Campos - Chapter 5

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Law 108: Negotiable Instruments

First Semester

AY 2008-09

Prof. Rogelio V. Quevedo

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CHAPTER V: LIABILITY OF PARTIES

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_{NATL BANK OF CENTRAL CITY V UTTERBACK}st

177 Ky. 76, 197 S.W. 534, L.R.A. 1918B, 838 (1917) ~mini~

FACTS

SUBJECT: negotiable promissory note PAYEE: Davis Coal Company

-(the only fact I could find) The payee in the note was (probably) required to comply w/ one of 2 certain sections of Kentucky law before it was authorized to do business in the state.

ISSUE

WON the failure of a payee in a negotiable promissory note to comply with sections 199b and 571, Kentucky Statutes (sorry Campos did not reproduce the statutes themselves but I think the content doesn’t matter) without which it could not do business in the state, before the execution of the note, renders it uncollectible in the hands of an owner in due course. HELD: NO

-The Negotiable Instruments act (I think. In Kentucky statutes.) says in plain language that the maker of an instrument, by making it, admits the payee’s capacity to indorse it.

-The act does not say, however, that the maker admits the payee’s capacity to make the contract for which the note was executed, and hence he may have the right to urge such defense against the original payee. BUT again, reiterate the point that the act DOES take from the maker the right to deny the capacity of the payee to indorse and negotiate the note free from defenses available against the payee, even though, as between the original parties, the note was void and unenforceable for any reason.

-It has been held in both Colorado and North Dakota that a note to a foreign corporation that he has not complied with the local law, without which it would not do business in the state, is valid against the maker in the hands of a holder in due course.

Disposition The judgment overruling the demurrer to

the amended answer is reversed for proceedings consistent herewith.

MORAN V CA, CityTrust Banking Corp. 230 SCRA 799; GR 105836; Regalado; Mar 7, 1994 ~ajang~

FACTS

-Spouses George and Librada Moran are the owners of the Wack-Wack Petron. They regularly purchased bulk

fuel and other related products from Petrophil Corporation on a cash on delivery (COD) basis. Orders were made by telephone and payments were effected by personal checks upon delivery.

-The Morans maintained 3 joint accounts (1 current and 2 savings accounts). As a special privilege to the Morans, as valued clients, the bank allowed them to maintain a zero balance in their current account. Transfers from one of the savings account to the current account could only be made with prior authorization, while transfers from the other savings account can be made be the bank automatically through a Pre-Authorized Transfer agreement or PAT. -On 12 December 1983, the Morans, drew a check for P50,576.00 payable to Petrophil Corporation. The next day, the Moran issued another check in the amount of P56,090.00. The totalling to P106,666.00. Petrophil deposited the two checks to its account with the Pandacan branch of PNB, the collecting bank. In turn, PNB presented them for clearing with the Philippine Clearing House Corporation in the afternoon of the same day. The records show that on 14 Dec 1983, Moran’s Current Account had a zero balance, while Savings Account covered by the PAT had an available balance of P26,104.30 and the other Savings Account had P43,268.39.

-The following day, at around 10am, George Moran went to the bank, as was his regular practice, to personally oversee their daily transactions with the bank. He deposited money to the 2 savings account. He then withdrew P40k from Savings Account A and deposited the amount to the current account. P66,666 was also transferred from the other Savings Account to the current account through the PAT agreement. -Librada (wife) told George that Petrophil refused to deliver their orders on a credit basis because the two checks were dishonored due to "insufficiency of funds. Non-delivery of gasoline forced Morans to temporarily stop business operations. In addition, Petrophil cancelled their credit accommodation. Furious and upset, George Moran demanded an explanation from the bank. He was told that Amy Belen Ragodo, the customer service officer, had committed a "grave error". The Morans filed a complaint for damages. ISSUE

WON a bank is liable for its refusal to pay a check on account of insufficient funds but wherein a deposit may be made later in the day.

HELD: NO.

-The relationship between the bank and the depositor is that of a debtor and creditor. By virtue of the contract of deposit between the banker and its depositor, the

banker agrees to pay checks drawn by the depositor provided that said depositor has money in the hands of the bank. Hence, where the bank possesses funds of a depositor, it is bound to honor his checks to the extent of the amount of his deposits. The failure of a bank to pay the check of a merchant or a trader, when the deposit is sufficient, entitles the drawer to substantial damages without any proof of actual damages. Conversely, a bank is not liable for its refusal to pay a check on account of insufficient funds, notwithstanding the fact that a deposit may be made later in the day. Before a bank depositor may maintain a suit to recover a specific amount from his bank, he must first show that he had on deposit sufficient funds to meet his demand.

-The available balance on 14 December 1983 was used by the bank in determining whether or not there was sufficient cash deposited to fund the two checks, although what was stamped on the dorsal side of the two checks in question was "DAIF/12-15-83," since 15 December 1983 was the actual date when the checks were processed. When the Morans' checks were dishonored due to insufficiency of funds, the available balance of Savings Account which was the subject of the PAT agreement, was not enough to cover either of the two checks. On 14 December 1983, when PNB, Pandacan branch presented the checks for collection, the available balance for Savings Account 1037001372 was only P26,104.30 while Current Account 37-0006-7 had no available balance. It was only on 15 December 1983 at around 10:00 a.m. that the necessary funds were deposited, which unfortunately was too late to prevent the dishonor of the checks.

-The bank was also under no obligation to give notice before dishonoring checks drawn upon insufficient funds. If ever the spouses Moran on previous occasions were given notices every time a check was presented for clearing and payment and there were no adequate funds in their accounts, these were, at most, mere accommodations on the part of CityTrust. Legally, the bank had all the right to dishonor the checks because there were no sufficient funds to speak of in the first place.

-A drawer must remember his responsibilities every time he issues a check. He must personally keep track of his available balance in the bank and not rely on the bank to notify him of the necessity to fund certain checks he previously issued.A check, as distinguished from an ordinary bill of exchange, is supposed to be drawn against a previous deposit of funds for it is ordinarily intended for immediate payment. In the present case, between the time of issuance of the checks on Dec 12 and 13 and presentment on Dec 14,

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Law 108: Negotiable Instruments

First Semester

AY 2008-09

Prof. Rogelio V. Quevedo

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their balance in the bank.

