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[ch5- A ] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. Rogelio V. Quevedo [Ch5- A ]

CHAPTER V: LIABILITY OF PARTIES

1st NATL BANK OF CENTRAL CITY V UTTERBACK177 Ky. 76, 197 S.W. 534, L.R.A. 1918B, 838 (1917)~mini~

FACTS

SUBJECT: negotiable promissory notePAYEE: Davis Coal Company-(the only fact I could find) The payee in the note was(probably) required to comply w/ one of 2 certainsections of Kentucky law before it was authorized to dobusiness in the state.

ISSUEWON the failure of a payee in a negotiable promissorynote to comply with sections 199b and 571, KentuckyStatutes (sorry Campos did not reproduce the statutesthemselves but I think the content doesnt matter)without which it could not do business in the state,before the execution of the note, renders ituncollectible in the hands of an owner in due course.

HELD: NO-The Negotiable Instruments act (I think. In Kentuckystatutes.) says in plain language that the maker of aninstrument, by making it, admits the payees capacityto indorse it.-The act does not say, however, that the maker admitsthe payees capacity to make the contract for which thenote was executed, and hence he may have the right tourge such defense against the original payee. BUTagain, reiterate the point that the act DOES take fromthe maker the right to deny the capacity of the payeeto indorse and negotiate the note free from defensesavailable against the payee, even though, as betweenthe original parties, the note was void and

unenforceable for any reason.-It has been held in both Colorado and North Dakotathat a note to a foreign corporation that he has notcomplied with the local law, without which it would notdo business in the state, is valid against the maker inthe hands of a holder in due course.Disposition The judgment overruling the demurrer tothe amended answer is reversed for proceedingsconsistent herewith.

MORAN V CA, CityTrust Banking Corp.230 SCRA 799; GR 105836; Regalado; Mar 7, 1994~ajang~

FACTS-Spouses George and Librada Moran are the owners ofthe Wack-Wack Petron. They regularly purchased bulk

fuel and other related products from Petrophil Corpora-tion on a cash on delivery (COD) basis. Orders weremade by telephone and payments were effected bypersonal checks upon delivery.-The Morans maintained 3 joint accounts (1 current and2 savings accounts). As a special privilege to theMorans, as valued clients, the bank allowed them to

maintain a zero balance in their current account. Trans-fers from one of the savings account to the current ac-count could only be made with prior authorization,while transfers from the other savings account can bemade be the bank automatically through a Pre-Autho-rized Transfer agreement or PAT.-On 12 December 1983, the Morans, drew a check forP50,576.00 payable to Petrophil Corporation. The nextday, the Moran issued another check in the amount ofP56,090.00. The totalling to P106,666.00. Petrophil de-posited the two checks to its account with the Panda-can branch of PNB, the collecting bank. In turn, PNBpresented them for clearing with the Philippine ClearingHouse Corporation in the afternoon of the same day.

The records show that on 14 Dec 1983, Morans Current

Account had a zero balance, while Savings Accountcovered by the PAT had an available balance ofP26,104.30 and the other Savings Account hadP43,268.39.-The following day, at around 10am, George Moranwent to the bank, as was his regular practice, to per-sonally oversee their daily transactions with the bank.He deposited money to the 2 savings account. He thenwithdrew P40k from Savings Account A and depositedthe amount to the current account. P66,666 was alsotransferred from the other Savings Account to the cur-rent account through the PAT agreement.-Librada (wife) told George that Petrophil refused to de-liver their orders on a credit basis because the twochecks were dishonored due to "insufficiency of funds.

Non-delivery of gasoline forced Morans to temporarilystop business operations. In addition, Petrophil can-celled their credit accommodation. Furious and upset,George Moran demanded an explanation from thebank. He was told that Amy Belen Ragodo, the cus-tomer service officer, had committed a "grave error".

The Morans filed a complaint for damages.

ISSUEWON a bank is liable for its refusal to pay a check onaccount of insufficient funds but wherein a deposit maybe made later in the day.

HELD: NO.-The relationship between the bank and the depositor is

that of a debtor and creditor. By virtue of the contractof deposit between the banker and its depositor, the

banker agrees to pay checks drawn by the depositorprovided that said depositor has money in the hands ofthe bank. Hence, where the bank possesses funds of adepositor, it is bound to honor his checks to the extentof the amount of his deposits. The failure of a bank topay the check of a merchant or a trader, when the de-posit is sufficient, entitles the drawer to substantial

damages without any proof of actual damages. Con-versely, a bank is not liable for its refusal to pay acheck on account of insufficient funds, notwithstandingthe fact that a deposit may be made later in the day.Before a bank depositor may maintain a suit to recovera specific amount from his bank, he must first showthat he had on deposit sufficient funds to meet his de-mand.-The available balance on 14 December 1983 was usedby the bank in determining whether or not there wassufficient cash deposited to fund the two checks, al-though what was stamped on the dorsal side of the twochecks in question was "DAIF/12-15-83," since 15 De-cember 1983 was the actual date when the checkswere processed. When the Morans' checks were dishon-

ored due to insufficiency of funds, the available balanceof Savings Account which was the subject of the PATagreement, was not enough to cover either of the twochecks. On 14 December 1983, when PNB, Pandacanbranch presented the checks for collection, the avail-able balance for Savings Account 1037001372 was onlyP26,104.30 while Current Account 37-0006-7 had noavailable balance. It was only on 15 December 1983 ataround 10:00 a.m. that the necessary funds were de-posited, which unfortunately was too late to preventthe dishonor of the checks.-The bank was also under no obligation to give noticebefore dishonoring checks drawn upon insufficientfunds. If ever the spouses Moran on previous occasionswere given notices every time a check was presented

for clearing and payment and there were no adequatefunds in their accounts, these were, at most, mere ac-commodations on the part of CityTrust. Legally, thebank had all the right to dishonor the checks becausethere were no sufficient funds to speak of in the firstplace.-A drawer must remember his responsibilities everytime he issues a check. He must personally keep trackof his available balance in the bank and not rely on thebank to notify him of the necessity to fund certainchecks he previously issued.A check, as distinguishedfrom an ordinary bill of exchange, is supposed to bedrawn against a previous deposit of funds for it is ordi-narily intended for immediate payment. In the presentcase, between the time of issuance of the checks on

Dec 12 and 13 and presentment on Dec 14, Morans

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[ch5- B ] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. Rogelio V. Quevedo [Ch5- B ]

had, at the very least, 24 hours to replenish their bal-ance in the bank.

ARANETA V BANK OF AMERICANo. L-25414 July 30, 1971; 40 SCRA 144~ricky~

FACTSDRAWER: Leopoldo Araneta.DRAWEE: San Francisco main office of the Bank ofAmericaSUBJECT 1: Check for $500 payable to cash. Dishonoredand stamped Account Closed despite sufficiency ofdrawers deposit balance. Upon inquiry, Bankacknowledged error and sent a letter of apology topayee Harry Gregory of Hongkong and requesting thatno adverse reflection be made on drawer. Matterconsidered closed. However, similar events occurredlater.SUBJECT 2: Check for $500 payable to cash drawnagainst the same bank. Stamped Account Closed andreturned to clearing bank despite sufficiency of

drawers deposit balance.SUBSEQUENT INDORSEMENT: To Rufina Saldaa whodeposited it to her account with First National City Bankof New York which in turn cleared it through the FederalReserve Bank. It was actually paid by the drawee toFirst National City Bank but later claimed it wasinadvertently made and requested the amount becredited back. First National in turn wrote Saldaa butbefore her reply was received, drawee recalled thecheck from First National and honored it. (Ano batalaga, kuya?! )SUBJECT 3: Check for $150 payable to cash drawnagainst the same bank. Stamped Account Closed andreturned to clearing bank (Wells Fargo Bank) despitesufficiency of drawers deposit balance.

-Because of these incidents, Araneta filed suit for therecovery of the ff: (1) Actual damages P30,000; (2)Moral damages P20,000; (3) Temperate damagesP50,000; (4) Exemplary damages P10,000; and (5)Attorneys fees P10,000. TC awarded all items. CAeliminated actual and temperate (for failure to prove analleged purchase of jewels for profit) and reducedmoral damages to P8,000, exemplary to P1,000 andattorneys fees to P1,000.

ISSUES1. WON the CA erred in eliminating temperatedamages.2. WON the CA erred in not granting moral damages formental anguish, besmirched reputation, wounded

feelings, social humiliation, etc., separate and distinct

from the damages recoverable for injury to businessreputation.

HELD1. YES.Ratio The financial credit of a businessman is a prizedand valuable asset, it being a significant part of the

foundation of his business. Any adverse reflectionthereon constitutes some material loss to him.Reasoning The Bank cites Art 2224 which providesthat temperate or moderate damages, which are morethan nominal but less that compensatory damages maybe recovered when the court finds that some pecuniaryloss has been suffered but its amount cannot, from thenature of the case, be proved with certainty, andcontends that Araneta failed to show such loss in thiscase which the CA upheld. The question is WON there isreason to conclude that Araneta did sustain somepecuniary loss although no sufficient proof of theamount has been adduced.-From the nature of some cases, (citing the CodeCommission) definite proof of pecuniary loss cannot be

offered although the court is convinced that there hasbeen such loss. For instance, injury to ones commercialcredit or to the goodwill of a business firm is often hardto show with certainty in terms of money. The judgeshould be allowed to calculate moderate damages insuch cases, rather than the plaintiff should suffer,without redress from the defendants wrongful act.-Araneta is a merchant of long standing and goodreputation in the Philippines. His claim for temperatedamages is legally justified. Considering, however, thesmall size of Aranetas account with the Bank, theamounts of the checks involved & the fact that theBank tried to rectify the error, although belatedly, anaward of P5T by way of temperate damages issufficient.

