired through or under such

signature. However, the rule does provide for an exception, namely:

unless the party against whom it is sought to enforce such right is
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precluded from setting up the forgery or want of authority. In the instant

case, it is the exception that applies. In our view, petitioner is precluded

from setting up the forgery, assuming there is forgery, due to his own

negligence in entrusting to his secretary his credit cards and checkbook

including the verification of his statements of account.

Petitioners reliance onAssociatedBank vs. Court of

Appeals[23]

and Philippine Bank of Commerce vs. CA[24]

to buttress his

contention that respondent Manila Bank as the collecting or last endorser

generally suffers the loss because it has the duty to ascertain the

genuineness of all prior endorsementsis misplaced. In the cited cases, the

fact of forgery was not in issue. In the present case, the fact of forgery was

not established with certainty. In those cited cases, the collecting banks

were held to be negligent for failing to observe precautionary measures to

detect the forgery. In the case before us, both courts below uniformly found

that Manila Banks personnel diligently performed their duties, having

compared the signature in the checks from the specimen signatures on

record and satisfied themselves that it was petitioners.

On the second issue, the fact that Manila Bank had filed a case

for estafa against Eugenio would not estop it from asserting the fact thatforgery has not been clearly established. Petitioner cannot hold private

respondent in estoppel for the latter is not the actual party to the criminal

action. In a criminal action, the State is the plaintiff, for the commission of a

felony is an offense against the State.[25]

Thus, under Section 2, Rule 110 of

the Rules of Court the complaint or information filed in court is required to

be brought in the name of the People of the Philippines.[26]

Further, as petitioner himself stated in his petition, respondent bank

filed the estafa case against Eugenio on the basis of petitioners own

affidavit,[27]

but without admitting that he had any personal knowledge of

the alleged forgery. It is, therefore, easy to understand that the filing of

the estafa case by respondent bank was a last ditch effort to salvage its tieswith the petitioner as a valuable client, by bolstering the estafa case which

he filed against his secretary.

All told, we find no reversible error that can be ascribed to the Court of

Appeals.

WHEREFORE,the instant petition is DENIED for lack of merit. The

assailed decision of the Court of Appeals dated January 28, 1999 in CA-G.R.

CV No. 47942, is AFFIRMED.

Costs against petitioner.

SO ORDERED.

Bellosillo, Acting C.J., (Chairman), Mendoza, Austria-

Martinez, andCallejo, Sr., JJ., concur.
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De Ocampo vs. Gatchalian (3 SCRA 596)

Facts:Anita Gatchalian was interested in buying a car when she was offered

by Manuel Gonzales to a car owned by the Ocampo Clinic. Gonzales claim

that he was duly authorized to look for a buyer, negotiate and accomplish

the sale by the Ocampo Clinic. Anita accepted the offer and insisted to

deliver the car with thecertificate of registration the next day but Gonzales

advised that the owners would only comply only upon showing of interest

on the part of the buyer. Gonzales recommended issuing a check (P600 /

payable-to-bearer /cross-checked) as evidence of the buyers good faith.

Gonzales added that it will only be for safekeeping and will be returned to

her the following day.

The next day, Gonzales never appeared. The failure of Gonzales to appeal

resulted in Gatchalian to issue a STOP PAYMENT ORDER on the check. It was

later found out that Gonzales used the check as payment to the Vicente de

Ocampo (Ocampo Clinic) for the hospitalization fees of his wife (the fees

were only P441.75, so he got a refund of P158.25). De Ocampo now

demands payment for the check, which Gatchalian refused, arguing that de

Ocampo is not a holder in due course and that there is no negotiation of the

check.

The Court of First Instance ordered Gatchalian to pay the amount ofthe

check to De Ocampo. Hence this case.

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

Held:NO. De Ocampo is not a holder in due course. De Ocampo was

negligent in his acquisition of the check. There were many instances that

arouse suspicion: the drawer in the check(Gatchalian) has no liability with

de Ocampo ; it was cross-checked(only for deposit) but was used a payment

by Gonzales; it was not the exact amount of the medical fees. The

circumstances should have led him to inquire on the validity of the check.

However, he failed to exercise reasonable prudence and caution.

