Topic : Check is not Legal Tender

Roberto Tibajia, Jr.and Carmen Tibajia v. Court of Appeals and Eden Tan

Gr. 100290 June 4, 1993

Padilla, J.:

Facts:

The case arose from a suit of collection of sum of money by Tan against the Tibajia
spouses. The suit reached up to the Court of Appeals, where finality in favor of Tan was
reached. Tan then filed a motion for execution and garnished the funds which were then
deposited in the RTC. The spouses Tibajia delivered to the sheriff the money judgment
where portion was in cash and the other portion of the judgment amount was in check. Tan
refused the payment made by the Tibajia spouses and insisted with the garnishment of the
amount deposited with the RTC to satisfy the judgment obligation. Spouses Tibajia then
filed a motion to lift writ of execution on the ground of payment in cash and check. The RTC
denied the motion on the ground that payment in cashier’s check is not in legal tender.

Issue:

Is payment by check considered payment in legal tender?

Held:

No. A check is not legal tender and that a creditor may validly refuse payment by
check, whether it be a manager’s check, cashier’s check or personal check pursuant to sec
63 of RA 265 and Sec 1 of Ra 529.

Sec. 63 of RA 265 provides that: Checks representing deposit money do not have legal
tender power and their acceptance in the payment of debts, both public and private, is at
the option of the creditor: Provided, however, that a check which has been cleared and
credited to the account of the creditor shall be equivalent to a delivery to the creditor of
cash in an amount equal to the amount credited to his account.

Sec 1 of RA 529 provides : Every provision contained in, or made with respect to, any
obligation which purports to give the obligee the right to require payment in gold or in any
particular kind of coin or currency other than Philippine currency or in an amount of
money of the Philippines measured thereby, shall be as it is hereby declared against public
policy null and void, and of no effect, and no such provision shall be contained in, or made
with respect to, any obligation thereafter incurred. Every obligation heretofore and
hereafter incurred, whether or not any such provision as to payment is contained therein
or made with respect thereto, shall be discharged upon payment in any coin or currency
which at the time of payment is legal tender for public and private debts.

Topic : Accommodation Party

Town Savings and Loan Bank, Inc. v. Court of Appeals, Sps. Miguelito Hipolito and
Alicia Hipolito

Gr. 106011 June 17, 1993

Grino-Aquino , J. :

Facts:

Spoused Hipolitos applied for and was granted a loan for P700,000.00 with 24%
inetrest per annum which the spouses executed and delivered to Town Savings and Loan
Bank (TSLB). The spouses defaulted, demands were sent to them but remain unheeded. An
action was instituted against them and the spouses contend that they are not personally
liable. The denial of liability was grounded on the defense that they were mere guarantors
for the account of Pilarita Reyes, the sister of the husband. They only signed to enable
Pilarita Reyes to borrow sum of money, the spouses state that as they did not receive any
part of the loan, thus they were mere guarantors and not liable to the bank.

Issue :

Are the spouses liable to the bank ?

Yes, the Hipolitos are liable to the bank on the promissory note that they signed to
accommodate Pilarita. The Court is convinced that the intention of respondents Hipolitos in
signing the promissory note was not so much to enable the Bank to grant a loan to Pilarita
but for the latter to be able to obtain the full amount of the loan that she needed at the time.

An accommodation party is one who has signed the instrument as marker, drawer,
indorser, without receiving value therefore and for the purpose of lending his name to
some other person. Such person is liable on the instrument to a holder for value,
notwithstanding such holder, at the time of the taking of the instrument knew him to be
only an accommodation party. In lending his name to the accommodated party, the
accommodation party is in effect a surety for the latter. He lends his name to enable the
accommodated party to obtain credit or to raise money. He receives no part of the
consideration for the instrument but assumes liability to the other parties thereto because
he wants to accommodate another.

Topic : Letter of Credit is not a Negotiable Instrument

Transfield Phil. Inc. v. Luzon Hydro Corporation and New Zealand Banking Group
Limited and Security Bank Corporation

Gr. 146717 Nov. 22, 2004

Tinga, J. :

Facts:

Transfield Phil. Inc (TPI) and Luzon Hydro Corporation (LHC) entered into a
contract for the construction of a hydro-electric power station in Bakun. The timely
performance of obligation by TPI was secured by a Letter of Credit with Australia New
Zealand Banking Group (ANZ) and standby letter of credit with Security Bank Corporation
(SBC). TPI defaulted in the performance of its obligation. Anticipating that LHC will call on
securities, TPI then advised ANZ and SBC that any transfer , release or disposition of
securities in favor of LHC will constrain TPI to hold the two bank liable for liquidated
damages.
Issue :

Is a letter of credit a negotiable instrument?

