.Ilano v Espanol, G.R. No.

161756,
December 16, 2005 (3rd Div.), J. Morales

Facts:
Victoria Ilano filed a complaint for Revocation/Cancellation of Promissory Notes and Bills of
Exchange with Damages and Prayer for Preliminary Injunction or Temporary Restraining Order
(TRO), against Amelia O. Alonzo, 14 other named defendants, and several John Does. Ilano
entrusted her signed checks to her trusted employee Amelia Alonzo, which she issued to
several persons. The RTC dismissed the complaint for failure to state ultimate facts. On appeal,
the CA affirmed the RTC’s decision. Hence, this petition for review on certiorari before the
Supreme Court. The respondents also claimed that the action lacked cause of action because
the subject checks had already been dishonored and stamped “ACCOUNT CLOSED” therefore,
valueless or non-negotiable. All except one check were dishonored.

Issue:
Does the petitioner have a cause of action with regard to said check?

Ruling:
Yes. With respect to Check No. 0084078, which was drawn against another account of petitioner, albeit
the date of issue bears only the year − 1999, its validity and negotiable character at the time the complaint
was filed on March 28, 2000 was not affected. For Section 6 of the Negotiable Instruments Law provides:
The validity and negotiable character of an instrument are not affected by the fact that – (a) It is not dated;
or (b) Does not specify the value given, or that any value had been given therefor; or (c) Does not specify
the place where it is drawn or the place where it is payable; or (d) Bears a seal; or (e) Designates a
particular kind of current money in which payment is to be made.

De la Victoria v. Burgos, G.R. No. 111190

Facts:
Raul Sesbreno filed a complaint for damages against Assistant City Fiscal Bienvenido Mabanto
before the RTC of Cebu City. After trial, judgment was rendered ordering Mabanto to pay
Sesbreno P11,000. The decision was final and executory, the trial court ordered its execution
upon the order of Sesbreno. The writ of execution was issued despite Defendant’s objection. A
notice of garnishment was served upon Loreto de la Victoria as City Fiscal of Mandaue City
where Mabanto was then detailed. De la Victoria moved to quash the notice of garnishment
claiming that he was not in possession of any money, funds, credit, property or anything of
value belonging to Mabanto, Jr., except his salary and RATA checks, but that said checks were
not yet properties of Mabanto, Jr., until delivered to him, as such, they were still public funds
which could not be subject to garnishment.

Issue:
(a) Whether a check still in the hands of the maker or its duly authorized representative is
owned by the payee before physical delivery to the latter.
(b) Whether the salary check of a government official or employee funded with public funds
can be subject to garnishment.

Ruling:
(a) NO. Sec. 16 of the Negotiable Instruments Law states: "And where the instrument is no
longer in the possession of a party whose signature appears thereon, a valid and
intentional delivery by him is presumed." Yet, the presumption is not conclusive because
the last portion of the provision says "until the contrary is proved.". Proof to the contrary
is its own finding that the checks were in the custody of the petitioner. Inasmuch as said
checks had not yet been delivered to Mabanto, Jr., they did not belong to him and still
had the character of public funds.
(b) Under Sec. 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.

Metropol v. Sambok, G.R. No. L-39641

Facts:
Dr. Javier Villaruel issued a promissory note in favor of Ng Sambok Sons Motors Co., Ltd
payable in twelve equal monthly installments with interest. Sambok Motors Company, under the
same management as Ng Sambok Sons Motors Co., Ltd., negotiated and indorsed the note in
favor of Metropol Financing & Investment Corporation. Dr. Villaruel defaulted in the payment of
his installments and failed to pay when plaintiff formally presented it for payment. Plaintiff
notified Sambok as indorsee of the note that the same note has been dishonored and
demanded payment. Sambok failed to pay. During the pendency of the case Dr. Villaruel died.
Sambok argues that by adding the words "with recourse" in the indorsement of the note, it
becomes a qualified indorser, thus, it does not warrant that if said note was afis dishonored by
the maker failed to pay the said not on presentment, it will pay the amount to the holder.

Issue:
(a) Whether Sambok Motors Co is a qualified indorser.
(b) Whether Sambok Motors Co is liable upon the failure of payment of the maker.

