Digest Compilation 5.
b-Bills, Notes and Commercial Papers | May 4, 2016
Table of Contents
BPI v Roxas ............................................................................................... 1
Nota Sapiera v CA ..................................................................................... 1
Metrobank v PBCOM ................................................................................ 2
BPI v CA ..................................................................................................... 3
Coolidge V Payson ................................................................................... 5
Republic V PNB ......................................................................................... 5
PAL V CA ................................................................................................... 6
Fortunado V CA......................................................................................... 7
Mesina V IAC ............................................................................................. 7
New Pacific Timber V Seneris ................................................................. 7
Wachtel V Rosen ....................................................................................... 7
Roman Catholic Archbishop of Malolos Inc V IAC ................................ 7
Bulliet V Allegheny Trust Co. .................................................................. 7
Sutter V Security Trust Co. ...................................................................... 8
PNB V Picornell ......................................................................................... 9
Banco Atlantico V Auditor General ....................................................... 10
McCornack V Central State Bank .......................................................... 10
Adolph Ramish , Inc V Woodruff ........................................................... 11
Wachovia Bank V Crafton ...................................................................... 12
Horowitz V Wollowitz .............................................................................. 12
BPI v Roxas
LIABILITY OF PARTIES>5. Checks
BPI v Roxas
SANDOVAL-GUTIERREZ, J.│ October 15, 2007
FACTS:
 Respondent Roxas sold vegetable oil to Spouses Cawili. As payment,
spouses Cawili issued a personal check (in the amount of
P348,805.50).
 Respondent tried to encash the check but it was dishonored by the
drawee bank. Spouses assured Roxas that they would replace the
bounced check with a cashier’s check from petitioner BPI.
 Roxas and Rodrigo Cawili went to BPI where the branch manager
personally attended to them. A cashier’s check was drawn against the
account of Marissa Cawili, payable to Roxas and was handed to the
latter.
 The following day, Roxas returned to BPI to encash the cashier’s
check but it was dishonored (reason: Marissa’s account was closed
on that date)
 Despite insistence, BPI officers refused to encash the check.
Eventually, a complaint was filed. BPI claimed that it issued the check
by mistake in good faith; that its dishonor was due to lack of
consideration and that Roxas’ remedy was to sue Rodrigo Cawili who
purchased the check. BPI filed a third party complaint against spouses
Cawili.
 RTC rendered judgment in favor of Roxas and ordered BPI to pay face
value of the cashier’s check, among others. As to the third party
complaint, spouses Cawili were ordered to indemnify BPI.
 CA affirmed RTC judgment. Hence this petition.
ISSUE/HELD/RATIO: W/N BPI is liable to Roxas for the amount of the
cashier’s check. Yes.
In International Corporate Bank v. Spouses Gueco, Court held that a cashier’s
check is really the bank’s own check and may be treated as a promissory note
with the bank as the maker. The check becomes the primary obligation of the
bank which issues it and constitutes a written promise to pay upon demand.
Petitioner bank became liable to respondent from the moment it issued the
cashier’s check. The mere issuance of a cashier’s check is considered
acceptance thereof. Having been accepted by respondent, subject to no
condition whatsoever, petitioner should have paid the same upon presentment
by the former.
Side note: As to the issue of w/n Roxas was a HIDC, this was answered by the
Court in the affirmative. Contention of petitioner that the element of value is
not present lacks merit. The fact that it was Rodrigo who purchased the
cashier’s check from petitioner will not affect respondent’s status as a holder
for value since the check was delivered to him as payment for the vegetable
oil he sold to spouses Cawili.
Nota Sapiera v CA
Nota Sapiera - indorser v. CA & Sua - indorsee (1999)
Facts:
Saperia was a sari-sari store owner who purchased grocery items from Sua,
and paid for them with checks issued by Arturo de Guzman. These checks
were signed at the back by Saperia. Upon presentment, these were
dishonored on the ground Account Closed. Sua informed both de Guzman
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and Saperia about the dishonor but both failed to pay. Although Saperia was
acquitted of estafa (due to prosecution’s failure to
prove conspiracy with de Guzman), she was made liable for the value of the
checks.
Issue: whether petitioner is liable to pay civil indemnity to private respondent
after the trial court had acquitted her of the criminal charge
Held: Saperia was still liable.
 It is undisputed that the four (4) checks issued by de Guzman were
signed by petitioner at the back without any indication as to how she
should be bound thereby and, therefore, she is deemed to be an indorser
thereof. The NIL clearly provides —
SECTION 17. Construction where instrument is ambiguous. — Where
the language of the instrument is ambiguous, or there are admissions
therein, the following rules of construction apply: . . . (f) Where a
signature is so placed upon the instrument that it is not clear in what
capacity the person making the same intended to sign, he is deemed an
indorser. . .
SECTION 63. When person deemed indorser. — A person placing his
signature upon an instrument otherwise than as maker, drawer or
acceptor, is deemed to be an indorser unless he clearly indicates by
appropriate words his intention to be bound in some other capacity.
SECTION 66. Liability of general indorser. — Every indorser who
indorses without qualification, warrants to all subsequent holders in due
course: (a) The matters and things mentioned in subdivisions (a), (b) and
(c) of the next preceding section; and (b) That the instrument is, at the
time of the indorsement, valid and subsisting;
And, in addition, he engages that, on due presentment, it shall be
accepted or paid or both, as the case may be, according to its tenor, and
that if it be dishonored and the necessary proceedings on dishonor be
duly taken, he will pay the amount thereof to the holder or to any
subsequent indorser who may be compelled to pay it.
 The dismissal of the criminal cases against petitioner did not erase her
civil liability since the dismissal was due to insufficiency of evidence and
not from a declaration from the court that the fact from which the civil
action might arise did not exist. An accused acquitted of estafa may
nevertheless be held civilly liable where the facts established by the
evidence so warrant. The accused should be adjudged liable for the
unpaid value of the checks signed by her in favor of the complainant.
