Chan Wan v. Tan Kim [G.R. No. L-15380.

September 30, 1960]

engrjhez

3 years ago

FACTS

Checks payable to cash or bearer were drawn by defendant Tan Kim and were all presented for
payment by Chan Wan to the drawee bank, but they were all dishonored. Defendant argued that plaintif
is a holder not in due course.

ISSUE

Whether or not a holder not in due course is barred from collecting the value of checks issued to him.

RULING

NO. It does not that simply because he was not a holder in due course Chan Wan could not recover on
the checks. The Negotiable Instruments Law does not provide that a holder who is not a holder in due
course, may not in any case, recover on the instrument. The only disadvantage of holder who is not a
holder in due course is that the negotiable instrument is subject to defense as if it were non- negotiable.

Metropol (Bacolod) Financing and Investment Corp v. Sambok Motors Company [G.R. No. L-39641.
February 28, 1983]
FACTS

Appellant Sambok added the words with recourse in the indorsement of a note. He argued that the
note contemplates a qualified indorsement.

ISSUE

Whether or not the contention of Sambok is meritorious.

RULING

NO. Recourse means resort to a person who is secondarily liable after the default of the person who is
primarily liable. Appellant, by indorsing the note with recourse does not make itself a qualified
indorser but a general indorser who is secondarily liable. The efect 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.

Republic of the Philippines

SUPREME COURT

Manila

SECOND DIVISION

G.R. No. L-39641 February 28, 1983

METROPOL (BACOLOD) FINANCING & INVESTMENT CORPORATION, plaintif-appellee,

vs.
SAMBOK MOTORS COMPANY and NG SAMBOK SONS MOTORS CO., LTD., defendants-appellants.

Rizal Quimpo & Cornelio P. Revena for plaintif-appellee.

Diosdado Garingalao for defendants-appellants.

DE CASTRO, J.:

The former Court of Appeals, by its resolution dated October 16, 1974 certified this case to this Court the
issue issued therein being one purely of law.

On April 15, 1969 Dr. Javier Villaruel executed a promissory note in favor of Ng Sambok Sons Motors Co.,
Ltd., in the amount of P15,939.00 payable in twelve (12) equal monthly installments, beginning May 18,
1969, with interest at the rate of one percent per month. It is further provided that in case on non-
payment of any of the installments, the total principal sum then remaining unpaid shall become due and
payable with an additional interest equal to twenty-five percent of the total amount due.

On the same date, Sambok Motors Company (hereinafter referred to as Sambok), a sister company of Ng
Sambok Sons Motors Co., Ltd., and under the same management as the former, negotiated and indorsed
the note in favor of plaintif Metropol Financing & Investment Corporation with the following
indorsement:

Pay to the order of Metropol Bacolod Financing & Investment Corporation with recourse. Notice of
Demand; Dishonor; Protest; and Presentment are hereby waived.

SAMBOK MOTORS CO. (BACOLOD)

By:
RODOLFO G. NONILLO Asst. General Manager

The maker, Dr. Villaruel defaulted in the payment of his installments when they became due, so on
October 30, 1969 plaintif formally presented the promissory note for payment to the maker. Dr. Villaruel
failed to pay the promissory note as demanded, hence plaintif notified Sambok as indorsee of said note
of the fact that the same has been dishonored and demanded payment.

Sambok failed to pay, so on November 26, 1969 plaintif filed a complaint for collection of a sum of
money before the Court of First Instance of Iloilo, Branch I. Sambok did not deny its liability but
contended that it could not be obliged to pay until after its co-defendant Dr. Villaruel has been declared
insolvent.

During the pendency of the case in the trial court, defendant Dr. Villaruel died, hence, on October 24,
1972 the lower court, on motion, dismissed the case against Dr. Villaruel pursuant to Section 21, Rule 3
of the Rules of Court. 1

On plaintif's motion for summary judgment, the trial court rendered its decision dated September 12,
1973, the dispositive portion of which reads as follows:

WHEREFORE, judgment is rendered:

(a) Ordering Sambok Motors Company to pay to the plaintif the sum of P15,939.00 plus the legal
rate of interest from October 30, 1969;

(b) Ordering same defendant to pay to plaintif the sum equivalent to 25% of P15,939.00 plus
interest thereon until fully paid; and

(c) To pay the cost of suit.

Not satisfied with the decision, the present appeal was instituted, appellant Sambok raising a lone
assignment of error as follows:

The trial court erred in not dismissing the complaint by finding defendant appellant Sambok Motors
Company as assignor and a qualified indorsee of the subject promissory note and in not holding it as
only secondarily liable thereof.

Appellant Sambok argues that by adding the words "with recourse" in the indorsement of the note, it
becomes a qualified indorser that being a qualified indorser, it does not warrant that if said note is
dishonored by the maker on presentment, it will pay the amount to the holder; that it only warrants the
following pursuant to Section 65 of the Negotiable Instruments Law: (a) that the instrument is genuine
and in all respects what it purports to be; (b) that he has a good title to it; (c) that all prior parties had
capacity to contract; (d) that he has no knowledge of any fact which would impair the validity of the
instrument or render it valueless.

The appeal is without merit.

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 import.
2 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 already mentioned herein. However, appellant Sambok indorsed the
note "with recourse" and even waived the notice of demand, dishonor, protest and presentment.

"Recourse" means resort to a person who is secondarily liable after the default of the person who is
primarily liable. 3 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, plaintif-appellee can go after said appellant. The efect 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. 4 Appellant Sambok's
intention of indorsing the note without qualification is made even more apparent by the fact that the
notice of demand, dishonor, protest and presentment were an waived. The words added by said
appellant do not limit his liability, but rather confirm his obligation as a general indorser.
Lastly, the lower court did not err in not declaring appellant as only secondarily liable because after an
instrument is dishonored by non-payment, the person secondarily liable thereon ceases to be such and
becomes a principal debtor. 5 His liabiliy becomes the same as that of the original obligor. 6
Consequently, the holder need not even proceed against the maker before suing the indorser.

