2. Metropolitan Bank and Trust Co. v. BA Finance Corp.

607 SCRA 620 (2009)

Facts:
Lamberto Bitanga (Bitanga) obtained from respondent BA Finance Corporation (BA
Finance) a P329,280 loan to secure which, he mortgaged his car to respondent BA
Finance.[2] The mortgage contained the following stipulation:

The MORTGAGOR covenants and agrees that he/it will cause the property(ies)
hereinabove mortgaged to be insured against loss or damage by accident, theft and
fire for a period of one year from date hereof with an insurance company or
companies acceptable to the MORTGAGEE in an amount not less than the
outstanding balance ofmortgage obligations and that he/it will make all loss, if any,
under such policy or policies, payable to the MORTGAGEE or its assigns as its
interest may appear ](emphasis and underscoring supplied)

Bitanga thus had the mortgaged car insured by respondent Malayan Insurance Co.,
Inc. (Malayan Insurance) which issued a policy stipulating that, inter alia,

Loss, if any shall be payable to BA FINANCE CORP. as its interest may appear. It is
hereby expressly understood that this policy or any renewal thereof, shall not be
cancelled without prior notification and conformity by BA FINANCE CORPORATION.
(emphasis and underscoring supplied)

The car was stolen. On Bitangas claim, Malayan Insurance issued a check payable to
the order of B.A. Finance Corporation and Lamberto Bitanga for P224,500, drawn
against China Banking Corporation (China Bank). The check was crossed with the
notation For Deposit Payees Account Only.
Without the indorsement or authority of his co-payee BA Finance, Bitanga deposited
the check to his account with the Asianbank Corporation (Asianbank), now merged
with herein petitioner Metropolitan Bank and Trust Company (Metrobank). Bitanga
subsequently withdrew the entire proceeds of the check.
Bitangas loan became past due, but despite demands, he failed to settle it.
Asianbank filed a 3rd party complaint against Malayan Insurance alleging that the
latter was grossly negligent for issuing the check

RTC:
finding that Malayan Insurance was not privy to the contract between BA Finance
and Bitanga, and noting the claim of Malayan Insurance that it is its policy to issue
checks to both the insured and the financing company, held that Malayan Insurance
cannot be faulted for negligence for issuing the check payable to both BA Finance
and Bitanga.

holding that Asianbank was negligent in allowing Bitanga to deposit the check to his
account and to withdraw the proceeds thereof, without his co-payee BA Finance
having either indorsed it or authorized him to indorse it in its behalf

found Asianbank and Bitanga jointly and severally liable to BA Financefollowing

Section 41 of the Negotiable Instruments Law and Associated Bank v. Court of
Appeals
CA: affirmed the trial court
Ruling:
Section 41 of the Negotiable Instruments Law provides:
Where an instrument is payable to the order of two or more payees or indorsees
who are not partners, all must indorse unless the one indorsing has authority to
indorse for the others. (emphasis and underscoring supplied)

Bitanga alone endorsed the crossed check, and petitioner allowed the deposit and
release of the proceeds thereof, despite the absence of authority of Bitangas copayee BA Finance to endorse it on its behalf. Admittedly, petitioner dismissed the
employee who allowed the deposit of the check in Bitangas account.
Petitioners argument that since there was neither forgery, nor unauthorized
indorsement because Bitanga was a co-payee in the subject check, the dictum
inAssociated Bank v. CA does not apply in the present case fails. The payment of an
instrument over a missing indorsement is the equivalent of payment on a forged
indorsement or an unauthorized indorsement in itself in the case of joint payees.
As has been repeatedly emphasized, the banking business is imbued with public
interest such that the highest degree of diligence and highest standards of integrity
and performance are expected of banks in order to maintain the trust and
confidence of the public in general in the banking sector. The provisions of the
Negotiable Instruments Law and underlying jurisprudential teachings on the black-

letter law provide definitive justification for petitioners full liability on the value of
the check.
To be sure, a collecting bank, Asianbank in this case, where a check is
deposited and which indorses the check upon presentment with the drawee bank, is
an indorser. This is because in indorsing a check to the drawee bank, a collecting
bank stamps the back of the check with the phrase all prior endorsements and/or
lack of endorsement guaranteed and, for all intents and purposes, treats the check
as a negotiable instrument, hence, assumes the warranty of an indorser. Without
Asianbanks warranty, the drawee bank (China Bank in this case) would not have
paid the value of the subject check.