Digest Compilation 5.b-Bills, Notes and Commercial Papers | May 4, 2016
Metrobank v PBCOM
Metrobank v PBCOM
Facts:
 Pipe Master Corp. entered into a check discounting agreement with
Filipinas Orient
 Pipe Master issued a Board Resolution authorizing Yu Kio in his
capacity as President and/or Tan Juan Lim in his capacity as Vice-
President to execute, indorse make, sign, deliver or negotiate
instruments, documents, and such other papers necessary in
connection with any transaction coursed through Filipinas Orient for
and in behalf of the corporation.
 Under the check discounting agreement between Pipe Master and
Filipinas Orient, Yu Kio sold to Filipinas Orient 4 Metro Bank checks
amounting to P1M. In exchange, Filipinas Orient (drawer) issued to
Yu Kio 4 PBCom (drawee) crossed checks amounting to P964,
303.62, payable to Pipe Master (payee) with the statement “for
payee’s account only.”
 Yu Kio indorsed and deposited the 4 checks to his personal account.
3 of the checks were deposited in his Metro Bank account and 1
check was deposited in his Solid Bank personal account. (Collecting
agents of Yu Kio: Metro Bank and Solid Bank) PBCom paid Metro
Bank and Solid Bank the value of the checks. In turn, Metro Bank
and Solid Bank credited the value of the checks to Yu Kio’s personal
account.
 When Filipinas Orient presented the 4 Metro Bank checks amounting
to P1M it received from Yu Kio, they were dishonored by Metro Bank.
Pipe Master, the drawer, refused to pay the amounts of the checks
claiming that it never received the proceeds of the PBCom checks as
they were delivered and paid to the wrong party, Yu Kio, who was
not the named payee.
 Filipinas Orient filed a complaint for a sum of money against Pipe
Master, Tan Juan Lian who executed a continuing guaranty IFO
Filipinas Orient instruments for which Pipe Master may become
liable, and/or PBCom.
Issue: W/N Metro Bank and Solid Bank are liable to Filipinas Orient for
accepting the PBCom crossed checks payable to Pipe Master. YES
Ratio:
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It is the collecting bank which is bound to scrutinize the check and to know its
depositors before it can make the clearing indorsement, “all prior
indorsements and/or lack of indorsement guaranteed.” The law imposes on
the collecting bank the duty to diligently scrutinize the checks deposited with
it for the purpose of determining their genuineness and regularity.
The Court previously held that the collecting bank or last indorser generally
suffers the loss because it had the duty to ascertain the genuineness of all
prior indorsements and is privy to the depositor who negotiates the check. In
Jai-alai Corp. of the Philippines v. BPI, the Court ruled that one who accepts
and encashes a check from an individual knowing that the payee is a
corporation does so at his own peril.
In this case, Metro Bank and Solid Bank are liable to Filipinas Orient for their
negligence in accepting the checks and allowing the transaction to push
through and disregarding established banking rules and procedures. They
accommodated Yu Kio being a valued client. They stamped at the back of
the checks their clearing indorsements. In doing so, they became general
indorsers. Under Sec. 66 of the NIL, an endorser warrants “that the
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 capacity to contract; and that the
instrument is at the time of his indorsement valid and subsisting.”
BPI v CA
BANK OF THE PHILIPPINE ISLANDS, petitioner, vs. CA and BENJAMIN
C. NAPIZA, respondents
February 29, 2000|Ynares-Santiago|RSJ
Facts:
 On September 3, 1987, private respondent deposited in his Foreign
Currency Deposit Unit (FCDU) Savings Account in petitioner banks
Buendia Branch a Continental Bank Managers Check payable to "cash"
in the amount of $2,500.00 and duly endorsed by private respondent on
its dorsal side.
 The check belonged to a certain Henry Chan who went to the office of
private respondent and requested him to deposit the check in his dollar
account by way of accommodation and for the purpose of clearing the
same. Private respondent acceded, and agreed to deliver to Chan a
Digest Compilation 5.b-Bills, Notes and Commercial Papers | May 4, 2016
signed blank withdrawal slip, with the understanding that as soon as the
check is cleared, both of them would go to the bank to withdraw the
amount.
 Using the blank withdrawal slip given by private respondent to Chan, one
Gayon Jr. was able to withdraw the amount of $2,541.67 from the said
FCDU Account. Notably, the withdrawal slip shows that the amount was
payable to Ramon A. de Guzman and Agnes C. de Guzman and was
duly initialed by the branch assistant manager.
 Petitioner received communication from the Wells Fargo Bank
International of New York that the said check deposited by private
respondent was a counterfeit check because it was "not of the type or
style of checks issued by Continental Bank International."
 For failure of private respondent to return the amount, Petitioner filed a
complaint against private respondent.
 Private respondent: Admitted that he indeed signed a "blank"
withdrawal slip with the understanding that the amount deposited would
be withdrawn only after the check in question has been cleared. He
likewise alleged that he instructed the party to whom he issued the
signed blank withdrawal slip to return it to him after the bank drafts
clearance so that he could lend that party his passbook for the purpose
of withdrawing the amount. However, without his knowledge, said party
was able to withdraw the amount through collusion with one of petitioners
employees. Private respondent added that he had "given the Plaintiff fifty
one (51) days with which to clear the bank draft in question." Petitioner
should have disallowed the withdrawal because his passbook was not
presented. He claimed that petitioner had no one to blame except itself
"for being grossly negligent;" in fact, it had allegedly admitted having paid
the amount in the check "by mistake" x x x "if not altogether due to
collusion and/or bad faith on the part of (its) employees."
 Lower court: dismissed the complaint. It held that petitioner could not
hold private respondent liable based on the checks face value alone. To
so hold him liable "would render inutile the requirement of clearance from
the drawee bank before the value of a particular foreign check or draft
can be credited to the account of a depositor making such deposit." It
was incumbent upon the petitioner to credit the value of the check in
question to the account of the private respondent only upon receipt of the
notice of final payment and should not have authorized the withdrawal
from the latters account of the value or proceeds of the check." Having
admitted that it committed a "mistake" in not waiting for the clearance of
the check before authorizing the withdrawal of its value or proceeds,
petitioner should suffer the resultant loss.
