Associated Bank V.

CA (1996)  February 19, 1981: After the checks were examined, they learned that
30 checks of P203,300 were encashed by Fausto Pangilinan, with the
Associated Bank acting as collecting bank.

G.R. No. 107382/G.R. No. 107612 January 31, 1996  Fausto Pangilinan

Lessons Applicable: Forgery (Negotiable Instruments Law)  administrative officer and cashier of payee hospital
until his retirement on February 28, 1978, collected
the questioned checks from the office of the
FACTS: Provincial Treasurer

 The Province of Tarlac maintains a current account with the Philippine  sought to encash the 1st check with Associated Bank
National Bank (PNB) Tarlac Branch where the provincial funds are
 Jesus David, manager of Associated Bank refused and suggested that
deposited.
Pangilinan deposit the check in his personal savings account with the
 Checks issued by the Province are signed by the Provincial same bank
Treasurer and countersigned by the Provincial Auditor or the
 Pangilinan was able to withdraw the money when the check
Secretary of the Sangguniang Bayan.
was cleared and paid by the drawee bank, PNB.
 A portion of the funds of the province is allocated to the Concepcion
 PNB did not return the questioned checks within
Emergency Hospital
twenty-four hours, but several days later
 drawn to the order of "Concepcion Emergency Hospital,
 After forging the signature of Dr. Adena Canlas who was chief
Concepcion, Tarlac" or "The Chief, Concepcion Emergency
of the payee hospital, Pangilinan followed the same
Hospital, Concepcion, Tarlac."
procedure for the other checks.
 The checks are released by the Office of the Provincial
 All the checks bore the stamp of Associated Bank which reads
Treasurer and received for the hospital by its administrative
"All prior endorsements guaranteed ASSOCIATED BANK.
officer and cashier.
 CA affrimed RTC: Associated to reimburse PNB and ordering PNB to
 January 1981:Upon post-audit by the Provincial Auditor, it was
pay Province of Tarlac
discovered that the hospital did not receive several allotment checks
ISSUE: W/N PNB and Associated Bank should be held liable  Indorsers, persons negotiating by delivery and
acceptors are warrantors of the genuineness of the
signatures on the instrument

 In bearer instruments, the signature of the payee or holder is

HELD: YES. PARTIALLY GRANTED. The collecting bank, Associated Bank, shall be unnecessary to pass title to the instrument. Hence, when the
liable to PNB for 50% of P203,300 indorsement is a forgery, only the person whose signature is forged
can raise the defense of forgery against a holder in due course

 In order instruments, the signature of its rightful holder (here, the

Sec. 23. FORGED SIGNATURE, EFFECT OF. — When a signature is forged or
payee hospital) is essential to transfer title to the same instrument.
made without authority of the person whose signature it purports to be, it is
When the holder's indorsement is forged all parties prior to the
wholly inoperative, and no right to retain the instrument, or to give a discharge
forgery may raise the real defense of forgery against all parties
therefor, or to enforce payment thereof against any party thereto, can be
subsequent thereto.
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  An indorser of an order instrument warrants "that the
authority. instrument is genuine and in all respects what it purports to
be; that he has a good title to it; that all prior parties had
 GR
capacity to contract; and that the instrument is at the time of
 A forged signature, whether it be that of the drawer or the his indorsement valid and subsisting
payee, is wholly inoperative and no one can gain title to the
 A collecting bank where a check is deposited and
instrument through it.
which indorses the check upon presentment with
 A person whose signature to an instrument was forged was the drawee bank = indorser
never a party and never consented to the contract which
allegedly gave rise to such instrument.
 So even if the indorsement on the check
 EX: where "a party against whom it is sought to enforce a right is
deposited by the banks's client is forged,
precluded from setting up the forgery or want of authority."
the collecting bank is bound by his
 Parties who warrant or admit the genuineness of the warranties as an indorser and cannot set up
signature in question and those who, by their acts, silence or the defense of forgery as against the
negligence are estopped from setting up the defense of drawee bank.
forgery, are precluded from using this defense.
 The bank on which a check is drawn, known as the drawee bank, is  However, a drawee bank has the duty to promptly inform the
under strict liability to pay the check to the order of the payee. presentor of the forgery upon discovery. If the drawee bank
delays in informing the presentor of the forgery, thereby
 The drawer's instructions are reflected on the face and by the depriving said presentor of the right to recover from the
terms of the check. forger, the former is deemed negligent and can no longer
recover from the presentor
 Payment under a forged indorsement is not to the
drawer's order. then is that the drawee bank may  Under Section 4(c) of CB Circular No. 580, items
not debit the drawer's account and is not entitled to bearing a forged endorsement shall be returned
indemnification from the drawer. 25 The risk of loss within twenty-Sour (24) hours after discovery of the
must perforce fall on the drawee bank. forgery but in no event beyond the period fixed or
provided by law for filing of a legal action by the
 GR: drawee bank may not debit the drawer's account and is not
returning bank. Section 23 of the PCHC Rules deleted
entitled to indemnification from the drawer - risk of loss must perforce
the requirement that items bearing a forged
fall on the drawee bank
endorsement should be returned within twenty-four
 EX: hours.

