1.

) CONSOLIDATED PLYWOOD
HENRY WEE, and RODOLFO
IFC LEASING
[G.R. No. 72593. April 30, 1987.]

INDUSTRIES, INC.,
T. VERGARA vs.

FACTS:
With assurance and warranty, and relying on the sellerassignors skill and judgment, petitioner-corporation through
petitioners Wee and Vergara, president and vice-president,
respectively, agreed to purchase on installment said two (2)
units of Used Allis Crawler Tractors. The seller-assignor
issued the sales invoice for the two (2) units of tractors. At
the same time, the deed of sale with chattel mortgage with
promissory note was executed by Petitioner. Thereafter, the
seller-assignor, by means of a deed of assignment assigned
its rights and interest in the chattel mortgage in favor of the
respondent. Because of the breaking down of the tractors,
Wee asked the seller-assignor to pull out the units and have
them reconditioned, and thereafter to offer them for sale.
Petitioner-corporation advised the seller-assignor that the
payments of the installments as listed in the promissory
note would be delayed until the seller-assignor completely
fulfills its obligation under its warranty. No response was
received despite several follow-up calls.

note is not a negotiable instrument, it follows that

the respondent can never be a holder in due course
but remains a mere assignee of the note in question.
Thus, the petitioner may raise against the respondent
all defenses available to it as against the sellerassignor, Industrial Products Marketing.

When Summary Judgment is Proper

Summary judgment is proper when there is failure to deny
under oath the genuineness and due execution of notes
attached to the complaint as this is deemed to be an
admission of the existence and validity of the liability of the
defendant.
However, there can be no summary judgment if a statement
of account is not denied. (Kalilid Wood Industries v. IAC, GR
75502)

Respondent now sues Petitioner and claims that the defense

of breach of warranty, if there is any, as in this case, does
not lie in favor of the Corporation and against IFC Leasing
who is the assignee of the promissory note and a holder of
the same in due course.
ISSUE:
Whether or not the promissory note in question is a
negotiable instrument so as to bar completely all the
available defenses of the petitioner against the respondentassignee.
HELD: NO. The pertinent portion of the note issued by the
Corporation
is
as
follows:
FOR VALUE RECEIVED, I/we jointly and severally promise to
pay to the INDUSTRIAL PRODUCTS MARKETING, the sum of
(P1,093,789.71), Philippine Currency, the said principal sum,
to be payable in 24 monthly installments. . .
Considering that paragraph (d), Section 1 of the Negotiable
Instruments Law requires that a promissory note must be
payable to order or bearer, it cannot be denied that the
promissory note in question is not a negotiable instrument.
The instrument in order to be considered negotiable must
contain the so called words of negotiability i.e., must be
payable to order or bearer. These words serve as an
expression of consent that the instrument may be
transferred. This consent is indispensable since a maker
assumes greater risk under a negotiable instrument than
under a non-negotiable one.
There are the only two ways by which an instrument may
be made payable to order. There must always be a specified
person named in the instrument. It means that the bill or
note is to be paid to the person designated in the instrument
or to any person to whom he has indorsed and delivered the
same. Without the words or order or to the order of, the
instrument is payable only to the person designated therein
and is therefore non-negotiable. Any subsequent purchaser
thereof will not enjoy the advantages of being a holder of a
negotiable instrument, but will merely step into the shoes
of the person designated in the instrument and will thus be
open to all defenses available against the latter.
Therefore, considering that the subject promissory

Negotiable Instruments Law

Case Digest
Glorio Ortega Dumandan, Jr.

3.) Sy vs People
172 SCRA 685

4.) Philippine Airlines, Inc. vs Court of Appeals,

181 SCRA 557, GR No. 49188, January 30, 1990
(Civil Procedure Alias Writ of Execution; Civil Law
Payment; Commercial Law Check)
THE FACTS:
Amelia Tan commenced a complaint for damages before the
Court of First Instance against Philippine Airlines, Inc. (PAL).
The Court rendered a judgment in favor of the former and
against the latter.
PAL filed its appeal with the Court of Appeals (CA), and the
appellate court affirmed the judgment of the lower court
with the modification that PAL is condemned to pay the
latter the sum of P25, 000.00 as damages and P5, 000.00 as
attorneys fee.
Judgment became final and
executory
and
was
correspondingly entered in the case, which was remanded to
the trial court for execution. The trial court upon the motion
of Amelia Tan issued an order of execution with the
corresponding writ in favor of the respondent. Said writ was
duly referred to Deputy Sheriff Reyes for enforcement.
Four months later, Amelia Tan moved for the issuance of an
alias writ of execution, stating that the judgment rendered
by the lower court, and affirmed with modification by the
CA, remained unsatisfied. PAL opposed the motion, stating
that it had already fully paid its obligation to plaintiff
through the issuance of checks payable to the deputy sheriff
who later did not appear with his return and instead
absconded.