 CA: affirmed lower court. It held that petitioner committed "clear gross
negligence" in allowing Gayon Jr. to withdraw the money without
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presenting private respondents passbook and, before the check was
cleared and in crediting the amount indicated therein in private
respondents account.
Issue/Held:
1.......WHETHER OR NOT RESPONDENT NAPIZA IS LIABLE UNDER HIS
WARRANTIES AS A GENERAL INDORSER. (NO)
Petitioner claims that private respondent, having affixed his signature at the
dorsal side of the check, should be liable for the amount stated therein in
accordance with Sec. 66. of the NIL.
Section 65, on the other hand, provides for the following warranties of a
person negotiating an instrument by delivery or by qualified indorsement: (a)
that the instrument is genuine and in all respects what it purports to be; (b)
that he has a good title to it, and (c) that all prior parties had capacity to
contract.
Ordinarily private respondent may be held liable as an indorser of the check
or even as an accommodation party. However, to hold private respondent
liable for the amount of the check he deposited by the strict application of the
law would result in an injustice. 'The interest of justice thus demands looking
into the events that led to the encashment of the check.
The propriety of the withdrawal should be gauged by compliance with the
rules thereon that both petitioner bank and its depositors are duty-bound to
observe.
2.......WHETHER OR NOT A CONTRACT OF AGENCY WAS CREATED
BETWEEN RESPONDENT NAPIZA AND RUBEN GAYON. (NO)
Petitioner alleged that had private respondent indicated therein the person
authorized to receive the money, then Ruben Gayon, Jr. could not have
withdrawn any amount. Petitioner contends that "(i)n failing to do so (i.e.,
naming his authorized agent), he practically authorized any possessor
thereof to write any amount and to collect the same..”
Such contention would have been valid if not for the fact that the withdrawal
slip itself indicates a special instruction that the amount is payable to "Ramon
A. de Guzman &/or Agnes C. de Guzman." Such being the case, petitioners
Digest Compilation 5.b-Bills, Notes and Commercial Papers | May 4, 2016
personnel should have been duly warned that Gayon, who was also
employed in petitioners Buendia branch, was not the proper payee of the
proceeds of the check. Otherwise, either Ramon or Agnes de Guzman
should have issued another authority to Gayon for such withdrawal. Of
course, at the dorsal side of the withdrawal slip is an "authority to withdraw"
naming Gayon the person who can withdraw the amount indicated in the
check. Private respondent does not deny having signed such authority.
However, considering petitioners clear admission that the withdrawal slip was
a blank one except for private respondents signature, the unavoidable
conclusion is that the typewritten name of "Ruben C. Gayon, Jr." was
intercalated and thereafter it was signed by Gayon or whoever was allowed
by petitioner to withdraw the amount. Under these facts, there could not have
been a principal-agent relationship between private respondent and Gayon
so as to render the former liable for the amount withdrawn.
3.......WHETHER OR NOT PETITIONER WAS GROSSLY NEGLIGENT IN
ALLOWING THE WITHDRAWAL. (YES)
Under the rules appearing on private respondent’s passbook, to be able to
withdraw from the savings account deposit under the Philippine foreign
currency deposit system, two requisites must be presented to petitioner bank
by the person withdrawing an amount: (a) a duly filled-up withdrawal slip, and
(b) the depositors passbook.
As correctly held by the Court of Appeals, in depositing the check in his
name, private respondent did not become the outright owner of the amount
stated therein. By depositing the check with petitioner, private respondent
was, in a way, merely designating petitioner as the collecting bank. This is in
consonance with the rule that a negotiable instrument, such as a check,
whether a managers check or ordinary check, is not legal tender. As such,
after receiving the deposit, under its own rules, petitioner shall credit the
amount in private respondents account or infuse value thereon only after the
drawee bank shall have paid the amount of the check or the check has been
cleared for deposit. Again, this is in accordance with ordinary banking
practices and with this Courts pronouncement that "the collecting bank or last
endorser generally suffers the loss because it has the duty to ascertain the
genuineness of all prior endorsements 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 the
endorsements." The rule finds more meaning in this case where the check
involved is drawn on a foreign bank and therefore collection is more difficult
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than when the drawee bank is a local one even though the check in question
is a manager’s check.s
In the case at bar, petitioner, in allowing the withdrawal of private
respondents deposit, failed to exercise the diligence of a good father of a
family. It is apparent that petitioner’s personnel allowed the withdrawal of an
amount bigger than the original deposit of $750.00 and the value of the
check deposited in the amount of $2,500.00 although they had not yet
received notice from the clearing bank in the United States on whether or not
the check was funded. Reyes contention that after the lapse of the 35-day
period the amount of a deposited check could be withdrawn even in the
absence of a clearance thereon, otherwise it could take a long time before a
depositor could make a withdrawal, is untenable. Said practice amounts to a
disregard of the clearance requirement of the banking system.
While it is true that private respondents having signed a blank withdrawal slip
set in motion the events that resulted in the withdrawal and encashment of
the counterfeit check, the negligence of petitioners personnel was the
proximate cause of the loss that petitioner sustained. The proximate cause of
the withdrawal and eventual loss of the amount of $2,500.00 on petitioner’s
part was its personnel’s negligence in allowing such withdrawal in disregard
of its own rules and the clearing requirement in the banking system. In so
doing, petitioner assumed the risk of incurring a loss on account of a forged
or counterfeit foreign check and hence, it should suffer the resulting damage.
Affirmed.
