RCBC v. Odrada

SUPREME COURT REPORTS ANNOTATED VOLUME 806 12/16/19, 3:41 PM
G.R. No. 219037. October 19, 2016.*
RCBC SAVINGS BANK, petitioner, vs. NOEL M.

ODRADA, respondent.
Civil Law; Sales; Contract of Sale; Under the law on sales, a

contract of sale is perfected the moment there is a meeting of the
minds upon the thing which is the object of the contract and upon
the price which is the consideration.·Under the law on sales, a
contract of sale is perfected the moment there is a meeting of the
minds upon the thing which is the object of the contract and upon
the price which is the consideration. From that moment, the parties
may reciprocally
_______________
* SECOND DIVISION.
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VOL. 806, OCTOBER 19, 2016 647

RCBC Savings Bank vs. Odrada
demand performance. Performance may be done through

delivery, actual or constructive. Through delivery, ownership is
transferred to the vendee. However, the obligations between the
parties do not cease upon delivery of the subject matter. The vendor
and vendee remain concurrently bound by specific obligations. The
vendor, in particular, is responsible for an implied warranty against
hidden defects.
Same; Same; Same; Warranty Against Hidden Faults or
Defects; The law fixes the liability of the vendor for hidden defects
whether known or unknown to him at the time of the sale.·Article
1547 of the Civil Code states: „In a contract of sale, unless a
contrary intention appears, there is an implied warranty that the
thing shall be free from any hidden faults or defects.‰ Article 1566
of the Civil Code provides that „the vendor is responsible to the
vendee for any hidden faults or defects in the thing sold, even
though he was not aware thereof.‰ As a consequence, the law fixes
the liability of the vendor for hidden defects whether known or
unknown to him at the time of the sale.
Same; Same; Same; Same; Hidden Defects; Words and Phrases;
The law defines a hidden defect as one which would render the thing
sold unfit for the use for which it is intended, or would diminish its
fitness for such use to such an extent that, had the vendee been
aware thereof, he would not have acquired it or would have given a
lower price for it.·The law defines a hidden defect as one which
would render the thing sold unfit for the use for which it is
intended, or would diminish its fitness for such use to such an
extent that, had the vendee been aware thereof, he would not have
acquired it or would have given a lower price for it. In this case,
Odrada and Lim entered into a contract of sale of the Montero.
Following the initial down payment and execution of the deed of
sale, the Montero was delivered by Odrada to Lim and the latter
took possession of the Montero. Notably, under the law, OdradaÊs
warranties against hidden defects continued even after the
MonteroÊs delivery. Consequently, a misrepresentation as to the
MonteroÊs roadworthiness constitutes a breach of warranty against
hidden defects.
Mercantile Law; Negotiable Instruments Law; ManagerÊs
Check; Words and Phrases; Jurisprudence defines a managerÊs check

as a check drawn by the bankÊs manager upon the bank itself and
accepted
648
648 SUPREME COURT REPORTS ANNOTATED

in advance by the bank by the act of its issuance.·

Jurisprudence defines a managerÊs check as a check drawn by the
bankÊs manager upon the bank itself and accepted in advance by the
bank by the act of its issuance. It is really the bankÊs own check and
may be treated as a promissory note with the bank as its maker.
Consequently, upon its purchase, the check becomes the primary
obligation of the bank and constitutes its written promise to pay the
holder upon demand. It is similar to a cashierÊs check both as to
effect and use in that the bank represents that the check is drawn
against sufficient funds.
Same; Same; As a general rule, the drawee bank is not liable
until it accepts; Once he accepts, the drawee admits the following: (a)
existence of the drawer; (b) genuineness of the drawerÊs signature; (c)
capacity and authority of the drawer to draw the instrument; and (d)
existence of the payee and his then capacity to endorse.·As a
general rule, the drawee bank is not liable until it accepts. Prior to
a billÊs acceptance, no contractual relation exists between the holder
and the drawee. Acceptance, therefore, creates a privity of contract
between the holder and the drawee so much so that the latter, once
it accepts, becomes the party primarily liable on the instrument.
Accordingly, acceptance is the act which triggers the operation of
the liabilities of the drawee (acceptor) under Section 62 of the
Negotiable Instruments Law. Thus, once he accepts, the drawee
admits the following: (a) existence of the drawer; (b) genuineness of
the drawerÊs signature; (c) capacity and authority of the drawer to
draw the instrument; and (d) existence of the payee and his then
capacity to endorse.
Same; Same; Checks; ManagerÊs Checks; While the Supreme
Court (SC) has consistently held that a managerÊs check is
automatically accepted, a holder other than a holder in due course is

still subject to defenses.·As can be gleaned in a long line of cases
decided by this Court, a managerÊs check is accepted by the bank
upon its issuance. As compared to an ordinary bill of exchange
where acceptance occurs after the bill is presented to the drawee,
the distinct feature of a managerÊs check is that it is accepted in
advance. Notably, the mere issuance of a managerÊs check creates a
privity of contract between the holder and the drawee bank, the
latter primarily binding itself to pay according to the tenor of its
acceptance. The drawee bank, as a result, has the unconditional
obligation to pay a
649
VOL. 806, OCTOBER 19, 2016 649