Petitioner, as the collecting bank or last indorser, generally suffers the loss because
it has the duty to ascertain the genuineness of all prior indorsements considering
that the act of presenting the check for payment to the drawee is an assertion that
the party making the presentment has done its duty to ascertain the genuineness of
prior indorsements.
Accordingly, one who credits the proceeds of a check to the account of the
indorsing payee is liable in conversion to the non-indorsing payee for the entire
amount of the check.
It bears noting that in petitioners cross-claim against Bitanga, the trial court ordered
Bitanga to return to petitioner the entire value of the check P224,500.00 with
interest as well as damages and cost of suit. Petitioner never questioned this aspect
of the trial courts disposition, yet it now prays for the modification of its liability to
BA Finance to only one-half of said amount. To pander to petitioners supplication
would certainly amount to unjust enrichment at BA Finances expense.Petitioners
remedywhich is the reimbursement for the full amount of the check from the
perpetrator of the irregularity lies with Bitanga.
Section 68 of the Negotiable Instruments Law instructs that joint payees who
indorse are deemed to indorse jointly and severally. When the maker dishonors the
instrument, the holder thereof can turn to those secondarily liable the indorser for
recovery.
A collecting bank, Asianbank in this case, where a check is deposited and
which indorses the check upon presentment with the drawee bank, is an indorser.
his is because in indorsing a check to the drawee bank, a collecting bank stamps
the back of the check with the phrase all prior endorsements and/or lack of
endorsement guaranteed and, for all intents and purposes, treats the check as a
negotiable instrument, hence, assumes the warranty of an indorser.

Petitioner, as the collecting bank or last indorser, generally suffers the loss
because it has the duty to ascertain the genuineness of all prior indorsements
considering that the act of presenting the check for payment to the drawee is an
assertion that the party making the presentment has done its duty to ascertain the
genuineness of prior indorsements

4. TRADERS ROYAL BANK V CA G.R. No. 93397 March 3, 1997

FACTS:
Filriters registered owner of Central Bank Certificate of Indebtedness (CBCI). Filriters
transferred it to Philfinance by one of its officers without authorization from the
company. Subsequently, Philfinance transferred same CBCI to Traders Royal Bank
(TRB) under a repurchase agreement. When Philfinance failed to do so, The TRB
tried to register in its name in the CBCI. The Central Bank did not want to recognize
the transfer.
Docketed as Civil Case No. 83-17966 in the Regional Trial Court of Manila, Branch
32, the action was originally filed as a Petition for Mandamus 5 under Rule 65 of the
Rules of Court, to compel the Central Bank of the Philippines to register the transfer
of the subject CBCI to petitioner Traders Royal Bank (TRB).
DECISION OF LOWER COURTS: * RTC: transfer is null and void. * CA: The appellate
court ruled that the subject CBCI is not a negotiable instrument. Philfinance
acquired no title or rights under CBCI No. D891 which it could assign or transfer to
Traders Royal Bank and which the latter can register with the Central Bank. Thus,
the transfer of the instrument from Philfinance to TRB was merely an assignment,
and is not governed by the negotiable instruments law.
APPLICABLE LAWS:
Under section 1 of Act no. 2031 an instrument to be negotiable must conform to the
following requirements: (a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable future time; (d) Must
be payable to order or to bearer; and (e) Where the instrument is addressed to a
drawee, he must be named or otherwise indicated therein with reasonable certainty.

