Negotiable Instruments Case Digest: Gullas v. PNB (1935)

G.R. No. L-43191             November 13, 1935

Lessons Applicable: Notice of Dishonor (Negotiable Instrument)

FACTS:

• August 2, 1933: Treasurer of the US for the United States Veterans Bureau issued a Warrant in the amount of $361, payable to the order of Francisco Sabectoria Bacos
• Atty. Paulino Gullas and Pedro Lopez signed as endorsers of this check
• cashed by the Philippine National Bank
• dishonored by Insular Treasurer
• outstanding balance of Attorney Gullas on the books of the bank was P509
• August 20, 1933: Attorney Gullas left his residence for Manila so the notices of dishonor informing him that the amount of $366 was applied to his outstanding balance were not received by him
• August 31, 1933: Upon his return to Cebu, he received the notice of dishonor and paid the balance
• Inconveniences to Atty. Gullas:

1. insurance unpaid due to lack of credit
2. periodicals in the vicinity gave prominence to the news to the great mortification of Gullas 

ISSUE: W/N the bank had the right to automatically credit Gullas account and it was not prejudicial to him

HELD: NO. Pay Gullas nominal damage of P250

• it has been held a long line of authorities that notice of dishonor is in order to charge all indorser and that the right of action against him does not accrue until the notice is given
• GR: a bank has a right of set off of the deposits in its hands for the payment of any indebtedness to it on the part of a depositor
• However this may be, as to an indorser the situation is different, and notice should actually have been given him in order that he might protect his interests.
  
  

Negotiable Instruments Case Digest: Assoc. Bank and Conrado Cruz v. CA (1992)

G.R. No. 89802 May 7, 1992

Lessons Applicable: Presentment for Payment (Negotiable Instruments)

FACTS:

• Merle Reyes is the owner of "Melissa's RTW" ready-to-wear garments 
• She deals with customers such as Robinson's Department Store, Payless Department Store, Rempson Department Store, and the Corona Bazaar.
• These companies issued in payment of their respective accounts crossed checks payable to Melissa's RTW in the amounts and on the dates indicated below:

          PAYOR BANK AMOUNT DATE

Payless Solid Bank P3,960.00 January 19, 1982

Robinson's FEBTC 4,140.00 December 18, 1981
Robinson's FEBTC 1,650.00 December 24, 1981
Robinson's FEBTC 1,980.00 January 12, 1982
Rempson TRB 1,575.00 January 9, 1982
Corona RCBC 2,500.00 December 22, 1981

• Reyes was unaware of the issuance of the checks until she went to the companies for collection and was informed thereof.
• She soon found out that it was deposited with Associated Bank and subsequently paid to one of the bank's trusted depositors,Rafael Sayson, the check being indorsed by Eddie Reyes
• Reyes sued in the RTC for the recovery of the checks plus damages.
• CA affirmed RTC: favored Reyes

ISSUE: W/N Reyes has the right for recovery of the cross checks

HELD: YES.  petition DENIED.

• Under accepted banking practice, crossing a check is done by writing two parallel lines diagonally on the left top portion of the checks. The crossing is special where the name of a bank or a business institution is written between the two parallel lines, which means that the drawee should pay only with the intervention of that company. 
• The crossing is general where the words written between the two parallel lines are "and Co." or "for payee's account only," as in the case at bar. This means that the drawee bank should not encash the check but merely accept it for deposit. 
• The effects therefore of crossing a check relate to the mode of its presentment for payment
• Under Sec. 72 of the Negotiable Instruments Law, presentment for payment, to be sufficient, must be made by the holder or by some person authorized to receive payment on his behalf. Who the holder or authorized person is depends on the instruction stated on the face of the check.
• The 6 checks had been crossed and issued "for payee's account only.
• signify that the drawers had intended the same for deposit only by the person indicated, to wit, Melissa's RTW.
• The position of the bank taking the check on the forged or unauthorized indorsement is the same as if it had taken the check and collected without indorsement at all. The act of the bank amounts to conversion of the check.
• The Bank should have first verified his right to endorse the crossed checks, of which he was not the payee, and to deposit the proceeds of the checks to his own account.
• Its failure to inquire into Sayson's authority was a breach of a duty it owed to Reyes 
• There is no substantial difference between an actual forging of a name to a check as an endorsement by a person not authorized to make the signature and the affixing of a name to a check as an endorsement by a person not authorized to endorse it. 
• Assuming that Eddie Reyes did endorse the crossed checks, we hold that the Bank would still be liable to the private respondent because he was not authorized to make the endorsements. 
• Before presenting the checks for clearing and for payment, the Bank had stamped on the back thereof the words: "All prior endorsements and/or lack of endorsements guaranteed," and thus made the assurance that it had ascertained the genuineness of all prior endorsements.
• The Bank stamped thereon its guarantee that "all prior endorsements and/or lack of endorsements (were) guaranteed."

