FAR EASTERN UNIVERSITY

INSTITUTE OF LAW

CASE DIGESTS IN NEGOTIABLE INSTRUMENTS

ATTY. SERGE CENIZA

COMMERCIAL LAW PROFESSOR
18 OCTOBER 2017

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 I. REQUISITES OF NEGOTIABILITY
1. HSBC Ltd.-Phil. Br. vs. CIR
June 4, 2014/G.R. No. 166018
LEONARDO-DE CASTRO, J.
DOCTRINE: Electronic messages are not bills of exchange. As there was no bill of exchange or
order for the payment drawn abroad and made payable here in the Philippines, there could
have been no acceptance or payment that will trigger the imposition of the DST under Section
181 of the Tax Code.

FACTS: HSBCs investor-clients maintain Philippine peso and/or foreign currency accounts, which
are managed by HSBC through instructions given through electronic messages. The said
instructions are standard forms known in the banking industry as SWIFT, or "Society for
Worldwide Interbank Financial Telecommunication." In purchasing shares of stock and other
investment in securities, the investor-clients would send electronic messages from abroad
instructing HSBC to debit their local or foreign currency accounts and to pay the purchase price
therefor upon receipt of the securities. Pursuant to the electronic messages of its investor-
clients, HSBC purchased and paid Documentary Stamp Tax (DST) from September to December
1997 and also from January to December 1998. On August 23, 1999, the BIR, thru its then
Commissioner, Beethoven Rualo, issued BIR Ruling No. 132-99 to the effect that instructions or
advises from abroad on the management of funds located in the Philippines which do not involve
transfer of funds from abroad are not subject to DST. Under the tax code, the documentary
stamp tax shall be levied on the instrument, i.e., a bill of exchange or order for the payment of
money, which purports to draw money from a foreign country but payable in the Philippines. In
the instant case, however, while the payor is residing outside the Philippines, he maintains a
local and foreign currency account in the Philippines from where he will draw the money
intended to pay a named recipient. The instruction or order to pay shall be made through an
electronic message, i.e., SWIFT MT 100 or MT 202 and/or MT 521. Consequently, there is no
negotiable instrument to be made, signed or issued by the payee.

ISSUE: WON, the electronic message instructions can be considered as negotiable instruments?

RULING: NO. The Court agrees with the CTA that the electronic messages of HSBCs investor-
clients containing instructions to debit their respective local or foreign currency accounts in the
Philippines and pay a certain named recipient also residing in the Philippines is not the
transaction contemplated under Section 181 of the Tax Code as such instructions are "parallel to
an automatic bank transfer of local funds from a savings account to a checking account
maintained by a depositor in one bank." The Court favorably adopts the finding of the CTA that
the electronic messages "cannot be considered negotiable instruments as they lack the feature
of negotiability, which, is the ability to be transferred" and that the said electronic messages are
"mere memoranda" of the transaction consisting of the "actual debiting of the [investor-client-
payors] local or foreign currency account in the Philippines" and "entered as such in the books
of account of the local bank," HSBC. More fundamentally, the instructions given through
electronic messages that are subjected to DST in these cases are not negotiable instruments as

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they do not comply with the requisites of negotiability under Section 1 of the Negotiable
Instruments Law, which provides:

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 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 electronic messages are not signed by the investor-clients as supposed drawers of a
bill of exchange; they do not contain an unconditional order to pay a sum certain in money as
the payment is supposed to come from a specific fund or account of the investor-clients; and,
they are not payable to order or bearer but to a specifically designated third party. Thus, the
electronic messages are not bills of exchange. As there was no bill of exchange or order for the
payment drawn abroad and made payable here in the Philippines, there could have been no
acceptance or payment that will trigger the imposition of the DST under Section 181 of the Tax
Code.

FALLO: WHEREFORE, the petitions are hereby GRANTED.

2. RODRIGO RIVERA VS.SPS. SALVADOR AND VIOLETA CHUA

JAN. 14, 2015 , G.R. NO. 184458
PEREZ, J.
DOCTRINE: A negotiable promissory note within the meaning of this Act is an unconditional
promise in writing made by one person to another, signed by the maker, engaging to pay on
demand, or at a fixed or determinable future time, a sum certain in money to order or to bearer.
Where a note is drawn to the makers own order, it is not complete until indorsed by him.

FACTS: The parties were friends and known each other since 1973: Rivera and Salvador are
kumpadres, the former is the godfather of the Spouses Chuas son. Rivera obtained a loan
amounting to Php120,000 as evidenced by a PN. Rivera made a partial payment after three years
from the date of payment stipulated in the promissory note. He issued and delivered to the
Spouses Chua, as payee, a check drawn against Riveras current account with the Philippine
Commercial International Bank (PCIB) in the amount of P25,000.00. The Spouses Chua received
another check presumably issued by Rivera, likewise drawn against Riveras PCIB current
account, duly signed and dated, but blank as to payee and amount. As per understanding by the
parties, PCIB was issued in the amount of P133,454.00 with "cash" as payee. Both checks were
simply partial payment for Riveras loan in the principal amount of P120,000.00. Upon
presentment for payment, the two checks were dishonored for the reason "account closed." The
amount due the Spouses Chua was pegged at P366,000.00 covering the principal of P120,000.00
plus five percent (5%) interest per month from 1 January 1996 to 31 May 1999. The Spouses

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Chua repeatedly demanded payment from Rivera to no avail. Because of Riveras unjustified
refusal to pay, the Spouses Chua were constrained to file a suit. In Riveras answer, he alleged
that he did not execute the PN and alleged that there was a forgery involved.

ISSUE/S: (A) WON, the subject promissory note is negotiable instrument.

(B) WON, the CA erred in holding that demand is no longer necessary and in applying the
provisions of the NIL.

HELD: Given the relationship between the parties, Rivera was allowed a substantial amount of
time before the Spouses Chua demanded payment of the obligation due under the Promissory
Note. In all, Riveras evidence or lack thereof consisted only of a barefaced claim of forgery and a
discordant defense to assail the authenticity and validity of the PN. Although the burden of proof
rested on the Spouses Chua having instituted the civil case and after they established a prima
facie case against Rivera, the burden of evidence shifted to the latter to establish his
defense. Consequently, Rivera failed to discharge the burden of evidence, refute the existence of
the Promissory Note duly signed by him and subsequently, that he did not fail to pay his
obligation there under. On the whole, there was no question left on where the respective
evidence of the parties preponderatedin favor of plaintiffs, the Spouses Chua. Rivera next
argues that even assuming the validity of the Promissory Note, demand was still necessary in
order to charge him liable there under. Rivera argues that it was grave error on the part of the
appellate court to apply Section 70 of the Negotiable Instruments Law (NIL). The SC agrees
that the subject PN is not a negotiable instrument and the provisions of the NIL do not apply to
this case.

On the other hand, Section 184 of the NIL defines what negotiable PN is: SECTION 184.
PN, Defined. A negotiable promissory note within the meaning of this Act is an unconditional
promise in writing made by one person to another, signed by the maker, engaging to pay on
demand, or at a fixed or determinable future time, a sum certain in money to order or to bearer.
Where a note is drawn to the makers own order, it is not complete until indorsed by him. The
PN in this case is made out to specific persons, herein respondents, the Spouses Chua, and not to
order or to bearer, or to the order of the Spouses Chua as payees. However, even if Riveras PN
is not a negotiable instrument and therefore outside the coverage of Section 70 of the NIL which
provides that presentment for payment is not necessary to charge the person liable on the
instrument, Rivera is still liable under the terms of the Promissory Note that he issued. The PN is
unequivocal about the date when the obligation falls due and becomes demandable31
December 1995. As of 1 January 1996, Rivera had already incurred in delay when he failed to pay
the amount ofP120,000.00 due to the Spouses Chua on 31 December 1995 under the PN. In this
instance, the parties stipulated that in case of default, Rivera will pay interest at the rate of 5% a
month or 60% per annum. It bears emphasizing that the undertaking based on the note clearly
states the date of payment to be 31 December 1995. Given this circumstance, demand by the
creditor is no longer necessary in order that delay may exist since the contract itself already
expressly so declares. The mere failure of Spouses Chua to immediately demand or collect
payment of the value of the note does not exonerate Rivera from his liability there from.

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FALLO: WHEREFORE, the petition in G.R. No. 184458 is DENIED. The Decision of the CA in CA-G.R.
SP No. 90609 is MODIFIED.

3. SPS. PEDRO AND FLORENCIA VIOLAGO, VS.

BA FINANCE CORPORATION AND AVELINO VIOLAGO
JULY 21, 2008/G.R. NO. 158262
VELASCO, JR., J
DOCTRINE: A holder in due course, however, holds the instrument free from any defect of title of
prior parties and from defenses available to prior parties among themselves, and may enforce
payment of the instrument for the full amount thereof. The NIL considers every negotiable
instrument prima facie to have been issued for a valuable consideration.
FACTS: Petitioner Sps. in this case obtained a Toyota Cressida Model from VMSC thru Avelino
Violago (cousin), as president, by executing a promissory note and later endorsed to BA Finance
Corporation. The agreement were Sps. will be paying a down payment of 65,000.00 to VMSC
then the installments will be made payable to BA Finance Corp. However on a later time, Sps.
found out upon registering the sale to LTO that the same car has been sold to Esmeraldo Violago
(another cousin) whom later on sold the same to another person and financed the same thru BA
Finance Cebu Branch. Hence petitioner effected stop paying the monthly installment of the said
car since the same hasnt been delivered. This resulted for BA Finance to institute an action for
replevin and damages, and in default of returning the subject vehicle the equivalent value
thereof. RTC ruled in favor of the respondent. Petitioner contends before the CA that the
promissory note is a negotiable instrument; hence, the trial court should have applied the NIL
and not the Civil Code. The spouses also asserted that since VMSC was not the owner of the
vehicle at the time of sale, the sale was null and void for the failure in the "cause or
consideration" of the promissory note, which in this case was the sale and delivery of the vehicle.
The spouses also alleged that BA Finance was not a holder in due course of the note since it
knew, through its Cebu City branch, that the car was never delivered to the spouses. CA affirms
the decision of RTC. On appeal, however, Petitioner claim that Article 1318 of the Civil Code
should be applied since their consent was vitiated by fraud, and, thus, the promissory note does
not carry any legal effect despite its negotiation based on the ground that the vehicle was never
delivered.

