Negotiable Instruments Law

Case Digests in Negotiable Instruments Law
Dean Sundiang
Katherine Mae Anonuevo-Ongkeko
Cases in Negotiable Instruments Law
express prohibition against assignment or transfer written in the face of the

instrument.
Case Doctrines
I. Negotiability
1. Philippine Education Co. vs. Soriano
The Weight of authority in the United States is that postal money orders are
not negotiable instruments, the reason being that in establishing and operating
a postal money order system, the government is not engaged in commercial
transactions but merely exercises a governmental power for the public benefit.
Moreover, some of the restrictions imposed upon money orders by postal laws
and regulations are inconsistent with the character of negotiable instruments.
For instance, such laws and regulations usually provide for not more than one
endorsement; payment of money orders may be withheld under a variety of
circumstances.
2. Caltex Phil. vs. Court of Appeals
A negotiable instrument that is payable to bearer may be negotiated by mere
delivery. No further act other than delivery is necessary in order to negotiate the
instrument and to make the transferee a holder.
3. Metrobank vs. Court of Appeals
An instrument to be negotiable instrument must contain an unconditional
promise or orders to pay a sum certain in money. As provided by Sec 3 of NIL
an unqualified order or promise to pay is unconditional though coupled with:
1st, an indication of a particular fund out of which reimbursement is to be made
or a particular account to be debited with the amount; or 2nd, a statement of the
transaction which give rise to the instrument. But an order to promise to pay out
of particular fund is not unconditional.
4. Sesbreno vs. Court of Appeals
Only an instrument qualifying as a negotiable instrument under the relevant
statute may be negotiated either by indorsement thereof coupled with delivery,
or by delivery alone if it is in bearer form. 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 negotiable
instrument may not be negotiated but may be assigned or transferred, absent an
Dean Sundiang
5. Firestone Tire & rubber Co. vs. Court of Appeals

Withdrawal slips are non negotiable instruments. The essence of negotiability
which characterizes a negotiable paper as a credit instrument lies in its freedom
to circulate freely as a substitute for money. The withdrawal slips lacked this
character.
II. Payable to Bearer

6. Ang Tek Lian vs. Court of Appeals
A check drawn payable to the order of cash is a check payable to bearer and
the bank may pay it to the person presenting it for payment without the
drawers indorsement. However, if the bank is not sure of the bearers identity
or financial solvency, it has the right to demand identification or assurance
against possible complication. But where the bank is satisfied of the identity or
economic standing of the bearer who tenders the check for collection, it will
pay the instrument without further question; and it would incur no liability to
the drawer in thus acting.
III. Complete Undelivered

7. Development Bank of the Phils. vs. Sima Wei
The payee of a negotiable instrument acquires no interest with respect thereto
until its delivery to him. Delivery of an instrument means transfer of
possession, actual or constructive, from one person to another. Without the
initial delivery of the instrument from the drawer to the payee, there can be no
liability on the instrument. Moreover, such delivery must be intended to give
effect to the instrument.
IV. Liability of Persons Signing as Agents

8. Philippine Bank of Commerce vs. Aruego
There is a difference between a qualified indorser and a person negotiating by
mere delivery. While a qualified indorser warrants to all subsequent holders, the
Anonuevo-Ongkeko
warranties of the person negotiating by mere delivery extends only in favor of

his immediate transferee.
9. Francisco vs. Court of Appeals
The negotiable Instruments Law provides that when a person is under
obligation to indorse in a representative capacity, he may indorse in such terms
as to negative personal liability. An agent, when so signing, should indicate
that
he
is
merely
signing
as
an
agent
in
behalf
of
the principal and must disclose the name of his principal. Otherwise, he
will be held liable personally
V. Forgeries
10. Jail-Alai vs. Bank of the Philippine Islands
Holders of checks may obtain payment from the drawee bank by presenting it
for payment directly with the bank or by depositing it in his account in another
bank known as the collecting bank or depositary bank. When the holder
deposits his check with the collecting bank, the nature of the relationship
created at that stage is one of agency, that is the bank is to collect from the
drawee of the check the corresponding proceeds.
11. Republic Bank vs. Ebreda
Where the signature on a negotiable instrument is forged, the negotiation of the
check is without force or effect. However, where a check has several
indorsersment on it, it is only the negotiation based on the forged or
unauthorized signature is inoperative. It will not render void all the other
negotiations of the check with respect to other parties whose signatures are
genuine.
12. MWSS vs. Court of Appeals
It is basic that whoever alleges forgery must prove such fact. Forgery cannot be
presumed, it must be duly established.
13. Banco de Oro vs. Equitable Banking Corporation
If the instrument involved is a check, the drawee cannot charge the account of
the drawer if the payees or indorsers signature is forged. The drawee, in turn
has the right of recourse against the collecting bank.
Dean Sundiang
The drawer generally owes no duty of diligence to the collecting bak, 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 and the law holds it to high standard of conduct.
It is the collecting bank that generally suffers the loss with regard to
forged
indorsements
because it had the duty to ascertain the genuineness of all prior
indorsements considering that the act of presenting the check for payment to the
drawee is an assertion that the party making the presentment has done its duty
to ascertain the genuineness of the indorsements.
14. Gempesaw vs. Court of Appeals
A forged signature is wholly inoperative, no one can gain title to the instrument
through such forged insdorsement. Such indorsement prevents any subsequent
partyfrom acquiring any right as against parties prior to the forgery. Although
rights may exist between and among parties subsequent to the forged
instrument, not one of the can acquire rights agasint parties prior to the forgery.
Such forged instrument cuts-off the rights of all subsequent parties as against
parties prior to the forgery. However, the law makes an exception to these rules
where party is precluded from setting up forgery as a defense.
15. Associated Bank vs. Court of Appeals
When a check is deposited with the collecting bank, it takes a risk on its
depositor. It is only logical that this bank be held accountable for checks
deposited by its customers. It is important to mention that Payee whose
signature was forged may directly proceed against the collecting bank.
However, the drawer cannot opt to recover from the collecting bank. There is
no privity of contract between the drawer and the collecting bank.
16. Metrobank vs. First National City Bank
When the indorsement itself is very clear when it begins with the words For
clearance, clearing office such indorsement must be read together with the 24hour rule regulation of the House operations of the Central Bank. Once that 24hour period is over, the liability on such indorsement has ceased. Failure of
drawee bank to call the attention of collecting bank to the alteration of the
check in question until after the lapse of 24 hours negates whatever right it
might have against the collecting bank. Its remedy lies not against collecting
Anonuevo-Ongkeko
bank but against the party responsible for the changing of the name of the payee
and the amount on the face of the check.
17. Republic Bank vs. Court of Appeals
The 24-hour clearing house rule is valid rule applicable to commercial banks.
As general rule, the collecting bank or last endorser bears the loss when the
indorsement was forged. But the unqualified endorsement of the collecting
bank on the check should be read together with the 24-hour regulation on the
clearing house operation. Thus, when the drawee bank fails to return a forged or
altered check to the collecting bank is absolved from liability. Unless an
alteration is attributable to the fault or negligence of the drawer himself, the
remedy of the drawee bank that negligently clears a forged and/or honor altered
check for payment is against the party responsible for the forgery or alteration,
otherwise, it bears the loss.
18. Philippine Commercial International Bank vs. Court of Appeals
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.
19. Ramon Illusorio vs. Court of Appeals
The collecting bank or last endorser generally suffers the loss because it has the
duty to ascertain the genuineness of all prior indorsements considering that the
act of presenting the check for payment to the drawee is an assertion that the
party making the presentment has done its duty to ascertain the genuineness of
the indorsements. As between the drawer and the drawee bank, the drawee bank
should bear the loss. The drawee bank shall have recourse against the collecting
bank because such collecting bank guarantees that all prior endorsements are
genuine. The collecting bank then can go against the forger. In cases involving
a forged check, where the drawers is forged, drawer can recover from the
drawee bank. No drawee bank has a right to pay a forged check. If it does, it
shall have to recredit the amount of check to the account of the drawer. The
liability chain ends with drawee bank whose responsibility it is to know the
drawers signature since the latter is its customer.
Dean Sundiang
20. Samsung Construction Co. Phils, Inc vs. FEBTC and CA

Under Sec. 62 of NIL, among the warranties to be assumed by the acceptor is it
admits the existence of the drawer, the genuineness of his signature, and his
capacity and authority to draw the instrument. It is incumbent upon the drawee
bank to ascertain the genuineness of the signature of its depositor. The
respondent bank in this case did not exercise the degree of diligence required to
enable it to detect the forgery. Aside from the warranties as an indorser, the
collecting bank is made liable because it is privy to the depositor who
negotiated the check because it knows him, his address and history for being a
client thereof. Thus, it is in a better position to detect forgery or irregularity in
the indorsement aka Doctrine of Comparative Negligence
VI. Material Alteration

21. Philippine National Bank vs. Court of Appeals
An alteration is said to be material if it alters the effect of the instrument. It
means an unauthorized change in an 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 a party. In other words, material alteration is one which changes the items
which is required to be stated under Sec 1 of NIL.
22. Montinola vs. Philippine National Bank
The insertion of the words "Agent, Phil. National Bank," which converts the bank from
a mere drawee to a drawer and therefore changes its liability, constitutes a material
alteration of the instrument without the consent of the parties liable thereon, and so
discharges the instrument.
VII. Accommodation Party

23. Sadaya vs. Sevilla
On principle, a solidary accommodation makerwho made paymenthas
the right to contribution, from his co-accomodation maker, in the absence of
agreement to the contrary between them, subject to conditions imposed
by law. This right springs from an implied promise to share equally the
burdens thay may ensue from their having consented to stamp their
signatures on the promissory note.
Anonuevo-Ongkeko
24. Crisologo-Jose vs. Court of Appeals

The provision of NIL which holds an accommodation party liable on the
instrument to holder for value, although such holder at the time of taking the
instrument knew him to be only an accommodation party, does not include nor
apply to corporations which are accommodation parties. This is because the
issue or indorsement of negotiable paper by a corporation without consideration
and for accommodation of another is ultra vires. Hence, one who has taken the
instrument with knowledge of the accommodation nature thereof cannot
recover against a corporation where it is only a accommodation party.
27. BPI vs. Court of Appeals

The withdrawal slip indicates as well as the rules promulgated by BPI that
withdrawal from the bank should be accompanied by the presentment of the
account holders (Napizas) savings bankbook. This was not done so in the case
at bar because Gayon was able to withdraw without it. Further, BPI allowed the
withdrawal even before the check cleared. BPI already credited the $2,500.00
to Napizas account even without the drawee bank clearing the check. This is
contrary to common banking practices and because of such negligence and lack
of diligence, BPI, as the collecting bank, shall suffer the loss.
25. Stelco Marketing vs. Court of Appeals

A person cannot be holder of the check for value if it does not meet the
essential requisites prescribed by the law. He must become the holder of it
before it was overdue, and without notice that it had previously dishonored,
and he took the check in good faith and for value before he can be considered
as a holder of the check for value.
28. Agro Conglomerates, Inc vs. Court of Appeals

An accommodation party is a person who has signed the instrument as maker,
acceptor, or indorser, without receiving value therefor, and for the purpose of
lending his name to some other person and is liable on the instrument to a
holder for value, notwithstanding such holder at the time of taking the
instrument knew (the signatory) to be an accommodation party; Suretyship is
defined as the relation which exists where one person has undertaken an
obligation and another person is also under the obligation or other duty to the
obligee, who is entitled to but one performance, and as between the two who
are bound, one rather than the other should perform.
26. Travel-On BPI vs. Court of Appeals

Check which is regular on its face is deemed prima facie to have been issued
for a valuable consideration and every person whose signature appears thereon
is deemed to have become a party thereto for value. Further the rule is quite
settled that a negotiable instrument is presumed to have been given or indorsed
for a sufficient consideration unless otherwise contradicted and overcome by
another evidence.
In the accommodation transactions recognized by the NIL, an
accommodating party lends his credit to the accommodated party, by issuing or
indorsing a check which is held by the payee or indorsee as a holder in due
course, who gave full value which the accommodated party must repay the
accommodating party, unless of course the accommodating party intended to
make a donation to the accommodated party. But the accommodating party is
bound on the check to the holder in due course who is necessarily a third party
and is not the accommodated party. Having issued or indorsed the check, the
accommodating party has warranted to the holder in due course that he will pay
the same according to its tenor.
Dean Sundiang
VIII. Holders in Due Course

29. De Ocampo vs. Gatchalian
Good faith on the part of the holder is presumed, such presumption is destroyed
if the payee or indorsee acquired possession of the instrument under
circumstances that should have put it to inquiry as to the title of the holder who
negotiated the instrument. The burden is now on the part of the holder to show
that notwithstanding the suspicious circumstances, it acquired in the actual
good faith.
30. Mesina vs. IAC
The holder of a cashiers check who is not a holder in due course
cannot enforce payment against the issuing bank which dishonors the
same. If a payee of a cashiers check obtained it from the issuing bank by
fraud, or if there is some other reason why the payee is not entitled to
collect the check, the bank would of course have the right to refuse
payment of the check when presented by payee.
Anonuevo-Ongkeko
IX. Liability of the General Indorser
X. Presentment for Payment
31. Metropol vs. Sambok

A qualified indorserment constitutes the indorser a mere assignor of the title to
the instrument. It may be made by adding to the indorsers signature the words
without recourse or any words of similar import. Such indorsement relieves
the indorser of the general obligation to pay if the instrument is dishonored but
not of the liability arising from warranties on the instrument as provided by
section 65 of NIL.
35. Prudencial Bank vs. IAC

Acceptance is presumed to be unqualified or absolute. If the drawee intends
toqualify his acceptance, he must do so distinctly and unmistakably or else the
acceptance will be taken as absolute.
Recourse means resort to a person who is secondarily liable after the default of
the person who is primarily liable. A person who indorses without qualification
engages that on due presentment, the note shall be accepted or paid, or both as
the case maybe, and that if it be dishonored, he will pay the amount thereof to
the holder.
32. Maralit vs. Imperial
Any ambiguity in a decision may be clarified by a resort to the text of the
decision or, what is properly called, the opinion part.
33. Sepiera vs. Court of Appeals
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.
34. Bank of the Philippine Islands vs. Court of Appeals
Every negotiable instrument is deemed prima facie to have been issued for a
valuable consideration; every person whose signature appears thereon to have
become a party thereto for value. Therefore, it is up to the party who alleges
that there was absence of consideration to prove such fact.
The presumption will operate only if there was negotiation. Consideration is not
presumed if there was transfer without indorsement.
Dean Sundiang
36. Wong vs. Court of Appeals

A check must be presented for payment within a reasonable time after its issue
or the drawer will be discharged from liability thereon to the extent of the loss
caused by the delay. By current banking practice, a check becomes stale after
more than six (6) months, or 180 days.
37. The International Corporate Bank vs. Francis S. Gueco and Ma. Luz E
Gueco
A stale check is one which has not been presented for payment within a
reasonable time after its issue. It is valueless and, therefore, should not be paid.
Under the negotiable instruments law, an instrument not payable on demand
must be presented for payment on the day it falls due. When the instrument is
payable on demand, presentment must be made within a reasonable time after
its issue. In the case of a bill of exchange, presentment is sufficient if made
within a reasonable time after the last negotiation thereof. A check must be
presented for payment within a reasonable time after its issue, and in
determining what is a "reasonable time," regard is to be had to the nature of the
instrument, the usage of trade or business with respect to such instruments, and
the facts of the particular case. The test is whether the payee employed
suchdiligence as a prudent man exercises in his own affairs. This is because the
nature and theory behind the useof a check points to its immediate use and
payability.
XI. Checks
38. State Investment House Inc. vs. CA
The withdrawal of the money from the drawee bank to avoid liability on the
checks cannot prejudice the rights of holders in due course. For the reason that
the holder who takes the negotiated paper makes a contract with the parties on
the face of the instrument; there is an implied representation that funds or credit
Anonuevo-Ongkeko
are available for the payment of the instrument in the bank upon which it is
withdrawn.
39. Bataan Cigar and Cigarette Factory, Inc. vs. CA
In order to preserve the credit worthiness of checks, jurisprudence has
pronounced that crossing a check should have the following effects: (1) check
may not be encashed but only deposited in the bank; (2) the check may be
negotiated only once, to one who has an account with a bank; (3) and the act of
crossing the check serves as a warning to the holder that the check has been
issued for a definite purpose so that he must inquire if he has received the check
pursuant to that purpose, otherwise he is not a holder in due course.
40. Citytrust banking Corp., vs. Intermediate Appellate Court
Even there was error on the account number the controlling in determining in
whose account the deposit is name of the account owner. This is so because it is
not likely to commit an error in ones name than merely relying on numbers
which are difficult to remember. Numbers are for the convenience of the bank
but was never intended to disregard the real name of its depositors. The bank is
engaged in business impressed with public trust, and it is its duty to protect in
return its clients and depositors who transact business with it.
41. Tan vs. Court of Appeals
A cashiers check is a primary obligation of the issuing bank and accepted in
advance by its mere issuance, and by its peculiar character and general use in
the commercial world is regarded substantially to be as good as the money
which it represents.
42. Papa vs. A.U. Valencia
After more than 10 years from the payment in part by cash and in part by check,
the presumption is that the check had been encashed. Failure of the payee to
encash a check for more than 10 years undoubtedly resulted in the impairment
of the check through his unreasonable and unexplained delay.
Dean Sundiang
Additional Cases
1. Allied Banking Corporation vs. Court of Appeals
The liability of a guarantor/surety is broader than that of an indorser. Unless
the bill is promptly presented for payment at maturity and due notice of
dishonor given to the indorser within a reasonable time, he will be discharged
from liability thereon. On the other hand, except where required by the
provisions of the contract of suretyship, a demand or notice of default is not
required to fix the suretys liability.
2. Sincere Villanueva vs. Marlyn Nite
Section 189 is sound law based on logic and established legal principles: no
privity of contract exists between the drawee-bank and the payee.
3. Bank of the Philippine Island vs. Commissioner of Internal Revenue
Section 195 (now Section 182) of the NIRC covers foreign bills of exchange, letters of
credit, and orders of payment for money, drawn in Philippines, but payable outside the
Philippines. From this enumeration, two common elements need to be present: (1)
drawing the instrument or ordering a drawee, within the Philippines; and (2)
ordering that drawee to pay another person a specified amount of money outside
the Philippines. What is being taxed is the facility that allows a party to draw the draft
or make the order to pay within the Philippines and have the payment made in another
country.
4. Citibank NA vs. Sabeniano

Since a negotiable instrument is only a substitute for money and not money,
the delivery of such an instrument does not, by itself, operate as payment. 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. Mere delivery of checks does not
discharge the obligation under a judgment.
5. Equitable PCI Bank vs. Rowena Ong
A managers check is an order of the bank to pay, drawn upon itself,
committing in effect its total resources, integrity and honor behind its issuance,
and by its peculiar character and general use in commerce, a managers check is
regarded substantially to be as good as the money it represents A managers
check stands on the same footing as a certified check. The effect of certification
Anonuevo-Ongkeko

that those who come to court should come with
is found in Section 187, Negotiable Instruments Law. Sec. 187. Certification of of the rule in equity requiring

check; effect of: Where a check is certified by the bank on which it is drawn,
the certification is equivalent to an acceptance.
6. International Corporate Bank vs. Court of Appeals and PNB

An alteration is said to be material if it alters the effect of the instrument. It
means an unauthorized change in an 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 a party. In other words, a material alteration is one which changes the items
which are required to be stated under Section 1 of the Negotiable Instrument[s]
Law
7. Melva Therese Gonzales vs. Rizal Banking Corporation
The holder or subsequent endorser who tries to claim under the instrument
which had been dishonored for irregular endorsement must not be the
irregular endorser himself who gave cause for the dishonor; Courts of law,
being also courts of equity, may not countenance grossly unfair results without
doing violence to their solemn obligation to administer fair and equal justice
for all: Section 66 of the Negotiable Instruments Law which further states that
the general endorser additionally engages that, on due presentment, the
instrument shall be accepted or paid, or both, as the case may be, 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 endorser who may be compelled to pay it, must be read in the light
clean hands.
8. Metropolitan Bank and Trust Co. Renato Cabilzo

Payment made under materially altered instrument is not payment done in
accordance with the instruction of the drawer.
9. Therese Macalalag vs. People of the Philippines
There is no violation of B.P. 22 if the complainant was actually told by the
drawer that he has no sufficient funds in a bank, and payment by the accused of
the amount of the check prior to its presentation for payment would certainly
serve the same purpose.
10. Bank of the Philippine Islands vs. CA
A bank generally has a right of set-off over the deposits therein for the payment
of any withdrawals on the part of a depositor the right of a collecting bank to
debit a clients account for the value of a dishonored check that has previously
been credited has fairly been established by jurisprudence.
Dean Sundiang
Anonuevo-Ongkeko

#
TITLE
CITATION
FACTS
Philippine
Education
Co. vs. CA
G.R.
No.
L-22405 June
30,
1971,
DIZON, J.
Enrique Montinola sought to purchase

from Manila Post Office 10 money orders
of P200 each payable to E.P. Montinola.
After the postal teller had made out money
orders, Montinola offered to pay for them
with a private check were not generally
accepted in payment of money orders. The
teller advised him to see the Chief of the
Money Order Division but instead,
Montinola managed to lece with his own
check and 10 money orders without the
knowledge of the teller.
ISSUE
DOCTRINE
RATIO
In establishing and operating a

postal money order system, the
government is not engaging in
commercial transactions but merely
exercises a governmental power for
the public benefit.
Of particular application to the

postal money order in question are
the conditions laid down in the
letter of the Director of Posts of
October 26, 1948 (Exhibit 3) to
the Bank of America for the
redemption of postal money orders
received by it from its depositors.
Among others, the condition is
imposed that "in cases of adverse
claim, the money order or money
orders involved will be returned to
you (the bank) and the,
corresponding amount will have to
be refunded to the Postmaster,
Manila, who reserves the right to
deduct the value thereof from any
amount due you if such step is
deemed necessary."
I. NEGOTIABILITY
Upon discovery of the disappearance, a

message was sent to all postmasters and
banks, instructing them not to pay anyone
of the money orders aforesaid if presented
for payment. The Bank of America
received a copy of said notice three days
later.
Is the postal
money order
in question a
negotiable
instrument?
Some of the restrictions imposed upon

money orders by postal laws and
regulations are inconsistent with the
character of negotiable instruments.
For instance, such laws and regulations
usually provide for not more than one
endorsement; payment of money orders
may be withheld under a variety of
circumstances
One of the above-mentioned money orders

was received by appellant as part of its
sales receipts. The following day it
deposited the same with the Bank of
America, and one day thereafter the latter
cleared it with the Bureau of Posts and
received from the latter its face value of
P200.00.
Appellee Mauricio A. Soriano, Chief of
the Money Order Division of the Manila
Post Office notified the Bank of America
that money order had been found to have
been irregularly issued and that, in view
thereof, the amount it represented had been
deducted from the bank's clearing account.
For its part, on August 2 of the same year,
the Bank of America debited appellant's
account with the same amount and gave it
Dean Sundiang
Anonuevo-Ongkeko
advice thereof by means of a debit memo.