1. Affirmative. 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
unreasonable application of a strict rule of procedure. Vested
right were never intended to rest on the requirement of a
return. So long as judgment is not satisfied, a plaintiff is
entitled to other writs of execution.
2. Negative. In general, a payment, in order to be effective
to discharge an obligation, must be made to the proper
person. Article 1240 of the Civil Code provides:
Payment made to the person in whose favor the obligation
has been constituted, or his successor in interest, or any
person authorized to receive it.
Under ordinary circumstances, payment by the judgment
debtor in the case at bar, to the sheriff should be valid
payment to extinguish judgment of debt.
However, under the peculiar circumstances of this case, the
payment to the absconding sheriff by check in his name did
not operate as a satisfaction of the judgment debt.
3. Negative. Article 1249 of the Civil Code provides:
The payment of debts in money shall be made in the
currency stipulated, and if it is not possible to deliver such
currency, then in the currency which is legal tender in the
Philippines.
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 petitioners checks does not, per
se, operate as a discharge of the judgment of debt.

The CA denied the issuance of the alias writ for being

premature. After two months the CA granted her an alias
writ of execution for the full satisfaction of the judgment
rendered, when she filed another motion. Deputy Sheriff del
Rosario is appointed special sheriff for enforcement thereof.

A check, whether managers check or ordinary check, is not

legal tender, and an offer of a check in payment of a debt is
not a valid tender or payment and may be refused receipt
by the oblige or creditor. Hence, the obligation is not
extinguished.

PAL filed an urgent motion to quash the alias writ of

execution stating that no return of the writ had as yet been
made by Deputy Sheriff Reyes and that judgment debt had
already been fully satisfied by the former as evidenced by
the cash vouchers signed and received by the executing
sheriff.

THE TWIST: Payment in cash is logical, but it was not

proper.

Deputy Sheriff del Rosario served a notice of garnishment on

the depository bank of PAL, through its manager and
garnished the latters deposit. Hence, PAL brought the case
to the Supreme Court and filed a petition for certiorari.
THE ISSUES:
1.

WON an alias writ of execution can be issued

without 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.

3.

WON payment made in checks to the sheriff and

under his name is a valid payment to extinguish
judgment of debt.

THE RULING:

Negotiable Instruments Law

Case Digest
Glorio Ortega Dumandan, Jr.

Payment in cash to the implementing officer may be

deemed absolute payment of judgment debt but the Court
has never, in the least bit, suggested that judgment debtors
should settle their obligations by turning over huge amounts
of cash or legal tender to the executing officers. Payment in
cash would result in damage or endless litigations each time
a sheriff with huge amounts of cash in his hands decides to
abscond.
As a protective measure, the courts encourage the practice
of payment of check provided adequate controls are
instituted to prevent wrongful payment and illegal
withdrawal or disbursement of funds.
However, in the case at bar, it is out of the ordinary that
checks intended for a particular payee are made out in the
name of another. The issuance of the checks in the name of
the sheriff clearly made possible the misappropriation of the
funds that were withdrawn.
The Court of Appeals explained:
Knowing as it does that the intended payment was for the
respondent Amelia Tan, the petitioner corporation, utilizing
the services of its personnel who are or should be
knowledgeable about the accepted procedure and resulting

consequences of the checks drawn, nevertheless, in this

instance, without prudence, departed from what is generally
observed and done, and placed as payee in the checks the
name of the errant Sheriff and not the name of the rightful
payee. Petitioner thereby created a situation which
permitted the said Sheriff to personally encash said checks
and misappropriate the proceeds thereof to his exclusive
benefit. For the prejudice that resulted, the petitioner
himself must bear the fault
Having failed to employ the proper safeguards to protect
itself, the judgment debtor whose act made possible the loss
had but itself to blame.

5. Tan vs. CA
GR 108555, 20 December 1994
First Division, Kapunan (J)
Facts: Ramon Tan, a businessman from Puerto Princesa,
secured a Cashiers Check from Philippine Commercial
Industrial Bank (PCIBank) to P30,000 payable to his order to
avoid carrying cash while enroute to Manila. He deposited
the check in his account in Rizal Commercial Banking
Corporation (RCBC) in its Binondo Branch. RCBC sent the
check for clearing to the Central Bank which was returned
for having been missent or misrouted. RCBC debited
Tans account without informing him. Relying on common
knowledge that a cashiers check was as good as cash, and
a month after depositing the check, he issued two personal
checks in the name of Go Lak and MS Development Trading
Corporation. Both checks bounced due to insufficiency of
funds. Tan filed a suit for damages against RCBC.
Issue: Whether a cashiers check is as good as cash, so as
to have funded the two checks subsequently drawn.
Held: An ordinary check is not a mere undertaking to pay
an amount of money. There is an element of certainty or
assurance that it will be paid upon presentation; that is why
it is perceived as a convenient substitute for currency in
commercial and financial transactions. Herein, what is
involved is more than an ordinary check, but a cashiers
check. A cashiers check is a primary obligation of the
issuing bank and accepted in advance by its mere issuance.
By its very nature, a cashiers check is a banks order to pay
what is drawn upon itself, committing in effect its total
resources, integrity and honor beyond the check. Herein,
PCIB by issuing the check created an unconditional credit in
favor any collecting bank. Reliance on the laymans
perception that a cashiers check is as good as cash is not
entirely misplaced, as it is rooted in practice, tradition and
principle.