In showing a person had knowledge of facts that his

action in taking the instrument amounted to bad faith need not prove that

he knows the exact fraud. It is sufficient to show that the person had

NOTICE that there was something wrong. The bad faith here means bad

faith in the commercial senseobtaining an instrumentwith no questions

asked or no further inquiry upon suspicion.

The presumption of good faith did not apply to de Ocampo because the

defect was apparent on the instruments faceit was not payable to

Gonzales or bearer. Hence, the holders title is defective or suspicious. Being

the case, de Ocampo had the burden of proving he was a holder in due

course, but failed.
http://coffeeafficionado.blogspot.com/2012/02/de-ocampo-vs-gatchalian-3-scra-596.htmlhttp://coffeeafficionado.blogspot.com/2012/02/de-ocampo-vs-gatchalian-3-scra-596.htmlhttp://coffeeafficionado.blogspot.com/2012/02/de-ocampo-vs-gatchalian-3-scra-596.html


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Mesina vs IAC

Marcelo A. Mesina vs. Intermediate Appellate Court

G.R. No. 70145 November 13, 1986, 145 SCRA 497

--holder in due course

FACTS:

Jose Go purchased from Associated Bank a cashier's check for P800,000.00.

Unfortunately, he left said check on the top of the desk of the bank

manager when he left the bank. The bank manager entrusted the check for

safekeeping to a bank official, a certain Albert Uy. While Uy went to the

men's room, the check was stolen by his visitor in the person of Alexander

Lim. Upon discovering that the check was lost, Jose Go accomplished a

"STOP PAYMENT" order. Two days later, Associated Bank received the lost

check for clearing from Prudential Bank. After dishonoring the same check

twice, Associated Bank received summons and copy of a complaint for

damages of Marcelo Mesina who was in possession of the lost check and is

demanding payment. Petitioner claims that a cashier's check cannot be

countermanded in the hands of a holder in due course.

ISSUE:

Whether or not petitioner can collect on the stolen check on the ground

that he is a holder in due course.

RULING:

No. Petitioner failed to substantiate his claim that he is a holder in due

course and for consideration or value as shown by the established facts of

the case. Admittedly, petitioner became the holder of the cashier's check as

endorsed by Alexander Lim who stole the check. He refused to say how and

why it was passed to him. He had therefore notice of the defect of his title

over the check from the start. The holder of a cashier's check who is not a

holder in due course cannot enforce such check against the issuing bank

which dishonors the same.

**A person who became the holder of a cashier's check as endorsed by the

person who stole it and who refused to say how and why it was passed to

him is not a holder in due course.


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Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

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

VICENTE R. DE OCAMPO & CO.,plaintiff-appellee,vs.ANITA GATCHALIAN, ET AL.,defendants-appellants.

Vicente Formoso, Jr. for plaintiff-appellee.Reyes and Pangalagan for defendants-appellants.

LABRADOR, J .:

Appeal from a judgment of the Court of First Instance of Manila,Hon. Conrado M. Velasquez, presiding, sentencing the defendantsto pay the plaintiff the sum of P600, with legal interest fromSeptember 10, 1953 until paid, and to pay the costs.

The action is for the recovery of the value of a check for P600payable to the plaintiff and drawn by defendant Anita C.Gatchalian. The complaint sets forth the check and alleges thatplaintiff received it in payment of the indebtedness of one MatildeGonzales; that upon receipt of said check, plaintiff gave MatildeGonzales P158.25, the difference between the face value of the

check and Matilde Gonzales' indebtedness. The defendants admitthe execution of the check but they allege in their answer, asaffirmative defense, that it was issued subject to a condition, whichwas not fulfilled, and that plaintiff was guilty of gross negligence innot taking steps to protect itself.

At the time of the trial, the parties submitted a stipulation of facts,which reads as follows:

Plaintiff and defendants through their respectiveundersigned attorney's respectfully submit the following

Agreed Stipulation of Facts;

First.That on or about 8 September 1953, in theevening, defendant Anita C. Gatchalian who was theninterested in looking for a car for the use of her husbandand the family, was shown and offered a car by ManuelGonzales who was accompanied by Emil Fajardo, thelatter being personally known to defendant Anita C.Gatchalian;

Second.

