REHABILITATION FINANCE CORP V.

COURT OF APPEALS, 94 PHIL 984 (1954)

FACTS: Private respondent Jesus Anduiza and Quinatana Cano borrowed money from
Agricultural and Industrial Bank (now RFC) as evidenced by a promissory note dated October
31, 1941. Under said note, Anduiza promised to pay RFC or order on or before Oct 31 1951, the
sum of P13,800 with interest at 6% per annum. Said PN also stipulated that payments were to
be made in 10 equal annual installments in accordance with the given schedule of amortizations
1. In July 30 1948, Madrid filed an action to:
(a) To declare as paid the P16,425.17 Anduiza owed RFC
(b) To order RFC to cancel the mortgage and release the properties
(c) To condemn Anduiza to pay Madrid the P16,425.17 with legal interest
2. In their answer, RFC prayed that the complaint be dismissed. The bank argued that in as
much as Madrids payment was unauthorized by Anduiza, Madrids deposit in the sum of
P16,425.17 was null and void in accordance with EO no 49, series of 1945.
3. Anduiza, on the other hand, alleged that when Madrid paid his debt, the same was not
yet due and demandable; hence, he may not be compelled to pay the latter
4. RTC dismissed the complaint. On appeal, CA reversed the trial court decision and
ordered RFC to cancel the mortgage and pay P16,425.17
5. RFC argued that the payments made by Madrid were made against the express will of
Anduiza and over the objection of the bank, hence not valid. Moreover the obligation in
question was not fully due and demandable at the time of the payments

ISSUE: WON the debtors were entitled to pay the obligation prior to October 15, 1951

HELD: Yes.

At the outset, it should be noted that the makers of the promissory note promised to pay the
obligation evidenced thereby on or before October 31, 1951. Although the full amount of
said obligation was not demandable prior to October 31, 1951, in view of the provision of
the note relative to the payment in 10 annual installments, it is clear that the makers or
debtors were entitled to make a complete settlement of the obligation at any time before
said date.

VALIDITY OF PAYMENT BY THIRD PERSON
Yes, the payment by Madrid was valid. Madrid was entitled to pay the obligation of Anduiza
irrespective of the latters will or that of the bank, and even over the objection of either or both.

Art 1158 Civil Code of Spain, which was in force in the Philippines at the time of the
payments under consideration and of the institution of the present case provides:
Payment may be made by any person, whether he has an interest in the performance of
the obligation or not, and whether the payment is known and approved by the debtor or
whether he is unaware of it. One who makes a payment for the account of another may
recover from the debtor the amount of the payment, unless it was made against his
express will. In the latter case he can recover from the debtor only insofar as the
payment has been beneficial to him.

Payments in question were not made against the objection of either Anduiza or RFC. Anduiza
impliedly, but clearly, acquiesced in the validity of the payment when he joined Madrid in
appealing the decision of CFI Manila. Also, RFC issued receipts acknowledging payment
without qualification and demanded a signed statement of Anduiza sanctioning said payments
merely as a condition precedent, not to its acceptance, which had already been made, but to the
execution of the deed of cancellation of the mortgage constituted in favor of said institution.

This condition was null and void, for the creditor bank had no other right than to exact payment.
After such payment, the obligation in question, as regards said creditor, and the latters status
and rights as such creditor, become automatically extinguished. Hence,
(1) The good or bad faith of the payor is immaterial. the exercise of a right vested by law
without any qualification can hardly be legally considered as tainted with bad faith
(2) The bank cannot invoke the provision that the payor may only recover from the debtor
insofar as the payment has been beneficial to him, when made against his express will.
This is a defense that may be availed of by the debtor, not by the creditor bank, for it
affects solely the rights of the former.







































HENRY V. MADISON AERIE NO 623, FRATERNAL ORDER OF EAGLES OF MADISON
(FIRST NATIONAL BANK OF MADISON), 212 WIS., 589 NW 422 (1933)

FACTS: Plaintiff Henry sued Madison upon an express contract and in connection garnished
the bank, alleging that had in its possession money belonging to the defendant.
1. the trial court ruled against the defendant in the principal action for $1,712.50. during the
trial on the garnishment action, the trial court found that the bank, at the time of the
garnishment summons upon it, had on deposits of Madison in the amount of $958.02
2. The bank held two notes (PN) of Madison, $3,000 each, payable in installments on
specified dates. The notes contained an acceleration clause: Failure to pay any
installment as th same becomes due shall render the entire obligation then due and
payable
3. An installment of $25o fell on February 1, 1932, the amount of which was paid.
Payments of the installments due up to July 1 were made on or before the due dates.
But on July 1 $50 of a $150 installment remained unpaid, and the $150 installments due
on August 1 were not paid on due dates
4. During the payments, there was nothing said about the default of the installment
payments. There was only an acceptance of the amount paid and an endorsement of the
payment of the notes.

