Abubakar vs.

Auditor General
GR L-1405, 31 July 1948
First Division, Bengzon (J)

Facts:

Treasury Warrant was made payable to Placido S. Urbanes in his

capacity as disbursing officer of the Food Administration for "additional cash
advance for Food Production Campaign in La Union. “ It was regularly indorsed
by the payee and is now in the custody of the herein petitioner who is a
private individual. Auditor General refused to authorize the payment of the
same because: (1) the money available for the redemption of treasury
warrants is appropriated by Republic Act No. 80 and this warrant does not
come within the purview of said appropriation; and (2) because on of the
requirements of his office had not been complied with, namely, that it
must be shown that the holders of warrants covering payment or
replenishment of cash advances for official expenditures (as this warrant
is) received them in payment of definite government obligations.

The petitioner argued that he is a holder in good faith and for value of a
negotiable instrument and is entitled to the rights and privileges of a holder in
due course, free from defenses.

Issue: Whether said warrant negotiable?

Ruling: No.

But this treasury warrant is not within the scope of the negotiable
instruments law. For one thing, the document bearing on its face the words
"payable from the appropriation for food administration," is actually an order
for payment out of "a particular fund," and is not unconditional, and does not
fulfill one of the essential requirements of a negotiable instrument. (Section 3
last sentenced and section 1[b] of the Negotiable Instruments Law.) In the
United States, government warrants for the payment of money are not ne
gotiable instruments nor commercial proper.
METROPOLITAN BANK & TRUST CO. VS. CA (GR No. 88866; Feb. 18,
1991)

FACTS: - Eduardo Gomez opened an account with Golden Savings and

deposited over a period of two months 38 treasury warrants. They were all
drawn by the Philippine Fish Marketing Authority and purportedly signed by
its General Manager and counter-signed by its Auditor. Six of these were
directly payable to Gomez while the others appeared to have been
indorsed by their respective payees, followed by Gomez as second
indorser.

On various dates all these warrants were subsequently indorsed by Gloria

Castillo as Cashier of Golden Savings and deposited to its Savings Account
in the Metrobank. They were then sent for clearing by the branch office to
the principal office of Metrobank, which forwarded them to the Bureau of
Treasury for special clearing. After being told to wait several times, Gloria
Castillo and Gomez made subsequent withdrawals at Metrobank with the
impression that the treasury warrants had been cleared. Metrobank
informed Golden Savings that 32 of the warrants had been dishonored by
the Bureau of Treasury and demanded the refund by Golden Savings of the
amount it had previously withdrawn, to make up the deficit in its account.
The demand was rejected.

ISSUE: WON treasury warrants are negotiable instruments?

HELD: No. The treasury warrants in question are not negotiable

instruments. Clearly stamped on their face is the word "non-negotiable."
Moreover, it is indicated that they are payable from a particular fund, to wit,
Fund 501. Sections 1 and 3 of the Negotiable Instruments Law especially
underscored this requirement. The indication of Fund 501 as the source of
the payment to be made on the treasury warrants makes the order or
promise to pay "not unconditional" and the warrants themselves non-
negotiable. Metrobank cannot contend that by indorsing the warrants in
general, Golden Savings assumed that they were "genuine and in all
respects what they purport to be," in accordance with Section 66 of the
Negotiable Instruments Law. The simple reason is that this law is not
applicable to the non-negotiable treasury warrants. The indorsement was
made by Gloria Castillo not for the purpose of guaranteeing the
genuineness of the warrants but merely to deposit them with Metrobank for
clearing.
G.R. No. 170325
September 26, 2008
PHILIPPINE NATIONAL BANK, PETITIONER, VS.
ERLANDO T. RODRIGUEZ AND NORMA RODRIGUEZ, RESPONDENTS.

FACTS:
Respondents-Spouses Erlando and Norma Rodriguez were clients of
petitioner PNB. They maintained savings and demand/checking accounts.
In line with their business, they had a discounting arrangement with
PEMSLA, an association of PNB employees. Naturally, PEM SLA was
likewise a client of the same PNB branch.

PEMSLA regularly granted loans to its members. Spouses Rodriguez

would rediscount the postdated checks issued to members whe
never the association was short of funds. The spouses would replace the
postdated checks with their own checks issued in the name of the members.
Some PEMSLA officers devised a scheme to obtain additional loans
despite their outstanding loan accounts. They took out loan s in the
names of unknowing members, without the knowledge or consent of
the latter.

The PEMSLA checks issued for these loans were then given to the
spouses for rediscounting. The officers carried this out by forging the
endorsement of the named payees in the checks. In return, the spouses
issued their personal checks in the name of the members and delivered the
checks to an officer of PEMSLA. The PEMSLA checks, on the other hand,
were deposited by the spouses to their account.

Meanwhile, the Rodriguez checks were deposited directly by PEMSLA to its

savings account without any indorsement from the named payees. This was
an irregular procedure made possible through the facilitation of Edmundo
Palermo, Jr., treasurer of PEMSLA and bank teller in the PNB Branch.