WHEREFORE, the decision of the lower court is hereby affirmed. No costs.

SO ORDERED.

Makasiar (Chairman), Concepcion, Jr., Guerrero and Escolin, JJ., concur.

Aquino, J., is on leave.

Separate Opinions

ABAD SANTOS, J., concurring:

I concur and wish to add the observation that the appeal could have been treated as a petition for
review under R.A. 5440 and dismissed by minute resolution.
Separate Opinions

ABAD SANTOS, J., concurring:

I concur and wish to add the observation that the appeal could have been treated as a petition for
review under R.A. 5440 and dismissed by minute resolution.

Footnotes

1 Sec. 21. Where claim does not survive.When the action is for recovery of money, debt or
interest thereon, and the defendant dies before final judgment in the Court of First Instance, it shall be
dismissed to be prosecuted in the manner especially provided in these rules.

2 Section 38, The Negotiable Instruments Law.

3 Ogden, The Law of Negotiable Instruments, p. 200 citing Industrial Bank and Trust Company vs.
Hesselberg, 195 S.W. (2d) 470.

4 Ang Tiong vs. Ting, 22 SCRA 715.

5 Pittsburg Westmoreland Coal Co. vs. Kerr, 115 N.E.

6 American Bank vs. Macondray & Co., 4 Phil. 695.

The Lawphil Project - Arellano Law Foundation

Republic of the Philippines

SUPREME COURT

Manila

EN BANC

G.R. No. L-15380 September 30, 1960

CHAN WAN, plaintif-appellant,

vs.

TAN KIM and CHEN SO, defendants-appellees.

Manuel Domingo for appellant.

C.M. de los Reyes for appellees.

BENGZON, J.:
This suit to collect eleven checks totalling P4,290.00 is here for decision because it involves no issue of
fact.

Such checks payable to "cash or bearer" and drawn by defendant Tan Kim (the other defendant is her
husband) upon the Equitable Banking Corporation, were all presented for payment by Chan Wan to the
drawee bank, but they "were all dishonored and returned to him unpaid due to insufficient funds and/or
causes attributable to the drawer."

At the hearing of the case, in the Manila court of first instance, the plaintif did not take the witness
stand. His attorney, however, testified only to identify the checks which are Exhibits A to K plus the
letters of demand upon defendants.

On the other hand, Tan Kim declared without contradiction that the checks had been issued to two
persons named Pinong and Muy for some shoes the former had promised to make and "were intended
as mere receipts".

In view of such circumstances, the court declined to order payment for two principal reasons: (a) plaintif
failed to prove he was a holder in due course, and (b) the checks being crossed checks should not have
been deposited instead with the bank mentioned in the crossing.

It may be stated in this connection, that defendants asserted a counterclaim, the court dismissed it for
failure of proof, and from such dismissal they did not appeal.

The only issue is, therefore, the plaintif's right to collect on the eleven commercial documents.

The Negotiable Instruments Law regulating the issuance of negotiable checks, the rights and the
liabilities arising therefrom, does not mention "crossed checks". Art. 541 of the Code of Commerce refers
to such instruments. 1 The bills of Exchange Act of England of 1882, contains several provisions about
them, some of which are quoted in the margin. 2 In the Philippine National Bank vs. Zulueta, 101 Phil.,
1071; 55 Of. Gaz., 222, we applied some provisions of said Bills of Exchange Act because the Negotiable
Law, originating from England and codified in the United States, permits resort thereto in matters not
covered by it and local legislation.3

Eight of the checks here in question bear across their face two parallel transverse lines between which
these words are written: non-negotiable China Banking Corporation. These checks have, therefore,
been crossed specially to the China Banking Corporation, and should have been presented for payment
by China Banking, and not by Chan Wan.4 Inasmuch as Chan Wan did present them for payment himself
the Manila court said there was no proper presentment, and the liability did not attach to the
drawer.

We agree to the legal premises and conclusion. It must be remembered, at this point, that the drawer in
drawing the check engaged that "on due presentment, the check would be paid, and that if it be
dishonored . . . he will pay the amount thereof to the holder".5 Wherefore, in the absence of due
presentment, the drawer did not become liable.

Nevertheless we find, on the backs of the checks, endorsements which apparently show they had been
deposited with the China Banking Corporation and were, by the latter, presented to the drawee bank for
collection. For instance, on the back of the check Exhibit A (same as in Exh. B), this endorsement
appears:

For deposit to the account of White House Shoe Supply with the China Banking Corporation.

and then this:

Cleared through the clearing office of Central Bank of the Philippines. All prior endorsements and/or lack
of endorsements guaranteed. China Banking Corporation.

And on the back of Exh. G:

For deposit to the credit of our account. Viuda e Hijos de Chua Chiong Pio. People's Shoe Company.
followed by the endorsement of China Banking Corporation as in Exhibits A and B. All the crossed checks
have the "clearance" endorsement of China Banking Corporation.

These circumstances would seem to show deposit of the checks with China Banking Corporation and
subsequent presentation by the latter through the clearing office; but as drawee had no funds, they
were unpaid and returned, some of them stamped "account closed". How they reached his hands,
plaintif did not indicate. Most probably, as the trial court surmised, this is not a finding of fact he
got them after they had been thus returned, because he presented them in court with such "account
closed" stamps, without bothering to explain. Naturally and rightly, the lower court held him not to be a
holder in due course under the circumstances, since he knew, upon taking them up, that the checks had
already been dishonored.6

Yet it does not follow as a legal proposition, that simply because he was not a holder in due course Chan
Wan could not recover on the checks. The Negotiable Instruments Law does not provide that a holder7
who is not a holder in due course, may not in any case, recover on the instrument. If B purchases an
overdue negotiable promissory note signed by A, he is not a holder in due course; but he may recover
from A,8 if the latter has no valid excuse for refusing payment. The only disadvantage of holder who is
not a holder in due course is that the negotiable instrument is subject to defense as if it were non-
negotiable.9

Now what defense did the defendant Tan Kim prove? The lower court's decision does not mention any;
evidently His Honor had in mind the defense pleaded in defendant's answer, but though it unnecessary
to specify, because the "crossing" and presentation incidents sufficed to bar recovery, in his
opinion.1awphl.nt

Tan Kim admitted on cross-examination either that the checks had been issued as evidence of debts to
Pinong and Muy, and/or that they had been issued in payment of shoes which Pinong had promised to
make for her.

