BATAAN CIGAR VS CA

FACTS:

Petitioner, Bataan Cigar & Cigarette Factory, Inc. (BCCFI), a corporation involved in the manufacturing
of cigarettes, engaged one of its suppliers, King Tim Pua George (herein after referred to as George
King), to deliver 2,000 bales of tobacco leaf starting October 1978. In consideration thereof, BCCFI, on
July 13, 1978 issued crossed checks post dated sometime in March 1979 in the total amount of
P820,000.00. 3

Relying on the supplier's representation that he would complete delivery within three months from
December 5, 1978, petitioner agreed to purchase additional 2,500 bales of tobacco leaves, despite the
supplier's failure to deliver in accordance with their earlier agreement. Again petitioner issued post
dated crossed checks in the total amount of P1,100,000.00, payable sometime in September 1979. 4

During these times, George King was simultaneously dealing with private respondent SIHI. On July 19,
1978, he sold at a discount check TCBT 551826 5 bearing an amount of P164,000.00, post dated
March 31, 1979, drawn by petitioner, naming George King as payee to SIHI. On December 19 and 26,
1978, he again sold to respondent checks TCBT Nos. 608967 & 608968, 6 both in the amount of
P100,000.00, post dated September 15 & 30, 1979 respectively, drawn by petitioner in favor of George
King.

In as much as George King failed to deliver the bales of tobacco leaf as agreed despite petitioner's
demand, BCCFI issued on March 30, 1979, a stop payment order on all checks payable to George King,
including check TCBT 551826. Subsequently, stop payment was also ordered on checks TCBT Nos.
608967 & 608968 on September 14 & 28, 1979, respectively, due to George King's failure to deliver
the tobacco leaves.

Efforts of SIHI to collect from BCCFI having failed, it instituted the present case, naming only BCCFI as
party defendant. The trial court pronounced SIHI as having a valid claim being a holder in due course.
It further said that the non-inclusion of King Tim Pua George as party defendant is immaterial in this
case, since he, as payee, is not an indispensable party.

ISSUE:

whether SIHI, a second indorser, a holder of crossed checks, is a holder in due course, to be able to
collect from the drawer, BCCFI.

RULING:

It is then settled that crossing of checks should put the holder on inquiry and upon him devolves the
duty to ascertain the indorser's title to the check or the nature of his possession. Failing in this
respect, the holder is declared guilty of gross negligence amounting to legal absence of good faith,
contrary to Sec. 52(c) of the Negotiable Instruments Law, 13 and as such the consensus of authority is
to the effect that the holder of the check is not a holder in due course.

In the present case, BCCFI's defense in stopping payment is as good to SIHI as it is to George King.
Because, really, the checks were issued with the intention that George King would supply BCCFI with
the bales of tobacco leaf. There being failure of consideration, SIHI is not a holder in due course.
Consequently, BCCFI cannot be obliged to pay the checks.

The foregoing does not mean, however, that respondent could not recover from the checks. The only
disadvantage of a holder who is not a holder in due course is that the instrument is subject to
defenses as if it were
non-negotiable. 14 Hence, respondent can collect from the immediate indorser, in this case, George
King.
STELCO VS CA
FACTS:

Stelco Marketing Corporation sold structural steel bars to RYL Construction Inc. RYL gave Stelco’s
“sister corporation,” Armstrong Industries, a MetroBank check from Steelweld Corporation. The check
was issued by Steelweld’s President to Romeo Lim, President of RYL, by way of accommodation, as a
guaranty and not in payment of an obligation. When Armstrong deposited the check at its bank, it
was dishonored because it was drawn against insufficient funds. When so deposited, the check bore
two indorsements, i.e. RYL and Armstrong. Subsequently, Stelco filed a civil case against RYL and
Steelweld to recover the value of the steel products.

ISSUE:

whether or not STELCO ever became a holder in due course of Check No. 765380, a bearer
instrument, within the contemplation of the Negotiable Instruments Law.

HELD:

The record does show that after the check had been deposited and dishonored, STELCO came into
possession of it in some way, and was able, several years after the dishonor of the check, to give it in
evidence at the trial of the civil case it had instituted against the drawers of the check (Limson and
Torres) and RYL. But, as already pointed out, possession of a negotiable instrument after presentment
and dishonor, or payment, is utterly inconsequential; it does not make the possessor a holder for value
within the meaning of the law; it gives rise to no liability on the part of the maker or drawer and
indorsers.