ISSUE/S: WON The PN is negotiable under NIL hence petitioners cannot raise the defense of non-
delivery of the object and nullity of the sale against the corporation?

HELD: Yes. The appellate court was correct in finding all the requisites of a negotiable instrument
present. The PN signed by petitioners reads: 209,601.00 Makati, Metro Manila, Philippines,
August 4, 1983.
For value received, I/we, jointly and severally, promise to pay to the order of VIOLAGO
MOTOR SALES CORPORATION, its office, the principal sum of TWO HUNDRED NINE THOUSAND
SIX HUNDRED ONE ONLY Pesos (P209,601.00), Philippines Currency, with interest at the rate
stipulated herein below, in installments as follows: Thirty Six (36) successive monthly
installments of P5,822.25, the first installment to be paid on 9-16-83, and the succeeding
monthly installments on the 16th day of each and every succeeding month thereafter until the

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account is fully paid, provided that the penalty charge of three (3%) per cent per month or a
fraction thereof shall be added on each unpaid installment from maturity thereof until fully paid.

The PN clearly satisfies the requirements of a negotiable instrument under the NIL. It is in
writing; signed by the Violago spouses; has an unconditional promise to pay a certain amount,
i.e., PhP 209,601, on specific dates in the future which could be determined from the terms of
the note; made payable to the order of VMSC; and names the drawees with certainty. The
indorsement by VMSC to BA Finance appears likewise to be valid and regular.

4. CONSOLIDATED PLYWOOD INDUSTRIES, INC., HENRY WEE, and RODOLFO T. VERGARA vs. IFC
LEASING AND ACCEPTANCE CORPORATION
APRIL 30, 1987/G.R NO. 72593
GUTIERREZ, JR
DOCTRINE: The instrument in order to be considered negotiable must contain the so-called
'words of negotiable, must be payable to 'order' or 'bearer'.
FACTS: The petitioner is a corporation engaged in the logging business. It needed 2 additional
units of tractors for the opening of additional roads and simultaneous logging operations.
Atlantic Gulf & Pacific Company of Manila, through its sister company and marketing arm,
Industrial Products Marketing, offered to sell to petitioner 2 "Used" Allis Crawler Tractors.
Petitioner agreed to purchase on installment said 2 units of "Used" Allis Crawler Tractors. On
April 5, 1978, the seller-assignor issued the sales invoice and at the same time, the deed of sale
with chattel mortgage with promissory note was executed. Simultaneously with the execution of
the said deed of sale, the seller-assignor, by means of a deed of assignment, assigned its rights
and interest in the chattel mortgage in favor of the respondent. Immediately thereafter, the
seller-assignor delivered said 2 units of "Used" tractors to the petitioner-corporation's job site.
Barely 14 days had elapsed after their delivery when one of the tractors broke down and after
another 9 days, the other tractor likewise broke down. Because of this event, the road building
and simultaneous logging operations of petitioner-corporation were delayed and petitioner
Vergara advised the seller-assignor that the payments of the installments as listed in the
promissory note would likewise be delayed until the seller-assignor completely fulfills its
obligation under its warranty.

Since the tractors were no longer serviceable, petitioner Wee asked the seller-assignor to
pull out the units and have them reconditioned, and thereafter to offer them for sale. No
response to this letter, and despite several follow-up calls, the seller-assignor did nothing with
regard to the request, until the complaint in this case was filed by the respondent against the
petitioners, the corporation, Wee, and Vergara. The complaint was filed by the respondent
against the petitioners for the recovery of the principal sum of P1,093,789.71. The petitioners
filed their amended answer praying for the dismissal of the complaint and asking the trial court
to order the respondent to pay the petitioners damages. The RTC decided in favour of the
respondent. The IAC affirmed the lower court and its decision stated that the questioned
promissory note reveals that it is a negotiable instrument which was discounted or sold to the
IFC Leasing and Acceptance Corporation for P800,000.00 (Exh. "A") considering the following: it
is in writing and signed by the maker; it contains an unconditional promise to pay a certain sum
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of money payable at a fixed or determinable future time; it is payable to order; the promissory
note was negotiated when it was transferred and delivered by IPM to the appellee and duly
endorsed to the latter.

ISSUE: WON, the PN is a negotiable instrument.

HELD: NO. The pertinent portion of the note is as follows:

FOR VALUE RECEIVED, I/we jointly and severally promise to pay to the INDUSTRIAL
PRODUCTS MARKETING, the sum of ONE MILLION NINETY THREE THOUSAND SEVEN
HUNDRED EIGHTY NINE PESOS & 71/100 only (P 1,093,789.71), Philippine Currency, the
said principal sum, to be payable in 24 monthly installments starting July 15, 1978 and
every 15th of the month thereafter until fully paid. ...

Considering that paragraph (d), Section 1 of the NIL requires that a PN "must be payable to order
or bearer," it cannot be denied that the PN in question is not a negotiable instrument. The
instrument in order to be considered negotiable must contain the so-called 'words of negotiable,
must be payable to 'order' or 'bearer'. These words serve as an expression of consent that the
instrument may be transferred. Considering that the subject promissory note is not a negotiable
instrument, it follows that the respondent can never be a holder in due course but remains a
mere assignee of the note in question. Thus, the petitioner may raise against the respondent all
defenses available to it as against the seller-assignor Industrial Products Marketing. Even
conceding for purposes of discussion that the promissory note in question is a negotiable
instrument, the respondent cannot be a holder in due course for a more significant reason. The
evidence presented in the case shows that prior to the sale on installment of the tractors, there
was an arrangement between the seller-assignor, Industrial Products Marketing, and the
respondent whereby the latter would pay the seller-assignor the entire purchase price and the
seller-assignor, in turn, would assign its rights to the respondent which acquired the right to
collect the price from the buyer, herein petitioner Consolidated Plywood Industries, Inc.

FALLO: WHEREFORE, in view of the foregoing, the decision of the respondent appellate court as
well as its resolution are hereby ANNULLED and SET ASIDE.

5. CALTEX (PHILIPPINES), INC. vs. CA and

SECURITY BANK AND TRUST COMPANY
August 10, 1992/G.R. No. 97753
REGALADO, J.:
DOCTRINE: the negotiability or non-negotiability of an instrument is determined from the
writing, that is, from the face of the instrument itself.

FACTS: On various dates, defendant, a commercial banking institution, through its Sucat Branch
issued 280 certificates of time deposit (CTDs) in favor of one Angel dela Cruz who deposited with
herein defendant the aggregate amount of P1,120,000.00. Angel dela Cruz delivered the said
certificates of time (CTDs) to herein plaintiff in connection with his purchased of fuel products

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from the latter. Sometime in March 1982, Angel dela Cruz informed Mr. Timoteo Tiangco, the
Sucat Branch Manager, that he lost all the certificates of time deposit in dispute. Mr. Tiangco
advised said depositor to execute and submit a notarized Affidavit of Loss, as required by
defendant bank's procedure, if he desired replacement of said lost CTDs. On March 18, 1982,
Angel dela Cruz executed and delivered to defendant bank the required Affidavit of Loss. On the
basis of said affidavit of loss, 280 replacement CTDs were issued in favor of said depositor. On
March 25, 1982, Angel dela Cruz negotiated and obtained a loan from defendant bank in the
amount of Eight Hundred Seventy Five Thousand Pesos (P875,000.00). On the same date, said
depositor executed a notarized Deed of Assignment of Time Deposit which stated, among
others, that he (de la Cruz) 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 maturity. Sometime in November, 1982, Mr. Aranas,
Credit Manager of plaintiff Caltex (Phils.) Inc., went to the defendant bank's Sucat branch 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." by said
depositor. Plaintiff was requested by herein defendant to furnish the former "a copy of the
document evidencing the guarantee agreement with Mr. Angel dela Cruz" as well as "the details
of Mr. Angel dela Cruz" obligation against which plaintiff proposed to apply the time deposits. No
copy of the requested documents was furnished herein defendant. Accordingly, defendant bank
rejected the plaintiff's demand and claim for payment of the value of the CTDs in a letter dated
February 7, 1983.

The loan of Angel dela Cruz with the defendant bank matured and fell due the latter set-off and
applied the time deposits in question to the payment of the matured loan. In view of the
foregoing, plaintiff filed the instant complaint, praying that defendant bank be ordered to pay it
the aggregate value of the certificates of time deposit of P1,120,000.00 plus accrued interest
and compounded interest therein at 16% per annum, moral and exemplary damages as well as
attorney's fees. RTC rendered its decision dismissing the instant complaint. On appeal, as earlier
stated, respondent court affirmed the lower court's dismissal of the complaint.

ISSUE: WON, CA erred in ruling that the subject certificates of deposit are non-negotiable despite
being clearly negotiable instruments

HELD: Yes. CA erred. Certificates of deposits in this case are negotiable instruments. We disagree
with these findings and conclusions, and hereby hold that the CTDs in question are negotiable
instruments. The CTDs in question undoubtedly 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 reffered to in the CTDs is no other than Mr. Angel de la Cruz. On
this score, 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. In the construction of
a bill or note, the intention of the parties is to control, if it can be legally ascertained. While the
writing may be read in the light of surrounding circumstances in order to more perfectly

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understand the intent and meaning of the parties, yet as they have constituted the writing to be
the only outward and visible expression of their meaning, no other words are to be added to it or
substituted in its stead. The duty of the court in such case is to ascertain, not what the parties
may have secretly intended as contradistinguished from what their words express, but what is
the meaning of the words they have used. What the parties meant must be determined by what
they said.

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. If it was really the intention of respondent bank to pay
the amount to Angel de la Cruz only, it could have with facility so expressed that fact in clear and
categorical terms in the documents, instead of having the word "BEARER" stamped on the space
provided for the name of the depositor in each CTD. On the wordings of the documents,
therefore, the amounts deposited are repayable to whoever may be the bearer thereof. Thus,
petitioner's aforesaid witness merely declared that Angel 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.
Hence, the situation would require any party dealing with the CTDs to go behind the plain import
of what is written thereon to unravel the agreement of the parties thereto through
facts aliunde. This need for resort to extrinsic evidence is what is sought to be avoided by the
Negotiable Instruments Law and calls for the application of the elementary rule that the
interpretation of obscure words or stipulations in a contract shall not favor the party who caused
the obscurity. 12Unfortunately for petitioner, 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. For, although petitioner seeks to deflect
this fact, the CTDs were in reality delivered to it as a security for De la Cruz' purchases of its fuel
products. Any doubt as to whether the CTDs were delivered as payment for the fuel products or
as a security has been dissipated and resolved in favor of the latter by petitioner's own
authorized and ...