Coolidge V Payson
COOLIDGE v. PAYSON
FACTS
DRAWER: Cornhwaite & Cary
DRAWEE: Collidge & Co. (defendant)
PAYEE: John Randall
INDORSEE: Payson & Co. (plaintiff)
• Coolidge held proceeds of the cargo of the Hiram claimed by
Cornthwaite. Corthwaite executed bonds of indembity an executed srolls and
drew on them for $2,700, payable to Randall, and endorsed by him to
Payson. Coolidge wrote to Corthwaite stating that, since there is no seal to
any of the signatures, it is necessary to ascertain the legality of the scrolls.
Digest Compilation 5.b-Bills, Notes and Commercial Papers | May 4, 2016
Coolidge wrote to its friend, William, who was to determine whether the draft
was to be honored. William replied, approving the bond.
• Cornthwaithe called on William to inquire whether he had satisfied
Coolidge respecting the bond. Williams stated the substance of the letter he
had written, and read to him a part of it. Payson also called on him to make
the same inquiry, to whom he gave the same information and also read the
letter he had written.
• 2 days later, a bill was drawn by Cornthwaite and paid to Payson in
part of the protested bill of $2,700.it was presented to Coolidge, who refused
to accept it.
ISSUE
WON Coolidge is deemed to have accepted the bill, hence liable to Payson
HELD: YES
• A promise to accept a bill amounts to an acceptance to a person who
has taken it on the credit of that promise, although the promise was made
before the existence of the bill, and although it is drawn in favor of a person
who takes it for a pre-existing debt
• Upon a review of several cases, the court holds that a letter written
within a reasonable time before or after the bill of exchange, describing it in
terms not to be mistaken, and promising to accept it, is if shown to the
person who afterwards takes the bill on the credit of the letter, a virtual
acceptance binding the person who makes the promise.
Republic V PNB
Republic of the Philippines v. PNB (1961)
Facts:
 The Republic filed a complaint for escheat of certain unclaimed bank
deposit balances against several banks.
o Under Act 3936, “unclaimed balances” include credits,
deposits of money, bullion, security and other evidence of
indebtedness of any kind of persons not heard from for 10
years or more.
 PNB wanted to exclude from the escheat proceedings cashier’s or
manager’s checks, demand drafts and telegraphic transfer payment
orders.
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 Lower court ruled cashier’s check or manager’s checks and demand
drafts cannot be excluded, only the telegraphic transfer payment
orders.
o Upon an MR, demand drafts may be excluded, not subject to
escheat
Issue: WoN demand drafts (NO) and telegraphic orders (YES) come within
the purview of “credits”, hence may be subject to escheat
Held: PNB is liable for the cashier’s checks and manager’s checks but is not
liable for the demand draft.
 Demand drafts are bills of exchange payable on demand.
o A bill of exchange in NIL does not constitute an assignment
of funds and the drawee is not liable on it unless he accepts
it.
o Therefore, since the drafts have not been presented either
for acceptance or for payment, PNB cannot be liable for it.
 However, PNB is liable for the cashier’s checks and manager’s
checks.
o PNB is primarily liable for them since they may be treated as
a promissory note considering the fact that PNB is both the
drawer and the drawee for these items.
o Substantial equivalent of a certified check
 Telegraphic transfer payment orders are transactions for the
telegraphic or cable transfer.
o The agreement to remit creates a contractual obligation and
has been termed a purchase and sale transaction.
o Absurd to say that the drawer bank is still the owner of the
telegraphic orders.
o In this case, amounts in the telegraphic orders appear in the
names of the payees. The drawer bank wsd already paid
such amount. Should payee decide to have their money
remain in the bank, it cannot claim ownership over the
telegraphic payment orders.
PAL V CA
PAL vs CA
Facts:
- Respondent Tan filed a complaint for damages against petitioner PAL
where PAL was ordered by the CFI to pay Tan a sum of money. This
was affirmed by the CA. The decision has become final and executory.
The records were remanded to the CFI for execution of judgment.
Digest Compilation 5.b-Bills, Notes and Commercial Papers | May 4, 2016
- The order and writ of execution were subsequently issued. The writ
was referred to one Deputy Sheriff Emilio Reyes.
- Four months after, Tan moved for the issuance of an alias writ of
execution stating that the judgment remained unsatisfied. PAL
opposed this motion stating that it had already fully paid its obligation
through Reyes.
- The CA denied the motion for being premature and ordered Reyes to
appear with his return and explain his failure to surrender the amounts
paid to him. This order could not be served, however, because Reyes
disappeared.
- Subsequently, an alias writ was issued by the CFI. PAL filed a motion
to quash the alias writ stating that no return of the writ was made and
that the judgment debt had already been fully satisfied as evidence by
the cash vouchers signed and receipted by Reyes.
Issue: W/N the payment made by checks to Reyes extinguished the judgment
debt? NO
Ratio:
- The SC held that under the peculiar circumstances of the case, the
payment to the absconding sheriff by check in his name did not
operate as a satisfaction of the judgment debt.
- In general, a payment, in order to be effective to discharge an
obligation, must be made to the proper person. Under ordinary
circumstances, payment by the judgment debtor in the case at bar, to
the sheriff should be valid payment to extinguish the judgment debt.
- However, the SC held that there are circumstances which compel a
different conclusion. The payment made by PAL to the absconding
sheriff WAS NOT in cash or legal tender but in CHECKS. The checks
were not payable to Tan or Able Printing Press but to Reyes.
o NCC 1249 – xxx the delivery of promissory notes payable to
order, or bills of exchange or other mercantile documents shall
produce the effect of payment only when they have been
cashed, or when through the fault of the creditor they have
been impaired. Xxx
- In the absence of an agreement, payment means the discharge of a
debt or obligation in money and unless so agreed, a debtor has no
rights to substitute something in lieu of cash as medium of payment of
his debt. Consequently, a public officer has no authority to accept
anything other than money in payment of an obligation under a
judgment being executed. Since a negotiable instrument is only a
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substitute for money and is not money, the delivery of such an
instrument does not, by itself, operate as payment.
- Having failed to employ the proper safeguards to protect itself, the
judgment debtor whose act made possible loss had but itself to blame.