managerÊs check to a holder in due course irrespective of any

available personal defenses. However, while this Court has
consistently held that a managerÊs check is automatically accepted,
a holder other than a holder in due course is still subject to
defenses. In International Corporate Bank v. Spouses Gueco, 351
SCRA 516 (2001), which involves a delivered managerÊs check, the
Court still considered whether the check had become stale: It has
been held that, if the check had become stale, it becomes imperative
that the circumstances that caused its non-presentment be
determined. In the case at bar, there is no doubt that the petitioner
bank held on the check and refused to encash the same because of
the controversy surrounding the signing of the joint motion to
dismiss. We see no bad faith or negligence in this position taken by
the bank.
Same; Same; Same; Same; The drawee bank of a managerÊs
check may interpose personal defenses of the purchaser of the
managerÊs check if the holder is not a holder in due course.·The
drawee bank of a managerÊs check may interpose personal defenses
of the purchaser of the managerÊs check if the holder is not a holder
in due course. In short, the purchaser of a managerÊs check may
validly countermand payment to a holder who is not a holder in due
course. Accordingly, the drawee bank may refuse to pay the

managerÊs check by interposing a personal defense of the purchaser.
Hence, the resolution of the present case requires a determination
of the status of Odrada as holder of the managerÊs checks. In this
case, the Court of Appeals gravely erred when it considered Odrada
as a holder in due course. Section 52 of the Negotiable Instruments
Law defines a holder in due course as one who has taken the
instrument under the following conditions: (a) That it is complete
and regular upon its face; (b) That he became the holder of it before
it was overdue, and without notice that it has been previously
dishonored, if such was the fact; (c) That he took it in good faith
and for value; (d) That at the time it was negotiated to him, he had
no notice of any infirmity in the instrument or defect in the title of
the person negotiating it.
Same; Same; Holder in Due Course; To be a holder in due
course, the law requires that a party must have acquired the
instrument in good faith and/or value.·To be a holder in due
course, the law requires that a party must have acquired the
instrument in good faith and for value. Good faith means that the
person taking the
650

instrument has acted with due honesty with regard to the

rights of the parties liable on the instrument and that at the time
he took the instrument, the holder has no knowledge of any defect
or infirmity of the instrument. To constitute notice of an infirmity in
the instrument or defect in the title of the person negotiating the
same, the person to whom it is negotiated must have had actual
knowledge of the infirmity or defect, or knowledge of such facts that
his action in taking the instrument would amount to bad faith.
Value, on the other hand, is defined as any consideration sufficient
to support a simple contract.
PETITION for review on certiorari of the decision and
resolution of the Court of Appeals.

The facts are stated in the opinion of the Court.
Agbayani, Regino, Amboy & Associates for petitioner.
Richard J. Nethercott for respondent.
CARPIO, J.:
The Case
Before the Court is a petition for review on certiorari1

assailing the 26 March 2014 Decision2 and the 18 June
2015 Resolution3 of the Court of Appeals in C.A.-G.R. CV
No. 94890.
The Facts
In April 2002, respondent Noel M. Odrada (Odrada) sold

a secondhand Mitsubishi Montero (Montero) to Teodoro L.
Lim
_______________
1 Rollo, pp. 9-23. Under Rule 45 of the 1997 Rules of Civil Procedure.
2 Id., at pp. 29-36. Penned by Associate Justice Eduardo B. Peralta,
Jr., with Associate Justices Magdangal M. De Leon and Stephen C. Cruz,
concurring.
3 Id., at pp. 52-53.
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VOL. 806, OCTOBER 19, 2016 651

(Lim) for One Million Five Hundred Ten Thousand Pesos

(P1,510,000). Of the total consideration, Six Hundred Ten
Thousand Pesos (P610,000) was initially paid by Lim and
the balance of Nine Hundred Thousand Pesos (P900,000)
was financed by petitioner RCBC Savings Bank (RCBC)
through a car loan obtained by Lim.4 As a requisite for the

approval of the loan, RCBC required Lim to submit the
original copies of the Certificate of Registration (CR) and
Official Receipt (OR) in his name. Unable to produce the
MonteroÊs OR and CR, Lim requested RCBC to execute a
letter addressed to Odrada informing the latter that his
application for a car loan had been approved.
On 5 April 2002, RCBC issued a letter that the balance
of the loan would be delivered to Odrada upon submission
of the OR and CR. Following the letter and initial down
payment, Odrada executed a Deed of Absolute Sale on 9
April 2002 in favor of Lim and the latter took possession of
the Montero.5
When RCBC received the documents, RCBC issued two
managerÊs checks dated 12 April 2002 payable to Odrada
for Nine Hundred Thousand Pesos (P900,000) and Thirteen
Thousand Five Hundred Pesos (P13,500).6 After the
issuance of the managerÊs checks and their turnover to
Odrada but prior to the checksÊ presentation, Lim notified
Odrada in a letter dated 15 April 2002 that there was an
issue regarding the roadworthiness of the Montero. The
letter states:
April 15, 2002
Mr. Noel M. Odrada