Appellant requested the Postmaster
General to reconsider the action taken by
his office deducting the sum of P200.00
from the clearing account of the Bank of
America, but his request was denied.
2
Caltex
Phils vs. CA
G.R.
No.
97753 August
10,
1992
REGALADO,
J.
On various dates, defendant, a commercial

banking institution, through its Sucat
Branch issued 280 certificates of time
deposit in favor of one Angel dela Cruz
who deposited with defendant the amount
of P1,120,000.00. Angel dela Cruz
delivered the said (CTDs) to plaintiff the
fuel products he purchased from the latter.
1)Are
the
subject
CTDs nonnegotiable
despite
being clearly
negotiable
instrument?
Angel dela Cruz informed Mr. Timoteo

Tiangco, Branch Manger, that he lost all
the CTDs. Mr. Tiangco advised him to
execute and submit a notarized Affidavit
of Loss, as required by defendant bank's
procedure, if he desired replacement of
said lost CTDs
2)Did
the
petitioner
become
a
holder in due
course of the
said CTDs
Angel dela Cruz executed and delivered to

defendant bank the required Affidavit of
Loss. On the basis of it, 280 replacement
CTDs were issued.
Angel dela Cruz negotiated and obtained a
loan from defendant bank in the amount of
(P875,000.00). The depositor then
executed a notarized Deed of Assignment
of Time Deposit which stated, that he
surrenders to defendant bank "full control
of the indicated time deposits from and
after date" of the assignment and further
authorizes said bank to pre-terminate,
set-off and "apply the said time deposits to
the payment of whatever amount or
amounts may be due" on the loan upon its
Dean Sundiang
1)Negotiable. Section 1 Act No. 2031,

otherwise known as the Negotiable
Instruments Law, enumerates the
requisites for an instrument to become
negotiable, viz:
(a) It must be in writing and signed by
the maker or drawer; (b) Must contain
an unconditional promise or order to
pay a sum certain in money; (c) Must
be payable on demand, or at a fixed or
determinable future time; (d) Must be
payable to order or to bearer; and (e)
Where the instrument is addressed to a
drawee, he must be named or otherwise
indicated therein with reasonable
certainty.
The accepted rule is that the
negotiability or non-negotiability of an
instrument is determined from the
writing, that is, from the face of the
instrument itself.
2) No. Angel de la Cruz, whom
petitioner chose not to implead in this
suit for reasons of its own, delivered
the CTDs amounting to P1,120,000.00
to petitioner without informing
respondent bank thereof at any time.
Unfortunately for petitioner, although
the CTDs are bearer instruments, a
valid negotiation thereof for the true
purpose and agreement between it and
Anonuevo-Ongkeko
1)
The
CTDs
meet
the
requirements of the law for
negotiability. The parties' bone of
contention is with regard to
requisite (d) set forth above. It is
noted that Mr. Timoteo P.
Tiangco, Security Bank's Branch
Manager way back in 1982,
testified in open court that the
depositor in the CTDs is no
other than Mr. Angel de la
Cruz.
Contrary to what respondent court
held, the CTDs are negotiable
instruments.
The
documents
provide that the amounts deposited
shall be repayable to the depositor.
And who, according to the
document, is the depositor? It is
the "bearer." The documents do
not say that the depositor is Angel
de la Cruz and that the amounts
deposited
are
repayable
specifically to him. Rather, the
amounts are to be repayable to the
bearer of the documents or, for
that matter, whosoever may be the
bearer at the time of presentment.
2) 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
10

maturity.
De la Cruz, as ultimately ascertained,

requires both delivery and indorsement.
Mr. Aranas, Credit Manager of plaintiff

Caltex (Phils.) went to the defendant
bank's and presented for verification
the CTDs declared lost by Angel dela
Cruz alleging that the same were
delivered to herein plaintiff "as security
for purchases made with Caltex
Philippines, Inc."
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.
the loan of Angel dela Cruz with the

defendant bank matured and fell due and
on August 5, 1983, the latter set-off and
applied the time deposits in question to the
payment of the matured loan
Metrobank
vs. CA
Dean Sundiang
G.R.
No.
88866,
February 18,
1991, CRUZ,
J.
Eduardo Gomez opened an account with

Golden Savings and deposited over a
period of two months 38 treasury warrants
with a total value of P1,755,228.37. They
were all drawn by the Philippine Fish
Marketing Authority and purportedly
signed by its General Manager and
countersigned by its Auditor. Six of these
were directly payable to Gomez while the
others appeared to have been indorsed by
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.
Whether or
not
the
treasury
warrants
involved in
the case are
negotiable
instruments
Sec. 1. Form of negotiable

instruments. An instrument to be
negotiable must conform to the
following requirements:
(a) It must be in writing and signed by
the maker or drawer; (b) Must contain
an unconditional promise or order to
pay a sum certain in money; (c) Must
be payable on demand, or at a fixed or
Anonuevo-Ongkeko
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.
The treasury warrants are not
negotiable instruments. Clearly
stamped on their face is the word:
non negotiable. Moreover, and
this is equal significance, it is
indicated that they are payable
from a particular fund, to wit,
Fund 501. An instrument to be
negotiable
instrument
must
contain an unconditional promise
11

their respective payees,
Gomez as second indorser.
followed
by
determinable future time; (d) Must be

payable to order or to bearer; and (e)
Where the instrument is addressed to a
drawee, he must be named or otherwise
indicated therein with reasonable
certainty.
All these warrants were subsequently

indorsed by Gloria Castillo as Cashier of
Golden Savings and deposited to its
Savings Account in Metrobank, Calapan.
They were then sent for clearing.
Sec. 3. When promise is unconditional.

An unqualified order or promise to
pay is unconditional within the
meaning of this Act though coupled
with
Gloria Castillo went to the Calapan branch

several times to ask whether the warrants
had been cleared. She was told to wait.
Accordingly, Gomez was meanwhile not
allowed to withdraw from his account.
Later, however, "exasperated" over
Gloria's repeated inquiries and also as an
accommodation for a "valued client," the
petitioner says it finally decided to allow
Golden Savings to withdraw from the
proceeds of the warrants.
(a) An indication of a particular fund

out of which reimbursement is to be
made or a particular account to be
debited with the amount; or (b) A
statement of the transaction which
gives rise to the instrument judgment.
But an order or promise to pay out of
a particular fund is not unconditional.
Metrobank informed Golden Savings that

32 of the warrants had been dishonored by
the Bureau of Treasury and demanded the
refund by Golden Savings of the amount it
had previously withdrawn, to make up the
deficit in its account.
4
Sesbreo
vs. CA
G.R.
No.
89252
May
24,
1993,
FELICIANO,
J.
Petitioner Raul Sesbreo made a money

market placement in the amount of
P300,000.00
with
the
Philippine
Underwriters Finance Corporation He also
issued
(a) the Certificate of Confirmation of Sale,
"without recourse (b) the Certificate of
securities with the notation that the said
security was in custodianship of Pilipinas
Bank, (c) post-dated checks with petitioner
as payee, Philfinance as drawer, and
Insular Bank of Asia and America as
Dean Sundiang
Whether or
not
the
instrument is
still
negotiable
even
stamped as
NonNegotiable
1. A non-negotiable instrument may,

obviously, not be negotiated; but it may
be assigned or transferred, absent an
express prohibition against assignment
or transfer written in the face of the
instrument:
The
words
not
negotiable, stamped on the face of the
bill of lading, did not destroy its
assignability, but the sole effect was to
exempt the bill from the statutory
provisions relative thereto, and a bill,
though not negotiable, may be
transferred by assignment; the assignee
taking subject to the equities between
Anonuevo-Ongkeko
or orders to pay a sum certain in

money. As provided by Sec 3 of
NIL an unqualified order or
promise to pay is unconditional
though coupled with: 1st, an
indication of a particular fund out
of which reimbursement is to be
made or a particular account to be
debited with the amount; or 2nd, a
statement of the transaction which
give rise to the instrument. But an
order to promise to pay out of
particular
fund
is
not
unconditional. The indication of
Fund 501 as the source of the
payment to be made on the
treasury warrants makes the order
or
promise
to
pay
not
conditional and the warrants
themselves non-negotiable. There
should be no question that the
exception on Section 3 of NIL is
applicable in the case at bar.
1. DMC PN No. 2731, while

marked non-negotiable, was not
at the same time stamped
non-transferrable
or
non-assignable. It contained no
stipulation
which
prohibited
Philfinance from assigning or
transferring, in whole or in part,
that Note.
2. Apropos Deltas complaint that
the
partial
assignment
by
Philfinance of DMC PN No. 2731
had been effected without the
12
drawee
the original parties.
Petitioner sought to encash the postdated

checks issued by Philfinance. However,
the checks were dishonored for having
been drawn against insufficient funds.
2. Debtors consent not needed to

effectuate assignment.
Petitioner approached Ms. Elizabeth de

Villa of private respondent Pilipinas and
handed her a demand letter informing the
bank that his placement with Philfinance in
the amount reflected in the DCR No.
10805 had remained unpaid and
outstanding, and that he in effect was
asking for the physical delivery of the
underlying promissory note. Petitioner
then examined the original of the DMC PN
No. 2731 and found: that the security had
been issued on 10 April 1980; that it would
mature on 6 April 1981; that it had a face
value of P2,300,833.33, with the
Philfinance as "payee" and private
respondent Delta Motors Corporation
("Delta") as "maker;" and that on face of
the promissory note was stamped "NON
NEGOTIABLE." Pilipinas did not
deliver the Note, nor any certificate of
participation in respect thereof, to
petitioner.
5
Firestone
Tire &
Rubber Co.
vs. CA
G.R.
No.
113236.
March
5,
2001,
QUISUMBIN
G, J.
Defendant-banking corporation had as one

of its client-depositors the Fojas-Arca
Enterprises Company. the latter authorized
and allowed withdrawals of funds
therefrom through the medium of special
withdrawal slips. These are supplied by the
defendant to Fojas-Arca.
Plaintiff and Fojas-Arca entered into a
Franchised
Dealership
Agreement
whereby Fojas-Arca has the privilege to
purchase on credit and sell plaintiffs
Dean Sundiang
Whether or
not
respondent
bank should
be
held
liable
for
damages
suffered by
petitioner,
due to its
allegedly
belated
A bank is under obligation to treat the

accounts of its depositors with
meticulous care, whether such account
consists only of a few hundred pesos or
of millions of pesos.
Anonuevo-Ongkeko
consent of Delta, we note that such

consent was not necessary for the
validity and enforceability of the
assignment in favor of petitioner.
Deltas
argument
that
Philfinances sale or assignment of
part of its rights to DMC PN No.
2731 constituted conventional
subrogation, which required its
(Deltas)
consent,
is
quite
mistaken.
The fact that the other withdrawal

slips were honored and paid by
respondent bank was no license
for Citibank to presume that
subsequent slips would be honored
and paid immediately. By doing
so, it failed in its fiduciary duty to
treat the accounts of its clients
with the highest degree of care.
13

products.
On January-May, Fojas-Arca purchased on
credit Firestone products from plaintiff
with a total amount of P4,896,000.00. In
payment of these purchases, Fojas-Arca
delivered to plaintiff six (6) special
withdrawal slips drawn upon the
defendant. In turn, these were deposited by
the plaintiff with its current account with
the Citibank. All of them were honored
and paid by the defendant.
notice
of
nonpayment of
the subject
withdrawal
slips.
This singular circumstance made plaintiff

believe and relied on the fact that the
succeeding special withdrawal slips drawn
upon the defendant would be equally
sufficiently funded. Relying on such
confidence and belief and as a direct
consequence thereof, plaintiff extended to
Fojas-Arca other purchases on credit of its
products.
On the following days Fojas-Arca
purchased Firestone products on credit nd
delivered to plaintiff the corresponding
special withdrawal slips in payment
thereof. These were likewise deposited by
plaintiff in its current account with
Citibank and in turn the Citibank
forwarded it to the defendant for payment
and collection
Because of the absence for a long period
coupled with the fact that defendant
honored and paid withdrawal slips,
plaintiffs belief was all the more
strengthened that the other withdrawal
slips were likewise sufficiently funded
However, on December 14, 1978, plaintiff
was informed by Citibank that some of the
Dean Sundiang
Anonuevo-Ongkeko
14
special withdrawal slips were dishonored

and not paid for the reason NO
ARRANGEMENT.
As a consequence, the Citibank debited
plaintiffs account for the total sum of
P2,078,092.80 representing the aggregate
amount of the two special withdrawal
slips.
II. PAYABLE TO BEARER

6
Ang Tek
Lian vs. CA
G.R.
L-2516
No.
September 25,
1950,
BENGZON,
J.
Ang Tek Lian, knowing he had no funds,

drew on November 16, 1946, a check upon
the China Banking Corporation f or the
sum of P4,000, payable to the order of
"cash". He delivered it to Lee Hua Hong
in exchange for money which the latter
handed in the act.
The next business day, the check was
presented by Lee Hua Hong to the drawee
bank for payment, but it was dishonored
for insufficiency of funds.
CA believed the version of Lee Huan
Hong who testified that appellant went to
his office and asked him to exchange sum
of P4000 represented by the check, but
could not withdraw it to the bank, it being
already closed. He relied that the
appellants assurance that he had sufficient
funds. And that upon dishonor and that
despite repeated efforts to notify him that
the check had been dishonored by the
bank, appellant could not be located
any-where, until he was summoned in the
City Fiscal's Office
Dean Sundiang
Whether or
not
estafa
was
committed
by issuing
either
a
postdated
check or an
ordinary
check
to
accomplish
the deceit, It
is
argued
that as the
check
had
been made
payable to
cash: and
had not been
endorsed by
Ang
Tek
Lian,
the
defendant is
not guilty.
A check payable to the order of

"cash" is a check payable to bearer,
and the bank may pay it to the person
presenting it for payment without the
drawer's indorsement.
The Court of Appeals declared

that it was returned unsatisfied
because
the
drawer
had
insufficient fundsnot because the
drawer's indorsement was lacking.
A check payable to bearer is authority

for payment to the holder. Where a
check is in the ordinary form, and is
payable to bearer, so that no
indorsement is required, a bank, to
which it is presented for payment, need
not have the holder identified, and is
not negligent in failing to do so.
Of course, if the bank is not sure

of the bearer's identity or financial
solvency, it has the right to
demand
identification
and/or
assurance
against
possible
complications,for instance, (a)
forgery of drawer's signature, (b)
loss of the check by the rightful
owner, (c) raising of the amount
payable, etc. The bank may
therefore
require,
for
its
protection, that the indorsement of
the draweror of some other
person known to itbe obtained.
But where the Bank is satisfied of
the identity and/or the economic
standing of the bearer who tenders
the check for collection, it will pay
the instrument without further
question; and it would incur no
liability to the drawer in thus
acting.
Anonuevo-Ongkeko
15

III. COMPLETE BUT UNDELIVERED (SECTION 16)
Developme
nt Bank of
the Phil vs.
Sima Wei
G.R.
No.
85419 March
9,
1993,
CAMPOS,
JR., J.
Respondent Sima Wei executed and

delivered to petitioner Bank a promissory
note engaging to pay the petitioner Bank
or order the amount of P1,820,000.00.
Sima Wei subsequently issued two crossed
checks payable to petitioner Bank drawn
against China Banking Corporation in full
settlement of the drawer's account
evidenced by the promissory note. These
two checks however were not delivered to
the petitioner-payee or to any of its
authorized representatives but instead
came into the possession of respondent
Lee Kian Huat, who deposited the checks
without the petitioner-payee's indorsement
to the account of respondent Plastic
Corporation with Producers Bank. Inspite
of the fact that the checks were crossed
and payable to petitioner Bank and bore no
indorsement of the latter, the Branch
Manager of Producers Bank authorized the
acceptance of the checks for deposit and
credited them to the account of said Plastic
Corporation.
Whether or
not
the
petitioner
bank
has
cause
of
action
against Sima
Wei for the
undelivered
checks: NO
Section 16 of the NIL provides that

every contract on a negotiable
instrument is incomplete and revocable
until delivery of the instrument for the
purpose of giving effect thereto.
A negotiable instrument of which a
check is, is not only a written evidence
of a contract right but is also a species
of property.
Courts have long recognized the
business custom of using printed
checks where blanks are provided for
the date of issuance, the name of the
payee, the amount payable and the
drawer's signature. All the drawer has
to do when he wishes to issue a check
is to properly fill up the blanks and
sign it. However, the mere fact that he
has done these does not give rise to any
liability on his part, until and unless the
check is delivered to the payee or his
representative.
A
negotiable
instrument, of which a check is, is not
only a written evidence of a contract
right but is also a species of property.
Just as a deed to a piece of land must
be delivered in order to convey title to
the grantee, so must a negotiable
instrument be delivered to the payee in
order to evidence its existence as a
binding contract.
Petitioner has a right of action for

the balance due on the Promisory
Note.
It does not necessarily follow that
the drawer Sima Wei is freed from
liability to petitioner Bank under
the loan evidenced by the
promissory note agreed to by her.
Her allegation that she has paid
the balance of her loan with the
two checks payable to petitioner
Bank has no merit for, as We have
earlier explained, these checks
were never delivered to petitioner
Bank. And even granting, without
admitting, that there was delivery
to petitioner Bank, the delivery of
checks in payment of an obligation
does not constitute payment unless
they are cashed or their value is
impaired through the fault of the
creditor. None of these exceptions
were alleged by respondent Sima
Wei.
The payee of a negotiable instrument

acquires no interest with respect
thereto until its delivery to him.
Delivery of an instrument means
transfer of possession, actual or
constructive, from one person to
Dean Sundiang
Anonuevo-Ongkeko
16
another. Without the initial delivery of

the instrument from the drawer to the
payee, there can be no liability on the
instrument. Moreover, such delivery
must be intended to give effect to the
instrument.
The delivery of checks in payment of an
obligation does not constitute payment
unless they are cashed or their value is
impaired through the fault of the
creditor.
IV. LIABILITY OF PERSONS SINGING AS AGENT (SECTION 20)

8
Phil Bank
of
Commerce
vs. Aruego
G.R.
Nos.
L-25836-37
January
31,
1981,
FERNANDEZ
, J.
Aruego, on behalf of World Current

Events, entered into a Credit Agreement
with PBCom, for the publication of the
companys
periodicals.
At
every
printing endeavor by the printing press,
a bill of exchange is drawn against
PBCom. The instruments are signed by
Aruego, without any indication that he is
an agent of World Current Events. When
he was being held liable by PBCom, he
averred that he only signed the instrument
in the capacity of agent of the company.
The defendant filed a motion to dismiss
the complaint on December 17, 1959 on
the ground that the complaint states no
cause of action because:
a) When the various bills of exchange
were presented to the defendant as drawee
for acceptance, the amounts thereof had
already been paid by the plaintiff to the
drawer (Encal Press and Photo Engraving),
without knowledge or consent of the
defendant drawee.
b) In the case of a bill of exchange, like
those involved in the case at bar, the
Dean Sundiang
Whether or
not Aruego
is liable for
not
indicating
that he is
merely
an
agent. YES
1. Bills of Exchange; A party who signs

a bill of exchange as an agent, but
failed to disclose his principal becomes
personally liable for the drafts he
accepted.
2. Liability of an accommodation
party.In lending his name to be
accommodated
party,
the
accommodation party is in effect a
surety for the latter. He lends his name
to enable the accommodated party to
obtain credit or to raise money. He
receives no part of the consideration
for the instrument but assumes liability
to the other parties thereto because he
wants to accommodate another.
3. Liability of an acceptor or drawee is
primary; A party, a lawyer, who
intends to be secondarily liable should
not have signed as an acceptor or
drawee
4. A commercial paper which conforms
under the definition of a bill of
exchange is a bill of exchange; Nature
of acceptance is important only in the
Anonuevo-Ongkeko
1.An inspection of the drafts

accepted by the defendant shows
that nowhere has he disclosed that
he was signing as a representative
of the Philippine Education
Foundation Company. He merely
signed
as
follows.
JOSE
ARUEGO (Acceptor) (SGD)
JOSE ARUEGO. For failure to
disclose his principal, Aruego is
personally liable for the drafts he
accepted.
3. In the instant case, the
defendant
signed
as
a
drawee/acceptor.
Under
the
Negotiable Instruments Law, a
drawee is primarily liable. Thus, if
the defendant who is a lawyer,
really intended to be secondarily
liable only, he should not have
signed as an acceptor/drawee. In
doing so, he became primarily and
personally liable for the drafts.
4. As long as a commercial paper
conforms with the definition of a
bill of exchange, that paper is
17

defendant drawee is an accommodating
party only for the drawer (Encal Press and
Photo-Engraving) and will be liable in the
event that the accommodating party
(drawer) fails to pay its obligation to the
plaintiff.
Francisco
vs. CA
G.R.
No.
116320.
November 29,
1999,
GONZAGA-R
EYES, J.
A. Fransisco Realty and Development

and
Herby
Commercial
and
Construction Corporation entered into
a Land Development and Construction
Contract. Fransisco was the president
of AFRDC while Ong was the president
of HCCC.
It was agreed upon that
HCCC would undertake the construction
of housing units and the development of a
large parcel of land. The payment would
be on a turnkey basis. To facilitate the
payment, AFDRC executed a Deed of
Assignment to enable the HCCC to
collect payments from the GSIS. Further,
they opened an account with a bank from
which checks would be issued by
Fransisco and the GSIS president.
Liablity
under forged
signature
determination of liability of the parties,

hut not to determine whether a
commercial paper is a bill of exchange
or not.
considered a bill of exchange. The

nature
of
acceptance
is
important
only
in
the
determination of the kind of
liabilities of the parties involved,
but not in the determination of
whether a commercial paper is a
bill of exchange or not.
Indorsement;
The
Negotiable
Instruments Law provides that where
any person is under obligation to
indorse in a representative capacity, he
may indorse in such terms as to
negative personal liability.
Ongs signature was found to be

forged by Francisco. Petitioner
claims that she was, in any event,
authorized to sign Ongs name on
the checks by virtue of the
Certification executed by Ong in
her favor giving her the authority
to collect all the receivables of
HCCC from the GSIS, including
the questioned checks. Petitioners
alternative defense must similarly
fail. The Negotiable Instruments
Law provides that where any
person is under obligation to
indorse in a representative
capacity, he may indorse in such
terms as to negative personal
liability. An agent, when so
signing, should indicate that he is
merely signing in behalf of the
principal and must disclose the
name of his principal; otherwise
he shall be held personally liable.
Even assuming that Francisco was
authorized by HCCC to sign
Ongs name, still, Fran cisco did
not indorse the instrument in
accordance with law. Instead of
signing Ongs name, Francisco
should have signed her own name
and expressly indicated that she
was signing as an agent of HCCC.
Thus, the Certification cannot be
HCCC later on filed a complaint for the

unpaid balance in pursuance to its
agreement with AFRDC. However, an
amicable settlement ensued, which was
embodied in a Memorandum of
Agreement. It was embodied in said
agreement that GSIS recognizes its
indebtedness to HCCC and that HCCC
would also pay its obligations to AFRDC.
A year later, it was found out that
Diaz and Fransisco had drawn checks
payable to Ong. Ong denied accepting
said checks and it was further found out
that Diaz entrusted the checks to
Dean Sundiang
Anonuevo-Ongkeko
18
Fransisco who later forged the signature

of Ong, showing that he indorsed the
checks to her and then she
deposited the checks to her personal
savings
account.
This
incident
prompted Ong to file a complaint against
Fransisco
used by Francisco to validate her

act of forgery.
V. FORGERY
10
Jai-Alai vs.
BPI
No. L-29432.
August
6,
1975.
CASTRO, J.
Dean Sundiang
10 checks were deposited by Jai-Alai