Ruling:
(a) No. Sambok Motors Co is not a qualified indorser. A qualified indorsement constitutes
the indorser a mere assignor of the title to the instrument. It may be made by adding to
the indorser's signature the words "without recourse" or any words of similar meaning.
Such an indorsement relieves the indorser of the general obligation to pay if the
instrument is dishonored but not of the liability arising from warranties on the instrument
as provided in Section 65 of the Negotiable Instruments Law. However, appellant
indorsed the note "with recourse" and even waived the notice of demand, dishonor,
protest and presentment.
(b) Yes. Sambok Motors Co is liable upon the failure of payment of the maker. Appellant, by
indorsing the note "with recourse" does not make itself a qualified indorser but a general
indorser who is secondarily liable, because by such indorsement, it agreed that if Dr.
Villaruel fails to pay the note, plaintiff-appellee can go after said appellant. The effect of
such indorsement is that the note was indorsed without qualification. A person who
indorses without qualification engages that on due presentment, the note shall be
accepted or paid, or both as the case may be, and that if it be dishonored, he will pay the
amount thereof to the holder. The words added by said appellant do not limit his liability,
but rather confirm his obligation as a general indorser.

Development Bank of Rizal v. Sima Wei, G.R. No. 85419

Facts:
The Development Bank of Rizal sued respondent Sima Wei on the promissory note, and the
alternative defendants, including Sima Wei, on the two checks. 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. Cheng Uy, Branch 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. t.

Issues:
Whether petitioner Bank has a cause of action against any or all of the defendants, in the
alternative or otherwise, as far as the crossed checks are concerned.

Ruling:
No. 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 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 damaged
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 her co-respondents, if the allegations in the complaint are found to be true.

De Ocampo Co v. Gatchalian, G.R. No. L-15126

Facts:
Anita C. Gatchalian drew a check worth P600 payable to plaintiff as evidence of good faith in
her intention to purchase the car that was offered to her by Manuel Gonzales. Gonzales,
unknown to the plaintiff, said that he was duly authorized by the owner of the car, Ocampo
Clinic, to look for a buyer, negotiate for and accomplish said sale. The check was meant to be
for safekeeping only of Manuel Gonzales and to be returned to defendant Anita C. Gatchalian
the following day when Manuel Gonzales brings the car and the certificate of registration. The
complaint sets forth the check and alleges that plaintiff received it in payment of the
indebtedness of one Matilde Gonzaless, and even gave her P158.25, as a change between the
face value of the check and Gonzales' indebtedness. The defendants admit the execution of the
check but they argued that it was issued subject to a condition, which was not fulfilled, and that
plaintiff was guilty of gross negligence in not taking steps to protect itself. In their appeal,
defendants-appellants contend that the check is not a negotiable instrument, under the facts
and circumstances stated in the stipulation of facts, and that plaintiff is not a holder in due
course. The appellant argues that plaintiff-appellee cannot be a holder in due course because
there was no negotiation prior to plaintiff-appellee's acquiring the possession of the check.

Issue:
Whether the payee may be a holder in due course under the Negotiable Instruments Law.

Ruling:
No. In the case at bar the rule that a possessor of the instrument is prima facie holder in due
course does not apply because there was a defect in the title of the holder, Manuel Gonzales,
because the instrument is not payable to him or to bearer. The plaintiff-appellee was guilty of
gross neglect in not finding out the nature of the title and possession of Manuel Gonzales,
amounting to legal absence of good faith. As the payee acquired the check under
circumstances which should have put it to inquiry, why the holder had the check and used it to
pay his own personal account, the duty devolved upon it, plaintiff-appellee, to prove that it
actually acquired said check in good faith. The stipulation of facts contains no statement of such
good faith, hence plaintiff payee has not proved that it acquired the check in good faith and may
not be deemed a holder in due course.

Yang v. CA, G.R. No. 138074

Facts:
Cely Yang and Prem Chandiramani entered into an agreement to exchange the latter’s PCIB
manager’s check and two of Yang’s manager’s checks, both payable to the order of Fernando
David. They further agreed that Yang would secure a dollar draft in exchange for
Chandiramani's dollar draft. Yang gave the cashier’s checks to be delivered to Chandiramani by
Danilo Ranigo. Ranigo was to meet Chandiramani where he would turn over Yang’s cashier’s
checks and dollar draft to Chandiramani who, in turn, would deliver to Ranigo a PCIB manager’s
check and a Hang Seng Bank dollar draft. Chandiramani did not appear at the rendezvous and
Ranigo allegedly lost the two cashier’s checks and the dollar draft bought by the petitioner.
However, that the checks and the dollar draft were not lost, for Chandiramani was able to get
hold of said instruments, without delivering the exchange consideration consisting of the PCIB
manager’s check and the dollar draft. Yang requested the respective banks to stop payment on
the instruments but was subsequently denied. Yang filed a complaint for the return of the
checks and for damages against Chandaramani and David. Yang contends that private
respondent Fernando David is not a holder in due course of the checks in question.

