CASE NO.

5
Rodolfo B. Demonteverde III
Negotiable Instruments Law
Formal Requisites of Formality
G.R. No. 97753 August 10, 1992
CALTEX (PHILIPPINES), INC., petitioner,
vs.
COURT OF APPEALS and SECURITY BANK AND TRUST COMPANY, respondents.

FACTS:

This petition for review on certiorari impugns and seeks the reversal of the
decision promulgated by respondent court on March 8, 1991 in CA-G.R. CV
No. 23615 1 affirming with modifications, the earlier decision of the Regional
Trial Court of Manila, Branch XLII, 2 which dismissed the complaint filed
therein by herein petitioner against respondent bank.
Security Bank and Trust Company (Security Bank), a commercial banking institution,
through its Sucat Branch issued 280 certificates of time deposit (CTDs) in favor of Angel
dela Cruz who deposited with Security Bank the total amount of P1,120,000
Angel delivered the CTDs to Caltex for his purchase of fuel products. On March 18,
1982: Angel informed Mr. Tiangco, the Sucat Branch Manager that he lost all CTDs,
submitted the required Affidavit of Loss and received the replacement. Moreover, on
March 25, 1982: Angel dela Cruz negotiated and obtained a loan from Security Bank in
the amount of P875,000 and executed a notarized Deed of Assignment of Time Deposit.
By November, 1982: Mr. Aranas, Credit Manager of Caltex went to the Sucat branch to
verify the CTDs declared lost by Angel . November 26, 1982: Security Bank received a
letter from Caltex formally informing it of its possession of the CTDs in question and of
its decision to pre-terminate the same.
By December 8, 1982: Caltex was requested by Security Bank to furnish: a copy of the
document evidencing the guarantee agreement with Mr. Angel dela Cruz and the details
of Mr. Angel's obligation against which Caltex proposed to apply the time deposits
Security Bank rejected Caltex demand for payment because it failed to furnish a copy of
its agreement w/ Angel
ISSUES:

1.

W/N the CTDs are negotiable

2.

W/N Caltex as holder in due course can rightfully recover on the CTDs

HELD:
Petition is Denied and appealed decision is affirmed.
1. YES.
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 -check
(e) Where the instrument is addressed to a drawee, he must be named or otherwise
indicated therein with reasonable certainty.
The documents provide that the amounts deposited shall be repayable to the depositor.
If it was really the intention of respondent bank to pay the amount to Angel de la Cruz
only, it could have with facility so expressed that fact in clear and categorical terms in
the documents, instead of having the word "BEARER" stamped on the space provided
for the name of the depositor in each CTD.
Negotiability or non-negotiability of an instrument is determined from the writing, that
is, from the face of the instrument itself.
2. NO.
Although the CTDs are bearer instruments, a valid negotiation thereof for the true
purpose and agreement between it and De la Cruz, as ultimately ascertained, requires
both delivery and indorsement
CTDs were in reality delivered to it as a security for De la Cruz' purchases of its fuel
products. There was no negotiation in the sense of a transfer of the legal title to the
CTDs in favor of petitioner in which situation, for obvious reasons, mere delivery of the
bearer CTDs would have sufficed. Where the holder has a lien on the instrument arising
from contract, he is deemed a holder for value to the extent of his lien.
WHEREFORE, on the modified premises above set forth, the petition is DENIED and the
appealed decision is hereby AFFIRMED.