ISSUE: What is the effect of makers failure to pay the interest on the promissory note

HELD: Under a clause providing that default in payment of interest when due should cause the
whole note to immediately become due and collectible. To construe such language (that of the
acceleration clause) as merely optional or permissive would destroy the clearly expressed
contract which the parties made for themselves and destroy the clearly expressed contract
which the parties made for themselves and to force upon them a contract to which neither of
them ever gave their consent.

The notes being due immediately upon default, they were due when the subsequent
payments were made upon them, acceptance of the payments thereafter tendered merely
operated to reduce the amount due thereon just as payments made after the due date
specified in a note without an acceleration clause would so operate. It is a general rule
that unconditional acceptance of past-due interest upon notes containing a clause
accelerating payment for default in interest payments waives the acceleration.

NOTE: The option given to the holder to accelerate the maturity of an installment note upon
failure of the maker to pay any installment when due DOES NOT affect the negotiability of the
installment. The rule is the same where the acceleration is automatic upon such default.












WETTLAUFER V. BAXTER, 137 KY 362, 125 SW 741, 26 LRA (NS) 804 (1910)

FACTS: The Buffalo Carriage Top Company on July 3, 1905, executed to Baxter the following
note: January 15, 1906, after date we promise to pay Baxter $250 at Carroll St., Buffalo New
York.
1. Baxter endorsed the note before maturity to Wettlaufer, who discounted it. When the
note fell due, the Carriage Top Company refused payment.
2. Wettlaufer filed an action against Baxter. Baxter denied liability on the ground that the
note was not a negotiable instrument
3. Wettlaufer contended that although the note may not have been negotiable when first
executed and delivered, Baxters subsequent endorsement converted into a negotiable
instrument and as such, the liability of Baxter and other parties must be controlled by the
Negotiable Instrument Act
4. Pertinent provision: Sec 3720B. An instrument to be negotiable must conform to the
following requirements, (4) must be payable to the order of a specified person or to
bearer.

ISSUE: WON the note before the endorsement by Baxter a negotiable instrument within the
meaning of the Negotiable Instrument Act

HELD: No.

The note which was payable to Baxter alone, and did not contain the words to order or to
bearer was NOT a negotiable instrument. These words by Sec 1 and 184 are indispensable to
make the paper a negotiable instrument within the meaning of the act.

The contention that Baxters subsequent endorsement in blank did not convert the note
into a negotiable instrument. Sec 9 of the Negotiable Instruments Act provides that: The
instrument is payable to bearerwhen the only or last endorsement is an endorsement
in blank. But this does not mean that an endorsement in blank converts a non-
negotiable note on its face and by its terms into a negotiable note.

Sec 9 was merely intended to describe or designate the conditions under which a note
on its face might become payable to bearer, and was not intended to apply to a note not
on its face or by its terms negotiable.

By signing his name on the back of the note, Baxter was merely an assignor and not liable,
unless suit was brought on it at the first term of the court against the maker, the Buffalo Carriage
Top Co, and it prosecuted to insolvency. In other words, before an assignee (Wettlaufer) can
recover from an assignor (Baxter), he must institute his action against the payer of the note at
the first term of the court after the note falls due, obtain judgment, have execution issue, and a
return of no property found, without unreasonable delay.









ANG TEK LIAN V. COURT OF APPEALS, 87 PHIL 383 (1950)

FACTS: Ang Tek Lian, knowing he had no funds no transfer thereof, drew on November 16,
1946, a check upon the China Banking Corp for the sum of P4,000 payable to the order of
cash.
1. He delivered it to Lee Hua Hong in exchange for money which the latter handed in the
act. On November 18 (the next business day), the check was presented by Lee Huang
Hong to the drawee bank for payment, but it was dishonored for insufficiency of funds,
since the balance of Ang Tek Lians deposit on both dates was only P335
2. For having issued a worthless check, Ang Tek Lian was convicted of estafa. CA affirmed
the same
3. Ang Tek Lian argues that as the check had been made payable to cash and had not
been endorsed by Ang Tek Lian, he is not guilty of the offense charged. Based on the
proposition that by uniform practice of all banks in the Philippines a check so drawn is
invariably dishonored, the following line of reason is advance in support of the
argument: When the offended party accepted the check form defendant, he did so with
full knowledge that it would be dishonored upon presentment. In that sense, defendant
could not be said to have acted fraudulently because the complaint, in accepting the
check as it was drawn, must be considered to have done so fully aware of the risk he
was running thereby.

