CASE DIGEST ON NEGO

De La Victoria vs Burgos

Facts: Raul Sebreo filed a complaint for damages against Fiscal Bienvenido Mabanto Jr. of Cebu
City. Sebreo won and he was awarded the payment of damages. Judge Burgos ordered De La
Victoria, custodian of the paychecks of Mabanto, to hold the checks and convey them to Sebreo
instead. De La Victoria assailed the order as he said that the paychecks and the amount thereon
are not yet the property of Mabanto because they are not yet delivered to him; that since there is
no delivery of the checks to Mabanto, the checks are still part of the public funds; and the checks
due to the foregoing cannot be the proper subject of garnishment.

ISSUE: Whether or not De La Victoria is correct.

HELD: Yes. Under Section 16 of the Negotiable Instruments Law, every contract on a negotiable
instrument is incomplete and revocable until delivery of the instrument for the purpose of giving
effect thereto. As ordinarily understood, delivery means the transfer of the possession of the
instrument by the maker or drawer with intent to transfer title to the payee and recognize him as
the holder thereof. Here, there is no delivery to speak of as the salary check is not yet in the
hands of Mabanto Jr. as the holder.

GEMPESAW V. CA218 SCRA 682

FACTS:

Gempensaw was the owner of many grocery stores. She paid her suppliers through the
issuance of checks drawn against her checking account with respondent bank. The
checks were prepared by her bookkeeper Galang. In the signing of the checks prepared by
Galang, Gempensaw didn't bother herself in verifying to whom the checks were being paid
and if the issuances were necessary. She didn't even verify the returned checks of the
bank when the latter notifies her of the same. During her two years in business, there were
incidents shown that the amounts paid for were in excess of what should have been paid. It
was also shown that even if the checks were crossed, the intended payees didn't receive the
amount of the checks. This prompted Gempensaw to demand the bank to credit her
account for the amount of the forged checks. The bank refused to do so and this prompted her
to file the case against the bank.

HELD:

Forgery is a real defense by the party whose signature was forged. A party whose signature was
forged was never a party and never gave his consent to the instrument. Since his signature
doesnt appear in the instrument, the same cannot be enforced against him even by a holder in
due course. The drawee bank cannot charge the account of the drawer whose signature was
forged because he never gave the bank the order to pay.

In the case at bar the checks were filled up by petitioners employee Galang and were
later given to her for signature. Her signing the checks made the negotiable instruments
complete. Prior to signing of the checks, there was no valid contract yet. Petitioner completed
the checks by signing them and thereafter authorized Galang to deliver the same to their
respective payees. The checks were then indorsed, forged indorsements thereon.

As a rule, a drawee bank who has paid a check on which an indorsement has been forged
cannot debit the account of a drawer for the amount of said check. An exception to
this rule is when the drawer is guilty of negligence which causes the bank to honor such
checks. Petitioner in this case has relied solely on the honesty and loyalty of her
bookkeeper and never bothered to verify the accuracy of the amounts of the checks she
signed the invoices attached thereto. And though she received her bank statements, she
didn't carefully examine the same to double-check her payments. Petitioner didn't exercise
reasonable diligence which eventually led to the fruition of her bookkeepers fraudulent
The SC found that Gempesaw is indeed negligent which precludes her from raising the defense
of forgery. However, the SC, using Art. 1170 of the Civil Code, said that the bank becomes also
liable for damages for accepting the check with a second indorsement. It should be noted that in
the current banking system, checks with second indorsements are not generally accepted and
given this fact, the Bank should also shoulder liability. Gempesaw and the bank are liable 50-50
for the loss.

PNB VS CONCEPCION MINING

A promissory note dated march 12, 1954 was executed by Vicente Legarda, president of
Concepcion Mining Company, and Jose Sarte. On the face of the promissory note partially reads:

NINETY DAYS after date, for value received, I promise to pay to the order of the Philippine
National Bank . . . .

The promissory note matured and without payment from the makers. PNB sued Concepcion
Mining and Sarte.