For the period November 1998 to February 1999, the spouses issued
69 checks, worth P2,345,804.00 in total. These were payable to 47
individual payees who were all members of PEMSLA.Petitioner PNB
eventually found out about these fraudulent acts. To put a stop to this
scheme, PNB closed the current account of PEMSLA. As a result, the
PEMSLA checks deposited by the spouses were returned or dishonoured.

The corresponding Rodriguez checks, however, were de

posited as usual to the PEMSLA savings account. The amounts were duly
debited from the Rodriguez account. The spouses Rodriguez filed a civil
complaint for damages against PEMSLA, MCP, and petitioner PNB, seeking
to recover the value of their checks worth P2,345,804.00. The spouses
contended that because PNB credited the checks to the PEMSLA
account even without indorsements, PNB violated its contractual
obligation to them as depositors. PNB paid the wrong payees, hence, it
should bear the loss.

PNB moved to dismiss the complaint. The RTC denied PNB's motion. to
dismiss.The bank contended that spouses Rodriguez, the makers,
actually did not intend for the named payees to receive the proceeds
of the checks. Consequently, the payees were considered as "fictitious
payees.". Being checks made to fictitious payees which are bearer in
struments, the checks were negotiable by mere delivery.

The RTC rendered judgment in favor of spouses Rodriguez. The CA

reversed and set aside the RTC disposition. The CA found that the checks
were bearer instruments, thus they do not require indorsement for
negotiation; and that spouses Rodriguez and PEMSLA conspired with each
other to accomplish this money-making scheme. The payees in the
checks were "fictitious payees" because they were not the intended
payees at all. Subsequently, the CA reversed itself. The CA ruled that
the checks were payable to order. PNB is liable for the value of the
checks which it paid to PEMSLA without indorsements from the named
payees.

ISSUES
I. Whether the subject checks are payable to order or to bearer
II. Who bears the loss?

RULING
When the payee is fictitious or not intended to be the true recipient of the
proceeds, the check is considered as a bearer instrument. The distinction
between bearer and order instruments lies in their manner of
negotiation. Under Section 30 of the NIL, an order instrument requires
an indorsement from the payee or holder before it may be validly negotiated.
A bearer instrument, on the other hand, does not require an indorsement to
be validly negotiated. It is negotiable by mere delivery.

A check that is payable to a specified payee is an order instrument.

However, under Section 9(c) of the NIL, a check payable to a specified
payee may nevertheless be considered as a bearer instrument if it is
payable to the order of a fictitious or non-existing person, and such fact is
known to the person making it so payable.
US jurisprudence yields that an actual, existing, and living payee may also
be "fictitious" if the maker of the check did not intend for the payee to in fact
receive the proceeds of the check. A check made expressly payable to a
non-fictitious and existing person is not necessarily an order instrument. If
the payee is not the intended recipient of the proceeds of the check, the
payee is considered a "fictitious" payee and the check is a bearer
instrument.

In a fictitious-payee situation, the drawee bank is absolved from

liability and the drawer bears the loss. When faced with a check
payable to a fictitious payee, it is treated as a bearer instrument that can be
negotiated by delivery. The underlying theory is that one cannot expect a
fictitious payee to negotiate the check by placing his indorsement thereon.
However, there is a commercial bad faith exception to the fictitious-payee
rule. A showing of commercial bad faith on the part of the drawee bank, or
any transferee of the check for that matter, will work to strip it of this
defense. Commercial bad faith is present if the transferee of the check acts
dishonestly, and is a party to the fraudulent scheme.

In the case at bar, the Rodriguez checks were payable to specified payees.
It is unrefuted that the 69 checks were payable to specific persons.
Likewise, it is uncontroverted that the payees were actual, existing, and
living persons who were members of PEMSLA that had a rediscounting
arrangement with spouses Rodriguez.

For the fictitious-payee rule to be available as a defense, PNB must show

that the makers did not intend for the named payees to be part of the
transaction involving the checks. At most, the bank's thesis shows that the
payees did not have knowledge of the existence of the checks. This lack of
knowledge on the part of the payees, however, was not tantamount to
a lack of intention on the part of respondents-spouses that the
payees would not receive the checks' proceeds. Considering that
respondents-spouses were transacting with PEMSLA and not the
individual payees, it is understandable that they relied on the information
given by the officers of PEMSLA that the payees would be receiving the
checks.

Verily, the subject checks are presumed order instruments because PNB
failed to present sufficient evidence to defeat the claim of respondents
-spouses that the named payees were the intended recipients of the checks'
proceeds. The fictitious-payee rule does not apply. The drawee bank bears
the loss.

PNB was remiss in its duty as the drawee bank. It does not dispute
the fact that its teller or tellers accepted the 69 checks for deposit to
the PEMSLA account even without any indorsement from the named
payees. It bears stressing that order instruments can only be negotiated
with a valid indorsement.

A bank that regularly processes checks that are neither payable to

the customer nor duly indorsed by the payee is apparently grossly
negligent in its operations. In a checking transaction, the drawee bank has
the duty to verify the genuineness of the signature of the drawer and to pay
the check strictly in accordance with the drawer's instructions. PNB had the
responsibility to ascertain the regularity of the endorsements, and the
genuineness of the signatures on the checks before accepting them for
deposit. Lastly, PNB was obligated to pay the checks in strict accordance
with the instructions of the drawers. Petitioner miserably failed to discharge
this burden. The facts clearly show that the bank did not pay the
checks in strict accordance with the instructions of the drawers,
respondents-spouses.