 if the drawee bank can prove a failure by the  Since PNB did not return the questioned
customer/drawer to exercise ordinary care that substantially checks within twenty-four hours, but
contributed to the making of the forged signature, the drawer several days later, Associated Bank alleges
is precluded from asserting the forgery that PNB should be considered negligent
and not entitled to reimbursement of the
 If at the same time the drawee bank was also negligent to the amount it paid on the checks.
point of substantially contributing to the loss, then such loss
from the forgery can be apportioned between the negligent  More importantly, by reason of the statutory warranty of a general
drawer and the negligent bank indorser in section 66 of the Negotiable Instruments Law, a collecting
bank which indorses a check bearing a forged indorsement and
 In cases involving a forged check, where the drawer's signature is presents it to the drawee bank guarantees all prior indorsements,
forged, the drawer can recover from the drawee bank. including the forged indorsement

 In cases involving checks with forged indorsements, the drawee bank  In this case, the checks were indorsed by the collecting bank
canseek reimbursement or a return of the amount it paid from the (Associated Bank) to the drawee bank (PNB)
presentor bank or person
 The stamp guaranteeing prior indorsements is not an
empty rubric which a bank must fulfill for the sake of
convenience

 It is within the bank's discretion to receive a

check for no banking institution would
consciously or deliberately accept a check
bearing a forged indorsement. When a
check is deposited with the collecting bank,
it takes a risk on its depositor.
GEMPESAW V. CA Galang and were later given to her for signature. Her signing the checks made
the negotiable instruments complete. Prior to signing of the checks,
218 SCRA 682 there was no valid contract yet. Petitioner completed the checks by
signing them and thereafter authorized Galang to deliver the same to their
respective payees. The checks were then indorsed, forged indorsements
thereon.
FACTS:
As a rule, a drawee bank who has paid a check on which an indorsement
Gempensaw was the owner of many grocery stores. She paid her suppliers has been forged cannot debit the account of a drawer for the amount of
through the issuance of checks drawn against her checking account with said check. An exception to this rule is when the drawer is guilty of
respondent bank. The checks were prepared by her bookkeeper Galang. negligence which causes the bank to honor such checks. Petitioner in this
In the signing of the checks prepared by Galang, Gempensaw didn't bother case has relied solely on the honesty and loyalty of her bookkeeper and
herself in verifying to whom the checks were being paid and if the never bothered to verify the accuracy of the amounts of the checks she
issuances were necessary. She didn't even verify the returned checks of signed the invoices attached thereto. And though she received her bank
the bank when the latter notifies her of the same. During her two years in statements, she didn't carefully examine the same to double-check her
business, there were incidents shown that the amounts paid for were in payments. Petitioner didn't exercise reasonable diligence which eventually led
excess of what should have been paid. It was also shown that even if the to the fruition of her bookkeeper’s fraudulent schemes.
checks were crossed, the intended payees didn't receive the amount of the
checks. This prompted Gempensaw to demand the bank to credit her
account for the amount of the forged checks. The bank refused to do so and
this prompted her to file the case against the bank.

