Survey Of Negotiable Instruments Law Cases.docx

SAN MIGUEL CORPORATION v. BARTOLOME PUZON, JR. G.R. No. 167567 | 22 September 2010 Completion and Delivery DOCTRINE: When a check is delivered, the intent/purpose of the act of delivery determines whether the same is given effect or given merely as a security. The first situation transfers ownership to the payee, while the latter does not. FACTS: • Puzon was a dealer of San Miguel beer products, buying the same on credit. • To ensure payment, and as a business practice, San Miguel required Puzon to issue postdated checks equivalent to the value of the products purchased on credit. • The checks are then returned after full payment of the value of the transaction. • Following this arrangement, Puzon purchased products to which he issued two checks to cover the transaction. • A month later, Puzon visited San Miguel’s Sales Office to reconcile his account with the latter. Puzon allegedly requested to see one of the checks. When he got hold of both checks (attached to a bond paper), he immediately left the office, bringing the check with him. • San Miguel then sent a demand letter asking for the checks back. After being ignored, San Miguel filed a criminal complaint for theft against Puzon. • DOJ dismissed the case on the ground that the non-payment of a debt cannot give rise to a criminal case. It also established that the relationship between the two is one of creditor-debtor. • CA found that the postdated checks issued were merely as a security of his purchases and not intended to be encashed. It concluded that SMC did not acquire ownership of the checks. • San Miguel then argued that the checks’ ownership were transferred to it because they were issued in payment of the purchases and not merely for security.

ISSUE: Whether or not the delivery of the checks to SMC vested it ownership over the checks. Ruling:

No, the delivery of the check did not make SMC the owner thereof. The check was not given as payment, there being no intent to give effect to the instrument. • “Delivery” as a term used in Sec. 12 means that the party delivering did so for the purpose of giving effect thereto. Otherwise, it cannot be said that there has been delivery of the negotiable instrument. Once there is delivery, the person to whom the instrument is delivered gets the title to the instrument completely and irrevocably. The purpose of the delivery will determine if ownership is transferred: • (1) If the purpose is the give effect to the instrument, title or ownership transfers upon delivery. • (2) If the intent to give effect is missing, ownership is retained by the person who delivered. • The check was only meant to cover the transactions in the meantime, and Puzon was to pay for the transaction by some other means other than the check.

EQUITABLE BANKING CORPORATION, INC. v. SPECIAL STEEL PRODUCTS and AUGUSTO L. PRADO G.R. No. 175350 | 13 June 2012 Liabilities of Acceptor DOCTRINE: Banks have the duty to scrutinize the checks deposited with it, for a determination of their genuineness and regularity. The law holds banks to a high standard because banks hold themselves out to the public as experts in the field. The nature of crossed checks should place a bank on notice that it should exercise more caution or expend more than a cursory inquiry, to ascertain whether the payee on the check has authorized the holder to deposit the same in a different account

FACTS: • Special Steel Products (SSP) sells steel products. International Copra Export Corp. (Interco) is it’s regular customer. Jose Uy is Interco’s employee in charge of purchasing department, and son-in-law of Interco’s majority stockholder. • In 1991, SSP sold welding electrodes to Interco. Corresponding Sales Invoices were issued for the transactions • In payment for the welding electrodes, Interco issued 3 Equitable checks payable to the order of SSP. Each check was crossed with the notation “account payee only.” • The case records disclose that Uy presented each crossed check to Equitable, claiming that he had good title over them. The records do not identify the signatory for the checks, nor explain how Uy came into possession of the checks. • Uy demanded the deposit of the checks to his personal accounts with Equitable, which was allowed by Equitable on the assumption that Uy – as the son-in-law of the majority stockholder, was acting pursuant to Interco’s orders. Equitable also relied on his status as a valued client. • SSP then reminded Interco of the unpaid welding electrodes. Interco replied saying it already issued 3 checks payable to SSP. • After Interco found out about Uy’s scheme, it issued 3 more checks covering the payment but only some of the interest amount, it not being the cause of the delay. • SSP then filed a complaint for damages and writ of preliminary attachment against Uy and Equitable alleging negligence on Equitable’s part when they ignored the restrictive nature of the checks and the subsequent depositing of the amount in Uy’s account.

• Equitable moved to dismiss for lack of cause of action, maintaining that, since Equitable and SSP did not enter into any contract, the former cannot be liable for actual damages. Equitable further argued that it is not liable because it accepted the 3 crossed checks in good faith. o Due to Uy’s close relations with the drawer of the checks, it had basis to assume that the drawer authorized Uy to countermand the original order.