2. NO.Reasoning Araneta contends that moral damagesshould have been granted for the injury to his businessstanding or commercial credit, separately from hiswounded feelings and mental anguish. It is true thatunder Art 2217, besmirched reputation is a groundupon which moral damages may be claimed but the CAdid take this element into consideration in adjudgingthe sum of P8T in his favor. The CA considered hisreputation as an established and well knowninternational trader as well as his wounded feelings andthe mental anguish he suffered which caused his bloodpressure to rise beyond unusual limits necessitatingmedical attendance for an extended period.Disposition Judgment of the CA MODIFIED by

awarding temperate damages of P5,000 and increasingattorneys fees to P4,000.

WOODY V NATIONAL BANK OF ROCKY MOUNT194 N.C. 549, 140 S.E. 150 (1927)~joey~

FACTSSUBJECT: check for $6

DRAWER: WoodyDRAWEE: Bank of Rocky MountPAYEE: E.L. HollingworthINDORSEE: Kingston Garage-The check was dishonored and marked No Accountby drawee bank although, at that time, drawer had ondeposit $50. Drawer was arrested and tried on thecharge of having given a worthless check. He wasacquitted.-This action for compensatory and punitive damagesalleges that drawees act was willful, negligent, wantonand malicious. Demurrer sustained in TC.

ISSUEWON drawer may recover compensatory and punitive

damages from drawee

HELD: YES-Upon the refusal or failure of the bank to pay thecheck of its depositor, the bank is liable for a breach ofits contract. The depositor may recover of the bank theamount of his check, with interest and cost; the actionbeing on contract, the recovery is limited to the amountof the check, with interest from date of demand andrefusal, and, by virtue of the statute, the costs of theaction.-Notwithstanding that the relation of the bank to itsdepositor is that of debtor and creditor, a bank may beheld liable in tort to its depositor whose check it haswrongfully refused or failed to pay.

-A depositor, whose check has been wrongfullydishonored by the refusal or failure of the bank onwhich it was drawn to pay the same, may maintain anaction against the bank, not only in contract but also intort, to recover the damages which he has sustained,and that the jury may, when the plaintiff is a merchantor trader, assess not only nominal but also substantialdamages; when the plaintiff is not a merchant ortrader, he may recover such sum as special damagesas the jury shall find, upon the facts, will compensatehim for the injury resulting from the wrong done him bythe defendant.-Even if such actual loss or injury is not shown, yetmore than nominal damages may be given. It canhardly be possible that a customers check can be

wrongfully refused payment without someimpeachment of his credit, which must in fact be an

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actual injury, though he cannot from the nature of thecase furnish independent, distinct proof thereon.Disposition Judgment reversed.

SINGSON V BANK OF THE PHIL. ISLANDS23 SCRA 1117; Concepcion; June 27, 1968~chriscaps~

FACTS-Singson was one of defendants in civil case where

judgment was rendered against him and co-defendantsLobregat and Villa-Abrille, to pay. Singson and Lobregatappealed, but not Villla-Abrille. Writ of garnishment wasserved upon BPI in w/c Singson had account, insofar asVilla-Abrilles credit against the bank were concerned.-Clerk of bank, upon reading name of plaintiff and w/oinforming himself that garnishment was merely fordeposits of Villa-Abrillle and Bona, prepared letter forBank Presidents signature, informing Singson of thegarnishment of his deposits.-2 checks issued by Singson in favor of Lega Corp,drawn against said bank, were deposited by drawee.

Believing that Singson had no more control over hisdeposits, bank dishonored the checks.-Singson commenced present action against bank andits president for damages because of illegal freezing ofaccount. CFI dismissed complaint.

ISSUEWON damages may be awarded

HELD: YES-Existence of a contract between parties doesnt barcommission of a tort by one against the other and theconsequent recovery of damages therefore.

SPEROFF V FIRST-CENTRAL TRUST CO

140 Ohio st. 415, 79 N.E. 2s 119 (1948)~del~

FACTS-Vassil Speroff had drawn a check on First-Central TrustCo. (FCTC).-He eventually notified FCTC that said check be notpaid.-Now, he sues FCTC to recover the amount of saidcheck.-FCTC admitted to the drawing of the check and tohaving received the notice not to pay. However, itinterposed the defense that Speroff signed a documentstating that Speroff agreed to indemnify FCTC againstany loss resulting from the nonpayment of said check

and that it is expressly understood that it will not be

held responsible if it paid the check throughinadvertency or oversight.-TC rendered a judgment for FCTC. CA reversed sayingthat said statement of release was void as it wascontrary to public policy and void for want ofconsideration. Hence, this appeal.

ISSUEWON the statement of release signed by Speroffconstitutes a valid defense

HELD: NO.The Court upheld the CAs two grounds for avoiding thestatement of release.On want of consideration-Under the reciprocal rights and obligations inherent inthe relationship existing between a bank and itsdepositors, it was the duty of FCTC NOT to pay after ithad received the order of Speroff.-Hence, when Speroff was asked to sign a statement orrelease to the effect that the bank wouldnt be heldresponsible if it would pay the check, this was a new

element in the relationship. What consideration orbenefit was received by Speroff as promisor and whatdetriment was suffered by FCTC as promise as a resultof this statement? NONE so clearly there was nocompliance with either of the fundamentalrequirements as to consideration.On contrary to public policy-It is elementary that a bank is required by law to act ingood faith and exercise reasonable care in itsrelationship with its depositors.-In this case, the obtaining from Speroff of a purportedrelease from liability for inadvertency or oversight as acondition of the order to stop payment of the checkwas contrary to public policy and did not relieveFCTC from its duty to act in good faith and exercise

reasonable care.-The Court distinguished that FCTCs defense ofpurported release was a void and invalid defense.However, the FCTCs defense of exercising good faithand reasonable care (which it interposed in itsamended answer) is a valid defense so the Courtremanded the case back to the Court of Common Pleasfor trial on that issue.Disposition Judgment was modified and causeremanded.

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CHASE NATL BANK OF CITY OF NY V BATTATNy Court of Appeals; 297 N.Y. 185, 78 N.E. 2d, 465(1948)~jaja~

FACTSSUBJECT: a check for $25,000 as payment for the

purchase of sugarDRAWER: ArbeedeePAYEE: Caracanda Bros. Co & Ltd.DRAWEE: Chase National Bank of City of New YorkArbeedee and defendant Caracanda entered into anagreement for the purchase of sugar which providedthat Arbeedee and should deliver a check for $25,000to Caracanda to bind the transaction and that anamount would be returned upon receipt by Caracandaof a letter of credit to obtained by Arbeedee. Arbeedeedrew such a check on its account in the plaintiff bankand delivered it to Caracanda. Thereafter Arbeedeerequested plaintiff to stop payment on the check.Caracanda presented the check for certification and itwas certified by plaintiff through mistake. The following

day, Caracanda presented it for payment and plaintiffpaid it. When advised of the payment of the checkArbeedee insisted that plaintiff make no debit against itaccount asserting that Caracanda has no legal right tothe money. Plaintiff thereupon demanded payment ofthe $25,000 from Caracanda. That was refused. Thecomplaint alleges due demand upon both defendantsand nonpayment and prays for judgment in the sum of$25,000 against Arbeedee and/or Caracanda.

ISSUEWON the complaint fails to state a cause of actionagainst Arbeedee

HELD: YES

-The complaint failed to allege ratification by Arbeedeeafter learning of the payment by plaintiff to Caracandaand there are no alternative allegations of fact uponwhich to rest such a cause of action. Our courts havenever permitted a bank in a commercial transaction tosuch as this, after breaching its depositor's instructionsto involve him against his will in litigation with a thirdparty in order that the bank may recoup a potential lossresulting from its own error. The doctrine ofsubrogation or equitable assignment is not properlyapplicable under such circumstances. A bank mayprotect itself by contract with its depositor so as to limitliability on a stop payment order. When that has notbeen done, the common law liability is absolute in theabsence of ratification. Judgment affirmed.

LAWLESS V TEMPLE

254 Mass 395, 150 NE 176 (1926)~iNa~

FACTSSUBJECT: billPAYEE: Hazel LawlessDRAWER: Norris J. Temple

DRAWEE: Maurice E. Temple-On the instrument appears ME Temple's signature-ME Temple contends that the mere signature of thename of the drawee on the bill cannot fulfill therequirements that the signification of the assent of thedrawee must be in writing and must be signed.

ISSUEWON the signature of the drawee is sufficientacceptance

HELD: YES-Acceptance must be in writing because sound policyrequires that some substantial and tangible evidence ofthe contract is more reliable in nature than the

statement or recollection of witnesses. The commonpractice before the NIL was to write the word"accepted" + the signature on the face of the bill.-But based on case law, the signature is both a writingand signing. The name alone is constantly holden tosatisfy the requirement.-A drawee may be charged as acceptor although hewrites merely his name upon the bill and that anyonetaking the bill has the right to fill up a blank acceptanceon the same principle that a holder may fill up a blankindorsement.

KILGORE NATL BANK V MOORE BROS. LUMBER102 SW 2d 200 (1937)~chrislao~

FACTS-Waddell transacted with Moore Brothers, a firmengaged in the lumber business. As payment for thelumber he purchased, Waddell drew 2 checks wroth$350 drawn against Kilgore National Bank.-2 checks were deposited by Moore Brothers in GrandSaline Bank for collection. A few days later, GrandSaline notified G.J. Moore that the checks had beenreturned by Kilgore Bank unpaid.-Because of this, G.J. Moore brought Waddell to KilgoreBank where Waddell, Moore and the cashier of KilgoreBank had an ORAL agreement. Waddell instructedKilgore bank to pay Moore. The cashier promised Moorethe payment of said checks once presented again. On

the ledger of the bank in connection with Waddell's

account, the cashier made the unsigned notation: "Holdfor Moore Brothers $350.00"-G.J. Moore ordered Grand Saline to forward the checksto Kilgore again. One of the checks was paid. The other,however, was not. This prompted Moore to file suitagainst Kilgore Bank to recover amount of the lastmentioned unpaid check.