It is clear from the relevant circumstances that STELCO cannot be deemed a holder of the check for
value. It does not meet two of the essential requisites prescribed by the statute. It did not become
"the holder of it before it was overdue, and without notice that it had been previously dishonored,"
and it did not take the check "in good faith and for value." 26

Neither is there any evidence whatever that Armstrong Industries, to whom R.Y. Lim negotiated the
check accepted the instrument and attempted to encash it in behalf, and as agent of STELCO. On the
contrary, the indications are that Armstrong was really the intended payee of the check and was the
party actually injured by its dishonor; it was after all its representative (a Mr. Young) who instituted
the criminal prosecution of the drawers, Limson and Torres, albeit unsuccessfully.

The petitioner has failed to show any sufficient cause for modification or reversal of the challenged
judgment of the Court of Appeals which, on the contrary, appears to be entirely in accord with the
facts and the applicable law.

STATE INVESTMENT VS IAC

FACTS:

Petitioner State Investment House seeks a review of the decision of respondent Intermediate
Appellate Court (now Court of Appeals) in AC-G.R. CV No. 04523 reversing the decision of the Regional
Trial Court of Manila, Branch XXXVII dated April 30, 1984 and dismissing the complaint for collection
filed by petitioner against private respondents Spouses Anita Pena Chua and Harris Chua.

It appears that shortly before September 5, 1980, New Sikatuna Wood Industries, Inc. requested for a
loan from private respondent Harris Chua. The latter agreed to grant the same subject to the
condition that the former should wait until December 1980 when he would have the money. In view
of this agreement, private respondent-wife, Anita Pena Chua issued three (3) crossed checks payable
to New Sikatuna Wood Industries, Inc.

The total value of the three (3) postdated checks amounted to P 299,450.00.
Subsequently, New Sikatuna Wood Industries, Inc. entered into an agreement with herein petitioner
State Investment House, Inc. whereby for and in consideration of the sum of Pl,047,402.91 under a
deed of sale, the former assigned and discounted with petitioner eleven (11) postdated checks
including the aforementioned three (3) postdated checks issued by herein private respondent-wife
Anita Peña Chua to New Sikatuna Wood Industries, Inc.

When the three checks issued by private respondent Anita Pena Chua were allegedly deposited by
petitioner, these checks were dishonored by reason of "insufficient funds", "stop payment" and
"account closed", respectively. Petitioner claims that despite demands on private respondent Anita
Peña to make good said checks, the latter failed to pay the same necessitating the former to file an
action for collection against the latter and her husband Harris Chua before the Regional Trial Court of
Manila, Branch XXXVII docketed as Civil Case No. 82-10547.

Private respondents-defendants filed a third party complaint against New Sikatuna Wood Industries,
Inc. for reimbursement and indemnification in the event that they be held liable to petitioner-plaintiff.
For failure of third party defendant to answer the third party complaint despite due service of
summons, the latter was declared in default.

ISSUE:

whether or not petitioner is a holder in due course as to entitle it to proceed against private
respondents for the amount stated in the dishonored checks.

HELD:

Under usual practice, crossing a check is done by placing two parallel lines diagonally on the left top
portion of the check. The crossing may be special wherein between the two parallel lines is written
the name of a bank or a business institution, in which case the drawee should pay only with the
intervention of that bank or company, or crossing may be general wherein between two parallel
diagonal lines are written the words "and Co." or none at all as in the case at bar, in which case the
drawee should not encash the same but merely accept the same for deposit.

The effect therefore of crossing a check relates to the mode of its presentment for payment. Under
Section 72 of the Negotiable Instruments Law, presentment for payment to be sufficient must be
made (a) by the holder, or by some person authorized to receive payment on his behalf ... As to who
the holder or authorized person will be depends on the instructions stated on the face of the check.

The three subject checks in the case at bar had been crossed generally and issued payable to New
Sikatuna Wood Industries, Inc. which could only mean that the drawer had intended the same for
deposit only by the rightful person, i.e., the payee named therein. Apparently, it was not the payee
who presented the same for payment and therefore, there was no proper presentment, and the
liability did not attach to the drawer.

