GEMPESAW VS. CA & PBC
Absent the indispensable fact of forgery or unauthorized
G.R. NO. 92244
Facts: Petitioner Natividad Gempesaw owns and operates four (4) grocety
stores. It was her business practice that she prepared checks for payments
for her suppliers. Records reveal that the checks were prepared by one of
her employee, Alicia Galang, who has been working for her for 8 years.
After the preparation, checks were submitted to her for signing without
verifying and thereafter it will be delivered to the suppliers/payees. In turn,
the bank notified Gempesaw about the transaction but against she was
verifying the correctness of the same. After two (2) year she discovered that
the value of the checks credited form her accounts exceeded that supplies
that she received. It was discovered that her employee exceeded the value
of the checks. Likewise, the endorsement of the payee was forged and the
same were subsequently endorsed in the name of other payee. Petitioner
filed a complaint against the drawee bank for the reimbursement of the
amount of the checks credited against her account.
Issue: Whether or not the petitioner can make the bank liable for the full
amount of the checks
Held: No, it is clear that the endorsement of the payees were forged. When
a signature is forged or made without the authority of the person whose
signature it purports to be, it is wholly inoperative, and no right to retain the
instrument, or to give a discharge therefor, or to enforce payment thereof
against any party thereto, can be acquired through or under such signature,
unless the party against whom it is sought to enforce such right is
precluded from setting up the forgery or want of authority.
In this case, petitioner fails to prudently manage her business
affairs. If she could have been more vigilance, she could have discovered
the fraudulent act of her employee. However, this negligence will not relieve
the bank from its liability in view of its failure to abide with the internal
banking rules.
Ruling: The case is remanded for hearing.
SEC 41
METROPOLITAN BANK AND TRUST COMPANY (formerly ASIANBANK
CORPORATION) V. BA FINANCE CORPORATION and MALAYAN
INSURANCE CO. INC.
[G.R. No. 179952, Dec. 4, 2009] (607 SCRA 620)
FACTS:
Lamberto Bitanga (Bitanga) obtained from respondent BA Finance
Corporation (BA Finance) a loan to secure which, he mortgaged his car to
respondent BA Finance. Bitanga thus had the mortgaged car insured by
respondent Malayan Insurance Co., Inc. (Malayan Insurance). The car was
stolen. On Bitangas claim, Malayan Insurance issued a check payable to
the order of B.A. Finance Corporation and Lamberto Bitanga for P224,500,
drawn against China Banking Corporation (China Bank). The check was
crossed with the notation For Deposit Payees Account Only.
Without the indorsement or authority of his co-payee BA Finance,
Bitanga deposited the check to his account with the Asianbank Corporation
(Asianbank), now merged with petitioner Metropolitan Bank and Trust
Company (Metrobank). Bitanga subsequently withdrew the entire proceeds
of the check.
In the meantime, Bitangas loan became past due, but despite
demands, he failed to settle it. BA Finance thereupon demanded the
payment of the value of the check from Asianbank but to no avail,
prompting it to file a complaint for sum of money and damages against
Asianbank and Bitanga alleging that, inter alia, it is entitled to the entire
proceeds of the check.
On the issue of whether or not BA Finance has a cause of action,
Metrobank contends that Bitanga is authorized to indorse the check as the
drawer names him as one of the payees. Moreover, his signature is not a
forgery nor has he or anyone forged the signature of the representative of
BA Finance Corporation. No unauthorized indorsement appears on the
1 |Page
check.
indorsement, the payee may not recover from the collecting bank.
ISSUE 1:
Whether BA Finance has a cause of action against Metrobank even
if the subject check had not been delivered to BA Finance by the issuer
itself?
HELD:
YES. Section 41 of the Negotiable Instruments Law provides:
Where an instrument is payable to the order of two or more payees
or indorsees who are not partners, all must indorse unless the one
indorsing has authority to indorse for the others.
Bitanga alone endorsed the crossed check, and petitioner allowed
the deposit and release of the proceeds thereof, despite the absence of
authority of Bitangas co-payee BA Finance to endorse it on its behalf.
Petitioners argument that since there was neither forgery, nor unauthorized
indorsement because Bitanga was a co-payee in the subject check, the
dictum in Associated Bank v. CA does not apply in the present case
fails. The payment of an instrument over a missing indorsement is the
equivalent of payment on a forged indorsement or an unauthorized
indorsement in itself in the case of joint payees.
Accordingly, one who credits the proceeds of a check to the account
of the indorsing payee is liable in conversion to the non-indorsing payee for
the entireamount of the check.
