Consolidated Plywood Industries Inc., et. al. vs.

IFC Leasing and Acceptance Corporation

G.R. No.72593, April 30 1997

FACTS: Petitioner, Consolidated Plywood Industries, Inc. was offered by Industrial Products Marketing
(the seller-assignor) two “used” tractors to be used in the logging activities of petitioner with the
assurance that the two tractors were fit to cover the extent of work needed and the warranty of ninety
(90) days performance of the machines and availability of parts. Petitioner purchased on installment said
used tractors and paid the down payment. The parties executed a deed of sale with chattel mortgage
with promissory note which reads:

FOR VALUE RECEIVED, I/we jointly and severally promise to pay to the INDUSTRIAL PRODUCTS
MARKETING, the sum of ONE MILLION NINETY THREE THOUSAND SEVEN HUNDRED EIGHTY NINE PESOS
& 71/100 only (P1,093 789.71) Philippine Currency the said principal sum to be payable in 24 monthly
installments starting July 15, 1978....

Simultaneously, with the execution of the deed, the seller – assignor assigned its rights and interest in
the chattel mortgage in favor of respondent IFC Leasing and Acceptance Corporation by means of a deed
of assignment. However, 14 days after delivery the first tractor broke down and nine days thereafter the
second tractor became inoperable.

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ISSUE: Is the promissory note in question a negotiable instrument?

RULING No, an instrument in order to be considered negotiable, it must contain the so-called ” words of
negotiability” must be payable to order or bearer. Those words serve as an expression of consent that
the instrument may be transferred.

An instrument, to be made payable to order, there must always be a specified person named in the
instrument. It means that the bill or note is to be paid to the person designated in the instrument or to
any person to whom he has endorsed and delivered the same without the words or on order or to the
order of, the instrument is payable only to the person designated therein and is therefore non-
negotiable. Any subsequent purchaser thereof will not enjoy the advantages of being a holder of a
negotiable instrument but will merely step into the shoes of the person designated in the instrument
and will be thus open to all defenses available against the latter.
People vs. Yabut

G.R. No. L-42847. April 29, 1977

G.R. No. L-42902. April 29, 1977

Facts:

Accused Cecilia Que Yabut as treasurer and her husband Geminiano Yabut, Jr. as president of the Yabut
Transit Line were charged with estafa for issuing several checks payable to the Free Tires Supply and Free
Caltex Station owned and operated by Alicia P. Andan. The complaint alleged that the accused by means
of false pretenses and pretending to have sufficient funds in the Merchants Banking Corporation and
Manufacturers Bank and Trust Company in Caloocan City prepared, issued and made out several checks
despite full knowledge that at the time there was no or insufficient funds in said bank, that upon
presentation of the said checks, the checks were dishonored and inspite of repeated demands by
Freeway to deposit the necessary funds to cover the checks within the reglementary period enjoined by
law, the accused failed and refused to do so, to the damage and prejudice of Andan. Respondents
instead of entering a plea respectively filed their motions for the quashal of the information citing as one
of their reasons that the venue was improperly laid in Malolos, Bulacan, because the postdated checks
were issued and delivered to, and received by the complainant in Caloocan.

Issue: Where was the subject checks actually delivered?

RULING:

No. While the subject checks were written, signed, or dated in Caloocan City, they were not completely
made or drawn there, but in Malolos (place of business and residence of the payee) where they were
uttered and delivered. The place where the bills were written, signed, or dated does not necessarily fix
or determine the place where they were executed. What is of decisive importance is the delivery
thereof. The delivery of the instrument is the final act essential to its consummation as an obligation. An
undelivered bill or note is inoperative. Until delivery, the contract is revocable. And the issuance as well
as the delivery of the check must be to a person who takes it as a holder, which means “(t)he payee or
indorse of a bill or note, who is in possession of it, or the bearer thereof.”

Delivery of the check signifies transfer of possession, whether actual or constructive, from one person to
another with intent to transfer title thereto. Thus, the penalizing clause of the provision of Art. 315, par.
2 (d) states: “By postdating a check, or issuing a check in payment of an obligation when the offender
had no funds in the bank, or his funds deposited therein were not sufficient to cover the amount of the
check.” The giving of the checks by the two private respondents in Caloocan City to Modesto Yambao
cannot be treated as valid delivery of the checks, because Yambao is a mere “messenger” or “part-time
employee” and not an agent of complaint Alicia P. Andan.
The general rule is to the effect that a forged signature is wholly inoperative, and payment made
through or under such signature is ineffectual or does not discharge the instrument. If payment is
made, the drawee cannot charge it to the drawer.

s account.