That Manuel Gonzales represented to defendAnita C. Gatchalian that he was duly authorized by theowner of the car, Ocampo Clinic, to look for a buyer of saidcar and to negotiate for and accomplish said sale, butwhich facts were not known to plaintiff;

Third.That defendant Anita C. Gatchalian, finding theprice of the car quoted by Manuel Gonzales to hersatisfaction, requested Manuel Gonzales to bring the carthe day following together with the certificate of registrationof the car, so that her husband would be able to see same;

that on this request of defendant Anita C. Gatchalian,Manuel Gonzales advised her that the owner of the car willnot be willing to give the certificate of registration unlessthere is a showing that the party interested in the purchaseof said car is ready and willing to make such purchase andthat for this purpose Manuel Gonzales requesteddefendant Anita C. Gatchalian to give him (ManuelGonzales) a check which will be shown to the owner asevidence of buyer's good faith in the intention to purchasethe said car, the said check to be for safekeeping only ofManuel Gonzales and to be returned to defendant Anita C.Gatchalian the following day when Manuel Gonzales

brings the car and the certificate of registration, but whichfacts were not known to plaintiff;

Fourth.That relying on these representations of ManuelGonzales and with his assurance that said check will beonly for safekeeping and which will be returned to saiddefendant the following day when the car and its certificateof registration will be brought by Manuel Gonzales todefendants, but which facts were not known to plaintiff,defendant Anita C. Gatchalian drew and issued a check,Exh. "B"; that Manuel Gonzales executed and issued a

receipt for said check, Exh. "1";


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Fifth.That on the failure of Manuel Gonzales to appearthe day following and on his failure to bring the car and itscertificate of registration and to return the check, Exh. "B",on the following day as previously agreed upon, defendant

Anita C. Gatchalian issued a "Stop Payment Order" on thecheck, Exh. "3", with the drawee bank. Said "StopPayment Order" was issued without previous notice onplaintiff not being know to defendant, Anita C. Gatchalian

and who furthermore had no reason to know check wasgiven to plaintiff;

Sixth.That defendants, both or either of them, did notknow personally Manuel Gonzales or any member of hisfamily at any time prior to September 1953, but thatdefendant Hipolito Gatchalian is personally acquaintedwith V. R. de Ocampo;

Seventh.That defendants, both or either of them, hadno arrangements or agreement with the Ocampo Clinic at

any time prior to, on or after 9 September 1953 for thehospitalization of the wife of Manuel Gonzales and neitheror both of said defendants had assumed, expressly orimpliedly, with the Ocampo Clinic, the obligation of ManuelGonzales or his wife for the hospitalization of the latter;

Eight.That defendants, both or either of them, had noobligation or liability, directly or indirectly with the OcampoClinic before, or on 9 September 1953;

Ninth.That Manuel Gonzales having received the checkExh. "B" from defendant Anita C. Gatchalian under therepresentations and conditions herein above specified,delivered the same to the Ocampo Clinic, in payment ofthe fees and expenses arising from the hospitalization ofhis wife;

Tenth.That plaintiff for and in consideration of fees andexpenses of hospitalization and the release of the wife ofManuel Gonzales from its hospital, accepted said check,applying P441.75 (Exhibit "A") thereof to payment of saidfees and expenses and delivering to Manuel Gonzales theamount of P158.25 (as per receipt, Exhibit "D")

representing the balance on the amount of the said check,Exh. "B";

Eleventh.That the acts of acceptance of the check andapplication of its proceeds in the manner specified abovewere made without previous inquiry by plaintiff fromdefendants:

Twelfth.

That plaintiff filed or caused to be filed with theOffice of the City Fiscal of Manila, a complaint for estafaagainst Manuel Gonzales based on and arising from theacts of said Manuel Gonzales in paying his obligations withplaintiff and receiving the cash balance of the check, Exh."B" and that said complaint was subsequently dropped;

Thirteenth.That the exhibits mentioned in thisstipulation and the other exhibits submitted previously, beconsidered as parts of this stipulation, without necessity offormally offering them in evidence;

WHEREFORE, it is most respectfully prayed that thisagreed stipulation of facts be admitted and that the partieshereto be given fifteen days from today within which tosubmit simultaneously their memorandum to discuss theissues of law arising from the facts, reserving to eitherparty the right to submit reply memorandum, if necessary,within ten days from receipt of their main memoranda. (pp.21-25, Defendant's Record on Appeal).

