Chan Wan vs Tan Kim et al

109 Phil 706 – Commercial Law – Negotiable Instruments Law – Negotiation after Dishonor – Holder in
Due Course
Tan Kim and her husband (Chen So) issued 11 checks payable to “cash or bearer” to be drawn against
their account with the Equitable Banking Corporation. The checks were negotiated to the White House
Shoe Supply (company). White House then deposited the checks to their China Bank account. China
Bank then presented the checks to Equitable Bank but the checks were returned because Equitable Bank
then had no funds to cover the checks. China Bank then stamped the checks with “Account Closed” and
“Non negotiable – China Bank Corporation”.
But somehow, Chan Wan got hold of these checks (Chan Wan was not able to explain in court how he got
hold of the checks). Chan Wan now wants to encash the checks but Equitable Bank refused accept the
said checks.

ISSUE: Whether or not Chan Wan is a holder in due course.

HELD: No. As a general rule, a dishonored check/instrument may still be negotiated either by
indorsement or delivery and the holder may be a holder in due course provided that he received no notice
regarding the dishonor of the instrument. In this case, the checks were already crossed on their face hence
Chan Wan was properly notified of the dishonor of the checks at the time of his acquisition.
But may Chan Wan still recover?
Yes. The Negotiable Instruments Law does not provide that a holder who is not a holder in due course,
may not in any case, recover on the instrument. The holder may recover directly from the drawee, in this
case Tan Kim and Chen So, unless the drawees have a valid excuse in refusing payment. The only
disadvantage of a holder who is not a holder in due course is that the negotiable instrument is subject to
defense as if it were non- negotiable. The case was remanded to the lower court for a proper
determination as to how Chan Wan acquired the checks and to determine if he is indeed entitled to
payment based on some other transactions involving those checks.

Metropolitan Bank & Trust Company vs. Court of Appeals [GR 88866, 18 February 1991]Facts:

The Metropolitan Bank and Trust Co. (MetroBank) is a commercial bank with branches throughout the
Philippines and even abroad. Golden Savings and Loan Association was, at the time these events
happened, operating in Calapan, Mindoro, with Lucia Castillo, Magno Castillo and Gloria Castillo as its
principal officers. In January 1979, a certain Eduardo Gomez opened an account with Golden Savings and
deposited over a period of 2months 38 treasury warrants with a total value of P1,755,228.37. They were
all drawn by the Philippine Fish Marketing Authority and purportedly signed by its General Manager and
counter-signed by its Auditor. 6 of these were directly payable to Gomez while the others appeared to
have been indorsed bytheir respective payees, followed by Gomez as second indorser. On various dates
between June 25 and July 16, 1979, all these warrants were subsequently indorsed by Gloria Castillo as
Cashier of Golden Savings and deposited to its Savings Account 2498 in the Metrobank branch in
Calapan,Mindoro. They were then sent for clearing by the branch office to the principal office of
Metrobank, which forwarded them to the Bureau of Treasury for special clearing. More than 2 weeks
after the deposits, Gloria Castillo went to the Calapan branch several times to ask whether the warrants
had been cleared. She was told to wait. Accordingly, Gomez was meanwhile not allowed to withdraw
from his account. Later, however, "exasperated" over Gloria’s repeated inquiries and also as an
accommodation for a "valued client," Metro Bank says it finally decided to allow Golden Savings to
withdraw from the proceeds of the warrants. The first withdrawal was made on 9 July 1979, in the amount
of P508,000.00, the second on 13 July 1979, in the amount ofP310,000.00, and the third on 16 July 1979,
in the amount of P150,000.00. The total withdrawal was P968,000.00. In turn, Golden Savings
subsequently allowed Gomez to make withdrawals from his own account, eventually collecting the total
amount of P1,167,500.00 from the proceeds of the apparently cleared warrants. The last withdrawal was
made on 16 July 1979. On 21 July 1979, Metrobank informed Golden Savings that 32 of the warrants had
been dishonored by the Bureau of Treasury on 19 July 1979, and demanded the refund by Golden Savings
of the amount it had previously withdrawn, to makeup the deficit in its account. The demand was rejected.
Metrobank then sued Golden Savings in the Regional Trial Court of Mindoro. After trial, judgment was
rendered in favor of Golden Savings, which, however, filed a motion for reconsideration even as
Metrobank filed its notice of appeal. On 4 November1986, the lower court modified its decision, by
dismissing the complaint with costs against Metrobank; by issolving and lifting the writ of attachment of
the properties of Golden Savings and Spouses Magno Castillo and Lucia Castillo; directing Metrobank to
reverse its action of debiting Savings Account 2498of the sum of P1,754,089.00 and to reinstate and
credit to such account such amount existing before the debit was made including the amount
ofP812,033.37 in favor of Golden Savings and thereafter, to allow Golden Savings to withdraw the
amount outstanding thereon before the debit; by ordering Metrobank to pay Golden Savings attorney's
fees and expenses of litigation in the amount of P200,000.00; and by ordering Metrobank to pay the
Spouses Magno Castillo and Lucia Castillo attorney's fees and expenses of litigation in the amount of
P100,000.00. On appeal to the appellate court, the decision was affirmed, prompting Metrobank to file the
petition for review.
Issue:
Whether the treasury warrants in question are negotiable instruments.
Held:
Clearly stamped on the treasury warrants' face is the word "non-negotiable." Moreover, and this is of
equal significance, it is indicated that they are payable from a particular fund, to wit, Fund 501. Section 1
of the Negotiable Instruments Law, provides that "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, o r
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." Section 3 (When promise is unconditional) thereof provides that "An unqualified
order or promise to pay is unconditional within the meaning of this Act though coupled with
—
(a) An indication of a particular fund out of which reimbursement is to be made or a particular account
to be debited with the amount; or (b) A statement of the transaction which gives rise to the
instrument. But an order or promise to pay out of a particular fund is not unconditional." The
indication of Fund 501 asthe source of the payment to be made on the treasury warrants makes the
order or promise to pay "not unconditional" and the warrants themselves non-negotiable. There
should be no question that the exception on Section 3 of the Negotiable Instruments Law is
applicable in the present case. Metro bank cannot contend that by indorsing the warrants in general,
Golden Savings assumed that they were "genuine and in all respects what they purport to be,"
inaccordance with Section 66 of the Negotiable Instruments Law. The simple reason is that this law
is not applicable to the non-negotiable treasury warrants.The indorsement was made by Gloria
Castillo not for the purpose of guaranteeing the genuineness of the warrants but merely to deposit
them with Metrobank for clearing. It was in fact Metrobank that made the guarantee when it stamped
on the back of the warrants: "All prior indorsement and/or lack ofendorsements guaranteed,
Metropolitan Bank & Trust Co., Calapan Branch.
Kauffman vs PNB, GR No. 16454 September 29, 1921, digested