-TC and Civil Appeals: in favor of Moore Brothers.

ISSUEWON Kilgore is liable for the other check

HELD: NO. Section 132 governs.Campos enumerates the ff requisites:1)it must be in writing2)it must be signed by the drawee, and3) it must not change the implied promise of acceptorto pay only in money.

Acceptance is usually made by writing "accepted" andsigning immediately below. However, the drawee'ssignature alone is NOT sufficient-The plain purpose of 132 is to prevent any liability to

the holder of a check from arising from the bare oralpromise of the drawee bank to pay the check. In thepresent case, the liability of Kilgore Bank to MooreBrothers depends entirely on the BARE ORAL PROMISEof the drawee bank to pay. As we have said, this shouldhave been in writing (and of course, complying as wellwith the other two requities).-The notation in the bank's ledger "Hold for MooreBrother, $350.00" adds no force to said promise. Thisstatement (as opposed to the oral promise to pay) doesNOT EVEN make any contract, oral or written, to pay.

WISNER V FIRST NATIONAL BANK OF GALLITZIN220 Pa. 21, 68 Atl. 955 (1908)~apple~

FACTSSUBJECT: 6 checksDRAWER: Samuel R. BullockDRAWEE: First National Bank of GallitzinPAYEE: Charles W. Gallaer, Jr. or order-Subject checks were deposited in various banks andthen, forwarded by said banks to drawee bank forpayment-5 of the checks were not returned by the drawee bankto the forwarding banks for more than 2 days-Holder of the checks sued the drawee bank forpayment on the theory that its failure to return thechecks within 24 hrs after receipt thereof constitutedacceptance

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-TC ruled in favor of drawee bank, saying that mereretention of the checks unaccompanied by its refusal toreturn them, was not acceptance

ISSUEWON failure to return the checks to the holder or thecollecting bank within 24 hrs amounts to acceptance

HELD:YES.-The drawee to whom a bill is delivered for acceptanceis deemed to have accepted it under Section 137where: 1. he destroys it; 2. where he refuses within 24hrs after delivery to return the bill accepted or non-accepted to the holder; and 3. where he refuses withinsuch other period as the holder may allow to return thebill accepted or non-accepted to the holder.WON a demand from the holder for the return of thebill, and a refusal on the part of the drawee, areconditions precedent to an acceptance-No prior demand from holder is required because torequire so is not to the convenience or interest of theholder

-The manifest purpose in requiring prompt return of thebill is in the interest of and for the protection of theholder-If this section had in view the protection of the holder,then it was evidently the intention of the legislaturethat the non-return of the bill within the specified time,regardless of the cause, will make the drawee anacceptor-The drawee bank, having failed to return the 5 checksto the collecting bank within 24 hrs after delivery, isdeemed to have accepted the checks, and is therefore,liable for their amount*After the decision, Pennsylvania amended Section137, to destroy the effect of the decision. The followingproviso was added: "Provided, that the mere retention

of such bill by the drawee, unless its return has beendemanded, will not amount to an acceptance..."

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[ch5- F ] Law 108: Negotiable Instruments First Semester AY 2008-09 Prof. Rogelio V. Quevedo [Ch5- F ]

URWILLER V PLATTE VALLEY STATE BANKSC Nebraska; 164 Neb. 630, 83 N.W.2d 88 (1957)~rach~

FACTSSUBJECT: Holder's action against drawee bank, whichhad returned check on account of insufficiency of funds

on deposit in drawer's account. Lower court dismissedsuch action; holder appealed.DRAWER: Ira McCord who had an account in defendantbankDRAWEE: Defendant Platte Vlley State BankPAYEE: Plaintiff Norton Urwiller-In payment of his purchase of hogs, McCord issued toUrwiller his check for the sum of $2,491.11. The nextday, Urwillers wife deposited this to his account in theRavenna Bank. The bank then forwarded the check forcollection in the usual course of business through regu-lar channels: Ravenna Bank -> Bank in Lincoln -> Oma-ha branch of the Federal Reserve Bank -> Platte ValleyState Bank (PVSB).-The check was received in a cash letter during busi-

ness hours on Saturday, Dec 12, 1953. The check wasproofed on the day it was received and posted for ac-tion on the following business day, which was Monday.On Mon it was decided not to pay the check, but markit for 'return,' because the drawer thereof did not havesufficient funds on deposit in his accountwith appellee.-Actual return was not made to the Federal ReserveBank until Wed. This delay was caused by the fact thatbank examiners came and assumed control of all therecords of the bank, including cash items, on Monmorning. Urwiller was advised by the Ravenna banklate Thurs afternoon, of the fact that payment of thecheck had been refused although the check was not ac-tually returned to him until Saturday. The check hasnever been paid.

ISSUEWON retention of a check by a drawee bank for morethan 24 hours after it is presented to it for paymentconstitutes an acceptance of the instrument so that thedrawee bank is bound to pay it

HELD: NORatio 'Presentment for payment and presentment foracceptance are two different acts well known to the lawof negotiable instruments. The difference between theobject and effect of presentation for these respectivepurposes is very marked. Payment extinguishes thedebt and puts an end to the paper evidencing thesame, while acceptance has the very opposite effect. It

creates a new liability upon the part of the acceptor,and gives new life to the instrument.'

-In absence of statutory right, holder would be left tohis common law rights, for either breach of contract orfor tortious breach of duty, by drawee bank which hadrefused payment on grounds of insufficiency of funds indrawer's account.Disposition Trial court was correct in dismissing hispetition. We affirm.

SUMCAD V PROVINCE OF SAMAR52 O.G. 18, 7582 (1956)~cHa~

FACTSSUBJECT: check for P25k, cannot be paid because of in-sufficient fundsDRAWER: Province of SamarDRAWEE: PNB, Cebu Branch

PAYEE: Paulino SantosSUBSEQUENT INDORSEMENTS: Paulino Santos indorsedto James McGuire then transferred to Sumcad et.al.-James McGuire presented the check to municipal trea-surer of Borongan for payment, the latter did not pay ordid not choose to pay. McGuire wrote letters to the Bu-reau of Posts seeking payment for check. Director ofthe Bureau of Posts referred to PNB.(Note: McGuire did not present check directly to PNB.)-PNB requested photostatic copies of the check wasreceived by bank. (Province of Samar by this time stillhad P84,287.47)-Procedural requirements still asked from McGuire soby the time the check was transferred to Sumcad et al.,Province of Samar already withdrew from their PNB ac-

count P83,504.07 leaving only P743.43.-Sumcad et al were not able to encash check so theysued Province of Samar and PNB. PNB was held solidari-ly liable with Province of Samar. Hence, this appeal.

ISSUE1. WON PNB constructively accepted to assume theobligation2. WON PNB is solidarily liable

HELD1. YES.-When PNB requested photostatic copies of the checkfrom the Bureau of Posts and McGuire to present checkto provincial treasurer and provincial auditor for certifi-

cation, it voluntarily assumed the obligation of holdingso much of the deposit of the province of Samar as

would be sufficient to cover the amount of the check, orbefore allowing the withdrawal that exhausted said de-posit, of making the necessary inquiry on the matter. Itwould be an empty gesture if the appellant did notmean to assume the obligation of paying the check andholding sufficient deposit of the drawer for the purpose.2. NO.

-PNBs liability is only subsidiary to that of the Provinceof Samar which is primarily liable thereon.Disposition. Decision affirmed.

PADILLA, dissenting:PNB should not be liable at all. When it requested theBureau of Posts to furnish it with photostatic copies ofthe check, it only means that the original check was notpresented to it for payment! The act of requesting didnot create an obligation on the part of PNB.

COOLIDGE V PAYSON2 Wheat 66, 4 L. Ed. 185 (1817)~jojo~

FACTSDRAWER: Cornhwaite & CaryDRAWEE: Collidge & Co. (defendant)PAYEE: John RandallINDORSEE: Payson & Co. (plaintiff)- Coolidge held proceeds of the cargo of the Hiramclaimed by Cornthwaite. Corthwaite executed bonds ofindembity an executed srolls and drew on them for$2,700, payable to Randall, and endorsed by him toPayson. Coolidge wrote to Corthwaite stating that,since there is no seal to any of the signatures, it is nec-

essary to ascertain the legality of the scrolls. Coolidgewrote to its friend, William, who was to determinewhether the draft was to be honored. William replied,approving the bond.-Cornthwaithe called on William to inquire whether hehad satisfied Coolidge respecting the bond. Williamsstated the substance of the letter he had written, andread to him a part of it. Payson also called on him tomake the same inquiry, to whom he gave the same in-formation and also read the letter he had written.-2 days later, a bill was drawn by Cornthwaite and paidto Payson in part of the protested bill of $2,700.it waspresented to Coolidge, who refused to accept it.

ISSUE

WON Coolidge is deemed to have accepted the bill,hence liable to Payson

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HELD: YES-A promise to accept a bill amounts to an acceptance toa person who has taken it on the credit of that promise,although the promise was made before the existence ofthe bill, and although it is drawn in favor of a personwho takes it for a pre-existing debt

-Upon a review of several cases, the court holds that aletter written within a reasonable time before or afterthe bill of exchange, describing it in terms not to bemistaken, and promising to accept it, is if shown to theperson who afterwards takes the bill on the credit ofthe letter, a virtual acceptance binding the person whomakes the promise.