Corporation (petitioner) in its current
account with the bank. These checks
were acquired by the petitioner from one
Antonio J. Ramirez, a sales agent of the
Inter-Island Gas and a regular bettor at
jai-alai games. Inter-Island later found
out that of the forgeries committed in
the checks and thus, it informed all the
parties concerned. Upon the demands on
the bank as the collecting bank, it debited
the account of petitioner.
Thereafter,
petitioner tried to issue a check for
payment of shares of stock but such
was dishonored for insufficient funds. It
filed a complaint against the bank
(a) Whether
the
respondent
had the right
to debit the
petitioners
current
account in
the amount
correspondin
g to the total
value of the
checks
in
question
after more
than
three
months had
elapsed from
the date their
value
was
credited to
the
petitioners
account:
(b) Whether
the
respondent
is estopped
from
claiming that
the amount
of
P8,030.58,
representing
1.Checks; Banks; Agency; Where check

is deposited with a collecting bank
relationship created is that of agency,
not creditor-debtor. Same rule follows
where after drawee-bank paid the
collecting bank, it was found that
signature of payee of checks was
forged by one who previously encashed
them.
2. Lapse of 3 months after collecting
bank obtained proceeds of checks from
drawee-bank before it informed
depositor of fact checks were forged
not material where collecting bank
acted promptly upon being informed of
forgery. Moreover, depositor of a
check as indorser warrants that it is
genuine and in all respects what it
purports to be.
3. One who indorses a bearer
instrument incurs liability of general
indorser that instrument is genuine. At
all events, under Section 67 of the
Negotiable Instruments Law, Where a
person places his indorsement on an
instrument negotiable by delivery he
incurs all the liability of an indorser,
and under Section 66 of the same
statute a general indorser warrants that
the instrument is genuine and in all
respects what it purports to be.
Anonuevo-Ongkeko
1. When the petitioner deposited

the checks with the respondent,
the nature of the relationship
created at that stage was one of
agency, that is, the bank was to
collect from the drawee of the
checks
the
corresponding
proceeds. It is true that the
respondent had already collected
the proceeds of the checks when it
debited the petitioners account, so
that following the rule in Gullas
vs. Philippine National Bank it
might be argued that the
relationship between the parties
had become that of creditor and
debtor as to preclude the
respondent from using the
petitioners funds to make
payments not authorized by the
latter. It is our view nonetheless
that no creditor-debtor relationship
was created between the parties. x
x x Since under the foregoing
provision of Section 23 of the
forged signature in a negotiable
instrument is wholly inoperative
and no right to discharge it or
enforce its payment can be
acquired through or under the
forged signature except against
a party who cannot invoke the
forgery, it stands to reason, upon
19

the
total
value of the
checks with
the forged
indorsement
s, had not
been
properly
credited to
the
petitioners
account,
since
the
same
had
already been
paid by the
drawee-bank
s
and
received in
due course
by
the
respondent;
and
(c) On the
assumption
that
the
respondent
had
improperly
debited the
petitioners
current
account
In
our
opinion, the
respondent
acted within
legal bounds
when
it
debited the
petitioners
Dean Sundiang
Anonuevo-Ongkeko

the facts of record, that the
respondent, as a collecting bank
which indorsed the checks to the
drawee-banks for clearing, should
be liable to the latter for
reimbursement, for, as found by
the court a quo and by the
appellate court, the indorsements
on the checks had been forged
prior to their delivery to the
petitioner. In legal contemplation,
therefore, the payments made by
the drawee- banks to the
respondent on account of the said
checks were ineffective; and, such
being the case, the relationship of
creditor and debtor between
petitioner and the respondent had
not been validly effected, the
checks not having been properly
and legitimately converted into
cash. In Great Eastern Life Ins.
Co. vs. Hongkong & Shanghai
Bank, the Court rule that it is the
obligation of the collecting bank to
reimburse the drawee-bank the
value of the checks subsequently
found to contain the forged
indorsement of the payee. The
reason is that the bank with which
the check was deposited has, no
right to pay the sum stated therein
to the forger or anyone else upon
a forged signature. x x x The
petitioner must in turn shoulder
the loss of the amounts which the
respondent, as its collecting agent,
had to reimburse to the
drawee-banks.
2. We do not consider material for
the purposes of the case at bar that
more than three months had
20
account.
11
Republic
vs. Ebrada
No. L-40796.
July 31, 1975
MARTIN, J.
Dean Sundiang
Ebrada encashed a Back Pay Check

issued by the Bureau of Treasury at the
Republic Bank in Escolta Manila.
Plaintiff Bank was later advised by the
said bureau that the alleged indorsement
on the reverse side of the aforesaid check
by the payee, Martin Lorenzo was a
2
forgery since the latter had allegedly died
3
as of July 14, 1952. Plaintiff Bank was
then requested by the Bureau of Treasury
4
to refund the amount of P1,246.08. To
recover what it had refunded to the Bureau
of Treasury, plaintiff Bank made verbal
and formal demands upon defendant
Can
Republic
Bank
recover from
Mauricia
Ebrada?
Yes, Ebrada
should
return
the
proceeds of
the
check
to Republic
Bank.
As
an indorser
of the check,
she
was
elapsed since the proceeds of the

checks in question were collected
by respondent. The records shows
that the respondent had acted
promptly after being informed that
the indorsements on the checks
were forged. Moreover having
received the checks merely for
collection and deposit, the
respondent cannot be expected to
know or ascertain the genuineness
of all prior indorsements on the
said checks. Indeed, having itself
indorsed them to the respondent in
accordance with the rules and
practices of commercial banks, of
which the Court takes due
cognizance, the petitioner is
deemed to have given the warranty
prescribed in Section 66 of the
Negotiable Instruments Law
that every single one of those
checks is genuine and in all
respects what it purports to be.
1.Checks; It is only the negotiation
predicated on the forged indorsement
that should be declared inoperative.
Section 23: When the signature is
forged or made without the authority of
the person whose signature it purports
to be, it is wholly inoperative, and no
right to retain the instruments, or to
give a discharge thereof against any
party thereto, can be acquired through
or under such signature unless the
party against whom it is sought to
enforce such right is PRECLUDED
from setting up the forgery or want of
authority.
Anonuevo-Ongkeko
1.It can be safely concluded that it

is only the negotiation predicated
on the forged indorsement that
should be declared inoperative.
This means that the negotiation of
the check in question from Martin
Lorenzo, the original payee, to
Ramon R. Lorenzo the second
indorser, should be declared of no
effect, but the negotiation of the
aforementioned check from
Ramon R. Lorenzo to Adeliada
Dominguez, the third indorser,
and from Adelaida Dominguez
to the defendant-appellant who
did not know of the forgery,
should be considered valid and
21

Ebrada to account for the sum of
P1,246.08, but said defendant refused to
do so.
This is the sequence:
Martin Lorenzo
The deceased person, original
payee, where the forgery
happened
Ramon Lorenzo
Delia Dominguez
Mauricia Ebrada
Defendant-appelant
Ebrada filed her answer denying the
material allegations of the complaint and
as affirmative defenses alleged that she
was a holder in due course of the check in
question, or at the very least, has acquired
her rights from a holder in due course and
therefore entitled to the proceeds thereof.
She also alleged that the plaintiff Bank has
no cause of action against her; that it is in
estoppel, or so negligent as not to be
entitled to recover anything from her.
Dean Sundiang
supposed to
have
warranted
that she has
good title to
said check.
See Section
65.

enforceable, barring any claim of
forgery.
2. If the drawee-bank discovers that the

signature of the payee was forged after
it has paid the amount of the check to
the holder thereof, it can recover the
amount paid from the said holder.
(Section 65) One who purchases a
check or draft is bound to satisfy
himself that the paper is genuine and
that by indorsing it or presenting it for
payment or putting it into circulation
before presentation he impliedly asserts
that he has performed his duty and the
drawee who has paid the forged check,
without actual negligence on his part,
may recover the money paid from such
negligent purchasers. In such cases the
recovery is permitted because although
the drawee was in a way negligent in
failing to detect the forgery, yet if the
encasher of the check had performed
his duty, the forgery would in all
probability, have been detected and the
fraud defeated.
3. Fact that the person who encashed
the check wherein the signature of the
payee was forged turned over the
proceeds to the one who indorsed said
check to the said holder would not
exempt the encasher from liability as
by doing so he acted as an
accomodation party
Anonuevo-Ongkeko
Martin Lorenzo
Signature inoperative
Ramon Lorenzo
To Dominguez: operative
Delia Dominguez
To Ebrada: operative
Mauricia Ebrada
Drawee bank can collect from the
one who encashed the check. If
Ebrada performed the duty of
ascertaining the genuiness of
the check, in all probability, the
forgery wouyld have been detected
and the fraud defeated.
2. in the case before us, the
defendant-appellant,
upon
receiving the check in question
from Adelaida Dominguez, was
duty-bound to ascertain whether
the check in question was genuine
before presenting it to plaintiff
Bank for payment. Her failure to
do so makes her liable for the loss
and the plaintiff Bank may recover
from her the money she received
for the check.
3. The fact that immediately after
receiving the cash proceeds of the
check in question x x x
defendant-appellant immediately
turned over said amount to
Adelaida Dominguez (Third-Party
defendant and the Fourth- Party
Plaintiff) who in turn hand the
amount to Justina Tinio on the
22

same date would not exempt her
from liability because by doing so,
she acted as an accommodation
party to the check for which she is
also liable under Section 29 of the
Negotiable Instruments Law
12
MWSS vs.
CA
No. L-62943.
July 14, 1986
GUTIERREZ,
JR., J .
13
Banco de
Oro vs.
Equitable
Banking
Corporatio
n
Dean Sundiang
No. L-74917.
January
20,
1988
GANCAYCO,
J.
MWSS had an account from PNB. Its

treasurer, auditor, and General Manager
are the ones authorized to sign checks.
During a period of time, 23 checks were
drawn and debited against the account
of petitioner. Bearing the same check
numbers, the amounts stated therein were
again
debited from the account of petitioner.
The amounts drawn were deposited in the
accounts of the payees in PCIB. It was
found out though that the names stated in
the drawn checks were all fictitious.
Petitioner demanded the return of the
amounts debited but the bank refused to do
so. Thus, it filed a complaint.
BDO (plaintiff) through its Visa Card

Department, drew six crossed Managers
check having an aggregate amount of
(P45,982.23) Pesos and payable to certain
member establishments of Visa Card.
Subsequently, the Checks were deposited
with the defendant to the credit of its
1.Evidence; There is no clear evidence

in this case that the signatures on the
checks are forgeries. The NBI reports
indicate
that
the
anomalous
encashment of the checks were an
inside job or due to negligence of
MWSS.
2. Where a depositor is using its own
personalized checks, its failure to
provide adequate security measures to
prevent forgeries of its checks
constitutes gross negligence and bars it
from setting up the defense of forgery.
There
was
no
categorical
finding that the 23 checks were
signed by persons other than
those authorized to sign.
On
the contrary, the NBI reports
shows that the fraud was an
inside job and that the delay in
the reconciliation of the bank
statements and the laxity and
loss of records
control in the printing of the
personalized checks facilitated the
fraud. It further doesnt provide
that the signatures were forgeries.
Forgery cannot be presumed. It
should be proven by clear,
convincing and positive evidence.
This wasnt done in the present
case.
1. Did the
PCHC have
any
jurisdiction
to give due
course
to
and
adjudicate
1. Checks; Transactions on nonnego-tiable

checks
within
the
jurisdiction of PCHC.
2. Estopped; By stamping its guarantee
at the back of the checks, petitioner is
now estopped from claiming that the
checks under consideration are not
Anonuevo-Ongkeko
The petitioner cannot invoke

Section 23 because it was guilty of
negligence not only before the
questioned checks but even after
the same had already been
negotiated.
1. As provided in the aforecited
articles of incorporation of PCHC
its operation extend to clearing
checks and other clearing items.
No
doubt
transactions
on
non-negotiable checks are within
the ambit of its jurisdiction.
23

depositor, a certain Aida Trencio.
Following normal procedures, and after
stamping at the back of the Checks the
usual endorsements: All prior and/or
lack of endorsement guaranteed the
defendant sent the checks for clearing
through the Philippine Clearing House
Corporation
(PCHC).
Accordingly,
plaintiff paid the Checks; its clearing
account was debited for the value of the
Checks and defendants clearing account
was credited for the same amount.
Thereafter, plaintiff discovered that the
endorsements appearing at the back of the
Checks and purporting to be that of the
payees were forged and/or unauthorized or
otherwise belong to persons other than the
payees.
Pursuant to the PCHC Clearing Rules and
Regulations, plaintiff presented the Checks
directly to the defendant for the purpose of
claiming reimbursement from the latter.
However, defendant refused to accept such
direct presentation and to reimburse the
plaintiff for the value of the Checks;
hence, this case.
14
Gempesaw
vs. CA
Dean Sundiang
G.R.
92244
No.
Gempensaw was the owner of many

grocery stores. She paid her suppliers
Arbicom
Case
No.
84-033?
2. Were the
subject
checks
non-negotiab
le and if not,
does it fall
under
the
ambit of the
power of the
PCHC?
3. Is the
Negotiable
Instrument
Law,
Act
No.
2031
applicable in
deciding
controversie
s of this
nature by the
PCHC?
4. What law
should
govern
in
resolving
controversie
s of this
nature?
5. Was the
petitioner
bank
negligent
and
thus
responsible
for
any
undue
payment?
Can
Gempesaw
negotiable instruments.
3. Endorsement; Forgery; When
endorsement is forged, the collecting
bank or lost endorser generally suffers
the loss. The doctrine of estoppel
precludes a party from repudiating an
obligation voluntarily assumed after
having accepted benefits therefrom. To
countenance such repudiation would be
contrary to equity and put premium on
fraud or misrepresentation.
4.Warrantees of an indorser who
indorses
without
qualification.
Section 66 of the Negotiable
Instruments ordains that: Every
indorser
who
indorses
without
qualification,
warrants
to
all
subsequent holders in due course (a)
that the instrument is genuine and in all
respects what it purports to be; (b) that
he has good title to it; (c) that all prior
parties have capacity to contract; and
(d) that the instrument is at the time of
his indorsement valid and subsisting.
5. Drawer owes no duty of diligence to
the collecting bank but collecting bank
bound to scrutinize checks deposited
with it to determine genuineness and
regularity. The collecting bank being
primarily engaged in banking holds
itself out to the public as the expert and
the law holds it to a high standard of
conduct.
1.Forged Indorsements; Effect of

drawer's negligence.As a matter of
Anonuevo-Ongkeko
2. He petitioner by its own acts

and representation can not now
deny liability because it assumed
the liabilities of an endorser by
stamping its guarantee at the back
of the checks. The petitioner
having stamped its guarantee of
all prior endorsements and/or
lack of endorsements is now
estopped from claiming that the
checks under consideration are not
negotiable instruments. By such
deliberate and positive attitude of
the petitioner it has for all legal
intents and purposes treated the
said
checks
as
negotiable
instruments
and
accordingly
assumed the warranty of the
endorser when it stamped its
guarantee of prior endorsements at
the back of the checks. It led the
said respondent to believe that it
was acting as endorser of the
checks and on the strength of this
guarantee said respondent cleared
the checks in question and credited
the account of the petitioner.
Petitioner is now barred from
taking an opposite posture by
claiming that the disputed checks
are not negotiable instrument.
2. here is no question that there is

a contractual relation between
24

February
1993
CAMPOS,
JR., J.
9,
through the issuance of checks drawn

against her checking account with
respondent bank.
The checks were
prepared by her bookkeeper Galang. In
the signing of the checks prepared by
Galang, Gempensaw didn't bother
herself in verifying to whom the
checks were being paid and if the
issuances were necessary.
She didn't
even verify the returned checks of the
bank when the latter notifies her of the
same. During her two years in business,
there were incidents shown that the
amounts paid for were in excess of what
should have been paid. It was also shown
that even if the checks were crossed, the
intended payees didn't receive the amount
of the checks.
This
prompted
Gempensaw to demand the bank to
credit her account for the amount of the
forged checks. The bank refused to do so
and this prompted her to file the case
against the bank.
still recover
from
the
forged
instrumentsd
one by her
accountant?
practical significance, problems arising

from forged indorsements of checks
may generally be broken into two types
of cases: (1) where forgery was
accomplished by a person not
associated with the drawerfor
example a mail robbery; and (2)
where the indorsement was forged
by an agent of the drawer. This
difference in situations would
determine the effect of the drawer's
negligence with respect to forged
indorsements. While there is no duty
resting on the depositor to look for
forged indorsements on his cancelled
checks in contrast to a duty imposed
upon him to look for forgeries of his
own name, a depositor is under a duty
to set up an accounting system and a
business procedure as are reasonably
calculated to prevent or render difficult
the
forgery
of
indorsements,
particularly by the depositor's own
employees. And if the drawer
(depositor) learns that a check drawn
by him has been paid under a forged
indorsement, the drawer is under duty
promptly to report such fact to the
drawee bank. For his negligence or
failure either to discover or to report
promptly the fact of such forgery to
the drawee, the drawer loses his
right against the drawee who has
debited his account under the forged
indorsement. In other words, he is
precluded from using forgery as a
basis for his claim for recrediting of
his account.
As a rule, a drawee bank who has
paid a check on which an
indorsement has been forged cannot
charge the drawer's account for the
Dean Sundiang
Anonuevo-Ongkeko
petitioner as depositor (obligee)

and the respondents drawee bank
as the obligor. In the performance
of its obligation, the drawee bank
is bound by its internal banking
rules and regulations which form
part of any contract it enters into
with any of its depositors. When it
violated its internal rules that
second endorsements are not to be
accepted without the approval of
its branch managers and it did
accept the same upon the mere
approval of Boon, a chief
accountant, it contravened the
tenor of its obligation at the very
least, if it were not actually guilty
of
fraud
or
negligence.
Furthermore, the fact that the
respondent drawee Bank did not
discover the irregularity with
respect to the acceptance of checks
with second indorsement for
deposit even without the approval
of the branch manager despite
periodic inspection conducted by a
team of auditors from the main
office constitutes negligence on
the part of the bank in carrying out
its obligations to its depositors.
Article 1173 provides"The
fault or negligence of the obligor
consists in the omission of that
diligence which is required by
the nature of the obligation and
correspondents
with
the
circumstance of the persons, of
the time and of the place. x x x."
We hold that banking business is
so impressed with public interest
where the trust and confidence of
the public in general is of
paramount importance such that
25
amount of said check. An exception to

this rule is where the drawer is guilty
of such negligence which causes the
bank to honor such a check or checks.
If a check is stolen from the payee, it is
quite obvious that the drawer cannot
possibly
discover
the
forged
indorsement by mere examination of
his cancelled check. This accounts for
the rule that although a depositor owes
a duty to his drawee bank to examine
his cancelled checks for forgery of his
own signature, he has no similar duty
as to forged indorsements. A different
situation arises where the indorsement
was forged by an employee or a rent of
the drawer, or done with the active
participation of the latter. Most of the
cases involving forgery by an agent or
employee deal with the payee's
indorsement. The drawer and the payee
oftentimes have business relations of
long
standing.
The
continued
occurrence of business transactions of
the same nature provides the
opportunity for the agent/employee to
commit the fraud after having
developed
familiarity
with
the
signatures of the parties. However,
sooner or later, some leak will show on
the drawer's books. It will then be just a
question of time until the fraud is
discovered. This is specially true when
the agent perpetrates a series of
forgeries as in the case at bar. The
negligence of a depositor which will
prevent recovery of an unauthorized
payment is based on failure of the
depositor to act as a prudent
businessman would under the
circumstances.
2.
Dean Sundiang
Anonuevo-Ongkeko
Contractual
relation
the appropriate standard of

diligence must be a high degree of
diligence, if not the utmost
diligence. Surely, respondent
drawee Bank cannot claim it
exercised such a degree of
diligence that is required of it.
There is no way We can allow it
now to escape liability for such
negligence. Its liability as obligor
is not merely vicarious but
primary wherein the defense of
exercise of due diligence in the
selection and supervision of its
employees is of no moment.
between
26
depositor as obligee and drawee bank

as obligor; Violation of rule on nonacceptance of second indorsements
without approval of branch manager
15
Associated G.R.
Bank vs. CA 107612.
January
1996
No.
31,
ROMERO, J.
The Province of Tarlac maintains a current

account with the Philippine National Bank
(PNB) Tarlac Branch where the provincial
funds are deposited. Checks issued by the
Province are signed by the Provincial
Treasurer and countersigned by the
Provincial Auditor or the Secretary of the
Sangguniang Bayan.
A portion of the funds of the province is
allocated to the Concepcion Emergency
Hospital. The allotment checks for said
government hospital are drawn to the order
of Concepcion Emergency Hospital,
Concepcion, Tarlac or The Chief,
Concepcion
Emergency
Hospital,
Concepcion, Tarlac. The checks are
released by the Office of the Provincial
Treasurer and received for the hospital by
its administrative officer and cashier.
During a post-audit done by the province,
it was found out that 30 of its checks
werent received by the hospital. Upon
further investigation, It turned out that
Fausto Pangilinan, who was the
administrative officer and cashier of payee
hospital until his retirement on February
28, 1978, collected the questioned checks
from the office of the Provincial Treasurer.
He claimed to be assisting or helping the
hospital follow up the release of the checks
and had official receipts. Pangilinan sought
to encash the first check with Associated
Bank. However, the manager of
Associated Bank refused and suggested
that Pangilinan deposit the check in his
Dean Sundiang
Can
the
provincial
treasurer to
ask for
reimburseme
nt
from
PNB
and
thereafter,
PNB from
Associated
Bank.?
1.Negotiable
Instruments
Law;
1.Forgery; A person whose signature
to an instrument was forged was never
a party and never consented to the
contract which allegedly gave rise to
such instrument.A forged signature,
whether it be that of the drawer or the
payee, is wholly inoperative and no one
can gain title to the instrument through
it. A person whose signature to an
instrument was forged was never a
party and never consented to the
contract which allegedly gave rise to
such instrument. Section 23 does not
avoid the instrument but only the
forged signature. Thus, a forged
indorsement does not operate as the
payees indorsement.
2. Parties who warrant or admit the
genuineness of the signature in
question and those who, by their acts,
silence or negligence are estopped
from setting up the defense of forgery,
are precluded from using this
defense.The exception to the
general rule in Section 23 is where a
party against whom it is sought to
enforce a right is precluded from
setting up the forgery or want of
authority. Parties who warrant or
admit the genuineness of the signature
in question and those who, by their
acts, silence or negligence are
estopped from setting up the defense
of forgery, are precluded from using
this defense. Indorsers, persons
Anonuevo-Ongkeko
With instruments payable to

bearer, the signature of the payee
or holder is unnecessary to pass
title to the instrument. Hence,
when the indorsement is
a
forgery, only the person whose
signature is forged can raise the
defense of forgery against holder
in due course.
In instruments payable to order,
the signature of the rightful
holder is essential to transfer
title to the same instrument.
When the holders signature is
forged, all parties prior to the
forgery may raise the real
defense of forgery against all
parties subsequent thereto.
In
connection to this, an indorser
warrants that the instrument is
genuine.
A collecting bank is
such an indorser. So even if
the indorsement is forged, the
collecting bank is bound by his
warranties as an indorser and
cannot set up
the defense of forgery as against
the drawee bank.
Furthermore, in cases involving
checks with forged indorsements,
such as the case at bar, the
chain of liability doesn't end
with the drawee bank. The
drawee bank may not debit the
account of the drawer but may
27
personal savings account with the same

bank. Pangilinan was able to withdraw the
money when the check was cleared and
paid by the drawee bank, PNB.
negotiating
by
delivery
and
acceptors are warrantors of the
genuineness of the signatures on the
instrument.
After forging the signature of Dr. Adena