6.) Tibajia vs. CA

GR 100290, 4 June 1993
Second Division, Padilla (J)
Facts: A suit for collection of sum of money was ruled in
favor of Eden Tan and against the spouses Norberto Jr. and
Carmen Tibajia. After the decision was made final, Tan filed a
motion for execution and levied upon the garnished funds
which were deposited by the spouses with the cashier of the
Regional Trial Court of Pasig. The spouses, however,
delivered to the deputy sheriff the total money judgment in
the form of Cashiers Check (P262,750) and Cash
(P135,733.70). Tan refused the payment and insisted upon
the garnished funds to satisfy the judgment obligation. The
spouses filed a motion to lift the writ of execution on the
ground that the judgment debt had already been paid. The
motion was denied.

Negotiable Instruments Law

Case Digest
Glorio Ortega Dumandan, Jr.

Issue: Whether the spouses have satisfied the judgment

obligation after the delivery of the cashiers check and cash
to the deputy sheriff.
Held: A check, whether a managers 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 (Philippine
Airlines vs. Court of Appeals; Roman Catholic Bishop of
Malolos vs. Intermediate Appellate Court). The court is not,
by decision, sanctioning the use of a check for the payment
of obligations over the objection of the creditor (Fortunado
vs. Court of Appeals).

7.) TRADERS ROYAL BANK V. CA

269 SCRA 15
FACTS:
Filriters
through
a
Detached
Agreement
transferred ownership to Philfinance a Central Bank
Certificate of Indebtedness. It was only through one of
its officers by which the CBCI was conveyed without
authorization
from the
company.
Petitioner and
Philfinance later
entered into a
Repurchase
agreement, on which
petitioner bought the CBCI
from
Philfinance. The latter agreed to repurchase the CBCI but
failed to do so. When the petitioner tried to have it
registered in its name in the CB, the latter didn't want to
recognize the transfer.
HELD:
The
CBCI
is
not
a
negotiable
instrument.
The instrument provides for a promise to pay the registered
owner
Filriters.
Very
clearly,
the
instrument
was only payable to Filriters.
It
lacked
the
words
of negotiability which should
have
served
as
an
expression of the consent that the instrument may be
transferred
by
negotiation.
The
language
of
negotiability which characterize a negotiable paper as a
credit instrument is its freedom to circulate as a
substitute for money.
Hence, freedom of negotiability is the touchstone relating to
the protection of holders in due course, and the freedom of
negotiability is the foundation for the protection, which
the law throws around a holder in due course. This
freedom in negotiability is totally absent in a certificate
of indebtedness as it merely acknowledges to pay a
sum of money to a specified person or entity for a period
of time.
The transfer of the instrument from Philfinance to TRB
was merely an assignment, and is not governed by the
negotiable instruments law. The pertinent question then
iswas the transfer of the CBCI from Filriters to
Philfinance and subsequently from Philfinance to TRB, in
accord with existing law, so as to entitle TRB to have the
CBCI registered in its name with the Central Bank?
Clearly shown in the record is the fact that
Philfinances title over CBCI is defective since it
acquired the instrument from Filriters fictitiously. Although
the deed of assignment stated that the transfer was for
value received, there was really no consideration
involved. What happened was Philfinance merely
borrowed CBCI from Filriters, a sister corporation. Thus,
for lack of any consideration, the assignment made is a
complete nullity. Furthermore, the transfer wasn't in
conformity with the regulations set by the CB. Giving

more credence to rule that there was no valid transfer or

assignment to petitioner.

8.) SESBRENO V. CA
222 SCRA 466
FACTS:
Petitioner Sesbreno made a money market placement in the
amount

of P300,000

with

the

Philippine Underwriters

Finance Corporation (PhilFinance), with a term of 32

days. PhilFinance issued to Sesbreno the Certificate of
Confirmation of Sale of a Delta Motor Corporation Promissory
Note, the Certificate of Securities Delivery Receipt indicating
the sale of the note with notation that said security was in
the custody of Pilipinas Bank, and postdated checks drawn
against

the

Insular

Bank

of

Asia

and

America

for

P304,533.33 payable on March 13, 1981. The checks were

dishonored for having been drawn against insufficient
funds. Pilipinas Bank never released the note, nor any
instrument related thereto, to Sesbreno; but Sesbreno
learned that the security which was issued on April 10,
1980, maturing on 6 April 1981, has

a face value of

P2,300,833.33 with PhilFinance as payee and Delta Motors

as maker; and was stamped non-negotiable on its face. As
Sesbreno was unable to collect his investment and interest
thereon, he filed an action for damages against Delta Motors
and