Seeming to imply that Pinong had to make the shoes, she asserted Pinong had "promised to pay the
checks for me". Yet she did not complete the idea, perhaps because she was just answering cross-
questions, her main testimony having referred merely to their counter-claim.
Needless to say, if it were true that the checks had been issued in payment for shoes that were never
made and delivered, Tan Kim would have a good defense as against a holder who is not a holder in due
course. 10

Considering the deficiency of important details on which a fair adjudication of the parties' right depends,
we think the record should be and is hereby returned, in the interest of justice, to the court below for
additional evidence, and such further proceedings as are not inconsistent with this opinion. With the
understanding that, as defendants did not appeal, their counterclaim must be and is hereby definitely
dismissed. So ordered.

Paras, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Barrera, Gutierrez David, Paredes
and Dizon, JJ., concur.

Footnotes

1SEC. 541. The maker or any legal holder of a check shall be entitled to indicate therein that it be paid
to certain banker or institution, which he shall do by writing across the face the name of said banker or
institution, or only the words "and company."

The payment made to a person other than the banker or institution shall not exempt the person on
whom it is drawn, if the payment was not correctly made.

276. [General and Special Crossing Defined.] (1) Where a check bears across its face an addition of

(a) The words "and company" or any abbreviation thereof between two parallel transverse lines, either
with or without the words "not negotiable;" or

(b) Two parallel transverse lines simply, either with or without the words "not negotiable;" that addition
constitutes a crossing, and the cheque is crossed generally.
(2) Where a cheque bears across its face an addition of the name of a banker, either with or without the
words "not negotiable," that addition constitutes a crossing, and the cheque is crossed specially and to
that banker.

79. . . . (2) Where the banker on whom a cheque is drawn which is so crossed nevertheless pays the
same, or pays the same, or pays a cheque crossed generally otherwise than to a banker, or if crossed
specially otherwise than to the banker to whom it is crossed, or his agent for collection being a banker,
he is liable to the true owner of the cheque for any loss he may sustain owing to the cheque having been
so paid. (Taken from Brannan's Negotiable Instruments Law, 60th Ed. 1250-1251.)

3Sec. 196, Negotiable Instruments Law.

4If it is not presented by said Bank for payment, the drawee runs the risk, in case of payment to persons
not entitled thereto. So the practice is for the drawee to refuse when presented by individuals. The
check is generally deposited with the bank mentioned in the crossing, so that the latter may take charge
of the collection.

5Sec. 61. Negotiable Instruments Law.

6Sec. 52 (b), Negotiable Instruments Law.

7He was a holder all right, because he had possession of the checks that were payable to bearer.

8Sec. 51. Negotiable Instruments Law.

9SEC. 58 Negotiable Instruments Law.

10Lack of consideration is a defense. (Sec. 28, Negotiable Instruments Law.)

Republic of the Philippines

SUPREME COURT

Manila

SECOND DIVISION

G.R. No. L-34539 July 14, 1986

EULALIO PRUDENCIO and ELISA T. PRUDENCIO, petitioners,

vs.

THE HONORABLE COURT OF APPEALS, THE PHILIPPINE NATIONAL BANK, RAMON C. CONCEPCION and
MANUEL M. TAMAYO, partners of the defunct partnership Concepcion & Tamayo Construction Company,
JOSE TORIBIO, Atty-in-Fact of Concepcion & Tamayo Construction Company, and THE DISTRICT
ENGINEER, Puerto Princesa, Palawan, respondents.

Fernando R. Mangubat, Jr. for respondent PNB.

GUTIERREZ, JR., J.:

This is a petition for review seeking to annul and set aside the decision of the Court of Appeals, now the
Intermediate Appellate Court, affirming the order of the trial court which dismissed the petitioners'
complaint for cancellation of their real estate mortgage and held them jointly and severally liable with
the principal debtors on a promissory note which they signed as accommodation makers.

The factual background of this case is stated in the decision of the appellate court:

Appellants are the registered owners of a parcel of land located in Sampaloc, Manila, and covered by
T.C.T. 35161 of the Register of Deeds of Manila. On October 7, 1954, this property was mortgaged by the
appellants to the Philippine National Bank, hereinafter called PNB, to guarantee a loan of P1,000.00
extended to one Domingo Prudencio.

Sometime in 1955, the Concepcion & Tamayo Construction Company, hereinafter called Company, had a
pending contract with the Bureau of Public Works, hereinafter called the Bureau, for the construction of
the municipal building in Puerto Princess, Palawan, in the amount of P36,800.00 and, as said Company
needed funds for said construction, Jose Toribio, appellants' relative, and attorney-in-fact of the
Company, approached the appellants asking them to mortgage their property to secure the loan of
P10,000.00 which the Company was negotiating with the PNB.

After some persuasion appellants signed on December 23, 1955 the 'Amendment of Real Estate
Mortgage', mortgaging their said property to the PNB to guaranty the loan of P10,000.00 extended to
the Company. The terms and conditions of the original mortgage for Pl,000.00 were made integral part
of the new mortgage for P10,000.00 and both documents were registered with the Register of Deeds of
Manila. The promissory note covering the loan of P10,000.00 dated December 29, 1955, maturing on
April 27, 1956, was signed by Jose Toribio, as attorney-in-fact of the Company, and by the appellants.
Appellants also signed the portion of the promissory note indicating that they are requesting the PNB to
issue the Check covering the loan to the Company. On the same date (December 23, 1955) that the
'Amendment of Real Estate' was executed, Jose Toribio, in the same capacity as attorney-in- fact of the
Company, executed also the 'Deed of Assignment' assigning all payments to be made by the Bureau to
the Company on account of the contract for the construction of the Puerto Princesa building in favor of
the PNB.
This assignment of credit to the contrary notwithstanding, the Bureau; with approval, of the PNB,
conditioned, however that they should be for labor and materials, made three payments to the
Company on account of the contract price totalling P11,234.40. The Bureau's last request for P5,000.00
on June 20, 1956, however, was denied by the PNB for the reason that since the loan was already
overdue as of April 28, 1956, the remaining balance of the contract price should be applied to the loan.