ISSUE: Whether or not the estate of Legarda should be included in the suit.

HELD: No. There is no need for pursuant to Section 17 (g) of the Negotiable Instruments Law:

SEC. 17. Construction where instrument is ambiguous. Where the language of the instrument
is ambiguous or there are omissions therein, the following rules of construction apply:

(g) Where an instrument containing the word I promise to pay is signed by two or more
persons, they are deemed to be jointly and severally liable thereon.

CITIBANK vs. SABENIANO G.R.No. 156132, October 16, 2006

FACTS: Petitioner Citibank is a banking corporation duly authorized under the laws of the USA to
do commercial banking activities n the Philippines. Sabeniano was a client of both Petitioners
Citibank and FNCB Finance. Respondent filed a complaint against petitioners claiming to have
substantial deposits, the proceeds of which were supposedly deposited automatically and
directly to respondents account with the petitioner Citibank and that allegedly petitioner refused
to despite repeated demands. Petitioner alleged that respondent obtained several loans from the
former and in default, Citibank exercised its right to set-off respondents outstanding loans with
her deposits and money. RTC declared the act illegal, null and void and ordered the petitioner to
refund the amount plus interest, ordering Sabeniano, on the other hand to pay Citibank her
indebtedness. CA affirmed the decision entirely in favor of the respondent.

ISSUE: Whether petitioner may exercise its right to set-off respondents loans with her deposits
and money in Citibank-Geneva

RULING: Petition is partly granted with modification.

1. Citibank is ordered to return to respondent the principal amount of P318,897.34 and

P203,150.00 plus 14.5% per annum

2. The remittance of US $149,632.99 from respondents Citibank-Geneva account is declared

illegal, null and void, thus Citibank is ordered to refund said amount in Philippine currency or its
equivalent using exchange rate at the time of payment.

3. Citibank to pay respondent moral damages of P300,000, exemplary damages for P250,000,
attorneys fees of P200,000.
4. Respondent to pay petitioner the balance of her outstanding loans of P1,069,847.40 inclusive
off interest.

LIM VS MINDANAO WINES

Facts:

Sales Invoice as well as Statement of Accounts indicate that respondent Mindanao Wines and
Liquor Galleria (Mindanao Wines) delivered several cases of liquors to H & E Commercial owned
by Emilia, for which the latter issued four Philippine National Bank (PNB) postdated checks worth
P25,000.00 each. When two of these checks bounced for the reasons ACCOUNT CLOSED and
DRAWN AGAINST INSUFFICIENT FUNDS, Mindanao Wines, thru its proprietressN Evelyn
Valdevieso, demanded from H & E Commercial the payment of their value through two separate
letters. When the demands went unheeded, Mindanao Wines filed before the MTCC of Davao City
a Criminal Case against Emilia for violations of BP 22.

HELD:

Moreover, it is well to remember that a check may be evidence of indebtedness. A check, the
entries of which are in writing, could prove a loan transaction. While Emilia is acquitted of
violations of BP 22, she should nevertheless pay the debt she owes

BPI vs Spouses Royeca G.R. No. 176664, July 21, 2008

FACTS:

Spouses Reynaldo and Victoria Royeca (respondents) executed and delivered to Toyota Shaw,Inc.
a Promissory Note payable in 48 equal monthly installments. The Promissory Note providesfor a
penalty of 3% for every month or fraction of a month that an installment remains unpaid.
Respondents executed a Chattel Mortgage in favor of Toyota over a certain motor vehicle. Toyota,
with notice to respondents, executed a Deed of Assignment transferring all its rights,title, and
interest in the Chattel Mortgage to Far East Bank and Trust Company (FEBTC). Claiming that the
respondents failed to pay four (4) monthly, FEBTC sent a formal demand torespondents, asking
for the payment thereof, plus penalty.The respondents refused to pay onthe ground that they
had already paid their obligation. FEBTC filed a Complaint for Replevinand Damages against the
respondents with the Metropolitan Trial Court (MeTC) of Manilapraying for the delivery of the
vehicle. The complaint was later amended to substitute BPI asplaintiff when it merged with and
absorbed FEBTC. Respondents alleged that they delivered to the Auto Financing Department of
FEBTC eight (8)postdated checks in different amount. The Acknowledgment Receipt, which they
attached tothe Answer, showed that FEBTC received the checks. respondents further averred
that they didnot receive any notice from the drawee banks or from FEBTC that these checks
weredishonored. They explained that, considering this and the fact that the checks were
issuedthree years ago, they believed in good faith that their obligation had already been fully
paid. They alleged that the complaint is frivolous and plainly vexatious. FEBTC admitted that they
had, in fact, received the eight checks from the respondents.However, two of these were
dishonored. He recalled that the remaining two checks were notdeposited anymore due to the
previous dishonor of the two checks.