C/o Kotse Pilipinas
Fronting Ultra, Pasig City
Thru: Shan Mendez
_______________
4 Id., at p. 29.
5 Id., at p. 30.
6 Id.
652
Dear Mr. Odrada,
Please be inform[ed] that I am going to cancel or

exchange the (1) one unit Montero that you sold to me
thru Mr. Shan Mendez because it did not match your
representations the way Mr. Shan Mendez explained to
me like:
1. You told me that the said vehicle has not experience[d]

collision. However, it is hidden, when you open its engine cover
there is a trace of a head-on collision. The condenser is
smashed, the fender support is not align[ed], both bumper
supports] connecting [the] chassis were crippled and welded,
the hood support was repaired, etc.
2. The 4-wheel drive shift is not functioning. When Mr.
Mendez was asked about it, he said it would not function until
you can reach the speed of 30 miles.
3. During Mr. Mendez[Ês] representation, he said the
odometer has still an original mileage data but found
tampered.
4. You represented the vehicle as model 1998 however, it is
indicated in the front left A-pillar inscribed at the
identification plate [as] model 1997.
Therefore, please show your sincerity by personally

inspecting the said vehicle at RCBC, Pacific Bldg.
Pearl Drive, Ortigas Center, Pasig City. Let us meet at
the said bank at 10:00 AM, April 17, 2002.
Meanwhile, kindly hold or do not encash the managerÊs

check[s] issued to you by RCBC until you have clarified
and satisfied my complaints.
Sincerely yours,
Teodoro L. Lim
Cc: Dario E. Santiago, RCBC loan

Legal7
_______________
7 Records, p. 23.
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VOL. 806, OCTOBER 19, 2016 653

Odrada did not go to the slated meeting and instead

deposited the managerÊs checks with International
Exchange Bank (Ibank) on 16 April 2002 and redeposited
them on 19 April 2002 but the checks were dishonored both
times apparently upon LimÊs instruction to RCBC.8
Consequently, Odrada filed a collection suit9 against Lim
and RCBC in the Regional Trial Court of Makati.10
In his Answer,11 Lim alleged that the cancellation of the
loan was at his instance, upon discovery of the
misrepresentations by Odrada about the MonteroÊs
roadworthiness. Lim claimed that the cancellation was not
done ex parte but through a letter12 dated 15 April 2002.13
He further alleged that the letter was delivered to Odrada
prior to the presentation of the managerÊs checks to
RCBC.14
On the other hand, RCBC contended that the managerÊs
checks were dishonored because Lim had cancelled the
loan. RCBC claimed that the cancellation of the loan was
prior to the presentation of the managerÊs checks.
Moreover, RCBC alleged that despite notice of the defective
condition of the Montero, which constituted a failure of
consideration, Odrada still proceeded with presenting the
managerÊs checks.
It was later disclosed during trial that RCBC also sent a
formal notice of cancellation of the loan on 18 April 2002 to
both Odrada and Lim.15
_______________
8 Rollo, p. 30.
9 Civil Case No. 02-453.

10 Branch 66, Makati City.
11 Records, pp. 18-21.
12 Id., at p. 23.
13 Id., at p. 19.
14 Id.
15 Rollo, p. 30.
654

The Regional Trial CourtÊs Ruling
In its Decision16 dated 1 October 2009, the trial court

ruled in favor of Odrada. The trial court held that Odrada
was the proper party to ask for rescission.17 The lower
court reasoned that the right of rescission is implied in
reciprocal obligations where one party fails to perform
what is incumbent upon him when the other is willing and
ready to comply. The trial court ruled that it was not proper
for Lim to exercise the right of rescission since Odrada had
already complied with the contract of sale by delivering the
Montero while Lim remained delinquent in payment.18
Since Lim was not ready, willing, and able to comply with
the contract of sale, he was not the proper party entitled to
rescind the contract.
The trial court ruled that the defective condition of the
Montero was not a supervening event that would justify
the dishonor of the managerÊs checks. The trial court
reasoned that a managerÊs check is equivalent to cash and
is really the bankÊs own check. It may be treated as a
promissory note with the bank as maker. Hence, the check
becomes the primary obligation of the bank which issued it
and constitutes a written promise to pay on demand.19
Being the party primarily liable, the trial court ruled that
RCBC was liable to Odrada for the value of the managerÊs
checks.
Finally, the trial court found that Odrada suffered

sleepless nights, humiliation, and was constrained to hire
the services of a lawyer meriting the award of damages.20
The dispositive portion of the Decision reads:
_______________
16 Id., at pp. 55-62. Penned by Judge Joselito Villarosa.

17 Id., at p. 59.
18 Id.
19 Id., at p. 60.
20 Id., at p. 61.
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VOL. 806, OCTOBER 19, 2016 655

WHEREFORE, premises considered, judgment is hereby

rendered:
(a) Directing defendant RCBC to pay plaintiff the

amount of Php913,500.00 representing the cash equivalent of
the two (2) managerÊs checks, plus 12% interest from the date
of filing of the case until fully paid;
(b) Directing defendants to solidarily pay moral damages
in the amount of Php500,000.00 and exemplary damages in
the amount of Php500,000.00;
(c) Directing defendants to solidarily pay attorneyÊs fees
in the amount of Php300,000.00.
Finally, granting the cross-claim of defendant RCBC, Teodoro L.

