Caracterización de la población de la zona de cobertura

~kooky~ FACTS:

-On Mar 8, 1965, PLDT drew a check on HSBC in favor of the same bank in the sum of P14,608.05. PLDT sent this check to HSBC by mail.

-Florentino Changco somehow got hold of the check, and was able to erase the name of HSBC as payee and instead typed his name. Four days before, Changco had opened a current account with PBTC, where he deposited the altered check.

-The check was presented by PBTC for clearing, with the following indorsement: "For clearance, clearing office. All prior endorsements and/or lack of endorsements guaranteed. Peoples Bank and Trust Company."

-The check was duly cleared by HSBC, and PBTC credited Changco with the amount of the check. Changco began to withdraw from the account then subsequently closed it.

-On Apr 12, 1965 it was returned to PLDT, and the alteration in the name of the payee was discovered. On that same date, PBTC was notified of the alteration, and HSBC requested PBTC to refund to it the sum of P14,608.05. PBTC refused.

-HSBC relies on the indorsement (above), arguing that since such an indorsement carries with it a concomitant guarantee of genuineness, PBTC is liable to HSBC for alteration.

-PBTC relies on the "24 hour" regulation of the Central Bank that requires after a clearing, that all cleared items must be returned not later than 3:00 PM of the following business day. Since HSBC advised PBTC 27 days after clearing, PBTC claims that it is now too late to do so. -CFI dismissed the complaint based on the fact that

HSBC allowed 27 days to elapse after clearing before notifying PBTC as to such alteration, the applicable Central Bank regulation providing for a 24-hour period.

ISSUE:

WON the Central Bank regulation should be applied, and would thus preclude or allow recovery by HSBC from PBTC

HELD:

YES, it should apply

-The “24-hour” clearing house rule issued by the Central Bank was applied in Republic v. Equitable Banking Corporation. The rule is embodied in sec 4(c) of Circular No. 9 of the Central Bank and reads thus: "Items which should be returned for any reason whatsoever shall be returned directly to the bank, institution or entity from which the item was received. … All items cleared at 11:00 o'clock a.m. shall be returned not later than 2:00 o'clock p.m. on the same day and all items cleared at 3:00 o'clock p.m. shall be returned not later than 8:30 a.m. of the following business day, except for items cleared on Saturday which may be returned not later than 8:30 of the following day." The circular is clear and comprehensive; the facts of the present case fall within it.

-Moreover, as mentioned in a case cited by HSBC, "It is a settled rule that a person who presents for payment checks such as are here involved guarantees the genuineness of the check, and the drawee bank need concern itself with nothing but the genuineness of the signature, and the state of the account with it of the drawee." If at all, then, whatever remedy HSBC has would lie not against PBTC but as against the party responsible for changing the name of the payee. Its failure to call the attention of PBTC as to such alteration until after the lapse of 27 days would, in the light of the above Central Bank circular, negate whatever right it might have had against defendant Bank.

Disposition Decision affirmed

NOTE: As per Campos, this case illustrates the fact that the SC comes to the same conclusion, but on an etirely different basis, as the minority view regarding the effect of drawee’s payment or acceptance of altered check.

REPUBLIC BANK V CA, First Nat’l City Bank G.R. No. 42725; April 22, 1991

~aida rose~ FACTS

SUBJECT: Demand for refund by FNCB from Republic Bank due to clearing by the former of an altered check

DRAWER: San Miguel Corporation (SMC) DRAWEE: First National City Bank (FNCB) PAYEE: J. Roberto Delgado

-SMC drew a divided check worth P240 in favor of Delgado, one of its stockholders.

-After the check had been delivered, the check was altered by increasing the amount on its face from P240 to P9,240. This was done fraudulently and without the authority of SMC as drawer. The check was indorsed and deposited on March 14, 1996 by Delgado in his account with Republic Bank.