Canlas who was chief of the payee
hospital, Pangilinan followed the same
procedure for the second check, in the
amount of P5,000.00 and dated April 20,
1978, as well as for twenty-eight other
checks of various amounts and on various
dates. The last check negotiated by
Pangilinan was for P8,000.00 and dated
February 10, 1981. All the checks bore the
stamp of Associated Bank which reads
All prior endorsements guaranteed
ASSOCIATED BANK.
3. When the indorsement is a forgery,

only the person whose signature is
forged can raise the defense of forgery
against a holder in due course.In
bearer instruments, the signature of
the payee or holder is unnecessary to
pass title to the instrument. Hence,
when the indorsement is a forgery,
only the person whose signature is
forged can raise the defense of
forgery against a holder in due
course.
Jesus David, the manager of Associated

Bank testified that Pangilinan made it
appear that the checks were paid to him for
certain projects with the hospital. He did
not find as irregular the fact that the checks
were not payable to Pangilinan but to the
Concepcion Emergency Hospital.
This
prompted
the
provincial
treasurer to ask for
reimbursement
from
PNB
and
thereafter, PNB from Associated Bank.
As the two banks didn't want to reimburse,
an action was filed against them.
4. When the holders indorsement is

forged, all parties prior to the forgery
may raise the real defense of forgery
against
all
parties
subsequent
thereto.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.
5. A collecting bank where a check is
deposited and which indorses the check
upon presentment with the drawee
bank is such an indorser.A
collecting bank where a check is
deposited and which indorses the check
upon presentment with the drawee
bank, is such an indorser. So even if
the indorsement on the check
Dean Sundiang
Anonuevo-Ongkeko
generally pass liability back

through the collection chain to the
party who took from the forger
and of course, the forger
himself, if available.
In other
words, the drawee bank can seek
reimbursement or a return of the
amount it paid from the
collecting bank or person. The
collecting bank generally suffers
the loss because it has te duty
to ascertain the genuineness of
all
prior
endorsements
considering that the act of
presenting
the
check
for
payment to the drawee is an
assertion that the party making
the presentment has done its
duty to ascertain the
genuineness of the indorsements.
With regard the issue of delay,
a delay in informing the bank
of the forgery, which deprives it
of the opportunity to go after the
forger, signifies negligence on
the part of the drawee bank
and will preclude it from
claiming reimbursement. In this
case, PNB wasn't guilty of any
negligent delay. Its delay hasn't
prejudiced Associated Bank in
any way because even if there
wasn't delay, the fact that there
was nothing left of the account
of Pangilinan, there couldn't be
anymore reimbursement.
28
deposited by the banks client is

forged, the collecting bank is bound
by his warranties as an indorser and
cannot set up the defense of forgery
as against the drawee bank.
6. Payment under a forged indorsement
is not to the drawers order.The
bank on which a check is drawn,
known as the drawee bank, is under
strict liability to pay the check to the
order of the payee. The drawers
instructions are reflected on the face
and by the terms of the check.
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:
Drawer is precluded from asserting
forgery where the drawee bank can
prove a failure by the customer/drawer
to exercise ordinary care that
substantially contributed to the making
of the forged signature.However, if
the drawee bank can prove a failure by
Dean Sundiang
Anonuevo-Ongkeko
29
the customer/drawer to exercise

ordinary care that substantially
contributed to the making of the forged
signature, the drawer is precluded from
asserting the forgery.
7.Drawee
bank
can
seek
reimbursement or a return of the
amount it paid from the presentor bank
or person. In cases involving checks
with forged indorsements, such as the
present petition, the chain of liability
does not end with the drawee bank.
The drawee bank may not debit the
account of the drawer but may
generally pass liability back through
the collection chain to the party who
took from the forger and, of course,
to the forger himself, if available. In
other words, the drawee bank can
seek reimbursement or a return of
the amount it paid from the
presentor
bank
or
person.
Theoretically, the latter can demand
reimbursement from the person who
indorsed the check to it and so on. The
loss falls on the party who took the
check from the forger, or on the forger
himself.
8. A collecting bank which indorses a
check bearing a forged indorsement
and presents it to the drawee bank
guarantees all prior indorsements
including the forged indorsement.
More importantly, by reason of the
statutory warranty of a general indorser
in Section 66 of the Negotiable
Instruments Law, a collecting bank
which indorses a check bearing a
forged indorsement and presents it to
the drawee bank guarantees all prior
Dean Sundiang
Anonuevo-Ongkeko
30
indorsements, including the forged

indorsement. It warrants that the
instrument is genuine, and that it is
valid and subsisting at the time of his
indorsement. Because the indorsement
is a forgery, the collecting bank
commits a breach of this warranty
and will be accountable to the
drawee bank.
9.Drawee banks not similarly situated
as the collecting bank.The drawee
bank is not similarly situated as the
collecting bank because the former
makes no warranty as to the
genuineness of any indorsement. The
drawee banks duty is but to verify
the genuineness of the drawers
signature and not of the indorsement
because the drawer is its client.
So, Drawee bank has the duty to
promptly inform the presentor of the
forgery upon discovery.Hence, the
drawee bank can recover the amount
paid on the check bearing a forged
indorsement from the collecting bank.
However, a drawee bank has the duty
to promptly inform the presentor of the
forgery upon discovery. If the drawee
bank delays in informing the presentor
of the forgery, thereby depriving said
presentor of the right to recover from
the forger, the former is deemed
negligent and can no longer recover
from the presentor.
The rule mandates that the checks be
returned within twenty- four hours after
discovery of the forgery but in no event
beyond the period fixed by law for
filing a legal action. The rationale of
Dean Sundiang
Anonuevo-Ongkeko
31
the rule is to give the collecting bank

(which indorsed the check) adequate
opportunity to proceed against the
forger. If prompt notice is not given,
the collecting bank may be prejudiced
and lose the opportunity to go after its
depositor.
16
Metrobank
vs. First
National
City Bank
G.R.
No.
L-55079
November 19,
1982
MELENCIOHERRERA, J.
August 25, 1964: Check dated July 8, 1964

for P50,000.00, payable to CASH, drawn
by Joaquin Cunanan & Company on First
National City Bank (FNCB) was deposited
with Metropolitan Bank and Trust
Company (Metro Bank) by Salvador Sales.
Earlier that day, Sales had opened a
current account with Metro Bank
depositing P500.00 in cash. Metro Bank
immediately sent the cash check to the
Clearing House of the Central Bank with
the following words stamped at the back of
the check:
Metropolitan Bank and Trust Company
Cleared (illegible) office All prior
endorsements
and/or
Lack
of
endorsements Guaranteed.
The check was cleared the same day.
Private respondent paid petitioner through
clearing the amount of P50,000.00, and
Sales was credited with the said amount in
his deposit with Metro Bank.
Whether or
not
Metrobank
should
reimburse
FNCB
for
the amount
altered
as
indorser.
1. Altered Checks; Absence of liability

of collecting bank for failure of drawee
bank to return an alleged altered check
to the collecting bank within the
24-hour clearing house period after
receipt of check from the Central Bank
clearing house; Remedy of drawee
bank is with the party responsible for
the alteration, not with the collecting
bank.
2.
Unqualified
endorsement
of
collecting bank on the check should be
read together with the 24- hour
regulation
on
clearing
house
operations
3. Precaution of collecting bank by
verifying from drawee bank the
regularity and genuineness of the check
deposit precludes liability of collecting
bank on the altered check.
August 26, 1964: Sales made his 1st

withdrawal of P480.00 from his current
account
August 28, 1964: he withdrew P32,100.00
August 31, 1964: he withdrew the balance
of P17,920 and closed his account with
Metro Bank
Dean Sundiang
Anonuevo-Ongkeko
1.In this case, the check was not

returned to Metro Bank in
accordance with the 24-hour
clearing house period, but was
cleared by FNCB. Failure of
FNCB, therefore, to call the
attention of Metro Bank to the
alteration of the check in question
until after the lapse of nine days,
negates whatever right it might
have had against Metro Bank in
the light of the said Central Bank
Circular. Its remedy lies not
against Metro Bank, but against
the party responsible for the
changing the name of the payee
and the amount on the face of the
check.
2. The indorsement, itself, is very
clear when it begins with words
For clearance, clearing office
**** In other words, such an
indorsement must be read together
with the 24-hour regulation on
clearing House Operations of the
Central Bank. Once that 24-hour
period is over, the liability on such
an indorsement has ceased. This
being so, Plaintiff Bank has not
made out a case for relief.
Consistent with this ruling, Metro
Bank can not be held liable for the
32

payment of the altered check.
September 3, 1964: FNCB returned

cancelled Check to drawer Joaquin
Cunanan & Company, together with the
monthly statement of the company's
account with FNCB. That same day. The
company notified FNCB that the check
had been altered. The actual amount of
P50.00 was raised to P50,000.00
Metro Bank can not be held liable

for the payment of the altered
check.
Moreover, FNCB did not deny the
allegation of Metro Bank that
before it allowed the withdrawal
of the balance of P17,920.00 by
Salvador Sales, Metro Bank
withheld payment and first
verified, through its Assistant
Cashier
Federico
Uy,
the
regularity and genuineness of the
check deposit from Marcelo
Mirasol, Department Officer of
FNCB, because its (Metro Bank)
attention was called by the fast
movement of the account Only
upon being assured that the same
is not unusual did Metro Bank
allow the withdrawal of the
balance.
name of the payee, Manila Polo Club, was

superimposed the word CASH.
September 10, 1964: FNCB wrote Metro
Bank asking for reimbursement
17
Republic
vs. CA
G.R.
No.
42725. April
22, 1991
GRIOAQUINO, J.
San Miguel Corporation (SMC) drew a

dividend Check for P240 on its account in
the respondent First National City Bank
(FNCB) in favor of J. Roberto C.
Delgado, a stockholder.
After the check had been delivered to
Delgado, the amount on its face was
fraudulently and without authority of the
drawer, SMC, altered by increasing it
from P240 to P9,240. The check was
indorsed and deposited by Delgado in his
account with the petitioner Republic Bank.
Republic accepted the check for deposit
without ascertaining its genuineness and
regularity. Later, Republic endorsed the
check to FNCB by stamping on the back of
Dean Sundiang
whether
Republic, as
the
collecting
bank,
is
protected, by
the 24- hour
clearing
house rule,
found in CB
Circular No.
9,
as
amended,
from
liability to
refund the
amount paid
24-hour clearing house rule, valid;

When the drawee bank fails to return a
forged or altered check to the
collecting bank within 24-hour
clearing period, the collecting bank is
absolved from liability.The 24-hour
clearing house rule is a valid rule
applicable to commercial banks
Anonuevo-Ongkeko
It is true that when an

endorsement is forged, the
collecting bank or last endorser, as
a general rule, bears the loss
(Banco de Oro Savings &
Mortgage Bank vs. Equitable
Banking Corp., 157 SCRA 188).
But the unqualified endorsement
of the collecting bank on the check
should be read together with the
24-hour regulation on clearing
house operation (Metropolitan
Bank & Trust Co. vs. First
National City Bank, supra). Thus,
when the drawee bank fails to
return a forged or altered check to
the collecting bank within the
33

the check all prior and/or lack of
indorsement guaranteed and presented it
to FNCB for payment through the Central
Bank Clearing House. Believing the check
was genuine, and relying on the guaranty
and endorsement of Republic appearing on
the back of the check, FNCB paid P9,240
to Republic through the Central Bank
Clearing House on March 15, 1966.
by FNCB, as
drawee
of
the
SMC
dividend
check.

24-hour clearing period, the
collecting bank is absolved from
liability.
Republic accepted the check for deposit

without ascertaining its genuineness and
regularity. Later, Republic endorsed the
check to FNCB by stamping on the back of
the check all prior and/or lack of
indorsement guaranteed and presented
it to FNCB for payment through the
Central Bank Clearing House. Believing
the check was genuine, and relying on the
guaranty and endorsement of Republic
appearing on the back of the check, FNCB
paid P9,240 to Republic through the
Central Bank Clearing House.
SMC notified FNCB of the material
alteration in the amount of the check in
question. FNCB lost no time in recrediting
P9,240 to SMC. FNCB informed Republic
in writing of the alteration and the forgery
of the endorsement of J. Roberto C.
Delgado. By then, Delgado had already
withdrawn his account from Republic.
On August 15, 1966, FNCB demanded
that Republic refund the P9,240 on the
basis of the latters endorsement and
guaranty. Republic refused, claiming there
was delay in giving it notice of the
alteration; that it was not guilty of
negligence; that it was the drawers
(SMCs) fault in drawing the check in such
a way as to permit the insertion of
Dean Sundiang
Anonuevo-Ongkeko
34
numerals increasing the amount; that

FNCB, as drawee, was absolved of any
liability to the drawer (SMC), thus, FNCB
had no right of recourse against Republic.
18
Philippine
Commercia
l
Internatio
nal Bank
vs. CA
G.R.
121413
No.
January
2001
29,
QUISUMBIN
G, J.
Ford Philippines filed actions to recover

from the drawee bank Citibank and
collecting bank PCIB the value of
several
checks
payable
to
the
Commissioner of Internal Revenue which
were embezzled allegedly by an organized
syndicate. What prompted this action
was the drawing of a check by Ford,
which it deposited to PCIB as payment
and was debited from their Citibank
account. It later on found out that the
payment wasnt received
by
the
Commissioner.
Meanwhile, according
to the NBI report, one of the checks
issued by petitioner was withdrawn from
PCIB for alleged mistake in the amount to
be paid. This was replaced with managers
check by PCIB, which were allegedly
stolen by the syndicate and deposited
in their own account.
Has Ford
right
recover
value of
checks
intended
payment
CIR?
the
to
the
the
as
to
Quasi-Delicts; The general rule is that

if the master is injured by the
negligence of a third person and by the
concurring contributory negligence of
his own servant or agent, the latters
negligence is imputed to his superior
and will defeat the superiors action
against the third person, assuming, of
course that the contributory negligence
was the proximate cause of the injury
of which complaint is made.
Checks; The mere fact that the forgery
was committed by a drawer-payors
confidential employee or agent, who by
virtue of his position had unusual
facilities for perpetrating the fraud and
imposing the forged paper upon the
bank, does not entitle the bank to shift
the loss to the drawer-payor, in the
absence of some circumstances raising
estoppel against the drawer.
A bank authorized to collect the
payment of taxpayers in behalf of the
Bureau of Internal Revenue is duty
bound to consult its principal
regarding the unwarranted instructions
given by the pay or of its agent.
It is a well- settled rule that the
relationship between the payee or
holder of commercial paper and the
bank to which it is sent for collection
is, in the absence of an agreement to
the contrary, that of principal and
Dean Sundiang
Anonuevo-Ongkeko
The checks were drawn against the

drawee bank but the title of the
person negotiating the same was
allegedly defective because the
instrument was obtained by fraud
and unlawful means, and the
proceeds of the checks were not
remitted to the payee. It was
established that instead paying the
Commissioner, the checks were
diverted and encashed for the
eventual
distribution
among
members of the syndicate.
Pursuant to this, it is vital to
show that the negotiation is
made by the perpetrator in breach
of faith amounting to fraud. The
person negotiating the checks
must have gone beyond the
authority given by his principal. If
the principal could prove that there
was no negligence in the
performance of his duties, he
may set up the personal defense
to escape liability and recover
from other parties who, through
their own negligence, allowed the
commission of the crime.
It should be resolved if Ford is
guilty
of
the
imputed
contributory negligence that would
defeat its claim for reimbursement,
bearing in mind that its employees
were among the members of the
syndicate. It appears although the
35
agent.
A bank which cashes a check drawn
upon another bank, 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.
As a general rule, a banking
corporation is liable for the wrongful
or tortuous acts and declarations of its
officers or agents within the course and
scope of their employment
The general rule is that a bank is liable
for
the
fraudulent
acts
or
representations of an officer or agent
acting within the course and apparent
scope of his employment or authority.
employees of Ford initiated the

transactions attributable to the
organized
syndicate,
their
actions were not the proximate
cause of encashing the checks
payable to CIR. The degree of
Fords negligence couldnt be
characterized as the proximate
cause of the injury to parties.
The mere fact that the forgery
was committed by a drawerpayors confidential employee or
agent, who by virtue of his
position had unusual facilities for
perpetrating
the
fraud
and
imposing the forged paper upon
the bank, doesnt entitle the bank
to shift the loss to the drawerpayor, in the absence of some
circumstance raising estoppel
against the drawer.
Doctrine of Comparative Negligence;

Where both the collecting and drawee
banks failed in their respective
obligations and both were negligent in
the selection and supervision of their
employees, both are equally liable for
the loss of the proceeds of checks
fraudulently encashed.
Banks are expected to exercise the
highest degree of diligence in the
selection and supervision of their
employees
Failure on the part of the depositor to
examine its passbook, statements of
account, and cancelled checks and to
give notice within a reasonable time
(or as required by statute) of any
Dean Sundiang
Anonuevo-Ongkeko
36
discrepancy which it may in the

exercise of due care and diligence find
therein, serves to mitigate the banks
liability by reducing the award of
interest from twelve percent (12%) to
six percent (6%) per annum.
19
Ramon
Ilusorio vs.
CA
G.R.
No.
139130.
November 27,
2002
QUISUMBIN
G, J.
Petitioner was a prominent businessman

who, because of different business
commitments, entrusted to his then
secretary the handling of his credit
cards and checkbooks. For a material
period of time, the secretary was able
to encash and deposit in her personal
account money from the account of
petitioner. Petitioner did not bother to
check his statement of account until a
business partner apprised him that he saw
Eugenio use his credit cards. Petitioner
fired Eugenio immediately, and instituted a
criminal action against her for estafa thru
falsification before the Office of the
Provincial Fiscal of Rizal. Private
respondent, through an affidavit executed
by its employee, Mr. Dante Razon, also
lodged a complaint for estafa thru
falsification of commercial documents
against Eugenio on the basis of petitioners
statement that his signatures in the checks
were forged.
Thereafter, petitioner requested the bank
to restore its money but the bank refused to
do so.
Dean Sundiang
(1) whether
or
not
petitioner
has a cause
of
action
against
private
respondent;
and
(2)
whether or
not -private
respondent,
in filing an
estafa case
against
petitioners
secretary, is
barred from
raising the
defense that
the fact of
forgery was
not
established.
1. Damages; Negligence; To be
entitled to damages, petitioner has the
burden of proving negligence on the
part of the bank for failure to detect the
discrepancy in the signatures on the
checks.
2. Negligence is the omission to do
something which a reasonable man,
guided by those considerations which
ordinarily regulate the conduct of
human affairs would do, or the doing
of something which a prudent and
reasonable man would do.
3. Forgery; When a signature is forged
or made without the authority of the
person whose signature it purports to
be, the check is wholly inoperative
unless the party against whom it is
sought to enforce such right is
precluded from setting up the forgery
or want of authority
Anonuevo-Ongkeko
1. On the first issue, we find that

petitioner has no cause of action
against Manila Bank. To be
entitled to damages, petitioner has
the burden of proving negligence
on the part of the bank for failure
to detect the discrepancy in the
signatures on the checks. It is
incumbent upon petitioner to
establish the fact of forgery, i.e.,
by submitting his specimen
signatures and comparing them
with those on the questioned
checks.
Curiously
though,
petitioner
failed
to
submit
additional specimen signatures as
requested by the National Bureau
of Investigation from which to
draw
a
conclusive
finding
regarding forgery. The Court of
Appeals found that petitioner, by
his own inaction, was precluded
from setting up forgery.
2. As borne by the records, it was
petitioner, not the bank, who was
negligent. Negligence is the
omission to do something which a
reasonable man, guided by those
considerations which ordinarily
regulate the conduct of human
affairs, would do, or the doing of
something which a prudent and
reasonable man would do.In the
present case, it appears that
37

petitioner accorded his secretary
unusual degree of trust and
unrestricted access to his credit
cards, passbooks, check books,
bank
statements,
including
custody and possession of
cancelled
checks
and
reconciliation of accounts.
Petitioners failure to examine his
bank statements appears as the
proximate cause of his own
damage;
3. No right to retain the
instrument, or to give a discharge
therefor, or to enforce payment
thereof against any party, can be
acquired through or under such
signature. However, the rule does
provide for an exception,
namely: unless the party against
whom it is sought to enforce such
right is precluded from setting up
the forgery or want of authority.
In the instant case, it is the
exception that applies. In our
view, petitioner is precluded from
setting up the forgery, assuming
there is forgery, due to his own
negligence in entrusting to his
secretary his credit cards and
checkbook
including
the
verification of his statements of
account.
20
Samsung
Constructi
on Co.
Phils., Inc.
vs. FEBTC
and CA
Dean Sundiang
G.R.
129015,
August
2004
No.
13,
Samsung Construction held an account

with Far East Bank. One day a check
worth 999,500 payable to cash, was
presented by one Roberto Gonzaga in the
Makati Branch of Far East Bank. The
check was certified to be true by Jose
W/N
Far
East Bank is
liable
to
reimburse
Samsung
forcashing
1.Checks; A forged signature is

wholly inoperative and payment
made through or under such
signature is ineffectual or does not
discharge the instrument. The general
rule is to the effect that a forged
Anonuevo-Ongkeko
2. On the premise that Jongs

signature was indeed forged,
FEBTC is liable for the loss since
it authorized the discharge of the
forged check. Such liability
attaches even if the bank exerts
38

TINGA, J.
Sempio, the assistant accountant of

Samsung, who was also present during the
time the check was cashed. Later however
it was discovered that no such check was
ever approved by the Samsungs head
accountant, the president of the company
also never signed any such check
out
the
forged
check, which
was drawn
from
theaccount
of Samsung
signature is wholly inoperative, and

payment made through or under such
signature is ineffectual or does not
discharge the instrument. If payment is
made, the drawee cannot charge it to
the drawers account. The traditional
justification for the result is that the
drawee is in a superior position to
detect a forgery because he has the
makers signature and is expected to
know and compare it. The rule has a
healthy cautionary effect on banks by
encouraging care in the comparison of
the signatures against those on the
signature cards they have on file.
Moreover, the very opportunity of the
drawee to insure and to distribute the
cost among its customers who use
checks makes the drawee an ideal party
to spread the risk to insurance.
2.Forgery; Forgery is a real or
absolute defense by the party whose
signature is forged.Under Section 23
of the Negotiable Instruments Law,
forgery is a real or absolute defense by
the party whose signature is forged.
3. A document formally presented is
presumed to be genuine until it is
proved to be fraudulent.Thus, the
first matter of inquiry is into whether
the check was indeed forged. A
document formally presented is
presumed to be genuine until it is
proved to be fraudulent. In a forgery
trial, this presumption must be
overcome but this can only be done by
convincing testimony and effective
illustrations.
4. If a bank pays a forged check, it
Dean Sundiang
Anonuevo-Ongkeko
due diligence and care in

preventing such faulty discharge.
Forgeries often deceive the eye of
the most cautious experts; and
when a bank has been so deceived,
it is a harsh rule which compels it
to suffer although no one has
suffered by its being deceived.
The forgery may be so near like
the genuine as to defy detection by
the depositor himself, and yet the
bank is liable to the depositor if it
pays the check.
3. Bare fact that the forgery was
committed by an employee of the
party whose signature was forged
cannot necessarily imply that such
partys negligence was the cause
for the forgery.The bare fact
that the forgery was committed by
an employee of the party whose
signature was forged cannot
necessarily imply that such partys
negligence was the cause for the
forgery. Employers do not possess
the preternatural gift of cognition
as to the evil that may lurk within
the hearts and minds of their
employees.
4. Since the drawer, Samsung
Construction, is not precluded by
negligence from setting up the
forgery, the general rule should
apply. Consequently, if a bank
pays a forged check, it must be
considered as paying out of its
funds and cannot charge the
amount so paid to the account of
the depositor. A bank is liable,
irrespective of its good faith, in
39
must be considered as paying out of its

funds and cannot charge the amount so
paid to the account of the depositor.
Still, even if the bank performed with
utmost diligence, the drawer whose
signature was forged may still recover
from the bank as long as he or she is
not precluded from setting up the
defense of forgery. After all, Section
23 of the Negotiable Instruments Law
plainly states that no right to enforce
the payment of a check can arise out of
a forged signature.
paying a forged check.
VI. MATERIAL ALTERATION (SECTION 124 & 125)

21
Philippine
National
Bank vs.
Court of
Appeals
256
SCRA
491, APRIL
25, 1996
KAPUNAN,
J.
A check with serial number 7-3666-223-3,

dated August 7, 1981 in the amount of
P97,650.00 was issued by the Ministry of
Education and Culture payable to F.
Abante Marketing. This check was drawn
against Philippine National Bank (herein
petitioner).
On August 11, 1981, F. Abante Marketing,
a client of Capitol City Development Bank
(Capitol), deposited the questioned check
in its savings account with said bank. In
turn, Capitol deposited the same in its
account with the Philippine Bank of
Communications (PBCom) which, in turn,
sent the check to petitioner for clearing.
Whether or
not
an
alteration of
the
serial
number of a
check is a
material
alteration
under
the
negotiable
instruments
law.
1. Negotiable Instruments Law (Act No.