Pilipinas

Bank. Delta

Motors

contents

that

said

promissory note was not intended to be negotiated or

otherwise transferred by Philfinance as manifested by the
word "non-negotiable" stamped across the face of the Note.
ISSUE:
Whether the non-negotiability of a promissory note prevents
its assignment.
RULING:
A negotiable instrument, instead of being negotiated, may
also be assigned or transferred. The legal consequences of
negotiation and assignment of the instrument are different.
A non-negotiable instrument may not be negotiated but may
be assigned or transferred, absent an express prohibition
against assignment or transfer written in the face of the
instrument. The subject promissory note, while marked
"non-negotiable," was not at the same time stamped "nontransferable" or "non-assignable." It contained no stipulation
which prohibited Philfinance from assigning or transferring
such note, in whole or in part.
**A non-negotiable instrument may not be negotiated but
may

be

assigned

or

Negotiable Instruments Law

Case Digest
Glorio Ortega Dumandan, Jr.

transferred,

absent

an

express

prohibition against assignment or transfer written on the

face of the instrument.

9.) Government Service Insurance System v. Court of

Appeals
170 SCRA 533,
February 23, 1989
Facts:
Private respondents, Mr. and Mrs. Isabelo R. Racho, together
with spouses Mr. and Mrs Flaviano Lagasca, executed a deed
of mortgage, dated November 13, 1957, in favor of
petitioner GSIS and subsequently, another deed of
mortgage, dated April 14, 1958, in connection with two
loans granted by the latter in the sums of P 11,500.00 and P
3,000.00, respectively. A parcel of land covered by Transfer
Certificate of Title No. 38989 of the Register of Deed of
Quezon City, co-owned by said mortgagor spouses, was
given as security under the two deeds. They also executed a
'promissory note".
On July 11, 1961, the Lagasca spouses executed an
instrument denominated "Assumption of Mortgage,"
obligating themselves to assume the said obligation to the
GSIS and to secure the release of the mortgage covering
that portion of the land belonging to spouses Racho and
which was mortgaged to the GSIS. This undertaking was not
fulfilled. Upon failure of the mortgagors to comply with the
conditions of the mortgage, particularly the payment of the
amortizations due, GSIS extrajudicially foreclosed the
mortgage and caused the mortgaged property to be sold at
public auction on December 3, 1962.
For more than two years, the spouses Racho filed a
complaint against the spouses Lagasca praying that the
extrajudicial foreclosure "made on, their property and all
other documents executed in relation thereto in favor of the
Government Service Insurance System" be declared null and
void.
The trial court rendered judgment on February 25, 1968
dismissing the complaint for failure to establish a cause of
action. However, said decision was reversed by the
respondent Court of Appeals, stating that, although formally
they are co-mortgagors, the GSIS required their consent to
the mortgage of the entire parcel of land which was covered
with only one certificate of title, with full knowledge that the
loans secured were solely for the benefit of the appellant
Lagasca spouses who alone applied for the loan.
Issues:
Whether the respondent court erred in annulling the
mortgage as it affected the share of private respondents in
the reconveyance of their property?
Whether private respondents benefited from the loan, the
mortgage and the extrajudicial foreclosure proceedings are
valid?
Held:
Both parties relied on the provisions of Section 29 of Act No.
2031, otherwise known as the Negotiable Instruments Law,
which provide that an accommodation party is one who has
signed an instrument as maker, drawer, acceptor of indorser
without receiving value therefor, but is held liable on the
instrument to a holder for value although the latter knew
him to be only an accommodation party.

The promissory note, as well as the mortgage deeds subject

of this case, are clearly not negotiable instruments. These
documents do not comply with the fourth requisite to be
considered as such under Section 1 of Act No. 2031 because
they are neither payable to order nor to bearer. The note is
payable to a specified party, the GSIS. Absent the aforesaid
requisite, the provisions of Act No. 2031 would not apply;
governance shall be afforded, instead, by the provisions of
the Civil Code and special laws on mortgages.
As earlier indicated, the factual findings of respondent court
are that private respondents signed the documents "only to
give their consent to the mortgage as required by GSIS",
with the latter having full knowledge that the loans secured
thereby were solely for the benefit of the Lagasca spouses.

Angel de la Cruz subsequently delivered the CTDs to Caltex

in connection with the purchase of fuel products from Caltex.

In March 1982, Angel de la Cruz advised Security Bank that

he lost the CTDs. He executed an affidavit of loss and
submitted it to the bank. The bank then issued another set
of CTDs. In the same month, Angel de la Cruz acquired
a loan of P875,000.00 and he used his time deposits as
collateral.