-Republic accepted the check without ascertaining its genuineness and regularity. It endorsed the check to FNCB with a stamp on the back of the check, stating: “all prior and/or lack of indorsement guaranteed.”

-March 15, 1966: FNCB, believing that the check was genuine and relying on the guaranty and endorsement of the petitioner bank, paid the amount on the face of the check.

-April 19, 1966 -SMC notified FNCB of the material alternation in the check about a month after FNCB had paid Republic Bank. FNCB recredited P9,240 to SMC’s account.

-May 19, 1966 – FNCB wrote Republic about the alteration. But at that time, Delgado had already withdrawn the said amount from his Republic Bank account.

-FCNB demanded that Republic Bank refund the amount of P9,240 on the basis of the latter’s endorsement and guaranty. Republic refused, saying that 1) there was delay in giving notice of the alteration, 2) it was SMC’s fault in drawing the heck in such a way as to allow the alteration and 3) that FNCB, as drawee, was absolved of any liability to SMC thus FNCB had no right to recourse against Republic Bank.

-The trial court ordered Republic Bank to pay P9,240 to PNCB with interest. The CA affirmed the TC ruling.

ISSUE

WON Republic Bank, as clearing bank, is protected from liability by the 24-hour clearing house rule (in CB Circular 9)

HELD: YES

-When an endorsement is forged, the collecting bank or last endorsor bears the loss. However the

unqualified endorsement of the collecting bank on the check should be read together with the 24- hour regulation on clearing house operation. -When the drawee bank fails to return a forged or

altered heck to the collecting bank within the 24- hour clearing period, the collecting bank is absolved from liability.

Jurisprudential rulings on the matter:

-HSBC vs. People’s Bank: A check was drawn by PLDT on HSBC payable to the same bank. It was mailed to the payee but landed in the hands of Changco who erased the payee’s name and replaced it with his own name. He then deposited the check in People’s Bank with the indorsement: “For clearance, clearing office.” This was cleared by the drawee bank HSBC. Changco withdrew the money and when the alteration was discovered, HSBC sought to recover the amount from People’s Bank. HSBC advised People’s Bank of the alteration 27 days after clearing. The Court ruled that the said indorsement must be read with the 24-hour regulation.

-Metrobank vs. FNCB (Aha! Gaya nga ng sabi ni Sharon Cuneta, “Di na natuto…”): A check for P50 was drawn by Cunanan and Co. on its account at FNCB and payable to Manila Polo Club was changed to P50,000. It was deposited by Sales in his account in Metrobank. The check was cleared by FNCB which paid P50,000 to Metrobank. The alteration was discovered 9 days later so FNCB sought to recover from Metrobank. The Court upheld the validity of the 24-hour clearing house regulation. The check was not returned to Metrobank in accordance with the given period but was cleared by FNCB. Failure of FNCB to call attention to the alteration of the check negates whatever right it may have had against Metrobank.

-Every bank that issues checks for the use of its customers should know WON the drawer’s signature is genuine. It should be able to detect alterations, erasures and other intercalations on the check. It should possess appropriate detecting devices.

-Unless the alteration is attributable to the fault or negligence of the drawer, the remedy of the drawee bank that negligently clears a forged/altered check for payment is against the party responsible for the forgery/alteration. Disposition Petition for review granted.

C.L.T. CORPORATION V PANAC (District CA, California; 1944) 149 P. (2d) 901 (1944); WARD, J.

~lora~ FACTS

-Plaintiff (CLT-holder) brought this action to recover from the defendants (Panacs-maker) the amount of 2 promissory notes, negotiable in form, executed in favor of Home Improvement Company (payee) in payment of certain repairs and renovations to be performed by the payee upon two dwelling houses owned by the defendants.

-The notes were indorsed by the payee to the plaintiff which claims to be holder in due course.

-Defendants denied that the plaintiff was such a holder and as a separate defense, pleaded fraud on the part of the payee in the procurement of the notes by its agent -William Hart. The defendants were alleged to be illiterate.