Lim is hereby directed to indemnify RCBC Savings Bank for the
amount adjudged for it to pay plaintiff.
SO ORDERED.21
RCBC and Lim appealed from the trial courtÊs decision.
The Court of AppealsÊ Ruling
In its assailed 26 March 2014 Decision, the Court of

Appeals dismissed the appeal and affirmed the trial courtÊs
1 October 2009 Decision.
The Court of Appeals ruled that the two managerÊs
checks, which were complete and regular, reached the
hands of Lim who deposited the same in his bank account
with Ibank. RCBC knew that the amount reflected on the
managerÊs checks represented LimÊs payment for the
remaining balance of the MonteroÊs purchase price. The
appellate court held that when RCBC issued the managerÊs
checks in favor of Odrada,
_______________
21 Id., at p. 62.
656

RCBC admitted the existence of the payee and his then

capacity to endorse, and undertook that on due
presentment the checks which were negotiable instruments
would be accepted or paid, or both according to its tenor.22
The appellate court held that the effective delivery of the
checks to Odrada made RCBC liable for the checks.23
On RCBCÊs defense of want of consideration, the Court
of Appeals affirmed the finding of the trial court that
Odrada was a holder in due course. The appellate court
ruled that the defense of want of consideration is not
available against a holder in due course.24
Lastly, the Court of Appeals found that the award of
moral and exemplary damages and attorneyÊs fees was
excessive. Hence, modification was proper.
The dispositive portion of the Decision reads:
WHEREFORE, the impugned Decision of the court a quo in Civil
Case No. 02-453 is hereby AFFIRMED with MODIFICATION

insofar as the reduction of awards for moral, exemplary damages
and attorneyÊs fees to P50,000.00, P20,000.00, and P20,000.00
respectively.
SO ORDERED.25
RCBC and Lim filed a motion for reconsideration26 on 28

April 2014. In its 18 June 2015 Resolution, the Court of
Appeals denied the motion for lack of merit.27
RCBC alone28 filed this petition before the Court. Thus,
the decision of the Court of Appeals became final and
executory as to Lim.
_______________
22 Id., at p. 34.
23 Id.
24 Act No. 2031 (1911), Sec. 24.
25 Rollo, p. 35.
26 Id., at pp. 38-50.
27 Id., at pp. 52-53.
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VOL. 806, OCTOBER 19, 2016 657

The Issues
RCBC presented the following, issues in this petition:
A. The court a quo gravely erred in finding that as between

Odrada as seller and Lim as buyer of the vehicle, only the former
has the right to rescind the contract of sale finding failure to
perform an obligation under the contract of sale on the part of the
latter only despite the contested roadworthiness of the vehicle,
subject matter of the sale.
1. Whether or not the court a quo erred in holding that Lim
cannot cancel the auto loan despite the failure in

consideration due to the contested roadworthiness of the
vehicle delivered by Odrada to him.29
B. The court a quo gravely erred when it found that Odrada is a

holder in due course of the managerÊs checks in question despite
being informed of the cancellation of the auto loan by the borrower,
Lim.
1. Whether or not Lim can validly countermand the

managerÊs checks in the hands of a holder who does not hold
the same in due course.30
Odrada failed to file a comment31 within the period

prescribed by this Court.32
_______________
28 The records show that RCBC was the only party in the original
case which filed an appeal to this Court.
29 Rollo, p. 13.
30 Id., at p. 19.
31 Rule 47, Sec. 7. Effect of failure to file comment.·When no
comment is filed by any of the respondents, the case may be decided on
the basis of the record, without prejudice to any disciplinary action which
the court may take against the disobedient party.
32 Counsel for Odrada failed to file comment on the petition within
the period prescribed in the Resolution dated 30 September 2015, which
period expired on 22 November 2015.
658

The Ruling of this Court
We grant the petition.

Under the law on sales, a contract of sale is perfected
the moment there is a meeting of the minds upon the thing

which is the object of the contract and upon the price which
is the consideration. From that moment, the parties may
reciprocally demand performance.33 Performance may be
done through delivery, actual or constructive. Through
delivery, ownership is transferred to the vendee.34 However,
the obligations between the parties do not cease upon
delivery of the subject matter. The vendor and vendee
remain concurrently bound by specific obligations. The
vendor, in particular, is responsible for an implied
warranty against hidden defects.
Article 1547 of the Civil Code states: „In a contract of
sale, unless a contrary intention appears, there is an
implied warranty that the thing shall be free from any
hidden faults or defects.‰35 Article 1566 of the Civil Code
provides that „the vendor is responsible to the vendee for
any hidden faults or defects in the thing sold, even though
he was not aware thereof.‰36 As a consequence, the law
fixes the liability of the vendor for hidden defects whether
known or unknown to him at the time of the sale.
The law defines a hidden defect as one which would
render the thing sold unfit for the use for which it is
intended, or would diminish its fitness for such use to such
an extent that, had the vendee been aware thereof, he
would not have acquired it or would have given a lower
price for it.37
In this case, Odrada and Lim entered into a contract of
sale of the Montero. Following the initial down payment
and exe-
_______________
33 CIVIL CODE, Art. 1475.