APPLICABILITY OF NIL
6. ROMEO C. GARCIA VS. DIONISIO V. LLAMAS.
DECEMBER 8, 2003/G.R. NO. 154127
PANGANIBAN, J.
DOCTRINE: By its terms, the note was made payable to a specific person rather than to bearer or
to order -- a requisite for negotiability under Act 2031, the Negotiable Instruments Law (NIL).
Hence, petitioner cannot avail himself of the NILs provisions on the liabilities and defenses of an
accommodation party.
FACTS: On 23 December 1996[,] [petitioner and de Jesus] borrowed P400,000.00 from
[respondent]; that, on the same day, [they] executed a promissory note wherein they bound
themselves jointly and severally to pay the loan on or before 23 January 1997 with a 5% interest
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per month; that the loan has long been overdue and, despite repeated demands, [petitioner and
de Jesus] have failed and refused to pay it; and that, by reason of the[ir] unjustified refusal,
respondent filed a complaint for sum of money and damages. Resisting the complaint,
[Petitioner Garcia,] in his [Answer,] averred that he assumed no liability under the promissory
note because he signed it merely as an accommodation party for x x x de Jesus; and,
alternatively, that he is relieved from any liability arising from the note inasmuch as the loan had
been paid by x x x de Jesus by means of a check dated 17 April 1997; and that, in any event, the
issuance of the check and [respondents] acceptance thereof novated or superseded the note.
Respondent] tendered a reply to [Petitioner] Garcias answer, thereunder asserting that the loan
remained unpaid for the reason that the check issued by x x x de Jesus bounced.

ISSUE: WON, the defense that petitioner was only an accommodation party had any basis.

RULING: Petitioner avers that he signed the promissory note merely as an accommodation
party;and that, as such, he was released as obligor when respondent agreed to extend the term
of the obligation. This reasoning is misplaced, because the note herein is not a negotiable
instrument. The note reads:

PROMISSORY NOTE
P400,000.00 RECEIVED FROM ATTY. DIONISIO V. LLAMAS, the sum of FOUR HUNDRED
THOUSAND PESOS, Philippine Currency payable on or before January 23, 1997 at No. 144 K-10
St. Kamias, Quezon City, with interest at the rate of 5% per month or fraction thereof. It is
understood that our liability under this loan is jointly and severally [sic].
Done at Quezon City, Metro Manila this 23rd day of December, 1996.

By its terms, the note was made payable to a specific person rather than to bearer or to order --
a requisite for negotiability under Act 2031, the Negotiable Instruments Law (NIL). Hence,
petitioner cannot avail himself of the NILs provisions on the liabilities and defenses of an
accommodation party. Besides, a non-negotiable note is merely a simple contract in writing and
is evidence of such intangible rights as may have been created by the assent of the parties. The
promissory note is thus covered by the general provisions of the Civil Code, not by the NIL. Even
granting arguendo that the NIL was applicable, still, petitioner would be liable for the promissory
note. Under Article 29 of Act 2031, an accommodation party is liable for the instrument to a
holder for value even if, at the time of its taking, the latter knew the former to be only an
accommodation party. The relation between an accommodation party and the party
accommodated is, in effect, one of principal and surety -- the accommodation party being the
surety. It is a settled rule that a surety is bound equally and absolutely with the principal and is
deemed an original promissor and debtor from the beginning. The liability is immediate and
direct.

FALLO: WHEREFORE, this Petition is hereby DENIED and the assailed Decision AFFIRMED.

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 7. FIRESTONE TIRE & RUBBER COMPANY OF THE PHILIPPINES VS COURT OF APPEALS and LUZON
DEVELOPMENT BANK
MARCH 5, 2001/G.R NO. 113236
Quisumbing, J.
DOCTRINE: Withdrawal slips are non-negotiable instrument. Hence, the rules governing the
giving immediate notice of dishonor of negotiable instrument do not apply. 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 in question lacked this character.

FACTS: Defendant Luzon Development bank is a banking corporation among its activities, it
accepts savings and time deposits. Defendant had its client-depositors the Fojas-Arca Enterprises
Company. Fojas-Arca maintaining a special savings account with the defendant, the latter
authorized and allowed withdrawals of funds through the medium of special withdrawal
slips. These are supplied by the defendant to Fojas-Arca. In January 1978, plaintiff and Fojas-Arca
entered into a Franchised Dealership Agreement whereby Fojas-Arca has the privilege to
purchase on credit and sell plaintiffs products. Pursuant to the Agreement, 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. This made
plaintiff believe and relied on the fact that the succeeding special withdrawal slips drawn upon
the defendant would be equally sufficiently funded. However, in a subsequent transaction
involving the payment of withdrawal slips by Fojas-Arca for purchases on credit from petitioner,
two withdrawal slips for the total sum of P2,078,092.80 were dishonored and not paid by bank
for the reason "NO ARRANGEMENT". On December 14, 1978, Citibank informed
petitioner that the two special withdrawal slips were refused payment by respondent bank due
to insufficiency of Fojas-Arcas funds on deposit. That information came about six months from
the time Fojas-Arca purchased tires from petitioner using the subject withdrawal slips. Citibank
then debited the amount of these withdrawal slips (P2,078,092.80) from petitioners account
causing the alleged pecuniary damage subject of petitioners cause of action. On the beginning
petitioner admits that the withdrawal slips in question were non-negotiable. Hence, the rules
governing the giving of immediate notice of dishonor of negotiable instruments do not apply in
this case..Petitioner itself concedes this point. Therefore respondent bank was under no
obligation to give immediate notice that it would not make payment on the subject withdrawal
slips. It appears that Citibank, with the knowledge that Luzon Development Bank, had honored
and paid the previous withdrawal slips, automatically credited petitioners current account with
the amount of the subject withdrawal slips, then merely waited for the same to be honored and
paid by respondent bank. It presumed that the withdrawal slips were good.Petitioner filed a sum
of money with the Trial Court but it was dismissed. The CA - affirmed the judgment of the trial
court. It ruled that respondent bank notified the depositor to present the passbook whenever it
received a collection note from another bank, belying petitioners claim that respondent bank
was negligent in not requiring a passbook under the subject transaction. It also found that the
special withdrawal slips in question were not purposely given the appearance of checks, contrary
to petitioners assertions, and thus should not have been mistaken for checks. And last it ruled
Page 11 of 133
that the respondent bank was under no obligation to inform petitioner of the dishonor of the
special withdrawal slips, for to do so would have been a violation of the law on the secrecy of
bank deposits.

ISSUE: WON, respondent bank should be held liable for damages suffered by petitioner, due to
its allegedly belated notice of non-payment of the subject withdrawal slips.

HELD: No. Withdrawal slips in question were non negotiable instrument. Hence, the rules
governing the giving immediate notice of dishonor of negotiable instrument do not apply. 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 in question lacked this
character. The respondent bank was under no obligation to give immediate notice that it would
not make payment on the subject withdrawal slips. Citibank should have known that withdrawal
slips were not negotiable instruments. It could not expect these slips to be treated as checks by
other entities. Payment or notice of dishonor from respondent bank could not be expected
immediately, in contrast to the situation involving checks. Citibank was not bound to accept the
withdrawal slips as a valid mode of deposit. But having erroneously accepted them as such,
Citibank and petitioner as account-holder must bear the risks attendant to the acceptance of
these instruments.
FALLO: Petition is DENIED and the decision of the Court of Appeals is AFFIRMED.
II. KINDS OF NEGOTIABLE INSTRUMENTS
8. PEOPLE VS. GILBERT WAGAS
September 4, 2013/G.R. No. 157943
Bersamin, J.,
DOCTRINE: Under the NIL, a check made payable to cash is payable to the bearer and could be
negotiated by mere delivery without the need of an indorsement. However, in case involving
estafa, the drawer of the post-dated check cannot be liable for estafa to the person who did not
acquire the instrument directly from drawer but through negotiation of another by mere
delivery. This is because the drawer did not use the check to defraud the holder/private
complainant.

FACTS: According to Albert Ligaray, Wagas (accused) placed an order for 200 bags of rice over
the telephone; that he (Ligaray) and his wife would not agree at first to the proposed payment of
the order by postdated check, but because of Wagas assurance that he would not disappoint
them, they relented and accepted the order; that he released the goods to Wagas on April 30,
1997 and at the same time received a BPI Check for P200,000.00 payable to cash and postdated
May 8, 1997; that he later deposited the check with Solid Bank, his depository bank, but the
check was dishonored due to insufficiency of funds; that he called Wagas about the matter, and
the latter told him that he would pay upon his return to Cebu; and that despite repeated
demands, Wagas did not pay him. However, On cross-examination, Ligaray admitted that he did
not personally meet Wagas because they transacted through telephone only; that he released
the 200 bags of rice directly to Robert Caada, the brother-in-law of Wagas, who signed the
delivery receipt upon receiving the rice. In his defense, Wagas himself testified. He admitted
Page 12 of 133
having issued said BPI check to Caada, his brother-in-law, not to Ligaray. He denied having any
telephone conversation or any dealings with Ligaray.He explained that the check was intended
as payment for a portion of Caadas property that he wanted to buy, but when the sale did not
push through, he did not anymore fund the check. However, the Prosecution confronted Wagas
with a letter apparently signed by him and addressed to Ligarays counsel, wherein he admitted
owing Ligaray P200,000.00 for goods received. Wagas admitted the letter, but insisted that it
was Caada who had transacted with Ligaray, and that he had signed the letter only because
spouses Canada had begged him to assume the responsibility as his brother-in-law (Robert) a
seafarer, was then out of the country; that he signed the letter only to accommodate the pleas
of his sister, and to avoid jeopardizing Caadas application for overseas employment. RTC:
Convicted Wagas of estafa.

ISSUE: WON, was liable for estafa based on the BPI Checks he issued in favor of Ligaray?