Thus, in the absence of due presentment, the drawer did not become liable. 7 Consequently, no right
of recourse is available to petitioner against the drawer of the subject checks, private respondent wife,
considering that petitioner is not the proper party authorized to make presentment of the checks in
question.

Yet it does not follow as a legal proposition that simply because petitioner was not a holder in due
course as found by the appellate court for having taken the instruments in question with notice that
the same is for deposit only to the account of payee named in the subject checks, petitioner could not
recover on the checks. The Negotiable Instruments Law does not provide that a holder who is not a
holder in due course may not in any case recover on the instrument for in the case at bar, petitioner
may recover from the New Sikatuna Wood Industries, Inc. if the latter has no valid excuse for refusing
payment. The only disadvantage of a holder who is not in due course is that the negotiable instrument
is subject to defenses as if it were non-negotiable
Papa vs. A.U. Valencia

FACTS:

Myron Papa is the administrator of the estate of Angela Butte. In 1973, he sold a portion of said estate
to Felix Peñarroyo through A.U. Valencia and Co., Inc. Peñarroyo gave Papa P5,000.00 plus a check
worth P40,000.00. However, Papa was not able to deliver the certificate of title to Peñarroyo. A
litigation ensued and ten years after, Papa argued that the sale between him and Peñarroyo was never
consummated because he did not encash the P40,000.00 check and that the P5,000.00 cash was
merely earnest money.

ISSUE:

WON THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE ESTATE OF ANGELA M. BUTTE AND
THE ESTATE OF RAMON PAPA, JR. ARE INDISPENSABLE PARTIES IN THIS
CASE.

HELD:

Petitioner’s assertion that he never encashed the aforesaid check is not substantiated and is at odds
with his statement in his answer that “he can no longer recall the transaction which is supposed to
have happened 10 years ago.” After more than ten (10) years from the payment in party by cash and
in part by check, the presumption is that the check had been encashed. As already stated, he even
waived the presentation of oral evidence.

Granting that petitioner had never encashed the check, his failure to do so for more than ten (10)
years undoubtedly resulted in the impairment of the check through his unreasonable and unexplained
delay.

While it is true that the delivery of a check produces the effect of payment only when it is cashed,
pursuant to Art. 1249 of the Civil Code, the rule is otherwise if the debtor is prejudiced by the
creditor’s unreasonable delay in presentment. The acceptance of a check implies an undertaking of
due diligence in presenting it for payment, and if he from whom it is received sustains loss by want of
such diligence, it will be held to operate as actual payment of the debt or obligation for which it was
given. 11 It has, likewise, been held that if no presentment is made at all, the drawer cannot be held
liable irrespective of loss or injury 12 unless presentment is otherwise excused. This is in harmony
with Article 1249 of the Civil Code under which payment by way of check or other negotiable
instrument is conditioned on its being cashed, except when through the fault of the creditor, the
instrument is impaired. The payee of a check would be a creditor under this provision and if its no-
payment is caused by his negligence, payment will be deemed effected and the obligation for which
the check was given as conditional payment will be discharged. 13

Considering that respondents Valencia and Peñarroyo had fulfilled their part of the contract of sale by
delivering the payment of the purchase price, said respondents, therefore, had the right to compel
petitioner to deliver to them the owner’s duplicate of TCT No. 28993 of Angela M. Butte and the
peaceful possession and enjoyment of the lot in question.

VILLANUEVA VS NITTA

FACTS:

Marlyn Nite took out a loan of P409,000 from Sincere Villanueva. Nite issued an Asian Bank
Corporation (ABC) check worth P325,500. The check was dishonored due to material alteration. Then,
throughNite's representative, she remitted P235,000 to Villanueva as partial payment. The other
balance was to be paid on a much later date.
A few days later, Villanueva filed an action for a sum of money and damages against ABC for the full
amount of the dishonored check. The RTC ruled in his favor but when Nite was to withdraw money
from her account, she was unable to do so because the RTC had ordered ABC to pay Villanueva the
P325,000 check.

ABC then remitted to the sheriff the check which Villanueva received. Nite filed a petition to seek to
annul the RTC's decision. The CA held in favor Nite and was ordered to pay Nite a sum of money for
extrinsic fraud.

ISSUE:

Whether the receipt of the check was legal.