ARANETA V BANK OF AMERICA No. L-25414 July 30, 1971; 40 SCRA 144 ~ricky~

FACTS

DRAWER: Leopoldo Araneta.

DRAWEE: San Francisco main office of the Bank of America

SUBJECT 1: Check for $500 payable to cash. Dishonored and stamped “Account Closed” despite sufficiency of drawer’s deposit balance. Upon inquiry, Bank acknowledged error and sent a letter of apology to payee Harry Gregory of Hongkong and requesting that no adverse reflection be made on drawer. Matter considered closed. However, similar events occurred later.

SUBJECT 2: Check for $500 payable to cash drawn against the same bank. Stamped “Account Closed” and returned to clearing bank despite sufficiency of drawer’s deposit balance.

SUBSEQUENT INDORSEMENT: To Rufina Saldaña who deposited it to her account with First National City Bank of New York which in turn cleared it through the Federal Reserve Bank. It was actually paid by the drawee to First National City Bank but later claimed it was inadvertently made and requested the amount be credited back. First National in turn wrote Saldaña but before her reply was received, drawee recalled the check from First National and honored it. (Ano ba talaga, kuya?! )

SUBJECT 3: Check for $150 payable to cash drawn against the same bank. Stamped “Account Closed” and returned to clearing bank (Wells Fargo Bank) despite sufficiency of drawer’s deposit balance.

-Because of these incidents, Araneta filed suit for the recovery of the ff: (1) Actual damages P30,000; (2) Moral damages P20,000; (3) Temperate damages P50,000; (4) Exemplary damages P10,000; and (5) Attorney’s fees P10,000. TC awarded all items. CA eliminated actual and temperate (for failure to prove an alleged purchase of jewels for profit) and reduced moral damages to P8,000, exemplary to P1,000 and attorney’s fees to P1,000.

ISSUES

1. WON the CA erred in eliminating temperate damages.

2. WON the CA erred in not granting moral damages for mental anguish, besmirched reputation, wounded feelings, social humiliation, etc., separate and distinct

from the damages recoverable for injury to business reputation.

HELD 1. YES.

Ratio The financial credit of a businessman is a prized

and valuable asset, it being a significant part of the foundation of his business. Any adverse reflection thereon constitutes some material loss to him.

Reasoning The Bank cites Art 2224 which provides

that “temperate or moderate damages, which are more than nominal but less that compensatory damages may be recovered when the court finds that some pecuniary loss has been suffered but its amount cannot, from the nature of the case, be proved with certainty,” and contends that Araneta failed to show such loss in this case which the CA upheld. The question is WON there is reason to conclude that Araneta did sustain some pecuniary loss although no sufficient proof of the amount has been adduced.

-From the nature of some cases, (citing the Code Commission) definite proof of pecuniary loss cannot be offered although the court is convinced that there has been such loss. For instance, injury to one’s commercial credit or to the goodwill of a business firm is often hard to show with certainty in terms of money. The judge should be allowed to calculate moderate damages in such cases, rather than the plaintiff should suffer, without redress from the defendant’s wrongful act. -Araneta is a merchant of long standing and good reputation in the Philippines. His claim for temperate damages is legally justified. Considering, however, the small size of Araneta’s account with the Bank, the amounts of the checks involved & the fact that the Bank tried to rectify the error, although belatedly, an award of P5T by way of temperate damages is sufficient.

2. NO.

Reasoning Araneta contends that moral damages

should have been granted for the injury to his business standing or commercial credit, separately from his wounded feelings and mental anguish. It is true that under Art 2217, besmirched reputation is a ground upon which moral damages may be claimed but the CA did take this element into consideration in adjudging the sum of P8T in his favor. The CA considered his reputation as an established and well known international trader as well as his wounded feelings and the mental anguish he suffered which caused his blood pressure to rise beyond unusual limits necessitating medical attendance for an extended period.

Disposition Judgment of the CA MODIFIED by

awarding temperate damages of P5,000 and increasing attorney’s fees to P4,000.

WOODY V NATIONAL BANK OF ROCKY MOUNT 194 N.C. 549, 140 S.E. 150 (1927)

~joey~ FACTS

SUBJECT: check for $6 DRAWER: Woody

DRAWEE: Bank of Rocky Mount PAYEE: E.L. Hollingworth INDORSEE: Kingston Garage

-The check was dishonored and marked “No Account” by drawee bank although, at that time, drawer had on deposit $50. Drawer was arrested and tried on the charge of having given a worthless check. He was acquitted.

-This action for compensatory and punitive damages alleges that drawee’s act was willful, negligent, wanton and malicious. Demurrer sustained in TC.

ISSUE

WON drawer may recover compensatory and punitive damages from drawee

HELD: YES

-Upon the refusal or failure of the bank to pay the check of its depositor, the bank is liable for a breach of its contract. The depositor may recover of the bank the amount of his check, with interest and cost; the action being on contract, the recovery is limited to the amount of the check, with interest from date of demand and refusal, and, by virtue of the statute, the costs of the action.

-Notwithstanding that the relation of the bank to its depositor is that of debtor and creditor, a bank may be held liable in tort to its depositor whose check it has wrongfully refused or failed to pay.

-A depositor, whose check has been wrongfully dishonored by the refusal or failure of the bank on which it was drawn to pay the same, may maintain an action against the bank, not only in contract but also in tort, to recover the damages which he has sustained, and that the jury may, when the plaintiff is a merchant or trader, assess not only nominal but also substantial damages; when the plaintiff is not a merchant or trader, he may recover such sum as special damages as the jury shall find, upon the facts, will compensate him for the injury resulting from the wrong done him by the defendant.

-Even if such actual loss or injury is not shown, yet more than nominal damages may be given. It can hardly be possible that a customer’s check can be wrongfully refused payment without some impeachment of his credit, which must in fact be an

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Law 108: Negotiable Instruments

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Prof. Rogelio V. Quevedo

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case furnish independent, distinct proof thereon.

Disposition Judgment reversed.

SINGSON V BANK OF THE PHIL. ISLANDS 23 SCRA 1117; Concepcion; June 27, 1968 ~chriscaps~

FACTS

-Singson was one of defendants in civil case where judgment was rendered against him and co-defendants Lobregat and Villa-Abrille, to pay. Singson and Lobregat appealed, but not Villla-Abrille. Writ of garnishment was served upon BPI in w/c Singson had account, insofar as Villa-Abrille’s credit against the bank were concerned. -Clerk of bank, upon reading name of plaintiff and w/o informing himself that garnishment was merely for deposits of Villa-Abrillle and Bona, prepared letter for Bank President’s signature, informing Singson of the garnishment of his deposits.