• The RTC ruled that the crossed checks belonged solely to the payee named therein, SSPI. Since SSPI did not authorize anyone to receive payment in its behalf, Uy clearly had no title to the checks and Equitable had no right to accept the said checks from Uy. o Equitable was negligent in permitting Uy to deposit the checks in his account without verifying Uy’s right to endorse the crossed checks. • It reiterated that banks have the duty to scrutinize the checks deposited with it, for a determination of their genuineness and regularity. The law holds banks to a high standard because banks hold themselves out to the public as experts in the field.

ISSUE: Whether or not Equitable is grossly negligent when it allowed Uy’s demands in having the checks deposited to his personal account?

HELD: Yes, banks have the duty to scrutinize the checks deposited with it, for a determination of their genuineness and regularity. The law holds banks to a high standard because banks hold themselves out to the public as experts in the field. • • The checks that Interco issued in favor of SSP were all crossed, made payable to SSP’s order, and contained the notation “account payee only.” This creates a reasonable expectation that the payee alone would receive the proceeds of the checks and that diversion of the checks would be averted. This expectation arises from the accepted banking practice that crossed checks are intended for deposit in the named payee’s account only and no other. • • At the very least, the nature of crossed checks should place a bank on notice that it should exercise more caution or expend more than a cursory inquiry, to ascertain whether the payee on the check has authorized the holder to deposit the same in a different account. • • Since the banking business is impressed with public interest, the trust and confidence of the public in it is of paramount importance. Consequently, the highest degree of diligence is expected, and high standards of integrity and performance are required of it.”

(Patrimonio v. Gutierrez, G.R. No. 187769, [June 4, 2014]) Facts: The petitioner and the respondent Napoleon Gutierrez (Gutierrez) entered into a business venture under the name of Slam Dunk Corporation (Slum Dunk) In the course of their business, the petitioner pre-signed several checks to answer for the expenses of Slam Dunk. Although signed, these checks had no payee's name, date or amount. The blank checks were entrusted to Gutierrez with the specific instruction not to fill them out without previous notification to and approval by the petitioner. In the middle of 1993, without the petitioner's knowledge and consent, Gutierrez went to Marasigan (the petitioner's former teammate), to secure a loan in the amount of P200,000.00 on the excuse that the petitioner needed the money for the construction of his house. Marasigan acceded to Gutierrez' request and gave him P200,000.00 sometime in February 1994. Gutierrez simultaneously delivered to Marasigan one of the blank checks the petitioner pre-signed with Pilipinas Bank, Greenhills Branch, Check No. 21001764 with the blank portions filled out with the words "Cash" "Two Hundred Thousand Pesos Only", and the amount of "P200,000.00". On May 24, 1994, Marasigan deposited the check but it was dishonored for the reason "ACCOUNT CLOSED." It was later revealed that petitioner's account with the bank had been closed since May 28, 1993. ISSUES: 1. Whether respondent Gutierrez has completely filled out

the subject check strictly under the authority given by the petitioner ||| Ruling 1. No, applicable rule is Sec. 14 of Negotiable Instruments law. While Gutierrez here had prima facie authority to complete the check, such prima facie authority does not extend to its use (i.e., subsequent transfer or negotiation) once the check is completed. Only the authority to complete the check is presumed. Gutierrez was only authorized to use the check for business expenses; thus, he exceeded the authority when he used the check to pay the loan he supposedly contracted for the construction of petitioner's house. This is a clear violation of the petitioner's instruction to use the checks for the expenses of Slam Dunk. It cannot therefore be validly concluded that the check was completed strictly in accordance with the authority given by the petitioner.

Metropolitan Bank and Trust Co. v. Chiok, G.R. Nos. 172652, 175302 & 175394, [November 6, 2014]) What is a Cashier’s Check and Manager’s Check? (2015 Bar) The legal effects of a manager's check and a cashier's check are the same. A manager's check, like a cashier's check, is an order of the bank to pay, drawn upon itself, committing in effect its total resources, integrity, and honor behind its issuance. By its peculiar character and general use in commerce, a manager's check or a cashier's check is regarded substantially to be as good as the money it represents. It is deemed pre-accepted by the bank from the moment of issuance. Thus good as cash