Fortunado V CA
Mesina V IAC
Mesina vs. IAC
FACTS:
Jose Go purchased from Associated Bank a cashier's check for
P800,000.00. Unfortunately, he left said check on the top of the desk of the
bank manager when he left the bank. The bank manager entrusted the check
for safekeeping to a bank official, a certain Albert Uy. While Uy went to the
men's room, the check was stolen by his visitor in the person of Alexander
Lim. Upon discovering that the check was lost, Jose Go accomplished a
"STOP PAYMENT" order. Two days later, Associated Bank received the lost
check for clearing from Prudential Bank. After dishonoring the same check
twice, Associated Bank received summons and copy of a complaint for
damages of Marcelo Mesina who was in possession of the lost check and is
demanding payment. Petitioner claims that a cashier's check cannot be
countermanded in the hands of a holder in due course.
ISSUE:
Whether or not petitioner can collect on the stolen check on the ground that
he is a holder in due course.
RULING:
No. Petitioner failed to substantiate his claim that he is a holder in due
course and for consideration or value as shown by the established facts of
the case. Admittedly, petitioner became the holder of the cashier's check as
endorsed by Alexander Lim who stole the check. He refused to say how and
why it was passed to him. He had therefore notice of the defect of his title
over the check from the start. The holder of a cashier's check who is not a
1
Section 323 of NIL: Where a check is certified by the bank on which it is drawn the
certification is equivalent to an acceptance.
Digest Compilation 5.b-Bills, Notes and Commercial Papers | May 4, 2016
holder in due course cannot enforce such check against the issuing bank
which dishonors the same.
**A person who became the holder of a cashier's check as endorsed by the
person who stole it and who refused to say how and why it was passed to
him is not a holder in due course.
New Pacific Timber V Seneris
Wachtel V Rosen
LIABILITY OF PARTIES>5. Checks> b.Certification and its effects
Wachtel v Rosen
FACTS:
 Wachtel (drawer) gave to Rosen (payee) his check drawn on National
Park Bank (drawee)
 Rosen presented the check for certification; certification was refused.
ISSUE/HELD/RATIO: W/N the refusal by a drawee bank to certify a check at
the request of the holder amounts to dishonor (the same as the refusal of
acceptance of a bill of exchange other than a check) so that the holder may
sue the drawer as if the check had been presented for payment and payment
had been refused. No.
The general rule is that a check is of right presentable only for payment and
that the bank is under no obligation to certify, although it may do so.
Certification differs in effect from mere acceptance of bills other than checks,
in that it is not an added obligation but a substitute obligation. Although section
3231 provides that “certification is equivalent to acceptance,” the meaning is
merely that certification is synonym of acceptance. It does not mean that the
same effect is to be given to certification as is given to the acceptance of an
ordinary bill of exchange.
Roman Catholic Archbishop of Malolos Inc V IAC
Bulliet V Allegheny Trust Co.
Bulliet v Allegheny Trust Co
7

Facts
 C.C. Mitchell drew a check on Respondent Allegheny Trust for
$5,000 to the order of Grove-McNair, dated Feb. 10 1919
o Mitchell was negotiating for oil property
o Grove-McNair was his agent
 A memorandum agreement of sale was entered into by Mitchell
and V.J. Bullet whereby $5,000 would be placed in escrow while
awaiting the payment of the remainder
o Provision: if Mitchell fails to pay the remainder, the
escrow is forfeited to the seller
 Mitchell failed to make payments
 Mitchell ordered a stop payment of the check
 Thus, Allegheny Trust refused to honor the check and returned
it, writing on the back of the check: “on account of the
indorsements of same, and also because Mr. Mitchell has
requested me to withhold payment until some matters in
connection with the deal are cleared up.”
Issue/Holding/Ratio
 WON the real defense that plaintiff had no record title to the oil
property (want of consideration) was valid? NO.
o An acceptor admits everything essential to the validity of
the bill, and on this ground he cannot, for example, even
set up the defense of want of consideration between
drawer and payee.
o The reply of Allegheny that it would honor the check
amounted to certification of the bank, thus making it
liable.
o Such certification at the request of the holder created a
new obligation on the part of the bank to that holder. It
passed the amount of the check to the credit of the
holder, who is thereafter a depositor to that amount.
Sutter V Security Trust Co.
Sutter v Security Trust Co. (1924) - RSJ
Facts:
 Appellant had a checking account with respondent, and he, having a
balance therein to his credit of $1,034.41, drew a check thereon to the
order of his wife for $1,000, and on the same date procured the
certification thereof by respondent.
Digest Compilation 5.b-Bills, Notes and Commercial Papers | May 4, 2016
 Appellant delivered the certified check to his wife in consideration of a
certain agreement between them concerning a separation. In such
agreement the wife agreed, amongst other things, not to remove certain
furniture from appellant's home. After delivery of the check, the wife
violated the agreement.
 Appellant discussed the matter with respondent’s president and
treasurer, and signed and delivered to the respondent a request, in
writing, to stop payment on the check.
 Subsequently to his signing the stop-payment request, his wife presented
the check to respondent for payment, and payment was refused by it
because payment had been stopped. She was told that payment of the
check should be deferred for a few days, and that Mrs. Sutter was
therefore requested to postpone presentation of the check until Mr.
Sutter could be seen.
 Mrs. Sutter went to her brother in Philadelphia, endorsed the check over
to him. Her brother deposited it in his bank in that city. The check was
presented to respondent for payment through the Federal Reserve Bank
of Philadelphia, and payment refused and check protested on the ground
of "payment stopped."
 The Union National Bank of Philadelphia told appellant that the check
was in the hands of an innocent third person, for value, and that unless
he indemnified respondent the check would be paid. Appellant declined
to indemnify respondent, and on April 6th the check was again presented
for payment, and was paid.
 Suit was then instituted by appellant against the respondent for
$1,034.41.