REPUBLIC V PHIL. NATL BANKL-No. 16106, Dec. 30, 1961; 3 SCRA 851~kiyo~

FACTS-RP filed a complaint for escheat of certain unclaimedbank deposit balances against several banks under Act.

3936 which provides that unclaimed balances (w/cincludes credits or deposits of money, bullion, securityand other evidence of indebtedness of any kind +interest) in favor of persons not heard from for 10 yearsor more, with the increase and proceeds thereof, shallbe deposited with the Insular Treasurer to the credit ofthe Phil. Government. Among these banks was the FirstNational City Bank of New York who argued that someof its credits didnt fall within the purview of the Act.

The court held that cashiers checks and demand draftsfall under the Act but upon MFR changed its view andexcluded drafts, hence this appeal.

ISSUEWON demand drafts create a creditor-debtor

relationship between drawee and payee, thus fallingwithin the meaning of credits in Act. 3969

HELD: NO-A demand draft is not of the same category as acashiers check which should fall under the Act.In banking terminology, the term bank draft is usedinterchangeably with a bill of exchange. A bill ofexchange under the NIL (sec. 127) does not operate asan assignment of funds in the hands of the drawee whois not liable on the instrument until he accepts. In fact,the law requires presentment w/in a reasonable time orelse the drawer is discharged from liability. Since it isadmitted in this case that the drafts in question werenever presented either for acceptance or payment,

appellee bank never became a debtor of the payees,hence the drafts never became credits under the Act.

-Drafts must however be distinguished from cashierschecks, which is simply a bill of exchange drawn by thebank on itself; it is equivalent to a certified check andits deposit passes to the credit of the holder who thenbecomes a depositor of that amount.DispositionTC decision modified; telegraphic transferpayment orders should be escheated to RP (see case

for telegraphic orders)

PAL V CA, Galano, del Rosario, TanG.R. No. 24188; Jan 30, 1990; Gutierrez, Jr.~athe~

FACTS-Amelia Tan commenced a complaint for damages. TheCFI of Manila rendered judgment in favor of Tan andagainst PAL. PAL appealed and the amount of damageswas lowered to a total of P30, 000.00. The judgmentbecame final and executory there being no further ap-peal taken.-Tan filed a motion for the issuance of a writ of execu-tion of the judgment. Judge Galano issued its order of

execution and it was duly referred to Deputy SheriffEmilio Z. Reyes.-Four months later, Tan moved for the issuance of analias writ of execution stating that the judgment re-mained unsatisfied.-PAL filed an opposition stating that it had already fullypaid its obligation to Tan through the deputy sheriffReyes as evidenced by cash vouchers properly signedand receipted by Sheriff Reyes (PAL issued a checkamounting to P30,000.00 in the name of Sherriff Reyesand not in the name of Tan). However, Sherriff Reyesencashed the check but failed to surrender the amountto Tan. He, instead, absconded.-Judge Galano granted Tans Motion for Alias Writ of Ex-ecution and directed Special Sheriff del Rosario to levy

on execution. Consequently, Del Rosario served a no-tice of garnishment on the depository bank of PAL. Be-cause of this, PAL filed this instant petition

ISSUES1. WON an alias writ of execution be issued without aprior return of the original writ by the implementing of-ficer2. WON payment of judgment to the implementing offi-cer as directed in the writ of execution constitutes sat-isfaction of judgment

HELD1. YES.Ratio Technicality cannot be countenanced to defeat

the execution of a judgment for execution is the fruitand end of the suit and is very aptly called the life of

the law. A judgment cannot be rendered nugatory bythe unreasonable application of a strict rule of proce-dure. Vested rights were never intended to rest on therequirement of a return, the office of which is merely toinform the court and the parties, of any and all actionstaken under the writ of execution. Where such informa-tion can be established in some other manner, the ab-

sence of an executing officer's return will not precludea judgment from being treated as discharged or beingexecuted through an alias writ of execution as the casemay be.2. General Rule (under ordinary circumstances):YESArticle 1240, NCC. "Payment shall be made to the per-son in whose favor the obligation has been constituted,or his successor in interest, or any person autho-rized to receive it."Exception (under peculiar circumstances like inthis case): NOa. Unless authorized to do so by law or by consent ofthe obligee, a public officer has no authority to acceptanything other than money in payment of an obligation

under a judgment being executed. Strictly speaking,the acceptance by the sheriff of the petitioner's checks,in the case at bar, does not, per se, operate as a dis-charge of the judgment debt. Since a negotiable instru-ment is only a substitute for money and not money, thedelivery of such an instrument does not, by itself, oper-ate as payment (Sec. 189, Act 2031 on Negs. Insts.;Art. 1249, Civil Code) A check, whether a manager'scheck or ordinary check, is not legal tender, and an of-fer of a check in payment of a debt is not a valid tenderof payment and may be refused receipt by the obligeeor creditor. Mere delivery of checks does not dischargethe obligation under a judgment. The obligation is notextinguished and remains suspended until the paymentby commercial document is actually realized (Art. 1249,

Civil Code, par. 3).b. It is argued that if PAL had paid in cash to SheriffReyes, there would have been payment in full legalcontemplation. The reasoning is logical but is it validand proper? Logic has its limits in decision making. Weshould not follow rulings to their logical extremes if indoing so we arrive at unjust or absurd results.c. PAL was negligent. Making the checks payable to the

judgment creditor would have prevented the encash-ment or the taking of undue advantage by the sheriff,or any person into whose hands the checks may havefallen, whether wrongfully or in behalf of the creditor.

The issuance of the checks in the name of the sheriffclearly made possible the misappropriation of the fundsthat were withdrawn.

DispositionPetition dismissed.

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NARVASA, Dissenting Opinion-A sheriff is authorized to receive payments on accountof the judgment debt tendered by "a person indebtedto the judgment debtor," and his "receipt shall be a suf-ficient discharge for the amount so paid or directed tobe credited by the judgment creditor on the execution"(sec. 41, Rule 39).

-The sheriff is an adjunct of the court; a court func-tionary whose competence involves both discretion andpersonal liability. Being an officer of the court and act-ing within the scope of his authorized functions, thesheriff's receipt of the checks in payment of the judg-ment execution, may be deemed, in legal contempla-tion, as received by the court itself.-If payment had been in cash, no question about its va-lidity or of the authority and duty of the sheriff to ac-cept it in settlement of PAL's judgment obligation wouldeven have arisen. Simply because it was made bychecks issued in the sheriff's name does not warrantreaching any different conclusion.

FELICIANO, Dissenting Opinion

-The risk of the sheriff faithfully performing his duty asa public officer is most appropriately borne NOT by thejudgment debtor/creditor, nor upon those members ofthe general public who are compelled to deal with him,but by the STATE itself. The judgment creditor, in cir-cumstances like those of the instant case, could be al-lowed to execute upon the absconding sheriffs bond.

PADILLA, Dissenting Opinion-He has underscored the obligation of the sheriff, im-posed upon him by the nature of his office and the law,to turn over such legal tender, checks and proceeds ofexecution sales to the judgment creditor. The failure ofa sheriff to effect such turnover and his conversion ofthe funds (or goods) held by him to his own uses, do

not have the effect of frustrating payment by and con-sequent discharge of the judgment debtor.-If the plaintiff fails to receive it, his only remedy isagainst the officer.-When PAL delivered the checks to the Sheriff, the lat-ter was accompanied by the counsel of Tan. Prudencedictates that the counsel of Tan should have insistedon their immediate encashment by the Sheriff with thedrawee bank in order to promptly get hold of theamount belonging to his client.

FORTUNADO V CA, Campano, Bautista, Registerof Deeds, and National Steel CorporationGR 78556; 196 SCRA 269; Cruz; April 21, 1991~giulia~

FACTS

-In a civil case, the RTC rendered judgment orderingAngel Bautista to pay damages to Alfero Fortunado.Pursuant to said judgment, the Sheriff levied upon 2parcels of land registered in the name of Bautista, but 1of the said parcels of land was already sold to theNational Steel Corporation (NSC).

The properties were sold to the petitioner as the only

bidder in a public auction.-NSC then gave notice to the sheriff of its intention toredeem the property it owned. The sheriff suggested asthe 2 lots were sold together that both of them shouldbe redeemed.NSC filed with the TC an urgent motion to redeem,which was opposed by the petitioners on the groundthat the movant did not have the personality tointervene.-As the motion remained unresolved, the NSC issued tothe sheriff a PNB check for the properties.Bautista sentthe sheriff a letter bearing NSC's conformity in which heavailed himself of SC's check to redeem the properties.His letter contained the ff reservation:

This redemption is made solely for the purpose of

effecting the execution and delivery to me of thenecessary certificate of redemption and the sameshall not be taen to mean my accknowledgment of thevalidity of the said writ of execution and sale, both ofwhich I shall continue to contest, nor shall this betaken to mean as a waiverr on my part of the legalreights and remedies available to me under thecircumstances.

-Sheriff issued the certificate of redemption in favor ofNSC and Bautista. Bautista later on wrote to the sheriffthat he would no longer effect the redemption becausethere was nothing to redeem, the auction sale beingnull and void.-Bautista, in an Urgent Motion, prayed that the sumcovered by the PNB check be delivered to and kept by

the clerk of court until such time as all incidentsrelative to the validity of the auction sale were finallyresolved.Sheriff notified the petitioners' counsel of the deposit ofthe PN check. Counsel told the check that he wasrejecting the check as it was not legal tender.-Respondent court held that NSC's redemption wasabsolute and unconditional in view of its refusal to joinBautista in contesting the validity of the sale. However,the validity of the redemption was dependent on thevalidity of the certificate of sale, which still has to beresolved by the TC. Motion for partial reconsiderationby petitioner was denied.