Contrary to the holding of the respondent court, it cannot be

said that private respondents are without liability under the
aforesaid mortgage contracts. The factual context of this
case is precisely what is contemplated in the last paragraph
of Article 2085 of the Civil Code to the effect that third
persons who are not parties to the principal obligation may
secure the latter by pledging or mortgaging their own
property. So long as valid consent was given, the fact that
the loans were solely for the benefit of the Lagasca spouses
would not invalidate the mortgage with respect to private
respondents'
share
in
the
property.

In November 1982, a representative from Caltex went to

Security Bank to present the CTDs (delivered by de la Cruz)
for verification. Caltex advised Security Bank that de la Cruz
delivered Caltex the CTDs as security for purchases he made
with the latter. Security Bank refused to accept the CTDs
and instead required Caltex to present documents proving
the agreement made by de la Cruz with Caltex. Caltex
however failed to produce said documents.

The respondent court, erred in annulling the mortgage

insofar as it affected the share of private respondents or in
directing reconveyance of their property or the payment of
the value.

In April 1983, de la Cruz loan with Security bank matured

and no payment was made by de la Cruz. Security Bank
eventually set-off the time deposit to pay off the loan.

10.) Caltex vs CA
212 SCRA 448 Mercantile Law Negotiable Instruments
Law Negotiable Instruments in General Bearer
Instrument Certificate of Time Deposit

Caltex sued Security Bank to compel the bank to pay off the
CTDs. Security Bank argued that the CTDs are not
negotiable instruments even though the word bearer is
written on their face because the word bearer contained
therein refer to depositor and only the depositor can encash
the CTDs and no one else.

FACTS:

ISSUE:

In 1982, Angel de la Cruz obtained certificates of time

deposit (CTDs) from SecurityBank and Trust Company for the
formers deposit with the said bank amounting to
P1,120,000.00. The said CTDs are couched in the following
manner:

Whether or
negotiable.

not the certificates of time deposit are

HELD:
This is to Certify that B E A R E R has deposited in this Bank
the sum of _______ Pesos, Philippine Currency, repayable to
said depositor _____ days. after date, upon presentation and
surrender of this certificate, with interest at the rate
of ___ % per cent per annum.

Negotiable Instruments Law

Case Digest
Glorio Ortega Dumandan, Jr.

Yes. The CTDs indicate that they are payable to the bearer;
that there is an implication that the depositor is the bearer
but as to who the depositor is, no one knows. It does not say
on its face that the depositor is Angel de la Cruz. If it was
really the intention of respondent bank to pay the amount to
Angel de la Cruz only, it could have with facility so

expressed that fact in clear and categorical terms in the

documents, instead of having the word BEARER stamped
on the space provided for the name of the depositor in each
CTD. On the wordings of the documents, therefore, the
amounts deposited are repayable to whoever may be the
bearer thereof.

ISSUE:

Thus, de la Cruz is the depositor insofar as the bank is

concerned, but obviously other parties not privy to the
transaction between them would not be in a position to
know that the depositor is not the bearer stated in the CTDs.

HELD:

What are the liabilities of each party?

The checks involved in this case are order instruments.

However, Caltex may not encash the CTDs because

although the CTDs are bearer instruments, a valid
negotiation thereof for the true purpose and agreement
between Caltex and De la Cruz, requires both delivery and
indorsement. As discerned from the testimony of Caltex
representative, the CTDs were delivered to them by de la
Cruz merely for guarantee or security and not as payment.

11.) ASSOCIATED BANK VS CA

252
SCRA
620
Mercantile
Law Negotiable
Instruments Law Liabilities of Parties Forgery
Collecting Bank vs Drawee Bank

The Province of Tarlac was disbursing funds to Concepcion

Emergency Hospital via checks drawn against its account
with the Philippine National Bank (PNB). These checks were
drawn payable to the order of Concepcion Emergency
Hospital. Fausto Pangilinan was the cashier of Concepcion
Emergency Hospital in Tarlac until his retirement in 1978. He
used to handle checks issued by the provincial government
of Tarlac to the said hospital. However, after his retirement,
the provincial government still delivered checks to him until
its discovery of this irregularity in 1981. By forging the
signature of the chief payee of the hospital (Dr. Adena
Canlas), Pangilinan was able to deposit 30 checks
amounting to P203k to his account with the Associated
Bank.
When the province of Tarlac discovered this irregularity, it
demanded PNB to reimburse the said amount. PNB in turn
demanded Associated Bank to reimburse said amount. PNB
averred that Associated Bank is liable to reimburse because
of its indorsement borne on the face of the checks:

All prior endorsements guaranteed ASSOCIATED BANK.

Negotiable Instruments Law

Case Digest
Glorio Ortega Dumandan, Jr.

Liability of Associated Bank

Where the instrument is payable to order at the time of the

forgery, such as the checks in this case, the signature of its
rightful holder (here, the payee hospital) is essential to
transfer title to the same instrument. When the holders
indorsement is forged, all parties prior to the forgery may
raise the real defense of forgery against all parties
subsequent thereto.