(Hongkong & Shanghai Banking Corp. Ltd.-Phil. Branch v. Commissioner of Internal Revenue, G.R. Nos. 166018 & 167728, [June 4, 2014]) Facts: HSBC's investor-clients maintain Philippine peso and/or foreign currency accounts, which are managed by HSBC through instructions given through electronic messages. The said instructions are standard forms known in the banking industry as SWIFT, or "Society for Worldwide Interbank Financial Telecommunication." In purchasing shares of stock and other investment in securities, the investor-clients would send electronic messages from abroad instructing HSBC to debit their local or foreign currency accounts and to pay the purchase price therefor upon receipt of the securities Are electronic messages considered as bills of exchange? The electronic messages received by HSBC from its investor-clients abroad instructing the former to debit the latter's local and foreign currency accounts and to pay the purchase price of shares of stock or investment in securities do not properly qualify as either presentment for acceptance or presentment for payment.||| The electronic messages are not signed by the investor-clients as supposed drawers of a bill of exchange; they do not contain an unconditional order to pay a sum certain in money as the payment is supposed to come from a specific fund or account of the investor-clients; and, they are not payable to order or bearer but to a specifically designated third party. Thus, the electronic messages are not bills of exchange as they do not comply with the requisites of negotiability.

||| (Areza v. Express Savings Bank,G.R. No. 176697, [September 10, 2014]) Facts: Petitioners Cesar V. Areza and Lolita B. Areza maintained two bank deposits with respondent Express Savings Bank's Biñan branch. They were engaged in the business of "buy and sell" of brand new and second-hand motor vehicles. On 2 May 2000, they received an order from a certain Gerry Mambuay (Mambuay) for the purchase of a second-hand Mitsubishi Pajero and a brand-new Honda CRV. The buyer, Mambuay, paid petitioners with nine (9) Philippine Veterans Affairs Office (PVAO) checks payable to different payees and drawn against the Philippine Veterans Bank (drawee), each valued at Two Hundred Thousand Pesos (P200,000.00) for a total of One Million Eight Hundred Thousand Pesos (P1,800,000.00). Such checks were then subsequently deposited to Petitioner’s bank accounts and cleared by the Drawee. However, it was later found out that such checks where already materially altered prior to it clearance, and dishonored by Drawee later, which resulted into Express savings bank debiting the amount of the dishonored check from petitioner’s accounts. Issue: When the drawee accepted/cleared the check, is it liable according to the altered tenor of acceptance based on Sec. 63 of NIL(Negotiable Instruments Law) or according to its original tenor based on Sec. 124 of the NIL?

Ruling: Liable according to original tenor only despite tenor of acceptance. On one hand, Sec. 63 of the NIL provides that a drawee that accepts an instrument engages that he will pay it according to the tenor of his acceptance. On the other hand, Sec. 124 of the NIL provides that a material alteration avoids an instrument except as against an assenting party and subsequent indorsers, but a holder in due course may enforce payment according to its original tenor. Thus, when the drawee bank pays a materially altered check, it violates the terms of the check, as well as its duty to charge its client's account only for bona fide disbursements he had made. If the drawee did not pay according to the original tenor of the instrument, as directed by the drawer, then it has no right to claim reimbursement from the drawer, much less, the right to deduct the erroneous payment it made from the drawer's account which it was expected to treat with utmost fidelity. The drawee, however, still has recourse to recover its loss. It may pass the liability back to the collecting bank which is what the drawee bank exactly did in this case. It debited the account of Equitable-PCI Bank for the altered amount of the checks. The Court here, upheld the view that the acceptor/drawee is liable only to the extent of the bill prior to alteration.

(Chua v. People, G.R. No. 196853 , [July 13, 2015])

Facts Chua and private complainant Philip See (See) were long-time friends and neighbors. On different dates from 1992 until 1993, Chua issued several postdated PSBank checks of varying amounts to See pursuant to their rediscounting arrangement at a 3% rate However, See claimed that when he deposited the checks, they were dishonored either due to insufficient funds or closed account. Despite demands, Chua failed to make good the checks. Hence, See filed on December 23, 1993 a Complaint for violations of BP 22 before the Office of the City Prosecutor of Quezon City. He attached thereto a demand letter dated December 10, 1993||| Issue: Can a notice of dishonor be issued prior to the issuance of checks? Can a demand letter that precedes the issuance of checks constitute as sufficient notice of dishonor?

Ruling: No, such notice must be issued only after said checks have been dishonored and within 5 banking days from such notice failed to satisfy said amount can the prima facie presumption of issuance of an unfunded check arise. As such gives the accused an opportunity to avert prosecution and serves to mitigate the harshness of the law in its application In other words, if such notice of non-payment/dishonor by the drawee bank is not sent to the maker or drawer of the bum check, or if there is no proof as to when such notice was received by the drawer, then the presumption or prima facie evidence as provided in Section 2 of B.P. Blg. 22 cannot arise, since there would simply be no way of reckoning the crucial 5-day period. Checks can only be dishonored after they have been issued and presented for payment. Before that, dishonor cannot take place. Thus, a demand letter that precedes the issuance of checks cannot constitute as sufficient notice of dishonor within the contemplation of BP 22.