34 Id., Art. 1478.
35 Id., Art. 1547(2).
36 Id., Art. 1485.
37 Id., Art. 1561.
659
VOL. 806, OCTOBER 19, 2016 659

cution of the deed of sale, the Montero was delivered by

Odrada to Lim and the latter took possession of the
Montero. Notably, under the law, OdradaÊs warranties
against hidden defects continued even after the MonteroÊs
delivery. Consequently, a misrepresentation as to the
MonteroÊs roadworthiness constitutes a breach of warranty
against hidden defects.
In Supercars Management & Development Corporation
v. Flores,38 we held that a breach of warranty against
hidden defects occurred when the vehicle, after it was
delivered to respondent, malfunctioned despite repairs by
petitioner.39 In the present case, when Lim acquired
possession, he discovered that the Montero was not
roadworthy. The engine was misaligned, the automatic
transmission was malfunctioning, and the brake rotor
disks needed refacing.40 However, during the proceedings
in the trial court, LimÊs testimony was stricken off the
record because he failed to appear during cross-
examination.41 In effect, Lim was not able to present clear
preponderant evidence of the MonteroÊs defective condition.
RCBC May Refuse to Pay ManagerÊs Checks
We address the legal question of whether or not the

drawee bank of a managerÊs check has the option of
refusing payment by interposing a personal defense of the
purchaser of the managerÊs check who delivered the check
to a third party.
In resolving this legal question, this Court will examine
the nature of a managerÊs check and its relation to personal
defenses under the Negotiable Instruments Law.42
Jurisprudence defines a managerÊs check as a check
drawn by the bankÊs manager upon the bank itself and
accepted in
_______________
38 487 Phil. 259; 446 SCRA 34 (2004).

39 Id., at p. 268; pp. 41-42.

41 Id., at p. 213.
42 Act No. 2031 (1911).
660

advance by the bank by the act of its issuance.43 It is really

the bankÊs own check and may be treated as a promissory
note with the bank as its maker.44 Consequently, upon its
purchase, the check becomes the primary obligation of the
bank and constitutes its written promise to pay the holder
upon demand.45 It is similar to a cashierÊs check46 both as
to effect and use in that the bank represents that the check
is drawn against sufficient funds.47
As a general rule, the drawee bank is not liable until it
accepts.48 Prior to a billÊs acceptance, no contractual
relation exists between the holder49 and the drawee.
Acceptance, therefore, creates a privity of contract between
the holder and the drawee so much so that the latter, once
it accepts, becomes the party primarily liable on the
instrument.50 Accordingly, acceptance is the act which
triggers the operation of the liabilities of the drawee
(acceptor) under Section 6251 of the
_______________
43 Rizal Commercial Banking Corporation v. Hi-Tri Development

Corporation, 687 Phil. 481; 672 SCRA 514 (2012); Bank of the Philippine
Islands v. Roxas, 562 Phil. 161; 536 SCRA 168 (2007); Bank of the
Philippine Islands v. Court of Appeals, 383 Phil. 538; 326 SCRA 641
(2000); Tan v. Court of Appeals, G.R. No. 108555, 20 December 1994, 239
SCRA 310.
44 Id.
45 Tan v. Court of Appeals, id.
46 For purposes of brevity and applying the previous rulings of this
Court when the Court refers to a managerÊs check, cashierÊs checks are
also included.
47 Bank of the Philippine Islands v. Court of Appeals, supra.
48 Act No. 2031 (1911), Sec. 127.
49 Payee or indorsee of a bill or note who is in possession of it, or the
bearer thereof.
50 Act No. 2031 (1911), Sec. 127.
51 Sec. 62. Liability of Acceptor.·The acceptor, by accepting the
instrument, engages that he will pay it according to the tenor of his
acceptance and admits:
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VOL. 806, OCTOBER 19, 2016 661

Negotiable Instruments Law. Thus, once he accepts, the

drawee admits the following: (a) existence of the drawer;
(b) genuineness of the drawerÊs signature; (c) capacity and
authority of the drawer to draw the instrument; and (d)
existence of the payee and his then capacity to endorse.
As can be gleaned in a long line of cases decided by this
Court, a managerÊs check is accepted by the bank upon its
issuance. As compared to an ordinary bill of exchange
where acceptance occurs after the bill is presented to the
drawee, the distinct feature of a managerÊs check is that it
is accepted in advance. Notably, the mere issuance of a
managerÊs check creates a privity of contract between the
holder and the drawee bank, the latter primarily binding
itself to pay according to the tenor of its acceptance.
The drawee bank, as a result, has the unconditional
obligation to pay a managerÊs check to a holder in due
course irrespective of any available personal defenses.
However, while this Court has consistently held that a
managerÊs check is automatically accepted, a holder other
than a holder in due course is still subject to defenses.
In International Corporate Bank v. Spouses Gueco,52 which
involves a delivered managerÊs check, the Court still
considered whether the check had become stale:
It has been held that, if the check had become stale, it becomes
imperative that the circumstances that caused its non-presentment
be determined. In the case at bar, there is no doubt that the
petitioner bank held on the check and refused to encash the same
because of the controversy surrounding the signing of the joint
motion to
_______________
(a) The existence of the drawer, the genuineness of his signature