A collecting bank (in this case Associated Bank) where a

check is deposited and which indorses the check upon
presentment with the drawee bank (PNB), is such an
indorser. So even if the indorsement on the check deposited
by the bankss client is forged, Associated Bank is bound by
its warranties as an indorser and cannot set up the defense
of forgery as against the PNB.

EXCEPTION: If it can be shown that the drawee bank (PNB)

unreasonably delayed in notifying the collecting bank
(Associated Bank) of the fact of the forgery so much so that
the latter can no longer collect reimbursement from the
depositor-forger.

Liability of PNB

The bank on which a check is drawn, known as the drawee

bank (PNB), is under strict liability to pay the check to the
order
of
the
payee
(Provincial
Government
of
Tarlac). Payment under a forged indorsement is not to the
drawers order. When the drawee bank pays a person other
than the payee, it does not comply with the terms of the
check and violates its duty to charge its customers (the
drawer) account only for properly payable items. Since the
drawee bank did not pay a holder or other person entitled to

receive payment, it has no right to reimbursement from the

drawer. The general rule then is that the drawee bank may
not debit the drawers account and is not entitled to
indemnification from the drawer. The risk of loss must
perforce fall on the drawee bank.

EXCEPTION: If the drawee bank (PNB) can prove a failure by

the customer/drawer (Tarlac Province) to exercise
ordinary care that substantially contributed to the making of
the forged signature, the drawer is precluded from asserting
the forgery.

In sum, by reason of Associated Banks indorsement and

warranties of prior indorsements as a party after the forgery,
it is liable to refund the amount to PNB. The Province of
Tarlac can ask reimbursement from PNB because the
Province is a party prior to the forgery. Hence, the
instrument is inoperative. HOWEVER, it has been proven
that the Provincial Government of Tarlac has been negligent
in issuing the checks especially when it continued to deliver
the checks to Pangilinan even when he already retired. Due
to this contributory negligence, PNB is only ordered to pay
50% of the amount or half of P203 K.

BUT THEN AGAIN, since PNB can pass its loss to Associated
Bank (by reason of Associated Banks warranties), PNB can
ask the 50% reimbursement from Associated Bank.
Associated Bank can ask reimbursement from Pangilinan but
unfortunately in this case, the court did not acquire
jurisdiction over him.

12.) PNB VS CA

The check was thereafter cleared. However, on a relevant

date, petitioner PNB returned the check on account
that there had been a material alteration on it.
Subsequent debits were made but Capitol cannot debit the
account of Abante any longer for the latter had withdrawn
all the money already from the account.

This prompted Capitol to seeker clarification from

PBCOM and demanded the reaccrediting of its account.
PBCOM followed suit by doing the same against PNB.
Demands unheeded, it filed an action against PBCOM and
the latter filed a third-party complaint against petitioner.

HELD:

An alteration is said to be material if it alters the effect of

the instrument. It means an unauthorized change in the
instrument that purports to modify in any respect the
obligation of a party or an unauthorized addition of
words or numbers or other change to an incomplete
instrument relating to the obligation of the party. In
other words, a material alteration is one which changes
the items which are required to be stated under Section 1 of
the NIL.
In this case, the alleged material alteration was the
alteration of the serial number of the check in issue
which is not an essential element of a negotiable
instrument under Section 1.

PNB alleges that the alteration was material since it is an

accepted concept that a TCAA check by its very nature
is the medium of exchange of governments,
instrumentalities and agencies.

Material Alteration
256 SCRA 491

FACTS:

DECS issued a check in favor of Abante Marketing

containing a specific serial number, drawn against PNB.
The check was deposited by Abante in its account with
Capitol and the latter consequently deposited the same
with its account with PBCOM which later deposited it
with petitioner for
clearing.

As a safety measure, every government office or

agency is assigned checks bearing different serial
numbers.
But this contention has to fail. The checks serial number is
not the sole indicia of its origin. The name of the
government agency issuing the check is clearly stated
therein. Thus, the checks drawer is sufficiently identified,
rendering redundant the referral to its serial number.
Therefore, there being no material alteration in the check
committed, PNB could not return the check to PBCOM. It
should pay the same.

13.) Ibasco vs. CA

GR 117488,

Negotiable Instruments Law

Case Digest
Glorio Ortega Dumandan, Jr.