HELD: No. Wagas was not liable for estafa. Per Art. 315 of the Revised Penal Code, In order to
constitute estafa under this statutory provision, the act of postdating or issuing a check in
payment of an obligation must be the efficient cause of the defraudation. This means that the
offender must be able to obtain money or property from the offended party by reason of the
issuance of the check, whether dated or postdated. In other words, the Prosecution must show
that the person to whom the check was delivered would not have parted with his money or
property were it not for the issuance of the check by the offender. In this case, it was rendered
highly probable that Wagas had issued the check not to Ligaray, but to somebody else like
Caada, his brother-in-law, who then negotiated it to Ligaray. Relevantly, Ligaray confirmed that
he did not himself see or meet Wagas at the time of the transaction and thereafter, and
expressly stated that the person who signed for and received the stocks of rice was Caada. It
bears stressing that the accused, to be guilty of estafa as charged, must have used the check in
order to defraud the complainant. What the law punishes is the fraud or deceit, not the mere
issuance of the worthless check. Wagas could not be held guilty of estafa simply because he had
issued the check used to defraud Ligaray. The proof of guilt must still clearly show that it had
been Wagas as the drawer who had defrauded Ligaray by means of the check.

Under the NIL, a check made payable to cash is payable to the bearer and could be
negotiated by mere delivery without the need of an indorsement. However, in case involving
estafa, the drawer of the post-dated check cannot be liable for estafa to the person who did not
acquire the instrument directly from drawer but through negotiation of another by mere
delivery. This is because the drawer did not use the check to defraud the holder/private
complainant.

FALLO: WHEREFORE, the Court REVERSES and SETS ASIDE the decision rendered by the RTC and
ACQUITS Gilbert R. Wagas of the crime of estafa on the ground of reasonable doubt, but ORDERS
him to pay Alberto Ligaray the amount of P200,000.00 as actual damages, plus interest of 6% per
annum from the finality of this decision.

Page 13 of 133
 9. PNB VS RODRIGUEZ
SEPTEMBER 26, 2008/G.R NO 170325
JUSTICE REYES, R.T.

DOCTRINE: As a rule, when the payee is fictitious or not intended to be the true recipient of the
proceeds, the check is considered as a bearer instrument. However, if the drawee bank failed to
present sufficient evidence to defeat the claim that the named payees were the intended
recipients of the checks proceeds, then it is presumed an order instrument.

FACTS: Respondents-Spouses Rodriguez maintained savings and demand/checking accounts at

PNB, Amelia Avenue Branch, Cebu City. In line with their informal lending
business, they had a discounting arrangement with the Philnabank Employees Savings and Loan
Association (PEMSLA), an association of PNB employees. PEMSLA was also a client of PNB Amelia
Avenue Branch. PEMSLA regularly granted loans to its members. Spouses Rodriguez would
rediscount the postdated checks issued to members whenever the association was short of
funds and would replace the postdated checks with their own checks issued in the name of the
members. It was PEMSLAs policy not to approve applications for loans of members with
outstanding debts. However, some PEMSLA officers devised a scheme to obtain additional loans
despite their outstanding loan accounts through the names of unknowing members, without the
knowledge or consent of the latter. The officers carried this out by forging the indorsement of
the named payees in the checks. In return, the spouses issued their personal checks (Rodriguez
checks) in the name of the members and delivered the checks to an officer of PEMSLA. The
PEMSLA checks, on the other hand, were deposited by the spouses to their account. Meanwhile,
the Rodriguez checks were deposited directly by PEMSLA to its savings account without any
indorsement from the named payees. This was an irregular procedure made possible through
the facilitation of treasurer of PEMSLA and bank teller in the PNB Branch. It appears that this
became the usual practice for the parties.

Petitioner PNB eventually found out about these fraudulent acts. Hence, PNB closed the
current account of PEMSLA. The PEMSLA checks deposited by the spouses were returned or
dishonored for the reason Account Closed. Thus, because the PEMSLA checks given as payment
were returned, spouses Rodriguez incurred losses from the rediscounting transactions.
In this, the spouses Rodriguez filed a civil complaint for damages against PEMSLA, and petitioner
PNB. The spouses contended that because PNB credited the checks to the PEMSLA account
even without indorsements and PNB paid the wrong payees, hence, it should bear the loss.
The RTC rendered judgment in favor of spouses Rodriguez. Upon appeal, the CA reversed and set
aside the decision of the RTC; concluded that checks were bearer instruments, thus they do not
require indorsement for negotiation. Upon Motion for reconsideration, the CA reversed itself via
an Amended Decision which ruled that the checks were payable to order.

ISSUE: WON, the subject checks are payable to order or to bearer and who bears the loss?
RULING: It is an order instrument. A check is a bill of exchange drawn on a bank payable on
demand. It is either an order or a bearer instrument. Sections 8 and 9 of the NIL provides when it

Page 14 of 133
is payable to order or to bearer. Under Section 30 of the NIL, an order instrument requiresan
indorsement from the payee or holder before it may be validly negotiated. A bearer instrument,
on the other hand, does not require an indorsement to be validly negotiated. It is negotiable by
mere delivery. In a fictitious-payee situation, the drawee bank is absolved from liability and the
drawer bears the loss. When faced with a check payable to a fictitious payee, it is treated as a
bearer instrument that can be negotiated by delivery. The underlying theory is that one cannot
expect a fictitious payee to negotiate the check by placing his indorsement thereon. And since
the maker knew this limitation, he must have intended for the instrument to be negotiated by
mere delivery. However, there is a commercial bad faith exception to the fictitious-payee rule. A
showing of commercial bad faith on the part of the drawee bank, or any transferee of the check
for that matter, will work to strip it of this defense. The exception will cause it to bear the loss.
Commercial bad faithis present if the transferee of the check acts dishonestly, and is a
party to the fraudulent scheme. In the case under review, PNB must show that the makers did
not intend for the named payees to be part of the transaction involving the checks. At most, the
banks thesis shows that the payees did not have knowledge of the existence of the checks. This
lack of knowledge on the part of the payees, however, was not tantamount to a lack of intention
on the part of respondents-spouses that the payees would not receive the checks
proceeds. Considering that respondents-spouses were transacting with PEMSLA and not the
individual payees, it is understandable that they relied on the information given by the officers of
PEMSLA that the payees would be receiving the checks. Because of a failure to show that the
payees were fictitious in its broader sense, the fictitious-payee rule does not apply. Thus, the
checks are to be deemed payable to order. Consequently, the drawee bank bears the loss.

III. COMPLETION OF BLANKS

10. JOHN DY VS. PEOPLE OF THE PHILS., ET. AL.

NOV. 14, 2008/G.R. NO. 158312
QUISUMBING, J;
DOCTRINE: Delivery is the final act essential to the negotiability of an instrument. Delivery
denotes physical transfer of the instrument by the maker or drawer coupled with an intention to
convey title to the payee and recognize him as a holder.
FACTS: Since 1990, John Dy has been the distributor of W.L. Food Products (W.L. Foods) in Naga
City, Bicol, under the business name Dyna Marketing. Dy would pay W.L. Foods in either cash or
check upon pick up of stocks of snack foods at the latters branch or main office in Quezon
City. At times, he would entrust the payment to one of his drivers. On June 24, 1992, Dys driver
went to the branch office of W.L. Foods to pick up stocks of snack foods. He introduced himself
to the checker, Mary Jane D. Maraca, who upon confirming Dys credit with the main office, gave
him merchandise worth P106,579.60. In return, the driver handed her a blank Far East Bank and
Trust Company (FEBTC) Check with Check No. 553602 postdated July 22, 1992. The check was
signed by Dy though it did not indicate a specific amount.Yet again, on July 1, 1992, the same
driver obtained snack foods from Maraca in the amount of P226,794.36 in exchange for a blank
FEBTC Check with Check No. 553615 postdated July 31, 1992. In both instances, the driver was

Page 15 of 133
issued an unsigned delivery receipt. The amounts for the purchases were filled in later by Evelyn
Ong, accountant of W.L. Foods, based on the value of the goods delivered.
When presented for payment, FEBTC dishonored the checks for insufficiency of
funds. Raul D. Gonzales, manager of FEBTC-Naga Branch, notified Atty. Rita Linda Jimeno,
counsel of W.L. Foods, of the dishonor. Apparently, Dy only had an available balance of P2,000 as
of July 22, 1992 and July 31, 1992. Later, Gonzales sent Atty. Jimeno another letter advising her
that FEBTC Check No. 553602 for P106,579.60 was returned to the drawee bank for the reasons
stop payment order and drawn against uncollected deposit (DAUD), and not because it was
drawn against insufficient funds as stated in the first letter. Dys savings deposit account ledger
reflected a balance of P160,659.39 as of July 22, 1992. This, however, included a regional
clearing check for P55,000 which he deposited on July 20, 1992, and which took five (5) banking
days to clear. Hence, the inward check was drawn against the yet uncollected deposit. When
William Lim, owner of W.L. Foods, phoned Dy about the matter, the latter explained that he
could not pay since he had no funds yet. This prompted the former to send petitioner a demand
letter, which the latter ignored. On July 16, 1993, Lim charged Dy with two counts
of estafa under Article 315, paragraph 2(d)of the Revised Penal Code in two Informations, which
except for the dates and amounts involved

ISSUE: Whether the checks given to W.L. Foods in blank is invalid

HELD: Section 191 of the NIL defines issue as the first delivery of an instrument, complete in
form, to a person who takes it as a holder. Significantly, delivery is the final act essential to the
negotiability of an instrument. Delivery denotes physical transfer of the instrument by the maker
or drawer coupled with an intention to convey title to the payee and recognize him as a holder.
It means more than handing over to another; it imports such transfer of the instrument to
another as to enable the latter to hold it for himself. In this case, even if the checks were
given to W.L. Foods in blank, this alone did not make its issuance invalid. When the checks were
delivered to Lim, through his employee, he became a holder with prima facie authority to fill the
blanks. This was, in fact, accomplished by Lims accountant. The pertinent provisions of
Section 14 of the Negotiable Instruments Law are instructive:

SEC. 14. Blanks; when may be filled. Where the instrument is wanting in any material particular,
the person in possession thereof has a prima facie authority to complete it by filling up the
blanks therein. And a signature on a blank paper delivered by the person making the signature in
order that the paper may be converted into a negotiable instrument operates as a prima facie
authority to fill it up as such for any amount. .

Hence, the law merely requires that the instrument be in the possession of a person
other than the drawer or maker. From such possession, together with the fact that the
instrument is wanting in a material particular, the law presumes agency to fill up the blanks.
Because of this, the burden of proving want of authority or that the authority granted was
exceeded, is placed on the person questioning such authority. Petitioner failed to fulfill this
requirement.