-2 checks issued by Singson in favor of Lega Corp, drawn against said bank, were deposited by drawee. Believing that Singson had no more control over his deposits, bank dishonored the checks.

-Singson commenced present action against bank and its president for damages because of illegal freezing of account. CFI dismissed complaint.

ISSUE

WON damages may be awarded HELD: YES

-Existence of a contract between parties doesn’t bar commission of a tort by one against the other and the consequent recovery of damages therefore.

SPEROFF V FIRST-CENTRAL TRUST CO 140 Ohio st. 415, 79 N.E. 2s 119 (1948) ~’del~

FACTS

-Vassil Speroff had drawn a check on First-Central Trust Co. (FCTC).

-He eventually notified FCTC that said check be not paid.

-Now, he sues FCTC to recover the amount of said check.

-FCTC admitted to the drawing of the check and to having received the notice not to pay. However, it interposed the defense that Speroff signed a document stating that Speroff agreed to indemnify FCTC against any loss resulting from the nonpayment of said check and that it is expressly understood that it will not be

held responsible if it paid the check through inadvertency or oversight.

-TC rendered a judgment for FCTC. CA reversed saying that said statement of release was void as it was contrary to public policy and void for want of consideration. Hence, this appeal.

ISSUE

WON the statement of release signed by Speroff constitutes a valid defense

HELD: NO.

The Court upheld the CA’s two grounds for avoiding the statement of release.

On want of consideration

-Under the reciprocal rights and obligations inherent in the relationship existing between a bank and its depositors, it was the duty of FCTC NOT to pay after it had received the order of Speroff.

-Hence, when Speroff was asked to sign a statement or release to the effect that the bank wouldn’t be held responsible if it would pay the check, this was a new element in the relationship. What consideration or benefit was received by Speroff as promisor and what detriment was suffered by FCTC as promise as a result of this statement? NONE so clearly there was no compliance with either of the fundamental requirements as to consideration.

On contrary to public policy

-It is elementary that a bank is required by law to act in good faith and exercise reasonable care in its relationship with its depositors.

-In this case, the obtaining from Speroff of a purported release from liability for inadvertency or oversight as a condition of the order to stop payment of the check was contrary to public policy and did not relieve

FCTC from its duty to act in good faith and exercise reasonable care.

-The Court distinguished that FCTC’s defense of purported release was a void and invalid defense. However, the FCTC’s defense of exercising good faith and reasonable care (which it interposed in its amended answer) is a valid defense so the Court remanded the case back to the Court of Common Pleas for trial on that issue.

Disposition Judgment was modified and cause

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Law 108: Negotiable Instruments

First Semester

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Prof. Rogelio V. Quevedo

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Ny Court of Appeals; 297 N.Y. 185, 78 N.E. 2d, 465 (1948)

~jaja~ FACTS

SUBJECT: a check for $25,000 as payment for the purchase of sugar

DRAWER: Arbeedee

PAYEE: Caracanda Bros. Co & Ltd.

DRAWEE: Chase National Bank of City of New York Arbeedee and defendant Caracanda entered into an agreement for the purchase of sugar which provided that Arbeedee and should deliver a check for $25,000 to Caracanda to bind the transaction and that an amount would be returned upon receipt by Caracanda of a letter of credit to obtained by Arbeedee. Arbeedee drew such a check on its account in the plaintiff bank and delivered it to Caracanda. Thereafter Arbeedee requested plaintiff to stop payment on the check. Caracanda presented the check for certification and it was certified by plaintiff through mistake. The following day, Caracanda presented it for payment and plaintiff paid it. When advised of the payment of the check Arbeedee insisted that plaintiff make no debit against it account asserting that Caracanda has no legal right to the money. Plaintiff thereupon demanded payment of the $25,000 from Caracanda. That was refused. The complaint alleges due demand upon both defendants and nonpayment and prays for judgment in the sum of $25,000 against Arbeedee “and/or” Caracanda.

ISSUE

WON the complaint fails to state a cause of action against Arbeedee

HELD: YES

-The complaint failed to allege ratification by Arbeedee after learning of the payment by plaintiff to Caracanda and there are no alternative allegations of fact upon which to rest such a cause of action. Our courts have never permitted a bank in a commercial transaction to such as this, after breaching its depositor's instructions to involve him against his will in litigation with a third party in order that the bank may recoup a potential loss resulting from its own error. The doctrine of subrogation or equitable assignment is not properly applicable under such circumstances. A bank may protect itself by contract with its depositor so as to limit liability on a stop payment order. When that has not been done, the common law liability is absolute in the absence of ratification. Judgment affirmed.

LAWLESS V TEMPLE

254 Mass 395, 150 NE 176 (1926) ~iNa~

FACTS SUBJECT: bill

PAYEE: Hazel Lawless DRAWER: Norris J. Temple DRAWEE: Maurice E. Temple

-On the instrument appears ME Temple's signature -ME Temple contends that the mere signature of the name of the drawee on the bill cannot fulfill the requirements that the signification of the assent of the drawee must be in writing and must be signed.

ISSUE

WON the signature of the drawee is sufficient acceptance

HELD: YES

-Acceptance must be in writing because sound policy requires that some substantial and tangible evidence of the contract is more reliable in nature than the statement or recollection of witnesses. The common practice before the NIL was to write the word "accepted" + the signature on the face of the bill. -But based on case law, the signature is both a writing and signing. The name alone is constantly holden to satisfy the requirement.

-A drawee may be charged as acceptor although he writes merely his name upon the bill and that anyone taking the bill has the right to fill up a blank acceptance on the same principle that a holder may fill up a blank indorsement.

KILGORE NATL BANK V MOORE BROS. LUMBER 102 SW 2d 200 (1937)

~chrislao~ FACTS

-Waddell transacted with Moore Brothers, a firm engaged in the lumber business. As payment for the lumber he purchased, Waddell drew 2 checks wroth $350 drawn against Kilgore National Bank.

-2 checks were deposited by Moore Brothers in Grand Saline Bank for collection. A few days later, Grand Saline notified G.J. Moore that the checks had been returned by Kilgore Bank unpaid.