2031); Checks; Words and Phrases; An
alteration is said to be material if it
alters the effect of the instrument.
2. The drawee bank cannot refuse to
accept a check on the ground that the
serial number of said check was
altered, since the serial number is an
item which is not an essential requisite
for negotiability under Section 1 of the
Negotiable Instruments Law.
Petitioner cleared the check as good and,

thereafter, PBCom credited Capitols
account for the amount stated in the check.
However, on October 19, 1981, petitioner
returned the check to PBCom and
debited PBComs account for the
amount covered by the check, the reason
being that there was a material
Dean Sundiang
Anonuevo-Ongkeko
1. We shall first deal with the

effect of the alteration of the serial
number on the negotiability of the
check in question. Petitioner
anchors its position on Section 125
of the Negotiable Instruments Law
(ACT No. 2031). Petitioner
alleges that there is no hard and
fast rule in the interpretation of the
aforequoted provision of the
Negotiable Instruments Law. It
maintains that under Section
125(f), any change that alters the
effect of the instrument is a
material alteration. We do not
agree. An alteration is said to be
material if it alters the effect of
the instrument. It means an
unauthorized change in an
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
40
alteration of the check number.
obligation of a party. In other

words, a material alteration is
one which changes the items
which are required to be stated
under Section 1 of the
Negotiable Instruments Law.
PBCom, as collecting agent of Capitol,

then proceeded to debit the latters account
for the same amount, and subsequently,
sent the check back to petitioner.
Petitioner, however, returned the check to
PBCom.
2. The case at bench is unique in

the sense that what was altered is
the serial number of the check in
question, an item which, it can
readily be observed, is not an
essential requisite for negotiability
under Section 1 of the Negotiable
Instruments Law. The checks
serial number is not the sole
indication of its origin. As
succinctly found by the Court of
Appeals, the name of the
government agency which issued
the subject check was prominently
printed therein. The checks issuer
was
therefore
sufficiently
identified, rendering the referral to
the serial number redundant and
inconsequential. Petitioner, thus
cannot refuse to accept the check
in question on the ground that the
serial number was altered, the
same being an immaterial or
innocent one.
Capitol could not, in turn, debit F. Abante

Marketings account since the latter had
already withdrawn the amount of the check
as of October 15, 1981. Capitol sought
clarification from PBCom and demanded
the recrediting of the amount.
22
Montinola
vs.
Philippine
National
Bank
Dean Sundiang
G.R. No. L
2861.
February 26,
1951
MONTEMAY
OR, J.
Ramos, as a disbursing officer of an army

division of the USAFE, made cash
advancements
w/
the
Provincial
Treasurer of Lanao. In exchange, the
Provl Treasurer of Lanao gave him a
P500,000 check.
Thereafter, Ramos
presented the check to Laya for
encashment. Laya in his capacity as
Provincial
Treasurer
of
Misamis
Oriental as drawer, issued a check to
Does
the
insertion of
the
words
"Agent,
Phil.
National
Bank,"
which
converts the
bank from a
1.
MATERIAL
ALTERATION
WHICH
DISCHARGES
THE
INSTRUMENT
2.INDORSEMENT OF PART OF
AMOUNT PAYABLE, is NOT
NEGOTIATION OF INSTRUMENT
BUT MAY BE REGArded AS MERE
ASSIGNMENT.
Where
the
indorsement of a check is only for a
Anonuevo-Ongkeko
The words "Agent, Phil. National

Bank" now appearing on' the face
of the check were added or placed
in the instrument after it was
issued by the Provincial Treasurer
L to R. The check was issued by L
only as Provincial Treasurer and
as an official of the Government,
which was under obligation to
provide the USAFFE with
41

Ramos in the sum of P100000, on the
Philippines National Bank as drawee; the
P400000 value of the check was paid in
military notes.
Ramos was unable to encash the said
check for he was captured by the
Japanese. But after his release, he sold
P30000 of the check to Montinola for
P90000 Japanese Military notes, of which
only P45000 was paid by the latter. The
writing made by Ramos at the back of
the check was to the effect that he was
assigning only P30000 of the value of the
document with an instruction to the bank
to pay P30000 to Montinola and to deposit
the balance to Ramos's credit. This
writing was, however, mysteriously
obliterated and in its place, a supposed
indorsement appearing on the back of the
check was made for the whole amount of
the check. At the time of the transfer of
this check to Montinola, the check was
long overdue by about 2-1/2 years.
mere drawee
to a drawer
and
therefore
changes its
liability,
constitutes a
material
alteration
part of the amount payable, it is not

legally negotiated within the meaning
of section 32 of the Negotiable
Instruments Law which provides that
"the indorsement must be an
indorsement of the entire instrument.
An indorsement which purports to
transfer to the indorsee a part only of
the amount payable does not operate as
a negotiation of the instrument."
advance funds, and not as agent of

the bank, which had no such
obligation. The addition of those
words was made after the check
had been transferred by R to M.
The insertion of the words "Agent,
Phil. National Bank," which
converts the bank from a mere
drawee to a drawer and therefore
changes its liability, constitutes a
material
alteration
of
the
instrument without the consent of
the parties liable thereon, and so
discharges the instrument.
2. M may, therefore, not be
regarded as an indorsee. At most
he may be regarded as a mere
assignee of the P30,000 sold to
him by R, in which case, as such
assignee, he is subject to all
defenses available to the drawer
Provincial Treasurer of Misamis
Oriental against R.
Montinola instituted an action against the

PNB and the Provincial Treasurer of
Misamis Oriental to collect the sum of
P100,000, the amount of the aforesaid
check. There now appears on the face of
said check the words in parenthesis
"Agent, Phil. National Bank" under the
signature of Laya purportedly showing
that Laya issued the check as agent of the
Philippine National Bank.
VII. ACCOMMODATION PARTY

23
Sadaya vs.
Sevilla
19
SCRA
924., April 27,
1967
SANCHEZ, J.
Dean Sundiang
Victor Sevilla, Oscar Varona and Simeon

Sadaya executed, jointly and severally, in
favor of the Bank of the Philippine Islands,
or its order, a promissory note for
P15,000.00 with interest at 8% per annum,
Can Sadaya
proceed
against
Sevilla for
reimburseme
nt?
1. Solidary liability of accommodation

makers. Where the principal debtor
failed to pay the bank the balance due
on a promissory note, either one of the
solidary accommodation makers may
Anonuevo-Ongkeko
Sadaya could have sought

reimbursement from Varona,
which is right and just as the
latter was the only one who
received value for the note
executed. There is an implied
42
payable on demand.
be held liable for the said balance.
The entire amount of P15,000.00,

proceeds of the promissory note, was
received from the bank by Oscar Varona
alone. Victor Sevilla and Simeon Sadaya
signed the promissory note as co-makers
only as a favor to Oscar Varona. Payments
were made on account. Thereafter, the
bank collected from Sadaya.
Varona
failed to reimburse.
2. Obligation of principal debtor to

reimburse accommodation maker who
paid the debt.The principal debtor,
who received from the bank the full
value of the note. is obligated to make
full
reimbursement
to
an
accommodation maker who paid the
bank the balance due on said note.
Consequently,
Sevilla
died
and
intestate
estate
proceedings
were
established. Sadaya filed a creditors
claim on his estate for the payment he
made on the note. The administrator
resisted the claim on the ground that
Sevilla didn't receive any proceeds of
the loan. The trial court admitted the
claim of Sadaya though tis was reversed
by the CA.
3. Negotiable Instruments Law; Right

to
seek
contribution
from
co-accommodation maker.Where a
solidary accommodation maker paid to
the bank the balance due on a
promissory note, he may seek
contribution from the other solidary
accommodation maker, in the absence
of a contrary agreement between them.
This right springs from an implied
promise between the accommodation
makers to share equally the burdens
resulting from their execution of the
note. They
4. New Civil Code supplements
Negotiable Instruments LawSince
the Negotiable Instruments Law does
not define the right of an
accommodation maker, to seek
reimbursement
from
another
accommodation maker, this deficiency
should be supplied by article 2073 of
the New Civil Code, which deals with
a situation where one surety has paid
the debt and is seeking contribution
from his co-sureties. are joint
guarantors of the principal debtors.
Rules on reimbursement under article
2073.A solidary accommodation
Dean Sundiang
Anonuevo-Ongkeko
contract of indemnity between

Sadaya and Varona upon the
formers payment of the obligation
to the bank.
Surely enough, the obligations of
Varona and Sevilla to Sadaya
cannot be joint and several. For
indeed, had payment been made
by Varona, Varona couldn't had
reason to seek reimbursement
from either Sadaya or Sevilla.
After all, the proceeds of the loan
went to Varona alone.
On
principle,
a
solidary
accommodation
makerwho
made paymenthas the right to
contribution,
from
his
coaccomodation maker, in the
absence of agreement to the
contrary between them, subject to
conditions imposed by law. This
right springs from an implied
promise to share equally the
burdens thay may ensue from
their having consented to stamp
their signatures on the promissory
note.
The following are the rules:
1.
A joint and several
accommodation maker of a
negotiable promissory note may
demand from the principal
debtor reimbursement for the
amount that he paid to the payee
2.
A joint and several
accommodation maker who pays
on the said promissory note may
directly demand reimbursement
43
maker (1) may demand from the

principal debtor reimbursement of
the amount which he paid on the
promissory note and (2) he may
demand contribution from his
co-accommodation maker. without
first directing his action against the
principal debtor, provided that (a)
he made the payment by virtue of a
judicial demand, or (b) the principal
debtor is insolvent.
A solidary accommodation maker,
who paid the balance due on a
promissory note, is not entitled to
demand
contribution
from
his
co-accommodation maker where he
made the payment voluntarily and
without any judicial demand and there
is no proof that the principal debtor is
insolvent.
24
CrisologoJose vs.
Court of
Appeals
G.R.
No.
80599.Septem
ber 15, 1989
REGALADO,
J
Plaintiff Ricardo S. Santos, Jr. was the

vice-president of Mover Enterprises, Inc.
incharge of marketing and sales; and the
president of the said corporation was Atty.
Oscar Z. Benares.
The president of Movers Enterprises, to
accommodate its clients Spouses Ong,
issued a check in favor of petitioner
Crisologo-Jose.
This
was
in
consideration of a quitclaim by petitioner
over a parcel of land, which the GSIS
agreed to sell to spouses Ong, with the
understanding that upon approval of the
compromise agreement, the check will
be encashed accordingly.
As the
compromise agreement wasn't approved
during the expected period of time, the
aforesaid check was replaced with another
one for the same value. Upon deposit
Dean Sundiang
Can
a
corporation
be
held
liable as an
accommodat
ion party?
1.Corporations;
Rule
that
an
accommodation party liable on the
instrument to a holder for value does
not apply to corporations which are
accommodation parties; Reasons.
The aforequoted provision of the
Negotiable Instruments Law which
holds an accommodation party liable
on the instrument to a holder for value,
although such holder at the time of
taking the instrument knew him to be
only an accommodation party, does not
include nor apply to corporations
which are accommodation parties. This
is because the issue or indorsement
of negotiable paper by a corporation
without consideration and for the
accommodation of another is ultra
vires. Hence, one who has taken the
instrument with knowledge of the
Anonuevo-Ongkeko
from his co-accommodation maker

without first directing his action
against the
principal debtor provided that
a.
He made the payment by
virtue of a judicial demand
b.
A principal debtor is
insolvent.
It was never shown that there was
a judicial demand on Sadaya to
pay the obligation and also, it was
never proven that Varona was
insolvent. Thus, Sadaya cannot
proceed against Sevilla for
reimbursement.
Petitioner averred that it is not

Santos who is the accommodation
party to the instrument but the
corporation itself. But assuming
arguendo that the corporation is
the accommodation party, it
cannot be held liable to the
check issued in favor of
petitioner.
The rule on
accommodation party
doesn't include or apply to
corporations
which
are
accommodation parties. This is
because the issue or indorsement
of another is ultra vires. Hence,
one who has taken the instrument
with
knowledge
of
the
accommodation nature
thereof
cannot
recover
against
a
corporation where it is only an
44

though of the checks by petitioner, it
was dishonored.
This prompted the
petitioner to file a case against Atty.
Bernares and Santos for violation of
BP22.
Meanwhile,
during
the
preliminary investigation, Santos tried
to tender a cashiers check for the
value of the dishonored check but
petitioner refused to accept such. This was
consigned by Santos with the clerk of
court and he instituted charges against
petitioner.
The trial court held that
consignation wasn't applicable to the case
at bar but was reversed by the CA.
Dean Sundiang
accommodation nature thereof cannot

recover against a corporation where it
is only an accommodation party. If the
form of the instrument, or the nature of
the transaction, is such as to charge the
indorsee with knowledge that the issue
or indorsement of the instrument by the
corporation is for the accommodation
of another, he cannot recover against
the corporation thereon.
accommodation party. If the form

of the instrument, or the nature of
the transaction, is such as to
charge the indorsee with the
knowledge that the issue
or
indorsement of the instrument
by the corporation is for the
accommodation of another, he
cannot recover against the
corporation thereon.
Exception; An officer or agent of a

corporation shall have the power to
execute or indorse a negotiable paper
in the name of the corporation for
accommodation only if specifically
authorized to do so; Personal liability
of signatories in the instrument.By
way of exception, an officer or agent of
a corporation shall have the power to
execute or indorse a negotiable paper
in the name of the corporation for the
accommodation of a third person only
if specifically authorized to do so.
Corollarily, corporate officers, such as
the president and vice-president, have
no power to execute for mere
accommodation
a
negotiable
instrument of the corporation for their
individual debts or transactions arising
from or in relation to matters in which
the corporation has no legitimate
concern. Since such accommodation
paper cannot thus be enforced against
the corporation, especially since it is
not involved in any aspect of the
corporate business or operations, the
inescapable conclusion in law and in
logic is that the signatories thereof
shall be personally liable therefor, as
well as the consequences arising from
By way of exception, an officer

or agent of a corporation shall
have the power to execute or
indorse a negotiable paper in
the name of the corporation for
the accommodation of a third
party
only
is
specifically
authorized
to
do
so.
Corollarily, corporate officers
have no power to execute for
mere
accommodation
a
negotiable instrument of the
corporation for their individual
debts and transactions arising
from or in relation to matters in
which the corporation has no
legitimate concern. Since such
accommodation paper cannot
be
enforced
against
the
corporation, the signatories thereof
shall
be
personally
liable
therefore, as well as the
consequences arising from their
acts in connection therewith.
Anonuevo-Ongkeko
45
their acts in connection therewith.

25
Stelco
Markeking
vs. Court of
Appeals
G.R.
No.
96160. June
17, 1992
Petitioner Stelco Marketing Corporation is

engaged in the distribution and sale to the
public of structural steel bars.
NARVASA,
C.J.
RYL bought on several occasion large

quantities of steel bars. Although the
corresponding invoices issued by STELCO
stipulated that RYL would pay COD
(cash on delivery), the latter made no
payments for the construction materials
thus ordered and delivered despite insistent
demands for payment by the former.
Whether
not
STELCO
can
deemed
holder of
check
value.
or
1.Checks; A holder of a check who is

not a holder in due course cannot sue
the drawer- accommodation party.
be
a
the
for
RYL gave to Armstrong Industries

described by STELCO as its sister
corporation and manufacturing arma
check drawn against Metrobank. That
check was a company check of another
corporation, Steelweld Corporation of the
Philippines, signed by its President, Peter
Rafael Limson, and its Vice- President,
Artemio Torres.
The check was drawn by Steelweld
Corporationallegedly the owner of
RYL persuaded the president of
Steelweld to accommodate the former in
its obligation. The check, when deposited
was thereafter
dishonored
due
to
insufficient funds. A case ensued for
violations of BP22 but the case was
dismissed as the check was held to be for
accommodation purposes only.
Thereafter a complaint was filed by
petitioner against RYL and Steelweld
for the recovery of sum of money in
payment of the steel bars ordered. RYL
was nowhere to be found that is why the
proceedings commenced as against
Dean Sundiang
Anonuevo-Ongkeko
1.What the record shows is that:

(1) the STEELWELD company
check in question was given by its
president to R.Y. Lim; (2) it was
given
only
by
way
of
accommodation, to be used as
collateral for another obligation;
(3) in breach of the agreement,
however, R.Y. Lim indorsed the
check to Armstrong in payment of
an obligation; (4) Armstrong
deposited the check to its account,
after indorsing it; (5) the check
was dishonored. The record does
not show any intervention or
participation by STELCO in any
manner or form whatsoever in
these
transactions,
or
any
communication of any sort
between
STEELWELD
and
STELCO, or between either of
them and Armstrong Industries, at
any time before the dishonor of
the check. The record does show
that after the check had been
deposited
and
dishonored,
STELCO came into possession of
it in some way, and was able,
several years after the dishonor of
the check, to give it in evidence at
the trial of the civil case it had
instituted against the drawers of
the check (Limson and Torres) and
RYL. But, as already pointed out,
possession of a negotiable
instrument after presentment and
dishonor, or payment, is utterly
inconsequential; it does not make
the possessor a holder for value
within the meaning of the law; it
46
Steelweld only. The trial court decided

in favor of petitioner but this was
reversed by the CA.
26
Travel-On
vs. Court of
Appeals
G.R.
No.
56169. June
26, 1992
FELICIANO,
J.
Petitioner Travel-On, Inc. (Travel-On) is

a travel agency selling airline tickets on
commission basis for and in behalf of
different airline companies. Private
respondent Arturo S. Miranda had a
revolving credit line with petitioner. He
procured tickets from petitioner on behalf
of airline passengers and derived
commissions therefrom.
gives rise to no liability on the part

of the maker or drawer and
indorsers. It is clear from the
relevant
circumstances
that
STELCO cannot be deemed a
holder of the check for value. It
does not meet two of the essential
requisites prescribed by the
statute. It did not become the
holder of it before it was overdue,
and without notice that it had been
previously dishonored, and it did
not take the check in good faith
and for value.
1.Drawer of check, not payee, has
burden of proof to show that he no
longer owes payee any amount.
2. Instruments Law; Only clear and
convincing evidence, not the mere
self-serving testimony of drawer, can
rebut presumption of holder in due
course.
Travel-On filed suit before the Court of

First Instance (CFI) of Manila to collect
on six (6) checks issued by private
respondent with a total face amount of
P115,000.00.
Petitioner alleged that Miranda procured
tickets from them which he paid with
cash and checks but the checks were
dishonored upon presentment to the
bank.
This was being refuted by
Miranda by saying
that
he
actually
paid
for
his
obligations, even in the excess.
He
argued that the checks were for
accommodation purposes only.
The
company needed to show to its Board of
Dean Sundiang
Anonuevo-Ongkeko
1.In the case at bar, the Court of

Appeals, contrary to these
established rules, placed the
burden of proving the existence of
valuable
consideration
upon
petitioner.
This
cannot
be
countenanced; it was up to private
respondent to show that he had
indeed issued the checks without
sufficient consideration. The Court
considers that private respondent
was unable to rebut satisfactorily
this legal presumption.
2. Travel-On was entitled to the
benefit
of
the
statutory
presumption that it was a holder in
due course, that the checks were
supported
by
valuable
consideration. Private respondent
maker of the checks did not
successfully
rebut
these
presumptions. The only evidence
aliunde that private respondent
offered was his own self-serving
uncorroborated testimony. He
claimed that he had issued the
47
Directors that its accounts receivable was

in good standing. The RTC and CA held
Miranda not to be liable.
27
BPI vs.
Court of
Appeals
G.R.
No.
112392.
February 29,
2000
YNARES-SA
Dean Sundiang
Benjamin Napiza maintains an account

with the Bank of the Philippine Islands
(BPI). In 1987, Napiza was approached by
Henry Chan and the latter gave him a
$2,500 Continental Bank Managers
check. Chan asked if Napiza can deposit
checks to Travel-On as payee to

accommodate
its
General
Manager who allegedly wished to
show those checks to the Board of
Directors of Travel-On to prove
that
Travel-Ons
account
receivables were somehow still
good. It will be seen that this
claim was in fact a claim that the
checks were merely simulated,
that private respondent did not
intend to bind himself thereon.
Only evidence of the clearest and
most convincing kind will suffice
for that purpose; no such evidence
was
submitted
by
private
respondent.
The
latters
explanation was denied by
Travel-Ons General Manager;
that explanation, in any case,
appears merely contrived and quite
hollow to us. Upon the other hand,
the
accommodation
or
assistance extended to Travel-Ons
passengers abroad as testified by
petitioners General Manager
involved, not the accommodation
transactions recognized by the
NIL, but rather the circumvention
of then existing foreign exchange
regulations by passengers booked
by Travel-On, which incidentally
involved
receipt
of
full
consideration
by
private
respondent.
Whether or
not Napiza
may be held
liable
to
refund the
amount of
1. Warranties of a person negotiating

an instrument by delivery or by
qualified indorsement. Section 65,
on the other hand, provides for the
following warranties of a person
negotiating an instrument by delivery
Anonuevo-Ongkeko
1. Napiza would have been liable

because he is an accommodation
indorser. But due to the attendant
circumstances,
Napiza
is
discharged from liability.
48