-Hart was introduced to the defendants by a friend of theirs, Krajer, for whom Home Improvement Company had done repair work similar to that proposed to be done by defendants.

-Hart prepared a document which purported to embody the understanding arrived at on the work to be performed and the cost. He asked defendants to sign it. Both demurred, Mrs. Panac stating that she did not read it and wished to see an attorney. Hart assured her that it was not necessary, that the contract has to be signed at once to get the work started. In doing so, he read the items of work entered in his note book, stating that they were in agreement and urged again the defendants to sign. They still objected but their scruples were overcome by Hart’s assurance that all the work shall be done to their satisfaction and that it was necessary to start at once. Martin thereupon affixed his signature to the contract.

-Hart then presented to them another paper, divided into 3 parts by perforated lines, one part being an application for credit, the second a form of promissory note and the third a declaration that the work for which the credit was required had been satisfactorily completed. The defendants placed their signatures at the point indicated by Hart upon his assurance that it was part of the contract for the work to be done and without having Hart read it to them. The second note was executed under the same circumstances.

-There were present during the proceedings 2 other persons beside Krajer but neither the defendants requested any of them to read aloud the document or to explain the contents thereof. -The defendants testified that they understood from

Hart that the work was to be paid for in monthly installments, but had not contemplated giving notes.

-The work was never completed notwithstanding vigorous efforts made by the plaintiff and the

defendants to induce Home Improvement Company to do so, with the consequence that when the first installment became due on the notes the defendants refused to pay.

-The trial court found that CLT is a holder in due course however, it also held that fraud was perpetuated against the defendants hence, plaintiff takes nothing by its action.

-Plaintiffs appealed from the judgment. ISSUES

1. WON plaintiff is a holder in due course. 2. WON defendants are free from negligence. 3. WON the defendants can plead the defense of

fraud against the plaintiff. HELD

1. YES. Defendants do not contend that the plaintiff is not a holder in due course. No evidence was introduced that C.L.T. had actual knowledge of a defect in the instruments or any fact that would justify a finding that the plaintiff’s acceptance of the instruments amounted to bad faith on their part.

2. YES. The trial court determined that, notwithstanding the possession of some knowledge of the English language on the part of the defendants, their neglect to call upon others present to read to them the documents, and their failure to insist on their request for time to seek independent legal advice, they are free from negligence. A reading of the record alone might well disapprove this finding, but, bearing in mind that the trial court had an opportunity to view the witnesses, note their demeanor, the Court refrained from stating as a matter of law that there is insufficient evidence to uphold it. 3. NO. Brannan’s Negotiable Instrument: At common

law a real defense was held in most jurisdictions to exist in those cases in which a person, without negligence, has signed an instrument, which was, in fact a negotiable instrument, but was deceived as to the character of the instrument and without knowledge of it. In such cases, there is no contract because there was no consenting mind, but the signer may be estopped by negligence to deny knowledge of the character of the instrument which he has signed. If he was not negligent he is not liable.

-In Wisconsin, Minnesota and Illinois, the NIL or other legislation expressly makes fraud in the factum a real defense. The Uniform Act does not cover the question in so many words. It is possible however, that such conduct is fraud within Sec. 55 and hence causes merely a defective title, or that it is one of the defenses under Sec. 57. It might also be assimilated to want of delivery,

which was made an equitable defense by Sec. 16. Either possibility would change the common law and protect the holder in due course. -In further support of this position it should be noted

that the other real defenses are covered by the act and broad interpretation of Sec. 55, especially the last clause “under such circumstances as amount to fraud” certainly includes all kinds of fraud in factum. Since this is so it is hard to believe that the framers overlooked this particular defense. The equities are all in favor of such interpretation, since the defrauded party really caused the situation and should be the one to suffer.