Corporate Law Case Digest: Fleischer v. Botica Nolasco Co. (1925)

G.R. No. L-23241             March 14, 1925

Lessons Applicable: Right of First Refusal (Corporate Law)

FACTS:

• March 13, 1923: Manuel Gonzales made a written statement to the Botica Nolasco, Inc., requesting that 5 shares of stock sold by him to Henry Fleischer be noted transferred to Fleischer's name
• He also acknowledged in said written statement the preferential right of the corporation to buy said five shares 
• June 14, 1923: he withdraw and cancelled his written statement of March 13, 1923 
• Nolasco replied that his letter of June 14th was of no effect, and that the shares in question had been registered in the name of the Botica Nolasco, Inc.,
• November 15, 1923:  Fleischer 
• filed an amended complaint against the Botica Nolasco, Inc., alleging that he became the owner of 5 shares of fully paid stock of Botica Nolasco Co (Nolasco) by purchase from their original owner, Manuel Gonzalez
• Despite repeated demands, Nolasco refused to register said shares in his name in the books of the corporation 
• caused him damages amounting to P500
• Nolasco's defense: 
• article 12 of its by-laws: it had preferential right to buy the shares at the par value of P100/share, plus P90 as dividends corresponding to the year 1922
• offer was refused by Fleischer
• Trial Court: favored Fleischer and ordered the shared be registered

ISSUE: W/N article 12 of Nolasco's by-laws is in conflict with Act No. 1459 (Corporation Law), especially with section 35 (Now Sec. 63)

HELD: Affirmed. mandamus will lie to compel the officers of the corporation to transfer said stock upon the books of the corporation

• Section 13, paragraph 7, above-quoted, empowers a corporation to make by-laws, not inconsistent with any existing law, for the transferring of its stock.
• section 35 of Act No. 1459 (now Sec. 63)
• contemplates no restriction as to whom they may be transferred or sold
• It does not suggest that any discrimination may be created by the corporation in favor or against a certain purchaser. 
• The holder of shares, as owner of personal property, is at liberty, under said section, to dispose of them in favor of whomsoever he pleases, without any other limitation in this respect, than the general provisions of law
• GR: the by-laws of a corporation are valid if they are reasonable and calculated to carry into effect the objects of the corporation, and are not contradictory to the general policy of the laws of the land
• A by-law cannot take away or abridge the substantial rights of stockholder. 
• Under a statute authorizing by- laws for the transfer of stock, a corporation can do no more than prescribe a general mode of transfer on the corporate books and cannot justify an unreasonable restriction upon the right of sale.
• by-law cannot operate to defeat his rights as a purchaser who obtained them in good faith and for a valuable consideration

Corporate Law Case Digest: Padgett v. Babcock & Templation Inc (1933)

G.R. No. L-38684         December 21, 1933

Lessons Applicable: Right of First Refusal (Corporate Law)

FACTS:

• January 1, 1923 to April 15, 1929: Padgett was an employee of the Babcock & Templation Inc (Babcock)
• he bought 35 shares at P100/share at the suggestion of the president of Babcock
• recipient of 9 shares from Christmas bonus
• owner of 44 shares for which the 12 certificates were issued
• word "nontransferable" appears on each and every one of these certificates
• Before leaving the corporation, he proposed to the president that thecorporation buy his 44 shares at par value plus the interest thereon, or that he be authorized to sell them to other persons
• The corporation bought similar shares belonging to other employees, at par value.
• Sometime later, the president offered to buy his shares first at P85 each and then at P80
• he did not agree 

