Dev't Bank of Rizal vs Sima Wei

DEVELOPMENT BANK OF RIZAL vs. SIMA WEI, ET AL.

G.R. No. 85419 March 9, 1993

FACTS:
Respondent Sima Wei executed and delivered to petitioner Bank a promissory
note engaging to pay the petitioner Bank or order the amount of P1,820,000.00.  Sima
Wei subsequently issued two crossed checks payable to petitioner Bank drawn against
China Banking Corporation in full settlement of the drawer's account evidenced by the
promissory note.  These two checks however were not delivered to the petitioner-payee
or to any of its authorized representatives but instead came into the possession of
respondent Lee Kian Huat, who deposited the checks without the petitioner-payee's
indorsement to the account of respondent Plastic Corporation with Producers
Bank.  Inspite of the fact that the checks were crossed and payable to petitioner Bank
and bore no indorsement of the latter, the Branch Manager of Producers Bank
authorized the acceptance of the checks for deposit and credited them to the account of
said Plastic Corporation.

ISSUE:
Whether petitioner Bank has a cause of action against Sima Wei for the undelivered
checks.

RULING:
No.  A negotiable instrument must be delivered to the payee in order to evidence its
existence as a binding contract.  Section 16 of the NIL provides that every contract on a
negotiable instrument is incomplete and revocable until delivery of the instrument for the
purpose of giving effect thereto.  Thus, the payee of a negotiable instrument acquires no
interest with respect thereto until its delivery to him.  Without the initial delivery of the
instrument (INDORESEMENT) from the drawer to the payee, there can be no liability on
the instrument.  Petitioner however has a right of action against Sima Wei for the
balance due on the promissory note.
A negotiable instrument of which a check is, is not only a written evidence of a contract
right but is also a species of property.—Courts have long recognized the business
custom of using printed checks where blanks are provided for the date of issuance, the
name of the payee, the amount payable and the drawer's signature. All the drawer has
to do when he wishes to issue a check is to properly fill up the blanks and sign it.
However, the mere fact that he has done these does not give rise to any liability on his
part, until and unless the check is delivered to the payee or his representative. A
negotiable instrument, of which a check is, is not only a written evidence of a contract
right but is also a species of property. Just as a deed to a piece of land must be
delivered in order to convey title to the grantee, so must a negotiable instrument be
delivered to the payee in order to evidence its existence as a binding contract.

The payee of a negotiable instrument acquires no interest with respect thereto until its
delivery to him.—Thus, the payee of a negotiable instrument acquires no interest with
respect thereto until its delivery to him. Delivery of an instrument means transfer of
possession, actual or constructive, from one person to another. Without the initial
delivery of the instrument from the drawer to the payee, there can be no liability on the
instrument. Moreover, such delivery must be intended to give effect to the instrument.

Same; Same; Same; Same; The delivery of checks in payment of an obligation does
not constitute payment unless they are cashed or their value is impaired through the
fault of the creditor.—Notwithstanding the above, it does not necessarily follow that the
drawer Sima Wei is freed from liability
to petitioner Bank under the loan evidenced by the promissory note agreed to by her.
Her allegation that she has paid the balance of her loan with the two checks payable to
petitioner Bank has no merit for, as We have earlier explained, these checks were never
delivered to petitioner Bank. And even granting, without admitting, that there was
delivery to petitioner Bank, the delivery of checks in payment of an obligation does not
constitute payment unless they are cashed or their value is impaired through the fault of
the creditor. None of these exceptions were alleged by respondent Sima Wei.

THE PHILIPPINE BANK OF COMMERCE vs. JOSE M. ARUEGO

G.R. Nos. L-25836-37              January 31, 1981

Jose Aruego publishes a periodical called “World Current Events.” To facilitate payment
of the printing, Aruego obtained a credit accommodation from the Philippine Bank of
Commerce. For every printing of the periodical, the printer (Encal Press and Photo-
Engraving) collected the cost of printing by drawing a draft against the bank, said draft
being sent later to Aruego for acceptance. As an added security for the payment of the
amounts advanced to the printer, the bank also required Aruego to execute a trust
receipt in favor of the bank wherein Aruego undertook to hold in trust for the bank the
periodicals and to sell the same with the promise to turn over to the bank the proceeds
of the sale to answer for the payment of all obligations arising from the draft. The bank
instituted an action against Aruego to recover the cost of printing of the latter’s
periodical for the period of 28 August 1950 to 14 March 1951.

Issue : Whether or not the drafts were bills of exchange or mere pieces of evidence of
indebtedness.