5 September 1996
Third Division, Davide Jr. (J)
Facts:
The Ibasco spouses requested credit accommodation fro the
supply of ingredients in the manufacture of animal feeds
from the Trivinio spouses. Ibasco issued 3 checks for 3
deliveries of darak. The checks bounced and the Ibasco
spouses were notified of the dishonor. Ibasco instead offered
a property in Daet. The property, being across the sea, the
Trivinio spouses did not inspect the property. For the failure
of the Ibasco spouses to settle their account, the Trivinio
spouses filed criminal cases against the former for violation
of BP22.
Issue:
Whether the checks were for accommodation or guarantee
to acquire the benefits of the interpretation of Ministry
Circular 4 of the Department of Justice in relation to BP 22.
Held:
Ministry Circular 4, issued 1 December 1981 by the
Department of Justice, provides that where a check is issued
as part of an arrangement to guarantee or secure the
payment of the obligation, pre-existing or not, the drawer is
not criminally liable for either estafa or violation of BP 22.
Incidents however indicate that the checks were issued as
payment and for value, and not for accommodation (i.e.
pertaining to an arrangement made a favor to another, not
upon a consideration received). as the checks failed to bear
any statement for accommodation and for guarantee to
show Ibascos intent. ( It must be noted, however, that BP22
does not distinguish and applies even in cases where
dishonored checks were issued as a guarantee or for deposit
only. The erroneous interpretation of Ministry Circular 4 was
rectified by the repealing Ministry Circular 12, issued on 8
August 1984).

14.) LIM vs CA
251 SCRA 408

15.) Dela Victoria vs Burgos

245 SCRA 374 Mercantile Law Negotiable Instruments
Law Delivery of Negotiable Instruments Paychecks of
Public Officers

FACTS:
Raul Sebreo filed a complaint for damages against Fiscal
Bienvenido Mabanto Jr. of Cebu City. Sebreo won and he
was awarded the payment of damages. Judge Burgos
ordered De La Victoria, custodian of the paychecks of
Mabanto, to hold the checks and convey them to Sebreo
instead. De La Victoria assailed the order as he said that the
paychecks and the amount thereon are not yet
the property of Mabanto because they are not yet delivered
to him; that since there is no delivery of the checks to
Mabanto, the checks are still part of the public funds; and
the checks due to the foregoing cannot be the proper
subject of garnishment.

ISSUE: Whether or not De La Victoria is correct.

HELD: Yes.
Under
Section
16
of
the Negotiable
Instruments Law, every contract on a negotiable instrument
is incomplete and revocable until delivery of the instrument
for the purpose of giving effect thereto. As ordinarily
understood, delivery means the transfer of the possession of
the instrument by the maker or drawer with intent to
transfer title to the payee and recognize him as the holder
thereof.

Negotiable Instruments Law

Case Digest
Glorio Ortega Dumandan, Jr.

16.) Sapiera vs Court of Appeals

[G.R. No. 128927. September 14, 1999]
FACTS:
Petitioner Remedios Sapiera, a sari-sari store owner, was
issued by one Arturo de Guzman checks as payment for
purchases he made at her store. She used said checks to
pay for certain items she purchased from the grocery store
of Ramon Sua. These checks were signed at the back by
petitioner. When presented for payment the checks were
dishonored because the drawers account was already
closed. Sua informed Arturo de Guzman and petitioner
about the dishonor but both failed to pay the value of the
checks. Petitioner was acquitted in the charge of estafa filed
against her but she was found liable for the value of the
checks.
ISSUE:
Whether petitioner is liable for the value of the checks even
if she signed the subject checks only for the identification of
the signature of Arturo de Guzman.

In October 1977, Ford Philippines drew a Citibank check in

the amount of P4,746,114.41 in favor of the Commissioner
of the Internal Revenue (CIR). The check represents Fords
tax payment for the third quarter of 1977. On the face of the
check was written Payees account only which means that
the check cannot be encashed and can only be deposited
with the CIRs savings account (which is with Metrobank).
The said check was however presented to PCIB and PCIB
accepted the same. PCIB then indorsed the check for
clearing to Citibank. Citibank cleared the check and paid
PCIB P4,746,114.41. CIR later informed Ford that it never
received the tax payment.

An investigation ensued and it was discovered that Fords

accountant Godofredo Rivera, when the check was
deposited with PCIB, recalled the check since there was
allegedly an error in the computation of the tax to be paid.
PCIB, as instructed by Rivera, replaced the check with two of
its managers checks.

RULING:
Petitioner is liable for the value of the checks. As she
(petitioner) signed the subject checks on the reverse side
without any indication as to how she should be bound
thereby, she is deemed to be an unqualified indorser
thereof. Every indorser who indorses without qualification,
warrants to all subsequent holders in due course that, on
due presentment, it shall be accepted or paid or both,
according to its tenor, and that if it be dishonored and the
necessary proceedings on dishonor be duly taken, he will
pay the amount thereof to the holder or to any subsequent
indorser who may be compelled to pay it.

It was further discovered that Rivera was actually a member

of a syndicate and the managers checks were subsequently
deposited with the Pacific Banking Corporation by other
members of the syndicate. Thereafter, Rivera and the other
members became fugitives of justice.