-Because of this, G.J. Moore brought Waddell to Kilgore Bank where Waddell, Moore and the cashier of Kilgore Bank had an ORAL agreement. Waddell instructed Kilgore bank to pay Moore. The cashier promised Moore the payment of said checks once presented again. On the ledger of the bank in connection with Waddell's

account, the cashier made the unsigned notation: "Hold for Moore Brothers $350.00"

-G.J. Moore ordered Grand Saline to forward the checks to Kilgore again. One of the checks was paid. The other, however, was not. This prompted Moore to file suit against Kilgore Bank to recover amount of the last mentioned unpaid check.

-TC and Civil Appeals: in favor of Moore Brothers. ISSUE

WON Kilgore is liable for the other check HELD: NO. Section 132 governs.

Campos enumerates the ff requisites: 1)it must be in writing

2)it must be signed by the drawee, and

3) it must not change the implied promise of acceptor to pay only in money.

Acceptance is usually made by writing "accepted" and signing immediately below. However, the drawee's signature alone is NOT sufficient

-The plain purpose of 132 is to prevent any liability to

the holder of a check from arising from the bare oral promise of the drawee bank to pay the check. In the present case, the liability of Kilgore Bank to Moore Brothers depends entirely on the BARE ORAL PROMISE of the drawee bank to pay. As we have said, this should have been in writing (and of course, complying as well with the other two requities).

-The notation in the bank's ledger "Hold for Moore Brother, $350.00" adds no force to said promise. This statement (as opposed to the oral promise to pay) does NOT EVEN make any contract, oral or written, to pay. WISNER V FIRST NATIONAL BANK OF GALLITZIN 220 Pa. 21, 68 Atl. 955 (1908)

~apple~ FACTS

SUBJECT: 6 checks

DRAWER: Samuel R. Bullock

DRAWEE: First National Bank of Gallitzin PAYEE: Charles W. Gallaer, Jr. or order

-Subject checks were deposited in various banks and then, forwarded by said banks to drawee bank for payment

-5 of the checks were not returned by the drawee bank to the forwarding banks for more than 2 days

-Holder of the checks sued the drawee bank for payment on the theory that its failure to return the checks within 24 hrs after receipt thereof constituted acceptance

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Law 108: Negotiable Instruments

First Semester

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Prof. Rogelio V. Quevedo

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retention of the checks unaccompanied by its refusal to return them, was not acceptance

ISSUE

WON failure to return the checks to the holder or the collecting bank within 24 hrs amounts to acceptance HELD: YES.

-The drawee to whom a bill is delivered for acceptance is deemed to have accepted it under Section 137 where: 1. he destroys it; 2. where he refuses within 24 hrs after delivery to return the bill accepted or non-accepted to the holder; and 3. where he refuses within such other period as the holder may allow to return the bill accepted or non-accepted to the holder.

WON a demand from the holder for the return of the bill, and a refusal on the part of the drawee, are conditions precedent to an acceptance

-No prior demand from holder is required because to require so is not to the convenience or interest of the holder

-The manifest purpose in requiring prompt return of the bill is in the interest of and for the protection of the holder

-If this section had in view the protection of the holder, then it was evidently the intention of the legislature that the non-return of the bill within the specified time, regardless of the cause, will make the drawee an acceptor

-The drawee bank, having failed to return the 5 checks to the collecting bank within 24 hrs after delivery, is deemed to have accepted the checks, and is therefore, liable for their amount

*After the decision, Pennsylvania amended Section 137, to destroy the effect of the decision. The following proviso was added: "Provided, that the mere retention of such bill by the drawee, unless its return has been demanded, will not amount to an acceptance..."

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Law 108: Negotiable Instruments

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Prof. Rogelio V. Quevedo

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SC Nebraska; 164 Neb. 630, 83 N.W.2d 88 (1957) ~rach~

FACTS

SUBJECT: Holder's action against drawee bank, which had returned check on account of insufficiency of funds on deposit in drawer's account. Lower court dismissed such action; holder appealed.

DRAWER: Ira McCord who had an account in defendant bank

DRAWEE: Defendant Platte Vlley State Bank PAYEE: Plaintiff Norton Urwiller

-In payment of his purchase of hogs, McCord issued to Urwiller his check for the sum of $2,491.11. The next day, Urwiller’s wife deposited this to his account in the Ravenna Bank. The bank then forwarded the check for collection in the usual course of business through regular channels: Ravenna Bank -> Bank in Lincoln -> Omaha branch of the Federal Reserve Bank -> Platte Valley State Bank (PVSB).

-The check was received in a cash letter during business hours on Saturday, Dec 12, 1953. The check was proofed on the day it was received and posted for action on the following business day, which was Monday. On Mon it was decided not to pay the check,

but mark it for 'return,' because the drawer thereof did not have sufficient funds on deposit in his account with

appellee.

-Actual return was not made to the Federal Reserve Bank until Wed. This delay was caused by the fact that

bank examiners came and assumed control of all the records of the bank, including cash items, on Mon morning. Urwiller was advised by the Ravenna bank

late Thurs afternoon, of the fact that payment of the check had been refused although the check was not actually returned to him until Saturday. The check has never been paid.

ISSUE

WON retention of a check by a drawee bank for more than 24 hours after it is presented to it for payment constitutes an acceptance of the instrument so that the drawee bank is bound to pay it

HELD: NO

Ratio 'Presentment for payment and presentment for

acceptance are two different acts well known to the law of negotiable instruments. The difference between the object and effect of presentation for these respective purposes is very marked. Payment extinguishes the debt and puts an end to the paper evidencing the same, while acceptance has the very opposite effect. It creates a new liability upon the part of the acceptor,

and gives new life to the instrument.'

-‘In absence of statutory right, holder would be left to his common law rights, for either breach of contract or for tortious breach of duty, by drawee bank which had refused payment on grounds of insufficiency of funds in drawer's account.’

Disposition Trial court was correct in dismissing his

petition. We affirm.

