NEGOTIABLE INSTRUMENTS CASE DIGESTS

Metropol Financing v. Sambok Motors Co.

L-39641, 28 February 1983.
FACTS:
Dr. Javier Villaruel executed a promissory note in favor of Ng Sambok Sons Motors Co.,
Ltd. Payable in 12 equal monthly installments with interest. It is further provided that in case of
non-payment of any of the installments, the total principal sum then remaining unpaid shall
become due and payable with an additional interest. Sambok Motors co., a sister company of
Ng Sambok Sons negotiated and indorsed the note in favor of Metropol Financing & investment
Corporation. Villaruel defaulted in the payment, upon presentment of the promissory note he
failed to pay the promissory note as demanded, hence Ng Sambok Sons Motors Co., Ltd.
notified Sambok as indorsee that the promissory note has been dishonored and demanded
payment. Sambok failed to pay. Ng Sambok Sons filed a complaint for the collection of sum of
money. During the pendency of the case Villaruel died. Sambok argues that by adding the
words with recourse in the indorsement of the note, it becomes a qualified indorser, thus, it
does not warrant that in case that the maker failed to pay upon presentment it will pay the
amount to the holder.
ISSUE:

Whether Sambok Motors Co is a qualified indorser, thus it is not liable upon the failure of
payment of the maker.
HELD:

NO

RATIO:
No. 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. However, Sambok indorsed the note with
recourse and even waived the notice of demand, dishonor, protest and presentment.
Recourse means resort to a person who is secondarily liable after the default of the person who
is primarily liable. Sambok 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 Villaruel fails to pay the note, the plaintiff-appellee could go after it. The effect of
such indorsement is that the note was indorsed without qualification. 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

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holder. Appellant Samboks intention of indorsing the note without qualification is made even
more apparent by the fact that the notice of demand, dishonor, protest and presentment were all
waived. The words added by said appellant do not limit his liability, but rather confirm his
obligation as a general indorser.

De Ocampo v. Gatchalian
L-15126, 30 November 1961
FACTS:
Anita Gatchalian was interested in buying a car. Manuel Gonzales offered to her a car owned by
plaintiff. Gonzales claimed that he was authorized by the plaintiff to sell the car. Gonzales order
defendant to issue a check to comply on showing interest in buying the car. Gonzales promised
to return the check the next day.
When Gonzales never appeared after, defendant issues a stop payment order on the check.
She found out that Gonzales used the check as payment to plaintiff's clinic for his wife's fees.
Plaintiff now demands defendant for payment of the check, in which defendant refused citing
that plaintiff is a not a holder in due course.
The lower court held that defendant should pay plaintiff.
ISSUE:
Whether De Ocampo is a holder in due course.
HELD:

NO

RATIO:
The SC held that plaintiff is a not a holder in due course. There were obvious instances to show
that the check was negligently acquired like plaintiff having no liability with defendant and that
the check was crossed. Plaintiff failed to exercise prudence and caution. Plaintiff should have
asked questions to further inquire upon suspicion.
The presumption of good faith did not apply to plaintiff because the defect was apparent on the
instruments face it was not payable to defendant or bearer.

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Yang v. Court of Appeals

GR No. 138074, 15 August 2003
FACTS:

Cely Yang and Prem Chandiramani agreed to exchange the latter's manager's check to two of
Yang's checks both payable to the order of Fernando David. They also agreed that Yang would
secure a dollar draft in exchange for Chandiramani's dollar draft.
At the time of exchange, Yang gave the checks to Danilo Ranigo. Ranigo said that
Chandaramani did not appear the rendezvous and that he lost the checks and draft, but in fact,
the exchange transpired.
Yang requested the respective banks to stop payment on the instruments but was subsequently
denied. Yang filed a complaint for the return of the checks and for damages against
Chandaramani and David.
The lower court sided with David and was held as holder in due course. The checks were
complete in its face when they were negotiated and that he had no notice that the checks were
dishonored and took the checks in good faith. The lower courts also said that David had taken
the necessary precautions to verify the genuineness of the checks.
ISSUE:

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Whether David was a holder in due course.
HELD:

YES

RATIO:
The SC held that David was a holder in due course and Yang's petition is denied. Yang has the
burden of proof to prove that David was not a holder in due course, which she failed to do so. It
was noted that David exchanged the checks for money when petitioner averred otherwise.
The SC also agreed with the findings of the lower court. In relation to the checks being crossed,
the SC said that in Bataan Cigar v. CA, the checks were negotiated while in this case it was only
deposited.

Mesina v. IAC
No. L-70145, 13 November 1986
FACTS:
Jose Go maintains an account with Associated Bank. He needed to transfer P800,000.00 from
Associated Bank to another bank but he realized that he does not want to be carrying that cash
so he bought a cashiers check from Associated Bank worth P800,000.00. Associated Bank
then issued the check but Jose Go forgot to get the check so it was left on top of the desk of the
bank manager. The bank manager, when he found the check, entrusted it to Albert Uy for the
later to safe keep it. The check was however stolen from Uy by a certain Alexander Lim.
Jose Go learned that the check was stolen so he made a stop payment order against the check.
Meanwhile, Associated Bank received the subject check from Prudential Bank for clearing.
Apparently, the check was presented by a certain Marcelo Mesina for payment. Associated
Bank dishonored the check.

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When asked how Mesina got hold of the check, he merely stated that Alfredo Lim, whos already
at large, paid the check to him for a certain transaction.
ISSUE:
Whether Mesina is a holder in due course.
HELD:

NO

RATIO:
Admittedly, Mesina became the holder of the cashiers check as endorsed by Alexander Lim
who stole the check. Mesina however refused to say how and why it was passed to him. Mesina
had therefore 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 such check against the issuing
bank, which dishonors the same. The check in question suffers from the infirmity of not having
been properly negotiated and for value by Jose Go who is the real owner of said instrument.

Crisologo-Jose v. Court of Appeals

GR No. 80599, 15 September 1989.
FACTS:
Oscar Benares and Ricardo Santos is the president and vice-president, respectively, of Mover
Enterprises, Inc., in accommodation of his clients the Ongs, issued a check payable to Jose.
Since the check was under the account of the Enterprise, it was signed by Benares and Santos.

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The check was to be encashed after the approval of a compromise agreement, which was
disapproved. The checks were then replaced and were signed by both. When Jose encashed
the checks, it was dishonored for insufficiency of funds.
Jose filed a complaint in the lower court citing that respondents were in violation of Art. 1256 of
the Civil Code. It was dismissed thus the petition to the SC.
Jose points out that the accommodation party in the case is the enterprise and not Santos.
ISSUE:
Whether Mover Enterprises is an accommodation party.
HELD:

NO

RATIO:
The SC ruled that a corporation couldnt be an accommodation party. The law on
accommodation parties does not include corporation because it is ultra vires on their part.
Thus, if one knows and takes an instrument that was accommodated by a corporation cannot
recover against the corporation.

Sadaya v. Sevilla

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GR No. 138074, 15 August 2003
FACTS:
Sadaya, Sevilla and Varona signed solidarily a promissory note in favor of the bank. Varona was
the only one who received the proceeds of the note. Sadaya and Sevilla both signed as comakers to accommodate Varona. Thereafter, the bank collected from Sadaya. Varona failed to
reimburse.
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
ISSUE:
Whether Sadaya had the right to demand payment
HELD:

NO

RATIO:
A solidary accommodation maker who made payment has the right to contribution, from his co
accommodation 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 that may ensue from their having consented to stamp their signatures on the
promissory note.