ISSUE

WON there was valid redemption.

HELD: YES.Although the private respondents in the case did notfile a redemption case against the petitioners, NSC filedan urgent motion for redemption within the redemptionperiod.In the US, it has been held and recognized that apayment by check or draft or bank bill or currency

which is not legal tender is effective if the officeraccepts such payment. If in good faith, theredemptioner pays, and the officer receives before theexpiration of the time of redemption, an ordinarybanker's check, the payment is regarded as sufficient.

The Court does not, by this decision, sanction the useof check for the payment of obligations over theobjection of the creditor. It is just that a check may beused for the exercise of the right of redemption, thesame being a right and not an obligation. The tender ofa check is sufficient to compel redemption but it is notin itself a payment that relieves the redemption bt isnot in itself a payment that relieves the redemtionerfrom his liiability t pay the redemption price. While theprivate respondents have properly exercised their right

of redemption, they remain liable for the payment ofthe redemption price.

MESINA V IAC [Gonong, Go and Uy]L-70145; Nov. 13, 1986; 145 sCRA 499; Paras~ajang~

FACTS-Jose Go purchased from Associated Bank a cashierscheck worth P800,000. Accidentally, he left the checkon top of the desk of the bank manager when he leftthe bank. The bank manager entrusted the check forsafekeeping to bank official, Albert Uy, who then had avisitor, Alexander Lim. Uy had to answer a telephonecall, then he went t the mens room. When he returned

to the desk, his visitor Lim was already gone and sowas the check. When Jose Go returned to the bank, thecheck was nowhere to be found.-Uy advised Go to accomplish a sop payment order. Goalso executed an affidavit of loss. Uy also went to thepolice station to report the loss, pointing to AlexanderLim as the one who could shed light on it.-Associated Bank received the lost check 2 days afterfor clearing, coming from Prudential bank. The checkwas immediately dishonored by Associated Bank andreturned to Prudential with the words, Stop Payment.

The check was again returned to Associated Bank andfor the 2nd time, it was dishonored.-Several days later, Associated Bank received a letterfrom Atty. Lorenzo Navarro demanding payment for the

check and threatened to sue. He refuses to reveal whohis client is. Unsure with what to do with the matter,

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Associated Bank filed for an Interpleader. The clientturned out to be one named Mesina. He said the checkwas paid to him by Alexander Lim in a certaintransaction but refused to elucidate further. Mesinafiled a complaint for damages.-TC rendered a decision on the interpleader orderingAssociated Bank to replace Jose Gos check or pay its

cash equivalent. Mesinas complaint on the other handwas dismissed. The issue in that case is who betweenMesina and Go are entitled for the payment of thecheck. Since this issue had been resolved in the othercase, it has become moot and academic.

ISSUE:WON the lower courts ruling in the interpleader caseshould be set aside.

HELD: NO.Mesina invokes theories on causes and effects of acashiers checks such as 1) i t cannot becountermanded in the hands of a holder in due courseand 2) a cashiers check is a bill of exchange drawn by

the bank against itself. But these are general principleswhich cannot be aptly applied to the case at barwithout considering other things.-Mesina failed to substantiate that he is a holder in duecourse. He refused to say how and why the check waspassed to him. He therefore had notice of the defect ofhis title over the check from the start.-Next, the check was bought by Jose Go from the bankfor purposes of transferring his bank from AssociatedBank to a nearby bank, thinking that carrying a checkwould be safer than carrying cash; it was not issued inpayment of an obligation. The check was Jose Gosproperty when it was misplaced or stolen. Bank wastherefore liable to no one else but Jose Go.-When the payment was stopped, it was not the bank

who did it but Jose Go. The bank could not be thedrawer and drawee for clearly, Jose Go owns the moneyit represents and he is therefore the drawer anddrawee in the same manner as if he has a currentaccount and he issued a check against it. No oneoutside Jose Go can be termed a holder in due coursebecause Go had not indorsed it in due course.NOTE: Clear implication from the case is that if Mesinahad been a holder in due course, the court would havegranted recovery.

INTL CORPORATE BANK V GUECO351 SCRA 516; Kapunan; Feb 1, 2001

FACTS

-Spouses Gueco obtained a loan from InternationalCorporate Bank (now Union Bank of the Philippines) to

purchase a car a Nissan Sentra 1600 4DR, 1989Model. In consideration, the Spouses executedpromissory notes which were payable in monthlyinstallments and chattel mortgage over the car to serveas security for the notes. The Spouses defaulted inpayment of installments. The Bank filed a civil actionfor Sum of Money with Prayer for a Writ of Replevin

before MTC Pasay City. Dr. Francis Gueco was servedsummons and was fetched by the sheriff andrepresentative of the bank for a meeting in the bankpremises. Desi Tomas, the Banks Assistant VicePresident demanded payment of the amount ofP184,000.00 which represents the unpaid balance forthe car loan. After some negotiations and computation,the amount was lowered to P154,000.00, However, asa result of the non-payment of the reduced amount, thecar was detained inside the banks compound. Dr.Gueco went to the bank and talked with itsAdministrative Support, Auto Loans/Credit CardCollection Head, Jefferson Rivera. The negotiationsresulted in the further reduction of the outstanding loanto P150,000.00. Dr. Gueco delivered a managers check

in the amount of P150,000.00 but the car was notreleased because of his refusal to sign the Joint Motionto Dismiss. It is their contention that Dr. Gueco neednot sign the motion for joint dismissal considering thatthey had not yet filed their Answer. However, the Bankinsisted that the joint motion to dismiss is standardoperating procedure in their bank to effect acompromise and to preclude future filing of claims,counterclaims or suits for damages. After severaldemand letters and meetings with bankrepresentatives, the Spouses initiated a civil action fordamages before MTC Quezon City.-MTC QC: dismissed the complaint for lack of merit.-RTC QC: MTC decision reversed and held that therewas a meeting of the minds between the parties as to

the reduction of the amount of indebtedness and therelease of the car but said agreement did not includethe signing of the joint motion to dismiss as a conditionsine qua non for the effectivity of the compromise.Also, the Bank is ordered to return the car to theSpouses; the Bank may deposit the Managers check the proceeds of which have long been under the controlof the issuing bank in favor of the Bank since itsissuance, whereas the funds have long been paid bythe Spouses to secure said Managers Check, overwhich the Spouses have no control. Moreover, the Bankis ordered to pay the Spouses the P50,000.00 as moraldamages; P25,000.00 as exemplary damages, andP25,000.00 as attorneys fees, and to pay the cost ofsuit.

-CA: Petition for review on certiorari is hereby DENIEDand the RTC Decision is AFFIRMED in toto as CA

essentially relied on the finality of the findings of factsby the lower court and on the latter's finding of theexistence of fraud which constitutes the basis for theaward of damages.

ISSUES1. WON there was no agreement with respect to the

execution of the joint motion to dismiss as a conditionfor the compromise agreement2. WON granting moral and exemplary damages andattorneys fees in favor of Sps Gueco is proper3. WON the Bank must return the subject car to theSps. Gueco, without making any provision for theissuance of the new managers/cashiers check by theSpouses in favor of the Bank in lieu of the originalcashiers check that already became stale

HELD1. YES-In support of its claim, The Bank presented thetestimony of Mr. Jefferson Rivera who related that Dr.Gueco was aware that the signing of the draft of the

Joint Motion to Dismiss was one of the conditions set bythe bank for the acceptance of the reduced amount ofindebtedness and the release of the car. The Spouses,however, maintained that no such condition was everdiscussed during said meeting. If it is true that thesigning of the joint motion was a condition sine qua nonfor the reduction of the Spouses obligation, it is onlyreasonable and logical to assume that the joint motionshould have been shown to Dr. Gueco in the saidmeeting. Why Dr. Gueco was not given a copy of the

joint motion on the day of the meeting, for his family orlegal counsel to see to be brought signed, together withthe P150,000.00 in managers check form to besubmitted on the following day?-It is more logical to conclude that only an oral

compromise agreement, whereby the original claim ofthe bank of P184,985.09 was reduced to P150,000.00and that upon payment of which, plaintiff was informedthat the subject motor vehicle would be released tohim happened during that said meeting.2. NO-Fraud has been defined as the deliberate intention tocause damage or prejudice. It is the voluntaryexecution of a wrongful act, or a willful omission,knowing and intending the effects which naturally andnecessarily arise from such act or omission; the fraudreferred to in Article 1170 of the Civil Code is thedeliberate and intentional evasion of the normalfulfillment of obligation. We fail to see how the act ofthe bank in requiring the Spouses to sign the joint

motion to dismiss could constitute as fraud. True, theBank may have been remiss in informing Dr. Gueco

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that the signing of a joint motion to dismiss is astandard operating procedure of the bank. However,this can not in anyway have prejudiced Dr. Gueco. Itshould, likewise, be noted that in cases of breach ofcontract, moral damages may only be awarded whenthe breach was attended by fraud or bad faith. The lawpresumes good faith.