Held : Under the Negotiable Instruments Law, a bill of exchange is an unconditional

order in writing addressed by one person to another, signed by the person giving it,
requiring the person to whom it is addressed to pay on demand or at a fixed or
determinable future time a sum certain in money to order or to bearer. As long as a
commercial paper conforms with the definition of a bill of exchange, that paper is
considered a bill of exchange. The nature of acceptance is important only in the
determination of the kind of liabilities of the parties involved, but not in the determination
of whether a commercial paper is a bill of exchange or not.
Party who signs a bill of exchange as an agent, but failed to disclose his principal
becomes personally liable for the drafts he accepted.—An inspection of the drafts
accepted by the defendant shows that nowhere has he disclosed tha the was signing as
a representative of the Philippine Education Foundation Company. He merely signed as
follows. “JOSE ARUEGO (Acceptor)(SGD) JOSE ARUEGO.” For failure to disclose his
principal, Aruego is personally liable for the drafts he accepted.
In lending his name to be accommodated party, the accommodation party is in effect a
surety for the latter. He lends his name to enable the accommodated party to obtain
credit or to raise money. He receives no part of the consideration for the instrument but
assumes liability to the other parties thereto because he wants to accommodate
another.
In the instant case, the defendant signed as a drawee/acceptor. Under the Negotiable
Instruments Law, a drawee is primarily liable. Thus, if the defendant who is a lawyer,
really intended to be secondarily liable only, he should not have signed as an
acceptor/drawee. In doing so, he became primarily and personally liable for the drafts.

Negotiable Instruments Case Digest: MWSS V. CA (1986)

G.R. No. L-62943 July 14, 1986
Lessons Applicable: Forgery (Negotiable Instruments Law)

FACTS:
Metropolitan Waterworks and Sewerage System (MWSS) is a GOCC and successor-in-
interest of the defunct NWSA. The authorized signature for PNB Account No. 6 were
those of MWSS treasurer Jose Sanchez, its auditor Pedro Aguilar, and its acting
General Manager Victor L. Recio. Specimen signatures were submitted by the MWSS
to and on file with the PNB. By special arrangement with the PNB, the MWSS used
personalized checks in drawing from this account. 
printed for MWSS by its printer, F. Mesina Enterprises
March, April and May 1969: 23 checks were prepared, processed, issued and released
by NWSA, all of which were paid and cleared by PNB and debited by PNB against
NWSA Account No. 6

 deposited by the fictitious payees Raul Dizon, Arturo Sison and Antonio
Mendoza in their respective current accounts with the Philippine
Commercial and Industrial Bank (PCIB) and Philippine Bank of Commerce
(PBC) 

 At the time of their presentation to PNB these checks bear the standard
indorsement which reads 'all prior indorsement and/or lack of
endorsement guaranteed'

NWSA filed against PNB before the CFI while PNB also filed a 3rd party complaint
against the negotiating banks PBC and PCIB on the ground that they failed to ascertain
the Identity of the payees and their title to the checks which were deposited in the
respective new accounts of the payees with them

 February 6, 1976: CFI favored MWSS

 CA: reversed and favored PNB

 applied Section 24 of the Negotiable Instruments Law

ISSUE: W/N MWSS can can claim against PNB

HELD: NO. CA reversed.

Every negotiable instrument is deemed prima facie to have been issued for valuable
consideration and every person whose signature appears thereon to have become a
party thereto for value
  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 obligation funds,
and cannot ordinarily charge the amount so paid to the account of the depositor
whose name was forged.

 NBI showed that the MWSS fraud was an "inside job" and that the MWSS' delay
in the reconciliation of bank statements and the laxity and loose records control
in the printing of its personalized checks facilitated the fraud. These reports did
not touch on the inherent qualities of the signatures which are indispensable in
the determination of the existence of forgery. There must be conclusive findings
that there is a variance in the inherent characteristics of the signatures and that
they were written by 2 or more different persons.

 Forgery cannot be presumed. It must be established by clear, positive, and

convincing evidence. This was not done in the present case.

SEC. 23. FORGED SIGNATURE; EFFECT OF.- When the signature is forged or made

without authority of the person whose signature it purports to be, it is wholly inoperative,
and no right to retain the instrument, or to give a discharge therefor, or to enforce
payment thereof against any party thereto can be 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 authority.
 Gross negligence in the printing of its personalized checks - MWSS failed to

1. give its printer, Mesina Enterprises, specific instructions relative to the

safekeeping and disposition of excess forms, check vouchers, and safety papers

2. retrieve from its printer all spoiled check forms

3. provide any control regarding the paper used in the printing of said checks

4. furnish the respondent drawee bank with samples of typewriting, cheek writing,
and print used by its printer in the printing of its checks and of the inks and pens
used in signing the same
5. send a representative to the printing office during the printing of said checks

6. to reconcile the bank statements with its own records