The Company abandoned the work, as a consequence of which on June 30, 1956, the Bureau rescinded
the construction contract and assumed the work of completing the building. On November 14, 1958,
appellants wrote the PNB contending that since the PNB authorized payments to the Company instead
of on account of the loan guaranteed by the mortgage there was a change in the conditions of the
contract without the knowledge of appellants, which entitled the latter to a cancellation of their
mortgage contract.

Failing in their bid to have the real estate mortgage cancelled, appellants filed on June 27, 1959 this
action against the PNB, the Company, the latter's attorney-in-fact Jose Toribio, and the District Engineer
of Puerto Princesa, Palawan, seeking the cancellation of their real estate mortgage. The complaint was
amended to exclude the Company as defendant, it having been shown that its life as a partnership had
already expired and, in lieu thereof, Ramon Concepcion and Manuel M. Tamayo, partners of the defunct
Company, were impleaded in their private capacity as defendants.

After hearing, the trial court rendered judgment, denying the prayer in the complaint that the petitioners
be absolved from their obligation under the mortgage contract and that the said mortgage be released
or cancelled. The petitioners were ordered to pay jointly and severally with their co-makers Ramon C.
Concepcion and Manuel M. Tamayo the sum of P11,900.19 with interest at the rate of 6% per annum
from the date of the filing of the complaint on June 27, 1959 until fully paid and Pl,000.00 attorney's
fees.

The decision also provided that if the judgment was not satisfied within 90 days from its receipt, the
mortgaged properties together with all the improvements thereon belonging to the petitioners would be
sold at public auction and applied to the judgment debt.

The Court of Appeals affirmed the trial court's decision in toto stating that, as accommodation makers,
the petitioners' liability is that of solidary co-makers and that since "the amounts released to the
construction company were used therein and, therefore, were spent for the successful accomplishment
of the work constructed for, the authorization made by the Philippine National Bank of partial payments
to the construction company which was also one of the solidary debtors cannot constitute a valid
defense on the part of the other solidary debtors. Moreover, those who rendered services and furnished
materials in the construction are preferred creditors and have a lien on the price of the contract." The
appellate court further held that PNB had no obligation whatsoever to notify the petitioners of its
authorizing the three payments in the total amount of Pll,234.00 in favor of the Company because aside
from the fact that the petitioners were not parties to the deed of assignment, there was no stipulation in
said deed making it obligatory on the part of the PNB to notify the petitioners everytime it authorizes
payment to the Company. It ruled that the petitioners cannot ask to be released from the real estate
mortgage.

In this petition, the petitioners raise the following issues which they present in the form of errors:

I. First Assignment of Error.

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT HEREIN PETITIONERS WERE SOLIDARY
CO-DEBTORS INSTEAD OF SURETIES:

II. Second Assignment of Error.

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONERS WERE NOT RELEASED
FROM THEIR OBLIGATION TO THE RESPONDENT PNB, WHEN THE PNB, WITHOUT THE KNOWLEDGE AND
CONSENT OF PETITIONERS, CHANGED THE TENOR AND CONDITION OF THE ASSIGNMENT OF PAYMENTS
MADE BY THE PRINCIPAL DEBTOR; CONCEPCION & TAMAYO CONSTRUCTION COMPANY; AND RELEASED
TO SUCH PRINCIPAL DEBTOR PAYMENTS FROM THE BUREAU OF PUBLIC WORKS WHICH WERE MORE
THAN ENOUGH TO WIPE OUT THE INDEBTEDNESS TO THE PNB.

The petitioners contend that as accommodation makers, the nature of their liability is only that of mere
sureties instead of solidary co-debtors such that "a material alteration in the principal contract, efected
by the creditor without the knowledge and consent of the sureties, completely discharges the sureties
from all liability on the contract of suretyship. " They state that when respondent PNB did not apply the
initial and subsequent payments to the petitioners' debt as provided for in the deed of assignment, they
were released from their obligation as sureties and, therefore, the real estate mortgage executed by
them should have been cancelled.
Section 29 of the Negotiable Instrument Law provides:

Liability of accommodation party. An accommodation party is one 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. Such a person is liable on the instrument to a holder for value,
notwithstanding such holder at the time of taking the instrument knew him to be only an
accommodation party.

In the case of Philippine Bank of Commerce v. Aruego (102 SCRA 530, 539), we held that "... in lending
his name to the accommodated party, the accommodation party is in efect a surety. ... . " However,
unlike in a contract of suretyship, the liability of the accommodation party remains not only primary but
also unconditional to a holder for value such that even if the accommodated party receives an extension
of the period for payment without the consent of the accommodation party, the latter is still liable for
the whole obligation and such extension does not release him because as far as a holder for value is
concerned, he is a solidary co- debtor.

Expounding on the nature of the liability of an accommodation petition party under the aforequoted
section, we ruled in Ang Tiong v. Ting (22 SCRA 713, 716):

3. That the appellant, again assuming him to be an accommodation indorser, may obtain security from
the maker to protect himself against the danger of insolvency of the latter, cannot in any manner afect
his liability to the appellee, as the said remedy is a matter of concern exclusively between
accommodation indorser and accommodated party. So that the appellant stands only as a surety in
relation to the maker, granting this to be true for the sake of argument, is immaterial to the claim of the
appellee, and does not a whit diminish nor defeat the rights of the latter who is a holder for value. The
liability of the appellant remains primary and unconditional. To sanction the appellant's theory is to give
unwarranted legal recognition to the patent absurdity of a situation where an indorser, when sued on an
instrument by a holder in due course and for value, can escape liability on his indorsement by the
convenient expedient of interposing the defense that he is a mere accommodation indorser.