ISSUE:

Whether tender of checks constitutes payment.

RULING:NO.

A check is not legal tender and, therefore, cannot constitute a valid tender of payment.Since a
negotiable instrument is only a substitute for money and not money, the delivery ofsuch an
instrument does not, by itself, operate as payment. The obligation is notextinguished and
remains suspended until the payment by commercial document isactually realized.

Consolidated Plywood Inc. vs. Ifc Leasing G.R. No. L-72593, April 30, 1987
FACTS:

Petitioner bought from Atlantic Gulf and Pacific Company, through its sister company Industrial
Products Marketing, two used tractors. Petitioner was issued a sales invoice for the two used
tractors. At the same time, the deed of sale with chattel mortgage with promissory note was
issued.

Simultaneously, the seller assigned the deed of sale with chattel mortgage and promissory note
to respondent. The used tractors were then delivered but barely 14 days after, the tractors broke
down. The seller sent mechanics but the tractors were not repaired accordingly as they were no
longer serviceable. Petitioner would delay the payments on the promissory notes until the seller
completes its obligation under the warranty. Thereafter, a collection suit was filed against
petitioner for the payment of the promissory note.

ISSUE:

Whether the promissory note in question is a negotiable instrument

RULING:

No, the instrument is not negotiable. A portion of the note is as follows, For value received, I/We
jointly and severally promise to pay to the IPM, the sum of P1,093,789.71 only. It can be
clearly observed that the instrument does not manifest transferability since it does not contain
the so-called words of negotiability which includes to order or to bearer

TRADERS ROYAL BANK V CA G.R. No. 93397 March 3, 1997

FACTS:

Filriters registered owner of Central Bank Certificate of Indebtedness (CBCI). Filriters transferred
it to Philfinance by one of its officers without authorization from the company. Subsequently,
Philfinance transferred same CBCI to Traders Royal Bank (TRB) under a repurchase agreement.
When Philfinance failed to do so, The TRB tried to register in its name in the CBCI. The Central
Bank did not want to recognize the transfer.

APPLICABLE LAWS:

Under section 1 of Act no. 2031 an instrument to be negotiable must conform to the following
requirements: (a) It must be in writing and signed by the maker or drawer; (b) Must contain an
unconditional promise or order to pay a sum certain in money; (c) Must be payable on demand,
or at a fixed or determinable future time; (d) Must be payable to order or to bearer; and (e)
Where the instrument is addressed to a drawee, he must be named or otherwise indicated
therein with reasonable certainty.

ISSUES & RULING: 1. Whether the CBCI is negotiable instrument or not.

NO. The CBCI is not a negotiable instrument, since the instrument clearly stated that it was
payable to Filriters, and the certificate lacked the words of negotiability which serve as an
expression of consent that the instrument may be transferred by negotiation.

Before the instruments become negotiable instruments, the instrument must conform to the
requirements under the Negotiable Instrument Law. Otherwise instrument shall not bind the
parties.