HELD:

The pertinent provisions of the Negotiable Instruments Law are enlightening:

SEC. 185. Check, defined. A check is a bill of exchange drawn on a bank payable on demand. Except as
herein otherwise provided, the provisions of this Act applicable to a bill of exchange payable on
demand apply to a check.[9] (emphasis ours)

SEC. 189. When check operates as an assignment. A check of itself does not operate as an assignment
of any part of the funds to the credit of the drawer with the bank, and the bank is not liable to the
holder, unless and until it accepts or certifies the check. (emphasis ours)

If a bank refuses to pay a check (notwithstanding the sufficiency of funds), the payee-holder cannot, in
view of the cited sections, sue the bank. The payee should instead sue the drawer who might in turn
sue the bank. Section 189 is sound law based on logic and established legal principles: no privity of
contract exists between the drawee-bank and the payee. Indeed, in this case, there was no such
privity of contract between ABC and petitioner.
Petitioner should not have sued ABC. Contracts take effect only between the parties, their assigns and
heirs, except in cases where the rights and obligations arising from the contract are not transmissible
by their nature, or by stipulation or by provision of law.[10] None of the foregoing exceptions to the
relativity of contracts applies in this case.
The contract of loan was between petitioner and respondent. No collection suit could prosper without
respondent who was an indispensable party.

Equitable PCI vs. Ong

FACTS:

Warliza Sarande deposited in her account at Philippine Commercial International (PCI) Bank a PCI Bank
TCBT Check of P225K.

December 5 1991: Upon inquiry by Serande at PCI Bank on whether the TCBT Check had been
cleared, she received an affirmative answer.

Relying on this assurance, she issued 2 checks drawn against the proceeds of TCBT Check.

PCI Bank Check No. 073661 dated 5 December 1991 for P132K which Sarande issued to respondent
Rowena Ong owing to a business transaction.

On the same day, Ong presented to PCI Bank requesting PCI Bank to convert the proceeds into a
manager's check, which the PCI Bank obliged.
December 6 1991: Ong deposited PCI Bank Manager's Check in her account with Equitable Banking
Corporation

December 9 1991: she received a check return-slip informing her that PCI Bank had stopped the
payment of the check on the ground of irregular issuance.

Despite several demands made, it was refused

Ong was constrained to file a Complaint for sum of money, damages and attorney's fees against PCI
Bank

CA affirmed RTC: favored Ong

ISSUE:

WON ong is a holder in due course

HELD:

This claim is equally without basis.

he same law provides further:

SECTION 52. What constitutes a holder in due course. A holder in due course is a holder who has taken
the instrument under the following conditions:

(a) That it is complete and regular upon its face;

(b) That he became the holder of it before it was overdue, and without notice it had been previously
dishonored, if such was the fact;

(c) That he took it in good faith and for value;

(d) That at the time it was negotiated to him, he had no notice of any infirmity in the instrument or
defect in the title of the person negotiating it.

Sec. 24. Presumption of consideration. Every negotiable instrument is deemed prima facie to have
been issued for a valuable consideration; and every person whose signature appears thereon to have
become a party thereto for value.

Sec. 26. What constitutes holder for value. Where value has at any time been given for the instrument,
the holder is deemed a holder for value in respect to all parties who become such prior to that time.

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; and partial failure of consideration is a defense pro
tanto, whether the failure is an ascertained and liquidated amount or otherwise.

asily discernible is that what Ong obtained from PCI Bank was not just any ordinary check but a
managers check. A managers check is an order of the bank to pay, drawn upon itself, committing in
effect its total resources, integrity and honor behind its issuance. By its peculiar character and general
use in commerce, a managers check is regarded substantially to be as good as the money it
represents.[24]

A managers check stands on the same footing as a certified check.[25] The effect of certification is
found in Section 187, Negotiable Instruments Law.
Sec. 187. Certification of check; effect of. Where a check is certified by the bank on which it is drawn,
the certification is equivalent to an acceptance.[26]

The effect of issuing a managers check was incontrovertibly elucidated when we declared that:

A managers check is one drawn by the banks manager upon the bank itself. It is similar to a cashiers
check both as to effect and use. A cashiers check is a check of the banks cashier on his own or another
check. In effect, it is a bill of exchange drawn by the cashier of a bank upon the bank itself, and
accepted in advance by the act of its issuance. It is really the banks own check and may be treated as a
promissory note with the bank as a maker. The check becomes the primary obligation of the bank
which issues it and constitutes its written promise to pay upon demand. The mere issuance of it is
considered an acceptance thereof. x x x.

y accepting PCI Bank Check No. 073661 issued by Sarande to Ong and issuing in turn a managers check
in exchange thereof, PCI Bank assumed the liabilities of an acceptor under Section 62 of the
Negotiable Instruments Law which states:

Sec. 62. Liability of acceptor. The acceptor by accepting the instruments engages that he will pay it
according to the tenor of his acceptance; and admits

(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.