CASE NO. 6
Rodolfo B. Demonteverde III
Negotiable Instruments Law
Rules that Apply in Case of Ambiguity
G.R. No. 74451 May 25, 1988
EQUITABLE BANKING CORPORATION, petitioner,
vs.
THE HONORABLE INTERMEDIATE APPELLATE
EDWARD J. NELL CO., respondents

COURT

and

THE

FACTS:
In this Petition for Review on certiorari petitioner, Equitable Banking
Corporation, prays that the adverse judgment against it rendered by
respondent Appellate Court, 1 dated 4 October 1985, and its majority
Resolution, dated 28 April 1986, denying petitioner's Motion for
Reconsideration, 2 be annulled and set aside.
The facts pertinent to this Petition, as summarized by the Trial Court and
adopted by reference by Respondent Appellate Court, emanated from the
case entitled "Edward J. Nell Co. vs. Liberato V. Casals, Casville Enterprises,
Inc., and Equitable Banking Corporation" of the Court of First Instance of Rizal
(Civil Case No. 25112), and read:
In 1975, Liberato Casals, majority stockholder of Casville Enterprises, went to
buy two garrett skidders (bulldozers) from Edward J. Nell Company
amounting to P970,000.00. To pay the bulldozers, Casals agreed to open a
letter of credit with the Equitable Banking Corporation. Pursuant to this, Nell
Company shipped one of the bulldozers to Casville. Meanwile, Casville
advised Nell Company that in order for the letter of credit to be opened,
Casville needs to deposit P427,300.00 with Equitable Bank, and that since
Casville is a little short, it requested Nell Company to pay the deposit in the
meantime.
Nell Company agreed and so it eventually sent a check in the amount of
P427,300.00. The check read:
Pay to the EQUITABLE BANKING CORPORATION Order of A/C OF CASVILLE
ENTERPRISES, INC.
Nell Company sent the check to Casville so that it would be the latter who
could send it to Equitable Bank to cover the deposit in lieu of the letter of

credit. Casals received the check, he went to Equitable Bank, and the teller
received the check. The teller, instead of applying the amount as deposit in
lieu of the letter of credit, credited the check to Casvilles account with
Equitable Bank. Casals later withdrew all the P427,300.00 and appropriated
it to himself.
ISSUE:
Whether or not Equitable Bank is liable to cover for the loss.
HELD:
No. The subject check was equivocal and patently ambiguous. Reading on
the wordings of the check, the payee thereon ceased to be indicated with
reasonable certainty in contravention of Section 8 of the Negotiable
Instruments Law. As worded, it could be accepted as deposit to the account
of the party named after the symbols A/C, or payable to the Bank as
trustee, or as an agent, for Casville Enterprises, Inc., with the latter being the
ultimate beneficiary. That ambiguity is to be taken contra proferentem that
is, construed against Nell Company who caused the ambiguity and could
have also avoided it by the exercise of a little more care. Thus, Article 1377
of the Civil Code, provides:
Art. 1377. The interpretation of obscure words or stipulations in a contract
shall not favor the party who caused the obscurity.
WHEREFORE, the Petition is granted and the Decision of respondent
Appellate Court, dated 4 October 1985, and its majority Resolution, dated 28
April 1986, denying petitioner's Motion for Reconsideration, are hereby SET
ASIDE. The Decision of the then Court of First Instance of Rizal, Branch XI. is
modified in that petitioner Equitable Banking Corporation is absolved from
any and all liabilities to the private respondent, Edward J. Nell Company, and
the Amended Complaint against petitioner bank is hereby ordered dismissed.
No costs.

CASE NO. 7
Rodolfo B. Demonteverde III
Negotiable Instruments Law
Holders in Due Course
G.R. No. 138074