and his capacity and authority to draw the instrument, and
(b) The existence of the payee and his then capacity to indorse.
52 404 Phil. 353; 351 SCRA 516 (2001).
662

dismiss. We see no bad faith or negligence in this position taken by

the bank.53
In International Corporate Bank, this Court considered

whether the holder presented the managerÊs check within a
reasonable time after its issuance · a circumstance
required for holding the instrument in due course.54
Similarly, in Rizal Commercial Banking Corporation v.
Hi-Tri Development Corporation,55 the Court observed that
the mere issuance of a managerÊs check does not ipso facto
work as an automatic transfer of funds to the account of
the payee.56 In order for the holder to acquire title to the
instrument, there still must have been effective delivery.
Accordingly, the Court, taking exception to the managerÊs
check automatic transfer of funds to the payee, declared
that: „the doctrine that the deposit represented by a
managerÊs check automatically passes to the payee is
inapplicable, because the instrument · although accepted
in advance remains undelivered.‰57 This Court ruled that
the holder did not acquire the instrument in due course
since title had not passed for lack of delivery.58

We now address the main legal question: if the holder of
a managerÊs check is not a holder in due course, can the
drawee bank interpose a personal defense of the purchaser?
_______________
53 Id., at p. 368; p. 529.

54 Sec. 53. When person not deemed holder in due course.·Where
an instrument payable on demand is negotiated on an unreasonable
length of time after its issue, the holder is not deemed a holder in due
course.
55 Rizal Commercial Banking Corporation v. Hi-Tri Development
Corporation, supra note 43.
56 Id., at p. 499; p. 530.
57 Id., at p. 500; pp. 531-532.
58 Notably, under Section 16 of the Negotiable Instruments Law, a
complete yet undelivered negotiable instrument gives rise to a personal
defense.
663
VOL. 806, OCTOBER 19, 2016 663

Our rulings in Mesina v. Intermediate Appellate Court59

and United Coconut Planters Bank v. Intermediate
Appellate Court60 shed light on the matter.
In Mesina, Jose Go purchased a managerÊs check from
Associated Bank. As he left the bank, Go inadvertently left
the check on top of the desk of the bank manager. The bank
manager entrusted the check for safekeeping to another
bank official who at the time was attending to a customer
named Alexander Lim.61 After the bank official answered
the telephone and returned from the menÊs room, the
managerÊs check could no longer be found. After learning
that his managerÊs check was missing, Go immediately
returned to the bank to give a stop payment order on the
check. A third party named Marcelo Mesina deposited the
managerÊs check with Prudential Bank but the drawee

bank sent back the managerÊs check to the collecting bank
with the words „payment stopped.‰ When asked how he
obtained the managerÊs check, Mesina claimed it was paid
to him by Lim in a „certain transaction.‰62
While this Court acknowledged the general causes and
effects of a managerÊs check, it noted that other factors
were needed to be considered, namely the manner by which
Mesina acquired the instrument. This Court declared:
PetitionerÊs allegations hold no water. Theories and examples

advanced by petitioner on causes and effects of a cashierÊs check
such as (1) it cannot be countermanded in the hands of a holder in
due course and (2) a cashierÊs check is a bill of exchange drawn by
the bank against itself · are general principles which cannot be
aptly applied to the case at bar, without considering other things.
Petitioner failed to substantiate his claim that he is a
_______________
59 Mesina v. Intermediate Appellate Court, 229 Phil. 495; 145 SCRA

497 (1986).
60 262 Phil. 397; 183 SCRA 368 (1990).
61 Mesina v. Intermediate Appellate Court, supra at p. 498; pp. 500-
501.
62 Id., at p. 499; pp. 501-502.
664

holder in due course and for consideration or value as shown by the

established facts of the case. Admittedly, petitioner became the
holder of the cashierÊs check as endorsed by Alexander Lim who
stole the check. He refused to say how and why it was passed to
him. He had therefore notice of the defect of his title over the check
from the start.63
Ultimately, the notice of defect affected MesinaÊs claim

as a holder of the managerÊs check. This Court ruled that
the issuing bank could validly refuse payment
because Mesina was not a holder in due course.
Unequivocally, the Court declared: „the holder of a
cashierÊs check who is not a holder in due course
cannot enforce such check against the issuing bank
which dishonors the same.‰64
In the same manner, in United Coconut Planters Bank
(UCPB),65 this Court ruled that the drawee bank was
legally justified in refusing to pay the holder of a managerÊs
check who did not hold the check in due course. In UCPB,
Altiura Investors, Inc. purchased a managerÊs check from
UCPB, which then issued a managerÊs check in the amount
of Four Hundred Ninety-Four Thousand Pesos (P494,000)
to Makati Bel-Air Developers, Inc. The managerÊs check
represented the payment of Altiura Investors, Inc. for a
condominium unit it purchased from Makati Bel-Air
Developers, Inc. Subsequently, Altiura Investors, Inc.
instructed UCPB to hold payment due to material
misrepresentations by Makati Bel-Air Developers, Inc.
regarding the condominium unit.66 Pending negotiations
and while the stop payment order was in effect, Makati
Bel-Air Developers, Inc. insisted that UCPB pay the value
of the managerÊs check. UCPB refused to pay
_______________
63 Id., at p. 502; pp. 504-505.