3. NO-The Bank would make us hold that petitioner shouldreturn the car or its value and that the latter, becauseof its own negligence, should suffer the loss occasionedby the fact that the check had become stale. It is theirposition that delivery of the managers check producedthe effect of payment and, thus, the Bank wasnegligent in opting not to deposit or use said check.Rudimentary sense of justice and fair play would notcountenance the Spouses position.-A stale check is one which has not been presented forpayment within a reasonable time after its issue. It isvalueless and, therefore, should not be paid. Under thenegotiable instruments law, an instrument not payableon demand must be presented for payment on the day

it falls due. When the instrument is payable ondemand, presentment must be made within areasonable time after its issue. In the case of a bill ofexchange, presentment is sufficient if made within areasonable time after the last negotiation thereof.-A check must be presented for payment within areasonable time after its issue, and in determining whatis a reasonable time, regard is to be had to thenature of the instrument, the usage of trade orbusiness with respect to such instruments, and thefacts of the particular case. The test is whether thepayee employed such diligence as a prudent manexercises in his own affairs. This is because the natureand theory behind the use of a check points to itsimmediate use and payability. In a case, a check

payable on demand which was long overdue by abouttwo and a half (2-1/2) years was considered a stalecheck. Failure of a payee to encash a check for morethan ten (10) years undoubtedly resulted in the checkbecoming stale. Thus, even a delay of one (1) week[27]or two (2) days, under the specific circumstances of thecited cases constituted unreasonable time as a matterof law.-In the case at bar, however, the check involved is notan ordinary bill of exchange but a managers check. Amanagers check is one drawn by the banks managerupon the bank itself. It is similar to a cashiers checkboth as to effect and use. A cashiers check is a checkof the banks cashier on his own or another check. Ineffect, it is a bill of exchange drawn by the cashier of a

bank upon the bank itself, and accepted in advance bythe act of its issuance. It is really the banks own check

and may be treated as a promissory note with the bankas a maker. The check becomes the primary obligationof the bank which issues it and constitutes its writtenpromise to pay upon demand. The mere issuance of itis considered an acceptance thereof. If treated aspromissory note, the drawer would be the maker and inwhich case the holder need not prove presentment for

payment or present the bill to the drawee foracceptance.-Even assuming that presentment is needed, failure topresent for payment within a reasonable time will resultto the discharge of the drawer only to the extent of theloss caused by the delay. Failure to present on time,thus, does not totally wipe out all liability. In fact, thelegal situation amounts to an acknowledgment ofliability in the sum stated in the check. In this case, theSpouses have not alleged, much less shown that theyor the bank which issued the managers check hassuffered damage or loss caused by the delay or non-presentment. Definitely, the original obligation to paycertainly has not been erased.-It has been held that, if the check had become stale, it

becomes imperative that the circumstances thatcaused its non-presentment be determined. In the caseat bar, there is no doubt that the bank held on thecheck and refused to encash the same because of thecontroversy surrounding the signing of the joint motionto dismiss. We see no bad faith or negligence in thisposition taken by the Bank.Disposition Petition for review is given due course.CA decision affirming RTC decision is SET ASIDE.Spouses Gueco is ordered to pay the original obligationamounting to P150,000.00 to the Bank upon surrenderor cancellation of the managers check in the latterspossession, afterwhich, the Bank is to return thesubject motor vehicle in good working condition.

NEW PACIFIC TIMBER & SUPPLY CO V SENERISL-41764, Dec. 19, 1980; 101 SCRA 686~glaisa~

FACTSSUBJECT: Equitable Bank Cashiers Check for P50kdated Jan. 3, 1975DRAWER: New Pacific Timber-New Pacific failed to comply with his judgmentobligation. Judge issued writ of execution for P63,130 towhich the Sheriff levied upon personal properties andset the auction sale on Jan. 15. Prior to the scheduledsale, New Timber deposited with the Clerk of Court theP50,000 check and P13,130 in cash.-Seneris refused to accept check and cash. Sheriff

proceeded with the auction sale.

ISSUEWON Seneris can validly refuse acceptance of thepayment of the judgment obligation made by New

Timber, consisting of the Cashiers Check and cash.

HELD: NO-A Cashiers Check is deemed as cash. Moreover, since

the check had been certified by the drawee bank, bythe certification, the funds represented by the checksare transferred from the credit of the maker to that ofthe payee or holder, and for all intents and purposes,the latter becomes the depositor of the drawee bank,with rights and duties of one in such situation. Thecertification is equivalent to acceptance.-The object of certifying a check as regards both partiesis to enable holder to use it, as money. When theholder procures the check to be certified, the checkoperates as an assignment of a part of the funds to thecreditors.

WACHTEL V ROSEN248 NY 386, 164 NE 326

~RPR~

FACTSPlaintiff received from Arthur Wachtel a check drawn onNational Park Bank which plaintiff presented to saidbank for certification. The bank refused to certify thecheck.

ISSUEWON the refusal of the drawee bank to certify thecheck is equivalent to a dishonor of the check such thatholder may sue the drawer as if the check waspresented for payment and payment had been refused

HELD: NO

-The general rule is that a check is of right presentableonly for payment, and that the bank is under noobligation to certify, although it may do so.-When a bank certifies a check at the request of theholder, a new obligation is created. Under Section 324,the drawer and all the endorsers are discharged fromliability if the check is accepted or certified. Theacceptance of a bill of exchange, on the other hand,does not discharge the liability. The certification differsin effect from mere acceptance of bills other thanchecks, in that it is not an added obligation but asubstitute obligation. Certification of the check by thebank is equivalent to payment. The bank in this casemay not be prepared to substitute itself with thedrawer.

Disposition Judgment affirmed.

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ROMAN CATHOLIC BISHOP OF MALOLOS, INC VIAC [Robes-Francisco Realty and Devt Corp]G.R. No. 72110; Sarmiento; Nov 16, 1990~owen~

FACTS-July 7, 1971 > the subject contract over the land, a

20,655 sq.m. in Bulacan, issued and registered in thename of the Roman Catholic Bishop of Malolos which itsold to the Robes-Francisco Realty and Devt forP123,930.00).

in question was executed stipulating for adownpayment of P23,930.00 and the balance ofP100,000.00 plus 12% interest per annum to be paidwithin four (4) years from execution of the contract,that is, on or before July 7, 1975. The contract likewiseprovides for cancellation, forfeiture of previouspayments, and reconveyance of the land in question incase Robes-Francisco Realty and Development wouldfail to complete payment within the said period.-March 12, 1973 > Robes-Francisco addressed a letterto Father Vasquez, parish priest of San Jose Del Monte,

Bulacan, requesting to be furnished with a copy of thesubject contract and the supporting documents.-July 17, 1975 > admittedly after the expiration of thestipulated period for payment, Robes-Francisco wroteRoman Catholic a formal request that her company beallowed to pay the principal amount of P100,000.00 inthree (3) equal installments of six (6) months each withthe first installment and the accrued interest ofP24,000.00 to be paid immediately upon approval ofthe said request.-July 29, 1975 > Roman Catholic formally denied thesaid request of Robes-Francisco, but granted the lattera grace period of five (5) days from the receipt of thedenial to pay the total balance of P124,000.00,otherwise, the provisions of the contract regarding

cancellation, forfeiture, and reconveyance would beimplemented.-August 4, 1975 > Robes-Francisco wrote RomanCatholic requesting an extension of 30 days from saiddate to fully settle its account.-August 7, 1975 > Roman Catholic denied the requestfor an extension of the grace period.-August 22, 1975 > Robes-Francisco protested allegedrefusal of the latter to accept tender of paymentpurportedly made by the former on August 5, 1975, thelast day of the grace period and demanded theexecution of a deed of absolute sale over the land inquestion and after which it would pay its account in full,otherwise, judicial action would be resorted to.-August 27, 1975 > Roman Catholic refused to execute

the deed of absolute sale due to its failure to pay its fullobligation. Moreover, Roman Catholic denied that

Robes-Francisco had made any tender of paymentwhatsoever within the grace period. In view of thisalleged breach of contract, Roman Catholic cancelledthe contract and considered all previous paymentsforfeited and the land as ipso facto reconveyed.-TC: Failure of Robes-Francisco to present in court thecertified personal check allegedly tendered as payment

or, at least, its xerox copy, or even bank recordsthereof is fatal. And Robes-Francisco was found to haveinsufficient funds to fulfill the entire obligationconsidering that its president, Atty. Francisco, only hada savings account deposit of P64,840.00, and althoughthe latter had a money-market placement ofP300,000.00, the same was to mature only after theexpiration of the 5-day grace period. TC declares thesubject contract cancelled and Robes-Franciscosdownpayment of P23,930.00 forfeited in favor ofRoman Catholic, and hereby dismisses the complaint-IAC: reversed TC decision as Robes-Francisco has atotal available sum of P364,840.00 and their disposalon or before August 4, 1975 to answer for theobligation of the Roman Catholic. It was not correct for

the trial court to conclude that Robes-Francisco hadonly about P64,840.00 in savings deposit on or beforeAugust 5, 1975, a sum not enough to pay theoutstanding account of P124,000.00.