RECIT-READY / SUMMARY

Samsung Construction filed a complaint in the RTC after a certain Robert Gonzaga, drew cash against
Samsung

s currentaccount amounting to P999,500 from Far East Bank and Trust Company at Bel-Air Makati. The
signature was alleged to beforged according to Jong, the sole signatory of Samsung Construction

s checks and demanded that the amount be credited toit. RTC ruled in favor of Samsung Construction
after examining the testimonies presented by both parties. FEBTC filed anappeal before the Court of
Appeals and reversed the ruling of the RTC. Samsung Construction elevated the case to theSupreme
Court and granted its petition, reversing the decision of the Court of Appeals and held that Samsung
Constructionis not precluded by negligence from setting up the forgery hence the general rule should
apply: liability is imputed on thedrawee who paid out on the forgery.

FACTS

 Plaintiff Samsung Construction maintained a current account with defendant Far East Bank
and Trust Company(FEBTC) at Bel-Air Makati branch. Jong Kyu Lee, Project Manager, is the sole
signatory to Samsung Constructions account while Kyu Yong Lee, the company’s accountant,
has the custody of all the checks.
 On March 19, 1992, a certain Robert Gonzaga presented for payment FEBTC check, payable to
cash and drawn against Samsung Construction’s current account, amounting to P999, 500.
 After ascertaining that there were enough funds to cover the check, the bank teller compared
the signature oncheck with the specimen signature of Jong as contained in the specimen
signature card with the bank. The bankteller, justified with the authenticity of the signature,
asked for Gonzaga’s proof of identity and provided with 3identification cards.
 The teller forwarded the check to the branch Senior Asst. Cashier and another bank officer
who both concluded thecheck was signed by Jong and approved of the cash encashment. This
 was further bolstered by Sempio, who was atthe bank during that time and vouched for the
genuineness of the check.
 Immediately after discovery, Jong proceeded to the police station and filed a criminal case
against Sempio and demanded that FEBTC credit to it the amount encashed plus interest.
FEBTC claimed that it was still conducting an investigation.
 Jong filed a complaint against FEBTC in the RTC for the violation of Sec. 23 of the Negotiable
Instruments Law. Both parties presented their expert witness to testify on Jong’s claim that his
signature on check was forged. RTC ruled in favor of Samsung Corporation and chose to
believe the findings of the NBI expert.
 FEBTC filed an appeal to the Court of Appeals where it reversed the ruling of the RTC.
 Aggrieved, Samsung Corporation elevated the case to the Supreme Court

ISSUES ARTICLES/LAWS/STATCON MAXIM INVOLVED

1.

Whether or not the check was forged2.

Whether or not Samsung Construction wasprecluded from setting up the defense of forgeryunder
Section 23 of the Negotiable Instruments LawSec. 23 of the Negotiable Instruments Law

HELD / RATIO / RULING1.

Yes.

The Supreme Court held that forgery cannot be presumed but must be proved by clear, positive,
andconvincing evidence. In the case at bar, the Court held that the Court of Appeals is remiss in reversing
the RTC

sdecision without thoroughly evaluating the evidence and relying on presumptions haphazardly drawn.
RTCsubjected the evidence of both parties to a crucible of analysis and arrived at the conclusion that the
testimony ofthe NBI expert is more credible than the testimony of the PNP expert because it presented
apparent and glaringdifferences such as handwriting strokes that the PNP expert chose to downplay.

No. Sec. 23 of the Negotiable Instruments Lawstates that a forged makes the instrument

wholly inoperative, and no right to retain the instrument, or to give a discharge therefor, or to enforce
payment thereof against any party thereto, can be acquired through or under such signature, unless
the party against whom it is sought to enforce such right is precluded from setting up the forgery or
want of authority. The Court held that Samsung Corporation was not guilty of negligence hence, was
not barred from setting up the defense of forgery. It contended that the bare fact that the forgery was
committed by a drawer-payor’s confidential employee or agent, who by virtue of his position had
unusual facilities for perpetrating the fraud and imposing the forged paper upon the bank, does not
entitle the bank to shift the loss to the drawer-payor. Furthermore, it was held that negligence is not
presumed but must be proved by him who alleges it and, in this case, FEBTC failed to dispute the
presumption of ordinary care exercised by Samsung Construction. Additionally, the Court upheld the
general rule that imputes liability on the drawee who paid out on the forgery. The Court held that the
bank was amiss in its failure to employ a higher degree of caution considering the circumstances such
as the amount in the check nearly total one million pesos and payable in cash which should arouse the
suspicion of the bank as it is not ordinary business practice for a check that large amount to be made
payable to cash or to bearer, instead of to the order of a specified person. FEBTC should have not
merely complied with its internal procedures but undertake mandatory earnest efforts to ensure the
validity of the check and authority of Gonzaga to collect the payment. Lastly, extraordinary diligence
dictates that FEBTC should have ascertained from Jong personally that the signature in the
questionable check was his. Hence, the Court granted the petition and reversed the decision of the
Court of Appeals.