HELD:

Forgery is a real defense by the party whose signature was forged. A party
whose signature was forged was never a party and never gave his consent
to the instrument. Since his signature doesn’t appear in the instrument,
the same cannot be enforced against him even by a holder in due course. The
drawee bank cannot charge the account of the drawer whose signature was
forged because he never gave the bank the order to pay.

In the case at bar the checks were filled up by petitioner’s employee

Negotiable Instruments Case Digest: MWSS V. CA (1986) appropriate security measures over its own records thereby laying confidential
records open to unauthorized persons. Even if the twenty-three (23) checks in
G.R. No. L-62943 July 14, 1986 question are considered forgeries, considering the MWSS’s gross negligence, it
is barred from setting up the defense of forgery under Section 23 of the
Lessons Applicable: Forgery (Negotiable Instruments Law)
Negotiable Instruments Law.

The Supreme Court further emphasized that forgery cannot be presumed. It

FACTS:
must be established by clear, positive, and convincing evidence. This was not
Metropolitan Waterworks and Sewerage System (MWSS) had an account with done in the present case.
PNB. When it was still called NAWASA, MWSS made a special arrangement with
PNB so that it may have personalized checks to be printed by Mesina
Enterprises. These personalized checks were the ones being used by MWSS in
its business transactions.

From March to May 1969, MWSS issued 23 checks to various payees in the
aggregate amount of P320,636.26. During the same months, another set of 23
checks containing the same check numbers earlier issued were forged. The
aggregate amount of the forged checks amounted to P3,457,903.00. This
amount was distributed to the bank accounts of three persons: Arturo Sison,
Antonio Mendoza, and Raul Dizon.

MWSS then demanded PNB to restore the amount of P3,457,903.00. PNB

refused. The trial court ruled in favor of MWSS but the Court of Appeals
reversed the trial court’s decision.

ISSUE: Whether or not PNB should restore the said amount.

HELD: No. MWSS is precluded from setting up the defense of forgery. It has
been proven that MWSS has been negligent in supervising the printing of its
personalized checks. It failed to provide security measures and coordinate the
same with PNB. Further, the signatures in the forged checks appear to be
genuine as reported by the National Bureau of Investigation so much so that
the MWSS itself cannot tell the difference between the forged signature and
the genuine one. The records likewise show that MWSS failed to provide
Bank of America vs Philippine Racing Club a mistake in filling up the checks and the repetition of the entries was possibly
an attempt to rectify the mistake. Also, if the check had been filled up by the
G.R. No. 150228, July 20, 2009 person who customarily accomplishes the checks of respondent, it should have
occurred to petitioner’s employees that it would be unlikely such mistakes
Leonardo-De Castro, J.
would be made. All these circumstances should have alerted the bank to the
possibility that the holder or the person who is attempting to encash the
checks did not have proper title to the checks or did not have authority to fill
Facts: In order not to disrupt their business, the President and Vice-President up and encash the same. As noted by the CA, petitioner could have made a
of Philippine Racing Club pre-signed some several checks. These checks were simple phone call to its client to clarify the irregularities and the loss to
entrusted to the accountant with instruction to make use of the same as the respondent due to the encashment of the stolen checks would have been
need arose. One employee of the PRCI, however, were able to get hold of two prevented.
checks and presented to Bank of America. The two checks amounting to
P110,000.00 each were typewritten incorrectly. On the space where the name
of the payee should be indicated (Pay To The Order Of) the following 2-line
entries were instead typewritten: on the upper line was the word ―CASH‖
while the lower line had the following typewritten words, viz: ―ONE HUNDRED
TEN THOUSAND PESOS ONLY.‖ Despite the highly irregular entries on the face
of the checks, defendant-appellant bank, without as much as verifying and/or
confirming the legitimacy of the checks considering the substantial amount
involved and the obvious infirmity/defect of the checks on their faces,
encashed said checks. PRCI demanded payment; the RTC and the CA aproved
and ordered the BA to pay. Hence, this petition on the ground that in holding
that petitioner was liable for the amount of the checks despite the fact that it
was merely fulfilling its obligation under law and contract when it encashed the
aforesaid checks and neither of the subject checks contains any material
alteration or erasure.