ISSUE 2:
Is Metrobank liable to BA Finance for the full value of the check,
under the Negotiable Instruments Law?
HELD:
YES. Section 68 of the Negotiable Instruments Law instructs that
joint payees who indorse are deemed to indorse jointly and severally. When
the maker dishonors the instrument, the holder thereof can turn to those
secondarily liable the indorser for recovery.
A collecting bank, Asianbank in this case, where a check is
deposited and which indorses the check upon presentment with the drawee
bank, is an indorser. his is because in indorsing a check to the drawee
bank, a collecting bank stamps the back of the check with the phrase all
prior endorsements and/or lack of endorsement guaranteed and, for all
intents and purposes, treats the check as a negotiable instrument,
hence, assumes the warranty of an indorser.
Petitioner, as the collecting bank or last indorser, generally suffers
the loss because it has the duty to ascertain the genuineness of all prior
indorsements considering that the act of presenting the check for payment
to the drawee is an assertion that the party making the presentment has
done its duty to ascertain the genuineness of prior indorsements.
SEC 49
BPI v. CA G.R. No. 136202 January 25, 2007 Related topic: Sec. 49, NIL
(Delivery without endorsement of an order instrument)
FACTS: Salazar had in her possession three crossed checks with an
aggregate amount of P267, 692.50. These checks were payable to the
order of JRT Construction and Trading which was the name of
Templonuevos business. Despite lack of knowledge and endorsement of
Templonuevo, Salazar was able to deposit the checks in her personal
savings account with BPI and encash the same. The three checks were
deposited in three dierent occasions over the span of eight months. A
year after the last encashment, Templonuevo protested the purportedly
unauthorized encashments and demanded from BPI the aggregate amount
of the checks. BPI complied with Templonuevos demand. Since the money
could no longer be debited from the account of Salazar where she
deposited the checks, they froze her other account with them. Later on, BPI
issued a cashiers check in favor of Templonuevo for the aggregate amount
and debited P267, 707.70 from Salazars account representing the
aggregate amount and the bank charges for the cashiers check. Salazar
led a complaint against BPI. Trial court ruled in favor of her which was
armed by CA. Hence, this petition.
NEGOTIABLE INSTRUMENTS LAW
ISSUE/S:1. Did BPI have the authority to unilaterally withdraw from
Salazars account the amount it has previously paid upon certain
unendorsed order instrument?
2. Did BPI act judiciously in debiting Salazars account?
HELD: 1. Yes. Records show that no prior arrangement existed between
Salazar and Templonuevo regarding the transfer of ownership of the
checks. This fact is crucial as Salazars entitlement to the value of the
instruments is based on the assumption that she is a transferee within the
contemplation of Section 49 of the NIL. Section 49 of the NIL
contemplates a situation where the payee or endorsee delivers a
negotiable instrument for value without endorsing it. The underlying
premise of this provision, however, is that a valid transfer of ownership of
the negotiable instrument in question has taken place. Transferees in this
situation do not enjoy the presumption of ownership in favor of holders
since they are neither payees nor endorsees of such instruments. Mere
possession of a negotiable instrument does not in itself conclusively
establish either the right of the possessor to receive payment, or of the right
of one who has made payment to be discharged from liability. Something
more than mere possession is necessary to authorize payment to such
possessor.
Prepared by: Daniel John A. Fordan !1
The one-year delay of Templonuevo in asserting ownership over the checks
is not enough to prove that there has a valid transfer of ownership has
taken place. Salazar failed to discharge the burden of presumption of
ownership in Templonuevos favor as the designated payee. Thus,
the return of the check proceeds to Templonuevo was therefore warranted.
It is immaterial that the account debited by BPI was dierent from the
original account to which the proceeds of the check were credited
because both belonged to Salazar anyway.
2. No. Solely upon the prompting of Templonuevo, BPI debited the account
of Salazar without even serving due notice upon her. Consequently, this
caused damage to Salazar such as having checks she issued dishonored
because she was not given prior notice of the deduction from her account.
As such, the award of damages must be sustained.
SEC 52
YANG v CA, 409 SCRA 159
FACTS:
Yang and Chandimari entered into an agreement that the latter would issue
to the former a managers check in exchange for two checks that Yang has
payable to the order of David. The difference in amount would be
the profit of the two of them. It was further agreed upon that Yang
would
secure a dollar draft, which Chandimari would exchange with another dollar
draft to be secured from a Hong Kong bank. At the agreed time of
rendezvous, it was reported by Yangs messenger that Chandimari
didn't show up and the drafts and checks were allegedly stolen. This wasn't
true however. Chandimari was able to get hold of the drafts and checks.