Issues:
Whether Fernando David is a holder in due course.

Ruling:
Yes. David was a holder in due course for the reason that the cashier’s checks were complete
on their face when they were negotiated to him. They were not yet overdue when he became
the holder thereof and he had no notice that said checks were previously dishonored; he took
the cashier’s checks in good faith and for value. He had no notice of any infirmity in the
cashier’s checks or defect in the title of the drawer. As a matter of fact, he asked the manager of
the China Banking Corporation to inquire as to the genuineness of the cashier’s checks.
Another proof that defendant David is a holder in due course is the fact that the stop payment
order on FEBTC cashier’s check was lifted upon his inquiry at the head office. The apparent
reason for lifting the stop payment order was because of the fact that FEBTC realized that the
checks were not actually lost but indeed reached the payee defendant David.

Mesina v. IAC, G.R. No. 70145

Facts:
Alexander Lim stole a Cashier's check from Albert Uy who was safekeeping it for Jose Go.
Petitioner, who became the holder of the cashier’s check, said it was paid to him by Alexander
Lim in a "certain transaction" but refused to clarify how and why it was passed to him. Mesina, in
his appeal, alleges that a cashier's check can be countermanded even in the hands of a holder
in due course.

Issues:
Whether Marcelo Mesina is a holder in due course.

Ruling:
No. Petitioner failed to prove his claim that he is a holder in due course and for consideration or
value as shown by the established facts of the case. He refused to say how and why the check
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. From the moment said cashier's
check was lost and/or stolen, no one outside of Jose Go can be termed a holder in due course
because Jose Go had not indorsed it in due course. The check in question suffers from the
infirmity of not having been properly negotiated and for value by respondent Jose Go who as
already been said is the real owner of said instrument.

Crisologo-Jose v. CA, G.R. No. 80599

Facts:
Atty. Oscar Benares, president, and Ricardo Santos, vice-president, of Mover Enterprises, Inc.,
issued a check payable to Ernestina Crisologo-Jose in accommodation of his clients, Jaime and
Clarita Ong. It was signed by Benares and Santos. The check was issued to Jose in
consideration of the waiver or quitclaim by Jose over a certain property, with the understanding
that upon approval by the GSIS of the compromise agreement with the spouses Ong, the check
will be encashed accordingly. Since the compromise agreement was not approved within the
expected period of time, the aforesaid check was replaced by Atty. Benares, stille signed by him
and Santos. When Jose encashed the checks, it was dishonored for insufficiency of funds. The
petitioner filed an action against the corporation for accommodation party.

Issue:
Whether the corporation can be held liable as an accommodation party.

Ruling:
No. To be considered an accommodation party, a person must (1) be a party to the instrument,
signing as maker, drawer, acceptor, or indorser, (2) not receive value therefor, and (3) sign for
the purpose of lending his name for the credit of some other person. An accommodation party
liable on the instrument to a holder for value, although such holder at the time of taking the
instrument knew him to be only an accommodation party, does not include nor apply to
corporations which are accommodation parties. This is because the issue or indorsement of
negotiable paper by a corporation without consideration and for the accommodation of another
is ultra vires. Hence, one who has taken the instrument with knowledge of the accommodation
nature thereof cannot recover against a corporation where it is only an accommodation party. If
the form of the instrument, or the nature of the transaction, is such as to charge the indorsee
with knowledge that the issue or indorsement of the instrument by the corporation is for the
accommodation of another, he cannot recover against the corporation thereon.

Estate of Sevilla v. Sevilla, G.R. No. L-17845

Facts:
Victor Sevilla, Oscar Varona and Simeon Sadaya executed, jointly and severally,, a promissory
note with interest, payable on demand. The entire amount of the promissory note was received
from the bank by Oscar Varona alone. Victor Sevilla and Simeon Sadaya signed the promissory
note as co-makers only as a favor to Oscar Varona. Payments were made on account. The
outstanding balance stood P4,850.00. No payment thereafter made. The bank collected from
Sadaya the foregoing balance to which Varona failed to reimburse Sadaya despite repeated
demands. Victor Sevilla died. Francisco Sevilla was named his estate’s administrator. Sadaya
filed a creditor's claim for a sum of P5,746.12, plus attorneys fees. The administrator asserted
that the deceased Victor Sevilla did not receive any amount as consideration for the promissory
note, but signed it only as surety for Oscar Varona. The trial court issued an order, directing the
administrator to pay the amount from any available funds belonging to the estate of the
deceased Victor Sevilla.