There is, therefore, no question that as accommodation makers, petitioners would be primarily and
unconditionally liable on the promissory note to a holder for value, regardless of whether they stand as
sureties or solidary co-debtors since such distinction would be entirely immaterial and inconsequential
as far as a holder for value is concerned. Consequently, the petitioners cannot claim to have been
released from their obligation simply because the time of payment of such obligation was temporarily
deferred by PNB without their knowledge and consent. There has to be another basis for their claim of
having been freed from their obligation. The question which should be resolved in this instant petition,
therefore, is whether or not PNB can be considered a holder for value under Section 29 of the
Negotiable Instruments Law such that the petitioners must be necessarily barred from setting up the
defense of want of consideration or some other personal defenses which may be set up against a party
who is not a holder in due course.

A holder for value under Section 29 of the Negotiable Instruments Law is one who must meet all the
requirements of a holder in due course under Section 52 of the same law except notice of want of
consideration. (Agbayani, Commercial Laws of the Philippines, 1964, p. 208). If he does not qualify as a
holder in due course then he holds the instrument subject to the same defenses as if it were non-
negotiable (Section 58, Negotiable Instruments Law).

In the case at bar, can PNB, the payee of the promissory note be considered a holder in due course?

Petitioners contend that the payee PNB is an immediate party and, therefore, is not a holder in due
course and stands on no better footing than a mere assignee.

In those cases where a payee was considered a holder in due course, such payee either acquired the
note from another holder or has not directly dealt with the maker thereof. As was held in the case of
Bank of Commerce and Savings v. Randell (186 NorthWestern Reporter 71):

We conclude, therefore, that a payee who receives a negotiable promissory note, in good faith, for value,
before maturity, and without any notice of any infirmity, from a holder, not the maker. to whom it was
negotiated as a completed instrument, is a holder in due course within the purview of a Negotiable
Instruments law, so as to preclude the defense of fraud and failure of consideration between the maker
and the holder to whom the instrument, was delivered.

Similarly, in the case of Stone v. Goldberg & Lewis (60 Southern Reporter 748) on rehearing and quoting
Daniel on Negotiable Instruments, it was held:
It is a general principle of the law merchant that, as between the immediate parties to a negotiable
instrument-the parties between whom there is a privity-the consideration may be inquired into; and as
to them the only superiority of a bill or note over other unsealed evidence of debt is that it prima facie
imports a consideration.

Although as a general rule, a payee may be considered a holder in due course we think that such a rule
cannot apply with respect to the respondent PNB. Not only was PNB an immediate party or in privy to
the promissory note, that is, it had dealt directly with the petitioners knowing fully well that the latter
only signed as accommodation makers but more important, it was the Deed of Assignment executed by
the Construction Company in favor of PNB which principally moved the petitioners to sign the
promissory note also in favor of PNB. Petitioners were made to believe and on that belief entered into
the agreement that no other conditions would alter the terms thereof and yet, PNB altered the same.
The Deed of Assignment specifically provided that Jose F. Toribio, on behalf of the Company, "have
assigned, transferred and conveyed and by these presents, do assign, transfer and convey unto the said
Philippine National Bank, its successors and assigns all payments to be received from the Bureau of
Public Works on account of contract for the construction of the Puerto Princesa Municipal Building in
Palawan, involving the total amount of P 36,000.00" and that "This assignment shall be irrevocable and
subject to the terms and conditions of the promissory note and or any other kind of documents which
the Philippine National Bank have required or may require the assignor to execute to evidence the
above-mentioned obligation."

Under the terms of the above Deed, it is clear that there are no further conditions which could possibly
alter the agreement without the consent of the petitioners such as the grant of greater priority to
obligations other than the payment of the loan due to the PNB and part of which loan was guaranteed
by the petitioners in the amount of P10,000.00.

This, notwithstanding, PNB approved the Bureau's release of three payments directly to the Company
instead of paying the same to the Bank. This approval was in violation of the Deed of Assignment and
without any notice to the petitioners who stood to lose their property once the promissory note falls due
without the same having been paid because the PNB, in efect, waived payments of the first three
releases. From the foregoing circumstances, PNB can not be regarded as having acted in good faith
which is also one of the requisites of a holder in due course under Section 52 of the Negotiable
Instruments Law. The PNB knew that the promissory note which it took from the accommodation makers
was signed by the latter because of full reliance on the Deed of Assignment, which, PNB had no intention
to comply with strictly. Worse, the third payment to the Company in the amount of P4,293.60 was
approved by PNB although the promissory note was almost a month overdue, an act which is clearly
detrimental to the petitioners.
We, therefore, hold that respondent PNB is not a holder in due course. Thus, the petitioners can validly
set up their personal defense of release from the real estate mortgage against PNB. The latter, in
authorizing the third payment to the Company after the promissory note became due, in efect,
extended the term of the payment of the note without the consent of the accommodation makers who
stand as sureties to the accommodated party and to all other parties who are not holders in due course
or who do not derive their right from the same, including PNB.

It may be argued that the Prudencios could have mortgaged their property even without the promissory
note. The records show, however, that they would not have mortgaged the lot were it not for the sake of
the Company whose attorney-in-fact was their relative. The spouses did not need the money for
themselves.

The attorney-in-fact tried twice to convince the Prudencios to mortgage their property in order to secure
a loan in favor of the Company but the Prudencios refused. It was only when the deed of assignment was
shown to the spouses that they consented to the mortgage and signed the promissory note in the Bank's
favor.

Article 2085 of the Civil Code enumerates the requisites of a valid mortgage contract. Petitioners do not
dispute the validity of the mortgage. They only want to have it cancelled because the Bank violated the
deed of assignment and extended the period of time of payment of the promissory note without the
petitioners' consent and to the latter's detriment.

The mortgage cannot be separated from the promissory note for it is the latter which is the basis of
determining whether the mortgage should be foreclosed or cancelled. Without the promissory note
which determines the amount of indebtedness there would have been no basis for the mortgage.