Issue: Whether or not the Bank can set up the defense of no material
alteration.

Ruling: No. Although not in the strict sense ―material alterations, the
misplacement of the typewritten entries for the payee and the amount on the
same blank and the repetition of the amount using a check writer were
glaringly obvious irregularities on the face of the check. Clearly, someone made
Metrobank vs. CA

Metropolitan Bank & Trust Company vs. Court of Appeals Held:

G.R. No. 88866 February, 18, 1991 No. Metrobank is negligent in giving Golden Savings the impression that
the treasury warrants had been cleared and that, consequently, it was safe to
Cruz, J.: allow Gomez to withdraw. Without such assurance, Golden Savings would not
have allowed the withdrawals. Indeed, Golden Savings might even have
incurred liability for its refusal to return the money that all appearances
Facts: belonged to the depositor, who could therefore withdraw it anytime and for
any reason he saw fit.
Eduardo Gomez opened an account with Golden Savings and deposited
38 treasury warrants. All warrants were subsequently indorsed by Gloria It was, in fact, to secure the clearance of the treasury warrants that Golden
Castillo as Cashier of Golden Savings and deposited to its Savings account in Savings deposited them to its account with Metrobank. Golden Savings had no
Metrobank branch in Calapan, Mindoro. They were sent for clearance. clearing facilities of its own. It relied on Metrobank to determine the validity of
Meanwhile, Gomez is not allowed to withdraw from his account, later, the warrants through its own services. The proceeds of the warrants were
however, “exasperated” over Floria repeated inquiries and also as an withheld from Gomez until Metrobank allowed Golden Savings itself to
accommodation for a “valued” client Metrobank decided to allow Golden withdraw them from its own deposit.
Savings to withdraw from proceeds of the warrants. In turn, Golden Savings
Metrobank cannot contend that by indorsing the warrants in general, Golden
subsequently allowed Gomez to make withdrawals from his own account.
Savings assumed that they were genuine and in all respects what they purport
Metrobank informed Golden Savings that 32 of the warrants had been
to be,” in accordance with Sec. 66 of NIL. The simple reason that NIL is not
dishonored by the Bureau of Treasury and demanded the refund by Golden
applicable to non negotiable instruments, treasury warrants.
Savings of the amount it had previously withdrawn, to make up the deficit in its
account. The demand was rejected. Metrobank then sued Golden Savings.

No. The treasury warrants are not negotiable instruments. Clearly

stamped on their face is the word: non negotiable.” Moreover, and this is equal
Issue:
significance, it is indicated that they are payable from a particular fund, to wit,
1. Whether or not Metrobank can demand refund agaist Golden Savings with Fund 501. An instrument to be negotiable instrument must contain an
regard to the amount withdraws to make up with the deficit as a result of the unconditional promise or orders to pay a sum certain in money. As provided by
dishonored treasury warrants. Sec 3 of NIL an unqualified order or promise to pay is unconditional though
coupled with: 1st, an indication of a particular fund out of which reimbursement
2. Whether or not treasury warrants are negotiable instruments is to be made or a particular account to be debited with the amount; or 2 nd, a
statement of the transaction which give rise to the instrument. But an order to
promise to pay out of particular fund is not unconditional. The indication of Samsung Construction vs FEBTC
Fund 501 as the source of the payment to be made on the treasury warrants
makes the order or promise to pay “not conditional” and the warrants G.R. No. 129015. August 13, 2004
themselves non-negotiable. There should be no question that the exception on
Tinga, J.
Section 3 of NIL is applicable in the case at bar.