He was even able to deliver to David the two checks and was able
to get money in return. Consequently, Yang asked for the stoppage of
payment of the checks she believed to be lost, relying on the report
of her messenger. The stoppage order was eventually lifted by the banks
and the drafts and checks were able to be encashed. Yang then filed an
action for injunction and damages against the banks, Chandimari and
David. The
trial court and CA held in favor of David as a holder in due course.
ISSUE: WoN David is a holder in due course
HELD: YES
Every holder of a negotiable instrument is presumed to be a holder in due
course. This is specially true if one is a holder because he is the payee or
indorsee of the instrument.
2 |Page NEGOTIABLE
In the case at bar, it is evident that David was the payee of the checks.
The prima facie presumption of him being a holder in due course is
in his favor. Nonetheless, this presumption is disputable. On whether
he took the check under the conditions set forth in Section 52 must be
proven. Petitioner relies on two arguments on why
David isnt a holder in due coursefirst, because he took the checks
without valuable consideration; and second, he failed to inquire on
Chandimaris title to the checks given to him.
Section 24 of the Negotiable Instruments Law creates a presumption that
every party to an instrument acquired the same for a consideration or for
value
Petitioner has the burden of debunking such presumption, which it
failed to do so. Her allegation that David received the checks
without consideration is unsupported and devoid of any evidence.
Furthermore, petitioner wasn't able to show any circumstance which should
have placed David in inquiry as to why and wherefore of the possession of
the checks by Chandimari. David wasn't a privy to the transactions
between Yang and Chandimari. Instead, Chandimari and David had
the agreement between themselves of the delivery of the checks. David
even inquired with the banks on the genuineness of the checks in issue. At
that time, he wasn't aware of any request for the stoppage of payment.
Under these circumstances, David had no obligation to ascertain from
Chandimari what the nature of the latters title to the checks was, if any, or
the nature of his possession.
FROM A DIFFERENT SOURCE
Issue: Is Fernando David entitled the proceeds of the checks?
Held: YES. In the present case, it is not disputed that David was the payee
of the checks in question. The weight of authority sustains the view that a
payee may be a holder in due course. Hence, the presumption that he is a
prima facie holder in due course applies in his favor. However, said
presumption may be rebutted. Hence, what is vital to the resolution of this
issue is whether David took possession of the checks under the conditions
provided for in Section 52 of the Negotiable Instruments Law. All the
requisites provided for in Section 52 must concur in Davids case, otherwise
he cannot be deemed a holder in due course.
First, with respect to consideration, Section 24 of the Negotiable
Instruments Law creates a presumption that every party to an
instrument acquired the same for a consideration or for value. Thus, the law
itself creates a presumption in Davids favor that he gave valuable
consideration for the checks in question. In alleging otherwise, the Yang
has the onus to prove that David got hold of the checks absent said
consideration. In other words, the Yang must present convincing evidence
to overthrow the presumption. Our scrutiny of the records, however, shows
that the petitioner failed to discharge her burden of proof. The averment
that David did not give valuable consideration when he took possession of
the checks is unsupported, devoid of any concrete proof to sustain it. Note
that both the trial court and the appellate court found that David did not
receive the checks gratis, but instead gave Chandiramani US $360,000.00
as consideration for the said instruments. Factual findings of the Court of
Appeals are conclusive on the parties and not reviewable by this Court;
they carry great weight when the factual findings of the trial court are
affirmed by the appellate court.
Second, Yang fails to point any circumstance which should have put David
on inquiry as to the why and wherefore of the possession of the checks by
Chandiramani. David was not privy to the transaction between Yang and
Chandiramani. Instead, Chandiramani and David had a separate dealing in
which it was precisely Chandiramanis duty to deliver the checks to David
as payee. The evidence shows that Chandiramani performed said task to
the letter. Yang admits that David took the step of asking the manager of his
bank to verify from FEBTC and Equitable as to the genuineness of the
checks and only accepted the same after being assured that there was
INSTRUMENTS LAW
nothing wrong with said checks. At that time, David was not aware of any
stop payment order. Under these circumstances, David thus had no
obligation to ascertain from Chandiramani what the nature of the latters
title to the checks was, if any, or the nature of his possession. Thus, the
court cannot hold him guilty of gross neglect amounting to legal absence of
good faith, absent any showing that there was something amiss about
Chandiramanis acquisition or possession of the checks.