Negotiable Instruments Case Digest: Philippine National Bank V. Erlando Rodriguez (2008)

G.R. No. 170325 September 26, 2008

Lessons Applicable: Fictitious Persons (Negotiable Instruments Law)

FACTS:

Spouses Erlando and Norma Rodriguez were engaged in the informal lending business and had a
discounting arrangement with the Philnabank Employees Savings and Loan Association
(PEMSLA), an association of PNB employees

The association maintained current and savings accounts with Philippine National Bank (PNB)

PEMSLA regularly granted loans to its members. Spouses Rodriguez would rediscount the
postdated checks issued to members whenever the association was short of funds.

As was customary, the spouses would replace the postdated checks with their own checks issued
in the name of the members.

It was PEMSLAs policy not to approve applications for loans of members with outstanding debts.

To subvert this policy, some PEMSLA officers devised a scheme to obtain additional loans despite
their outstanding loan accounts.

They took out loans in the names of unknowing members, without the knowledge or consent of
the latter.

The officers carried this out by forging the indorsement of the named payees in the checks

Rodriguez checks were deposited directly by PEMSLA to its savings account without any
indorsement from the named payees.

This was an irregular procedure made possible through the facilitation of Edmundo Palermo, Jr.,
treasurer of PEMSLA and bank teller in the PNB Branch.

this became the usual practice for the parties.

November 1998-February 1999: spouses issued 69 checks totalling to P2,345,804. These were
payable to 47 individual payees who were all members of PEMSLA

PNB eventually found out about these fraudulent acts

To put a stop to this scheme, PNB closed the current account of PEMSLA.
As a result, the PEMSLA checks deposited by the spouses were returned or dishonored for the
reason Account Closed.

The amounts were duly debited from the Rodriguez account

Spouses filed a civil complaint for damages against PEMSLA, the Multi-Purpose Cooperative of
Philnabankers (MCP), and PNB.

PNB credited the checks to the PEMSLA account even without indorsements = PNB violated its
contractual obligation to them as depositors - so PNB should bear the losses

RTC: favored Rodriguez

makers, actually did not intend for the named payees to receive the proceeds of the checks =
fictitious payees (under the Negotiable Instruments Law) = negotiable by mere delivery

CA: Affirmed - checks were obviously meant by the spouses to be really paid to PEMSLA =
payable to order

ISSUE: W/N the 69 checks are payable to order for not being issued to fictitious persons thereby
dismissing PNB from liability

HELD: NO. CA Affirmed

GR: when the payee is fictitious or not intended to be the true recipient of the proceeds, the
check is considered as a bearer instrument (Sections 8 and 9 of the NIL)

EX: However, there is a commercial bad faith exception to the fictitious-payee rule. A showing of
commercial bad faith on the part of the drawee bank, or any transferee of the check for that
matter, will work to strip it of this defense. The exception will cause it to bear the loss.

The distinction between bearer and order instruments lies in their manner of negotiation

order instrument - requires an indorsement from the payee or holder before it may be validly
negotiated

bearer instrument - mere delivery

US jurisprudence: fictitious if the maker of the check did not intend for the payee to in fact
receive the proceeds of the check

In a fictitious-payee situation, the drawee bank is absolved from liability and the drawer bears
the loss

When faced with a check payable to a fictitious payee, it is treated as a bearer instrument that
can be negotiated by delivery

underlying theory: one cannot expect a fictitious payee to negotiate the check by placing his
indorsement thereon

lack of knowledge on the part of the payees, however, was not tantamount to a lack of intention
on the part of respondents-spouses that the payees would not receive the checks proceeds

PNB did not obey the instructions of the drawers when it accepted absent indorsement, forged or
otherwise. It was negligent in the selection and supervision of its employees

Manuel Lim v CA

Facts:

Manuel Lim and Rosita Lim are the officers of the Rigi Bilt Industries, Inc. (RIGI). RIGI had been
transacting business with Linton Commercial Company, Inc. The Lims ordered 100 pieces of mild
steel plates from Linton and were delivered to the Lims place of business which was in Caloocan.
To pay Linton, the Lims issued a postdated check for P51,800.00. On a different date, the Lims
also ordered another 65 pcs of mild steel plates and were delivered in the place of business.
They again issued another postdated check. On that same day, they also ordered purlins worth
P241,800 which were delivered to them on various dates. The Lims issued 7 checks for this.