Land Bank vs Kho G.R. No. 205839, (July 27, 2016) Facts: On December 28, 2005, Kho opened an account with Land Bank in order to leverage a business deal with Red Orange; He purchased Land Bank Manager’s check No. 07410 worth ₱25,000,000.00 payable to Red Orange and dated January 2, 2006; He also gave Rudy Medel a photocopy of the check that the bank had given him; After his visit to the Bank, the deal with Medel and Red Orange did not push through; He picked up check No. 07410 from the bank on January 2, 2006, without informing the bank that the deal did not materialize; Afterwards, Red Orange presented a spurious copy of check No. 07410 to BPI, Kamuning for payment; Land Bank cleared the check; However, Kho never negotiated the actual check. It was in his possession the whole time. Thus Kho seeks reimbursement from LandBank. However LandBank contends that Kho is precluded from raising the defense of forgery because of his failure to notify the LandBank that the deal did not push through and in giving Medel a Copy of the check. Issue: W/N Kho is precluded from setting up the defense of Forgery? Ruling: No. A drawer or a depositor of the bank is precluded from asserting the forgery if the drawee bank can prove his failure to exercise ordinary care and if this negligence substantially contributed to the forgery or the perpetration of the fraud. While the act of giving Medel a Photocopy of the check may have allowed the latter to create a duplicate, this cannot possibly excuse Land Bank’s failure to recognize the check itself – not just the signature – but the check itself is fake. More importantly, Land Bank itself furnished Medel the photocopy without objecting to the latter’s intention of giving it to E. Kho’s failure to inform Land Bank that the deal did not push through does not justify Land Bank’s confirmation and clearing of a fake check bearing the forged signature of its own officers. Whether or not the deal pushed through, the check remained in Kho’s possession. He was entitled to a reasonable expectation that the banks would not release any funds corresponding to the check.

RCBC vs ODRADA G.R. No. 219037, Oct. 19, 2016 Facts In April 2002, respondent Noel M. Odrada (Odrada) sold a second hand Mitsubishi Montero (Montero) to Teodoro L. Lim (Lim) for One Million Five Hundred Ten Thousand Pesos (Php1,510,000). Of the total consideration, Six Hundred Ten Thousand Pesos (Php610,000) was initially paid by Lim and the balance of Nine Hundred Thousand Pesos (P900,000) was paid in manager’s check issued by RCBC dated April 12, 2002. After the issuance of the manager's checks and their turnover to Odrada but prior to the checks' presentation, Lim notified Odrada in a letter dated 15 April 2002 that there was an issue regarding the roadworthiness of the Montero. A meeting was requested with regard to the matter. However, Odrada did not go to the slated meeting and instead deposited the manager's checks with International Exchange Bank (Ibank) on April 16, 2002 and redeposited them on April 19, 2002 but the checks were dishonored both times apparently upon Lim's instruction to RCBC. Consequently, Odrada filed a collection suit against Lim and RCBC in the Regional Trial Court of Makati. In his Answer, Lim alleged that the cancellation of the manager’s check was at his instance, upon discovery of the misrepresentations by Odrada about the Montero's roadworthiness. Lim claimed that the cancellation was not done ex parte but through a letter dated 15 April 2002. He further alleged that the letter was delivered to Odrada prior to the presentation of the manager's checks to RCBC. ISSUE/S: WON drawee bank can still deny payment of a manager’s check due to the Personal Defense of Lim that a defective Montero was sold to Lim. Ruling: YES. As a general rule, the drawee bank is not liable until it accepts. Acceptance, therefore, creates a privity of contract between the holder and the drawee so much so that the latter, once it accepts, becomes the party primarily liable on the instrument. A manager’s check makes the bank primarily liable as there is already acceptance upon issuance of a manager’s check. HOWEVER, the SC ruled that the issuing bank could validly refuse payment when the holder is NOT a holder in due course. In this case, the Court of Appeals gravely erred when it considered Odrada as a holder in due course.

