NEGOTIABLE INSTRUMENTS NOTES

BASED ON AGBAYANIS BOOK AND ATTY. MERCADOS LECTURES

Page 186 of 190


BY: MA. ANGELA LEONOR C. AGUINALDO
ATENEO LAW 2D BATCH 2010
said checks were consequently cleared and PNB credited National City Bank
with the amounts. Thereafter, PNB discovered that the signatures were
forged and it demanded the reimbursement of the amounts for which it
credited the other bank.

HELD:
A check is a bill of exchange payable on demand and only the rules
governing bills of exchanges payable on demand are applicable to it. in
view of the fact that acceptance is a step necessary insofar as negotiable
instruments are concerned, it follows that the provisions relative to
acceptance are without application to checks. Acceptance impies
subsequent negotiation of the instrument, which is not true in the case of
checks because from the moment it is paid, it is withdrawn from
circulation. When the drawee banks cashes or pays a check, the cycle of
negotiation is terminated and it is illogical thereafter to speak of
subsequent holders who can invoke the warrant against the drawee.

Further, in determining the relative rights of a drawee who under a mistake
of fact, has paid, a holder who has received such payment, upon a check to
which the name of the drawer has been forged, it is only fair to consider
the question of diligence and negligence of the parties in respect thereto.
The responsibility of the drawee who pays a forged check, for the
genuineness of the drawers signature is absolute only in favor of one who
has not, by his own fault or negligence, contributed to the success of the
fraud or to mislead the drawee.

According to the undisputed facts, National City Bank in purchasing the
papers in question from unknown persons without making any inquiry as to
the identity and authority of said persons negotiating and indorsing them,
acted negligently and contributed to the constructive loss of PNB in failing
to detect the forgery. Under the circumstances of the case, if the appellee
bank is allowed to recover, there will be no change in position as to the
injury or prejudice of the appellant.

DRAWER: PANGASINAN
PAYEE: IAS!MOTOR SERVICE
DRAWEE: PNB
COLLECTING BANK: NATIONAL CITY BANK OF NEW YORK

190 ARANETA V. PAZ TUAZON
91 PHIL 786

FACTS:
Tuazon owned a big parcel of land, which was subdivided into smaller lots.
These lots were leased to people and under the contract of lease, the
lessees had the right of first refusal, in case Tuazon decides to sell the lots.
Tuazon then obtained loans from Vidal, which was secured by mortgages
over the same land. Thereafter, Tuazon and Araneta entered into a
promise to buy and sell, subject to the decision of the lessees if they will
purchase the lots. Many lessees took advantage of this proposition and
bought the lots. The only encumbrance left is the mortgage to Vidal.
Tuazon tried to tender a check for payment of the full mortgage obligation
but Vidal refused to accept the check, prompting the former to file an
action against the latter. Attached to the complaint was the check refused
by Vidal, another certified check, and an ordinary check. This action
however wasnt pursued. The records and the checks were destroyed in a
fire and wasnt reconstituted. Since one of the checks was issued by
Araneta in favor of Vidal, and there was a stipulation that Tuazon would be
held liable, Araneta ran after Tuazon for the value of the checks.

HELD:
The stipulation holding Tuazon liable for the loss of the checks issued was a
valid stipulation, nonetheless, Tuazon should not be held liable for the loss
of the certified checks. The matter of who should bear the loss doesnt
depend upon the validity of the sale but on the extent and scope of the
clause hereinbefore quoted as applied to the facts of the present case.

Some of the checks was issued by Araneta and payable to Vidal, and were
drawn against BPI with which Araneta had a deposit in the current account.
They were certified and the certification stated that they were to be void if
not presented for payment at the office within 90 days from date of
acceptance. Under banking laws and practices, by the certification, the
funds represented by the check were transferred from the credit of the
maker to that of the payee or holder, and for all intents and purposes, the
latter became the depositor of the bank, with rights and duties of one in
such relation. But the transfer of the corresponding funds from the credit
of the depositor to that of the payee had to be co-extensive with the life of
the checks, which in this case was 90 days. If the checks were not
presented for payment within that period they became invalid and the
funds were automatically restored to the credit of the drawer though not as
a current deposit but as special deposit.

The checks were never collected and the account against which they were
drawn wasnt used or claimed by Araneta and since the account was
opened during the Japanese occupation and in Japanese currency, the
checks became obsolete as the account subject thereto is considered null
and void.