True, if the Bank had not been the assignee, then the petition petitioners would be obliged to pay the
Bank as their creditor on the promissory note, irrespective of whether or not the deed of assignment
had been violated. However, the assignee and the creditor in this case are one and the samethe Bank
itself. When the Bank violated the deed of assignment, it prejudiced itself because its very violation was
the reason why it was not paid on time in its capacity as creditor in the promissory note. It would be
unfair to make the petitioners now answer for the debt or to foreclose on their property.
Neither can PNB justify its acts on the ground that the Bureau of Public Works approved the deed of
assignment with the condition that the wages of laborers and materials needed in the construction work
must take precedence over the payment of the promissory note. In the first place, PNB did not need the
approval of the Bureau. But even if it did, it should have informed the petitioners about the amendment
of the deed of assignment. Secondly, the wages and materials have already been paid. That issue is
academic. What is in dispute is who should bear the loss in this case. As between the petitioners and the
Bank, the law and the equities of the case favor the petitioners, And thirdly, the wages and materials
constitute a lien only on the constructed building but do not enjoy preference over the loan unless there
is a liquidation proceeding such as in insolvency or settlement of estate. (See Philippine Savings Bank v.
Lantin, 124 SCRA 476). There were remedies available at the time if the laborers and the creditors had
not been paid. The fact is, they have been paid. Hence, when the PNB accepted the condition imposed
by the Bureau without the knowledge or consent of the petitioners, it amended the deed of assignment
which, as stated earlier, was the principal reason why the petitioners consented to become
accommodation makers.

WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals affirming the decision of the
trial court is hereby REVERSED and SET ASIDE and a new one entered absolving the petitioners from
liability on the promissory note and under the mortgage contract. The Philippine National Bank is
ordered to release the real estate mortgage constituted on the property of the petitioners and to pay the
amount of THREE THOUSAND PESOS (P3,000.00) as attorney's fees.

SO ORDERED.

Feria (Chairman), Fernan, Alampay and Paras, JJ., concur.

The Lawphil Project - Arellano Law Foundation

Prudencio v. Court of Appeals [G.R. No. L-34539. July 14, 1986]

engrjhez

3 years ago

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FACTS

Petitioners were induced to sign a promissory note after a Deed of Assignment was executed by the
Construction Company in favor of PNB. Later, PNB approved release of payments in contravention of the
tenor of the said deed.

ISSUE

Whether or not PNB may be considered as a holder in due course after fraudulent inducement.

RULING

NO. PNB is not a holder in due course. Not only was PNB an immediate party or in privy to the
promissory note that is, it had dealt directly with the petitioners knowing fully well that the latter only
signed as accommodation but petitioners were made to believe and on that belief entered into the
agreement that no other conditions would alter the terms thereof and yet, PNB altered the same.

Jai-Alai Corporation v. BPI [G.R. No. L-29432. August 6, 1975]

engrjhez

3 years ago

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FACTS

Petitioner deposited to respondent bank several checks acquired through forged indorsements. The
respondent bank debited petitioners account.

ISSUE

Whether or not there exists creditor-debtor relationship between petitioner and respondent.

RULING

No. There was no creditor-debtor relationship created between the parties. When the petitioner
deposited the checks with the respondent, the nature of the relationship created at that stage was one
of agency, that is, the bank was to collect from the drawees of the checks the corresponding proceeds.
The petitioner must in turn shoulder the loss of the amounts which the respondent; as its collecting
agent, had to reimburse to the drawee-banks.
******/

Jai Alai v. Bpi Digest

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JAI-ALAI VS BANK OF THE PHILIPPINE ISLANDS GR NO. L-29432 August 6, 1975 FACTS:

From April 2, 1959 to May 18, 1959, ten checks with a total face value of P8,030.58 were deposited by
the petitioner Jai- Alai in its current account with the respondent bank BPI, which the former acquired
from one Antonio Ramirez who was a sales agent of Inter-Island Gas Corporation and a regular bettor at
jai-alai games.

Drawn By: (drawer) Drawn Upon: (drawee) Payable to: (payee) 5 checks: Delta Engineering Service Pacific
Banking Corporation Inter-Island Gas Service or ORDER 2 checks: Enrique Cortiz & Co, Pacific Banking
Corporation Inter-Island Gas Service or BEARER 1 check: Luzon Tinsmith & Co. China Banking Corporation
I nter-Island Gas Service or BEARER 2 checks: Roxas Manufacturing Inc Philippine National Bank Inter-
Island Gas Service or ORDER

After Ramirez had resigned from the Inter-Island Gas and after the checks had been submitted to inter-
bank clearing, the Inter-Island Gas discovered that all the indorsements made on the checks purportedly
by its cashiers as well as the rubber stamp impression thereon reading "Inter-Island Gas Service, Inc.,"
were forgeries. Inter-Island Gas notified the petitioner, the respondent, the drawers and the drawee-
banks of the said checks about the forgeries, and filed a criminal complaint against Ramirez with the
Office of the City Fiscal of Manila. The drawers demanded reimbursement from the drawee-banks, which
in turn demanded from the respondent, as collecting bank, the return of the amounts they had paid on
account thereof. When the drawee-banks returned the checks to the respondent BPI, the latter paid
their value which the former in turn paid to the Inter-Island Gas.

Repondent BPI debited petitioners current account and forwarded to the latter the checks containing
the forged ind
orsements, which the petitioner refused to accept. So when petitioner drew against its current account
with respondent a check for P135,000 payable to the order of Mariano Olondriz, the same was
dishonored for the insufficiency of funds. The petitioner filed a complaint against the respondent with
CFI Manila but it was dismissed by the trial court as well as by Court of Appeals.

ISSUE:

Whether or not the BPI had the right to debit from petitioners current account the value of the checks
with the forged

endorsements?