To be a holder in due course, the law requires that a party must have acquired the instrument in good faith and for value. Odrada did not acquire the instrument in good faith as he sold a defective Montero. He immediately presented the check for payment upon notice of the Montero’s defect. RCBC acted in good faith in following the instructions of Lim. The records show that Lim notified RCBC of the defective condition of the Montero before Odrada presented the manager's checks. Section 58 of the Negotiable Instruments Law provides: "In the hands of any holder other than a holder in due course, a negotiable instrument is subject to the same defenses as if it were non-negotiable. xxx. "Since Odrada was not a holder in due course, the instrument becomes subject to personal defenses under the Negotiable Instruments Law. Hence, RCBC may legally act on a countermand by Lim, the purchaser of the manager's checks.

(Ubas, Sr. v. Chan, G.R. No. 215910, [February 6, 2017]) This case stemmed from a Complaint for Sum of Money with Application for Writ of Attachment (Complaint) filed by petitioner against respondent Wilson Chan (respondent) before the Regional Trial Court of Catarman, Northern Samar, Branch 19 (RTC) During trial, petitioner testified that on January 1, 1998, he entered into a verbal agreement with respondent for the supply of gravel, sand, and boulders for the Macagtas Dam project. He presented as the only proof of their business transaction the subject checks issued to him by respondent and delivered to his office by respondent's worker on different occasions, but when petitioner presented the subject checks for encashment, the same were dishonored due to a stop payment order. As such, respondent was guilty of fraud in incurring the obligation. For his part, respondent admitted to having issued the subject checks. However, he claimed that they were not issued to petitioner, but to Engr. Merelos for purposes of replenishing the project's revolving fund. Issue: Whether or not the said checks may be used as basis for Petitioner’s Monetary Claim against respondent? Ruling: In a suit for a recovery of sum of money, as here, the plaintiffcreditor [(petitioner in this case)] has the burden of proof to show that defendant [(respondent in this case)] had not paid [him] the amount of the contracted loan. However, it has also been long established that where the plaintiff-creditor possesses and submits in evidence an instrument showing the indebtedness, a presumption that the credit has not been satisfied arises in [his] favor. Thus, the defendant is, in appropriate instances, required to overcome the said presumption and present evidence to prove the fact of payment so that no judgment will be entered against him." This presumption stems from Section 24 of the NIL, which provides that: Section 24. Presumption of Consideration. — Every negotiable instrument is deemed prima facie to have been issued for a valuable consideration; and every person whose signature appears thereon to have become a party thereto for value.

As mentioned, petitioner had presented in evidence the three (3) dishonored checks which were undeniably signed by respondent. Having failed to overcome such presumption, respondent is thus held liable. Besides, Section 16 of the NIL provides that when an instrument is no longer in the possession of the person who signed it and it is complete in its terms, "a valid and intentional delivery by him is presumed until the contrary is proved," as in this case.

(Evangelista v. Screenex, Inc., G.R. No. 211564, [November 20, 2017]) Facts: Sometime in 1991, [Evangelista] obtained a loan from respondent Screenex, Inc. which issued two (2) checks to [Evangelista]. There were also vouchers of Screenex that were signed by the accused evidencing that he received the 2 checks in acceptance of the loan granted to him. As security for the payment of the loan, [Evangelista] gave two (2) open-dated checks, both pay to the order of Screenex, Inc. From the time the checks were issued by [Evangelista], they were held in safe keeping together with the other documents and papers of the company by Philip Gotuaco, Sr., father-in-law of respondent Alexander Yu, until the former's death on 19 November 2004. Before the checks were deposited, there was a personal demand from the family for [Evangelista] to settle the loan and likewise a demand letter sent by the family lawyer. On 25 August 2005, petitioner was charged with violation of Batas Pambansa (BP) Blg. 22 Issue: Whether or not Petitioner Evangelista is still liable for the total amount of the check? Ruling: No. It is a settled rule that the creditor's possession of the evidence of debt is proof that the debt has not been discharged by payment. It is likewise an established tenet that a negotiable instrument is only a substitute for money and not money, and the delivery of such an instrument does not, by itself, operate as payment. However, payment is deemed effected and the obligation for which the check was given as conditional payment is treated discharged, if a period of 10 years or more has elapsed from the date indicated on the check until the date of encashment or presentment for payment. The failure to encash the checks within a reasonable time after issue, or more than 10 years in this instance, not only results in the checks becoming stale but also in the obligation to pay being deemed fulfilled by operation of law. While it is true that the delivery of a check produces the effect of payment only when it is cashed, pursuant to Art. 1249 of the Civil Code, the rule is otherwise if the debtor is prejudiced by the creditor's unreasonable delay in presentment. The acceptance of a check implies an undertaking of due diligence in presenting it for payment, and if he from whom it is received sustains loss by want of such diligence, it will be held to operate as actual payment of the debt or obligation for which it was given.