NTIAGO, J.
the check to his (Napizas BPI account) by

way of accommodation and for the
purpose of clearing the said check. Napiza
agreed and so he deposited the check on
September 3, 1987. Napiza then delivered
a signed blank withdrawal slip to Chan
with the condition that the $2,500.00 may
only be withdrawn if the check cleared.
For some reason, the withdrawal slip
ended up in the hands of one Ruben Gayon
who went to BPI and successfully
withdrew the $2,500.00. At the time of the
withdrawal, the check was not yet cleared.
Then days later, BPI was notified by the
drawee bank named in the check that the
check is actually a counterfeit.
the check.
or by qualified indorsement: (a) that

the instrument is genuine and in all
respects what it purports to be; (b) that
he has a good title to it; and (c) that all
prior parties had capacity to contract.
2. The requirement of presentation of
the passbook when withdrawing an
amount cannot be given mere lip
service even though the person making
the withdrawal is authorized by the
depositor to do so.The withdrawal
slip contains a boxed warning that
states: This receipt must be signed
and
presented
with
the
corresponding foreign currency
savings passbook by the depositor in
person. For withdrawals thru a
representative, depositor should
accomplish the authority at the
back. The requirement of presentation
of the passbook when withdrawing an
amount cannot be given mere lip
service even though the person making
the withdrawal is authorized by the
depositor to do so.
3. Checks; A negotiable instrument,
such as a check, whether a managers
check or ordinary check, is not legal
tender.
The withdrawal slip indicates as

well as the rules promulgated by
BPI that withdrawal from the bank
should be accompanied by the
presentment of the account
holders
(Napizas)
savings
bankbook. This was not done so in
the case at bar because Gayon was
able to withdraw without it.
Further,
BPI
allowed
the
withdrawal even before the check
cleared. BPI already credited the
$2,500.00 to Napizas account
even without the drawee bank
clearing the check. This is contrary
to common banking practices and
because of such negligence and
lack of diligence, BPI, as the
collecting bank, shall suffer the
loss.
2. This is clear from Rule No. 6
set out by petitioner so that, for the
protection of the banks interest
and as a reminder to the depositor,
the withdrawal shall be entered in
the depositors passbook. The fact
that private respondents passbook
was not presented during the
withdrawal is evidenced by the
entries therein showing that the
last transaction that he made with
the bank was on September 3,
1984, the date he deposited the
controversial check in the amount
of $2,500.00.
3. As correctly held by the Court
of Appeals, in depositing the
check in his name, private
respondent did not become the
outright owner of the amount
Dean Sundiang
Anonuevo-Ongkeko
49

stated therein. Under the above
rule, by depositing the check with
petitioner, private respondent was,
in a way, merely designating
petitioner as the collecting bank.
This is in consonance with the rule
that a negotiable instrument, such
as a check, whether a managers
check or ordinary check, is not
legal tender. As such, after
receiving the deposit, under its
own rules, petitioner shall credit
the amount in private respondents
account or infuse value thereon
only after the drawee bank shall
have paid the amount of the check
or the check has been cleared for
deposit. Again, this is in
accordance with ordinary banking
practices and with this Courts
pronouncement
that
the
collecting bank or last endorser
generally suffers the loss because
it has the duty to ascertain the
genuineness
of
all
prior
endorsements considering that the
act of presenting the check for
payment to the drawee is an
assertion that the party making the
presentment has done its duty to
ascertain the genuineness of the
endorsements. The rule finds
more meaning in this case where
the check involved is drawn on a
foreign bank and therefore
collection is more difficult than
when the drawee bank is a local
one even though the check in
question is a managers check.
Dean Sundiang
Anonuevo-Ongkeko
50

28

Argo
Conglomer
ates Inc. vs.
Court of
Appeals
G.R.
No.
117660.
December 18,
2000
QUISUMBIN
G, J.
Petitioner sold to Wonderland Food

Industries two parcels of land. They
stipulated under a Memorandum of
Agreement that the terms of payment
would
be
P1,000,000
in
cash,
P2,000,000 in shares of stock, and the
balance would be payable in monthly
installments. Thereafter, an
addendum was executed between them,
qualifying the cash payment. Instead of
cash payment, the vendee authorized
the vendor to obtain a loan from the
financier on which the vendee bound itself
to pay for. This loan was to cover for the
payment of P1,000,000. This addendum
was not notarized.
Petitioner Soriano signed as maker the
promissory notes payable to the bank.
However, the petitioners failed to pay the
obligations as they were due.
During
that time, the bank was in financial
distress and this prompted it to endorse
the promissory notes for collection. The
bank gave ample time to petitioners then to
satisfy their obligations.
Whether or
not
Agro
should
be
liable since
there is no
accommodat
ion
or
suretyship
1.
Suretyships;
Accommodation
Parties; Words and Phrases; An
accommodation party is a person who
has signed the instrument as maker,
acceptor,
or
indorser,
without
receiving value therefor, and for the
purpose of lending his name to some
other person and is liable on the
instrument to a holder for value,
notwithstanding such holder at the time
of taking the instrument knew (the
signatory) to be an accommodation
party; Suretyship is defined as the
relation which exists where one person
has undertaken an obligation and
another person is also under the
obligation or other duty to the obligee,
who is entitled to but one performance,
and as between the two who are bound,
one rather than the other should
perform.
The trial court held in favor of the

bank.
It didn't find merit to the
contention that Wonderland was the
one to be held liable for the promissory
notes.
Dean Sundiang
Anonuevo-Ongkeko
1. we note a subsidiary contract of

suretyship had taken effect since
petitioners signed the promissory
notes
as
maker
and
accommodation party for the
benefit of Wonderland. Petitioners
became liable as accommodation
party. An accommodation party is
a person who has signed the
instrument as maker, acceptor, or
indorser, without receiving value
therefor, and for the purpose of
lending his name to some other
person and is liable on the
instrument to a holder for value,
notwithstanding such holder at the
time of taking the instrument knew
(the signatory) to be an
accommodation party. He has the
right, after paying the holder, to
obtain reimbursement from the
party accommodated, since the
relation between them has in effect
become one of principal and
surety, the accommodation party
being the surety. Suretyship is
defined as the relation which
exists where one person has
undertaken an obligation and
another person is also under the
obligation or other duty to the
obligee, who is entitled to but one
performance, and as between the
two who are bound, one rather
than the other should perform. The
suretys liability to the creditor or
promisee of the principal is said to
be direct, primary and absolute; in
other words, he is directly and
equally bound with the principal.
And the creditor may proceed
against any one of the solidary
51

debtors.
2. First, there was no contract
of sale that materialized. The
original agreement
was
that
Wonderland would pay cash
and petitioner would deliver
possession of the farmlands.
But this was changed through
an addendum, that petitioner
would instead secure a loan and
the settlement
of the same would be shouldered
by Wonderland.
Petitioners became liable as
accommodation parties.
They
have the right after paying the
instrument
to
seek
reimbursement from the party
accommodated, since the relation
between them has in effect became
one of principal and surety.
Furthermore, as it turned out,
the contract of surety between
Woodland and petitioner was
extinguished by the rescission of
the contract of sale of the
farmland. With the rescission,
there was confusion in the persons
of the principal debtor and
surety. The addendum thereon
likewise lost its
efficacy.
VIII. HOLDERS IN DUE COURSE

29
LDe Ocampo No.

15126. Novem
vs.
Gatchalian ber 30, 1961
LABRADOR,
J
Dean Sundiang
Matilde Gonzales was a patient of the De

Ocampo Clinic owned by Vicente De
Ocampo. She incurred a debt amounting to
P441.75. Her husband, Manuel Gonzales
designed a scheme in order to pay off this
debt: In 1953, Manuel went to a certain
Whether or
not
De
Ocampo is a
holder in due
course
Negotiable instruments; Holder in due

course.Section 52(c) provides that a
holder in due course is one who takes
the instrument in good faith and for
value;
Anonuevo-Ongkeko
The Supreme Court emphasized

that if one is such a holder in due
course, it is immaterial that he was
the payee and an immediate party
to the instrument. The Supreme
Court however ruled that De
52

Anita Gatchalian. Manuel purported
himself to be selling the car of Vicente De
Ocampo. Gatchalian was interested in
buying said car but Manuel told her that
De Ocampo will only sell the car if
Gatchalian shows her willingness to pay
for it. Manuel advised Gatchalian to draw
a check of P600.00 payable to De Ocampo
so that Manuel may show it to De Ocampo
and that Manuel in the meantime will hold
it for safekeeping. Gatchalian agreed and
gave Manuel the check. After that, Manuel
never showed himself to Gatchalian.
Section 59, that every holder is

deemed prima facie to be a holder in
due course; and Section 52(d), that
in order that one may be a holder in
due course it is necessary that at the
time the instrument was negotiated
to him he had no notice of any x x x
defect in the title of the person
negotiating it; and lastly Section 59,
that every holder is deemed prima
facie to be a holder in due course.
When a holder is not a holder in due
course. Where a holders title is
defective or suspicious, it cannot be
stated that the payee acquired the check
without the knowledge, of said defect
in holders title, and for this reason the
presumption that it is a holder in due
course or that it acquired the
instrument in good faith does not exist.
Meanwhile, Manuel gave the check to his

wife who in turn gave the check to De
Ocampo as payment of her bills with the
clinic. De Ocampo received the check and
even gave Matilde her change (sukli). On
the other hand, since Gatchalian never saw
Manuel again, she placed a stop-payment
on the P600.00 check so De Ocampo was
not able to cash on the check. Eventually,
the issue reached the courts and the trial
court ordered Gatchalian to pay De
Ocampo the amount of the check.
30
Mesina vs.
IAC
Dean Sundiang
No. L-70145.
November
13,1986
PARAS, J.
Gatchalian argued that De Ocampo is not

entitled to payment because there was no
valid indorsement. De Ocampo argued tha
he is a holder in due course because he is
the named payee.
Jose Go purchased from Associate Bank a
Cashiers Check, which he left on top of
the managers desk when left the bank.
The bank manager then had it kept for
safekeeping by one of its employees.
The employee was then in conference
with one Alexander Lim. He left the
check in his desk
and upon his return, Lim and the
check were gone. When Go inquired

Ocampo is not a holder in due
course for his lack of good faith.
De Ocampo should have inquired
as to the legal title of Manuel to
the said check. The fact that
Gatchalian has no obligation to De
Ocampo and yet hes named as the
payee in the check hould have
apprised De Ocampo; that the
check did not correspond to
Matilde Gonzales obligation with
the clinic because of the fact that it
was for P600.00 more than the
indebtedness; that why was
Manuel in possession of the check
all these gave De Ocampo the
duty to ascertain from the holder
Manuel Gonzales what the nature
of the latters title to the check was
or the nature of his possession.
When proof of good faith required.

Where the payee required the check
under circumstances which should
have put it to inquiry, why the holder
had the check and used it, to pay his
own personal account, the duty
developed upon it to prove that it
actually acquired said check in good
faith.
Whether or
not Mesina
is a holder in
due course
A person who became the holderofa

cashiers check as endorsed by the
person who stole it and who refused to
say how and why it was passed to him
is not a holder in due course.
The bank from whom a cashiers check
was bought and which is aivare of the
facts surrounding its loss has the right
to refuse to pay the same when
Anonuevo-Ongkeko
Petitioner
cannot
raise
as
arguments that a cashiers check
cannot be countermanded from
the hands of a holder in due
course and that a cashiers
check is a check drawn by the
bank against itself.
Petitioner
failed to substantiate that he
was a holder in due course.
Upon questioning, he admitted
53

about his check, the same couldn't be
found and Go was advised to request for
the stoppage of payment which he did. He
executed also an affidavit of loss as well as
reported it to the police.
presented by a holder who was not the

one who bought the check from the
bank
Interpleader is an issuing banks
proper remedy where purchaser of
cashiers check claims it was lost and
another has presented it for payment
The bank then received the check twice for

clearing.
For these two times, they
dishonored the payment by saying that
payment has been stopped. After the
second time, a lawyer contacted it
demanding payment.
He refused to
disclose the name of his client and
threatened to sue. Later, the
name of Mesina was revealed. When
asked by the police on how he
possessed the check, he said it was paid
to him Lim. An information for theft was
then filed against Lim.
A case of interpleader was filed by the
bank and Go moved to participate as
intervenor
in
the
complaint
for
damages.
Mesina moved for the
dismissal of the case but was denied.
The trial court ruled in the interpleader
case ordering the bank to replace the
cashiers check in favor of Go.
that he got the check from Lim

who stole the check. He refused
to disclose how and why it has
passed to him. It simply means
that he has notice of the defect of
his title over the check from the
start. The holder of a cashiers
check who is not a holder in
due course
cannot enforce payment against
the
issuing
bank
which
dishonors the same. If a payee of
a cashiers check obtained it from
the issuing bank by fraud, or if
there is some other reason why
the payee is not entitled to
collect the check, the bank
would of course have the right
to refuse
payment of the check when
presented by payee, since the bank
was aware of the facts surrounding
the loss of the check in question.
IX. LIABILITY OF GENERAL INDORSER

31
Metropol
vs. Sambok
G.R.
No.
L-39641.
February 28,
1983
DE CASTRO,
J.
Dean Sundiang
Dr. Javier executed a promissory note in

favor of Ng Sambok Sons Motors Co., Ltd.
On the same date, Sambok Motors, a sister
company negotiated and indorsed the note
in favour of Metropol Financing &
Investment Corporation adding the word
with recourse. When Dr. Villaruel failed
to pay the promissory note after the
demand of Metropol, the latter notified
Sambok of the dishonor and demand
payment. Sambok contended that it could
not be obliged to pay until after its co-
Whether or
not Sambok
Motors
Company,
by
adding
the
words
with
recourse
becomes a
qualified
indorser and
therefor does
Indorsements; Qualified indorsement

constitutes indorser a mere assignor of
title to the instrument and relieves
indorser of general obligation to pay
instrument
if
instrument
is
dishonored.A qualified indorsement
constitutes the indorser a mere assignor
of the title to the instrument. It may be
made by adding to the indorsers
signature the words without recourse
or any words of similar import. Such
an indorsement relieves the indorser of
Anonuevo-Ongkeko
Recourse means resort to a person

who is secondarily liable after the
default of the person who is
primarily liable. Appellant, by
indorsing the note with recourse
does not make itself a qualified
indorser but a general indorser
who is secondarily liable, because
by such indorsement, it agreed that
if Dr. Villaruel fails to pay the
note, plaintiff-appellee can go
after said appellant. The effect of
54
32
Maralit vs.
Imperial
defendant Dr. Villaruel has been declared

insolvent.
not warrant
that if said
not
is
dishonored,
it will pay
the amount
to
the
holder.
the general obligation to pay if the

instrument is dishonored but not of the
liability arising from warranties on the
instrument as provided in Section 65 of
the Negotiable Instruments Law
already mentioned herein.
such indorsement is that the note

was
indorsed
without
qualification.
G.R.
No. Petitioner Maralit claimed that, as a
consequence of the materially altered
130756.
January 21, treasury warrant encashed by respondent
imperial, she was held personally liable by
1999
Whether or
not
respondent
should
be
held liable as
a
general
indorse.
Any ambiguity in a decision may be

clarified by a resort to the text of the
decision or, what is properly called,
the opinion part.
The Court symphatizes with the

petitioner that there was indeed
damage and loss, but said loss is
chargeable to the respondent who
upon her indorsements warrant
that the instrument is genuine in
all respect what it purports to be
and that she will pay the amount
thereof in case of dishonor. Thus,
while the MTC found petitioner
partly
responsible
for
the
encashment of the altered checks,
it found respondent civilly liable
because of her indorsements of the
treasury warrants, in addition to
the fact that respondent executed a
notarized acknowledgment of debt
promising to pay the total amount
of said warrants.
Whether or
not
petitioner be
required to
pay
civil
indemnity to
private
respondent.
Where a signature is so placed upon

the instrument that it is not clear in
what capacity the person making the
same intended to sign, he is deemed an
indorser.
Yes. It is undisputed that the four

(4) checks issued by De Guzman
were signed by petitioner at the
back without any indication as to
how she should be bound thereby
and, therefore, she is deemed to be
an indorser thereof. The NIL
clearly provides Sec. 17.
Construction where instrument is
ambiguous.
--Where
the
language of the instrument is
ambiguous,
or
there
are
admissions therein, the following
MENDOZA,
J.
33
Sapiera vs.
Court of
Appeals
G.R.
No.
128927.
September 14,
1999
BELLOSILL
O, J.
Dean Sundiang
the PNB for the total amount of

P320,287.30.
However,
respondent
claimed that she merely helped a relative,
Aida Abengoza, to encash the treasury
warrant and that she did not know the
amounts were altered nor did she represent
to petitioner that the treasury warrants are
genuine and that upon being informed of
dishonor, she immediately contacted her
relative and signed an acknowledgement to
pay the total amount of the treasury
warrant.
On several occasions, petitioner Sapiera, a

sari-sari store owner, purchased from
Monnico Mart certain grocery items,
mostly cigarettes, and paid for them with
checks issued by one Arturo de Guzman.
These checks were signed at the back by
the petitioner. When presented for
payment, the checks were dishonored
because the drawers account was already
closed. Private respondent Roman Sua
informed De Guzman and petitioner about
the dishonor but both failed to pay the
value of the checks.
The Negotiable Instruments Law

clearly
providesSec.
17.
Construction where instrument is
ambiguous.Where the language of
the instrument is ambiguous, or there
are admissions therein, the following
rules of construction apply: x x x x (f)
Anonuevo-Ongkeko
55
34
BPI vs.
Court of
Appeals
and Napiza
G.R.
No.
112392.
February 29,
2000
YNARES-SA
NTIAGO, J.
Private respondent Benjamin Napiza

deposited in his foreign current deposit
with BPI a dollar check owned by Henry
Chan in which he affixed his signature at
the dorsal side thereof. For this purpose,
Napiza gave Chan a signed blank
withdrawal slip. However, Gayon Jr. got
hold of the withdrawal slip and used it to
withdraw the proceeds of the dollar check,
even before the check was cleared and
without the presentation of the bank
passbook.
Whether or
not
petitioner
can
hold
private
respondent
liable for the
proceeds of
the check for
having
affixed his
signature at
the
dorsal
side
as
indorser.
Where a signature is so placed upon the

instrument that it is not clear in what
capacity the person making the same
intended to sign, he is deemed an
indorser.
rules of construction apply: x x x

(f) Where a signature is so placed
upon the instrument that it is not
clear in what capacity the person
making the same intended to sign,
he is deemed an indorser
Warranties of a person negotiating an

instrument by delivery or by qualified
indorsement. Section 65, on the
other hand, provides for the following
warranties of a person negotiating an
instrument by delivery or by qualified
indorsement: (a) that the instrument is
genuine and in all respects what it
purports to be; (b) that he has a good
title to it; and (c) that all prior parties
had capacity to contract
No. It is thus clear that ordinarily

private respondent may be held
liable as an indorser of the check
or even as an accommodation
party.[17] However, to hold
private respondent liable for the
amount of the check he deposited
by the strict application of the law
and without considering the
attending circumstances in the
case would result in an injustice
and in the erosion of the public
trust in the banking system. The
interest of justice thus demands
looking into the events that led to
the encashment of the check.
A negotiable instrument, such as a

check, whether a managers check or
ordinary check, is not legal tender.
A managers check is like a cashiers
check which, in the commercial world,
is regarded substantially to be as good
as the money it represents.
In dealing with its depositors, a bank
should exercise its functions not only
with the diligence of a good father of a
family but it should do so with the
highest degree of care
Even after the lapse of the 35-day
period, the amount of a deposited
check cannot be withdrawn in the
absence of a clearance thereon.
Dean Sundiang
Anonuevo-Ongkeko
56
X. PRESENTMENT FOR PAYMENT/ACCEPTANCE

35
Prudential
Bank vs.
IAC
G.R.
No.
74886.Decem
ber 8, 1992
DAVIDE, JR.,
J.
Dean Sundiang
To effect payment for machineries

purchased by Philippine Rayon Mills with
Nissho Co., Ltd, the former opened a
commercial letter of credit with the
Prudential Bank and Trust Company in
favor of Nissho. Drafts were drawn and
issued by Nissho, which were all paid by
the Prudential Bank through its
correspondent in Japan. Two of these
drafts were accepted by Philippine Rayon
Mills while the others were not. Petitioner
instituted an action for the recovery of the
sum of money it paid to Nissho as
Philippine Rayon Mills was not able to pay
its obligations arising from the letter of
credit. Respondent court ruled that with
regard to the ten drafts which were not
presented and accepted, no valid demand
for payment can be made. Petitioner
however claims that the drafts were sight
drafts which did not require presentment
for acceptance to Philippine Rayon.
Whether
presentment
for
acceptance
of the drafts
was
indispensabl
e to make
Philippine
Rayon liable
thereon.
A letter of credit is defined as an

engagement by a bank or other person
made at the request of a customer that
the issuer will honor drafts or other
demands for payment upon compliance
with the conditions specified in the
credit. Through a letter of credit, the
bank merely substitutes its own
promise to pay for the promise to pay
of one of its customers who in return
promises to pay the bank the amount of
funds mentioned in the letter of credit
plus credit or commitment fees
mutually agreed upon. In the instant
case then, the drawee was necessarily
the herein petitioner. It was to the latter
that the drafts were presented for
payment. In fact, there was no need for
acceptance as the issued drafts are sight
drafts. Presentment for acceptance is
necessary only in the cases expressly
provided for in Section 143 of the
Negotiable Instruments Law (NIL).
The said section reads: SEC. 143.
When presentment for acceptance must
be made. Presentment for acceptance
must be made: (a) Where the bill is
payable after sight, or in any other case
where presentment for acceptance is
necessary in order to fix the maturity of
the instrument; or (b) Where the bill
expressly stipulates that it shall be
presented for acceptance; or (c) Where
the bill is drawn payable elsewhere
than at the residence or place of
business of the drawee. In no other
case is presentment for acceptance
necessary in order to render any party
to the bill liable. Obviously then, sight
Anonuevo-Ongkeko
In the case at bar, the drawee was

necessarily the herein petitioner. It
was to the latter that the drafts
were presented for payment.
There was in fact no need for
acceptance as the issued drafts are
sight drafts.
Presentment for
acceptance is necessary only in the
cases expressly provided for in
Instruments Law (NIL). In no
other case is presentment for
acceptance necessary in order to
render any party to the bill liable.
Obviously then, sight drafts do not
require
presentment
for
acceptance.
57
drafts do not require presentment for

acceptance.
36
Wong vs.
Court of
Appeals
Dean Sundiang
G.R.
No. Petitioner Wong was an agent of
117857.
Limtong Press, Inc. (LPI), a
February 2, manufacturer of calendars. After
2001
printing the calendars, LPI would ship
the calendars directly to the customers.
QUISUMBI
Thereafter, the agents would come
NG, J
around to collect the payments.
Petitioner, however, had a history of
unremitted collections, which he duly
acknowledged in a confirmation
receipt he co-signed with his wife.
Petitioner issued several checks in
December 1985, initially to guarantee
the payment of unremitted collections,
however, upon agreement between the
parties, the checks will be applied to
unremitted
collections.
Before
maturity, petitioner advised not to
deposit the said checks, but after
failing to replace them, respondent
presented the check on June 1986
which was later on dishonoured by
reason of account closed. Having
failed to pay, a case of violation of BP
22 was filed against petitioner.
Petitioner contends that he is not liable
by reason of the delay in presenting the
checks.
Wether or
not
the
petitioner is
discharged
from
the
liability on
the
said
checks due
to delay in
presentmen
t.
What the law punishes is the

issuance of a bouncing check and
not the purpose for which it was
issued nor the terms and conditions
relating to its issuance; The mere
act of issuing a worthless check is
malum prohibitum.
Two (2) ways of violating Batas
Pambansa Blg. 22.There are two
(2) ways of violating B.P. Blg. 22:
(1) by making or drawing and
issuing a check to apply on account
or for value knowing at the time of
issue that the check is not
sufficiently funded; and (2) by
having sufficient funds in or credit
with the drawee bank at the time of
issue but failing to keep sufficient
funds therein or credit with said
bank to cover the full amount of the
check when presented to the drawee
bank within a period of ninety (90)
days.
Under Section 186 of the