Facts: Samsung Construction, based in Biñan, Laguna, maintained a current

account with Far East Bank, Makati. The sole signatory to Samsung
Construction’s account was Jong Kyu Lee (“Jong”), its Project Manager, while
the checks remained in the custody of the company’s accountant, Kyu Yong Lee
(“Kyu”). A certain Roberto Gonzaga presented for payment a check, payable
to cash and drawn against Samsung Construction’s current account, in the
amount of P999,500.00. Jose Sempio III (“Sempio”), the assistant accountant
of Samsung Construction, who was also in the bank, vouched for the
genuineness of Jong’s signature. The bank encashed the check to Gonzaga.
Jong learned of the encashment of the check, and realized that his signature
had been forged. Samsung Construction filed a Complaint against the bank
for violation of Section 23 of the Negotiable Instruments Law. Both sides
presented their respective expert witnesses to testify, the NBI and PNP. The
NBI concluded that Jong’s signature had been forged on the check; the PNP
found that Jong’s signature on the check was genuine. The RTC chose to
believe the findings of the NBI expert and directed the bank to pay Samsung
Construction. On appeal, the CA reversed the decision placing the fault on
Samsung Construction for negligence and absolving FEBTC of any liabiliity.
Hence, this petition for review.

Issue: Whether or not Samsung Corporation is precluded from setting up the

defense of forgery.
Ruling: No. Section 23 of the Negotiable Instruments Law bars a party from Philippine National Bank vs Quimpo
setting up the defense of forgery if it is guilty of negligence. The Court finds no
basis to conclude that Samsung Construction was negligent in the safekeeping G.R. No. L-53194 March 14, 1988
of its checks. For one, the settled rule is that the mere fact that the depositor
Gancayco, J.
leaves his check book lying around does not constitute such negligence as will
free the bank from liability to him, where a clerk of the depositor or other
persons, taking advantage of the opportunity, abstract some of the check
blanks, forges the depositor’s signature and collect on the checks from the Facts: On July 3, 1973, Francisco S. Gozon II, who was a depositor of the
bank. Samsung Construction was not negligent at all since it reported the Caloocan City Branch of the Philippine National Bank, went to the bank in his
forgery almost immediately upon discovery. Even if the bank performed with car accompanied by his friend Ernesto Santos whom he left in the car while he
utmost diligence, the drawer whose signature was forged may still recover transacted business in the bank. When Santos saw that Gozon left his check
from the bank as long as he or she is not precluded from setting up the defense book he took a check therefrom, filled it up for the amount of P5,000.00,
of forgery. After all, Section 23 of the Negotiable Instruments Law plainly forged the signature of Gozon, and thereafter he encashed the check in the
states that no right to enforce the payment of a check can arise out of a forged bank on the same day. The account of Gozon was debited the said amount.
signature. Since the drawer, Samsung Construction, is not precluded by Upon receipt of the statement of account from the bank, Gozon asked that the
negligence from setting up the forgery, the general rule should apply. said amount of P5,000.00 should be returned to his account as his signature on
Consequently, if a bank pays a forged check, it must be considered as paying the check was forged but the bank refused. Gozon filed the complaint for
out of its funds and cannot charge the amount so paid to the account of the recovery of the amount of P5,000.00 against PNB, which the court approved.
depositor. A bank is liable, irrespective of its good faith, in paying a forged Hence, this petition on the ground that respondent cannot put up the defense
check. of forgery because he is the proximate cause of the loss.

Issue: Whether or not petitioner bank is correct that petitioner cannot put up
the defense of forgery.