SUMCAD V PROVINCE OF SAMAR 52 O.G. 18, 7582 (1956)

~cHa~ FACTS

SUBJECT: check for P25k, cannot be paid because of insufficient funds

DRAWER: Province of Samar DRAWEE: PNB, Cebu Branch PAYEE: Paulino Santos

SUBSEQUENT INDORSEMENTS: Paulino Santos indorsed to James McGuire then transferred to Sumcad et.al. -James McGuire presented the check to municipal treasurer of Borongan for payment, the latter did not pay or did not choose to pay. McGuire wrote letters to the Bureau of Posts seeking payment for check. Director of the Bureau of Posts referred to PNB.

(Note: McGuire did not present check directly to PNB.) -PNB requested photostatic copies of the check – was received by bank. (Province of Samar by this time still had P84,287.47)

-Procedural requirements still asked from McGuire so by the time the check was transferred to Sumcad et al., Province of Samar already withdrew from their PNB account P83,504.07 leaving only P743.43.

-Sumcad et al were not able to encash check so they sued Province of Samar and PNB. PNB was held solidarily liable with Province of Samar. Hence, this appeal.

ISSUE

1. WON PNB constructively accepted to assume the obligation

2. WON PNB is solidarily liable HELD

1. YES.

-When PNB requested photostatic copies of the check from the Bureau of Posts and McGuire to present check to provincial treasurer and provincial auditor for

certification, it voluntarily assumed the obligation of holding so much of the deposit of the province of Samar as would be sufficient to cover the amount of the check, or before allowing the withdrawal that exhausted said deposit, of making the necessary inquiry on the matter. It would be an empty gesture if the appellant did not mean to assume the obligation of paying the check and holding sufficient deposit of the drawer for the purpose.

2. NO.

-PNB’s liability is only subsidiary to that of the Province of Samar which is primarily liable thereon.

Disposition. Decision affirmed.

PADILLA, dissenting:

PNB should not be liable at all. When it requested the Bureau of Posts to furnish it with photostatic copies of the check, it only means that the original check was not presented to it for payment! The act of requesting did not create an obligation on the part of PNB.

COOLIDGE V PAYSON 2 Wheat 66, 4 L. Ed. 185 (1817) ~jojo~

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. 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.

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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 PHIL. NAT’L BANK L-No. 16106, Dec. 30, 1961; 3 SCRA 851 ~kiyo~

FACTS

-RP filed a complaint for escheat of certain unclaimed bank deposit balances against several banks under Act. 3936 which provides that “unclaimed balances” (w/c includes credits or deposits of money, bullion, security and other evidence of indebtedness of any kind + interest) in favor of persons not heard from for 10 years or more, with the increase and proceeds thereof, shall be deposited with the Insular Treasurer to the credit of the Phil. Government. Among these banks was the First National City Bank of New York who argued that some of its credits didn’t fall within the purview of the Act. The court held that cashier’s checks and demand drafts fall under the Act but upon MFR changed its view and excluded drafts, hence this appeal.

ISSUE

WON demand drafts create a creditor-debtor relationship between drawee and payee, thus falling within the meaning of “credits” in Act. 3969

HELD: NO

-A demand draft is not of the same category as a cashier’s check which should fall under the Act.

In banking terminology, the term bank draft is used interchangeably with a bill of exchange. A bill of exchange under the NIL (sec. 127) does not operate as an assignment of funds in the hands of the drawee who is not liable on the instrument until he accepts. In fact, the law requires presentment w/in a reasonable time or else the drawer is discharged from liability. Since it is admitted in this case that the drafts in question were

never presented either for acceptance or payment, appellee bank never became a debtor of the payees, hence the drafts never became “credits” under the Act. -Drafts must however be distinguished from cashier’s checks, which is simply a bill of exchange drawn by the bank on itself; it is equivalent to a certified check and its deposit passes to the credit of the holder who then becomes a depositor of that amount.

Disposition TC decision modified; telegraphic transfer

payment orders should be escheated to RP (see case for telegraphic orders)

PAL V CA, Galano, del Rosario, Tan G.R. No. 24188; Jan 30, 1990; Gutierrez, Jr. ~athe~

FACTS

-Amelia Tan commenced a complaint for damages. The CFI of Manila rendered judgment in favor of Tan and against PAL. PAL appealed and the amount of damages was lowered to a total of P30, 000.00. The judgment became final and executory there being no further appeal taken.

-Tan filed a motion for the issuance of a writ of execution of the judgment. Judge Galano issued its order of execution and it was duly referred to Deputy Sheriff Emilio Z. Reyes.

-Four months later, Tan moved for the issuance of an alias writ of execution stating that the judgment remained unsatisfied.

-PAL filed an opposition stating that it had already fully paid its obligation to Tan through the deputy sheriff Reyes as evidenced by cash vouchers properly signed and receipted by Sheriff Reyes (PAL issued a check amounting to P30,000.00 in the name of Sherriff Reyes and not in the name of Tan). However, Sherriff Reyes encashed the check but failed to surrender the amount to Tan. He, instead, absconded.

-Judge Galano granted Tan’s Motion for Alias Writ of Execution and directed Special Sheriff del Rosario to levy on execution. Consequently, Del Rosario served a notice of garnishment on the depository bank of PAL. Because of this, PAL filed this instant petition

ISSUES

1. WON an alias writ of execution be issued without a prior return of the original writ by the implementing officer

2. WON payment of judgment to the implementing officer as directed in the writ of execution constitutes satisfaction of judgment

HELD 1. YES.

Ratio Technicality cannot be countenanced to defeat

the execution of a judgment for execution is the fruit and end of the suit and is very aptly called the life of the law. A judgment cannot be rendered nugatory by the unreasonable application of a strict rule of procedure. Vested rights were never intended to rest on the requirement of a return, the office of which is merely to inform the court and the parties, of any and all actions taken under the writ of execution. Where such information can be established in some other manner, the absence of an executing officer's return will not preclude a judgment from being treated as discharged or being executed through an alias writ of execution as the case may be.

2. General Rule (under ordinary circumstances): YES

Article 1240, NCC. "Payment shall be made to the person in whose favor the obligation has been constituted, or his successor in interest, or any person

authorized to receive it."