Issue: Whether the the bank, by reason of its certification, would have been
justified in making payment to Mrs. Sutter, the payee, upon proper
presentation of the check by her, notwithstanding the service of the notice to
stop payment by her husband, the maker, and a disclosure by him to the
officers of the bank of the condition upon which the check was obtained by
Mrs. Sutter. (YES)
Held:
 A drawer of a check, which has been certified at his request before
delivery, may recall the same and require the certifying bank to refuse
payment to the payee named therein if such payee is not a bona fide
holder, for value, but has obtained the check by fraud perpetrated by him
upon the maker. And further, that upon suit by the payee named in the
check against the certifying bank, upon its refusal to pay, after notice
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from the drawer to stop payment, for reasons showing the payee not to
be a bona fide holder thereof, for value, the bank can urge and have the
benefit of any defense that the drawer could have against such payee,
establishing that such payee obtained the instrument, or any signature
thereto, by fraud, duress or force and fear, or other unlawful means, or
for an illegal consideration; and also that the right of the maker of a
check, certified at his request before delivery, is the same against an
endorsee holder, who is not a holder, in due course, as is his right to stop
payment against the payee who is not a bona fide holder, for value. Such
rule, however, has no application to a certified check held by a payee
who is a bona fide holder, for value, nor to a holder in due course,
although certified at the request of the drawer before delivery, nor where
the check, after delivery, is certified at the request of the payee or holder.
 There is nothing to justify a holding that Mrs. Sutter, the payee, procured
the check by any fraud perpetrated by her upon her husband. For this
reason we conclude that the bank would have been justified in making
payment of the check to Mrs. Sutter, upon presentation thereof by her. If
the bank was not justified in making payment to Mrs. Sutter, the payee
named in the check, then it was not justified in making payment to Mr.
Mack (brother), the endorsee, who, we have found, under the facts here
presented, was not a holder in due course, and the stop-payment notice
of the maker, under such conditions, would operate in favor of the maker
against him as such holder, and would place the bank in a position where
it was not justified in making payment to such an endorsee holder.
 As the bank was, under the facts presented, justified and legally called
upon to make payment to Mrs. Sutter, upon presentation and demand,
as against the notice of the maker of the check to stop payment, its
obligation, under the facts, was likewise to make payment to the
endorsee holder, Mr. Mack.
Affirmed.
PNB V Picornell
PNB V. PICORNELL, 1922
Facts:
 A bill of exchange was drawn by Picornell in favor of PNB, plaintiff,
against the firm of Hyndman, Tavera & Ventura, now dissolved, its
only successor being the defendant Joaquin Pardo de Tavera.
Digest Compilation 5.b-Bills, Notes and Commercial Papers | May 4, 2016
 Said BOE was for the amount obtained by Picornell for the purchase
of bales of tobacco in Cebu by the instructions of his principal,
Hyndman, Tavera & Ventura.
 This instrument, together with the invoice and bill of lading of the
tobacco, were delivered to the National Bank with the understanding
that the bank should not deliver them to Hyndman, Tavera & Ventura
except upon payment of the bill.
 The central office of PNB in Manila received the bill and the aforesaid
documents annexed thereto; and presented the bill to Hyndman,
Tavera & Ventura, who accepted it.
 Upon inspection by Hyndman, Tavera & Ventura of the tobacco, it
wrote to Picornell, notifying him that of the tobacco received, there
was a certain portion which was of no use and was damaged.
 Thereafter, Hyndman, Tavera & Ventura informed the plaintiff that it
refused to pay the BOE because of the noncompliance of the drawer
Picornell.
 Hence the bank brought this instant action.
Issue: Whether bank could recover on the drawee Hyndman, Tavera &
Ventura under the subject BOE. YES
HELD:
 Partial want of consideration, if it was, does not exist with respect to
the bank which paid to Picornell the full value of said bill of
exchange.
 The bank was a holder in due course, and was such for value full
and complete. The Hyndman, Tavera & Ventura company cannot
escape liability in view of section 28 of the Negotiable Instruments
Law.
 As to Picornell, he warranted, as drawer of the bill, that it would be
accepted upon proper presentment and paid in due course, and as it
was not paid, he became liable to the payment of its value to the
holder thereof, which is the plaintiff bank.
 The fact that the tobacco was or was not of inferior quality does not
affect the responsibility of Picornell, because while it may have an
effect upon the contract between him and the firm of Hyndman,
Tavera, Ventura, yet it cannot have upon the responsibility of both to
the bank, upon the bill drawn and accepted as above stated.
 The drawee, the Hyndman, Tavera & Ventura company, or its
successors, J. Pardo de Tavera, accepted the bill and is primarily
liable for the value of the negotiable instrument, while the drawer
Picornell, is secondarily liable. However, no question has been
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raised about this aspect of the responsibility of the defendants. The
appellants are liable to PNB for the value of the bill of exchange.
Banco Atlantico V Auditor General
Banco Atlantico v. Auditor General (Fernandez, 1978)
Case: appeal from Auditor General’s decision disallowing payment claims by
Banco Atlantico against the Philippine Embassy in Madrid.
Banco Atlantico (BA) is a bank in Madrid.
The Checks:
$10,109.10 Check: (Paid by BA Oct 31, 1968 – original amount was 109.10 –
salary of Pace)
Check drawer – Ph embassy in Madrid, signed by Luis Gonzales the
ambassador and Virginia Boncan as Finance Officer.
Check drawee – PNB branch in New York USA (PNB-NY)
Check payee - Azucena Pace
Check indorser – Azucena Pace and Virginia Boncan
Check indorsee – Banco Atlantico (negotiated by Virginia Boncan).
$35,000.75 Check (Nov 2, 1968 – original amount was $75 – reimbursement
of Boncan’s living quarters allowance)
Drawer – same
Drawee – same
Payee – Virginia Boncan
Indorser/indorsee - Boncan/ Banco Atlantico
$90,000 Check (Nov 5, 1968)
Drawer – same
Drawee – same
Payee – Virginia Boncan
Indorser/indorsee - Boncan/ Banco Atlantico
Banco Atlantico did not clear the check with the drawee (PNB-NY). When BA
through its collecting bank presented the checks to PNB-NY, the latter
dishonored the checks because of a stop order by the Ph Embassy in
Madrid.