Ruling: No. As held by the court a quo, "[a] bank is bound to know the
signatures of its customers; and if it pays a forged check, it must be considered
as making the payment out of its own funds, and cannot ordinarily change the
amount so paid to the account of the depositor whose name was forged." The
prime duty of a bank is to ascertain the genuineness of the signature of the
drawer or the depositor on the check being encashed. It is expected to use
reasonable business prudence in accepting and cashing a check presented to it.
Obviously, petitioner was negligent in encashing said forged check without
carefully examining the signature which shows marked variation from the
genuine signature of private respondent. Private respondent trustee Ernesto
Santos as a classmate and a friend. He brought him along in his car to the bank Republic Bank vs Ebrada
and he left his personal belongings in the car. Santos however removed and
stole a check from his cheek book without the knowledge and consent of G.R. No. L-40796 July 31, 1975
private respondent. No doubt private respondent cannot be considered
Martin, J.
negligent under the circumstances of the case.

Facts: Mauricia T. Ebrada encashed a back pay check issued by the Bureau of
Treasury amounting to P1,246.08 at Republic Bank, Escolta, Manila. It turned
out, however, that the signature of the original payee of the check, Martin
Lorenzo was a forgery because he was already dead for almost 11 years before
the check in question was issued by the Bureau of Treasury. The Bureau of
Treasury then asked the bank to refund the amount of P1,246.08. To recover
what it had refunded to the Bureau of Treasury, plaintiff Bank made verbal and
formal demands upon defendant Ebrada to account for the sum of P1,246.08,
but said defendant refused to do so. So plaintiff Bank sued defendant Ebrada
before the City Court of Manila. Ebrada filed her answer denying the material
allegations of the complaint and as affirmative defenses alleged that she was a
holder in due course of the check in question, or at the very least, has acquired
her rights from a holder in due course and therefore entitled to the proceeds
thereof. She also alleged that the plaintiff Bank has no cause of action against
her; that it is in estoppel, or so negligent as not to be entitled to recover
anything from her.

Issues: Whether or not Ebrada is a holder in due course and she is entitled to
the proceeds of thereof.

Ruling: No. It is clear from the provision of Section 23 of the Negotiable

Instruments Law that where the signature on a negotiable instrument if forged,
the negotiation of the check is without force or effect. Where a check has
several indorsements on it, it is only the negotiation based on the forged or Ilusurio vs CA and Manila Bank
unauthorized signature which is inoperative (Beam vs. Farrel, 135 Iowa 670,
113 N.W. 590). This means that the negotiation of the check in question from [G.R. No. 139130. November 27, 2002]
Martin Lorenzo, the original payee, to Ramon R. Lorenzo, the second indorser,
Quisumbing, J.
should be declared of no affect, but the negotiation of the aforesaid check from
Ramon R. Lorenzo to Adelaida Dominguez, the third indorser, and from
Adelaida Dominguez to the defendant-appellant who did not know of the
forgery, should be considered valid and enforceable, barring any claim of Facts: Ramon K. Ilusorio, a prominent businessman, running about 20
forgery. corporations, and going out of the country a number of times, entrusted to his
secretary, Katherine E. Eugenio, his credit cards and his checkbook with blank
However, the drawee of a check can recover from the holder the money paid checks. It was also Eugenio who verified and reconciled the statements of said
to him on a forged instrument (State v. Broadway Mut. Bank, 282 S.W. 196, checking account. Eugenio was able to encash and deposit to her personal
197). This is because the indorser is supposed to warrant to the drawee that account about seventeen (17) checks drawn against the account of Ilusorio at
the signatures of the payee and previous indorsers are genuine, warranty not the Manila Bank, with an aggregate amount of P119,634.34. Petitioner did not
extending only to holders in due course. Every one with even the least bother to check his statement of account until a business partner apprised him
experience in business knows that no business man would accept a check in that he saw Eugenio use his credit cards. Petitioner fired Eugenio immediately,
exchange for money or goods unless he is satisfied that the check is genuine. and instituted a criminal action against her for estafa thru falsification. He then
Upon receiving the check in question, the defendant-appellant was duty-bound requested the respondent bank to credit back and restore to its account the
to ascertain whether the check in question was genuine before presenting it to value of the checks which were wrongfully encashed but respondent bank
plaintiff Bank for payment. Her failure to do so makes her liable for the loss and refused. Hence, he filed the instant case but the trial court dismissed the case,
the plaintiff Bank may recover from her the money she received for the check. and the CA affirmed on the ground that he has no cause of action because he
failed to prove the defense of forgery. Thus, petitioner filed this petition for
review on the ground that the lower court erred in not applying Section 23 of
the NIL, since a check is forged, it is inoperative and the bank had no authority
to pay forged checks.