August 15, 2003

CELY YANG, Petitioner,

vs.
HON. COURT OF APPEALS, PHILIPPINE COMMERCIAL INTERNATIONAL
BANK, FAR EAST BANK & TRUST CO., EQUITABLE BANKING
CORPORATION, PREM CHANDIRAMANI and FERNANDO DAVID,
Respondents.
FACTS:
For review on certiorari is the decision1 of the Court of Appeals, dated March
25, 1999, in CA-G.R. CV No. 52398, which affirmed with modification the joint
decision of the Regional Trial Court (RTC) of Pasay City, Branch 117, dated
July 4, 1995, in Civil Cases Nos. 54792 and 5492.3 The trial court dismissed
the complaint against herein respondents Far East Bank & Trust Company
(FEBTC), Equitable Banking Corporation (Equitable), and Philippine
Commercial International Bank (PCIB) and ruled in favor of respondent
Fernando David as to the proceeds of the two cashiers checks, including the
earnings thereof pendente lite. Petitioner Cely Yang was ordered to pay David
moral damages of P100,000.00 and attorneys fees also in the amount of
P100,000.00.
The facts of this case are not disputed, to wit:
Conformably with her agreement with Prem Chandiramani, Cely Yang
procured two cashiers checks in the amount of Php 2.087 Million each,
payable to Fernando David. Yang also secured from FEBTC a dollar draft,
which Chandiramani would exchange for another dollar draft in the same
amount. She gave the checks to Danilo Ranigo to be delivered to
Chandiramani.
Ranigo allegedly lost the checks and the draft. The loss was reported to the
police. However, the instruments were not actually lost. Chandiramani was
able to get hold of them without delivering the Php 4.2 million check as
consideration. Subsequently, Chandiramani delivered the checks to Fernando
David and the latter gave USD 360,000 in return.
Yang lodged a Complaint for injunction and damages against Equitable,
Chandiramani, and David, with prayer for a temporary restraining order, with
the Regional Trial Court. The Complaint was subsequently amended to
include a prayer for Equitable to return to Yang the amount of P2.087 million,
with interest thereon until fully paid.
Later on, Yang filed a separate case for injunction and damages, with prayer
for a writ of preliminary injunction against FEBTC, PCIB, Chandiramani and
David, with the RTC.

The cases where thereafter consolidated. After trial, a decision was rendered
stating among others that David is entitled to the proceeds of the two
cashiers checks. The decision was without prejudice to any action Yang may
have against Chandiramani.
ISSUE:
Whether or not Fernando David entitled the proceeds of the checks?
HELD:
YES. In the present case, it is not disputed that David was the payee of the
checks in question. The weight of authority sustains the view that a payee
may be a holder in due course. Hence, the presumption that he is a prima
facie holder in due course applies in his favor. However, said presumption
may be rebutted.
Hence, what is vital to the resolution of this issue is whether David took
possession of the checks under the conditions provided for in Section 52 of
the Negotiable Instruments Law. All the requisites provided for in Section 52
must concur in Davids case, otherwise he cannot be deemed a holder in due
course.
First, with respect to consideration, Section 24 of the Negotiable Instruments
Law creates a presumption that every party to an instrument acquired the
same for a consideration or for value. Thus, the law itself creates a
presumption in Davids favor that he gave valuable consideration for the
checks in question. In alleging otherwise, the Yang has the onus to prove that
David got hold of the checks absent said consideration. In other words, the
Yang must present convincing evidence to overthrow the presumption. Our
scrutiny of the records, however, shows that the petitioner failed to
discharge her burden of proof. The averment that David did not give valuable
consideration when he took possession of the checks is unsupported, devoid
of any concrete proof to sustain it.
Note that both the trial court and the appellate court found that David did
not receive the checks gratis, but instead gave Chandiramani US
$360,000.00 as consideration for the said instruments. Factual findings of the
Court of Appeals are conclusive on the parties and not reviewable by this
Court; they carry great weight when the factual findings of the trial court are
affirmed by the appellate court.
Second, Yang fails to point any circumstance which should have put David on
inquiry as to the why and wherefore of the possession of the checks by
Chandiramani. David was not privy to the transaction between Yang and
Chandiramani. Instead, Chandiramani and David had a separate dealing in