ISSUES1. WON finding that Robes-Francisco had sufficientavailable funds on or before the grace period for thepayment of its obligation is proof that it did tender ofpayment for its said obligation within said period2. WON there is legal obligation on the part of RomanCatholic to execute a deed of absolute sale in favor ofthe Robes-Francisco before the latter has actually paidthe complete consideration of the sale where thecontract between and executed by the parties

stipulates3. WON an offer of a check is a valid tender of paymentof an obligation under a contract which stipulates thatthe consideration of the sale is in Philippine Currency

HELD1. NO-A finding that Robes-Francisco had sufficient availablefunds on or before the grace period for the payment ofits obligation does not constitute proof of tender ofpayment by the latter for its obligation within the saidperiod. Tender of payment involves a positive andunconditional act by the obligor of offering legal tendercurrency as payment to the obligee for the former'sobligation and demanding that the latter accept the

same. Thus, tender of payment cannot be presumed bya mere inference from surrounding circumstances. At

most, sufficiency of available funds is only affirmativeof the capacity or ability of the obligor to fulfill his partof the bargain. But whether or not the obligor availshimself of such funds to settle his outstanding accountremains to be proven by independent and credibleevidence. Tender of payment presupposes not only thatthe obligor is able, ready, and willing, but more so, in

the act of performing his obligation. Ab posse ad actunon vale illatio. "A proof that an act could have beendone is no proof that it was actually done."2. NO-Although admittedly the documents for the deed ofabsolute sale had not been prepared, the subjectcontract clearly provides that the full payment by theprivate respondent is an a priori condition for theexecution of the said documents by Roman Catholic.That upon complete payment of the agreedconsideration by the herein VENDEE, the VENDOR shallcause the execution of a Deed of Absolute Sale in favorof the VENDEE.-What Robes-Francisco should have done if it wasindeed desirous of complying with its obligations would

have been to pay Roman Catholic within the graceperiod and obtain a receipt of such payment dulyissued by the latter. Thereafter, or, allowing areasonable time, Robes-Francisco could havedemanded from Roman Catholic the execution of thenecessary documents. In case Roman Catholic refused,Robes-Francisco could have had always resorted to

judicial action for the legit enforcement of its right.3. NO-A certified personal check is not legal tender nor thecurrency stipulated, and therefore, cannot constitutevalid tender of payment. The first paragraph of Art.1249CC provides that "the payment of debts in moneyshall be made in the currency stipulated, and if it is notpossible to deliver such currency, then in the currency

which is legal tender in the Philippines.-PAL v. CA > Since a negotiable instrument is only asubstitute for money and not money, the delivery ofsuch an instrument does not, by itself, operate aspayment. A check, whether a manager's check orordinary check, is not legal tender, and an offer of acheck in payment of a debt is not a valid tender ofpayment and may be refused receipt by the obligee orcreditor.-Hence, where the tender of payment by Robes-Francisco was not valid for failure to comply with therequisite payment in legal tender or currency stipulatedwithin the grace period and as such, was validlyrefused receipt by Roman Catholic, the subsequentconsignation did not operate to discharge the former

from its obligation to the latter.

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Disposition Petition for review on certiorari granted.IAC decision set aside and annulled. RTC decisionreinstated.

BULLIET V ALLEGHENY TRUST CO284 Pa. 561, 131 Atl. 471 (1925)~maia~

FACTSSUBJECT: a check for $5000DRAWER: Mitchell, as buyer of an oil propertyDRAWEE: Allegheny Trust CoPAYEE: Bulliet, as seller of the the oil property-the memorandum of agreement of the partiesprovided that the 5000 would be given in escrow inevidence of good faith that Mitchell would pay theremainder of the purchase price. In the event ofMitchells failure to pay, the 5000 would be forfeited infavor of Buillet. Mitchell made sure with Allegheny thatit had enough funds. Buillet then sent a telegram toAllegheny inquiring whether it would honor Mitchellscheck, and the bank replied through wire that it would.

-Mitchell did not pay the purchase price. Buillet thenclaimed from Allegheny, but the latter refused to paybecause Mitchell had given a stop payment order.Allegheny also insisted that, putting itself in theposition of Mitchell, there was no transfer of title as tothe property being conveyed as there was failure ofconsideration, thus it should not be liable to pay sinceMitchell itself would not be liable to pay. (in effect,Allegheny invoked the defense available to Mitchell)

ISSUEWON Allegheny is liable for the amount under thecircumstances

HELD: YES

-the reply of Allegheny that it would honor the checkamounted to certification of the bank, thus making itliable-the effect of the banks certifying a check at therequest of the holder is to create a new obligation onthe part of the bank to that holder, the amount of thecheck passes to the credit of the holder, who isthereafter a depositor to that amount-the obligation of the acceptor is to pay the instrumentaccording to the tenor of his acceptance. It has beensaid that an acceptor admits everything essential to thevalidity of the bill, and on this ground he cannot, forexample, even set up the defense of want ofconsideration between the parties.-the acceptor cannot defend on the ground of want of

consideration between the drawer and the payee

Disposition Judgment affirmed (Allegheny liable to payBuillet)

SUTTER V SECURITY TRUST CO96 N.J. Eq. 644 A. 435, 35 A.L.R. 938 (1924)~da~

FACTSSUBJECT: ChecksDRAWER: Mr. SutterDRAWEE: Security Trust Co.PAYEE: Mrs. SutterINDORSEE: Mr. Mack-Mr. Sutter drew a check in favor of his wife on March25 1922 in the amount of $1000 for which he procuredthe certification of drawee Security Trust Co. The checkwas delivered to his wife in consideration of a certainagreement between them concerning their separation.

The wife violated said agreement after the delivery ofthe check to her.-On March 27, 1922 Mr. Sutter requested that paymentbe stopped upon the check because of Mrs. Sutters

violation of their agreement. Mrs Sutter on the sameday went to her brother Mr. Mack and indorsed thecheck to him and he deposited it in his bank inPhiladelphia.-March 30, through the Federal Reserve Bank ofPhiladelphia, the check was presented to Security TrustCo for payment which was refused on ground ofpayment stopped. Respondent told Mr. Sutter thatthe check was in the hands of an innocent third personfor value and that unless he indemnified respondentthe check would be paid. He refused to indemnifyrespondent, thus respondent paid the check uponsubsequent presentment. Mr. Sutter demanded thepayment to him of his alleged balance of $1034.41 w/cincludes the $1000 drawn w/c was refused except as to

balance of $34.

ISSUEWON Security Trust Co. was justified in paying theindorsee Mr. Mack the $1000 value of the check

HELD: YES.-The Bank was justified and legally called upon to makepayment to Mrs. Sutter upon presentation and demandas against the notice of the maker of the check to stoppayment, its obligation under the facts was likewise tomake the payment to the indorsee holder Mr. MackReasoning: A check may be certified by the bank atthe request of the payee or the holder, when the checkis certified at the request of the drawer or maker before

it reaches the hands f the payee therein named. Whensuch a certification is made and there is delivery to the

payee, under the circumstances and conditions makinghim a bona fide holder for value, without notice ofdefects therein then the instrument is beyond recall bythe maker as against the payee. He may only do so(recall) if the payee is not a bona fide holder for valuebut has obtained the check by fraud perpetrated byhim upon the maker.

-In this case since Mr. Mack is not a holder in duecourse, it is necessary to inquire whether the bank byreason of its certification would have been justified inmaking payment to Mrs. Sutter the payee upon properpresentation of the check by her notwithstanding theservice of notice to stop payment by her husband themaker and the disclosure by him to the bank of theconditions upon which the check was obtained by Mrs.Sutters. There is nothing in the case that indicate thatMrs Sutter procured the check by any fraud perpetratedby her to her husband.

PNB V PICORNELLRomualdez; 46 Phil. 716 (1922)~bry_sj~

FACTSSUBJECT: Bill Of ExchangeDRAWER: Bartolome PicornellDRAWEE: Firm Of Hyndman, Tavera And VenturaPAYEE: PNB-Bartolome Picornell, following instructionHyndman, Tavera & Ventura, bought in Cebu 1,735bales of tobacco. Picornell obtained from the branch ofthe National Bank in Cebu the sum of P39,529,83, thevalue of the tobacco, together with his commission of 1real per quintal, having, in turn, drawn a bill ofexchange. This instrument was delivered to thebranch of the Philippine National Bank (PNB) inCebu, together with the invoice and bill of lading

of the tobacco, which was shipped in the boatDon Ildefonso, on 27 February 1920, consignedto Hyndman, Tavera & Ventura at Manila.-On 3 March 1920, PNB presented the bill toHyndman, Tavera & Ventura, who accepted it.

The tobacco having arrived at Manila, the firm of Tambunting, owner of the ship Don Ildefonso, thatbrought the shipment, requested Hyndman, Tavera &Ventura to send for the goods, which was done by thecompany without the knowledge of PNB which retainedand always had in its possession the invoice and bill oflading of the tobacco, until it presented them asevidence at the trial-Hyndman, Tavera & Ventura proceeded to theexamination of the tobacco, which was deposited in

their warehouses, and wrote and cabled to Picornell,notifying him that of the tobacco received, there was a

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certain portion which was of no use and was damaged. Through these communications, therefore, Picornelllearned that Hyndman, Tavera & Ventura had in theirpossession the tobacco.-In view of the question raised by the said company asto the quality of the aforesaid tobacco, morecorrespondence was exchanged between the company

and Picornell. Picornell requested PNB to extend thetime for payment of the bill for P39,529,83 againstMessrs. Hyndman, Tavera & Ventura of Manila for 30days. PNB granted the request of Picornell; whereforeHyndman, Tavera & Ventura reaccepted the bill in theterms: "Accepted for thirty days. Due May 2d, 1920.Hyndman, Tavera & Ventura, by (Sgd.) J. Pardo de

Tavera, member of the firm." 2 May 1920, arrived andthe bill was not paid.-On the 4th of the same month, Hyndman, Tavera &Ventura sent a letter to PNB informing the latter that itabsolutely refuse to pay draft 2 for P39,529.83,referring to 1,871,235 quintals of Leaf Tobacco Barili,owing to noncompliance of the contract by the drawer.PNB protested the bill, took possession of the tobacco,

and had it appraised on the 12th of the same month, itsvalue having been fixed at P28,790.72. The bankbrought the action for the recovery of the value of thebill of exchange, and about September 1921, sold thetobacco, obtaining from the sale P6,708.-In a decision rendered January 9, 1922, and amendedby an order of February 18th next, the Court of FirstInstance of Manila sentenced the defendants to paysolidarily to the plaintiff bank the sum of P28, 790.72with interest at the rte of 9 per centum per annum fromMay 3, 1921, and costs; and the defendant BartolomePicornell, to pay said plaintiff the sum of P10,739.11with interest at 9 per centum per annum, all asaforesaid, deducting the sum of P6, 708.82 from suchamounts to be paid by the defendants.