G.R. No. 128604

17.) Philippine Commercial Bank vs CA

350 SCRA 446 Mercantile Law Negotiable Instruments
Law Rights of the Holder What Constitutes a Holder in
Due Course Negligence of the Collecting Bank and the
Drawee Bank

FACTS:

There are three cases consolidated here: G.R. No. 121413

(PCIB vs CA and Ford and Citibank), G.R. No. 121479 (Ford vs
CA and Citibank and PCIB), and G.R. No. 128604 (Ford vs
Citibank and PCIB and CA).

In July 1978 and in April 1979, Ford drew two checks in the
amounts of P5,851,706.37 and P6,311,591.73 respectively.
Both checks are again for tax payments. Both checks are for
Payees account only or for the CIRs bank savings account
only with Metrobank. Again, these checks never reached the
CIR.

In an investigation, it was found that these checks were

embezzled by the same syndicate to which Rivera was a
member. It was established that an employee of PCIB, also a
member of the syndicate, created a PCIB account under a
fictitious name upon which the two checks, through high end
manipulation, were deposited. PCIB unwittingly endorsed the
checks to Citibank which the latter cleared. Upon clearing,
the amount was withdrawn from the fictitious account by
syndicate members.

ISSUE:
G.R. No. 121413/G.R. No. 121479

Negotiable Instruments Law

Case Digest
Glorio Ortega Dumandan, Jr.

What are the liabilities of each party?

HELD:

G.R. No. 121413/G.R. No. 121479

PCIB is liable for the amount of the check (P4,746,114.41).

PCIB, as a collecting bank has been negligent in verifying
the authority of Rivera to negotiate the check. It failed to
ascertain whether or not Rivera can validly recall the check
and have them be replaced with PCIBs managers checks as
in fact, Ford has no knowledge and did not authorize such. A
bank (in this case PCIB) which cashes a check drawn upon
another bank (in this case Citibank), without requiring proof
as to the identity of persons presenting it, or making
inquiries with regard to them, cannot hold the proceeds
against the drawee when the proceeds of the checks were
afterwards diverted to the hands of a third party. Hence,
PCIB is liable for the amount of the embezzled check.

G.R. No. 128604

PCIB and Citibank are liable for the amount of the checks on
a 50-50 basis.

As a general rule, a bank is liable for the negligent or

tortuous act of its employees within the course and apparent
scope of their employment or authority. Hence, PCIB is liable
for the fraudulent act of its employee who set up the savings
account under a fictitious name.

Citibank is likewise liable because it was negligent in the

performance of its obligations with respect to its agreement
with Ford. The checks which were drawn against Fords
account with Citibank clearly states that they are payable to
the CIR only yet Citibank delivered said payments to PCIB.
Citibank however argues that the checks were indorsed by
PCIB to Citibank and that the latter has nothing to do but to
pay it. The Supreme Court cited Section 62 of the Negotiable
Instruments Law which mandates the Citibank, as an
acceptor of the checks, to engage in paying the checks
according to the tenor of the acceptance which is to deliver
the payment to the payees account only.

Negotiable Instruments Law

Case Digest
Glorio Ortega Dumandan, Jr.

But the Supreme Court ruled that in the consolidated cases,

that PCIB and Citibank are not the only negligent parties.
Ford is also negligent for failing to examine its passbook in a
timely manner which could have avoided further loss. But
this negligence is not the proximate cause of the loss but is
merely contributory. Nevertheless, this mitigates the liability
of PCIB and Citibank hence the rate of interest, with which
PCIB and Citibank is to pay Ford, is lowered from 12% to 6%
per annum.

18.) International Corporate Bank vs. Gueco

(351 SCRA 516)
FACTS:
The respondents obtained a loan from the petitioner to
purchase a motor vehicle (car). The respondents defaulted
in payment of installments. A civil case was filed by the
petitioner which resulted later into negotiations in lowering
the remaining unpaid balance from P184,000.00 to
P150,000.00, detaining the car until payment thereof.
Respondent delivered a managers check but petitioner
insisted on the signing of Joint Motion to Dismiss, still
holding the motor vehicle. Respondent initiated civil action
for damages before MTC but the case was dismissed for lack
of merit. On appeal to RTC, the decision of MTC was reversed
ordering herein petitioners to indemnify the respondents.
The Court of Appeals likewise affirmed the decision of the
RTC.
ISSUE:
Whether or not the respondents
indemnification for damages.

are

entitled

of

RULING:
NO. Petitioners act of requiring respondents to sign the Joint
Motion to Dismiss can not be said to be a deliberate attempt
on the part of petitioner to renege on the compromise
agreement of the parties. The law presumes good faith. In
fact, the act of petitioner bank in lowering the debt of
respondent from P184,000.00 to P150,000.00 is indicative of
its good faith and sincere desire to settle the case.
The decision of the Court of Appeals affirming the decision
of the RTC was set aside. Respondents were ordered to pay
the original obligation amounting to P150,000.00 to the
petitioner upon surrender or cancellation of the managers
check in the latters possession, after which, petitioner is to
return the subject motor vehicle in good working condition.