When the 7 checks were presented to the drawee bank (Solidbank), it was dishonored because
payment for the checks had been stopped and/or insufficiency of funds. So the Lims were
charged with 7 counts of violation of Bouncing Checks Law.

The Malabon trial court held that the Lims were guilty of estafa and violation of BP 22. They went
to CA on appeal.

The CA acquitted the Lims of estafa, on the ground that the checks were not made in payment of
an obligation contracted at the time of their issuance. However, the CA affirmed the finding that
they were guilty

of violation for BP 22. Motion for Reconsideration to SC.

Issue:

Whether or not the issue was within the jurisdiction of the Malabon Trial Court

Held:

Yes. The venue of jurisdiction lies either in the RTC Caloocan or Malabon Trial Court.
BP 22 is a continuing crime. A person charged with a transitory crime may be validly tried in any
municipality or territory where the offense was partly committed. In determining the proper
venue, the ff. must be considered. 1) 7 checks were issued to Linton in its place of business in
Navotas. 2) The checks were delivered Linton in the same place. 3) The checks were dishonored
in Caloocan 4) The Lims had knowledge

of their insufficiency of funds.

Under sec 191 of the Negotiable Instruments Law:

ISSUE = 1ST delivery of the instrument complete in form to a person who takes it as a holder

HOLDER = payee or indorsee of a bill/note who is in possession of it or the bearer

The place where the bills were written, signed or dated does not necessarily fix or determine the
place where they were executed. It is the delivery that is important. It is the final act essential to
its consummation of an obligation. An undelivered bill is unoperative. The issuance and delivery
of the check must be to a person who takes it as a holder.

Although Linton sent a collector who received the checks fr. The Lims at their place of business,
the checks were actually issued and delivered to Linton in Navotas. The collector is not a holder
or an agent, he was just an employee.

*SC affirms conviction of the Lims for violation of BP 22 and the decision of CA

BPI V. CA

216 SCRA 51

FACTS:

Someone who identified herself to be Fernando called up BPI, requesting for the pre-
termination of her money market placement with the bank. The person who took the call
didn't bother to verify with Fernandos office if whether or not she really intended to
preterminate her money market

placement. Instead, he relied on the verification stated by the caller. He proceeded with the
processing of the termination. Thereafter, the caller gave delivery instructions that
instead of delivering the checks to her office, it would be picked up by her niece and it indeed
happen as such. It was found out later on that the person impersonated Fernando and her
alleged niece in getting the checks. The dispatcher also didn't bother to get the
promissory note evincing the placement when he gave the checks to the impersonated niece.
This was aggravated by the fact that this impersonator opened an account with the bank
and deposited the subject checks. It then withdrew the amounts.

The day of the maturity of the money market placement happened and the real Fernando
surfaced herself. She denied preterminating the money market placements and though she
was the payee of the checks in issue, she didn't receive any of its proceeds. This prompted
the bank to

surrender to CBC the checks and asking for reimbursement on alleged forgery of payees
indorsements.
HELD:

The general rule shall apply in this case. Since the payees indorsement has been
forged, the instrument is wholly inoperative. However, underlying circumstances of the
case show that the general rule on forgery isnt applicable. The issue as to who between the
parties should bear the

loss in the payment of the forged checks necessitates the determination of the rights and
liabilities of the parties involved in the controversy in relation to the forged checks.

The acts of the employees of BPI were tainted with more negligence if not criminal than the acts
of CBC. First, the act of disclosing information about the money market placement over the
phone is a violation of the General Banking Law. Second, there was failure on the banks
part to even compare the signatures during the termination of the placement, opening of a
new account with the specimen signature in file of Fernando. And third, there was
failure to ask the surrender of the promissory note evidencing the placement.

The acts of BPI employees was the proximate cause to the loss. Nevertheless, the
negligence of the employees of CBC should be taken also into consideration. They closed their
eyes to the suspicious large amount withdrawals made over the counter as well as the opening
of the account.