Held:

No. It is not in itself a negotiable instrument, because it is not payable to order or

Topic: Protest and Notice of Dishonor

Marlou Velasquez v. Solidbank Corporation

Gr. 157309 March 28, 2008

Reyes, R.T., J. :

Facts:

The case arose out of a business transaction between Wilderness Trading owned by
Velasquez and South Korean company, Goldwell Trading. A letter of credit was opened by
Goldwell in favor of Wilderness Trading. Petitioner applied for credit accommodation with
Solidbank, which was granted. On the third export transaction, Velasquez wanted to be
paid in advance thus, he negotiated for a documentary sight draft to be drawn against the
letter of credit. As a condition for the said sight draft, Velasquez executed a letter of
undertaking that Velasquez promised that the draft will be accepted and paid by Bank of
Seoul. He also made himself liable to pay on demand full amount of drafts with interest in
case of non-acceptance. The sight draft was dishonored by non acceptance of the Bank of
Seoul and Goldwell Trading issued stop payment order on the ground of quality of the
export.

Due to non-payment and stop order, Solidbank then demanded restitution of the
sum advanced to Velasquez, which eventually lead to a collection suit. Velasquez raised the
defense that his liability under the sight draft was extinguished when Solidbank failed to
protest its non-acceptance as required under NIL and that the undertaking he executed
was not binding.

Issue:

Is Velasquez liable under the sight draft or the letter of undertaking?

Held:

Velasquez is liable under the letter of undertaking and not the sight draft.

In this case, he is not liable under the sight draft because Velasquez was discharged
from the sight draft when Solidbank failed to protest it for non-acceptance by the Bank of
Seoul. A sight draft made payable outside the Philippines is a foreign bill of exchange. When
a foreign bill is dishonored by non-acceptance or non-payment, protest is necessary to hold
the drawer and indorsers liable. Sec 152 of NIL provides that protest is necessary where a
foreign bill appearing on its face to be such is dishonored by non-acceptance, and if not so
protested, the drawer and indorsers are discharged.

Velasquez is liable under the letter of undertaking. Petitioner bound himself liable to
respondent under the letter of undertaking if the sight draft is not accepted. He also
warranted that the sight draft is genuine; will be paid by the issuing bank in accordance
with its tenor; and that he will be held liable for the full amount of the draft upon demand,
without necessity of proceeding against the drawee bank. Petitioner breached his
undertaking when the Bank of Seoul dishonored the sight draft and Goldwell Trading
ordered a stop payment order on it for discrepancies in the export documents.

Topic : BP 22- Knowledge of Insufficiency of Funds

Luis S. Wong. v. Court of Appeals and People of the Philippines

Gr. 117857 February 2, 2001

Quisumbing , J. :

Facts:
 Wong is an agent of Limtong Press Inc. (LPI), a manufacturer of calendars. Wong has
a history of unremitted collections. Sometime in 1985, Wong issued 6 checks dated Dec.
30, 1985, originally intended to guarantee the calendar orders of customers who failed to
issue post-dated checks. LPI refused to accept checks from Wong as a guarantee due to
company policy prohibiting acceptance of personal checks from its agents. The parties
then agreed to apply the 6 checks as payment of Wong to unremitted collections.

Before maturity Wong asked LPI not to deposit the checks and promised to replace
them in 30 days, which Wong failed to do. LPI deposited the checks with RCBC. The checks
were returned because account is closed. Wong was charged with violation of B.P 22.
Wong raised the defense that as maker he did not have knowledge of the insufficiency of
funds especially since he issued the checks to guarantee the orders of his customer. The
presumption of knowledge of insufficiency of funds does not apply to him.

Issue:

Does the presumption of knowledge of insufficient funds apply in this case?

Held:

Yes. . The presumption of knowledge of the insufficiency of fund arises if the check
is presented within 90 days from the date of the issue of the check. This presumption was
lost when LPI failed to present the check within 90 days as it only presented it 157 days
after check was made. However, LPI failed to deposit the check upon the assurance of
Wong of a new issuance of checks. It was only upon failure of Wong to re issue checks that
LPI deposited the checks. After the checks were dishonored Wong was notified however, he
failed to make full payment. There is therefore sufficient evidence that petitioner had
knowledge of the insufficiency of his funds in or credit with the drawee bank at the time of
issuance of the checks.

Sec 22 provides that -Evidence of knowledge of insufficient funds. -- The making,