Exception (under peculiar circumstances like in this case): NO

a. Unless authorized to do so by law or by consent of the obligee, a public officer has no authority to accept anything other than money in payment of an obligation under a judgment being executed. Strictly speaking, the acceptance by the sheriff of the petitioner's checks, in the case at bar, does not, per se, operate as a discharge of the judgment debt. Since a negotiable instrument is only a substitute for money and not money, the delivery of such an instrument does not, by itself, operate as payment (Sec. 189, Act 2031 on Negs. Insts.; Art. 1249, Civil Code) A check, whether a manager's check or ordinary check, is not legal tender, and an offer of a check in payment of a debt is not a valid tender of payment and may be refused receipt by the obligee or creditor. Mere delivery of checks does not discharge the obligation under a judgment. The obligation is not extinguished and remains suspended until the payment by commercial document is actually realized (Art. 1249, Civil Code, par. 3).

b. It is argued that if PAL had paid in cash to Sheriff Reyes, there would have been payment in full legal contemplation. The reasoning is logical but is it valid and proper? Logic has its limits in decision making. We should not follow rulings to their logical extremes if in doing so we arrive at unjust or absurd results.

c. PAL was negligent. Making the checks payable to the judgment creditor would have prevented the encashment or the taking of undue advantage by the sheriff, or any person into whose hands the checks may have fallen, whether wrongfully or in behalf of the creditor. The issuance of the checks in the name of the

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the funds that were withdrawn.

Disposition Petition dismissed.

NARVASA, Dissenting Opinion

-A sheriff is authorized to receive payments on account of the judgment debt tendered by "a person indebted to the judgment debtor," and his "receipt shall be a sufficient discharge for the amount so paid or directed to be credited by the judgment creditor on the execution" (sec. 41, Rule 39).

-The sheriff is an adjunct of the court; a court functionary whose competence involves both discretion and personal liability. Being an officer of the court and acting within the scope of his authorized functions, the sheriff's receipt of the checks in payment of the judgment execution, may be deemed, in legal contemplation, as received by the court itself.

-If payment had been in cash, no question about its validity or of the authority and duty of the sheriff to accept it in settlement of PAL's judgment obligation would even have arisen. Simply because it was made by checks issued in the sheriff's name does not warrant reaching any different conclusion.

FELICIANO, Dissenting Opinion

-The risk of the sheriff faithfully performing his duty as a public officer is most appropriately borne NOT by the judgment debtor/creditor, nor upon those members of the general public who are compelled to deal with him, but by the STATE itself. The judgment creditor, in circumstances like those of the instant case, could be allowed to execute upon the absconding sheriff’s bond. PADILLA, Dissenting Opinion

-He has underscored the obligation of the sheriff, imposed upon him by the nature of his office and the law, to turn over such legal tender, checks and proceeds of execution sales to the judgment creditor. The failure of a sheriff to effect such turnover and his conversion of the funds (or goods) held by him to his own uses, do not have the effect of frustrating payment by and consequent discharge of the judgment debtor. -If the plaintiff fails to receive it, his only remedy is against the officer.

-When PAL delivered the checks to the Sheriff, the latter was accompanied by the counsel of Tan. Prudence dictates that the counsel of Tan should have insisted on their immediate encashment by the Sheriff with the drawee bank in order to promptly get hold of the amount belonging to his client.

FORTUNADO V CA, Campano, Bautista, Register of Deeds, and National Steel Corporation

GR 78556; 196 SCRA 269; Cruz; April 21, 1991 ~giulia~

FACTS

-In a civil case, the RTC rendered judgment ordering Angel Bautista to pay damages to Alfero Fortunado. Pursuant to said judgment, the Sheriff levied upon 2 parcels of land registered in the name of Bautista, but 1 of the said parcels of land was already sold to the National Steel Corporation (NSC).

The properties were sold to the petitioner as the only bidder in a public auction.

-NSC then gave notice to the sheriff of its intention to redeem the property it owned. The sheriff suggested as the 2 lots were sold together that both of them should be redeemed.

NSC filed with the TC an urgent motion to redeem, which was opposed by the petitioners on the ground that the movant did not have the personality to intervene.

-As the motion remained unresolved, the NSC issued to the sheriff a PNB check for the properties.Bautista sent the sheriff a letter bearing NSC's conformity in which he availed himself of SC's check to redeem the properties. His letter contained the ff reservation:

This redemption is made solely for the purpose of effecting the execution and delivery to me of the necessary certificate of redemption and the same shall not be taen to mean my accknowledgment of the validity of the said writ of execution and sale, both of which I shall continue to contest, nor shall this be taken to mean as a waiverr on my part of the legal reights and remedies available to me under the circumstances.

-Sheriff issued the certificate of redemption in favor of NSC and Bautista. Bautista later on wrote to the sheriff that he would no longer effect the redemption because there was nothing to redeem, the auction sale being null and void.

-Bautista, in an Urgent Motion, prayed that the sum covered by the PNB check be delivered to and kept by the clerk of court until such time as all incidents relative to the validity of the auction sale were finally resolved.

Sheriff notified the petitioners' counsel of the deposit of the PN check. Counsel told the check that he was rejecting the check as it was not legal tender.

-Respondent court held that NSC's redemption was absolute and unconditional in view of its refusal to join Bautista in contesting the validity of the sale. However, the validity of the redemption was dependent on the validity of the certificate of sale, which still has to be resolved by the TC. Motion for partial reconsideration by petitioner was denied.

ISSUE

WON there was valid redemption. HELD: YES.

Although the private respondents in the case did not file a redemption case against the petitioners, NSC filed an urgent motion for redemption within the redemption period.

In the US, it has been held and recognized that a payment by check or draft or bank bill or currency which is not legal tender is effective if the officer accepts such payment. If in good faith, the redemptioner pays, and the officer receives before the expiration of the time of redemption, an ordinary banker's check, the payment is regarded as sufficient. The Court does not, by this decision, sanction the use of check for the payment of obligations over the objection of the creditor. It is just that a check may be used for the exercise of the right of redemption, the same being a right and not an obligation. The tender of a check is sufficient to compel redemption but it is not in itself a payment that relieves the redemption bt is not in itself a payment that relieves the redemtioner from his liiability t pay the redemption price. While the private respondents have properly exercised their right of redemption, they remain liable for the payment of the redemption price.

MESINA V IAC [Gonong, Go and Uy] L-70145; Nov. 13, 1986; 145 sCRA 499; Paras ~ajang~

FACTS

-Jose Go purchased from Associated Bank a cashier’s check worth P800,000. Accidentally, he left the check on top of the desk of the bank manager when he left the bank. The bank manager entrusted the check for safekeeping to bank official, Albert Uy, who then had a visitor, Alexander Lim. Uy had to answer a telephone call, then he went t the men’s room. When he returned to the desk, his visitor Lim was already gone and so was the check. When Jose Go returned to the bank, the check was nowhere to be found.