ISSUE: W/N the shares are transferable despite the restriction appearing therein

HELD: NO. word "nontransferable" appearing on the 12 certificates of shares of stock, is declared null and void. to issue in lieu thereof new ones without any restriction whatsoever, with the costs of both instances against the said defendant-appellants

• Shares of corporate stock being regarded as property, the owner of such shares may, as a general rule, dispose of them as he sees fit, unless the corporation has been dissolved, or unless the right to do so is properly restricted, or the owner's privilege of disposing of his shares has been hampered by his own action.
• restriction consisting in the word "nontransferable" appearing on the 12 certificates is illegal and should be eliminated
• there has been no such contract, either express or implied, between the plaintiff and the defendants
• In the absence of a similar contractual obligation and of a legal provision applicable thereto, it is logical to conclude that it would be unjust and unreasonable to compel the said defendants to comply with a non-existent or imaginary obligation

Corporate Law Case Digest: Dee v. SEC (1991)

G.R. No. L-60502 July 16, 1991

Lessons Applicable: Preemptive Rights (Sec.39) (Corporate Law)

FACTS:

• 1954: Naga Telephone Company (Natelco), Inc. was organized with P100K authorized capital 
• 1974: Natelco decided to increase its authorized capital to P3,000,000.00
• As required by the Public Service Act, Natelco filed an application for the approval of the increased authorized capital with the then Board of Communications (BOC) 
• January 8, 1975: approved with conditions:
• That the issuance of the shares of stocks will be for a period of one year from the date hereof, "after which no further issues will be made without previous authority from this Board."
• Natelco filed its Amended Articles of Incorporation with the SEC
• the original authorized capital of P100K was already paid
• increased capital of P2.9M the subscribers subscribed to P580K of which P145K was fully paid
• capital stock of Natelco was divided into 213K CS and 87K PS, both at a par value of P10/shares
• April 12, 1977: Without no prior authorization from the BOC (now National Telecommunications Commission) (NTC), Natelco entered into a contract with Communication Services, Inc. (CSI) for the "manufacture, supply, delivery and installation" of telephone equipment
• Natelco issued 24K shares of CS to CSI as downpayment
• May 5, 1979: issued another 12K shares of CS to CSI
• May 19, 1979: annual stockholders' meeting to elect their 7 directors to their BOD for the year 1979-1980 
• Pedro Lopez Dee (Dee) was unseated as Chairman of the Board and President but was elected as one of the directors, together with his wife, Amelia Lopez Dee 
• CSI was able to gain control when their legal counsel, Atty. Luciano Maggay (Maggay) won a seat in the Board 
• Atty. Maggay became president upon reorganization
• Among the directors: Mr. Justino de Jesus, Sr., Mr. Pedro Lopez Dee and Mrs Amelia C. Lopez Dee never attended the Maggay Board thereby only Maggay representatives and Atty. Maggay attended
• as per contract they issued 113,800 shares of stock  in favor of CSI
• Dee having been unseated filed a petition in the SEC questioning the validity of the elections
• ground: no valid list of stockholders through which the right to vote could be determined
• As prayed for a restraining order was issued by the SEC placing officers of the 1978-1979 Natelco Board in hold-over capacity 
• Upon elevation to the SC: dismissed the petition for being premature; restraining order was restrained 
• resulted in the unseating of the Maggay group from the BOD in a "hold-over" capacity 
• SEC: ordering the holding of special stockholder' meeting to elect the new members of the BOD based on its findings of who are entitled to vote
• June 23, 1981: Dee filed a petition for certiorari/appeal with the SEC en banc
• SEC en banc: dismissed for lack of merit
• May 20, 1982: Antonio Villasenor filed w/ the CFI claiming that he was an assignee of an option to repurchase 36K shares of CS of Natelco under a Deed of Assignment executed in his favor  
• May 21, 1982: restraining order dwas issued by the lower court commanding desistance from the scheduled election until further orders  
• May 22, 1982: controlling majority of the stockholders proceeded with the elections under the supervision of the SEC representatives 
• May 25, 1982: SEC recognized the election and the duly elected directors
• Lopez Dee group headed by Messrs. Justino De Jesus and Julio Lopez Dee kept insisting no elections were held and refused to vacate their positions 
• May 28, 1982: SEC issued another order directing the hold-over directors and officers to turn over their respective posts and directing the Sheriff of Naga City and other enforcement agencies to enforce its order 
• May 29, 1982: hold-over officers peacefully vacated
• June 2, 1982: Villasenor filed a charge for contempt  
• September 7, 1982: lower court rendered CSI Nilda Ramos, Luciano Maggay, Desiderio Saavedra, Augusto Federis and Ernesto Miguel, guilty of contempt of court
• September 17, 1982: CSI group filed a petition for certiorari and prohibition with preliminary injunction or restraining order against the CFI
• April 14, 1983:  IAC: Annuling contempt charge