Notices were sent by the BA’s collecting bank to the indorser-payee
(Boncan) and the drawer (Ph embassy).
Digest Compilation 5.b-Bills, Notes and Commercial Papers | May 4, 2016
Banco Atlantico filed money claims against the Auditor General, who denied
the claims because (some additional facts here):
1. BA did not clear the checks when it should have as that is the
standard practice esp. with checks involving large amounts (BA did
this because of Ms Boncan’s “very special relations” with the
employees and chiefs of BA)
2. Basing the claim under NIL Section 61 – the basis is out of context.
Must interpret with other provisions in NIL. BA was not a holder in
due course – which is a requirement to avail of Section 61.
3. Boncan altered the first and second checks (10K and 35K) by
increasing the amounts. BA should suffer the loss because it
accommodated Boncan on these checks without clearing first.
4. The 90K check was a demand note. There was a letter from Boncan
that the check should not be presented for collection until a later
date. This letter should have put BA on guard that something was
wrong with the check. It loudly proclaims “Take me at your risk”. So
BA is not a HIDC because it had knowledge of defect and infirmity of
the check. When BA honored it, it was grossly negligent.
ISSUES:
1. WON there was forgery on the 3 checks to bar BA from collecting
against the Ph embassy? If there was, is the Ph Embassy precluded
from setting up forgery or want of authority of Miss Boncan (YES,
NO)
2. WON actual payment by BA without clearing first with PNB-NY was
an actual notice of defective title in the endorser thereof (or
assumption of risk by BA as to defeat collection) (YES).
Note: the court did not discuss thoroughly its ruling per issue. Instead of
material alteration, it based its decision on forgery.
Yes, there was forgery (as discussed in the facts). The 3 checks were
fraudulently altered by Boncan as to their amounts and therefore wholly
inoperative (NIL 23). No right of payment against any party could have been
acquired by BA.
Disposition: Auditor General’s decision denying BA’s claim is affirmed.
McCornack V Central State Bank
MCCORNACK v CENTRAL STATE BANK
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FACTS: Plaintiffs, including Peter McCornack (I believe the other plaintiff is
spouse), had money on deposit with Central State Bank. In July 1920, one
Halverson gained Peter’s confidence and represented to him that he
(Halverson) had a client (CR Kutsman) who wished to borrow money to be
secured by mortgage on land. McCornack consented and signed a check for
$1,005.50 payable to order of Kutsman which he delivered to Halverson for
Kutsman. Halverson delivered to McCornack a note purporting to be signed by
Kutsman and secured by mortgage on land, purporting to be signed by CR and
Mabel Kutsman.
Halveron indorsed the name CR Kutsman to his own name on the check and
deposited it in his own account. Check was paid on presentation to Central
State Bank and the amount was charged to plaintiffs’ account. This modus was
repeated several other times by Halverson against McCornack.
In August 1920, Central State Bank delivered to plaintiffs a statement of their
account with cancelled checks charged against it. No claim of error was made
until 1924, when it was discovered that the note and mortgage were forged
instruments and no such person as CR Kutsman in fact existed and the land
belonged to others. Payments of interest were made by Halverson. Plaintiffs
filed this case to recover the payments made by Central State Bank.
ISSUE & RULING: WON drawee Central State Bank is liable for payments
made
YES. A check payable to the order of a fictitious person with drawer’s
knowledge is payable to bearer. However, when this is unknown to drawer, the
drawee bank is in no different position than when it pays a check payable to a
real party upon a forged instrument.
In this case, McCornack did not know the payee was fictitious. The check
therefore was not payable to bearer, and the bank cannot escape liability.
The obligation of a bank is absolute that it will pay only in the manner directed
by the depositor, not that it will exercise reasonable care and diligence to do
so. The question of the drawee’s negligence may arise, where drawer was also
guilty of negligence. This is not the case here. McCornack was not guilty of
negligence in making the check payable to one to whom he believed he was
making a loan and delivering it to one who made application on behalf of the
borrower for the loan. There is no showing that anything had come to his
knowledge to put him upon inquiry as to Halverson’s honesty.
(IMPORTANT)
Digest Compilation 5.b-Bills, Notes and Commercial Papers | May 4, 2016
The drawee bank also cannot escape liability under Sec 9251 of NIL: “The
drawer by drawing the instrument 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, and that if it be
dishonored, and the necessary proceedings on dishonor be duly taken, he will
pay the amount thereof to the holder, or to any subsequent indorser who may
be compelled to pay it.” This provision protects not the drawee bank but the
holder or the compelled indorser.
The provision that protects the drawee is Sec 9469, under which the drawee
is relieved of the duty to ascertain the genuineness of the payee’s indorsement
when the drawer KNOWS the payee is a fictitious person. Hence, if the drawer
did not know the payee to be fictitious, which is the case here, the drawer is
NOT relieved of said duty.
If a depositor has a right to draw a check payable to the order of a stranger
and who, for all the drawer knows, may be a fictitious person, and to rely upon
the bank to pay the check only on a genuine indorsement, and it is the duty of
the bank to know at its peril before it pays the check that the indorsement of
the payee is genuine, then it is the drawee bank that is negligent.
In short: A drawee bank has the duty to ascertain the genuineness of an
indorsement. That the payee is a fictitious person does not relieve the drawee
bank of this duty, IF the drawer DID NOT KNOW that said payee is fictitious.
Adolph Ramish , Inc V Woodruff
RAMISH v WOODRUFF
2 Cal 2d 190 | 29 Dec 1934 | CURTIS, J.
FACTS (#2 is very important):
1. A certain Craig executed and delivered to Woodruff a promissory note for
$10,000. Woodruff executed and delivered a similar note ($13,500). Both
notes were dated February 19, 1932, and were to mature 90 days after the
due date. Craig paid nothing on the note.