-Uy advised Go to accomplish a sop payment order. Go also executed an affidavit of loss. Uy also went to the police station to report the loss, pointing to Alexander Lim as the one who could shed light on it.

-Associated Bank received the lost check 2 days after for clearing, coming from Prudential bank. The check was immediately dishonored by Associated Bank and returned to Prudential with the words, “Stop Payment.” The check was again returned to Associated Bank and for the 2nd _{time, it was dishonored.}

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from Atty. Lorenzo Navarro demanding payment for the check and threatened to sue. He refuses to reveal who his client is. Unsure with what to do with the matter, Associated Bank filed for an Interpleader. The client turned out to be one named Mesina. He said the check was paid to him by Alexander Lim in a certain transaction but refused to elucidate further. Mesina filed a complaint for damages.

-TC rendered a decision on the interpleader ordering Associated Bank to replace Jose Go’s check or pay its cash equivalent. Mesina’s complaint on the other hand was dismissed. The issue in that case is who between Mesina and Go are entitled for the payment of the check. Since this issue had been resolved in the other case, it has become moot and academic.

ISSUE:

WON the lower court’s ruling in the interpleader case should be set aside.

HELD: NO.

Mesina invokes theories on causes and effects of a cashier’s checks such as 1) it cannot be countermanded in the hands of a holder in due course and 2) a cashier’s check is a bill of exchange drawn by the bank against itself. But these are general principles which cannot be aptly applied to the case at bar without considering other things.

-Mesina failed to substantiate that he is a holder in due course. He refused to say how and why the check was passed to him. He therefore had notice of the defect of his title over the check from the start.

-Next, the check was bought by Jose Go from the bank for purposes of transferring his bank from Associated Bank to a nearby bank, thinking that carrying a check would be safer than carrying cash; it was not issued in payment of an obligation. The check was Jose Go’s property when it was misplaced or stolen. Bank was therefore liable to no one else but Jose Go.

-When the payment was stopped, it was not the bank who did it but Jose Go. The bank could not be the drawer and drawee for clearly, Jose Go owns the money it represents and he is therefore the drawer and drawee in the same manner as if he has a current account and he issued a check against it. No one outside Jose Go can be termed a holder in due course because Go had not indorsed it in due course.

NOTE: Clear implication from the case is that if Mesina had been a holder in due course, the court would have granted recovery.

INT’L CORPORATE BANK V GUECO 351 SCRA 516; Kapunan; Feb 1, 2001

FACTS

-Spouses Gueco obtained a loan from International Corporate Bank (now Union Bank of the Philippines) to purchase a car – a Nissan Sentra 1600 4DR, 1989 Model. In consideration, the Spouses executed promissory notes which were payable in monthly installments and chattel mortgage over the car to serve as security for the notes. The Spouses defaulted in payment of installments. The Bank filed a civil action for “Sum of Money with Prayer for a Writ of Replevin” before MTC Pasay City. Dr. Francis Gueco was served summons and was fetched by the sheriff and representative of the bank for a meeting in the bank premises. Desi Tomas, the Bank’s Assistant Vice President demanded payment of the amount of P184,000.00 which represents the unpaid balance for the car loan. After some negotiations and computation, the amount was lowered to P154,000.00, However, as a result of the non-payment of the reduced amount, the car was detained inside the bank’s compound. Dr. Gueco went to the bank and talked with its Administrative Support, Auto Loans/Credit Card Collection Head, Jefferson Rivera. The negotiations resulted in the further reduction of the outstanding loan to P150,000.00. Dr. Gueco delivered a manager’s check in the amount of P150,000.00 but the car was not released because of his refusal to sign the Joint Motion to Dismiss. It is their contention that Dr. Gueco need not sign the motion for joint dismissal considering that they had not yet filed their Answer. However, the Bank insisted that the joint motion to dismiss is standard operating procedure in their bank to effect a compromise and to preclude future filing of claims, counterclaims or suits for damages. After several demand letters and meetings with bank representatives, the Spouses initiated a civil action for damages before MTC Quezon City.

-MTC QC: dismissed the complaint for lack of merit. -RTC QC: MTC decision reversed and held that there was a meeting of the minds between the parties as to the reduction of the amount of indebtedness and the release of the car but said agreement did not include the signing of the joint motion to dismiss as a condition sine qua non for the effectivity of the compromise. Also, the Bank is ordered to return the car to the Spouses; the Bank may deposit the Manager’s check – the proceeds of which have long been under the control of the issuing bank in favor of the Bank since its issuance, whereas the funds have long been paid by the Spouses to secure said Manager’s Check, over which the Spouses have no control. Moreover, the Bank is ordered to pay the Spouses the P50,000.00 as moral damages; P25,000.00 as exemplary damages, and

P25,000.00 as attorney’s fees, and to pay the cost of suit.

-CA: Petition for review on certiorari is hereby DENIED and the RTC Decision is AFFIRMED in toto as CA essentially relied on the finality of the findings of facts by the lower court and on the latter's finding of the existence of fraud which constitutes the basis for the award of damages.

ISSUES

1. WON there was no agreement with respect to the execution of the joint motion to dismiss as a condition for the compromise agreement

2. WON granting moral and exemplary damages and attorney’s fees in favor of Sps Gueco is proper

3. WON the Bank must return the subject car to the Sps. Gueco, without making any provision for the issuance of the new manager’s/cashier’s check by the Spouses in favor of the Bank in lieu of the original cashier’s check that already became stale

HELD 1. YES

-In support of its claim, The Bank presented the testimony of Mr. Jefferson Rivera who related that Dr. Gueco was aware that the signing of the draft of the Joint Motion to Dismiss was one of the conditions set by the bank for the acceptance of the reduced amount of indebtedness and the release of the car. The Spouses, however, maintained that no such condition was ever discussed during said meeting. If it is true that the signing of the joint motion was a condition sine qua non for the reduction of the Spouses’ obligation, it is only reasonable and logical to assume that the joint motion should have been shown to Dr. Gueco in the said meeting. Why Dr. Gueco was not given a copy of the joint motion on the day of the meeting, for his family or legal counsel to see to be brought signed, together with the P150,000.00 in manager’s check form to be submitted on the following day?