Under section 3, Article V of Rules and Regulations Governing Central Bank

Certificates of Indebtedness states that the assignment of registered certificates
shall not be valid unless made at the office where the same have been issued and
registered or at the Securities Servicing Department, Central Bank of the
Philippines, and by the registered owner thereof, in person or by his representative,
duly authorized in writing. For this purpose, the transferee may be designated as
the representative of the registered owner. ISSUES & RULING: 1. Whether the CBCI
is negotiable instrument or not.
The pertinent portions of the subject CBCI read:
xxx xxx xxx
The Central Bank of the Philippines (the Bank) for value received, hereby promises
to pay bearer, of if this Certificate of indebtedness be registered, to FILRITERS
GUARANTY ASSURANCE CORPORATION, the registered owner hereof, the principal
sum of FIVE HUNDRED THOUSAND PESOS.
NO. The CBCI is not a negotiable instrument, since the instrument clearly stated
that it was payable to Filriters, and the certificate lacked the words of negotiability
which serve as an expression of consent that the instrument may be transferred by
negotiation.
Before the instruments become negotiable instruments, the instrument must
conform to the requirements under the Negotiable Instrument Law. Otherwise
instrument shall not bind the parties.
2. Whether the Assignment of registered certificate is valid or null and void.
IT'S NULL AND VOID. Obviously the Assignment of certificate from Filriters to
Philfinance was null and void. One of officers who signed the deed of assignment in
behalf of Filriters did not have the necessary written authorization from the Board of
Directors of Filriters. For lack of such authority the assignment is considered null and
void.
Clearly shown in the record is the fact that Philfinance's title over CBCI is
defective since it acquired the instrument from Filriters fictitiously. Under 1409 of
the Civil Code those contracts which are absolutely simulated or fictitious are
considered void and inexistent from the beginning.
Petitioner knew that Philfinance is not registered owner of the CBCI No. D891. The
fact that a non-owner was disposing of the registered CBCI owned by another entity
was a good reason for petitioner to verify of inquire as to the title Philfinance to
dispose to the CBCI.
OTHER NOTES:

1. the mere ownership by a single stockholder or by another corporation of all or

nearly all of the capital stock of a corporation is not of itself a sufficient
reason for disregarding

5. Caltex (Phil.) v. Court of Appeals 212 SCRA 448 (1992)

The accepted rule is that the negotiability or non-negotiability of an instrument is

determined from the writing, that is, from the face of the instrument itself. The
CTDs in question are negotiable instruments as they meet the requirements of the
law for negotiability as provided for in Section 1 of the Negotiable Instruments Law.
The documents provide that the amounts deposited shall be repayable to the
depositor. And according to the document, the depositor is the "bearer." The
documents do not say that the depositor is Angel de la Cruz and that the amounts
deposited are repayable specifically to him. Rather, the amounts are to be
repayable to the bearer of the documents or, for that matter, whosoever may be the
bearer at the time of presentment.
FACTS:
Security Bank and Trust Co. issued 280 certificates of time deposit (CTD) in favor of
one Mr. Angel dela Cruz who deposited with the bank P1.12 million. Dela Cruz
delivered the CTDs to Caltex in connection with his purchase of fuel products from
the latter. Subsequently, dela Cruz informed the bank that he lost all the CTDs, and
thus executed an affidavit of loss to facilitate the issuance of the replacement CTDs.
When Caltex presented said CTDs for verification with the bank and formally
informed the bank of its decision to preterminate the same, the bank rejected
Caltex claim and demand as Caltex failed to furnish copies of certain requested
documents. In 1983, dela Cruz loan matured and the bank set-off and applied the
time deposits as payment for the loan. Caltex filed a complaint which was dismissed
on the ground that the subject certificates of deposit are non-negotiable.
ISSUE:
Whether the Certificates of Time Deposit (CTDs) are negotiable instruments.
RULING:
The CTDs in question are negotiable instruments as they meet the requirements of
the law for negotiability as provided for in Section 1 of the Negotiable Instruments
Law. The documents provide that the amounts deposited shall be repayable to the
depositor. And according to the document, the depositor is the "bearer." The

documents do not say that the depositor is Angel de la Cruz and that the amounts
deposited are repayable specifically to him. Rather, the amounts are to be
repayable to the bearer of the documents or, for that matter, whosoever may be the
bearer at the time of presentment. However, petitioner cannot recover on the
CTDs. Although the CTDs are bearer instruments, a valid negotiation thereof for
the true purpose and agreement between it and dela Cruz, as ultimately
ascertained, requires both delivery and indorsement. In this case, there was no
indorsement as the CTDs were delivered not as payment but only as a security for
dela Cruz' fuel purchases.