Instead, it paid the values of the checks not to the named payees or their
order, but to PEMSLA, a third party to the transaction between the drawers
and the payees.

Moreover, PNB was negligent in the selection and supervision of its

employees. PNB's tellers and officers, in violation of banking rules of
procedure, permitted the invalid deposits of checks to the PEMSLA account.
When it is the gross negligence of the bank employees that caused the loss,
the bank should be held liable.

PNB should be held liable for the amounts of the checks.

SPS. EVANGELISTA VS. MERCATER FINANCE CORP. (GR No. 148864;
Aug. 21, 2003)

FACTS- Petitioner spouses filed a complaint against respondents for the

foreclosure of the mortgage on their property and eventual its eventual
sale, claiming, among others, that they executed the said mortgage on their
capacity as officers of Embassy Farms, and not on their personal capacity,
thus, there is no consideration received by them, making the mortgage
voidable. Respondent, on the other hand, claims that the promissory note
for the loan, for which the mortgage was executed, shows that the spouses
signed as co-makers, also with the succeeding promissory notes.

The RTC, upon motion of the respondent, granted summary judgment and
dismissed the complaint. On appeal, the CA affirmed in toto the decision of
the RTC.

ISSUE: WON petitioners are solidarily liable with Embassy Farms for the
loan as evidenced by the promissory note?

HELD: Yes. The promissory note reads: For value received, I/We jointly
and severally promise to pay to the order of MERCATOR FINANCE
CORPORATION at its office, the principal sum of EIGHT HUNDRED
FORTY-FOUR THOUSAND SIX HUNDRED TWENTY-FIVE PESOS &
78/100 (P 844,625.78), Philippine currency, x x x, in installments.

The note was signed by petitioners and Embassy Farms, Inc. with the
signature of Eduardo Evangelista below it. Sec. 17 of the Negotiable
Instruments Law provide: “Construction where instrument is ambiguous –
Where the language of the instrument is ambiguous or there are omissions
therein, the following rules of construction shall apply: (g) Where an
instrument containing the word “I promise to pay” is signed by two or more
persons, they are deemed to be jointly and severally liable thereon. As
such, the promissory note itself proves that petitioners are solidarily liable
with Embassy Farms. Moreover, even if petitioners signed merely as
officers, it does not erase the fact that they subsequently executed a
continuing suretyship agreement which makes them solidarily liable with
the principal. They cannot eventually claim that they did not personably
receive any consideration for the contract.
Victoria J. Ilano represented by her Attorney-in-fact, Milo Antonio
C. Ilano vs. Hon. Dolores L. Espanol, in her capacity as Executive
Judge, RTC of Imus, Cavite, Br. 90, et. al

G.R. No. 161756. December 16, 2005

478 SCRA 365

FACTS:

Victoria J. Ilano filed a complaint for Revocation/Cancellation of
Promissory Notes and Bills of Exchange (Checks) with Damages and
Prayer for Preliminary Injunction or Temporary Restraining Order
(TRO) against private respondents. The petitioner alleged, among
other things, that respondents, through deceit, abuse of confidence
machination, fraud, falsification, forgery, defraudation, and bad faith,
and with malice, malevolence and selfish intent, succeeded in
inducing her to sign antedated promissory notes and some blank
checks, and by taking undue advantage of her signature on some
other blank checks, succeeded in procuring them, even if there was
no consideration for all of these instruments on account of which she
suffered anxiety, tension, sleepless nights, wounded feelings and
embarrassment. However, the RTC dismissed the complaint for failure
to allege the ultimate facts-bases of petitioners claim that her right was
violated and that she suffered damages.

The Court of Appeals affirmed the dismissal by Branch 20 of the

Regional Trial Court (RTC) of Cavite at Imus, for lack of cause of
action.

For recital of the allegations in the complaint, see photo.


ISSUES:

Commercial Law: Is validity and negotiability of Check No. 0084078,

drawn against another account of petitioner and was dishonored on
January 12, 2000 due to Account Closed, affected by the fact that its
date of issue bears only the year 1999?
RULING:

2. No. Section 6 of the Negotiable Instruments Law provides that the

validity and negotiable character of an instrument are not affected by
the fact that:
(a) It is not dated; or
(b) Does not specify the value given, or that any value had been given
therefor; or
(c) Does not specify the place where it is drawn or the place where it
is payable; or
(d) Bears a seal; or
(e) Designates a particular kind of current money in which payment is
to be made.

With respect to above-said Check No. 0084078, however, which was

drawn against another account of Ilano, albeit the date of issue bears
only the year 1999, its validity and negotiable character at the time the
complaint was filed was not affected.
It is, however, with respect to the questioned promissory notes that the
present petition assumes merit. For, Ilano’s allegations in the
complaint relative thereto, even if lacking particularity, does not as
priorly stated call for the dismissal of the complaint.