No other evidence was submitted and upon said stipulation thecourt rendered the judgment already alluded above.

In their appeal defendants-appellants contend that the check is nota negotiable instrument, under the facts and circumstances statedin the stipulation of facts, and that plaintiff is not a holder in duecourse. In support of the first contention, it is argued thatdefendant Gatchalian had no intention to transfer her property inthe instrument as it was for safekeeping merely and, therefore,there was no delivery required by law (Section 16, NegotiableInstruments Law); that assuming for the sake of argument thatdelivery was not for safekeeping merely, delivery was conditionaland the condition was not fulfilled.


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In support of the contention that plaintiff-appellee is not a holder indue course, the appellant argues that plaintiff-appellee cannot bea holder in due course because there was no negotiation prior toplaintiff-appellee's acquiring the possession of the check; that aholder in due course presupposes a prior party from whose handsnegotiation proceeded, and in the case at bar, plaintiff-appellee isthe payee, the maker and the payee being original parties. It isalso claimed that the plaintiff-appellee is not a holder in due

course because it acquired the check with notice of defect in thetitle of the holder, Manuel Gonzales, and because under thecircumstances stated in the stipulation of facts there werecircumstances that brought suspicion about Gonzales' possessionand negotiation, which circumstances should have placed theplaintiff-appellee under the duty, to inquire into the title of theholder. The circumstances are as follows:

The check is not a personal check of Manuel Gonzales.(Paragraph Ninth, Stipulation of Facts). Plaintiff could haveinquired why a person would use the check of another topay his own debt. Furthermore, plaintiff had the "means ofknowledge" inasmuch as defendant Hipolito Gatchalian ispersonally acquainted with V. R. de Ocampo (ParagraphSixth, Stipulation of Facts.).

The maker Anita C. Gatchalian is a complete stranger toManuel Gonzales and Dr. V. R. de Ocampo (ParagraphSixth, Stipulation of Facts).

The maker is not in any manner obligated to OcampoClinic nor to Manuel Gonzales. (Par. 7, Stipulation ofFacts.)

The check could not have been intended to pay thehospital fees which amounted only to P441.75. The checkis in the amount of P600.00, which is in excess of theamount due plaintiff. (Par. 10, Stipulation of Facts).

It was necessary for plaintiff to give Manuel Gonzaleschange in the sum P158.25 (Par. 10, Stipulation of Facts).Since Manuel Gonzales is the party obliged to pay, plaintiffshould have been more cautious and wary in accepting apiece of paper and disbursing cold cash.

The check is payable to bearer. Hence, any person whoholds it should have been subjected to inquiries. EVEN IN

A BANK, CHECKS ARE NOT CASHED WITHOUTINQUIRY FROM THE BEARER. The same inquiriesshould have been made by plaintiff. (Defendants-appellants' brief, pp. 52-53)

Answering the first contention of appellant, counsel for plaintiff-

appellee argues that in accordance with the best authority on theNegotiable Instruments Law, plaintiff-appellee may be consideredas a holder in due course, citing Brannan's Negotiable InstrumentsLaw, 6th edition, page 252. On this issue Brannan holds that apayee may be a holder in due course and says that to this effect isthe greater weight of authority, thus:

Whether the payee may be a holder in due course underthe N. I. L., as he was at common law, is a question uponwhich the courts are in serious conflict. There can be nodoubt that a proper interpretation of the act read as a

whole leads to the conclusion that a payee may be aholder in due course under any circumstance in which hemeets the requirements of Sec. 52.

The argument of Professor Brannan in an earlier edition ofthis work has never been successfully answered and ishere repeated.

Section 191 defines "holder" as the payee or indorsee of abill or note, who is in possession of it, or the bearerthereof. Sec. 52 defendants defines a holder in due courseas "a holder who has taken the instrument under thefollowing conditions: 1. That it is complete and regular onits face. 2. That he became the holder of it before it wasoverdue, and without notice that it had been previouslydishonored, if such was the fact. 3. That he took it in goodfaith and for value. 4. That at the time it was negotiated tohim he had no notice of any infirmity in the instrument ordefect in the title of the person negotiating it."

