Negotiable Instruments Law

Liability of a General Indorser

ALLIED BANKING CORPORATION vs.

LIM SIO WAN et. al
G.R. No. 133179 March 27, 2008

Doctrine: the warranty “that the instrument is genuine and in all respects what it purports to be” covers all
the defects in the instrument affecting the validity thereof, including a forged indorsement. Thus, the last
indorser will be liable for the amount indicated in the negotiable instrument even if a previous
indorsement was forged. We held in a line of cases that “a collecting bank which indorses a check
bearing a forged indorsement and presents it to the drawee bank guarantees all prior indorsements,
including the forged indorsement itself, and ultimately should be held liable therefor.” However, this
general rule is subject to exceptions. One such exception is when the issuance of the check itself was
attended with negligence.

VELASCO, JR., J.:

FACTS: Respondent deposited with petitioner a money market placement of P1,158,648.49. Thereafter,
a person claiming to be Lim Sio Wan called up Cristina So, an officer of Allied, and instructed the latter
to pre-terminate Lim Sio Wan’s money market placement, to issue a manager’s check representing the
proceeds of the placement, and to give the check to one Deborah Santos who would pick up the check.
The bank did as instructed and the check was given to Santos. Thereafter, the manager’s check
was deposited in the account of Filipinas Cement Corporation (FCC) at respondent Metrobank, with the
forged signature of Lim Sio Wan as indorser. To clear the check and in compliance with the requirements
of the Philippine Clearing House Corporation (PCHC) Rules and Regulations, Metrobank stamped a
guaranty on the check, which reads: “All prior endorsements and/or lack of endorsement guaranteed.
Allied funded the check without checking the authenticity of Lim Sio Wan’s purported
indorsement. Thus, the amount on the face of the check was credited to the account of FCC.
Upon the maturity date, Lim Sio Wan went to Allied to withdraw it but was informed that the
placement had been pre-terminated upon her instructions. Thus he filed with the RTC a Complaint against
Allied to recover the proceeds of her money market placement. Allied filed a third party complaint
against Metrobank and Santos. The trial and appellate court ordered Allied to pay sixty (60%) percent
Metrobank forty (40%) of the amount of P1,158,648.49 plus 12% interest per annum.

ISSUE: Is petitioner’s liability to the extent of 60% of amount adjudged demandable and Metrobank to
the extent of 40% as guarantor of all endorsement on the check, it being the collecting bank?

HELD: YES. As provided in Section 66 in relation to Sec. 65 of the Negotiable Instruments Law, the
warranty “that the instrument is genuine and in all respects what it purports to be” covers all the defects in
the instrument affecting the validity thereof, including a forged indorsement. Thus, the last indorser will
be liable for the amount indicated in the negotiable instrument even if a previous indorsement was forged.
We held in a line of cases that “a collecting bank which indorses a check bearing a forged indorsement
and presents it to the drawee bank guarantees all prior indorsements, including the forged indorsement
itself, and ultimately should be held liable therefor.” However, this general rule is subject to exceptions.
One such exception is when the issuance of the check itself was attended with negligence.

In the instant case, Allied was negligent in issuing the manager’s check and in transmitting it to
Santos without even a written authorization The liability of Allied, however, is concurrent with that of
Metrobank as the last indorser of the check. Given the relative participation of Allied and Metrobank to
the instant case, both banks cannot be adjudged as equally liable. Hence, the 60:40 ratio of the liabilities
of Allied and Metrobank must be upheld.

ASIA INTERNATIONAL AUCTIONEERS, INC. et.al. vs. HON. GUILLERMO L. PARAYNO JR.
G.R. No. 163445 December 18, 2007

Doctrine: Jurisdiction is defined as the power and authority of a court to hear, try and decide a case. The
issue is so basic that it may be raised at any stage of the proceedings, even on appeal. In fact, courts may
take cognizance of the issue even if not raised by the parties themselves.

PUNO, C.J.:

FACTS: Congress enacted Republic Act (R.A.) No. 7227 creating the Subic Special Economic
Zone (SSEZ) and extending a number of economic or tax incentives therein. Section 12 of the law
provides that exportation or removal of goods from the territory of the SSEZ to the other parts of the
Philippine territory shall be subject to customs duties and taxes under the Customs and Tariff Code and
other relevant tax laws of the Philippines. Thereafter, CIR issued Revenue Memorandum Circular (RMC)
No. 31-2003 setting the “Uniform Guidelines on the Taxation of Imported Motor Vehicles through the
Subic Free Port Zone and Other Freeport Zones that are Sold at Public Auction.”

Petitioners are corporations organized under Philippine laws with principal place of business
within the SSEZ. They are engaged in the importation of mainly secondhand or used motor vehicles and
heavy transportation or construction equipment which they sell to the public through auction.

Petitioners filed a complaint before the RTC, praying for the nullification of RMC No. 31-2003
for being unconstitutional and an ultra vires act. The trial court issued its order granting the application
for a writ of preliminary injunction. Upon appeal, the CA issued its assailed decision which declared the
RTC bereft of jurisdiction to take cognizance of the case.

ISSUE: Do regular courts have jurisdiction to hear a case to declare Revenue Memorandum
Circulars unconstitutional and against an existing law where the challenge does not involve the
rate and figures of the imposed taxes?

HELD: NO. Jurisdiction is defined as the power and authority of a court to hear, try and decide a case.
The issue is so basic that it may be raised at any stage of the proceedings, even on appeal. In fact, courts
may take cognizance of the issue even if not raised by the parties themselves. There is thus no reason to
preclude the CA from ruling on this issue even if allegedly, the same has not yet been resolved by the trial
court.

R.A. No. 1125 states that the Court of Tax Appeals shall exercise exclusive appellate jurisdiction
to review by appeal decisions of the Commissioner of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto,
or other matters arising under the National Internal Revenue Code or other laws or part of law
administered by the Bureau of Internal Revenue.

We have held that RMCs are considered administrative rulings which are issued from time to
time by the CIR. In the case at bar, the assailed revenue regulations and revenue memorandum circulars
are actually rulings or opinions of the CIR on the tax treatment of motor vehicles sold at public auction
within the SSEZ to implement Section 12 of R.A. No. 7227. They were issued pursuant to the power of
the CIR under Section 4 of the National Internal Revenue Code to interpret tax laws and decide tax cases.