With the above jurisprudential basis, the issues on Ong being not a holder in due course and failure or
want of consideration for PCI Banks issuance of the managers check is out of sync.

Security Bank & Trust Company vs. RCBC

FACTS:

On January 9, 1981, Security Bank and Trust Company (SBTC) issued a managers check for P8 million,
payable to CASH, as proceeds of the loan granted to Guidon Construction and Development
Corporation (GCDC). On the same day, the P8-million check, along with other checks, was deposited
by Continental Manufacturing Corporation (CMC) in its Current Account No. 0109-022888 with Rizal
Commercial Banking Corporation (RCBC). Immediately, RCBC honored the P8-million check and
allowed CMC to withdraw the same.[3]
On the next banking day, January 12, 1981, GCDC issued a Stop Payment Order to SBTC, claiming that
the P8-million check was released to a third party by mistake. Consequently, SBTC dishonored and
returned the managers check to RCBC. Thereafter, the check was returned back and forth between the
two banks, resulting in automatic debits and credits in each banks clearing balance.[4]
On February 13, 1981, RCBC filed a complaint[5] for damages against SBTC with the then Court of First
Instance of Rizal, Branch XXII. Said case was docketed as Civil Case No. 1081 and later transferred to
the Regional Trial Court (RTC) of Makati City, Branch 143.
Meanwhile, following the rules of the Philippine Clearing House, RCBC and SBTC stopped returning the
checks to each other. By way of a temporary arrangement pending resolution of the case, the P8-
million check was equally divided between, and credited to, RCBC and SBTC.[6]
On May 9, 2000, the RTC of Makati City, Branch 143, rendered a Decision[7] in favor of RCBC. The
dispositive portion of the decision reads:
PREMISES CONSIDERED, the Court renders judgment in favor of plaintiff [RCBC] and finds defendant
SBTC justly liable to [RCBC] and sentences [SBTC] to pay [RCBC]
ISSUE:

HELD:

At the outset, it must be noted that the questioned check issued by SBTC is not just an ordinary check
but a managers check. A managers check is one drawn by a banks manager upon the bank itself. It
stands on the same footing as a certified check,[13] which is deemed to have been accepted by the
bank that certified it.[14] As the banks own check, a managers check becomes the primary obligation
of the bank and is accepted in advance by the act of its issuance.[15]
In this case, RCBC, in immediately crediting the amount of P8 million to CMCs account, relied on the
integrity and honor of the check as it is regarded in commercial transactions. Where the questioned
check, which was payable to Cash, appeared regular on its face, and the bank found nothing unusual
in the transaction, as the drawer usually issued checks in big amounts made payable to cash, RCBC
cannot be faulted in paying the value of the questioned check.[16]
In our considered view, SBTC cannot escape liability by invoking Monetary Board Resolution No. 2202
dated December 21, 1979, prohibiting drawings against uncollected deposits.

Thus, it is clear from the July 9, 1980 Memorandum that banks were given the discretion to allow
immediate drawings on uncollected deposits of managers checks, among others. Consequently, RCBC,
in allowing the immediate withdrawal against the subject managers check, only exercised a
prerogative expressly granted to it by the Monetary Board.
Moreover, neither Monetary Board Resolution No. 2202 nor the July 9, 1980 Memorandum alters the
extraordinary nature of the managers check and the relative rights of the parties thereto. SBTCs
liability as drawer remains the same − by drawing the instrument, it admits the existence of the payee
and his then capacity to indorse; and engages that on due presentment, the instrument will be
accepted, or paid, or both, according to its tenor.[18]
Concerning RCBCs claim for lost interest income on the remaining P4 million, this is already covered by
the amount of damages in the form of legal interest of 6%, based on Article 2200[19] and 2209[20] of
the Civil Code of the Philippines, as awarded by the Court of Appeals in its decision.