Page 16 of 133
FALLO: WHEREFORE, the petition is PARTLY GRANTED. John Dy is hereby ACQUITTED in Criminal
Case for estafa, and for violation of B.P. 22, but he is ORDERED to pay W.L. Foods the amount of
P106,579.60 for goods delivered to his company. In Criminal Case for estafa, the Decision of the
CA is AFFIRMED with MODIFICATION.

IV. INCOMPLETE BUT DELIVERED INSTRUMENTS

11. ALVIN PATRIMONIO vs.NAPOLEON GUTIERREZ
and OCTAVIO MARASIGAN III
June 4, 2014/G.R. No. 187769
BRION, J.
DOCTRINE: Under Section 14 of the NIL, if the maker or drawer delivers a pre-signed blank paper
to another person for the purpose of converting it into a negotiable instrument, that person is
deemed to have prima facie authority to fill it up. It merely requires that the instrument be in the
possession of a person other than the drawer or maker and from such possession, together with
the fact that the instrument is wanting in a material particular, the law presumes agency to fill up
the blanks. This provision applies to an incomplete but delivered instrument.

FACTS: The petitioner and the respondent Gutierrez entered into a business venture under the
name of Slam Dunk Corporation, a production outfit that produced mini-concerts and shows
related to basketball. In the course of their business, the petitioner pre-signed several checks to
answer for the expenses of Slam Dunk. Although signed, these checks had no payees name, date
or amount. The blank checks were entrusted to Gutierrez with the specific instruction not to fill
them out without previous notification to and approval by the petitioner. According to
petitioner, the arrangement was made so that he could verify the validity of the payment and
make the proper arrangements to fund the account. In the middle of 1993, without the
petitioners knowledge and consent, Gutierrez went to Marasigan to secure a loan in the amount
of P200,000.00 on the excuse that the petitioner needed the money for the construction of his
house. In addition to the payment of the principal, Gutierrez assured Marasigan that he would
be paid an interest of 5% per month from March to May 1994.

Marasigan acceded to Gutierrez request and gave him P200,000.00. Gutierrez simultaneously
delivered to Marasigan one of the blank checks the petitioner pre-signed with the blank portions
filled out with the words "Cash" "Two Hundred Thousand Pesos Only", and the amount of
"P200,000.00". The upper right portion of the check corresponding to the date was also filled out
with the words "May 23, 1994" but the petitioner contended that the same was not written by
Gutierrez. Later, Marasigan deposited the check but it was dishonored for the reason "ACCOUNT
CLOSED." It was later revealed that petitioners account with the bank had been closed since
May 28, 1993. Marasigan sought recovery from Gutierrez, to no avail. He thereafter sent several
demand letters to the petitioner asking for the payment of P200,000.00, but his demands
likewise went unheeded. Consequently, he filed a criminal case for violation of B.P. 22 against
the petitioner. On September 10, 1997, the petitioner filed before the RTC a Complaint for
Declaration of Nullity of Loan and Recovery of Damages against Gutierrez and co-respondent
Marasigan. He completely denied authorizing the loan or the checks negotiation, and asserted
that he was not privy to the parties loan agreement. RTC declared Marasigan as a holder in due
Page 17 of 133
course and accordingly dismissed the petitioners complaint for declaration of nullity of the loan.
It ordered the petitioner to pay Marasigan the face value of the check with a right to claim
reimbursement from Gutierrez. The CA affirmed the RTC ruling, although premised on different
factual findings. CA agreed with the petitioner that Marasigan is not a holder in due course as he
did not receive the check in good faith. The CA also concluded that the check had been strictly
filled out by Gutierrez in accordance with the petitioners authority. It held that the loan may not
be nullified since it is grounded on an obligation arising from law and ruled that the petitioner is
still liable to pay Marasigan the sum of P200,000.00.

ISSUE: WON, Gutierrez has the authority to fill up the blank check issued by petitioner.

HELD: No. Under Section 14 of the NIL, if the maker or drawer delivers a pre-signed blank paper
to another person for the purpose of converting it into a negotiable instrument, that person is
deemed to have prima facie authority to fill it up. It merely requires that the instrument be in the
possession of a person other than the drawer or maker and from such possession, together with
the fact that the instrument is wanting in a material particular, the law presumes agency to fill up
the blanks. This provision applies to an incomplete but delivered instrument. In order however
that one who is not a holder in due course can enforce the instrument against a party prior to
the instruments completion, two requisites must exist: (1) that the blank must be filled strictly in
accordance with the authority given; and (2) it must be filled up within a reasonable time. If it
was proven that the instrument had not been filled up strictly in accordance with the authority
given and within a reasonable time, the maker can set this up as a personal defense and avoid
liability. However, if the holder is a holder in due course, there is a conclusive presumption that
authority to fill it up had been given and that the same was not in excess of authority.

Notably, Gutierrez was only authorized to use the check for business expenses; thus, he
exceeded the authority when he used the check to pay the loan he supposedly contracted for
the construction of petitioner's house. This is a clear violation of the petitioner's instruction to
use the checks for the expenses of Slam Dunk. It cannot therefore be validly concluded that the
check was completed strictly in accordance with the authority given by the petitioner.
Considering that Marasigan is not a holder in due course because Marasigans knowledge that
the petitioner is not a party or a privy to the contract of loan, and correspondingly had no
obligation or liability to him, renders him dishonest, hence, in bad faith; the petitioner can validly
set up the personal defense that the blanks were not filled up in accordance with the authority
he gave. Consequently, Marasigan has no right to enforce payment against the petitioner and
the latter cannot be obliged to pay the face value of the check.

12. BANK OF AMERICA NT & SA v. PHILIPPINE RACING CLUB

G.R. No. 150228; July 30, 2009
LEONARDO-DE CASTRO, J.
Doctrine: Sec. 15. Incomplete instrument not delivered. - Where an incomplete instrument has
not been delivered, it will not, if completed and negotiated without authority, be a valid contract
in the hands of any holder, as against any person whose signature was placed thereon before
delivery.

Page 18 of 133
Facts: Plaintiff-appellee PRCI is a domestic corporation which maintains several accounts with
different banks in the Metro Manila area. Among the accounts maintained was Current Account
No. 58891-012 with defendant-appellant BA (Paseo de Roxas Branch). The authorized joint
signatories with respect to said Current Account were plaintiff-appellees President (Antonia
Reyes) and Vice President for Finance (Gregorio Reyes). The President and Vice President of
plaintiff-appellee corporation were scheduled to go out of the country in connection with the
corporations business. In order not to disrupt operations in their absence, they pre-signed
several checks relating to the above account. These checks were entrusted to the accountant
with instruction to make use of the same as the need arose. The internal arrangement was, in
the event there was need to make use of the checks, the accountant would prepare the
corresponding voucher and thereafter complete the entries on the pre-signed checks. It turned
out that a John Doe presented to defendant-appellant bank for encashment a couple of plaintiff-
appellee corporations checks with the indicated value of P110,000.00 each. It is admitted that
these 2 checks were among those pre-signed by plaintiff-appellee corporations authorized
signatories. The two (2) checks had similar entries with similar infirmities and irregularities. On
the space where the name of the payee should be indicated (Pay To The Order Of) the following
2-line entries were instead typewritten: on the upper line was the word CASH while the lower
line had the following typewritten words, viz: ONE HUNDRED TEN THOUSAND PESOS ONLY.
Despite the highly irregular entries on the face of the checks, defendant-appellant bank,
without as much as verifying and/or confirming the legitimacy of the checks considering the
substantial amount involved and the obvious infirmity/defect of the checks on their faces,
encashed said checks. A verification process, even by was of a telephone call to PRCI office,
would have taken less than ten (10) minutes. But this was not done by BA. Investigation
conducted by plaintiff-appellee corporation yielded the fact that there was no transaction
involving PRCI that call for the payment of P220,000.00 to anyone. The checks appeared to have
come into the hands of an employee of PRCI (one Clarita Mesina who was subsequently
criminally charged for qualified theft) who eventually completed without authority the entries on
the pre-signed checks. PRCIs demand for defendant-appellant to pay fell on deaf ears. Hence,
the complaint. The trial court rendered a Decision in favor of respondent. The CA affirmed said
decision in toto. Petitioners Motion for Reconsideration of the CA Decision was subsequently
denied. Hence, this petition.

Issue: WON, the proximate cause of the wrongful encashment of the checks in question was
due to (a) petitioners failure to make a verification regarding the said checks with the
respondent in view of the misplacement of entries on the face of the checks or (b) the practice
of the respondent of pre-signing blank checks and leaving the same with its employees.

Ruling: The proximate cause of the wrongful encashment was due to Petitioner Bank but the
Court allocates part of the loss to respondent. On the blank space of each check reserved for the
payee, the following typewritten words appear: ONE HUNDRED TEN THOUSAND PESOS
ONLY. Above the same is the typewritten word, CASH. On the blank reserved for the amount, the
same amount of One Hundred Ten Thousand Pesos was indicated with the use of a check
writer. The presence of these irregularities in each check should have alerted the petitioner to
be cautious before proceeding to encash them which it did not do. It is well-settled that banks

Page 19 of 133
are engaged in a business impressed with public interest, and it is their duty to protect in return
their many clients and depositors who transact business with them. They have the obligation to
treat their clients account meticulously and with the highest degree of care, considering the
fiduciary nature of their relationship. The diligence required of banks, therefore, is more than
that of a good father of a family. As noted by the CA, petitioner could have made a simple phone
call to its client to clarify the irregularities and the loss to respondent due to the encashment of
the stolen checks would have been prevented. Also, respondents witness testified that for
checks in amounts greater than P20,000.00 it is the companys practice to ensure that the payee
is indicated by name in the check. This was not rebutted by petitioner.
In defense of its cashier/tellers questionable action, petitioner insists that pursuant to
Sections 14 and 16 of the NIL, it could validly presume, upon presentation of the checks, that the
party who filled up the blanks had authority and that a valid and intentional delivery to the party
presenting the checks had taken place. Thus, in petitioners view, the sole blame for this debacle
should be shifted to respondent for having its signatories pre-sign and deliver the subject checks.
Petitioner argues that there was indeed delivery in this case because, following American
jurisprudence, the gross negligence of respondents accountant in safekeeping the subject checks
which resulted in their theft should be treated as a voluntary delivery by the maker who is
estopped from claiming non-delivery of the instrument.
Petitioners contention would have been correct if the subject checks were correctly and
properly filled out by the thief and presented to the bank in good order. In that instance, there
would be nothing to give notice to the bank of any infirmity in the title of the holder of the
checks and it could validly presume that there was proper delivery to the holder. The bank could
not be faulted if it encashed the checks under those circumstances. However, the undisputed
facts plainly show that there were circumstances that should have alerted the bank to the
likelihood that the checks were not properly delivered to the person who encashed the same. In
all, we see no reason to depart from the finding in the assailed CA Decision that the subject
checks are properly characterized as incomplete and undelivered instruments thus making
Section 15 of the NIL applicable in this case.