ISSUE: WON Ang Tek Lian is not guilty of estafa since the check had been made payable to
cash and had not been endorsed by him

HELD: No. Ang Tek is guilty of estafa.

Under Sec 9(d) of the Negotiable Instruments Law, a check drawn payable to the order of
cash is a check payable to bearer, and the bank may it to the person presenting it for payment
without the drawers endorsement.

Where a check is made payable to the order of cash, the word cash does not purport to be
the name of any person, and hence the instrument is payable to bearer. The drawee bank did
not obtain any endorsement of the back but may pay it to the person presenting it without any
endorsement.

Since the bank is not sure of the bearers identity or financial solvency, it has the right to
demand identification and/or assurance against all possible complications. As such, the bank
may require the endorsement of the draweror some other person known to ito be obtained.
But where the bank is satisfied of the identity and/or the economic standing of the bearer who
tenders the check for collection, it will pay the instrument without further question, and it will not
incur any liability to the drawer in so acting.

A check payable to bearer is authority for payment to the holder. Where the check is in the
ordinary form, and is payable to bearer, so that no endorsement is required, a bank to which it is
presented for payment, need not have the holder identified, and is not negligent in failing to do
so.





OSMENA V. CITIBANK, 426 SCRA 159 (2004)

FACTS: In August 1989, petitioner Osmena purchased from Citibank a managers check in the
amount of P1,545,000 payable to respondent Frank Tan. The check was later deposited with
Associated Bank under the account of a Julius Dizon.
1. Osmena filed an action alleging that the clearing and/or payment by respondents of the
check to an improper party and the absence of any endorsement by the payee thereof
(Frank Tan), is a clear violation of respondents obligation under the Negotiable
Instruments Law and standard banking practice
2. Considering that Tan did not receive the amount of the check, petitioner demanded from
Citibank and Associated Bank payment or reimbursement of the value of the check
3. Petitioner later impleaded Frank Tan as an additional defendant. Since Tan did not
receive the proceeds of the check, petitioner might have no right to collect from Tan and
is consequently left with no recourse but to seek payment or reimbursement from either
or both banks
4. In its answer, Associated Bank alleged that petitioner was not a real party-in-interest but
Tan who was the payee of the check. Moreover, the check was deposited to the account
of Frank Tan aka Julius Dizon and as such, it never committed any violation of its duties
and responsibilities
5. On the other hand, Citibank alleged that the check was made by it in the exercise of its
regular banking function. Since a managers check is normally purchased in favor of a
third party, the identity of whom in most cases is unknown to the issuing bank, its only
responsibility when paying the check is to examine the genuineness of the check. It had
no way of ascertaining the genuineness of the signature of the payee Tan who was a
total stranger to it.
6. The trial court held in favor of Osmena against Tan but the complaints both banks were
dismissed. CA affirmed the same
7. Petitioner asserts that the check was payable to the order of the respondent Tan.
However, Associated Bank ordered the check to be deposited to the account of a Julius
Dizon although the check was not endorsed by Tan.

ISSUE: WON Citibank and Associated Bank are liable to petitioner for the encashment of
Citibanks managers check by Julius Dizon

HELD: No.

Based on the evidence on record, the said account where the check was deposited was in the
name of Frank Tan Guan Leng, which is the Chinese name of respondent Frank Tan, who also
uses the alias Julius Dizon. Associated Bank presented preponderant evidence to support its
assertion that respondent Tan, the payee of the check, did receive the proceeds of the check. It
adduced evidence that Julius Dizon and Frank Tan are one and the same person.

Petitioner cites the ruling in Associated Bank v. CA where the SC outlined the respective
responsibilities and liabilities of a drawee bank (Citibank) and collecting bank (Associated Bank)
in the event that payment of a check to a person not designated as a payee, or who is nto a
holder in due course, had been made. However, said ruling has no application in this case.
Petitioner failed to establish that the proceeds of the check was indeed wrongfully paid by the
respondent banks to a person other than the intended payee. In addition the Negotiable
Instruments Law was enacted for the purpose of facilitating, not hindering or hampering
transactions in commercial paper. Thus, the said statute should not be tampered with
haphazardly or lightly. Nor should it be brushed aside in order to meet the necessities in a single
case.

Moreover, the chain of events following the purported delivery of the check to respondent Tan
renders even more dubious the petitioners claim that respondent Tan had not received the
proceeds of the check. Thus, the petitioner never bothered to find out from the said respondent
whether the latter received the check from his messenger. If it were to be supposed that Tan did
not receive the check, given his urgent need of the money, it seems unlikely that Tan would not
make an effort to get in touch with Osmena to inform him that he did not receive the check.