which it was precisely Chandiramanis duty to deliver the checks to David as

payee. The evidence shows that Chandiramani performed said task to the
letter. Yang admits that David took the step of asking the manager of his
bank to verify from FEBTC and Equitable as to the genuineness of the checks
and only accepted the same after being assured that there was nothing
wrong with said checks.
At that time, David was not aware of any stop payment order. Under these
circumstances, David thus had no obligation to ascertain from Chandiramani
what the nature of the latters title to the checks was, if any, or the nature of
his possession. Thus, the court cannot hold him guilty of gross neglect
amounting to legal absence of good faith, absent any showing that there was
something amiss about Chandiramanis acquisition or possession of the
checks.
Yang now claims that David should have been put on alert as the instruments
in question were crossed checks. Pursuant to Bataan Cigar & Cigarette
Factory, Inc. v. Court of Appeals, David should at least have inquired as to
whether he was acquiring said checks for the purpose for which they were
issued, according to petitioners submission. Petitioners reliance on the
Bataan Cigar case, however, is misplaced. The facts in the present case are
not on all fours with Bataan Cigar. In the latter case, the crossed checks were
negotiated and sold at a discount by the payee, while in the instant case, the
payee did not negotiate further the checks in question but promptly
deposited them in his bank account.
The appellate court likewise found that like David, PCIB was dragged into this
case on unfounded and baseless grounds. Both were thus compelled to
litigate to protect their interests, which makes an award of attorneys fees
justified under Article 2208 (2)28 of the Civil Code. Hence, we rule that the
award of attorneys fees to David and PCIB was proper.
WHEREFORE, the instant petition is DENIED. The assailed decision of the
Court of Appeals, dated March 25, 1999, in CA-G.R. CV No. 52398 is
AFFIRMED. Costs against the petitioner.

CASE NO. 8
Rodolfo B. Demonteverde III
Negotiable Instruments Law
Forgery and Want of Authority
G.R. No. 92244 February 9, 1993

NATIVIDAD GEMPESAW, petitioner,

vs.
THE HONORABLE COURT OF APPEALS and PHILIPPINE BANK OF
COMMUNICATIONS, respondents.
FACTS:
From the adverse decision * of the Court of Appeals (CA-G.R. CV No. 16447),
petitioner, Natividad Gempesaw, appealed to this Court in a Petition for
Review, on the issue of the right of the drawer to recover from the drawee
bank who pays a check with a forged indorsement of the payee, debiting the
same against the drawer's account.
The records show that on January 23, 1985, petitioner filed a Complaint
against the private respondent Philippine Bank of Communications
(respondent drawee Bank) for recovery of the money value of eighty-two
(82) checks charged against the petitioner's account with the respondent
drawee Bank on the ground that the payees' indorsements were forgeries.
The Regional Trial Court, Branch CXXVIII of Caloocan City, which tried the
case, rendered a decision on November 17, 1987 dismissing the complaint as
well as the respondent drawee Bank's counterclaim. On appeal, the Court of
Appeals in a decision rendered on February 22, 1990, affirmed the decision
of the RTC on two grounds, namely (1) that the plaintiff's (petitioner herein)
gross negligence in issuing the checks was the proximate cause of the loss
and (2) assuming that the bank was also negligent, the loss must
nevertheless be borne by the party whose negligence was the proximate
cause of the loss.
Gempesaw filed for recovery of the money value of 82 checks charged
against her account due to forgery of indorsements made by Alicia Galang,
her trusted bookkeeper. In the normal course of her grocery business, it
would be Galang who would write the amounts in the check and Gempesaw
would only sign the checks without ascertaining its contents. The checks
were deposited in the accounts of Romero and Lam, with the aggregate total
amounting to 1.2 million pesos.
Gempesaw filed a case with the RTC which held that Gempesaw was
negligent in handling her affairs by not ascertaining the values of the
payments and if indeed the payments reached the payees making forgery
not a defense for her to recover. The CA affirmed.
ISSUE:
Whether or not the forgery entitles Gempesaw to reimbursement