However, we do agree with petitioner that respondents officers practice of pre-signing

of blank checks should be deemed seriously negligent behavior and a highly risky means of
purportedly ensuring the efficient operation of businesses. It should have occurred to
respondents officers and managers that the pre-signed blank checks could fall into the wrong
hands as they did in this case where the said checks were stolen from the company accountant
to whom the checks were entrusted. Nevertheless, even if we assume that both parties were
guilty of negligent acts that led to the loss, petitioner will still emerge as the party foremost liable
in this case. In instances where both parties are at fault, this Court has consistently applied the
doctrine of last clear chance in order to assign liability.

WHEREFORE, the Decision of the CA and its Resolution are AFFIRMED with the following
MODIFICATIONS: (a) petitioner Bank of America NT & SA shall pay to respondent Philippine
Racing Club sixty percent (60%) of the sum of Two Hundred Twenty Thousand Pesos
(P220,000.00) with legal interest as awarded by the trial court.

Page 20 of 133
 13. TING TING PUA v. SPOUSES BENITO LO BUN TIONG and
CAROLINE SIOK CHING TENG
OCTOBER 23, 2013/ G.R NO.198660/VELASCO, JR, J.

DOCTRINE: Sec. 16 of the NIL provides that when an instrument is no longer in the possession of
the person who signed it and it is complete in its terms "a valid and intentional delivery by him is
presumed until the contrary is proved."

FACTS: Petitioner Pua filed a complaint for a sum of money against respondent-spouses Benito
and Caroline. In the complaint, Pua prayed that, among other things, respondents, pay Pua the
amount PhP 8,500,000, covered by a check. During trial, petitioner Pua clarified that the PhP
8,500,000 check was given by respondents to pay the loans they obtained from her under a
compounded interest agreement on various dates in 1988. As Pua narrated, her sister, Lilian,
vouched for respondents ability to pay so that when respondents approached her, she
immediately acceded and lent money to respondents without requiring any collateral except
post-dated checks bearing the borrowed amounts. In all, respondents issued 17 checks for a
total amount of PhP 1,975,000. These checks were dishonored upon presentment to the drawee
bank. As a result of the dishonor, petitioner demanded payment. Respondents, however,
pleaded for more time because of their financial difficulties. Petitioner Pua obliged and simply
reminded the respondents of their indebtedness from time to time. When their financial
situation turned better, respondents allegedly called and asked petitioner Pua for the
computation of their loan obligations. Hence, petitioner handed them a computation amounted
to PHP 13,218,544.20 which includes the compound interest. On receiving the computation, the
respondents asked petitioner to reduce their indebtedness to PhP 8,500,000. Wanting to get
paid the soonest possible time, petitioner Pua agreed to the lowered amount. Respondents then
delivered to petitioner Asiatrust Check bearing the reduced amount of PhP 8,500,000 with the
assurance that the check was good. In turn, respondents demanded the return of the 17
previously dishonored checks. Petitioner, however, refused to return the bad checks and advised
respondents that she will do so only after the encashment of Asiatrust Check. Like the 17 checks,
however, was also dishonored when it was presented by petitioner to the drawee bank. Hence,
as claimed by petitioner, she decided to file a complaint to collect the money owed her by
respondents.

For the defense, both respondents Caroline and Benito denied obtaining a loan from petitioner.
Respondent Caroline, in particular, narrated that, she and petitioners sister, Lilian, forged a
partnership that operated a mahjong business. As the partners anticipated that Caroline will not
always be in town to prepare these checks, she left with Lilian five (5) pre-signed and
consecutively numbered checkson the condition that these checks will only be used to cover the
costs of the business operations and in no circumstance will the amount of the checks exceed
PhP 5,000. However, respondent Caroline and Lilian had a serious disagreement that resulted in
the dissolution of their partnership and the cessation of their business. Respondent Caroline
categorically denied having completed by using a check writer or typewriter as she had no check
writer and she had always completed checks in her own handwriting. She insisted that petitioner
and her sister completed the check after its delivery.

Page 21 of 133
RTC decided in favor of petitioner. RTC stated that the possession by petitioner of the checks
signed by Caroline, under the Negotiable Instruments Law, raises the presumption that they
were issued and delivered for a valuable consideration. However, it refused to order
respondents to pay petitioner the Php 8.5 million since the agreement to pay interest was not
expressly stipulated. The RTC, instead, ordered respondents to pay the principal amount of the
loan as represented by the 17 checks plus legal interest from the date of demand. The CA set
aside the decision of RTC holding that Asiatrust Bank Check was an incomplete delivered
instrument and that petitioner has failed to prove the existence of respondents indebtedness to
her.

ISSUE: WON, that Asiatrust Check is an incomplete instrument which found its way into
petitioners hands and that the petitioner failed to prove respondents indebtedness to her.

HELD: No. The Court affirmed the decision of RTC. In a suit for a recovery of sum of money, as
here, the plaintiff-creditor has the burden of proof to show that defendant had not paid her the
amount of the contracted loan. However, it has also been long established that where the
plaintiff-creditor possesses and submits in evidence an instrument showing the indebtedness, a
presumption that the credit has not been satisfied arises in her favor. Thus, the defendant is, in
appropriate instances, required to overcome the said presumption and present evidence to
prove the fact of payment so that no judgment will be entered against him.

As stated in Section 24 of the NIL: Section 24. Presumption of consideration. Every negotiable
instrument is deemed prima facie to have been issued for a valuable consideration; and every
person whose signature appears thereon to have become a party for value.

Consequently, the 17 original checks, completed and delivered to petitioner, are sufficient by
themselves to prove the existence of the loan obligation of the respondents to petitioner. Note
that respondent Caroline had not denied the genuineness of these checks. Instead, respondents
argue that they were given to various other persons and petitioner had simply collected all these
17 checks from them in order to damage respondents reputation. This account is not only
incredible; it runs counter to human experience, as enshrined in Sec. 16 of the NIL which
provides that when an instrument is no longer in the possession of the person who signed it and
it is complete in its terms "a valid and intentional delivery by him is presumed until the contrary
is proved." It seems that the appellate court overlooked the original copies of the bank return
slips offered by petitioner in evidence. These return slips show that the 1988 checks issued by
respondent Caroline were dishonored by the drawee banks because they were "drawn against
insufficient funds." As for the Asiatrust check issued by respondent Caroline in 1996 to substitute
the compounded value of the 1988 checks, the appellate court likewise sympathized with
respondents version of the story holding that it is buttressed by respondents allegations
describing the same defense made in the two related cases filed against them by petitioners
brother-in-law, Vicente Balboa. It should be noted, however, that while respondents were
exculpated from their criminal liability,62 in Sps. Benito Lo Bun Tiong and Caroline Siok Ching
Teng v. Vicente Balboa, this Court sustained the factual findings of the appellate court in the civil
case finding respondents civilly liable to pay the amount of the checks.

Page 22 of 133
Clearly, respondents defense that Caroline left blank checks with petitioners sister who, it is
said, is now determined to recoup her past losses and bring financial ruin to respondents by
falsifying the same blank checks, had already been thoroughly passed upon and rejected by this
Court. It cannot, therefore, be used to support respondents denial of their liability. Respondent
Benito cannot escape the joint and solidary liability to pay the loan on the ground that the
obligation arose from checks solely issued by his wife. Without any evidence to the contrary, it is
presumed that the proceeds of the loan redounded to the benefit of their family. Hence, the
conjugal partnership is liable therefor.

COMPLETE BUT UNDELIVERED INSTRUMENTS

14. RIZAL COMMERCIAL BANKING CORPORATION V HI-TRI DEVELOPMENT CORPORATION

JUNE 13, 2012/G.R NO.192413
Sereno, J.
DOCTRINE: An instrument, even if accepted in advance, is not delivered if the same is not
actually placed in the control of the party to whom it is supposed to be delivered, even if the
instrument is complete. The fact that there was no delivery means that the instrument has not
been accepted and it does not pass on to the party to whom it is delivered.

FACTS: Sometime in 1990, Teresita Millan offered to purchase a lot owned by respondent
Bakunawa, conditioned on Millan clearing all obstacles on the said property, but because Millan
failed to do so, the sale was rescinded. Notwithstanding such rescission, MIllan refused to accept
the purchase price that she had paid to Bakunawa, compelling Bakunawa to take out a check
payable to the company of Millan. Upon advice of counsel, Bakunawa kept the said check
without cancelling or negotiating it. Sometimes in 2003, petitioner bank informed the
Department of Finance, without the knowledge of the parties, about the unclaimed check and
on the strength of the same, the OSG, representing the Republic, filed for an escheat proceeding
the subject of which is the said unclaimed check. notwithstanding this, the parties entered into a
compromise agreement, only to find out that the said check and the money is now subject to
an escheat proceeding. The escheat proceeding found in favor of the Republic, thus, the money
was forfeited in favor of the government. The respondents filed an Omnibus Motion seeking to
reverse the decision, but the RTC denied the motion, prompting respondents to elevate the
action before the CA. The CA found in favor of the respondents and said that petitioners failed to
provide notice to all of the persons whose funds were subjected to the escheat proceedings, and
that the RTC failed to inform them as well in regards to the ongoing proceedings.

ISSUE: WON, there was delivery of the subject managers check?

HELD: NO. The Court held in the negative, and said that the mere issuance of a managers
check does not ipso facto transfer the funds in question to the account of the payee. Such
transfer occurs only after the bank had accepted the check in question and certified it, thus,
crediting the amount into the account of the payee by taking the same from the account of the
payer. In the instant case, petitioners admit that the check was not accepted and certified by the
bank and, in fact, the said instrument had never been delivered to the Millan and her company.
Page 23 of 133
That being the case, the bank should have informed respondents of the pendency of the escheat
proceedings.