The Court of Appeals, voted to set aside the order appealed from and to disapprove and
disallow "appellee's claim of P5,746.12 against the intestate estate." The case is now before this
Court on certiorari to review the judgment of the Court of Appeals.

Issue:
Whether Sadaya is entitled to reimbursement.

Ruling:
No. A solidary accommodation maker — who made payment — has the right to contribute,
from his co-accommodation maker, in the absence of agreement to the contrary between them,
and subject to conditions imposed by law. This right springs from an implied promise between
the accommodation makers to share equally the burdens that may ensue from their having
consented to stamp their signatures on the promissory note. For having lent their signatures to
the principal debtor, they clearly placed themselves — in so far as payment made by one may
create liability on the other — in the category of mere joint grantors of the former. This is as it
should be. Not one of them benefited from the promissory note. They stand on the same
footing. In misfortune, their burdens should be equally spread.

Tomas Ang v. Associated Bank, G.R. No. 146511

Facts:
Respondent Associated Bank filed a collection suit against Antonio Ang EngLiong and petitioner
Tomas Ang for the two promissory notes that they executed as principal debtor and co-maker.
Tomas Ang and Antonio Ang Eng Liong obtained a loan of P50,000 and P30,000 on October 3
and OCtober 9,1978 respectively. Both was evidenced by 2 promissory notes and as agreed,
the loan would be payable, jointly and severally on January 31, 1979 and December 8, 1978
respectively. Despite repeated demands for payment, the defendants failed and refused to
settle their obligation. Tomas Ang contends the bank is not the real party in interest as it is not
the holder of the promissory notes, muchless a holder for value or a holder in due course and
the bank knew that he did not receive any valuable consideration for affixing his signatures on
the notes but merely lent his name as an accommodation party and thus should not be held
liable.

Issue:
Whether Petitioner, Tomas Ang, is liable as an accommodation party.

Ruling:
Yes. The Court of Appeals held that the bank is a "holder" under Sec. 191 of the NIL. With the
bank as the "holder" of the promissory notes, the Court of Appeals held that Tomas Ang is
accountable therefor in his capacity as an accommodation party. As an accommodation maker,
he is considered as a solidary debtor who is primarily liable for the payment of the promissory
notes. Section 29 of the NIL defines an accommodation party as a person who has signed the
instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the
purpose of lending his name to some other person. The accommodation party is liable on the
instrument to a holder for value even though the holder, at the time of taking the instrument,
knew him or her to be merely an accommodation party, as if the contract was not for
accommodation
 Equitable Banking Corp v. IAC, G.R. No. L-74451
May 25, 1988, J. Melencio-Herrera

Facts:
Liberato Casals went to Edward J. Nell Co. and showed his interest in buying one of the
plaintiff's Garrett skidders. The executive vice-president, Apolonio Javier agreed to have the
skidders paid by way of a domestic letter of credit which Casals promised to open in plaintiffs
favor, in lieu of cash payment. Although the marginal deposit was supposed to be produced by
defendant Casville Enterprises, plaintiff agreed to advance the necessary amount in order to
facilitate the transaction. Defendants Casals and Casville hardly argue their liability to plaintiff.
They did not appear in most of the hearings, but they also assigned to plaintiff the garrett
skidder which is an action of clear recognition of their liability.The Trial Court found that the
amount of the second check had been erroneously credited to the Casville account; held the
Bank liable for the mistake of its employees; and ordered the Bank to pay NELL the value of the
check in the sum of P427,300.00, with legal interest.

Issue:
Whether Equitable Banking Corp is liable to Edward J. Nell Co. for the value of the second
check issued by NELL.

Ruling:
No. The subject check was equivocal and patently ambiguous. By making the check read “Pay
to Equitable Banking Corp., order of A/C of Casville Enterprises,” the payee ceased to be
indicated with reasonable certainty. As worded it could be accepted as deposit to the account of
the party named after the symbols A/C or payable to the bank as trustee or as agent for Casville
Enterprises Inc. with the latter being the ultimate beneficiary. The ambiguity was to be construed
against Nell Co. who caused the ambiguity. The check was, initially, not non-negotiable, neither
was it a crossed check. The rubber-stamping transversal on the face of the subject check, was
made only by the Bank and not by NELL as the drawer of the check, and it simply meant that
thereafter the same check could no longer be negotiated. It was NELL's own acts, which put it
into the power of Casals and Casville Enterprises to perpetuate the fraud against it and,
consequently, it must bear the loss as between two innocent persons, one of whom must suffer
the consequence of a breach of trust, the one who made it possible by his act of confidence
must bear the loss.
 Gempesaw v. CA, G.R. No. 92244
February 9, 1993, J. Campos Jr.