-Under the old common law view fraud in Sec. 55 would be limited to fraud in the inducement and defenses in Sec, 57 restricted to defenses which were equitable at common law, while fraud in the factum would continue to be a real defense analogous to forgery under Sec. 23. Such is the result of a number of cases which have arisen since the NIL, most of which do not cite the act, but there is a strong line of well reasoned cases contra.

-Freedom from negligence on the part of the makers has never been regarded in California in following the common law rule, or made by statute a defense, real or personal, against a claim of a holder of a negotiable instrument in due course. If the legislature had intended such defense it would undoubtedly have so provided in no uncertain terms, as the courts of this state have not, at any time, recognized such a defense. -It follows that the defendants were not in position to

set up as a defense in this case any equities existing between them and the Home Improvement Company even if, as found by the court, they were free from negligence in executing notes.

Disposition Judgment Reversed. PETERS (Dissenting)

-The type of fraud here involved has been referred to as fraud in esse contractus, fraud in the factum, fraud in the inception or fraud in execution, to distinguish it from fraud in the inducement which is a mere personal defense. At common law the cases were practically unanimous that fraud in the execution was a real defense.

-The overwhelming weight of authority is to the effect that the adoption of the NIL in now way changed

the common law rule, and that both before and after the adoption of that uniform statute, fraud in the execution was and remained, a real defense. -The applicable rules under the NIL is stated as: “Although there are some decisions to the contrary, the weight of authority holds that if a person intending to sign an instrument of an entirely different character places his signature to a negotiable instrument not being due to laches or negligence on the part of the signor, the latter is not liable on the instrument, although it has passed into the hands of a bona fide holder for value.”

-Mr. Brannan quoted in the majority opinion approves the minority rule.

-The many courts and legal writers have not approved the rule that fraud in execution, where the maker is not negligent, is a real defense, by blindly following the common law rule. Cogent and compelling reasons exist for this approval. -It must be remembered that NIL is not an entirely

new statute, nor did it purport to repeal the entire law of contracts. It purported to codify the law of merchant and where there was a conflict to adopt what was considered to be the better rule. Where the NIL has no excess provision, or where its meaning is ambiguous, cases decided under the law merchant and fundamental rules of contract should be looked to in arriving at a proper interpretation.

-So far as the present problem is concerned, the NIL has no express provision covering the subject. There are provisions, however which tend to show that the drafter of the act intended fraud in the execution to be real defense.

-Sec. 57 of NIL, Sec. 3138 of the Civil Coe, provides that the holder in dues course “free from any defect of title of prior parties, and free from defenses available prior parties among themselves.” When a party, without negligence, signs a document by reason of fraud of another and honestly and reasonably believes it to be something else other than a negotiable instrument, the document, when executed is not merely voidable – it is void.” Fraud of this type is not a mere defense nor a mere defect of title such as referred to in Sec. 57. It is a factor which renders the instrument non-existent as a binding obligation.

C.I.T. CORPORATION V PANAC Supreme Court of California

25 Cal. (2d) 547, 154 P. (2d) 710, 160 ALR 1285 (1944) ~marge~

FACTS (as found by the District Court of Appeals) SUBJECT: 2 promissory notes in payment of certain

repairs and renovations to be performed by payee upon two dwelling houses owned by makers

MAKERS: Sps. Panac, illiterate, unable to read or write the English language

PAYEE: Home Improvement Company

INDORSEE: C.I.T. Corp, a holder for value in due course

-Makers were defrauded by payee in the procurement of the notes. William Hart, agent of the payee, gained their trust and confidence and secured their signatures to the notes by false representations w/c induced them to believe that they were signing a contract to repair the houses and nothing else. They were ignorant of the fact that they were signing notes, and were not negligent in signing the same.

ISSUE

WON the defense put up by the makers is a real defense, good even against indorsee as a holder in due course

HELD: YES

-A negotiable instrument which is void (as when there is in fact no contract or there is fraud in the execution) is not enforceable by a holder in due