64 Id.
65 United Coconut Planters Bank v. Intermediate Appellate Court,
supra note 60.
66 Id., at p. 399; p. 370.
665
VOL. 806, OCTOBER 19, 2016 665

and filed an interpleader to allow Altiura Investors, Inc.

and Makati Bel-Air Developers, Inc. to litigate their
respective claims. Makati Bel-Air Developers, Inc. also filed
a counterclaim against UCPB in the amount of Five Million
Pesos (P5,000,000) based on UCPBÊs violation of its
warranty on its managerÊs check.67
In upholding UCPBÊs refusal to pay the value of the
managerÊs check, this Court reasoned that Makati Bel-Air
Developers, Inc.Ês title to the instrument became defective
when there arose a partial failure of consideration.68 We
held that UCPB could validly invoke a personal defense of
the purchaser against Makati Bel-Air Developers, Inc.
because the latter was not a holder in due course of the
managerÊs check:
There are other considerations supporting the conclusion

reached by this Court that respondent appellate court had
committed reversible error. Makati Bel-Air was a party to the
contract of sale of an office condominium unit to Altiura, for the
payment of which the managerÊs check was issued. Accordingly,
Makati Bel-Air was fully aware, at the time it had received the
managerÊs check, that there was, or had arisen, at least partial
failure of consideration since it was unable to comply with its
obligation to deliver office space amounting to 165 square meters to
Altiura. Makati Bel-Air was also aware that petitioner Bank had
been informed by Altiura of the claimed defect in Makati Bel-AirÊs
title to the managerÊs check or its right to the proceeds thereof. Vis-
à-vis both Altiura and petitioner Bank, Makati Bel-Air was not a
holder in due course of the managerÊs check.69
The foregoing rulings clearly establish that the drawee

bank of a managerÊs check may interpose personal defenses
of the purchaser of the managerÊs check if the holder is not
a
_______________
67 Id., at p. 400; p. 372.

68 Id., at p. 403; p. 374.
69 Id.
666

holder in due course. In short, the purchaser of a managerÊs

check may validly countermand payment to a holder who is
not a holder in due course. Accordingly, the drawee bank
may refuse to pay the managerÊs check by interposing a
personal defense of the purchaser. Hence, the resolution of
the present case requires a determination of the status of
Odrada as holder of the managerÊs checks.
In this case, the Court of Appeals gravely erred when it
considered Odrada as a holder in due course. Section 52 of
the Negotiable Instruments Law defines a holder in due
course as one who has taken the instrument under the
following conditions:
(a) That it is complete and regular upon its face;

(b) That he became the holder of it before it was overdue, and
without notice that it has been previously dishonored, if such was
the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him, he had no notice of
any infirmity in the instrument or defect in the title of the person
negotiating it. (Emphasis supplied)
To be a holder in due course, the law requires that a party

must have acquired the instrument in good faith and for
value.
Good faith means that the person taking the instrument
has acted with due honesty with regard to the rights of the
parties liable on the instrument and that at the time he
took the instrument, the holder has no knowledge of any
defect or infirmity of the instrument.70 To constitute notice
of an infirmity in the instrument or defect in the title of the
person negotiating the same, the person to whom it is
negotiated must have had actual knowledge of the
infirmity or defect, or
_______________
70 Act No. 2031 (1911), Sec. 52.
667
VOL. 806, OCTOBER 19, 2016 667

knowledge of such facts that his action in taking the

instrument would amount to bad faith.71
Value, on the other hand, is defined as any consideration
sufficient to support a simple contract.72
In the present case, Odrada attempted to deposit the
managerÊs checks on 16 April 2002, a day after Lim had
informed him that there was a serious problem with the
Montero. Instead of addressing the issue, Odrada decided
to deposit the managerÊs checks. OdradaÊs actions do not
amount to good faith. Clearly, Odrada failed to make an
inquiry even when the circumstances strongly indicated
that there arose, at the very least, a partial failure of
consideration due to the hidden defects of the Montero.
OdradaÊs action in depositing the managerÊs checks despite
knowledge of the MonteroÊs defects amounted to bad faith.
Moreover, when Odrada redeposited the managerÊs checks
on 19 April 2002, he was already formally notified by
RCBC the previous day of the cancellation of LimÊs auto
loan transaction. Following UCPB,73 RCBC may refuse
payment by interposing a personal defense of Lim · that
the title of Odrada had become defective when there arose
a partial failure or lack of consideration.74
RCBC acted in good faith in following the instructions of
Lim. The records show that Lim notified RCBC of the
defective condition of the Montero before Odrada presented
the managerÊs checks.75 Lim informed RCBC of the hidden
defects of the Montero including a misaligned engine,
smashed condenser, crippled bumper support, and defective
transmission. RCBC also received a formal notice of
cancellation of the auto
_______________
71 Id., Sec. 56.