HELD:
Partly Yes & No. The SC found that Gempesaw is indeed negligent which
precludes her from raising the defense of forgery. However, the SC, using Art.
1170 of the Civil Code, said that the bank becomes also liable for damages
for accepting the check with a second indorsement. It should be noted that
in the current banking system, checks with second indorsements are not
generally accepted and given this fact, the Bank should also shoulder
liability.
Gempesaw and the bank are liable 50-50 for the loss.
PREMISES CONSIDERED, the case is hereby ordered REMANDED to the trial
court for the reception of evidence to determine the exact amount of loss
suffered by the petitioner, considering that she partly benefited from the
issuance of the questioned checks since the obligation for which she issued
them were apparently extinguished, such that only the excess amount over
and above the total of these actual obligations must be considered as loss of
which one half must be paid by respondent drawee bank to herein petitioner.

CASE NO. 9
Rodolfo B. Demonteverde III
Negotiable Instruments Law
Forgery and Want of Authority
G.R. No. 149454

May 28, 2004

BANK OF THE PHILIPPINE ISLANDS, petitioner,

vs.
CASA
MONTESSORI
INTERNATIONALE
LEONARDO
respondents.
x ----------------------------- x
G.R. No. 149507

May 28, 2004

CASA MONTESSORI INTERNATIONALE, petitioner,

vs.
BANK OF THE PHILIPPINE ISLANDS, respondent.
FACTS:

T.

YABUT,

By the nature of its functions, a bank is required to take meticulous care of

the deposits of its clients, who have the right to expect high standards of
integrity and performance from it.
Among its obligations in furtherance thereof is knowing the signatures of its
clients. Depositors are not estopped from questioning wrongful withdrawals,
even if they have failed to question those errors in the statements sent by
the bank to them for verification.
The Case
Before us are two Petitions for Review1 under Rule 45 of the Rules of Court,
assailing the March 23, 2001 Decision2 and the August 17, 2001 Resolution3
of the Court of Appeals (CA) in CA-GR CV No. 63561. The decretal portion of
the assailed Decision reads as follows:
"WHEREFORE, upon the premises, the decision appealed from is AFFIRMED
with the modification that defendant bank [Bank of the Philippine Islands
(BPI)] is held liable only for one-half of the value of the forged checks in the
amount of P547,115.00 after deductions subject to REIMBURSEMENT from
third party defendant Yabut who is likewise ORDERED to pay the other half to
plaintiff corporation [Casa Montessori Internationale (CASA)]."4
The assailed Resolution denied all the parties Motions for Reconsideration.
CASA Montessori International opened an account with BPI, with CASAs
President as one of its authorized signatories. It discovered that 9 of its
checks had been encashed by a certain Sonny D. Santos whose name turned
out to be fictitious, and was used by a certain Yabut, CASAs external auditor.
He voluntarily admitted that he forged the signature and encashed the
checks.
RTC granted the Complaint for Collection with Damages against BPI ordering
to reinstate the amount in the account, with interest. CA took account of
CASAs contributory negligence and apportioned the loss between CASA and
BPI, and ordred Yabut to reimburse both. BPI contends that the monthly
statements it issues to its clients contain a notice worded as follows: If no
error is reported in 10 days, account will be correct and as such, it should be
considered a waiver.
ISSUE:
Whether or not waiver or estoppel results from failure to report the error in
the bank statement
HELD:

Such notice cannot be considered a waiver, even if CASA failed to report the
error. Neither is it estopped from questioning the mistake after the lapse of
the ten-day period.
This notice is a simple confirmation or "circularization" -- in accounting
parlance -- that requests client-depositors to affirm the accuracy of items
recorded by the banks. Its purpose is to obtain from the depositors a direct
corroboration of the correctness of their account balances with their
respective banks. Every right has subjects -- active and passive. While the
active subject is entitled to demand its enforcement, the passive one is dutybound to suffer such enforcement. On the one hand, BPI could not have been
an active subject, because it could not have demanded from CASA a
response to its notice. CASA, on the other hand, could not have been a
passive subject, either, because it had no obligation to respond. It could -- as
it did -- choose not to respond. Estoppel precludes individuals from denying
or asserting, by their own deed or representation, anything contrary to that
established as the truth, in legal contemplation. Our rules on evidence even
make a juris et de jure presumption that whenever one has, by ones own act
or omission, intentionally and deliberately led another to believe a particular
thing to be true and to act upon that belief, one cannot -- in any litigation
arising from such act or omission -- be permitted to falsify that supposed
truth.
In the instant case, CASA never made any deed or representation that misled
BPI. The formers omission, if any, may only be deemed an innocent mistake
oblivious to the procedures and consequences of periodic audits. Since its
conduct was due to such ignorance founded upon an innocent mistake,
estoppel will not arise. A person who has no knowledge of or consent to a
transaction may not be estopped by it. "Estoppel cannot be sustained by
mere argument or doubtful inference x x x." CASA is not barred from
questioning BPIs error even after the lapse of the period given in the notice.
WHEREFORE, the Petition in GR No. 149454 is hereby DENIED, and that in GR
No. 149507 PARTLY GRANTED. The assailed Decision of the Court of Appeals
is AFFIRMED with modification: BPI is held liable for P547,115, the total value
of the forged checks less the amount already recovered by CASA from
Leonardo T. Yabut, plus interest at the legal rate of six percent (6%) per
annum -- compounded annually, from the filing of the complaint until paid in
full; and attorneys fees of ten percent (10%) thereof, subject to
reimbursement from Respondent Yabut for the entire amount, excepting
attorneys fees. Let a copy of this Decision be furnished the Board of
Accountancy of the Professional Regulation Commission for such action as it
may deem appropriate against Respondent Yabut. No costs.

CASE NO. 10
Rodolfo B. Demonteverde III
Negotiable Instruments Law
Forgery and Want of Authority
G.R. No. L-53194

March 14, 1988

PHILIPPINE NATIONAL BANK petitioner,

vs.
HON. ROMULO S. QUIMPO, Presiding Judge, Court of First Instance of
Rizal, Branch XIV, and FRANCISCO S. GOZON II, respondents.
FACTS:
On July 3, 1973, Francisco S. Gozon II, who was a depositor of the Caloocan
City Branch of the Philippine National Bank, went to the bank in his car
accompanied by his friend Ernesto Santos whom he left in the car while he
transacted business in the bank. When Santos saw that Gozon left his check
book he took a check therefrom, filled it up for the amount of P5,000.00,
forged the signature of Gozon, and thereafter he encashed the check in the
bank on the same day. The account of Gozon was debited the said amount.
Upon receipt of the statement of account from the bank, Gozon asked that
the said amount of P5,000.00 should be returned to his account as his
signature on the check was forged but the bank refused.
Gozon learned of this when his statement arrived. Santos eventually admitted to
forging Gozons signature. Gozon then demanded the PNB to refund him the
amount. PNB refused. Judge Romulo Quimpo ruled in favor of Gozon.

ISSUE:
Whether or not PNB is liable.

HELD:

Yes. A bank is bound to know the signatures of its customers; and if it pays a
forged check, it must be considered as making the payment out of its own
funds, and cannot ordinarily change the amount so paid to the account of the
depositor whose name was forged. PNB failed to meet its obligation to know the
signature of its correspondent (Gozon). Further, it was found by the court that
there are glaring differences between Gozons authentic specimen signatures
and that of the forged check.
Where the private respondents check was removed and stolen without his
knowledge and consent, he cannot be considered negligent in this case.

Private respondent trustee Ernesto Santos as a classmate and a friend. He

brought him along in his car to the bank and he left his personal belongings in
the car. Santos however removed and stole a check from his cheek book without
the knowledge and consent of private respondent. No doubt private respondent
cannot be considered negligent under the circumstances of the case.
WHEREFORE, the petition is DISMISSED for lack of merit with costs against
petitioner.