HELD:

YES. The respondent BPI 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, that is, the bank was to collect from the drawees of the checks the corresponding
proceeds. Pursuant to Sec. 23 of the NIL, a forged signature in a negotiable instrument is wholly
inoperative and no right to discharge it or enforce its payment can be acquired through or under the
forged signature except against a party who cannot invoke the forgery. It stands to reason, upon the facts
of record, that the respondent, as a collecting bank which indorsed the checks to the drawee-banks for
clearing, should be liable to the latter for reimbursement, for the indorsements on the checks had been
forged prior to their delivery to the petitioner. In legal contemplation, therefore, the payments made by
the drawee-banks to the respondent on account of the said checks were inefective; and, such being the
case, the relationship of creditor and debtor between the petitioner and the respondent had not been
validly efected, the checks not having been properly and legitimately converted into cash. It is the
obligation of the collecting bank to reimburse the drawee-bank the value of the checks subsequently
found to contain the forged indorsement of the payee. The reason is that the bank with which the check
was deposited has no right to pay the sum stated therein to the forger "or anyone else upon a forged
signature."

In contrast, it was petitioners duty to that

the payee's endorsement was genuine before cashing the check. The petitioner must in turn shoulder
the loss of the amounts which the respondent; as its collecting agent, had to reimburse to the drawee-
banks. Having indorsed the checks to respondent bank, petitioner is deemed to have given the warranty
prescribed in Section 66 of the NIL that every single one of those checks "is genuine and in all respects
what it purports to be." Respondent which relied upon the petitioner's warranty should not be held
liable for the resulting loss. (Issue on Indorsement) Jai Alai Corporation is negligent in accepting the
checks without question from Antonio Ramirez notwithstanding that the payee was the Inter-Island Gas
Services, Inc. and it did not appear that he was authorized to indorse it.
Republic of the Philippines

SUPREME COURT

Manila
FIRST DIVISION

G.R. No. L-30910 February 27, 1987

PEOPLE OF THE PHILIPPINES, plaintif-appellee,

vs.

JULIA MANIEGO, accused-appellant.

NARVASA, J.:

Application of the established rule in this jurisdiction, that the acquittal of an accused on reasonable
doubt is not generally an impediment to the imposition, in the same criminal action, of civil liability for
damages on said accused, is what is essentially called into question by the appellant in this case.

The information which initiated the instant criminal proceedings in the Court of First Instance of Rizal
indicted three (3) persons Lt. Rizalino M. Ubay, Mrs. Milagros Pamintuan, and Mrs. Julia T. Maniego
for the crime of MALVERSATION committed as follows:

That on or about the period covering the month of May, 1957 up to and including the month of August,
1957, in Quezon City, Philippines, the above-named accused, conspiring together, confederating with and
helping one another, with intent of gain and without authority of law, did, then and there, willfully,
unlawfully and feloniously malverse, misappropriate and misapply public funds in the amount of P
66,434.50 belonging to the Republic of the Philippines, in the following manner, to wit: the accused, Lt.
RIZALINO M. Ubay, a duly appointed officer in the Armed Forces of the Philippines in active duty, who,
during the period specified above, was designated as Disbursing Officer in the Office of the Chief of
Finance, GHQ, Camp Murphy, Quezon City, and as such was entrusted with and had under his custody
and control public funds, conspiring and confederating with co-accused, MILAGROS T. PAMINTUAN and
JULIA T. MANIEGO, did then and there, unlawfully, willfully and feloniously, with intent of gain and
without authority of law, and in pursuance of their conspiracy, take, receive, and accept from his said co-
accused several personal checks drawn against the Philippine National Bank and the Bank of the
Philippine Islands, of which the accused, MILAGROS T. PAMINTUAN is the drawer and the accused, JULIA
T. MANIEGO, is the indorser, in the total amount of P66,434.50, cashing said checks and using for this
purpose the public funds entrusted to and placed under the custody and control of the said Lt. Rizalino
M. Ubay, all the said accused knowing fully well that the said checks are worthless and are not covered
by funds in the aforementioned banks, for which reason the same were dishonored and rejected by the
said banks when presented for encashment, to the damage and prejudice of the Republic of the
Philippines, in the amount of P66,434.50, Philippine currency. 1

Only Lt. Ubay and Mrs. Maniego were arraigned, Mrs. Pamintuan having apparently fled to the United
States in August, 1962. 2 Both Ubay and Maniego entered a plea of not guilty. 3

After trial judgment was rendered by the Court of First Instance, 4 the dispositive part whereof reads:

There being sufficient evidence beyond reasonable doubt against the accused, Rizalino M. Ubay, the
Court hereby convicts him of the crime of malversation and sentences him to sufer the penalty of
reclusion temporal of TWELVE (12) YEARS, ONE (1) DAY to FOURTEEN (14) YEARS, EIGHT (8) MONTHS,
and a fine of P57,434.50 which is the amount malversed, and to sufer perpetual special disqualification.

In the absence of evidence against accused Julia T. Maniego, the Court hereby acquits her, but both she
and Rizal T. Ubay are hereby ordered to pay jointly and severally the amount of P57,434.50 to the
government. 5

Maniego sought reconsideration of the judgment, praying that she be absolved from civil liability or, at
the very least, that her liability be reduced to P46,934.50. 6 The Court declined to negate her civil
liability, but did reduce the amount thereof to P 46,934.50. 7 She appealed to the Court of Appeals 8 as
Ubay had earlier done. 9

Ubay's appeal was subsequently dismissed by the Appellate Court because of his failure to file brief. 10
On the other hand, Maniego submitted her brief in due course, and ascribed three (3) errors to the Court
a quo, to wit:
1) The Lower Court erred in holding her civilly liable to indemnify the Government for the value of
the cheeks after she had been found not guilty of the crime out of which the civil liability arises.

2) Even assuming arguendo that she could properly be held civilly liable after her acquittal, it was
error for the lower Court to adjudge her liable as an indorser to indemnify the government for the
amount of the cheeks.

3) The Lower Court erred in declaring her civilly liable jointly and severally with her co-defendant
Ubay, instead of absolving her altogether. 11

Because, in the Appellate Court's view, Maniego's brief raised only questions of law, her appeal was later
certified to this Court pursuant to Section 17, in relation to Section 31, of the Judiciary Act, as amended,
and Section 3, Rule 50 of the Rules of Court. 12

The verdict must go against the appellant.