Issue: Whether or not the petitioner can invoke the defense of forgery.

Ruling: No. True, it is a rule that when a signature is forged or made without
the authority of the person whose signature it purports to be, the check is
wholly inoperative. No right to retain the instrument, or to give a discharge Defense of the nullity of sale
therefor, or to enforce payment thereof against any party, can be acquired
through or under such signature. However, the rule does provide for an [1] Salas vs Court of Appeals and Filinvest Finance
exception, namely: “unless the party against whom it is sought to enforce
G.R. No. 76788 January 22, 1990
such right is precluded from setting up the forgery or want of authority.” In
the instant case, it is the exception that applies. Petitioner is precluded from Fernan, C.J.
setting up the forgery, assuming there is forgery, due to his own negligence in
entrusting to his secretary his credit cards and checkbook including the
verification of his statements of account.
Facts: Juanita Salas bought a motor vehicle from the Violago Motor Sales
Corporation as evidenced by a promissory note. This note was subsequently
endorsed to Filinvest Finance & Leasing Corporation which financed the
purchase. Petitioner defaulted in her installments allegedly due to a
discrepancy in the engine and chassis numbers of the vehicle delivered to her
and those indicated in the sales invoice, certificate of registration and deed of
chattel mortgage, which fact she discovered when the vehicle figured in an
accident on 9 May 1980. This failure to pay prompted Filinvest Finance to
initiate a civil action for a sum of money against petitioner before the RTC-San
Fernando, Pampanga. The trial court favored petitioner and ordered Salas to
pay the amount; the CA affirmed the decision. On this petition, imputing fraud,
bad faith and misrepresentation against VMS for having delivered a different
vehicle to petitioner, she prayed for a reversal of the trial court's decision so
that she may be absolved from the obligation under the contract on the ground
that the provision of the law on sales by description is applicable here; hence,
no contract ever existed between her and VMS and therefore none had been
assigned in favor of private respondent.

Issue: Whether the promissory note in question is a negotiable instrument

which will bar completely all the available defenses of the petitioner against
private respondent.

\
Ruling: No. Petitioner cannot set up against respondent the defense of nullity
of the contract of sale between her and VMS. A careful study of the
questioned promissory note shows that it is a negotiable instrument, having
complied with the requisites under the law as follows: [a] it is in writing and
signed by the maker Juanita Salas; [b] it contains an unconditional promise to
pay the amount of P58,138.20; [c] it is payable at a fixed or determinable
future time which is "P1,614.95 monthly for 36 months due and payable on the
21 st day of each month starting March 21, 1980 thru and inclusive of Feb. 21,
1983;" [d] it is payable to Violago Motor Sales Corporation, or order and as
such, [e] the drawee is named or indicated with certainty. It was negotiated by
indorsement in writing on the instrument itself payable to the Order of
Filinvest Finance and Leasing Corporation and it is an indorsement of the
entire instrument. Under the circumstances, there appears to be no question
that Filinvest is a holder in due course, having taken the instrument under the
following conditions: [a] it is complete and regular upon its face; [b] it became
the holder thereof before it was overdue, and without notice that it had
previously been dishonored; [c] it took the same in good faith and for value;
and [d] when it was negotiated to Filinvest, the latter had no notice of any
infirmity in the instrument or defect in the title of VMS
Corporation. Accordingly, respondent corporation holds the instrument free
from any defect of title of prior parties, and free from defenses available to
prior parties among themselves, and may enforce payment of the instrument
for the full amount thereof.