2. Craig would later indorse the Woodruff note to Ramish, the indorsement
stating that Craig "hereby waive(s) presentation of the note to the maker,
demand of payment, protest and notice non-payment, and to guarantee
payment of the same, and of all expenses of collection thereof including
attorney's fees, incurred in enforcing this GUARANTY, and do hereby without
notice, expressly consent to the delay or indulgence of encforcing payment
and to express extension of payment of the same."
3. Ramish sued Woodruff on the note. In Woodruff's defense, he admits the
execution and delivery of note to Craig but denies that title was transferred
because that the note was only delivered to Ramish for inspection and
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investigation; however, he notes that Ramish may sue as the note was the
basis of collateral security (for $6820). Such defense is available to him since
Ramish is being argued to not be a holder in due course.
The basis of this argument is the nature of the indorsement made by Craig to
Ramish-- whether or not it was meant for collateral security or for transfer of
title.
4. Trial court of California ruled in favor of Woodruff (there was valid transfer
of title-- there was valid indorsement from Craig to Ramish). Hence this
petition.
ISSUE: Whether or not Woodruff is liable as a general indorser in spite of the
'guaranty'. (YES)
HELD: Reversed.
- In this kind of scenario, the 'indorsement' may be considered either a
guaranty or indorsement depending on two factors: (1) w/n there is a
passage of title, and (2) the nature of the liability incurred by the transferor
who has made the 'guaranty'/'indorsement'. In this case, the only issue is (1)
as the only defense invoked was offset against the original payee (Craig).
- Crucial here is the statement that purports to be either a guaranty or an
indorsement. There are two views on how this may operate:
a. The minority rule is that a guaranty placed on a bill/note does not constitue
a commercial negotiation thereof, and that the guaranty is a separate
contract. (based on the theory that a blank indorsemen admits of the
implications of its terms only becase of the fact that it is in blank; where there
are express terms, there can be no implied terms)
b. The majority rule, applied by the Court due to their being in accordance
with the policy of free circulation of commercial papers as money substitutes
and given NIL 63 (one is deemed an indorser unless he clearly indicates by
appropriate words his intent to be bound in some other capacity), is that if
one shows intent to be treated as guarantor/indorser, he shall be treated as
one. For example, a word of guaranty enlarges one's liability-- here, one
does not merely assume the burdens of indorsement, but also assumes the
unconditional liability of a guarantor (in contrast, an indorser is conditionally
liable; presentment, dishonor, and proceedings for dishonor/protest are
required).
An example of what was considered a guaranty stated: "I hereby sell, set
over and assign the note... and hereby GUARANTEE that this is a good,
valid and subsisting promissoryu note."
- There appears to be conflict among the evidence present (the indorsement
itself, the argument that there was no delivery of the note other than for
purposes of inspection and investigation; there were even points on lack of
meeting of minds and authority of agent). However, in case of doubt, the
tendency of the law is to resolve doubtful cases on negotiable instruments in
Digest Compilation 5.b-Bills, Notes and Commercial Papers | May 4, 2016
favor of due course holding. Given the indorsement and these
circumstances, it appears that there was at the very least an indorsement
and a holder in due course, such that there would be liability on the full
consideration PLUS the collateral security.
In other words, even if the indorsement is stated as a guaranty, it is still
considered an indorsement unless it seeks to enlarge the liability of the
'guarantor/indorser.'
Wachovia Bank V Crafton
Wachvoia Bank v. Crafton
181 N.C. 404 107 Se.E. 316 (1921)
FACTS:
This is a promissory note for a gambling debt. Maker is J.M. Carver, payee
J.W. Crafton. Crafton indorsed the note to Wachovia and now denies
liability on the note because the law provides all notes and contracts for
gambling debts are void. Wachovia is a holder in due course.
ISSUE / HELD
W/N Wachovia can collect. YES
RATIO:
The law that makes this note void does not extend to suits by an innocent
indorsee for value and holder in due course against an indorser for his
contract of indorsement. The contract of indorsement is separable and
independent of the instrument. It guarantees that the instrument is a valid
and subsisting obligation. Thus the recovery should be sustained.
Horowitz V Wollowitz
Horowitz v. Wollowitz, Cohen, Jormack, et al. (1908)
(1) Maker (Cohen) created promissory note pay to order of himself for
$500. Delivered to 1st indorser (Wollowitz ) who indorsed it to last
indorser (Jormack) and finally sold for value and indorsed to plaintiff
holder (Horowitz).
(2) Upon presentment, Cohen refused to honor his obligation on the
grounds that Jormack was paid a usurious rate on the note by Cohen
which rendered the PN void ab initio. (defense of illegality used by the
maker against the holder).
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 Digest Compilation 5.b-Bills, Notes and Commercial Papers | May 4, 2016

(3) Case was filed against all indorsers and the maker. BUT the subject
of the appeal was the liability of the last indorser (Jormack).

NOT AN ISSUE: The court did not pass on the question of WON a maker can
use the defense of illegality against a holder in due course since,
ISSUE: What was the liability of the last indorser (Jormack)?
HELD: Jormack is liable to Horowitz because:
(1) Section 116 of the NIL states that every indorser who indorses without
qualification warrants to all subsequent holders in due course, inter
alia, that the instrument is at the time of his indorsement valid and
subsisting.
(2) Furthermore, apart from NIL 116, it is an established rule that the
obligation of an indorser is a new and independent contract, separate
and distinct from the contract evidenced in the note.

DISPOSITIVE: Remand for further trial.

Other examples cited in the case:
(1) Packard v. Windholz – Maker was Truman. Truman forged first
indorsement of Eaton to Windholz. Windholz made real indorsement
to Packard. Windholz was found liable to Packard even if he did not,
in good faith, know about the first forged indorsement beause he
guaranteed the genuineness of all prior indorsements.
(2) Lennon v. Grauer – even if maker’s signature was forged, it is not a
defense that can be used by the indorser since he guaranteed all prior
signatures.

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