-It is more logical to conclude that only an oral compromise agreement, whereby the original claim of the bank of P184,985.09 was reduced to P150,000.00 and that upon payment of which, plaintiff was informed that the subject motor vehicle would be released to him’ happened during that said meeting.

2. NO

-Fraud has been defined as the deliberate intention to cause damage or prejudice. It is the voluntary execution of a wrongful act, or a willful omission, knowing and intending the effects which naturally and necessarily arise from such act or omission; the fraud referred to in Article 1170 of the Civil Code is the deliberate and intentional evasion of the normal

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the bank in requiring the Spouses to sign the joint motion to dismiss could constitute as fraud. True, the Bank may have been remiss in informing Dr. Gueco that the signing of a joint motion to dismiss is a standard operating procedure of the bank. However, this can not in anyway have prejudiced Dr. Gueco. It should, likewise, be noted that in cases of breach of contract, moral damages may only be awarded when the breach was attended by fraud or bad faith. The law presumes good faith.

3. NO

-The Bank would make us hold that petitioner should return the car or its value and that the latter, because of its own negligence, should suffer the loss occasioned by the fact that the check had become stale. It is their position that delivery of the manager’s check produced the effect of payment and, thus, the Bank was negligent in opting not to deposit or use said check. Rudimentary sense of justice and fair play would not countenance the Spouses’ position.

-A stale check is one which has not been presented for payment within a reasonable time after its issue. It is valueless and, therefore, should not be paid. Under the negotiable instruments law, an instrument not payable on demand must be presented for payment on the day it falls due. When the instrument is payable on demand, presentment must be made within a reasonable time after its issue. In the case of a bill of exchange, presentment is sufficient if made within a reasonable time after the last negotiation thereof. -A check must be presented for payment within a reasonable time after its issue, and in determining what is a “reasonable time,” regard is to be had to the nature of the instrument, the usage of trade or business with respect to such instruments, and the facts of the particular case. The test is whether the payee employed such diligence as a prudent man exercises in his own affairs. This is because the nature and theory behind the use of a check points to its immediate use and payability. In a case, a check payable on demand which was long overdue by about two and a half (2-1/2) years was considered a stale check. Failure of a payee to encash a check for more than ten (10) years undoubtedly resulted in the check becoming stale. Thus, even a delay of one (1) week[27] or two (2) days, under the specific circumstances of the cited cases constituted unreasonable time as a matter of law.

-In the case at bar, however, the check involved is not an ordinary bill of exchange but a manager’s check. A manager’s check is one drawn by the bank’s manager upon the bank itself. It is similar to a cashier’s check both as to effect and use. A cashier’s check is a check

of the bank’s cashier on his own or another check. In effect, it is a bill of exchange drawn by the cashier of a bank upon the bank itself, and accepted in advance by the act of its issuance. It is really the bank’s own check and may be treated as a promissory note with the bank as a maker. The check becomes the primary obligation of the bank which issues it and constitutes its written promise to pay upon demand. The mere issuance of it is considered an acceptance thereof. If treated as promissory note, the drawer would be the maker and in which case the holder need not prove presentment for payment or present the bill to the drawee for acceptance.

-Even assuming that presentment is needed, failure to present for payment within a reasonable time will result to the discharge of the drawer only to the extent of the loss caused by the delay. Failure to present on time, thus, does not totally wipe out all liability. In fact, the legal situation amounts to an acknowledgment of liability in the sum stated in the check. In this case, the Spouses have not alleged, much less shown that they or the bank which issued the manager’s check has suffered damage or loss caused by the delay or non-presentment. Definitely, the original obligation to pay certainly has not been erased.

-It has been held that, if the check had become stale, it becomes imperative that the circumstances that caused its non-presentment be determined. In the case at bar, there is no doubt that the bank held on the check and refused to encash the same because of the controversy surrounding the signing of the joint motion to dismiss. We see no bad faith or negligence in this position taken by the Bank.

Disposition Petition for review is given due course.

CA decision affirming RTC decision is SET ASIDE. Spouses Gueco is ordered to pay the original obligation amounting to P150,000.00 to the Bank upon surrender or cancellation of the manager’s check in the latter’s possession, afterwhich, the Bank is to return the subject motor vehicle in good working condition. NEW PACIFIC TIMBER & SUPPLY CO V SENERIS L-41764, Dec. 19, 1980; 101 SCRA 686

~glaisa~ FACTS

SUBJECT: Equitable Bank Cashier’s Check for P50k dated Jan. 3, 1975

DRAWER: New Pacific Timber

-New Pacific failed to comply with his judgment obligation. Judge issued writ of execution for P63,130 to which the Sheriff levied upon personal properties and set the auction sale on Jan. 15. Prior to the scheduled

sale, New Timber deposited with the Clerk of Court the P50,000 check and P13,130 in cash.

-Seneris refused to accept check and cash. Sheriff proceeded with the auction sale.

ISSUE

WON Seneris can validly refuse acceptance of the payment of the judgment obligation made by New Timber, consisting of the Cashier’s Check and cash. HELD: NO

-A Cashier’s Check is deemed as cash. Moreover, since the check had been certified by the drawee bank, by the certification, the funds represented by the checks are transferred from the credit of the maker to that of the payee or holder, and for all intents and purposes, the latter becomes the depositor of the drawee bank, with rights and duties of one in such situation. The certification is equivalent to acceptance.

-The object of certifying a check as regards both parties is to enable holder to use it, as money. When the holder procures the check to be certified, the check operates as an assignment of a part of the funds to the creditors.

WACHTEL V ROSEN 248 NY 386, 164 NE 326 ~RPR~

FACTS

Plaintiff received from Arthur Wachtel a check drawn on National Park Bank which plaintiff presented to said bank for certification. The bank refused to certify the check.

ISSUE

WON the refusal of the drawee bank to certify the check is equivalent to a dishonor of the check such that holder may sue the drawer as if the check was presented for payment and payment had been refused HELD: 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.

-When a bank certifies a check at the request of the holder, a new obligation is created. Under Section 324, the drawer and all the endorsers are discharged from liability if the check is accepted or certified. The acceptance of a bill of exchange, on the other hand, does not discharge the liability. The certification differs in effect from mere acceptance of bills other than checks, in that it is not an added obligation but a substitute obligation. Certification of the check by the