Since "holder", as defined in sec. 191, includes a payeewho is in possession the word holder in the first clause ofsec. 52 and in the second subsection may be replaced by

the definition in sec. 191 so as to read "a holder in due


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course is a payee or indorsee who is in possession," etc.(Brannan's on Negotiable Instruments Law, 6th ed., p.543).

The first argument of the defendants-appellants, therefore,depends upon whether or not the plaintiff-appellee is a holder indue course. If it is such a holder in due course, it is immaterial thatit was the payee and an immediate party to the instrument.

The other contention of the plaintiff is that there has been nonegotiation of the instrument, because the drawer did not deliverthe instrument to Manuel Gonzales with the intention ofnegotiating the same, or for the purpose of giving effect thereto,for as the stipulation of facts declares the check was to remain inthe possession Manuel Gonzales, and was not to be negotiated,but was to serve merely as evidence of good faith of defendants intheir desire to purchase the car being sold to them. Admitting thatsuch was the intention of the drawer of the check when shedelivered it to Manuel Gonzales, it was no fault of the plaintiff-

appellee drawee if Manuel Gonzales delivered the check ornegotiated it. As the check was payable to the plaintiff-appellee,and was entrusted to Manuel Gonzales by Gatchalian, the deliveryto Manuel Gonzales was a delivery by the drawer to his ownagent; in other words, Manuel Gonzales was the agent of thedrawer Anita Gatchalian insofar as the possession of the check isconcerned. So, when the agent of drawer Manuel Gonzalesnegotiated the check with the intention of getting its value fromplaintiff-appellee, negotiation took place through no fault of theplaintiff-appellee, unless it can be shown that the plaintiff-appelleeshould be considered as having notice of the defect in thepossession of the holder Manuel Gonzales. Our resolution of this

issue leads us to a consideration of the last question presented bythe appellants, i.e., whether the plaintiff-appellee may beconsidered as a holder in due course.

Section 52, Negotiable Instruments Law, defines holder in duecourse, thus:

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

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

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

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

(d) That at the time i t was negotiated to him he had nonotice of any infirmity in the instrument or defect in the title

of the person negotiating it.

The stipulation of facts expressly states that plaintiff-appellee wasnot aware of the circumstances under which the check wasdelivered to Manuel Gonzales, but we agree with the defendants-appellants that the circumstances indicated by them in their briefs,such as the fact that appellants had no obligation or liability to theOcampo Clinic; that the amount of the check did not correspondexactly with the obligation of Matilde Gonzales to Dr. V. R. deOcampo; and that the check had two parallel lines in the upper lefthand corner, which practice means that the check could only be

deposited but may not be converted into cash

all thesecircumstances should have put the plaintiff-appellee to inquiry asto the why and wherefore of the possession of the check byManuel Gonzales, and why he used it to pay Matilde's account. Itwas payee's duty to ascertain from the holder Manuel Gonzaleswhat the nature of the latter's title to the check was or the nature ofhis possession. Having failed in this respect, we must declare thatplaintiff-appellee was guilty of gross neglect in not finding out thenature of the title and possession of Manuel Gonzales, amountingto legal absence of good faith, and it may not be considered as aholder of the check in good faith. To such effect is the consensusof authority.

In order to show that the defendant had "knowledge ofsuch facts that his action in taking the instrumentamounted to bad faith," it is not necessary to prove that thedefendant knew the exact fraud that was practiced uponthe plaintiff by the defendant's assignor, it being sufficientto show that the defendant had notice that there wassomething wrong about his assignor's acquisition of title,although he did not have notice of the particular wrong thatwas committed. Paika v. Perry, 225 Mass. 563, 114 N.E.830.


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It is sufficient that the buyer of a note had notice orknowledge that the note was in some way tainted withfraud. It is not necessary that he should know theparticulars or even the nature of the fraud, since all that isrequired is knowledge of such facts that his action in takingthe note amounted bad faith. Ozark Motor Co. v. Horton(Mo. App.), 196 S.W. 395. Accord. Davis v. First Nat.Bank, 26 Ariz. 621, 229 Pac. 391.