Facts: Plaintiff was entitled to the sum of P98,000 from the surplus earnings of Philippine Fiber &
Produce Company (PFPC) which was placed to his credit on the company’s books. The PFPC treasurer
requested from PNB Manila that a telegraphic transfer of S45,000 should be made to the plaintiff in NY
upon account of PFPC. The treasurer drew and delivered a check for the amount of P90,355 on the PNB
which is the total costs o said transfer. As evidence, a document was made out and delivered to the PFPC
treasurer which is referred to by the bank’s assistant cashier as it’s official receipt.

On the same day the Philippine National Bank dispatched to its New York agency a cablegram to the
following effect:

Pay George A. Kauffman, New York, account Philippine Fiber Produce Co., $45,000. (Sgd.)
PHILIPPINE NATIONAL BANK, Manila.

Upon receipt of the telegraphic message, the bank’s representative advised the withholding of the money
from Kauffman, in view of his reluctance to accept certain bills of the PFPC. The PNB agreed and sent to
its NY agency another message to withhold the payment as suggested.

Upon advice of the PFPC treasurer that S45,000 had been placed to his credit, he presented himself at the
PNB NY and demanded the money but was refused due to the direction of the withholding of payment.

Issue: WON plaintiff has a right over the money withhold.

Held: No. Provisions of the NIL can come into operation there must be a document in existence of the
character described in section 1 of the Law; and no rights properly speaking arise in respect to said
instrument until it is delivered.

The order transmitted by PNB to its NY branch, for the payment of a specified sum of money to the
plaintiff was not made payable “to order” or “to bearer”, as required in subsection (d) of that Act; and
inasmuch as it never left he possession of the bank, or its representative in NY, there was no delivery in
the sense intended in section 16 of the same Law.

In connection, it is unnecessary to point out that the official receipt delivered by the bank to the purchaser
of the telegraphic order cannot itself be viewed in the light of a negotiable instrument, although it affords
complete proof of the obligation actually assumed by the bank.