ISSUES:

1. W/N SEC has the power and jurisdiction to declare null and void shares of stock issued by NATELCO to CSI for violation of Sec. 20 (h) of the Public Service Act - NO
2. W/N Natelco stockholders have a right of preemption to the 113,800 shares
3. W/N the May 22, 1982 election was valid

HELD:   Dismissed for lack of merit

1. NO

• The jurisdiction of the SEC is limited to matters intrinsically connected with the regulation of corporations, partnerships and associations and those dealing with internal affairs of such entities; P.D. 902-A does not confer jurisdiction to SEC over all matters affecting corporations
• The jurisdiction of the SEC is limited to deciding the controversy in the election of the directors and officers of Natelco
• The SEC is empowered by P.D. 902-A to decide intra-corporate controversies and that is precisely the only issue in this case.

     2. NO

• There is distinction between:
• an order to issue shares on or before May 19, 1979; and 
• actual issuance of the shares after May 19, 1979 - CSI was in control of voting shares and the Board 
• The power to issue shares of stocks in a corporation is lodged in the board of directors and no stockholders meeting is required to consider it because additional issuance of shares of stocks does not need approval of the stockholders - no violation of preemptive right

      3. YES.  

• Clear from records that it was held
• within the jurisdiction of the lower court as it does not involve an intra-corporate matter but merely a claim of a private party of the right to repurchase common shares of stock of Natelco and that the restraining order was not meant to stop the election duly called for by the SEC and a matter purely within the exclusive jurisdiction of the SEC 
• temporary restraining order amounted to an injunctive relief against the SEC 
• since the trial judge in the lower court did not have jurisdiction in issuing the questioned restraining order, disobedience thereto did not constitute contempt

Corporate Law Case Digest: Datu Tagoranao Benito v. SEC (1983)

G.R. No. L-56655 July 25, 1983

Lessons Applicable: Preemptive Rights (Sec. 39) (Corporate Law)

FACTS:

• February 6, 1959: Articles of Incorporation (AIC) of Jamiatul Philippine-Al Islamia, Inc. (Jamiatul) (originally Kamilol Islam Institute, Inc.) were filed with the SEC
• December 14, 1962: approved AIC
• The corporation had an authorized capital stock of P200K divided into 20K shares at a par value of P10 each. Of the authorized capital stock, 8,058 shares worth P80,580.00 were subscribed and fully paid for
• Datu Tagoranao Benito subscribed to 460 shares worth P4,600
• October 28, 1975: filed a certificate of increase of its capital stock from P200K to P1M
• November 25, 1975: stockholders meeting was held were P191,560.00 worth of shares were represented
• P110,980 worth of shares were subsequently issued by the corporation from the unissued portion of the authorized capital stock of P200,000
• Of the increased capital stock of P1M0, P160K worth of shares were subscribed by Mrs. Fatima A. Ramos, Mrs. Tarhata A. Lucman and Mrs. Moki-in Alonto.
• November 18, 1976: Datu Tagoranao filed with SEC a petition alleging that the additional issue (worth P110,980) was made in violation of his pre-emptive right to said additional issue and that the increase in the authorized capital stock was illegal considering that the stockholders of record were not notified of the meeting wherein the proposed increase was in the agenda
• SEC: 
• issuance by the corporation of its unissued shares was validly made and was not subject to the pre-emptive rights of stockholders
• directed Jamiatul to allow petitioner to subscribe thereto, at par value, proportionate to his present shareholdings, adding thereto the 2,540 shares transferred to him by Mr. Domocao Alonto and Mrs. Moki-in Alonto

