Case Name: BPI vs.

CA, Annabelle Salazar and Julio Templonuevo By: de Guia, Anna Ray Eleanor
GR No. G.R. No. 136202 Topic: Modes of Negotiation
Date: January 25, 2007

Facts
 Annabelle Salazar had in her possession three crossed checks with an aggregate amount of P267, 692.50. These checks were payable to
the order of JRT Construction and Trading which was the name of Julio Templonuevo’s business. Despite lack of knowledge and
endorsement of Templonuevo, Salazar was able to deposit the checks in her personal savings account with BPI and encash the same. The
three checks were deposited in three different occasions over the span of eight months.

 However, on August 31, 1991, a year after the last encashment, Templonuevo protested the purportedly unauthorized encashments and
demanded from BPI the aggregate amount of the checks. He alleged that the 3 checks were payable to him, but which were deposited
with the petitioner bank to Salazar's account without his knowledge and corresponding endorsement.

 BPI complied with Templonuevo’s demand. Since the money could no longer be debited from the account of Salazar where she
deposited the checks, BPI froze her other account (under A.A. Salazar Construction and Engineering Services where she was
unincorporated single proprietor).

 Later on, BPI issued a cashier’s check in favor of Templonuevo for the aggregate amount and debited P267, 707.70 from Salazar’s
account representing the aggregate amount and the bank charges.

 Salazar filed a complaint against BPI. She prayed for the recovery of the aggregate amount debited by BPI from her account.

 Trial court ruled in favor of Salazar, which was affirmed by CA.

 CA: Salazar and Templonuevo had previously agreed that the checks payable to JRT Construction and Trading actually belonged to
Salazar and would be deposited to her account, with BPI acquiescing to the arrangement. It did not believe BPI’s reason that it made a
mistake by failing to notice the lack of endorsement thereon by the designated payee which were made in three separate occasions. For if
the bank was not privy to the agreement between Salazar and Templonuevo, it is most unlikely that BPI (or any bank for that matter)
would have accepted the checks for deposit on three separate times without questioning the unendorsed checks.

 Hence, this petition.

Issue/s: Whether or not respondent is entitled to the proceeds of the checks even without prior indorsement.

Ruling: NO.

 Records show that no prior arrangement existed between Salazar and Templonuevo regarding the transfer of ownership of the checks.
This fact is crucial as Salazar’s entitlement to the value of the instruments is based on the assumption that she is a transferee within the
contemplation of Section 49 of the NIL.
o Section 49 of the NIL contemplates a situation where the payee or endorsee delivers a negotiable instrument for value
without endorsing it. The underlying premise of this provision, however, is that a valid transfer of ownership of the
negotiable instrument in question has taken place.

 Transferees in this situation do not enjoy the presumption of ownership in favor of holders since they are neither payees nor endorsees of
such instruments. Mere possession of a negotiable instrument does not in itself conclusively establish either the right of the possessor to
receive payment, or of the right of one who has made payment to be discharged from liability. Thus, something more than mere
possession is necessary to authorize payment to such possessor.

 The one-year delay of Templonuevo in asserting ownership over the checks is not enough to prove that there has a valid transfer of
ownership has taken place. Salazar failed to discharge this burden, and the return of the check proceeds to Templonuevo was therefore
warranted under the circumstances despite the fact that Templonuevo may not have clearly demonstrated that he never authorized
Salazar to deposit the checks or to encash the same. Thus, the return of the check proceeds to Templonuevo was therefore warranted.

 This is consistent with the principle that if instruments payable to named payees or to their order have not been indorsed in blank, only
such payees or their indorsees can be holders and entitled to receive payment in their own right. The present case involves checks
payable to order. Not being a payee or indorsee of the checks, private respondent Salazar could not be a holder thereof.

 Noteworthy also is the fact that petitioner stamped on the back of the checks the words: “All prior endorsements and/or lack of
endorsements guaranteed,” thereby making the assurance that it had ascertained the genuineness of all prior endorsements. Having
assumed the liability of a general indorser, petitioner’s liability to the designated payee cannot be denied.

Did BPI act judiciously in debiting Salazar’s account?

Consequently, BPI, as the collecting bank, had the right to debit Salazar's account for the value of the checks it previously credited
 in her favor.

 A bank generally has a right of set-off over the deposits therein for the payment of any withdrawals on the part of a
depositor. The right of a collecting bank to debit a client's account for the value of a dishonored check that has previously
been credited has fairly been established by jurisprudence. (Associated Bank v. Tan)

Solely upon the prompting of Templonuevo, BPI debited the account of Salazar without even serving due notice upon her.
Consequently, this caused damage to Salazar such as having checks she issued dishonored because she was not given prior notice
of the deduction from her account.
As such, the award of damages must be sustained. 


Doctrine: Notes:

Section 49

Transfer without indorsement; effect of — Where the holder of an instrument payable to his
order transfers it for value without indorsing it, the transfer vests in the transferee such title
as the transferor had therein, and the transferee acquires in addition, the right to have the
indorsement of the transferor. But for the purpose of determining whether the transferee is a
holder in due course, the negotiation takes effect as of the time when the indorsement is
actually made.