Negotiable Instruments Law,
a check must be presented for
payment within a reasonable
time after its issue or the
drawer will be discharged from
liability thereon to the extent of
the loss caused by the delay.
By current banking practice, a
check becomes stale after more
than six (6) months,23 or 180
days. Private respondent herein
deposited the checks 157 days
after the date of the check.
Hence, said checks cannot be
considered stale.
By current banking practice a

check becomes stale after more
than six (6) months or 180 days.
Under Section 186 of the
check must be presented for
payment within a reasonable time
after its issue or the drawer will be
discharged from liability thereon to
the extent of the loss caused by the
delay.
By
current banking
Anonuevo-Ongkeko
58
practice, a check becomes stale

after more than six (6) months, or
180 days. Private respondent herein
deposited the checks 157 days after
the date of the check. Hence, said
checks cannot be considered stale.
Only the presumption of knowledge
of insufficiency of funds was lost,
but such knowledge could still be
proven by direct or circumstantial
evidence.
37
Internatio
nal
Corporate
Bank vs.
Sps.
Francis
Gueco and
Ma. Luz
Gueco
G.R.
No.
141968.
February 12,
2001
KAPUNAN,
J.
Gueco spouses obtained a loan from ICB

to purchase a car. In consideration
thereof, the debtors executed PNs, and
a chattel mortgage was made over the
car. The spouses defaulted in payment
of their obligations whereupon they
entered into a compromise agreement with
the bank. After some negotiation and
computation, they tendered a managers
check in favor of the bank based on the
reduced amount. Nonetheless, the car was
still detained for the spouses refused to
sign the joint motion to dismiss. Because
of this, the spouses filed an action for
recovery of the car and damages against
the bank. As the result of the proceeding,
the managers check tendered to the bank
had become stale in the hands of the bank.
Whether or
not the bank
should bear
the loss on
the
stale
managers
check as a
result of the
proceedings.
A stale check is one which has not been

presented for payment within a
reasonable time after its issue.A
stale check is one which has not been
presented for payment within a
reasonable time after its issue. It is
valueless and, therefore, should not be
paid. Under the negotiable instruments
law, an instrument not payable on
demand must be presented for payment
on the day it falls due. When the
instrument is payable on demand,
presentment must be made within a
reasonable time after its issue. In the
case of a bill of exchange, presentment
is sufficient if made within a
reasonable time after the last
negotiation thereof.
Failure to present for payment

within a reasonable time will
result to the discharge of the
drawer only to the extent of the
loss caused by the delay. It does
not totally wipe out all liability. In
fact, the legal situation amounts to
an acknowledgment of liability in
the sum stated in the check. In this
case, the Gueco spouses have not
alleged, much less shown that they
or the bank which issued the
managers check has suffered
damage or loss caused by the
delay
or
non-presentment.
Definitely, the original obligation
to pay certainly has not been
erased.
A check must be presented for payment

within a reasonable time after its issue,
and in determining what is a
reasonable time, regard is to be had
to the nature of the instrument, the
usage of trade or business with respect
to such instruments, and the facts of the
particular case. The test is whether the
payee employed such diligence as a
prudent man exercises in his own
Dean Sundiang
Anonuevo-Ongkeko
59
affairs. This is because the nature and

theory behind the use of a check points
to its immediate use and payability.
XI. CHECKS (SECTION 185 &186)

38
State
Investment
House vs.
Court of
Appeals
217 SCRA 32
January
11,
1993
BELLOSILL
O, J
New Sikatuna Wood Industries Inc.

(NSWI) requested for a loan from Harris
Chua, who issued 3 crossed checks.
Subsequently, NSWI entered in an
agreement with State Investment House
Inc. (SIHI) where the former discounted
several checks including the crossed
checks. When the crossed checks were
deposited by SIHI, the checks were
dishonoured by reason of insufficient
funds and account closed. SIHI made
demands upon Chua to make good said
checks by Chua failed.
Whether
SIHI is a
holder in due
course so as
to
recover
the amounts
in the checks
from Chua.
Sec. 52 of the Negotiable Instruments

Law
provides
a
prima
facie
presumption that the holder of a
negotiable instrument is a holder in
due
course.Culled
from
the
foregoing, a prima facie presumption
exists that the holder of a negotiable
instrument is a holder in due course.
Consequently, the burden of proving
that STATE is not a holder in due
course lies in the person who disputes
the presumption. In this regard,
MOULIC failed.
No, the act of crossing a check

serves as a warning to the holder
that the check has been issued for
a definite purpose so that he must
inquire if he has received the
check pursuant to that purpose,
otherwise he is not a holder in due
course. His failure to inquire from
the holder the purpose prevents
him from being considered in
good faith. SIHI, is subject to
personal defences for such as the
lack of consideration between the
NSWI and Chua.
eing a holder in due course, State holds

the instruments free from any defect of
title of prior parties and from defenses
available to prior parties among
themselves. Consequently, STATE is
indeed a holder in due course. As such,
it holds the instruments free from any
defect of title of prior parties, and from
defenses available to prior parties
among themselves; STATE may,
therefore, enforce full payment of the
checks.
Fact that the post-dated checks were
merely issued as security is not a
ground for the discharge of the
instrument as against a holder in due
course.That the postdated checks
were merely issued as security is not a
ground for the discharge of the
instrument as against a holder in due
course. For, the only grounds are those
outlined in Sec. 119 of the Negotiable
Dean Sundiang
Anonuevo-Ongkeko
60
Instruments Law.
39
Bataan
Cigar and
Cigarette
Factory,
Inc. vs.
Court of
Appeals
G.R.
No.
93048. March
3, 1994
NOCON, J.
Petitioner engaged one of its suppliers

King Tim Pua George to deliver bales of
tobacco leaf. In consideration thereof,
petitioner issued a crossed check. Relying
on the supplier's representation, petitioner
agreed to purchase additional bales of
tobacco leaves, despite the supplier's
failure to deliver in accordance with their
earlier agreement upon which he issued
post dated crossed checks. However, the
supplier sold the said check at a discount
to private respondent State Investment
House Inc.(SIHI). Upon failure to deliver
said bales of tobacco leaf, petitioner issued
a stop order payment on all checks. SIHI
then instituted this action, upon dishonour
of the check, on the ground that the same
is a holder in due course and would be able
to collect from petitioner.
Whether or
not SIHI, a
holder of a
crossed
check, is a
holder in due
course and
would
be
able
to
collect from
petitioner.
Holder in Due Course; What

constitutes a holder in due course.
The Negotiable Instruments Law states
what constitutes a holder in due course,
thus: Sec. 52A holder in due course
is a holder who has taken the
instrument under the following
conditions: (a) That it is complete and
regular upon its face; (b) That he
became the holder of it before it was
overdue, and without notice that it had
been previously dishonored, if such
was the fact; (c) That he took it in good
faith and for value; (d) That at the time
it was negotiated to him he had no
notice of any infirmity in the
instrument or defect in the title of the
person negotiating it.
It is a settled ruled that crossing of

checks should put the holder on
inquiry and upon him devolves the
duty to ascertain the indorsers
title to the check or the nature of
his possession. Failing in this
respect, the holder is declared
guilty
of
gross
negligence
amounting to legal absence of
good faith and is to the effect that
the holder of the check is not a
holder in due course. There being
failure of consideration which is a
personal defense, cannot be
obliged to pay the checks to SIHI
who is not a holder in due course.
Every holder is deemed prima facie a

holder in due course.Section 59 of
the NIL further states that every holder
is deemed prima facie a holder in due
course. However, when it is shown that
the title of any person who has
negotiated
the
instrument
was
defective, the burden is on the holder to
prove that he or some person under
whom he claims, acquired the title as
holder in due course.
The only disadvantage of a holder who
is not a holder in due course is that the
instrument is subject to defenses as if it
were non-negotiable.The foregoing
does not mean, however, that
respondent could not recover from the
checks. The only disadvantage of a
holder who is not a holder in due
course is that the instrument is subject
Dean Sundiang
Anonuevo-Ongkeko
61
to defenses as if it were non-negotiable.

Hence, respondent can collect from the
immediate indorser, in this case,
George King.
A check is defined by law as a bill of
exchange drawn on a bank payable on
demand.As a preliminary, a check is
defined by law as a bill of exchange
drawn on a bank payable on demand.
There are a variety of checks, the more
popular of which are the memorandum
check, cashiers check, travelers check
and crossed check. Crossed check is
one where two parallel lines are drawn
across its face or across a corner
thereof. It may be crossed generally or
specially.
40
Citytrust
Banking
Corporatio
n vs. Court
of Appeals
Dean Sundiang
230
SCRA
643
May 27, 1994
VITUG, J.
The case emanated from a complaint filed

by respondent Emme for damages against
petitioner. Respondent deposited with
petitioner several cash in order to amply
cover the post dated checks she issued.
When presented for encahsement upon
maturity, all checks were dishonoured due
to insufficiency of funds. Petitioner in its
answer averred that it was respondents
fault that her checks were dishonoured
because the account no. Reflected in the
deposit slip which is 2900823 was not her
correct no. Which is 29000823.
Whether of
not
petitioner is
liable
for
damages on
the
dishonoured
checks.
The bank is engaged in business

impressed with public interest and it is
its duty to protect in return its many
clients and depositors who transact
business with it.We cannot uphold
the position of defendant. For, even if it
be true that there was error on the part
of the plaintiff in omitting a zero in
her account number, yet, it is a fact that
her name, Emme E. Herrero, is
clearly written on said deposit slip
(Exh. B). This is controlling in
determining in whose account the
deposit is made or should be posted.
This is so because it is not likely to
commit an error in ones name than
merely relying on numbers which are
difficult to remember, especially a
number with eight (8) digits as the
account numbers of defendants
depositors. We view the use of
numbers as simply for the convenience
of the bank but was never intended to
Anonuevo-Ongkeko
The depositor expects the bank to

treat his account with utmost
fidelity, whether such account
consists only of a few hundred
pesos or of millions. The bank is
engaged in business impressed
with public interest and it is its
duty to protect in return its many
clients and depositors who transact
business with it. It is under
obligation to treat the accounts of
its depositors with meticulous care
having in mind the fiduciary
nature of their relationship. Hence,
nominal damages may be awarded
in order that a right of the plaintiff,
which have been violated or
invaded by the defendant, may be
vindicated or recognized, and not
for the purpose of indemnifying
the plaintiff for any loss suffered
by him.
62
disregard the real name of its

depositors. The bank is engaged in
business impressed with public interest,
and it is its duty to protect in return its
many clients and depositors who
transact business with it. It should not
be a matter of the bank alone receiving
deposits, lending out money and
collecting interests. It is also its
obligation to see to it that all funds
invested with it are properly accounted
for and duly posted in its ledgers.
Bank clients are supposed to rely on
the services extended by the bank
including the assurance that their
deposits will be duly credited them as
soon as they are made.
The depositor expects the bank to treat
his account with utmost fidelity,
whether such account consists only of a
few hundred pesos or of millions.
41
No.
Ramon Tan G.R.
vs. Court of 108555.
December 20,
Appeals
1994
KAPUNAN,
J.
Dean Sundiang
Ramon tan secured a cashiers from

Philippine Commercial Industrial Bank
(PCIB) payable to his order. He deposited
his check in his account with Rizal
Commercial Banking Corporation (RCBC)
Binondo. On the same day, RCBC
erroneously sent the same cashiers check
for clearing to the Central Bank which was
returned for having been missent or
misrouted. The next day, RCBC debited
the amount covered by the same cashiers
check from the account of the petitioner.
Respondent bank at this time had not
informed the petitioner of its action.
Relying that said checks were honoured,
petitioner issued two personal check which
Whether or
not RCBC
may be held
liable
for
damages
upon
erroneous
debit
covered by
the cashiers
check.
A bank cannot exculpate itself from

liability for the consequences of the use
of wrong deposit slip resulting in the
misrouting of a regional check to the
Central Bank for clearing.
The bank is not expected to be
infallible but it must bear the blame for
not discovering the mistake of its teller
despite the established procedure
requiring the papers and bank books to
pass through a battery of bank
personnel whose duty it is to check and
countercheck them for possible
errors.We do not subscribe to
RCBCs assertion that petitioners use
Anonuevo-Ongkeko
A bank cannot exculpate itself

from liability for the consequences
of the use of wrong deposit slip
resulting in the misrouting of a
regional check to the Central Bank
for clearing. The bank is not
expected to be infallible but it
must bear the blame for not
discovering the mistake of its
teller despite the established
procedure requiring the papers and
bank books to pass through a
battery of bank personnel whose
duty it is to check and
countercheck them for possible
errors. As the result of the
63

was dishonoured due to insufficiency of
funds. Petitioner alleging to have suffered
humiliation and loss of face in the business
sector due to the bounced check filed a
complaint against RCBC.
of the wrong deposit slip was the

proximate cause of the clearing fiasco
and so, petitioner must bear the
consequence.
There is an element of certainty or
assurance in an ordinary check that it
will be paid upon presentation that is
why it is perceived as a convenient
substitute for currency in commercial
and
financial
transactions.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. The basis of the
perception being confidence. Any
practice that destroys that confidence
will impair the usefulness of the check
as a currency substitute and create
havoc in trade circles and the banking
community.
42
Papa vs.
A.U.
Valencia &
Co.
G.R.
105188.
January
1998.
No.
23,
KAPUNAN,
J.
Dean Sundiang
On 1992, a complaint was against

Petitioner Myron C. Papa as attornery-infact of Angela M. Butte sold to respondent
Penaroyo through respondent Valencia a
parcel of land on 1973. Petitioner appealed
decision, alleging among others that the
sale was never consummated as he did
not encash the check given by respondents
Valencia and Pearroyo in payment of the
full purchase price of the subject lot. He
maintained that what said respondents had
actually paid was only the amount of
P5,000.00 (in cash) as earnest money.
Whether or
not
the
check
did
not amount
to payment.
Checks; Presumptions; After more than

ten (10) years from the payment in part
by cash and in part by check, the
presumption is that the check had been
encashed.It is an undisputed fact that
respondents Valencia and Pearroyo
had given petitioner Myron C. Papa the
amounts of Five Thousand Pesos
(P5,000.00) in cash on 24 May 1973,
and
Forty
Thousand
Pesos
(P40,000.00) in check on 15 June 1973,
in payment of the purchase price of the
subject lot. Petitioner himself admits
having received said amounts, and
having issued receipts therefor.
Petitioners assertion that he never
Anonuevo-Ongkeko
negligence of the bank, the

depositor has the right to recover
moral damages even if the banks
negligence may not have been
attended with malice and bad faith
if the former suffered mental
anguish,
serious
anxiety,
embarrassment and humiliation.
While it is true that the delivery of

a check produces the effect of
payment only when it is cashed,
pursuant to Art. 1249 of the Civil
Code, the rule is otherwise if the
debtor is prejudiced by the
creditors unreasonable delay in
presentment. The acceptance of a
check implies an undertaking of
due diligence in presenting it for
payment, and if he from whom it
is received sustains loss by want
of such diligence, it will be held to
operate as actual payment of the
debt or obligation for which it was
given.
64
encashed the aforesaid check is not

substantiated and is at odds with his
statement in his answer that he can no
longer recall the transaction which is
supposed to have happened 10 years
ago. After more than ten (10) years
from the payment in part by cash and
in part by check, the presumption is
that the check had been encashed. As
already stated, he even waived the
presentation of oral evidence.
Failure of a payee to encash a check
for more than ten (10) years
undoubtedly resulted in the impairment
of the check through his unreasonable
and unexplained delay. Granting that
petitioner had never encashed the
check, his failure to do so for more
than ten (10) years undoubtedly
resulted in the impairment of the check
through
his
unreasonable
and
unexplained delay.
The acceptance of a check implies an
undertaking of due diligence in
presenting it for payment, and if he
from whom it is received sustains loss
by want of such diligence, it will be
held to operate as actual payment of
the debt or obligation for which it was
given.While it is true that the
delivery of a check produces the effect
of payment only when it is cashed,
pursuant to Art. 1249 of the Civil
Code, the rule is otherwise if the debtor
is prejudiced by the creditors
unreasonable delay in presentment. The
acceptance of a check implies an
undertaking of due diligence in
presenting it for payment, and if he
from whom it is received sustains loss
Dean Sundiang
Anonuevo-Ongkeko
It has, likewise, been held that if

no presentment is made at all, the
drawer cannot be held liable
irrespective of loss or injury unless
presentment is otherwise excused.
This is in harmony with Article
1249 of the Civil Code under
which payment by way of check
or other negotiable instrument is
conditioned on its being cashed,
except when through the fault of
the creditor, the instrument is
impaired. The payee of a check
would be a creditor under this
provision and if its non-payment is
caused by his negligence, payment
will be deemed effected and the
obligation for which the check was
given as conditional payment will
be discharged. Failure of a payee
to encash a check for more than
ten (10) years undoubtedly
resulted in the impairment of the
check through his unreasonable
and unexplained delay
65
by want of such diligence, it will be

held to operate as actual payment of the
debt or obligation for which it was
given. It has, likewise, been held that if
no presentment is made at all, the
drawer cannot be held liable
irrespective of loss or injury unless
presentment is otherwise excused. This
is in harmony with Article 1249 of the
Civil Code under which payment by
way of check or other negotiable
instrument is conditioned on its being
cashed, except when through the fault
of the creditor, the instrument is
impaired. The payee of a check would
be a creditor under this provision and if
its non-payment is caused by his
negligence, payment will be deemed
effected and the obligation for which
the check was given as conditional
payment will be discharged.
ADDITIONAL CASES
1
Allied
Banking
Corporatio
n vs. Court
of Appeals
Dean Sundiang
G.R.
No.
125851. July
11, 2006
QUISUMBIN
G, J.
Petitioner purchased a letter of credit from

respondent
G.G.
Sportswear
Mfg.
Corporation. The export bill was issued by
Chekiang First Bank Ltd., Hongkong.
With the purchase of the bill, ALLIED
credited GGS the peso equivalent of the
aforementioned bill. On the same date,
respondents executed their respective
Letters of Guaranty, holding themselves
liable on the export bill if it should be
dishonored or retired by the drawee for
any reason.
When ALLIED negotiated the export bill
to Chekiang, payment was refused due to
some material discrepancies in the
documents submitted by GGS relative to
the exportation covered by the letter of
credit. Consequently, ALLIED demanded
payment from all the respondents based on
Whether or
not protest
upon
dishonor is
necessary on
a guarantor
of
a
commercial
paper.
There are well-defined distinctions

between the contract of an indorser
and that of a guaran-tor/surety of a
commercial paper. The contract of
indorsement is primarily that of
transfer, while the contract of guaranty
is that of personal security. The
liability of a guarantor/surety is broader
than that of an indorser. Unless the bill
is promptly presented for payment at
maturity and due notice of dishonor
given to the indorser within a
reasonable time, he will be discharged
from liability thereon. On the other
hand, except where required by the
provisions of the contract of suretyship,
a demand or notice of default is not
required to fix the suretys liability.
Anonuevo-Ongkeko
No, Section 152 of the Negotiable

Instruments Law pertaining to
indorsers,
relied
on
by
respondents, is not pertinent to this
case. There are well-defined
distinctions between the contract
of an indorser and that of a
guarantor/surety of a commercial
paper, which is what is involved in
this case. The contract of
indorsement is primarily that of
transfer, while the contract of
guaranty is that of personal
security. The liability of a
guarantor/surety is broader than
that of an indorser. Unless the bill
is promptly presented for payment
at maturity and due notice of
dishonor given to the indorser
66

the Letters of Guaranty and Surety
executed in favor of ALLIED. However,
respondents refused to pay, prompting
ALLIED to file an action for a sum of
money.
Respondents claim that the petitioner did
not protest upon dishonor of the export bill
by Chekiang First Bank, Ltd. According to
respondents, since there was no protest
made upon dishonor of the export bill, all
of them, as indorsers were discharged
under Section 152 of the Negotiable
Instruments Law.
Villanueva
vs. Nite
G.R.
No.
148211. July
25, 2006
CORONA, J.
Respondent allegedly took out a loan of

P409,000 from petitioner. To secure the
loan, respondent issued petitioner an Asian
Bank Corporation (ABC) check in the
amount of P325,500 dated February 8,
1994. The date was later changed to June
8, 1994 with the consent and concurrence
of petitioner.
The check was, however, dishonored due
to a material alteration when petitioner
deposited the check on due date. On
August 24, 1994, respondent, through her
representative Emily P. Abojada, remitted
P235,000 to petitioner as partial payment
of the loan. The balance of P174,000 was
due on or before December 8, 1994.
Whether or
not
ABC
may be held
liable
to
petitioner for
the
dishonour of
the check.
Obligations arising from contracts

have the force of law between the
parties and should be complied with in
good faith.We must stress that
obligations arising from contracts have
the force of law between the parties
and should be complied with in good
faith. Nothing can stop the parties from
establishing stipulations, clauses, terms
and conditions as they may deem
convenient, provided they are not
contrary to law, morals, good customs,
public order, or public policy.
within a reasonable time, he will

be discharged from liability
thereon. On the other hand, except
where required by the provisions
of the contract of suretyship, a
demand or notice of default is not
required to fix the suretys
liability. Hence, respondents are
liable and protest upon dishonor is
not necessary,.
Checks; Parties; If a bank refuses to

pay
a
check
(notwithstanding
sufficiency of funds), the payee-holder
cannot sue the bankthe payee should
instead sue the drawer who might in
turn sue the bank.
In this case, there was no such

privity of contract between ABC
and petitioner. Petitioner should
not have sued ABC. Contracts
take effect only between the
parties, their assigns and heirs,
except in cases where the rights
and obligations arising from the
contract are not transmissible by
their nature, or by stipulation or by
provision of law. None of the
foregoing exceptions to the
relativity of contracts applies in
this case.
Section 189 is sound law based on

logic and established legal principles:
no privity of contract exists between
the drawee-bank and the payee.
On August 24, 1994, however, petitioner

filed an action for a sum of money and
damages against ABC for the full amount
of the dishonored check. RTC 101 ruled in
his favor. When respondent went to ABC
Dean Sundiang
Anonuevo-Ongkeko
Still, the RTC decision was to be

annulled becasue as the NIL
provides, the drawee cannot be
held liable unless he accepts the
check. There was no privity
between ABC and Villanueva.
67
Salcedo Village Branch on June 30, 1997

to withdraw money from her account, she
was unable to do so because the trial court
had ordered ABC to pay petitioner the
value of respondents ABC check.
3
Bank of the
Philippine
Island vs.
Commissio
ner of
Internal
Revenue
G.R.
No.
137002. July
27, 2006
CHICONAZARIO, J.
Petitioner Bank of the Philippine Islands