V. ISSUANCE AND DELIVERY

15. JOHN DY v. PEOPLE
November 14, 2008/G.R NO. 158312
QUISUMBING, Acting C.J

DOCTRINE: Issue is the first delivery of an instrument, complete in form, to a person who takes it
as a holder. A person in possession of an instrument that is wanting in any material particular has
a prima facie authority to complete it by filling up the blanks.

FACTS: John Dy has been the distributor of W.L. Foods. Dy would pay W.L. Foods in either cash or
check upon pick up of stocks of snack foods at the latters branch or main office in Quezon
City. At times, he would entrust the payment to one of his drivers. On June 24, 1992, Dys driver
went to W.L. Foods to pick up stocks of snack foods. He introduced himself to the checker, Mary
Jane D. Maraca, who upon confirming Dys credit with the main office, gave him merchandise
worth P106, 579.60. In return, the driver handed her a blank Far East Bank and Trust Company
(FEBTC) Check. The check was signed by Dy though it did not indicate a specific amount. On July
1, 1992, the same driver obtained snack foods from Maraca in the amount of P226, 794.36 in
exchange for a blank FEBTC Check. In both instances, the driver was issued an unsigned delivery
receipt. The amounts for the purchases were filled in later by Evelyn Ong, accountant of W.L.
Foods, based on the value of the goods delivered. When presented for payment, FEBTC
dishonored the checks for insufficiency of funds. Lim, the owner of W.L. Foods, phoned Dy about
the matter, the latter explained that he could not pay since he had no funds yet. This prompted
the former to send petitioner a demand letter, which the latter ignored. Lim charged Dy with 2
counts of estafa under Article 315, paragraph 2(d) of RPC and 2 counts of violation of B.P. Blg.
22.

Dy contends that the checks were ineffectively issued. He stresses that not only were the checks
blank, but also that W.L. Foods accountant had no authority to fill the amounts. The Office of the
Solicitor General (OSG), for the State, avers that the delivery of the checks by Dys driver to
Maraca, constituted valid issuance. The OSG sustains Ongs prima facie authority to fill the
checks based on the value of goods taken. It observes that nothing in the records showed that
W.L. Foods accountant filled up the checks in violation of Dys instructions or their previous
agreement.

ISSUE: WPN, the accountant, Ong has the authority to fill the amount.

HELD: Section 191 of the NIL defines issue as the first delivery of an instrument, complete in
form, to a person who takes it as a holder. Significantly, delivery is the final act essential to the
negotiability of an instrument. Delivery denotes physical transfer of the instrument by the maker
or drawer coupled with an intention to convey title to the payee and recognize him as a
holder. It means more than handing over to another; it imports such transfer of the instrument

Page 24 of 133
to another as to enable the latter to hold it for himself. In this case, even if the checks were given
to W.L. Foods in blank, this alone did not make its issuance invalid. When the checks were
delivered to Lim, through his employee, he became a holder with prima facie authority to fill the
blanks. This was, in fact, accomplished by Lims accountant.

The pertinent provisions of Section 14 of the Negotiable Instruments Law are instructive:

SEC. 14. Blanks; when may be filled. Where the instrument is wanting in any
material particular, the person in possession thereof has a prima facie authority
to complete it by filling up the blanks therein. And a signature on a blank paper
delivered by the person making the signature in order that the paper may be
converted into a negotiable instrument operates as a prima facie authority to fill it
up as such for any amount.

Hence, the law merely requires that the instrument be in the possession of a person other than
the drawer or maker. From such possession, together with the fact that the instrument is
wanting in a material particular, the law presumes agency to fill up the blanks. Because of this,
the burden of proving want of authority or that the authority granted was exceeded, is placed on
the person questioning such authority. Petitioner failed to fulfill this requirement.

16.Dev. Bank of Rizal, vs. Sima Wei, et. al.,

G.R. No. 85419
March 9, 1993/CAMPOS, JR., J.:
DOCTRINE: 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.

FACTS: In consideration for a loan extended by petitioner Bank to respondent Sima Wei, the
latter executed and delivered to the former a promissory note. Sima Wei made partial payments
on the note. To fulfill the balance on the note, Sima Wei issued two crossed checks payable to
petitioner Bank drawn against China Banking Corporation. The said checks were allegedly issued
in full settlement of the drawer's account evidenced by the promissory note. These two checks
were not delivered to the petitioner-payee or to any of its authorized representatives. For
reasons not shown, these checks came into the possession of respondent Lee Kian Huat, who
deposited the checks without the petitioner-payee's indorsement (forged or otherwise) to the
account of respondent Plastic Corporation, at the Balintawak branch, Caloocan City, of the
Producers Bank. Cheng Uy, Branch Manager of the Balintawak branch of Producers Bank, relying
on the assurance of respondent Samson Tung, President of Plastic Corporation, that the
transaction was legal and regular, instructed the cashier of Producers Bank to accept the checks
for deposit and to credit them to the account of said Plastic Corporation, inspite of the fact that
the checks were crossed and payable to petitioner Bank and bore no indorsement of the latter.
Hence, petitioner filed the complaint for collection of sum of money against the defendants.
Page 25 of 133
Defendants filed their respective motion to dismiss on the ground that the complaint states no
cause of action. The defendants theorized that the check in question had not been delivered to
the plaintiff and so it cannot be made as a basis of their liability. The RTC granted the motion and
affirmed by the CA. Hence, this appeal to the SC

ISSUE: WON, the defendants can be made liable to the undelivered check?

HELD: NO. 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. Section 16 of the NIL, which
governs checks, provides in part:
Every contract on a negotiable instrument is incomplete and revocable until
delivery of the instrument for the purpose of giving effect thereto. . . .
Thus, 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. The allegations of the petitioner in the original
complaint show that the two (2) China Bank checks were not delivered to the payee, the
petitioner herein. Without the delivery of said checks to petitioner-payee, the former did not
acquire any right or interest therein and cannot therefore assert any cause of action, founded on
said checks, whether against the drawer Sima Wei or against the Producers Bank or any of the
other respondents.

Notwithstanding the above, 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.Therefore, unless respondent Sima Wei proves
that she has been relieved from liability on the promissory note by some other cause, petitioner
Bank has a right of action against her for the balance due thereon.

FALLO: In the light of the foregoing, the judgment of the CA is AFFIRMED insofar as the second
cause of action is concerned. On the first cause of action, the case is REMANDED to the trial
court for a trial on the merits, consistent with this decision, in order to determine whether
respondent Sima Wei is liable to the Development Bank of Rizal for any amount under the PN
allegedly signed by her.

Page 26 of 133
 VI. SIGNATURE OF AGENT

17. ENRIQUE P. MONTINOLA vs. PNB, ET AL.

February 26, 1951/G.R. No. L-2861
MONTEMAYOR, J.:
DOCTRINE: Sec. 124. Alteration of instrument; effect of. - Where a negotiable instrument is
materially altered without the assent of all parties liable thereon, it is avoided, except as against
a party who has himself made, authorized, or assented to the alteration and subsequent
indorsers.
Sec. 32. Indorsement must be of entire instrument. - 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, or which purports to transfer the instrument to two or more indorsees
severally, does not operate as a negotiation of the instrument. But where the instrument has
been paid in part, it may be indorsed as to the residue.
FACTS: Sometime in April 1942, Maraino Ramos, as disbursing officer of an army division of
United States Armed Forces in the Far East (USAFFE,) intended to encash a P500K check from
Ubaldo Laya, which Ramos received from the Provincial Treasurer of Lanao for the use of USAFFE
forces during the Japanese occupation. Ubaldo Laya as Provincial Treasurer and ex officio agent
of PNB have no funds at that time so he issued check No. 1382 for P100,000 drawn on the
Philippine National Bank. However, Ramos was made a prisoner of war until February 1943, after
which, he was released and he resumed his status as a civilian. On January 1945, Ramos allegedly
indorsed this check No. 1382 to Enrique P. Montinola. As it appears, Ramos sold P30000 of the
check to Montinola for P90000 Japanese Military notes, of which only P45000 was paid.
The writing made by Ramos at the back of the check was to the effect that he was
assigning only P30K 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. In August, 1947, Enrique P. Montinola filed
a complaint in the Court of First Instance of Manila against the Philippine National Bank and the
Provincial Treasurer of Misamis Oriental to collect the sum of P100,000, the amount of Check
No. 1382 issued on May 2, 1942 by the Provincial Treasurer of Misamis Oriental to Mariano V.
Ramos and supposedly indorsed to Montinola.

On the face of the check words in parenthesis "Agent, Phil. National Bank" was indicated which is
under the signature of Laya, purportedly showing that he issued the check as agent of the
Philippine National Bank.Laya, testifying in court, stated that he issued the check only as
Provincial Treasurer, and that the words in parenthesis "Agent, Phil. National Bank" now
appearing under his signature did not appear on the check when he issued the same. In this he
was corroborated by the payee M. V. Ramos who equally assured the court that when he
received the check and then delivered it to Montinola, those words did not appear under the
signature of Ubaldo D. Laya. On factual considerations by the court it was revealed that such
words were added in the check after it was issued by Laya. Also, Ramos alleged his indorsement
at the back of the check was written: "Pay to the order of Enrique P. Montinola the amount of
P30,000 only. The balance to be deposited to the credit of M. V. Ramos."
Page 27 of 133
ISSUE:
1. WON the alteration made under the signature of Laya discharges the instrument.
2. WON such indorsement constitutes as a negotiation of the instrument.

HELD:
1. Yes. The complaint of Montinola cannot prosper. 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. (Section 124 of
the Negotiable Instruments Law.)
2. No. The check was not legally negotiated within the meaning of the NIL. Section
32 of the same law 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, . . . (as in this case) does not operate as a negotiation of the instrument."
Montinola 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 Ramos, in which case, as such assignee, he is
subject to all defenses available to the drawer Provincial Treasurer of Misamis Oriental and
against Ramos.

Neither can Montinola be considered as a holder in due course because section 52 of said law
defines a holder in due course as a holder who has taken the instrument under certain
conditions, one of which is that he became the holder before it was overdue. When Montinola
received the check, it was long overdue. And, Montinola is not even a holder because section
191 of the same law defines holder as the payee or indorsee of a bill or note and Montinola is
not a payee. Neither is he an indorsee for as already stated, at most he can be considered only as
assignee. Neither could it be said that he took it in good faith. As already stated, he has not paid
the full amount of P90,000 for which Ramos sold him P30,000 of the value of the check.