Yang now claims that David should have been put on alert as the
instruments in question were crossed checks. Pursuant to Bataan Cigar &
Cigarette Factory, Inc. v. Court of Appeals, David should at least have
inquired as to whether he was acquiring said checks for the purpose for
which they were issued, according to petitioners submission. Petitioners
reliance on the Bataan Cigar case, however, is misplaced. The facts in the
present case are not on all fours with Bataan Cigar. In the latter case, the
crossed checks were negotiated and sold at a discount by the payee, while
in the instant case, the payee did not negotiate further the checks in
question but promptly deposited them in his bank account.
SPS VIOLAGO v BA FINANCE
G.R. No. 158262 July 21, 2008
Lessons Applicable: Promissory notes and checks (Negotiable Instruments
Law)
FACTS:
1983: Avelino Violago, President of Violago Motor Sales
Corporation (VMSC), offered to sell a Toyota Cressida Model 1983 to
increase the sales quota to his cousin, Pedro F. Violago and his wife,
Florencia.
Spouses would just have to pay a down payment of PhP 60.5K
while the balance would be financed by BA Finance.
The spouses would pay the monthly installments to
BA Finance while Avelino would take care of the documentation and
approval of financing of the car.
August 4, 1983: the spouses and Avelino signed a promissory
note under which they bound themselves to pay jointly and severally
to the order of VMSC the amount of PhP 209,601 in 36 monthly
installments of PhP 5,822.25 a month, the first installment to be due
and payable on September 16, 1983.
Avelino prepared a Disclosure Statement of
Loan/Credit Transportation which showed the net purchase price of
the vehicle, down payment, balance, and finance charges.
VMSC then issued a sales invoice in favor of the
spouses with a detailed description of the Toyota Cressida car.
In turn, the spouses executed a chattel mortgage
over the car in favor of VMSC as security for the amount of PhP
209,601.
VMSC, through Avelino, endorsed the promissory
note to BA Finance without recourse. After receiving the amount of
PhP 209,601,
VMSC executed a Deed of Assignment of its rights
and interests under the promissory note and chattel mortgage in favor
of BA Finance. Meanwhile, the spouses remitted the amount of PhP
60,500 to VMSC through Avelino
spouses were unaware that the same car had already been sold
in 1982 to Esmeraldo Violago, another cousin of Avelino
Since VMSC failed to deliver the car, Pedro did not
pay any monthly amortization to BA Finance.
3 |Page NEGOTIABLE
March 1, 1984: BA Finance filed with the RTC a complaint for
Replevin with Damages against the spouses
RTC: favored BA finance , however, declared that they are
entitled to be indemnified by Avelino
CA: affirmed - promissory note was a negotiable instrument and
that BA Finance was a holder in due course
ISSUE: W/N the holder of an invalid promissory note may be considered a
holder in due course
HELD: YES. CA reversed because Avelino and VMSC are the same
negotiable:
Section 1. Form of Negotiable Instruments. 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.
Section 52. What constitutes a holder in due course.A holder in due
course is a holder who has taken the instrument under the following
conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and without
notice that it had been previously dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him he had no notice of any
infirmity in the instrument or defect in the title of the person negotiating it.
(a) the Promissory Note, Exhibit A, is complete and regular;
(b) the Promissory Note was endorsed by the VMSC in favor of the
Appellee; (c) the Appellee, when it accepted the Note, acted in good
faith and for value; (d) the Appellee was never informed, before and at
the time the Promissory Note was endorsed to the Appellee, that the
vehicle sold to the Defendants-Appellants was not delivered to the
latter and that VMSC had already previously sold the vehicle to
Esmeraldo Violago. Although Jose Olvido mortgaged the vehicle to
Generoso Lopez, who assigned his rights to the BA Finance
Corporation (Cebu Branch), the same occurred only on May 8, 1987,
much later than August 4, 1983, when VMSC assigned its rights over
the Chattel Mortgage by the Defendants-Appellants to the
Appellee. Hence, Appellee was a holder in due course
Since BA Finance is a holder in due course, petitioners cannot
raise the defense of non-delivery of the object and nullity of the sale
against the corporation.
VMSC is a family-owned corporation of which Avelino was
president. Avelino committed fraud in selling the vehicle to
petitioners, a vehicle that was previously sold to Avelinos other
cousin, Esmeraldo
Avelino clearly defrauded petitioners. His actions
were the proximate cause of petitioners loss. He cannot now hide
behind the separate corporate personality of VMSC to escape from
INSTRUMENTS LAW
 liability for the amount adjudged by the trial court in favor of
petitioners.
obligation was incurred in the name of the corporation, the
petitioner [Arcilla] would still be personally liable therefor because for
all legal intents and purposes, he and the corporation are one and the
same
CONSOLIDATED PLYWOOD V. IFC, 149 SCRA 448
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: W/N IFC is a holder in due course of the negotiable promissory
note so as to bar completely all the available defenses of the Consolidated
against IPM
HELD:
It is patent that the seller is liable for the breach in warranty against the
petitioner. This liability as a general rule extends to the corporation
to whom it assigned its rights and interests unless the assignee is a holder
in due course of the promissory note in question, assuming the note
is negotiable, in which case, the latters rights are based on a
negotiable instrument and assuming further that the petitioners
defense may not prevail against it.