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Travel-On v. Court of Appeals

GR No. 56169, 26 June 1992
FACTS:
Petitioner Travel-On Inc. is a travel agency from which Arturo Miranda procured tickets on behalf
of airline passengers and derived commissions therefrom. Miranda was sued by petitioner to
collect on the six postdated checks he issued which were all dishonored by the drawee banks.
Miranda, however, claimed that he had already fully paid and even overpaid his obligations and
that refunds were in fact due to him. He argued that he had issued the postdated checks not for
the purpose of encashment to pay his indebtedness but for purposes of accommodation, as he
had in the past accorded similar favors to petitioner. Petitioner however urges that the postdated
checks are per se evidence of liability on the part of private respondent and further argues that
even assuming that the checks were for accommodation, private respondent is still liable
thereunder considering that petitioner is a holder for value.
ISSUE:
Whether Miranda is liable on the postdated checks he issued even assuming that said
checks were issued for accommodation only.
HELD:

YES

RATIO:
There was no accommodation transaction in the case at bar. In accommodation transactions
recognized by the Negotiable Instruments Law, an accommodating party lends his credit to the
accommodated party, by issuing or indorsing a check which is held by a payee or indorsee as a
holder in due course, who gave full value therefor to the accommodated party. The latter, in
other words, receives or realizes full value, which the accommodated party then must repay to
the accommodating 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. In the case at
bar, Travel-On was payee of all six (6) checks; it presented these checks for payment at the
drawee bank but the checks bounced. Travel-On obviously was not an accommodated party; it

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realized no value on the checks, which bounced. Miranda must be held liable on the checks
involved as petitioner is entitled to the benefit of the statutory presumption that it was a holder in
due course and that the checks were supported by valuable consideration.

Agro-Conglomerates Inc. v. Court of Appeals

GR No. 117660, 18 December 2000

FACTS:
Petitioner Agro-Conglomerates, Inc. as vendor, sold two parcels of land to Wonderland Food
Industries, Inc. The vendor, the vendee, and the respondent bank Regent Savings & Loan Bank,
executed an Addendum4 to the previous Memorandum of Agreement. It provided, among
others, that the vendee undertakes to pay the loan procured in the name of the VENDOR, the
VENDEE will be the one liable to pay the entire precedes thereof including interest and other
charges. Consequently, petitioner Mario Soriano signed as maker several promissory notes, 6
payable to the respondent bank.
Thereafter, the bank released the proceeds of the loan to petitioners. However, petitioners failed
to meet their obligations as they fell due, Mario Soriano manifested his intention to re-structure
the loan, yet did not show up nor submit his formal written request
ISSUE:
Whether petitioner is liable as an accommodation party.
HELD:
RATIO:

YES

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By this time, 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. 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. 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 debtors.

Gonzales v. RCBC
GR No. 138074, 15 August 2003
FACTS:
A foreign check worth $7500 was drawn in favor of Gonzales' mother, Eva Alviar. Gonzales is an
employee of RCBC and because of this, the check is allowed to be encashed without the
necessary clearing period. Olivia Gomez, head of RCBC's retail banking acquiesced the early
encashment and signed the check but only up to PhP17500. The check was presented to
another RCBC employee, Carlos Ramos, and signed it with an "OK" annotation. In turn, the
check was presented to Rolando Zornosa, supervisor of the remittance section who authorized
its encashment to its peso equivalent of PhP155,270.85. However, when RCBC wanted to
collect from the foreign drawee bank, it was dishonored because of irregular indorsement and
ultimately, because the account was closed. RCBC demanded to get the money back from
Gonzales who settled the matter thru salary deduction where RCBC got 12,000+. RCBC filed a
case against the other parties, namely Alviar, Alviar-GOnzales and Gonzales in the RTC which
held that Alviar and Alviar-Gonzales liable. The CA affirmed.

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ISSUE:
Whether Gonzales et al are liable to RCBC due to the irregular indorsements?
HELD:

NO

RATIO:
The SC found that the irregular indorsement is due to the qualified indorsement made by Olivia
Gomez. The defect was introduced by RCBC; hence it should be the one liable for their own
fault. Gonzales et al's liability should only be up to the time they made their endorsement and
any subsequent endorsement by RCBC should bind them.