(BPI) sold to the Central Bank of the
Philippines U.S. dollars. BPI instructed, by
cable, its correspondent bank in New York
to transfer U.S. dollars deposited in BPIs
account therein to the Federal Reserve
Bank in New York for credit to the Central
Banks account therein. Thereafter, the
funds had been credited to its account and
the Central Bank promptly transferred to
the petitioners account in the Philippines
the corresponding amount in Philippine
pesos.
Under the NIRC Section 195, it imposes a
documentary stamp tax on (1) foreign bills
of exchange, (2) letters of credit, and (3)
orders, by telegraph or otherwise, for the
payment of money issued by express or
steamship companies or by any person or
persons.
Whether or
not
the
instruction
by cable is a
bill
of
exchange
included in
the activities
where
documentary
stamp tax is
imposed.
Bills of Exchange Defined.A

definition of a bill of exchange is
provided by Section 39 of Regulations
No.
26,
the
rules
governing
documentary taxes promulgated by the
Bureau of Internal Revenue (BIR) in
1924: Sec. 39. Definition of bill of
exchange. The term bill of exchange
denotes checks, drafts, and all other
kinds of orders for the payment of
money, payable at sight, or on demand
or after a specific period after sight or
from a stated date. Section 126 of The
Negotiable Instruments Law (Act No.
2031) reiterates that it is an order for
the payment of money and specifies
the particular requisites that make it
negotiable. Sec. 126. Bill of exchange
defined.A bill of exchange is an
unconditional
order
in
writing
addressed by one person to another,
signed by the person giving it,
requiring the person to whom it is
addressed to pay on demand or at fixed
or determinable future time a sum
certain in money to order or to bearer.
A foreign bill of exchange may be
drawn outside the Philippines, payable
outside the Philippines, or both drawn
and
payable
outside
of
the
Philippines.Section 129 of the same
law classifies bills of exchange as
inland and foreign, the distinction is
laid down by where the bills are drawn
and paid. Thus, a foreign bill of
Dean Sundiang
Anonuevo-Ongkeko
From this enumeration, two

common elements need to be
present:
(1)
drawing
the
instrument or ordering a drawee,
within the Philippines; and (2)
ordering that drawee to pay
another person a specified amount
of money outside the Philippines.
What is being taxed is the facility
that allows a party to draw the
draft or make the order to pay
within the Philippines and have
the payment made in another
country.
The fact that the funds belong to
BPI and were not advanced by the
correspondent bank will not
remove the transaction from the
coverage of Section 195 of the
NIRC. A bill of exchange, when
drawn in the Philippines but
payable in another country, would
surely be covered by this section.
And in the case of a bill of
exchange, the funds may belong to
the drawer and need not be
advanced by the drawee, as in the
case of a check or a draft. In the
description of a draft provided
hereunder, the drawee is in
possession of funds belonging to
the drawer of the bill.
68
exchange may be drawn outside the

Philippines, payable outside the
Philippines, or both drawn and payable
outside of the Philippines. Sec. 129.
Inland
and
foreign
bills
of
exchange.An inland bill of exchange
is a bill which is, or on its face purports
to be, both drawn and payable within
the Philippines. Any other bill is a
foreign bill.
A letter of credit is one whereby one
person requests some other person to
advance money or give credit to a third
person, and promises that he will repay
the same to the person making the
advancement, or accept the bill drawn
upon himself for the like amount.
What is being taxed is the facility that
allows a party to draw the draft or
make the order to pay within the
Philippines and have the payment
made in another country.
In the case of a bill of exchange, the
funds may belong to the drawer and
need not be advanced by the drawee,
as in the case of a check or a draft; A
draft is a form of a bill of exchange
used mainly in transactions between
persons physically remote from each
other, an order made by one person,
say the buyer of goods, addressed to a
person having in his possession funds
of such buyer ordering the addressee to
pay the purchase price to the seller of
the goods, and where the order is made
by one bank to another, it is referred to
as a bank draft.
Dean Sundiang
Anonuevo-Ongkeko
69
Citibank
NA vs.
Sabeniano
G.R.
156132.
October
2006
No.
16,
CHICONAZARIO, J.
Petitioner Citibank is a banking

corporation duly authorized under the laws
of the USA to do commercial banking
activities n the Philippines. Sabeniano was
a client of both Petitioners Citibank and
FNCB Finance. Respondent filed a
complaint against petitioners claiming to
have substantial deposits, the proceeds of
which
were
supposedly
deposited
automatically and directly to respondents
account with the petitioner Citibank and
that allegedly petitioner refused to despite
repeated demands. Petitioner alleged that
respondent obtained several loans from the
former and in default, Citibank exercised
its right to set-off respondents outstanding
loans with her deposits and money. RTC
declared the act illegal, null and void and
ordered the petitioner to refund the amount
plus interest, ordering Sabeniano, on the
other hand to pay Citibank her
indebtedness. CA affirmed the decision
entirely in favor of the respondent.
Whether or
not
petitioner
the
provisional
receipts
upon
acceptance
of
checks
evidenced
the payment.
Since a negotiable instrument is only a

substitute for money and not money,
the delivery of such an instrument does
not, by itself, operate as payment. 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. Mere delivery of
checks does not discharge the
obligation under a judgment.
Since a negotiable instrument is

only a substitute for money and
not money, the delivery of such an
instrument does not, by itself,
operate as payment. 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.
Mere delivery of checks does not
discharge the obligation under a
judgment. The obligation is not
extinguished
and
remains
suspended until the payment by
commercial document is actually
realized. Since the provisional
receipt was issued for the the
receipt of the check, the same
cannot be considered as evidence
of payment hence the loan still
subsist.
It bears to emphasize that the
proceeds of the loans were paid to
respondent in MCs, with the
respondent specifically named as
payee. MCs checks are drawn by
the banks manager upon the bank
itself and regarded to be as good
as the money it represents.
Moreover, the MCs were crossed
checks, with the words Payees
Account Only.
The crossed MCs presented by
petitioner Bank were indeed
deposited in several different bank
accounts and cleared by the
Dean Sundiang
Anonuevo-Ongkeko
70

Clearing Office of the Central
Bank of the Philippines, as
evidenced by the stamp marks and
notations on the said checks. The
crossed MCs are already in the
possession of petitioner Citibank,
the drawee bank, which was
ultimately responsible for the
payment of the amount stated in
the checks. Given that a check is
more than just an instrument of
credit
used
in
commercial
transactions for it also serves as a
receipt or evidence for the drawee
bank of the cancellation of the said
check due to payment, then, the
possession by petitioner Citibank
of the said MCs, duly stamped
Paid gives rise to the
presumption that the said MCs
were already paid out to the
intended payee, who was in this
case, the respondent.
Equitable
PCI Bank
vs. Rowena
Ong
Dean Sundiang
Sarande deposited in her account with

Philippine Commercial International (PCI)
Bank a check in amount of P225,000
which was cleared. Thereafter, Sarande
issued a check amounting to P132,000
owing to a business consideration. On the
same day, Ong presented the check to PCI
Bank but instead of depositing it, she
requested that proceeds thereof converted
into a mangers check whereupon a
managers check was issued. Thereafter,
he deposited said check to Equitable
Banking Corporation but was later on
dishonored because PCI Bank issued a
stop payment owing to Sarandes account
being closed.
Whether or
not Ong is a
holder in due
course in the
absence of
consideratio
n in the
issuance of
the
managers
check.
Doctrine of Unjust Enrichment; The

fundamental doctrine of unjust
enrichment is the transfer of value
without just cause or consideration, the
main objective being to prevent one to
enrich himself at the expense of
another; A check which has been
cleared and credited to the account of
the creditor shall be equivalent to a
delivery to the creditor of cash in an
amount equal to the amount credited to
his account.
A managers check is an order of the
bank to pay, drawn upon itself,
committing in effect its total resources,
integrity and honor behind its issuance,
and by its peculiar character and
Anonuevo-Ongkeko
The claim is without basis. Easily

discernible is that what Ong
obtained from PCI Bank was not
just any ordinary check but a
managers check. A managers
check is an order of the bank to
pay,
drawn
upon
itself,
committing in effect its total
resources, integrity and honor
behind its issuance. By accepting
PCI Bank Check issued by
Sarande to Ong and issuing in turn
a managers check in exchange
thereof, PCI Bank assumed the
liabilities of an acceptor under
Instruments
Law.
Hence,
Petitioner is liable to pay the value
71
Internatio
nal
Corporate
Bank vs.
Court of
Appeals
and PNB
G.R.
No.
129910.
September 5,
2006
Melva
Therese
Gonzales
vs. Rizal
Commercia
l Banking
Corporatio
n
G.R.
No.
156294.
November 29,
2006
Dean Sundiang
CARPIO, J.
GARCIA, J.
general use in commerce, a managers

check is regarded substantially to be as
good as the money it represents A
managers check stands on the same
footing as a certified check. The effect
of certification is found in Section 187,
Negotiable Instruments Law. Sec. 187.
Certification of check; effect of.
Where a check is certified by the bank
on which it is drawn, the certification is
equivalent to an acceptance.
of the check with damages.
The Ministry of Education and Culture

issued 15 checks drawn against respondent
which petitioner accepted for deposit on
various dates. After 24 hours from
submission of the checks to respondent for
clearing, petitioner paid the value of the
checks and allowed the withdrawals of the
deposits. However, on 14 October 1981,
respondent returned all the checks to
petitioner without clearing them on the
ground that they were materially altered.
Thus, petitioner instituted an action for
collection of sums of money against
respondent to recover the value of the
checks.
Whether or
not
respondent
should
be
held liable
for
the
materially
altered
checks.
An alteration is said to be material if it

alters the effect of the instrument. It
means an unauthorized change in an
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 a party. In other words, a
material alteration is one which
changes the items which are required to
be stated under Section 1 of the
Negotiable Instrument[s] Law.
The alterations in the checks were

made
on
their
serial
numbers. Alteration on serial
numbers are not within the
purview of material alteration as
provided under Section 125 of
NIL for the name of the
government agency which issued
the check was prominently
printed. Since there were no
material alterations on the checks,
respondent as drawee bank has no
right to dishonor them and return
them to petitioner, the collecting
bank. Thus, respondent is liable to
petitioner for the value of the
checks, with legal interest from
the time of filing.
Gonzales was an employee of Rizal

Commercial
Banking
Corporation
(RCBC). A foreign check in the amount of
$7,500 was drawn by Dr. Don Zapanta and
payable to Gonzales mother, defendant
Eva Alviar. Alviar then endorsed this
check. Gonzales presented the foreign
check to Olivia Gomez. After examining
this, Olivia Gomez acquiesced to the early
encashment of the check and signed the
check but indicated thereon her authority
Whether or
not Gonzales
is liable to
the
subsequent
indorser
despite
of
the
defect
introduced
by the latter
which
A subsequent party which caused the

defect in the instrument cannot have
any recourse against any of the prior
endorsers in good faith.
The foreign drawee bank, Wilshire

Center Bank N.A., refused to pay
the bearer of this dollar-check
drawn by Don Zapanta because of
the defect introduced by RCBC,
through its employee, Olivia
Gomez. There is no doubt in the
mind of the Court that a
subsequent party which caused the
defect in the instrument cannot
have any recourse against any of
The holder or subsequent endorser who

tries to claim under the instrument
which had been dishonored for
irregular endorsement must not be
the irregular endorser himself who
gave cause for the dishonor; Courts of
Anonuevo-Ongkeko
72

of up to P17,500.00 only.
RCBC then tried to collect the check with
the drawee bank but was dishonored
because of irregular indorsement. Insisting,
RCBC again sent the check to the drawee
bank, but this time the check was returned
due to account closed. Unable to collect,
RCBC demanded from Gonzales the
payment of the peso equivalent of the
check that she received.
Dean Sundiang
rendered the
instrument
dishonored.
law, being also courts of equity, may

not countenance grossly unfair results
without doing violence to their solemn
obligation to administer fair and equal
justice for all.Section 66 of the
Negotiable Instruments Law which
further states that the general endorser
additionally engages that, on due
presentment, the instrument shall be
accepted or paid, or both, as the case
may be, 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 endorser
who may be compelled to pay it, must
be read in the light of the rule in equity
requiring that those who come to
court should come with clean hands.
The holder or subsequent endorser who
tries to claim under the instrument
which had been dishonored for
irregular endorsement must not be
the irregular endorser himself who
gave cause for the dishonor. Otherwise,
a clear injustice results when any
subsequent party to the instrument may
simply make the instrument defective
and later claim from prior endorsers
who
have
no
knowledge
or
participation in causing or introducing
said defect to the instrument, which
thereby caused its dishonor. Courts in
this jurisdiction are not only courts of
law but also of equity, and therefore
cannot unqualifiedly apply a provision
of law so as to cause clear injustice
which the framers of the law could not
have intended to so deliberately cause.
Anonuevo-Ongkeko
the prior endorsers in good faith.

The holder or subsequent endorser
who tries to claim under the
instrument which had been
dishonored
for
irregular
endorsement must not be the
irregular endorser himself who
gave cause for the dishonor.
RCBC, which caused the dishonor
of the check upon presentment to
the drawee bank, through the
qualified
endorsementof
its
employee, Olivia Gomez, cannot
hold prior endorsers, Alviar and
Gonzales in this case, liable on the
instrument.
73

Metropolit
an Bank
and Trust
Co. vs.
Renato
Cabilzo
G.R.
No.
154469.
December 6,
2006
CHICONAZARIO, J.
Cabilzo issued a postdated Metrobank

Check payable to CASH. The check was
presented to Westmont Bank for payment
by Mr. Marquez. Metrobank cleared the
check for encashment. Thereafter, it was
discovered that Metrobank Check which
he issued in the amount of P1, 000.00 was
altered to P91,000.00. Cabilzo demanded
that Metrobank re-credit the amount of
P91,000.00 to his account.
Whether or
not
petitioner is
liable for the
amount of
the
materially
altered
check.
The doctrine of equitable estoppel

states that when one of the two
innocent persons, each guiltless of any
intentional or moral wrong, must suffer
a loss, it must be borne by the one
whose erroneous conduct, either by
omission or commission, was the cause
of injury.
The point is that as a business affected
with public interest and because of the
nature of its functions, the bank is
under obligation to treat the accounts
of its depositors with meticulous care,
always having in mind the fiduciary
nature of their relationship.
Payment made under materially
altered instrument is not payment done
in accordance with the instruction of
the drawer.
Therese
Macalalag
vs. People
of the
Philippines
Dean Sundiang
G.R.
No.
164358.
December 20,
2006
CHICONAZARIO, J
Petitioner obtained loans from Grace

Estrella. Failure to pay the interest and the
loan,
she
executed
two
acknowledgement/affirmation receipts and
as security for payment of the aforesaid
loans issued two PNB checks in favor of
Estrella. However, when Estrella presented
said checks for payment with the drawee
bank, the same were dishonored for the
reason that the account against which the
same was drawn was already closed.
Estrella sent a notice of dishonor and
demand to make good the said checks to
Macalalag, but the latter failed to do so.
Whether or
not
petitioner
has violated
BP 22 upon
issuance of
the check as
security.
There is no violation of B.P. 22 if the

complainant was actually told by the
drawer that he has no sufficient funds
in a bank, and payment by the accused
of the amount of the check prior to its
presentation for payment would
certainly serve the same purpose.We
have repeatedly held that there is no
violation of Batas Pambansa Blg. 22 if
the complainant was actually told by
the drawer that he has no sufficient
funds in a bank. Where, as in the case
at bar, the checks were issued as
security for a loan, payment by the
Anonuevo-Ongkeko
The bank on which the check is

drawn is under strict liability to
pay to the order of the payee in
accordance with the drawers
instructions. Payment made under
materially altered instrument is not
payment done in accordance with
the instruction of the drawer.
When the drawee bank pays a
materially altered check, it violates
the terms of the check, as well as
its duty to charge its clients
account
only
for bona
fide disbursements he had made.
Since the drawee bank, in the
instant case, did not pay according
to the original tenor of the
instrument, as directed by the
drawer, then it has no right to
claim reimbursement from the
drawer, much less, the right to
deduct the erroneous payment it
made from the drawers account
which it was expected to treat with
utmost fidelity. Hence, petitioner
is liable to reimburse the drawer
for the amount paid.
We have repeatedly held that there
is no violation of Batas Pambansa
Blg. 22 if the complainant was
actually told by the drawer that he
has no sufficient funds in a
bank.10Where, as in the case at
bar, the checks were issued as
security for a loan, payment by the
accused of the amount of the
check prior to its presentation for
payment would certainly serve the
same purpose. When Estrella
presented the checks for payment,
the same were dishonored on the
74

Hence, Estrella filed two
complaints
for
Violation
Pambansa Blg. 22.
criminal
of Batas
accused of the amount of the check

prior to its presentation for payment
would certainly serve the same
purpose.
Only a full payment of the face value of
the check at the time of its presentment
or during the five-day grace period
could exonerate the drawer from
criminal liability.
ground that they were drawn

against a closed account. Despite
notice of dishonor, petitioner
Macalalag failed to pay the full
face value of the second check
issued. Only a full payment of the
face value of the second check at
the time of its presentment or
during
the
five-day
grace
period15 could have exonerated her
from criminal liability.
It is well to note that the gravamen of

Batas Pambansa Blg. 22 is the issuance
of a check, not the nonpayment of an
obligation. The law has made the act of
issuing a bum check a malum
prohibitum. Consequently, the lack of
criminal intent on the part of the
accused is irrelevant, and the accused
will be convicted for violation thereof
as long as the following elements are
proven: 1. The accused makes, draws
or issues any check to apply to account
or for value; 2. The accused knows at
the time of the issuance that he or she
does not have sufficient funds in, or
credit with, the drawee bank for the
payment of the check in full upon its
presentment; and 3. The check is
subsequently dishonored by the drawee
bank for insufficiency of funds or
credit, or it would have been
dishonored for the same reason had not
the drawer, without any valid reason,
ordered the bank to stop payment.
Dean Sundiang
Anonuevo-Ongkeko
75

10

Bank of the
Philippine
Island vs.
Court of
Appeals
G.R.
136202.
January
2007
No.
25,
AZCUNA, J.
Dean Sundiang
Templonuevo demanded payment from

petitioner of a sum of money
representing the aggregate value of
three checks which were erroneously
deposited with the petitioner to A.A.
Salazar Construction and Engineering
Services account. Finding merit in the
demands, 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 cashiers
check. The account of Salazar was also
debited for whatever charges incurred for
the issuance of the cashiers check.
Hence, respondent Salazar filed this action
for the recovery of the money.
Whether or
not
the
collecting
bank
have
the
authority to
withdraw
unilaterally
from
such
depositors
account the
amount
it
had
previously
paid
upon
certain
unendorsed
order
instruments
deposited by
the depositor
to
another
account that
she
later
closed?
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.Section 49 of
the Negotiable Instruments Law
contemplates a situation whereby the
payee or indorsee delivers a negotiable
instrument for value without indorsing
it, thus: 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. It bears
stressing that the above transaction is
an equitable assignment and the
transferee acquires the instrument
subject to defenses and equities
available among prior parties. Thus, if
the transferor had legal title, the
transferee acquires such title and, in
addition, the right to have the
indorsement of the transferor and also
the right, as holder of the legal title, to
maintain legal action against the maker
or acceptor or other party liable to the
transferor. The underlying premise of
this provision, however, is that a valid
transfer of ownership of the negotiable
instrument in question has taken place.
Transferees in this situation do not
Anonuevo-Ongkeko
Consequently, petitioner, as the

collecting bank, had the right to
debit Salazars account for the
value of the checks it previously
credited in her favor. It is of no
moment that the account debited
by petitioner was different from
the original account to which the
proceeds of the check were
credited because both admittedly
belonged to Salazar, the former
being the account of the sole
proprietorship which had no
separate and distinct personality
from her, and the latter being her
personal account. Howver, the
bank is liable for damages caused
to Salazar as a result of the
erroneous debit by reason of its
failure to perform its obligation to
treat
their
depositors
with
meticulous care, having in mind
the fiduciary nature of their
relationship.
76
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.
Crossed Checks; 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.
Checks; A bank generally has a right of
set-off over the deposits therein for the
payment of any withdrawals on the
part of a depositorthe right of a
collecting bank to debit a clients
account for the value of a dishonored
check that has previously been credited
has fairly been established by
jurisprudence.
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
Dean Sundiang
Anonuevo-Ongkeko
77
nature of their relationship.
Dean Sundiang
Anonuevo-Ongkeko
78

Negotiable Instruments Law

Enviado por

Dados do documento

Direitos autorais

Formatos disponíveis

Compartilhar este documento

Compartilhar ou incorporar documento

Opções de compartilhamento

Você considera este documento útil?

Este conteúdo é inapropriado?

Direitos autorais:

Formatos disponíveis

Negotiable Instruments Law

Enviado por

Direitos autorais:

Formatos disponíveis

Case Digests in Negotiable Instruments Law

Cases in Negotiable Instruments Law

express prohibition against assignment or transfer written in the face of the

5. Firestone Tire & rubber Co. vs. Court of Appeals

II. Payable to Bearer

III. Complete Undelivered

IV. Liability of Persons Signing as Agents

Cases in Negotiable Instruments Law

warranties of the person negotiating by mere delivery extends only in favor of

Cases in Negotiable Instruments Law

20. Samsung Construction Co. Phils, Inc vs. FEBTC and CA

VI. Material Alteration

VII. Accommodation Party

Cases in Negotiable Instruments Law

24. Crisologo-Jose vs. Court of Appeals

27. BPI vs. Court of Appeals

25. Stelco Marketing vs. Court of Appeals

28. Agro Conglomerates, Inc vs. Court of Appeals

26. Travel-On BPI vs. Court of Appeals

VIII. Holders in Due Course

Cases in Negotiable Instruments Law

IX. Liability of the General Indorser

X. Presentment for Payment

31. Metropol vs. Sambok

35. Prudencial Bank vs. IAC

36. Wong vs. Court of Appeals

Cases in Negotiable Instruments Law

4. Citibank NA vs. Sabeniano

6. International Corporate Bank vs. Court of Appeals and PNB

8. Metropolitan Bank and Trust Co. Renato Cabilzo

Cases in Negotiable Instruments Law

Enrique Montinola sought to purchase

In establishing and operating a

Of particular application to the

Upon discovery of the disappearance, a

Some of the restrictions imposed upon

One of the above-mentioned money orders

Cases in Negotiable Instruments Law

advice thereof by means of a debit memo.

On various dates, defendant, a commercial

Angel dela Cruz informed Mr. Timoteo

Angel dela Cruz executed and delivered to

1)Negotiable. Section 1 Act No. 2031,

Cases in Negotiable Instruments Law

De la Cruz, as ultimately ascertained,

Mr. Aranas, Credit Manager of plaintiff

Thus, de la Cruz is the depositor

the loan of Angel dela Cruz with the

Eduardo Gomez opened an account with

that fact in clear and categorical

Sec. 1. Form of negotiable

However, Caltex may not encash

Cases in Negotiable Instruments Law

determinable future time; (d) Must be

All these warrants were subsequently

Sec. 3. When promise is unconditional.

Gloria Castillo went to the Calapan branch

(a) An indication of a particular fund

Metrobank informed Golden Savings that

Petitioner Raul Sesbreo made a money

1. A non-negotiable instrument may,

or orders to pay a sum certain in

1. DMC PN No. 2731, while

Cases in Negotiable Instruments Law