ISSUES: 

1. W/N the issuance of the P110,980 of authorized capital stock of P200,000 is in violation of pre-emptive right - NO
2. W/N the issuance of the increase in the authorized capital stock is in violation of pre-emptive right

HELD: Dismissed for lack of merit

1. NO

• GR: pre-emptive right is recognized only with respect to new issue of shares, and not with respect to additional issues of originally authorized shares
• Theory: when a corporation at its inception offers its first shares, it is presumed to have offered all of those which it is authorized to issue
• original subscriber is deemed to have taken his shares knowing that they form a definite proportionate part of the whole number of authorized shares
• When the shares left unsubscribed are later re-offered, he cannot therefore claim a dilution of interest.

     2.  NO

• stockholders' meeting was held which included the increase of its capital stock from P200,000.00 to P1,000,000.00 
• he was not notified of said meeting and that he never attended the same as he was out of the country at the time
• administrative bodies will not be interfered with by the courts in the absence of grave abuse of discretion on the part of said agencies, or unless the aforementioned findings are not supported by substantial evidence

Negotiable Instruments Case Digest: Villanueva v. Nite (2006)

G.R. No. 148211   July 25, 2006

Lessons Applicable: Liabilities of Parties (Negotiable Instruments Law)

FACTS:

• Nite loaned from Villanueva P409,000 
• as a sceurity he issued an Asian Bank Corporation (ABC) check of P325,500 dated February 8, 1994
• it was consented to be changed to June 8, 1994 
• check was dishonored due to a material alteration 
• August 24, 1994: Nite while abroad partially paid P235K through her representative Emily P. Abojada 
• The balance of P174K was due on or before December 8, 1994. 
• August 24, 1994: Villanueva filed an action for a sum of money and damages against ABC for the full amount of the dishonored check (despite the loan not being due and Nite away)
• RTC: favored Villanueva
• June 30, 1997: Nite went to ABC to withdraw but she was not able to because of the RTC order
• August 25, 1997: ABC remitted to the sheriff a manager’s check amounting to P325,500 drawn on Nite's account
• CA: favored Nite's appeal

ISSUE: W/N ABC should be liable to Villanueva

HELD: NO.  DENIED

• Negotiable Instruments Law
• SEC. 185. Check, defined. – A check is a bill of exchange drawn on a bank payable on demand.  Except as herein otherwise provided, the provisions of this Act applicable to a bill of exchange payable on demand apply to a check 
• SEC. 189. When check operates as an assignment. – A check of itself does not operate as an assignment of any part of the funds to the credit of the drawer with the bank, and the bank is not liable to the holder, unless and until it accepts or certifies the check
• Rule 3, Sec. 7 of the Rules of Court states: 
  
  
  Sec. 7. Compulsory joinder of indispensable parties. – Parties in interest without whom no final determination can be had of an action shall be joined either as plaintiffs or defendants. 
• The contract of loan was between Villanueva and Nite.  No collection suit could prosper without Nite  who was an indispensable party

Negotiable Instruments Case Digest: PNB v. CA (1968)

G.R. No. L-26001           October 29, 1968
Lessons Applicable: 

• Forgery (Negotiable Instruments Law)


• Liabilities of the parties (Negotiable Instruments Law)

FACTS:

• January 15, 1962: Augusto Lim deposited in his current account with the PCIB branch at Padre Faura, Manila a GSIS Check of P57,415.00 drawn against the PNB


• PCIB stamped the following on the back of the check: "All prior indorsements and/or Lack of Endorsement Guaranteed, Philippine Commercial and Industrial Bank," Padre Faura Branch, Manila


• Same date: following an established banking practice in the Philippines, the check was forwarded for clearing through the Central Bank to the PNB


• did not return said check the next day, or at any other time, but retained it and paid its amount to the PCIB, as well as debited it against the account of the GSIS in the PNB