RIVERA VS. CHUA

Moran vs Court of Appeals, 230 SCRA 799, GR No. 105836, March 7, 1994

(Negotiable Instruments –Checks)

Facts: M who regularly purchased bulk fuel from P maintained 3 joint accounts with Citytrust Bank,
namely: Current Account No. 1 (CA1), Savings Account No. 1 (SA1), and Savings Account No. 2 (SA2).

M had a pre-authorized transfer (PAT) agreement with Citytrust wherein the former have written
authority to the latter to automatically transfer funds from their SA1 to their CA1 at any time
whenever the funds in their current account were insufficient to meet withdrawals from said current
account.

On December 12, 1983, M drew a check for P50, 576.00 payable to P.

On December 13, 1983, M issued another check in the amount of P56, 090.00 in favor of the same.

On December 14, 1983, P deposited the 2 aforementioned check to its account with the PNB. In turn,
PNB presented them for clearing and the record shows that on December 14, 1983, the accounts has
insufficient funds (CA1 had a zero balance, while SA1 [covered by PAT] had an available balance of P26,
104.30 and SA2 had an available balance of P43, 268.39). Hence the checks were dishonoured.

On December 15, 1983 at 10:00 AM, M went to the bank as was his regular practice and deposited in
their SA2 the amounts of P10, 874.58 and P6, 754.25, and he deposited likewise in the SA1 the
amounts of P5, 900.00, P35, 100.00 and 30.00. The amount of P40,000.00 was then transferred by him
from SA2 to their CA1. At the same time, the amount of P66,666.00 was transferred from SA1 to the
same current account through PAT agreement.

Sometime on December 15 or 16, 1983 M was informed that that P refused to deliver their orders on a
credit basis because the two checks they had previously issued were dishonored upon presentment
for payment due to “insufficiency of funds.” The non-delivery of orders forced petitioners to stop
business operations, allegedly causing them to suffer loss of earnings.

On December 16 or 17, 1983, P got the signature of M on an application for a manager’s check so that
the dishonoured checks could be redeemed and presented the checks in payment for the two
dishonoured checks.

On July 24, 1984, claimed P1,000,000.00 for moral damages.

Issue: WON the bank is liable for damages for its refusal to pay a check on account of insufficient funds
considering the fact that a deposit may be made later in the day.

Held: No, Petitioners had no sufficient funds in their accounts when the bank dishonoured the checks
in question.

First, a check is a bill of exchange drawn on a bank payable on demand. Thus, a check is a written
order addressed to a bank or persons carrying on the business of banking, by a party having money in
their hands, requesting them to pay on presentment, to a person named therein or to bearer or order,
a named sum of money.

Second, the relationship between the bank and the depositor is that of a debtor and creditor. By virtue
of the contract of deposit between the banker and its depositor, the banker agrees to pay checks
drawn by the depositor provided that said depositor has money in the hands of the bank.

Thirdly, where the bank possesses funds of the depositor, it is bound to honor his checks to the extent
of the amount deposits. The failure of a bank to pay the check of a merchant or a trader, when the
deposit is sufficient, entitles the drawer to substantial damages without any proof of actual damages.
Conversely, a bank is not liable for its refusal to pay a check on account of insufficient funds,
notwithstanding the fact that a deposit may be made later in the day. Before a bank depositor may
maintain a suit to recover a specific amount form his bank, he must first show that he had on deposit
sufficient funds to meet demand.

Considering the clearing process adopted, it is clear that the available balance on December 14, 1983
was used by the bank in determining whether or not there was sufficient cash deposited to fund the
two checks. When M’s checks were dishonored due to insufficiency of funds, the available balance of
SA1 which was the subject of the PAT agreement was not enough to cover either of the two checks. On
December 14, 1983, when PNB presented the checks for collection, the available balance for SA1 was
only P26, 104.30 while CA1had no available balance. It was only on December 15, 1983 at around
10:00 AM that the necessary funds were deposited, which unfortunately was too late to prevent the
dishonour of the checks.