Sec.  49.  Transfer  without  indorsement;  effect  of.  -  Where  the holder of an instrument payable to his order transfers it for value without indorsing it, the transfer vests in the transferee such title as  the  transferor  had  therein,  and  the  transferee  acquires  in addition,  the  right  to have the indorsement of the transferor.  But for the purpose of determining whether the transferee is a holder in due course, the negotiation takes effect as of the time when the indorsement is actually made.

•      Applies only to instruments payable to order
•      Contemplates a case wherein delivery and payment of value but there was no indorsement
•      One element lacking for the negotiation of the instrument


1.    The  transferee  acquires  only  the  rights  of  the  transferor.    This means  that  if  a  defense  is  available  against  the  transferor,  that defense is also available against the transferees
2.    The  transferee  has  also  the  right  to  require  the  transferor  to indorse the instrument


GR 136202, JANUARY 25, 2007

Templonuevo  demanded  payment  from  petitioner  of  a  sum  of  money representing  the  aggregate  value  of  three  checks  which  were  allegedly payable  to  him  but  which  were  deposited  with  the  petitioner  to  Salazar’s account, without his knowledge and corresponding endorsement.  Finding
merit in the demands of Templonuevo, the bank then froze the account of the engineering firm as the account of Salazar was already closed or had insufficient  funds.    Failure  of  any  settlement  between  Templonuevo  and Salazar, this prompted the bank to debit the account of Salazar and give back the money to Templonuevo through cashier’s check.  The account of Salazar was also debited for whatever charges incurred for the issuance of the cashier’s check.
The trial court held in favor of Salazar.  

Does  a  collecting  bank,  over  the  objections  of  its  depositor,  have the  authority  to  withdraw  unilaterally  from  such  depositor’s  account  the amount it had previously paid upon certain unendorsed order instruments deposited by the depositor to another account that she later closed?

In the present case, the records do not support the finding made by the CA and the trial court that a prior arrangement existed between Salazar and Templonuevo regarding the transfer of ownership of the checks. This fact is crucial as Salazar’s entitlement to the value of the instruments is based on the assumption that she is a transferee within the contemplation of Section 49 of the Negotiable Instruments Law.
Transferees in this situation do not enjoy the presumption of ownership in favor  of  holders  since  they  are  neither  payees  nor  indorsees  of  such instruments.  The  weight  of  authority  is  that  the  mere  possession  of  a negotiable  instrument  does  not  in  itself  conclusively  establish  either  the right of the possessor to receive payment, or of the right of one who has made payment to be discharged from liability. Thus, something more than mere  possession  by  persons  who  are  not  payees  or  indorsers  of  the
instrument  is  necessary  to  authorize  payment  to  them  in  the  absence  of any  other  facts  from  which  the  authority  to  receive  payment  may  be inferred.
Even if the delay in the demand for reimbursement is taken in conjunction with  Salazar’s  possession  of  the  checks,  it  cannot  be  said  that  the presumption of ownership in Templonuevo’s favor as the designated payee therein was sufficiently overcome. This is consistent with the principle that if  instruments  payable  to  named  payees  or  to  their  order  have  not  been indorsed in blank, only such payees or their indorsees can be holders and entitled       to       receive       payment       in       their       own       right.
The  presumption  that  a  negotiable  instrument  was  given  for  a  sufficient consideration  will  not  inure  to  the  benefit  of  Salazar  because  the  term “given” does not pertain merely to a transfer of physical possession of the instrument. The phrase “given or indorsed” in the context of a negotiable instrument  refers  to  the  manner  in  which  such  instrument  may  be negotiated. 
It is an exception to the general rule for a payee of an order instrument to transfer   the   instrument   without   indorsement.   Precisely   because   the situation  is  abnormal,  it  is  but  fair  to  the  maker  and  to  prior  holders  to require  possessors  to  prove  without  the  aid  of  an  initial  presumption  in
their  favor,  that  they  came  into  possession  by  virtue  of  a  legitimate transaction  with  the  last  holder.  Salazar  failed  to  discharge  this  burden, and  the  return  of  the  check  proceeds  to  Templonuevo  was  therefore warranted under the circumstances despite the fact that Templonuevo may
not have clearly demonstrated that he never authorized Salazar to deposit the  checks  or  to  encash  the  same.  Noteworthy  also  is  the  fact  that petitioner  stamped  on  the  back  of  the  checks  the  words:  "All  prior endorsements  and/or  lack  of  endorsements  guaranteed,"  thereby  making the  assurance  that  it  had  ascertained  the  genuineness  of  all  prior endorsements.   Having   assumed   the   liability   of   a   general   indorser, petitioner’s   liability   to   the   designated   payee   cannot   be   denied.
Consequently,  petitioner,  as  the  collecting  bank,  had  the  right  to  debit Salazar’s account for  the value of the checks it previously credited in her favor.  However,  the  issue  of  whether  it  acted  judiciously  is  an  entirely different matter.  As businesses affected with public interest, and because
of  the  nature  of  their  functions,  banks  are  under  obligation  to  treat  the accounts  of  their  depositors  with  meticulous  care,  always  having  in  mind the  fiduciary  nature  of  their  relationship.    In  this  regard,  petitioner  was clearly  remiss  in  its  duty  to  private  respondent  Salazar  as  its  depositor.
To begin with, the irregularity appeared plainly on the face of the checks. Despite the obvious lack of indorsement thereon, petitioner permitted the encashment of these checks three times on three separate occasions. This negates  petitioner’s  claim  that  it  merely  made  a  mistake  in  crediting  the value of the checks to Salazar’s account and instead bolsters the conclusion of the CA that petitioner recognized Salazar’s claim of ownership of checks and  acted  deliberately  in  paying  the  same,  contrary  to  ordinary  banking
policy and practice. It must be emphasized that the law imposes a duty of diligence on the collecting bank to scrutinize checks deposited with it, for the purpose of determining their genuineness and regularity. The collecting bank, being primarily engaged in banking, holds itself out to the public as the  expert  on  this  field,  and  the  law  thus  holds  it  to  a  high  standard  of conduct.    The  taking  and  collection  of  a  check  without  the  proper indorsement   amount   to   a   conversion   of   the   check   by   the   bank.
More  importantly,  however,  solely  upon  the  prompting  of  Templonuevo, and  with  full  knowledge  of  the  brewing  dispute  between  Salazar  and Templonuevo, petitioner debited the account held in the name of the sole proprietorship  of  Salazar  without  even  serving  due  notice  upon  her.  This ran contrary to petitioner’s assurances to private respondent Salazar that the  account  would  remain  untouched,  pending  the  resolution  of  the controversy between her and Templonuevo. For the above reasons, the Court finds no reason to disturb the award of damages  granted by  the  CA  against  petitioner.  This  whole  incident  would have  been  avoided  had  petitioner  adhered  to  the  standard  of  diligence expected of one engaged in the banking business. A depositor has the right to  recover  reasonable  moral  damages  even  if  the  bank’s  negligence  may not  have  been  attended  with  malice  and  bad  faith,  if  the  former  suffered mental anguish, serious anxiety, embarrassment and humiliation