Ang v. Associated Bank

GR No. 138074, 15 August 2003
FACTS:
In 1979, Antonio and Tomas obtained a 50k loan, and a 30k loan, both evidenced by separate
promissory notes payable solidarily. The loan was to earn 14% interest rate per annum, 2%
service charge per annum, 1% penalty charge per month from due date until fully paid, and
attorney's fees equivalent to 20% of the outstanding obligation.

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Despite repeated demands, Antonio and Tomas failed to pay. By 1990, the total indebtedness
was P539,638.96. Associate Bank then filed a collection suit against Antonio Ang Eng Liong
(principal debtor) and petitioner Tomas Ang (co-maker) for the two (2) promissory notes.
Antonio admitted to have secured a 80k loan but pleaded for a more reasonable computation.
He alleges the bank was collecting excessive interest, penalty charges, and attorney's fees
despite knowledge that his business was destroyed by fire, hence, he had no source of income
for several years.
Tomas interposed that the bank is not the real party in interest as it is not the holder of the
promissory notes, much less a holder for value or a holder in due course. The bank knew that
he did not receive any valuable consideration for affixing his signatures but merely lent his name
as an accommodation party. The note was completed in excess of or contrary to the authority
given by him, because he agreed to sign on Antonios representation that he would only borrow
30k. He signed the 2nd note on the fraudulent claim of Antonio that his first loan did not push
through. Antonio was given extension without Tomas consent and knowledge. The waiver of
presentment for payment and notice of dishonor in the notes was against public policy. The
notes had been impaired because they werent presented and demands were made years after
they fell due when Antonio could no longer pay them
Associated Bank countered that it is the real party in interest and is the holder since the
Associated Banking Corporation and Associated Citizens Bank are its predecessors-in-interest.
WON Tomas received money in consideration of the two (2) loans and that such was known to
the bank is immaterial because being an accommodation maker, he is considered as a solidary
debtor who is primarily liable. The bank retorted that the notes were complete at the time of the
delivery, and even assuming they werent complete, the NIL provides that the bank has the
prima facie authority to complete it. Moreover, it is presumed that Tomas who signed as a maker
signed the document with full knowledge of its content. The bank also noted that Tomas, a
prominent businessman in Davao City, was already in estoppel since despite receipt of several
demand letters there was not a single protest raised. The bank likewise denied Tomas claims of
extensions granted, and new stipulations imposed. Lastly, the bank claims that Tomas express
waiver was actually not necessary because he was a solidary debtor so he was absolutely
required to pay.
On the basis of the evidence presented ex parte, the trial court ordered Antonio to pay 80k plus
14% interest and 2% interest. The overdue penalty charge and attorney's fees were, however,
reduced for being excessive.
When the court set the pre-trial conference between the bank and Tomas, Tomas raised lack of
jurisdiction in view of the finality of the previous decision. He claims to have been released from
his obligation as a solidary guarantor and accommodation party because, by the bank's actions,
he is now precluded from asserting his cross-claim against Antonio. Tomas motion to dismiss

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and MR was denied so he filed a petition for certiorari.
In the certiorari petition, the CA annulled the portion of the order of the trial court setting ex parte
presentation of evidence against Antonio, the decision based on such evidence, and the writ of
execution. Trial ensued between the bank and Tomas. Tomas filed a Motion for Production of
Evidence (to reproduce the notes, to see Antonios tax declarations, etc) which was denied.
Tomas offered in evidence a copy of the Trust Agreement between the Republic of the
Philippines and the Asset Privatization Trust, certified by the notary public, and news clippings.
On the basis of these, the trial court ruled against the bank. The AB was under a rehabilitation
program, and that under said program PDIC purchased the bank assets subject to a buy-back
agreement. The notes were held by the Asset Privatization Trust so Associated Bank was not a
holder in due course.
The CA held that the bank is a "holder" under Sec. 191 of the NIL. The Asset Privatization Trust
cannot be declared as the "holder" because it is neither the payee or indorsee nor is it the
bearer. It was never indorsed to the Trust. Tomas should be held accountable in his capacity as
an accommodation party in spite of the banks knowledge. Moreover, as a co-maker who agreed
to be jointly and severally liable on the promissory notes, Tomas Ang cannot validly set up the
defense that he did not receive any consideration therefor as the fact that the loan was granted
to the principal debtor already constitutes a sufficient consideration.
ISSUE:
Whether Associated Bank may proceed against Tomas.
HELD:

YES

RATIO:
The relation between an accommodation party and the accommodated party is one of principal
and surety the accommodation party being the surety. Tomas is deemed an original promisor
and debtor from the beginning. As surety, he is directly and equally bound with the principal.
Tomas agreed to be "jointly and severally" liable under the two promissory notes that he cosigned with Antonio Ang Eng Liong as the principal debtor. This being so, it is completely
immaterial if the bank would opt to proceed only against petitioner or Antonio Ang Eng Liong or
both of them since the law confers upon the creditor the prerogative to choose whether to
enforce the entire obligation against any one, some or all of the debtors. Nonetheless, Tomas,
as an accommodation party, may seek reimbursement from Antonio, being the party
accommodated. Neither was petitioner's right of reimbursement barred nor was the bank's right
to proceed against Antonio Ang Eng Liong expressly renounced by the omission to serve notice
of appeal and appellant's brief to a party already declared in default (Antonio).

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That Tomas received no value is of no moment because the phrase "without receiving value
therefor" used in Sec. 29 of the NIL means "without receiving value by virtue of the instrument"
and not as it is apparently supposed to mean, "without receiving payment for lending his name."
It is enough that value was given for the note at the time of its creation, and in this case Antonio
received money by virtue of the notes.
The liability of an accommodation party remains not only primary but also unconditional to a
holder for value, even if the accommodated party receives an extension without the consent of
the accommodation party, the latter is still liable for the whole obligation and such extension
does not release him because as far as a holder for value is concerned, he is a solidary codebtor. As surety, he should have paid the debt instead of relying on Antonios representations
that he would take care of it.
Assuming Antonio was insolvent, Tomas did not exercise diligence to protect himself from the
danger thereof in the event that he would eventually be sued by the bank. Further, this said
remedy is a matter of concern exclusively between an accommodation party and
accommodated party, irrelevant to the banks claims against them as solidary debtors

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Far East v. Gold Palace Jewelry

GR No. 138074, 15 August 2003
FACTS:
Samuel Tagoe, a foreigner, purchased from Gold Palace (SM North) jewelries worth PHP
258,000.00. As payment, he offered a foreign draft issued by the United Overseas Bank of
Malaysia addressed to Land Bank, and payable to Gold Palace for PHP 380,000.00. Judy Yang,
the assistant GM of Gold Palace inquired from Far East Bank (SM North) regarding the drafts
nature. The teller told her that it was similar to a managers check but advised her to not release
the jewelry until the draft has been cleared. Following the advice, Yang Issued a cash invoice to
Tagoe & told him that the jewelries would be released when the draft had been cleared. Julie
Yang-Go, the manager of Gold Palace, deposited the draft in the companys account with Far
East Bank SM North. The latter presented it for clearing to LBP, the drawee bank, who cleared
the same. United Overseas account with LBP was debited and Gold Palaces account with Far
East was credited with the amount stated in the draft. The pieces of jewelry were then released
to Tagoe and because the amount in the draft was more than the value of the goods, a check for
PHP 122,000 was issued to him. It was encashed by Tagoe.
3 weeks after, LBP informed Far East that the amount in the foreign draft had been materially
altered from PHP 300.00 to PHP 380,000.00 and that they will be returning it. Far East thus
refunded the amount paid by LBP. Thus, Far East had to seek reimbursement from Gold Palace
but they were only able to debit PHP 168,053.37, which was done without a prior written notice
to Gold Palace as they only informed them by phone. They thus demanded the difference of
PHP 211,946.64 from Gold Palace. As the latter did not respond favorably, Far East instituted a
civil case for sum of money and damages. Gold Palace denies the allegations in the complaint
and claims as their defense that the subject foreign draft has been cleared and it was not they
who caused the alteration. The RTC ruled in favor of Far East but this was reversed by the CA
as Far East failed to undergo the proceedings on the protest and thus, Far East could not
charge Gold Palace on its secondary liability as an indorser. It further said that the drawee bank