The promissory note in question is not a negotiable instrument. The
promissory note in question lacks the so-called words of negotiability. And
as such, it follows that the respondent can never be a holder in due course
but remains merely an assignee of the note in question. Thus, the
petitioner may raise against the respondents all defenses available to
it against the seller.
LONGER HELD:
HELD: CA reversed and set aside
Consolidated is a victim of warranrty
The Civil Code provides that:
ART. 1561. The vendor shall be responsible for warranty against the hidden
defects which the thing sold may have, should they render it unfit for the
use for which it is intended, or should they diminish its fitness for such use
to such an extent that, had the vendee been aware thereof, he would not
have acquired it or would have given a lower price for it; but said vendor
shall not be answerable for patent defects or those which may be visible, or
for those which are not visible if the vendee is an expert who, by reason of
his trade or profession, should have known
them.chanroblesvirtualawlibrary chanrobles virtual law library
4 |Page NEGOTIABLE
ART. 1562. In a sale of goods, there is an implied warranty or condition as
to the quality or fitness of the goods, as follows:
(1) Where the buyer, expressly or by implication makes known to the seller
the particular purpose for which the goods are acquired, and it appears that
the buyer relies on the sellers skill or judge judgment (whether he be the
grower or manufacturer or not), there is an implied warranty that the goods
shall be reasonably fit for such purpose;
xxx xxx xxx chanrobles virtual law library
ART. 1564. An implied warranty or condition as to the quality or fitness for a
particular purpose may be annexed by the usage of
trade.chanroblesvirtualawlibrary chanrobles virtual law library
xxx xxx xxx chanrobles virtual law library
ART. 1566. The vendor is responsible to the vendee for any hidden faults
or defects in the thing sold even though he was not aware thereof.
This provision shall not apply if the contrary has been stipulated, and the
vendor was not aware of the hidden faults or defects in the thing sold.
(Emphasis supplied).
GR: extends to the corporation to whom it assigned its rights
and interests
EX: assignee is a holder in due course of the promissory note
assuming the note is negotiable
Consolidated's defenses may not prevail
against it.chanroblesvirtualawlibrary chanrobles virtual law library
Articles 1191 and 1567 of the Civil Code provide that:
ART. 1191. The power to rescind obligations is implied in reciprocal ones, in
case one of the obligors should not comply with what is incumbent upon
him.
The injured party may choose between the fulfillment and the rescission of
the obligation with the payment of damages in either case. He may also
seek rescission, even after he has chosen fulfillment, if the latter should
become impossible.chanroblesvirtualawlibrary chanrobles virtual law library
xxx xxx xxx chanrobles virtual law library
ART. 1567. In the cases of articles 1561, 1562, 1564, 1565 and 1566, the
vendee may elect between withdrawing from the contract and demanding a
proportionate reduction of the price, with damages in either
case. (Emphasis supplied)
Consolidated, having unilaterally and extrajudicially rescinded its
contract with the seller-assignor, can no longer sue IPM except by
way of counterclaim if IPM sues it because of the rescission
Considering that paragraph (d), Section 1 of the Negotiable
Instruments Law requires that a promissory note "must be payable to
order or bearer" - in this case it is non-negotiable
= expression of consent that the instrument may be
transferred
consent is indispensable since a maker
assumes greater risk under a negotiable instrument than under a non-
negotiable one
When instrument is payable to order
SEC. 8. WHEN PAYABLE TO ORDER. - The instrument is payable to order
where it is drawn payable to the order of a specified person or to him or his
order. . . .
Without the words "or order" or"to the order of, "the instrument is
payable only to the person designated therein and is therefore non-
negotiable.
INSTRUMENTS LAW
 Any subsequent purchaser thereof will not enjoy the advantages Even conceding for purposes of discussion that the promissory
of being a holder of a negotiable instrument but will merely "step into note in question is a negotiable instrument, the IFC cannot be a
the shoes" of the person designated in the instrument and will thus be holder in due course due to absence of GF for knowing that the
open to all defenses available against the latter tractors were defective

5 |Page NEGOTIABLE INSTRUMENTS LAW