Liberty bonds stolen from the plaintiff were brought by thethief, a boy fifteen years old, less than five feet tall,immature in appearance and bearing on his face the stampa degenerate, to the defendants' clerk for sale. The boystated that they belonged to his mother. The defendantspaid the boy for the bonds without any further inquiry.Held, the plaintiff could recover the value of the bonds. Theterm 'bad faith' does not necessarily involve furtivemotives, but means bad faith in a commercial sense. Themanner in which the defendants conducted their LibertyLoan department provided an easy way for thieves todispose of their plunder. It was a case of "no questionsasked." Although gross negligence does not of itselfconstitute bad faith, it is evidence from which bad faith maybe inferred. The circumstances thrust the duty upon thedefendants to make further inquiries and they had no rightto shut their eyes deliberately to obvious facts. Morris v.Muir, 111 Misc. Rep. 739, 181 N.Y. Supp. 913, affd. inmemo., 191 App. Div. 947, 181 N.Y. Supp. 945." (pp. 640-642, Brannan's Negotiable Instruments Law, 6th ed.).

The above considerations would seem sufficient to justify our

ruling that plaintiff-appellee should not be allowed to recover thevalue of the check. Let us now examine the express provisions ofthe Negotiable Instruments Law pertinent to the matter to find ifour ruling conforms thereto. Section 52 (c) provides that a holderin due course is one who takes the instrument "in good faith andfor value;" Section 59, "that every holder is deemed prima facie tobe a holder in due course;" and Section 52 (d), that in order thatone may be a holder in due course it is necessary that "at the timethe instrument was negotiated to him "he had no notice of any . . .defect in the title of the person negotiating it;" and lastly Section59, that every holder is deemedprima facieto be a holder in duecourse.

In the case at bar the rule that a possessor of the instrumentisprima faciea holder in due course does not apply because therewas a defect in the title of the holder (Manuel Gonzales), becausethe instrument is not payable to him or to bearer. On the otherhand, the stipulation of facts indicated by the appellants in theirbrief, like the fact that the drawer had no account with the payee;that the holder did not show or tell the payee why he had thecheck in his possession and why he was using it for the payment

of his own personal account

show that holder's title wasdefective or suspicious, to say the least. As holder's title wasdefective or suspicious, it cannot be stated that the payeeacquired the check without knowledge of said defect in holder'stitle, and for this reason the presumption that it is a holder in duecourse or that it acquired the instrument in good faith does notexist. And having presented no evidence that it acquired the checkin good faith, it (payee) cannot be considered as a holder in duecourse. In other words, under the circumstances of the case,instead of the presumption that payee was a holder in good faith,the fact is that it acquired possession of the instrument undercircumstances that should have put it to inquiry as to the title of the

holder who negotiated the check to it. The burden was, therefore,placed upon it to show that notwithstanding the suspiciouscircumstances, it acquired the check in actual good faith.

The rule applicable to the case at bar is that described in the caseof Howard National Bank v. Wilson, et al., 96 Vt. 438, 120 At. 889,894, where the Supreme Court of Vermont made the followingdisquisition:

Prior to the Negotiable Instruments Act, two distinct lines ofcases had developed in this country. The first had i ts origin

in Gill v. Cubitt, 3 B. & C. 466, 10 E. L. 215, where the rulewas distinctly laid down by the court of King's Bench thatthe purchaser of negotiable paper must exercisereasonable prudence and caution, and that, if thecircumstances were such as ought to have excited thesuspicion of a prudent and careful man, and he made noinquiry, he did not stand in the legal position of a bona fideholder. The rule was adopted by the courts of this countrygenerally and seem to have become a fixed rule in the lawof negotiable paper. Later in Goodman v. Harvey, 4 A. & E.870, 31 E. C. L. 381, the English court abandoned itsformer position and adopted the rule that nothing short ofactual bad faith or fraud in the purchaser would deprive


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him of the character of a bona fide purchaser and let indefenses existing between prior parties, that nocircumstances of suspicion merely, or want of propercaution in the purchaser, would have this effect, and thateven gross negligence would have no effect, except asevidence tending to establish bad faith or fraud. Some ofthe American courts adhered to the earlier rule, whileothers followed the change

Documents

Commrev Case 1