72 Id., Sec. 25.
73 United Coconut Planters Bank v. Intermediate Appellate Court,
supra note 60.
74 Sec. 28. Effect of want of consideration.·Absence or failure of
consideration is a matter of defense as against any person not a holder in
due course x x x.
668

loan from Lim and this prompted RCBC to cancel the

managerÊs checks since the auto loan was the consideration
for issuing the managerÊs checks. RCBC acted in good faith
in stopping the payment of the managerÊs checks.
Section 58 of the Negotiable Instruments Law provides:
„In the hands of any holder other than a holder in due
course, a negotiable instrument is subject to the same
defenses as if it were nonnegotiable, x x x.‰ Since Odrada
was not a holder in due course, the instrument becomes
subject to personal defenses under the Negotiable
Instruments Law. Hence, RCBC may legally act on a
countermand by Lim, the purchaser of the managerÊs
checks.
Lastly, since LimÊs testimony involving the MonteroÊs
hidden defects was stricken off the record by the trial court,
Lim failed to prove the existence of the hidden defects and
thus Lim remains liable to Odrada for the purchase price of
the Montero. LimÊs failure to file an appeal from the
decision of the Court of Appeals made the decision of the
appellate court final and executory as to Lim. RCBC cannot
be made liable because it acted in good faith in carrying out
the stop payment order of Lim who presented to RCBC the
complaint letter to Odrada when Lim issued the stop
payment order.
WHEREFORE, we GRANT the petition. We
REVERSE and SET ASIDE the 26 March 2014 Decision
and the 18 June 2015 Resolution of the Court of Appeals in
C.A.-G.R. CV No. 94890 only insofar as RCBC Savings
Bank is concerned.
SO ORDERED.
Brion, Del Castillo and Mendoza, JJ., concur.

Leonen, J., On Official Leave.
Petition granted, judgment and resolution reversed and

set aside.
669
VOL. 806, OCTOBER 19, 2016 669

Notes.·Every holder is presumed prima facie to be a

holder in due course and he who claims otherwise has the
onus probandi to prove that one or more of the conditions
required to constitute a holder in due course are lacking.
(Bank of the Philippine Islands vs. Roxas, 536 SCRA 168
[2007])
A contract of sale is perfected at the moment there is a
meeting of the minds upon the thing that is the object of
the contract, and upon the price. (Clemente vs. Court of
Appeals, 772 SCRA 339 [2015])
··o0o··
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SUPREME COURT REPORTS ANNOTATED VOLUME 806 12/16/19, 3:41 PM

G.R. No. 219037. October 19, 2016.*

RCBC SAVINGS BANK, petitioner, vs. NOEL M.

Civil Law; Sales; Contract of Sale; Under the law on sales, a

VOL. 806, OCTOBER 19, 2016 647

demand performance. Performance may be done through

Check; Words and Phrases; Jurisprudence defines a managerÊs check

648 SUPREME COURT REPORTS ANNOTATED

in advance by the bank by the act of its issuance.·

automatically accepted, a holder other than a holder in due course is

VOL. 806, OCTOBER 19, 2016 649

managerÊs check to a holder in due course irrespective of any

course. Accordingly, the drawee bank may refuse to pay the

650 SUPREME COURT REPORTS ANNOTATED

instrument has acted with due honesty with regard to the

PETITION for review on certiorari of the decision and

resolution of the Court of Appeals.

Before the Court is a petition for review on certiorari1

In April 2002, respondent Noel M. Odrada (Odrada) sold

VOL. 806, OCTOBER 19, 2016 651

(Lim) for One Million Five Hundred Ten Thousand Pesos

through a car loan obtained by Lim.4 As a requisite for the

April 15, 2002

Mr. Noel M. Odrada

Thru: Shan Mendez

652 SUPREME COURT REPORTS ANNOTATED

RCBC Savings Bank vs. Odrada

Dear Mr. Odrada,

Please be inform[ed] that I am going to cancel or

1. You told me that the said vehicle has not experience[d]

Therefore, please show your sincerity by personally

Meanwhile, kindly hold or do not encash the managerÊs

Cc: Dario E. Santiago, RCBC loan

VOL. 806, OCTOBER 19, 2016 653

Odrada did not go to the slated meeting and instead

9 Civil Case No. 02-453.

654 SUPREME COURT REPORTS ANNOTATED

The Regional Trial CourtÊs Ruling

In its Decision16 dated 1 October 2009, the trial court

Finally, the trial court found that Odrada suffered

16 Id., at pp. 55-62. Penned by Judge Joselito Villarosa.

VOL. 806, OCTOBER 19, 2016 655

WHEREFORE, premises considered, judgment is hereby

(a) Directing defendant RCBC to pay plaintiff the

Finally, granting the cross-claim of defendant RCBC, Teodoro L.

RCBC and Lim appealed from the trial courtÊs decision.

The Court of AppealsÊ Ruling

In its assailed 26 March 2014 Decision, the Court of

656 SUPREME COURT REPORTS ANNOTATED

RCBC admitted the existence of the payee and his then

WHEREFORE, the impugned Decision of the court a quo in Civil

Case No. 02-453 is hereby AFFIRMED with MODIFICATION

RCBC and Lim filed a motion for reconsideration26 on 28

VOL. 806, OCTOBER 19, 2016 657

RCBC presented the following, issues in this petition:

A. The court a quo gravely erred in finding that as between

1. Whether or not the court a quo erred in holding that Lim

cannot cancel the auto loan despite the failure in

B. The court a quo gravely erred when it found that Odrada is a