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had cleared the check and its remedy should be against the part responsible for the alteration.
ISSUE:
Whether Fart East Bank could proceed against Gold Palace
HELD:

NO

RATIO:
The acceptor, by accepting the instrument, engages that he will pay it according to the tenor of
his acceptance. This provision applies with equal force in case the drawee pays a bill without
having previously accepted it. His actual payment of the amount in the check implies not only his
assent to the order of the drawer and a recognition of his corresponding obligation to pay the
aforementioned sum, but also, his clear compliance with that obligation. Actual payment by the
drawee is greater than his acceptance, which is merely a promise in writing to pay. The payment
of a check includes its acceptance.
Unmistakable herein is the fact that the drawee bank cleared and paid the subject foreign draft
and forwarded the amount thereof to the collecting bank. LBP was liable on its payment of the
check according to the tenor of the check at the time of payment, which was the raised amount.
Thus, LBP could no longer repudiate the payment it erroneously made to a due course holder.
Gold Palace was not a participant in the alteration of the draft, was not negligent, and was a
holder in due courseit received the draft complete and regular on its face, before it became
overdue and without notice of any dishonor, in good faith and for value, and absent any
knowledge of any infirmity in the instrument or defect in the title of the person negotiating it.

This construction and application of the law is in line with the sound principle that where one of
two innocent parties must suffer a loss, the law will leave the loss where it finds it. It further
reasserts the usefulness; stability and currency of negotiable paper without seriously
endangering accepted banking practices. Banking institutions can readily protect themselves
against liability on altered instruments either by qualifying their acceptance or certification, or by
relying on forgery insurance and special paper, which will make alterations obvious. The drawee
bank, in most cases, is in a better position, compared to the holder, to verify with the drawer the
matters stated in the instrument.
Thus, considering that, in this case, Gold Palace is protected by Section 62 of the NIL, its
collecting agent, Far East, should not have debited the money paid by the drawee bank from
respondent companys account. When Gold Palace deposited the check with Far East, the latter,
under the terms of the deposit and the provisions of the NIL, became an agent of the former for
the collection of the amount in the draft. The subsequent payment by the drawee bank and the

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collection of the amount by the collecting bank closed the transaction insofar as the drawee and
the holder of the check or his agent are concerned, converted the check into a mere voucher,
and, as already discussed, foreclosed the recovery by the drawee of the amount paid. This
closure of the transaction is a matter of course.
As the transaction in this case had been closed and the principal-agent relationship between the
payee and the collecting bank had already ceased, the latter in returning the amount to the
drawee bank was already acting on its own and should now be responsible for its own actions.
Neither can petitioner be considered to have acted as the representative of the drawee bank
when it debited respondents account, because, as already explained, the drawee bank had no
right to recover what it paid. Likewise, Far East cannot invoke the warranty of the
payee/depositor who indorsed the instrument for collection to shift the burden it brought upon
itself. This is precisely because the said indorsement is only for purposes of collection, which,
under Section 36 of the NIL, is a restrictive indorsement. It did not in any way transfer the title of
the instrument to the collecting bank. CA ruling is affirmed to the extent that Far East could not
debit Gold Palaces account. Its remedy is not against Gold Palace but against the drawee-bank
or the person responsible for the alteration.