-This total sum which the defendants are required topay represents the value of a bill of exchange drawn byBartolome Picornell in favor of the National Bank,plaintiff, against the firm of Hyndman, Tavera &Ventura, now dissolved, its only successor being thedefendant Joaquin Pardo de Tavera. The sum ofP6,708.82, which the trial court ordereddeducted from the value of the bill of exchange,is the proceeds received by the bank from thesale of a part of a certain quantity of tobaccoshipped by Picornell at Cebu to the Hyndman,Tavera & Ventura company at Manila, the price ofwhich, together with his commission, was received byhim from the branch of the plaintiff bank in Cebu, andin consideration whereof he drew the bill in favor of the

central office of said bank in Manila and against the

said Hyndman, Tavera & Ventura company, theconsignee of the tobacco.-Joaquin Pardo de Tavera alleged that the bill inquestion was without consideration and that judgmentshould not have been rendered against him. Theappellant Picornell contended that it should have beentaken into account that he merely acted as an agent of

Hyndman, Tavera & Ventura in all these transactions;that the tobacco was not of inferior quality, as allegedby the said company; that the condition "D/P" attachedto the transaction was not modified; that he had theright to complain because the bank consented to thesaid company taking possession of the tobacco beforethe payment of the bill; that the bank held the tobaccoas a deposit; that the bank was not authorized to sellthe tobacco, said sale not being allowed either by lawor by the circumstances; that he should not have beenordered to pay the value of the bill without proof thathe was notified of its dishonor, as required by section89 of the Negotiable Instruments Law.

ISSUES

1. WON the bank is subject to the defense of partialwant of consideration.2. WON Picornell is not liable on the instrument on thetheory that he is merely a commissioned agent.

HELD1. NO.-The question whether or not the tobacco was worththe value of the bill, does not concern the plaintiffbank. Such partial want of consideration, if it was, doesnot exist with respect to the bank which paid toPicornell the full value of said bill of exchange. Thebank was a holder in due course, and was such forvalue full and complete. The Hyndman, Tavera &Ventura company cannot escape liability in view of

section 28 of the Negotiable Instruments Law.The drawee by acceptance becomes liable to thepayee or his indorsee, and also to the drawer himself.But the drawer and acceptor are the immediate partiesto the consideration, and if the acceptance be withoutconsideration, the drawer cannot recover of theacceptor. The payee holds a different relation; he is astranger to the transaction between the drawer and theacceptor, and is, therefore, in a legal sense a remote

party. In a suit by him against the acceptor, thequestion as to the consideration between the drawerand the acceptor cannot be inquired into. The payee orholder gives value to the drawer, and if he is ignorantof the equities between the drawer and the acceptor,he is in the position of a bona fide indorsee. Hence, it is

no defense to a suit against the acceptor of a draftwhich has been discounted, and upon which money has

been advanced by the plaintiff, that the draft wasaccepted for the accommodation of the drawer. . . ."2. NO.-As to Bartolome Picornell, he warranted, as drawer ofthe bill, that it would be accepted upon properpresentment and paid in due course, and as it was notpaid, he became liable to the payment of its value to

the holder thereof, which is the plaintiff bank. (Sec. 61,Negotiable Instruments Law.)-The fact that Picornell was a commission agentof Hyndman, Tavera & Ventura, in the purchaseof the tobacco, does not necessarily make him anagent of the company in its obligations arisingfrom the drawing of the bill by him. His acts innegotiating the bill constitute a different contract fromthat made by his having purchased the tobacco onbehalf of Hyndman, Tavera & Ventura. Furthermore, hecannot exempt himself from responsibility by the factof his having been a mere agent of this company,BECAUSE NOTHING TO THIS EFFECT WAS INDICATEDOR ADDED TO HIS SIGNATURE ON SIGNING THE BILL.(Sec. 20, Negotiable Instruments Law.)

-Concerning the notice to Picornell of the dishonor ofthe bill, it appears from Exhibit C, which is the protestfor the non-payment thereof, that a copy of suchprotest was sent by mail in good season addressed toBartolome Picornell, the presumption, now conclusive,that the latter received it (secs. 105, 106, NegotiableInstruments Law), not having been rebutted, or atleast, contradicted. Upon the non-payment of the bill bythe drawee-acceptor, the bank had the right ofrecourse, which it exercised, against the drawer. (Sec.84, Negotiable Instruments Law.)-The drawee, the Hyndman, Tavera & Venturacompany, or its successors, J. Pardo de Tavera,accepted the bill and is primarily liable for the value ofthe negotiable instrument, while the drawer, Bartolome

Picornell, is secondarily liable. However, no questionhas been raised about this aspect of the responsibilityof the defendants.

BANCO ATLANTICO V AUDITOR GENERALG.R. No. L-33549; Fernandez; Jan 31,1978~mel~

FACTSSUBJECT: Philippine Embassy check dated Oct 31, 1968for US$10,109.10DRAWER: Luis M. Gonzales, its ambassador and by saidVirginia Boncan as Finance OfficerDRAWEE: Philippine National Bank branch in New York,U.S.A

PAYEE: Azucena Pace

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INDORSEE: Banco Atlantico, a commercial Bank doingbusiness in Madrid-Virginia Boncan, then the Finance Officer of thePhilippine Embassy in Madrid, Spain, negotiated withBanco Atlantico a Philippine Embassy check signed byLuis M. Gonzales, its ambassador and by said VirginiaBoncan as Finance Officer, dated October 31, 1968 in

the sum of US$10,109.10 payable to Azucena Pace anddrawn against the PNB branch in New York, U.S.A.-The check was endorsed by Azucena Pace and VirginiaBonca. The petitioner, without clearing the check withthe drawn bank in New York, U.S.A., paid the fullamount of US$10,109.10 to Virginia Boncan; that onNovember 2, 1968, Virginia Boncan negotiated byendorsement with the petitioner another embassycheck signed by Luis M. Gonzales as ambassador andby her as finance officer in the sum of US$35,000.75dated November 2, 1968 payable to Virginia Boncanand drawn against the Philippine National Bank branchin New York, U.S.A.; that the petitioner paid the fullamount of the check to Virginia Boncan withoutclearing said check with the drawn bank, that on

November 5, 1968, Virginia Boncan negotiated byendorsement with petitioner another embassy checksigned by Ambassador Luis M. Gonzales and by FinanceOfficer Virginia Boncan in the sum of US$90,000.00dated November 5, 1968 payable to Virginia Boncanand drawn against the Philippine National Bank in New

York, U.S.A.; that the petitioner paid the full amount ofthe aforementioned check of US$90,000.00 to VirginiaBoncan without clearing said check with the drawnbank;-Upon presentment for acceptance and payment of theaforementioned checks by Banco Atlantico through itscollecting bank in New York, U.S.A. to the drawn bank,the Philippine National Bank branch in U.S.A., saiddrawee bank dishonored the checks by non-acceptance

allegedly on the ground that the drawer had orderedpayments to be stopped; that upon receipt of thenotice of the dishonor, the collecting bank of thepetitioner in New York, U.S.A. sent individual notices ofprotest with respect to the checks in question to thePhilippine Embassy in Madrid, Spain and to VirginiaBoncan as endorser payee that Virginia Boncan and thePhilippine Embassy in Madrid, Spain refused to pay thepetitioner the amounts of the aforementioned checks.-Petitioner Banco Atlantico filed corresponding moneyclaim with the Auditor General. AUDITOR GENERAL: de-nied the claim of the petitioner for the amounts of thethree checks in question, stating that the Embassy nev-er maintained any checking account with Banco Atlanti-co at any time in the past. Only the individual staff

members of the Embassy, including Miss Virginia Bon-can, in their personal and private capacities, main-

tained accounts with said bank. It also stated that whilethe aforementioned checks of the Embassy may haveappeared valid, payment to Miss Boncan in her capacityas endorser and payee of the checks without clearingthem first with the drawee bank is definitely not in ac-cordance with normal or ordinary banking practice, es-pecially so in this case where the drawee bank was a

foreign bank, and the amounts involved were quitelarge. The normal procedure would have been for theBanco Atlantico to clear the three cheeks concernedwith the drawee bank before paying Miss Boncan. Thelower court have gathered enough proof that Miss Bon-can had very special relations with the employees andchiefs of the claimant bank's foreign department. Thispersonal relationship that existed between Miss Boncanand said employees and officers was one thing and or-dinary banking transactions were something else. Be-cause of this special relationship, the bank took a riskand sacrificed normal banking procedures by cashingthe aforementioned checks without prior clearancefrom the drawee bank.-Further proof of the special relationship between

claimant bank and Miss Boncan was the leniency of thebank towards her when it accepted for deposit to MissBoncan's dollar account an Embassy check forUS$75.00 payable to Mr. Antonio P. Villamor without hisindorsement. Such leniency on the part of the bankcould even lead to the suspicion that there was collu-sion between the bank and Miss Boncan A photocopy ofthis check is enclose for ease of reference. In the par-ticular case of the check for US$90,000.00 we candemonstrate that claimant bank likewise has no ewe atall. Section 61 of the Negotiable instruments Law canonly be availed of by holders in due course and BancoAtlantico cannot be considered as one

ISSUE

WON the Philippine Embassy in Madrid is liable, asdrawer of the 3 checks in question

HELD: NORatio: It is apparent that the said three (3) checkswere fraudulently altered by Virginia Boncan as to theiramounts and, therefore, wholly inoperative. No right ofpayment thereof against any party thereto could havebeen acquired by the petitioner.Reasoning: The petitioner paid the amounts of thethree (3) checks in question to Virginia Boncan withoutpreviously clearing the said checks with the