Well known is the principle that "any person criminally hable for felony is also civilly liable." 13 But a
person adjudged not criminally responsible may still be held to be civilly liable. A person's acquittal of a
crime on the ground that his guilt has not been proven beyond reasonable doubt 14 does not bar a civil
action for damages founded on the same acts involved in the ofense. 15 Extinction of the penal action
does not carry with it extinction of the civil unless the extinction proceeds from a declaration in a final
judgment that the fact from which the civil might arise did not exist. 16

Rule III SEC. 3(b) Extinction of the penal action does not carry with it extinction of the civil, unless the
extinction proceeds from a declaration in a final judgment that the fact from which the civil might arise
did not exist. In other cases, the person entitled to the civil action may institute it in the jurisdiction and
in the manner provided by law against the person who may be liable for restitution of the thing and
reparation of indemnity for the damage sufered. (1985 Rules on Criminal Procedure).

Hence, contrary to her submission, 17 Maniego's acquittal on reasonable doubt of the crime of
Malversation imputed to her and her two (2) co-accused did not operate to absolve her from civil liability
for reimbursement of the amount rightfully due to the Government as owner thereof. Her liability
therefor could properly be adjudged, as it was so adjudged, by the Trial Court on the basis of the
evidence before it, which adequately establishes that she was an indorser of several checks drawn by her
sister, which were dishonored after they had been exchanged with cash belonging to the Government,
then in the official custody of Lt. Ubay.

Appellant's contention that as mere indorser, she may not be made liable on account of the dishonor of
the checks indorsed by her, is likewise untenable. Under the law, the holder or last indorsee of a
negotiable instrument has the right to "enforce payment of the instrument for the full amount thereof
against all parties liable thereon." 18 Among the "parties liable thereon" is an indorser of the instrument
i.e., "a person placing his signature upon an instrument otherwise than as maker, drawer, or acceptor **
unless he clearly indicates by appropriate words his intention to be bound in some other capacity. " 19
Such an indorser "who indorses without qualification," inter alia "engages that on due presentment, **
(the instrument) shall be accepted or paid, or both, as the case may be, according to its tenor, and that if
it be dishonored, and the necessary proceedings on dishonor be duly taken, he will pay the amount
thereof to the holder, or to any subsequent indorser who may be compelled to pay it." 20 Maniego may
also be deemed an "accommodation party" in the light of the facts, i.e., 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." 21 As such, she is under the law "liable on the instrument to
a holder for value, notwithstanding such holder at the time of taking the instrument knew ** (her) to be
only an accommodation party," 22 although she has the right, after paying the holder, to obtain
reimbursement from the party accommodated, "since the relation between them is in efect that of
principal and surety, the accommodation party being the surety." 23

One last word. The Trial Court acted correctly in adjudging Maniego to be civilly liable in the same
criminal action in which she had been acquitted of the felony of Malversation ascribed to her, dispensing
with the necessity of having a separate civil action subsequently instituted against her for the purpose.
24

WHEREFORE, the judgment of the Trial Court, being entirely in accord with the facts and the law, is
hereby affirmed in toto, with costs against the appellant.

SO ORDERED.

Yap (Chairman), Melencio-Herrera, Cruz, Feliciano, Gancayco and Sarmiento, JJ., concur.
Footnotes

1 Rollo, pp. 2-4; CFI Record, Vol. I, pp. 1-3, 9-11.

2 CFI Record, Vol. II, pp. 122-125; 156-157.

3 CFI Record, Vol. I, p. 32.

4 Bearing date of June 10, 1964, but promulgated on August 6, 1964.

5 Rollo, pp. 24-44; CFI Record, Vol. II, pp. 163-183; Emphasis supplied.

6 CFI Record, Vol. II, pp. 188-192.

7 Id., p. 211.

8 Id., p. 212.

9 Id., pp. 186-187.

10 Rollo, pp. 72, 96.

11 Id., p. 54; Appellant's Brief, pp. 42-43.

12 Id., pp. 93-95.

13 ART. 100, Revised Penal Code.

14 Sec. 2, Rule 133, Rules of Court [of 1964].

15 ART. 29, Civil Code; Laperal de Guzman v. Alvia, 96 Phil. 558, citing Oro v. Pajarillo, 23 Phil. 484;
Padwa v. CA, May 31, 1984, 129 SCRA 558 (565-566) citing PNB v. Catipon, 98 Phil. 286, De Guzman v.
Alvia, 96 Phil. 558, People v. Pantig, 97 PhiL 748 and Castro v. Collector of Internal Revenue, 4 SCRA 1093.

16 Sec. 3 [c], Rule 111, Rules of Court [of 1964].

17 Invoking Almeida et al. v. Abaroa, 8 Phil. 178; Wise & Co. V. Larion 45 Phil. 314; Francisco v.
Onrubia, 46 Phil. 327.

18 Sec. 57, Act No. 2031.

19 Sec. 63, Id.

20 Sec. 66, Id.

21 Sec. 29, Id.

22 Id.

23 Philippine National Bank v. Maza and Mecenas, 48 Phil. 207.

24 Padilla v. CA supra, citing Sangco, Phil. Law on Torts and Damages, pp. 288-289.

The Lawphil Project - Arellano Law Foundation

People v. Maniego [G.R. No. L-30910. February 27, 1987]

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3 years ago

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FACTS

Accused-appellant Maniego was an indorser of several checks drawn by her sister, which were
dishonored after they have been exchanged with cash belonging to the Government.
ISSUE

Whether or not Maniego may not be made liable on account of dishonor of checks indorsed by her.

RULING

NO. Appellants contention that as mere indorser, she may not be made liable on account of the
dishonor of the checks indorsed by her is untenable. Under the law, the holder or last indorsee of a
negotiable instrument has the right to enforce payment of the instrument for the full amount thereof
against all parties liable thereon.