• PNB received a formal notice from the GSIS that the check had been lost, with the request that payment thereof be stopped


• January 31, 1962: Upon demand from the GSIS, the P57,415.00 was re-credited to them bec. the signatures of its officers on the check were forged


• signatures of the General Manager and the Auditor of the GSIS on the check, as drawer, are forged


• payee Mariano D. Pulido indorsed it to Manuel Go and then indorsed by Manuel Go to Augusto Lim


• February 2, 1962: PNB demanded from the PCIB the refund


• PNB filed against the PCIB


• CA affirmed CFI: dismissed

ISSUE: W/N PCIB as indorser is liable despite the fact that the check is forged when PNB is also negligent

HELD: NO. Affirmed

• PCIB stamped on the back of the check: "All prior indorsements and/or Lack of Endorsement Guaranteed, Philippine Commercial and Industrial Bank," Padre Faura Branch, Manila


• indorsements falsified is immaterial to the PNB's liability as a drawee, or to its right to recover from the PCIB, for, as against the drawee, the indorsement of an intermediate bank does not guarantee the signature of the drawer, since the forgery of the indorsement is not the cause of the loss.


• Guaranteed not the authenticity of the signatures of the officers of the GSIS who signed because the GSIS is not an indorser of the check, but its drawer


• warranty is irrelevant to the PNB's alleged right to recover from the PCIB


•  in general, "acceptance" is not required for checks since they are payable on demand


• acceptance


• promise to perform an act


• the acceptance of a bill is the signification by the drawee of his assent to the order of the drawer


• payment


• actual performance


• compliance with obligation


• PNB had been guilty of a greater degree of negligence, because it had a previous and formal notice from the GSIS that the check had been lost, with the request that payment thereof be stopped


• PNB's negligence was the main or proximate cause for the corresponding loss


• PNB did not return the check


• when 1 of 2 innocent persons must suffer by the wrongful act of a third person, the loss must be borne by the one whose negligence was the proximate cause of the loss or who put it into the power of the third person to perpetrate the wrong


• where the collecting (PCIB) and the drawee (PNB) banks are equally at fault, the court will leave the parties where it finds them


• applies in the case of a drawee who pays a bill without having previously accepted it


• Section 62 of Act No. 2031 provides

The acceptor by accepting the instrument engages that he will pay it according to the tenor of hisacceptance; and admits:
(a) The existence of the drawer, the genuineness of his signature, and his capacity and authority to
draw the instrument; and
(b) The existence of the payee and his then capacity to indorse.

Corporate Law Case Digest: Lambert v. Fox (1914)

G.R. No. L-7991            January 29, 1914

Lessons Applicable: Restriction on Transfer (Corporate Law)

FACTS:

• Early in 1911: John R. Edgar & Co., engaged in the retail book and stationery business was taken over by its creditors including Lambert and Fox
• Lambert and Fox became the 2 largest stockholders in the new corporation called John R. Edgar & Co., Incorporated
• Lambert and Fox entered into an agreement wherein they mutually and reciprocally agree not to sell, transfer, or otherwise dispose of an part of the stock until after 1 year from the agreement date unless consented in writing
• violation: P1,000 pesos as liquidated damages
• October 19, 1911:  Fox sold his stock E. C. McCullough & Co. of Manila, a strong competitor 
• sale was made by the defendant against the protest 
• Foz offered to sell his shares of stock to the Lambert for the same sum that McCullough was paying them less P1,000, the penalty specified in the contract
• Trial Court: dismissed

ISSUE: W/N Fox should be penalized

HELD: YES.  The judgment is reversed, the case remanded with instructions to enter a judgment in favor of the plaintiff and against the defendant for P1,000, with interest; without costs in this instance.

• parties expressly stipulated that the contract should last one year regardless of the objective it should be applied
• parties who are competent to contract may make such agreements within the limitations of the law and public policy as they desire, and that the courts will enforce them according to their terms
• The suspension of the power to sell has a beneficial purpose, results in the protection of the corporation as well as of the individual parties to the contract, and is reasonable as to the length of time of the suspension.