Facts:.
To facilitate payment of debts to her suppliers, Natividad Gempesaw draws checks against her
checking account with the Philippine Bank of Communications bank as drawee. Gempesaw
signed each and every check without verifying the accuracy of the checks because she had full
trust and confidence in her bookkeeper. Gempesaw filed a Complaint against the drawee Bank
for recovery of the money value of 82 checks charged against her account with the drawee
Bank. It was learned that all the 82 checks with forged signatures of the payees were brought to
Ernest L. Boon, Chief Accountant of Drawee Bank at the Buendia branch, who deposited them
in the accounts of Alfredo Romero and Benito Lam. Gempesaw made a written demand upon
the bank to credit the amount charged due the checks. The bank refused.

The Court of Appeals in a decision rendered affirmed the decision of the RTC on two grounds,
namely (1) that Gempesaw’s gross negligence in issuing the checks was the proximate cause of
the loss and (2) assuming that the bank was also negligent, the loss must nevertheless be
borne by the party whose negligence was the proximate cause of the loss.

Issue:
Whether Gempesaw’s gross negligence in issuing the checks was the proximate cause of the
loss.

Ruling:
Yes. The petitioner failed to examine her records with reasonable diligence whether before she
signed the checks or after receiving her bank statements. Had she noticed these discrepancies,
she should not have signed those checks, and should have conducted an inquiry as to the
reason for the irregular entries. Likewise had petitioner been more vigilant in going over her
current account by taking careful note of the daily reports made by respondent drawee Bank in
her issued checks, or at least made random scrutiny of canceled checks returned by respondent
drawee Bank at the close of each month, she could have easily discovered the fraud being
perpetrated by Alicia Galang, and could have reported the matter to the respondent drawee
Bank. The respondent drawee Bank then could have taken immediate steps to prevent further
commission of such fraud. Thus, petitioner's negligence was the proximate cause of her loss.
 Philippine Bank of Commerce v. Aruego, G.R. No. L-25836-37
January 31, 1981, J. Fernandez

Facts:
PBC filed a case against Aruego for the unpaid bill of exchange signed by the latter to pay Encal
Press and Photo Engraving, to recover the cost of the printing of “World Current Events,” a
periodical published by the latter. To facilitate the payment of the printing, Aruego 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 Philippine Bank of Commerce, said draft being sent later to the Aruego for acceptance.
Aruego 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. He 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.

Issue:
(a) Whether Aruego is liable as an agent of the Philippine Education Foundation Company
where he is president.
(b) Whether Aruego as an accommodation party, should be made liable.
(c) Whether the drafts signed by Aruego were bills of exchange.

Ruling:
(a) No. 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.
(b) Yes. The defendant signed as a drawee/acceptor. Under the Negotiable Instrument Law,
a drawee is primarily liable. Thus, the defendant should not have signed as an
acceptor/drawee. In doing so, he became primarily and personally liable for the drafts.
(c) Yes. 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 of acceptance 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.
 Jai-Alai Corp. v. BPI, G.R. No. L-29432
August 6, 1975, J. Castro

Facts:
Petitioner deposited in its current account with the respondent bank, several checks all acquired
from Antonio J. Ramirez through forged indorsements. In view of these circumstances, the
respondent Bank debited the petitioner’s current account and forwarded to the latter the checks
containing the forged indorsements which petitioner refused to accept. Later, petitioner drew
against its current account a check which was dishonored by respondent as its records showed
that petitioner’s balance after netting out the value of the checks with the forged indorsement,
was insufficient to cover the value of the check drawn.

Issue:
Whether the respondent had the right to debit the petitioner’s current account in the amount
corresponding to the total value of the checks in question after more than three months had
elapsed from the date their value was credited to the petitioner’s account.

Ruling:
Yes. The respondent acted within legal bounds when it debited the petitioner’s account. When
the petitioner deposited the checks with the respondent, the nature of the relationship created at
that stage was one of agency and no creditor-debtor relationship was created between the
parties. Section 66 of the Negotiable Instruments Law a general indorser warrants that the
instrument "is genuine and in all respects what it purports to be." Considering that the petitioner
indorsed the said checks when it deposited them with the respondent, the petitioner as an
indorser guaranteed the genuineness of all prior indorsements thereon. The respondent which
relied upon the petitioner’s warranty should not be held liable for the resulting loss