In the second place, as was stated by the trial court in its decision, Montinola speculated on the
check and took a chance on its being paid after the war. Montinola must have known that at the
time the check was issued in May, 1942, the money circulating in Mindanao and the Visayas was
only the emergency notes and that the check was intended to be payable in that currency. Also,
he should have known that a check for such a large amount of P100,000 could not have been
issued to Ramos in his private capacity but rather in his capacity as disbursing officer of the
USAFFE, and that at the time that Ramos sold a part of the check to him, Ramos was no longer
connected with the USAFFE but already a civilian who needed the money only for himself and his
family. As such, he had no right to indorse it personally to Montinola. It was negotiated in breach
of trust, hence he transferred nothing to Montinola.

FALLO: In view of all the foregoing, finding no reversible error in the decision appealed from, the
same is hereby affirmed with costs.

Page 28 of 133
VII. FORGERY

18. SAMSUNG CONSTRUCTION COMPANY PHILIPPINES, INC., vs.

FAR EAST BANK AND TRUST COMPANY AND CA,
August 13, 2004/G.R. No. 129015
TINGA, J.:
DOCTRINE: The general rule is to the effect that a forged 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.
FACTS: Plaintiff Samsung Construction Company Philippines, Inc. (Samsung Construction),
maintained a current account with defendant Far East Bank and Trust Company (FEBTC) at the
latters Bel-Air, Makati branch. The sole signatory to Samsung Constructions account was Jong
Kyu Lee (Jong), its Project Manager, while the checks remained in the custody of the companys
accountant, Kyu Yong Lee (Kyu). On 19 March 1992, a certain Roberto Gonzaga presented
for payment FEBTC Check No. 432100 to the banks branch in Bel-Air, Makati. The check, payable
to cash and drawn against Samsung Constructions current account, was in the amount of Nine
Hundred Ninety Nine Thousand Five Hundred Pesos (P999,500.00). The bank teller, Cleofe
Justiani, first checked the balance of Samsung Constructions account. After ascertaining there
were enough funds to cover the check, she compared the signature appearing on the check with
the specimen signature of Jong as contained in the specimen signature card with the bank. After
comparing the two signatures, Justiani was satisfied as to the authenticity of the signature
appearing on the check. She then asked Gonzaga to submit proof of his identity, and the latter
presented three (3) identification cards. At the same time, Justiani forwarded the check to the
branch Senior Assistant Cashier Gemma Velez, as it was bank policy that two bank branch
officers approve checks exceeding One Hundred Thousand Pesos, for payment or encashment.
Velez likewise counterchecked the signature on the check as against that on the signature card.
He too concluded that the check was indeed signed by Jong. Velez then forwarded the check and
signature card to Shirley Syfu, another bank officer, for approval. Syfu then noticed that Jose
Sempio III (Sempio), the assistant accountant of Samsung Construction, was also in the bank.
Sempio was well-known to Syfu and the other bank officers, he being the assistant
accountant of Samsung Construction. Syfu showed the check to Sempio, who vouched for the
genuineness of Jongs signature. Confirming the identity of Gonzaga, Sempio said that the check
was for the purchase of equipment for Samsung Construction. Satisfied with the genuineness of
the signature of Jong, Syfu authorized the banks encashment of the check to Gonzaga. The
following day, the accountant of Samsung Construction, Kyu, examined the balance of the bank
account and discovered that a check in the amount P999,500.00 had been encashed. Aware that
he had not prepared such a check for Jongs signature, Kyu perused the checkbook and found
that the last blank check was missing. He reported the matter to Jong, who then proceeded to
the bank. Jong learned of the encashment of the check, and realized that his signature had been
forged. The Bank Manager reputedly told Jong that he would be reimbursed for the amount of
the check. Jong proceeded to the police station and consulted with his lawyers. Subsequently, a
criminal case for qualified theft was filed against Sempio before the Laguna court. Samsung
Construction, through counsel, demanded that FEBTC credit to it the amount of P999,500.00,
with interest. In response, FEBTC said that it was still conducting an investigation on the matter.
Page 29 of 133
Unsatisfied, Samsung Construction filed a Complaint on 10 June 1992 for violation of Section 23
of the Negotiable Instruments Law, and prayed for the payment of the amount debited as a
result of the questioned check plus interest, and attorneys fees. The RTC held that Jongs
signature on the check was forged and accordingly directed the bank to pay or credit back to
Samsung Constructions account the amount of P999,500.00, together with interest tolled from
the time the complaint was filed, and attorneys fees in the amount of P15,000.00. The Court of
Appeals reversed the RTC Decision and absolved FEBTC from any liability.

ISSUE: WON the petitioner can recover from the drawee bank.

HELD: Yes.Section 23 of the Negotiable Instruments Law states: When a 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 instrument, or to give a discharge therefor, or to enforce
payment 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. (Emphasis supplied). The general rule is to the effect that a forged
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. Under
Section 23 of the NIL, forgery is a real or absolute defense by the party whose signature is
forged. 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
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.

FALLO: WHEREFORE, the Petition is GRANTED.

19. ASSOCIATED BANK, VS. CA, PROVINCE OF TARLAC and PNB

January 31, 1996/ G.R. No. 107382/G.R. No. 107612
ROMERO,J.
DOCTRINE: A person whose signature to an instrument THAT was forged was never a party and
never consented to the contract which allegedly gave rise to such instrument. 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."

Facts: The Province of Tarlac maintains a current account with PNB. Tarlac Province through
their treasurer issued checks to the order of Concepcion Emergency Hospital. When province
audited, they discovered that the hospital did not receive several allotment checks drawn by the
Page 30 of 133
Province. Upon the request of the Treasurer to return all of its cleared checks, they learned that
30 checks amounting to P203,300.00 were encashed with Associated Bank by one Fausto
Pangilinan, the retired administrative officer and cashier of payee hospital, by forging the
signature of Dr. Canlas, the chief of the hospital. Pangilinan was able to withdraw the money
with Associated Bank when the check was cleared and paid by the drawee bank, PNB. Prov
treasurer wrote the manager of PNB seeking the restoration of the various amounts debited
from the current account of the province. In turn, PNB manager demanded reimbursement from
Associated bank. As both banks resisted payment, the province of Tarlac brought suit against the
PNB, which in turn, impleaded Associated bank as third-paty defendant. The latter then filed a
fourth-party complaint against Adena Canlas and Fausto Pangilinan. The lower court rendered
judgment in favor of the plaintiff Province of Tarlac. PNB and Associated Bank appealed to the CA
which affirmed the trial court's decision in toto. Hence these consolidated petitions.

ISSUE: WON, PNB is LIABLE for clearing the thirty checks bearing forged endorsements?
HELD: The PNB shall pay fifty percent (50%) of P203,300.00 to the Province of Tarlac. Associated
Bank shall pay fifty percent (50%) of P203,300.00 to the PNB likewise, with legal interest.

Sec. 23. FORGED SIGNATURE, EFFECT OF. When a signature is forged or made without
authority of the person whose signature it purports to be, it is wholly inoperative, and no right to
retain the instrument, or to give a discharge therefor, or to enforce payment 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.

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. 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 negotiating by delivery and acceptors are warrantors of
the genuineness of the signatures on the instrument. 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. The checks involved in this case are order instruments, hence, the
following discussion is made with reference to the effects of a forged indorsement on an
instrument payable to order. 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 holder's indorsement is
forged, all parties prior to the forgery may raise the real defense of forgery against all parties
subsequent thereto.

An indorser of an order instrument warrants "that the instrument is genuine and in all respects
what it purports to be; that he has a good title to it; that all prior parties had capacity to

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contract; and that the instrument is at the time of his indorsement valid and subsisting." He
cannot interpose the defense that signatures prior to him are forged. 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 deposited by the banks's 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. 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 drawer's
instructions are reflected on the face and by the terms of the check. Payment under a forged
indorsement is not to the drawer's 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
customer's (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 rulethen is that the drawee bank may not debit the drawer's account
and is not entitled to indemnification from the drawer. The risk of loss must perforce fall on the
drawee bank.

However, if 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, the drawer is
precluded from asserting the forgery. If at the same time the drawee bank was also negligent to
the point of substantially contributing to the loss, then such loss from the forgery can be
apportioned between the negligent drawer and the negligent bank. In cases involving a forged
check, where the drawer's signature is forged, the 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
the check to the account of the drawer. The liability chain ends with the drawee bank whose
responsibility it is to know the drawer's signature since the latter is its customer. 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. Applying these rules to the case at bench, PNB, the drawee bank, cannot debit
the current account of the Province of Tarlac because it paid checks which bore forged
indorsements. However, if the Province of Tarlac as drawer was negligent to the point of
substantially contributing to the loss, then the drawee bank PNB can charge its account. If both
drawee bank-PNB and drawer-Province of Tarlac were negligent, the loss should be properly
apportioned between them.

The loss incurred by drawee bank-PNB can be passed on to the collecting bank-Associated Bank
which presented and indorsed the checks to it. Associated Bank can, in turn, hold the forger,
Fausto Pangilinan, liable. If PNB negligently delayed in informing Associated Bank of the forgery,
thus depriving the latter of the opportunity to recover from the forger, it forfeits its right to
reimbursement and will be made to bear the loss. Under Section 4(c) of CB Circular No. 580,

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items bearing a forged endorsement shall be returned within twenty-Sour (24) hours after
discovery of the forgery but in no event beyond the period fixed or provided by law for filing of a
legal action by the returning bank. Section 23 of the PCHC Rules deleted the requirement that
items bearing a forged endorsement should be returned within twenty-four hours. Since PNB did
not return the questioned checks within twenty-four hours, but several days later, Associated
Bank alleges that PNB should be considered negligent and not entitled to reimbursement of the
amount it paid on the checks. The drawee bank PNB also breached its duty to pay only according
to the terms of the check. Hence, it cannot escape liability and should also bear part of the loss.

And after careful examination of the records, the Court finds that the Province of Tarlac was
equally negligent and should, therefore, share the burden of loss from the checks bearing a
forged indorsement. The Province of Tarlac permitted Fausto Pangilinan to collect the checks
when the latter, having already retired. The failure of the Province of Tarlac to exercise due care
contributed to a significant degree to the loss tantamount to negligence. Hence, the Province of
Tarlac should be liable for part of the total amount paid on the questioned checks. 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 indorsements, including the
forged indorsement

In this case, the checks were indorsed by the collecting bank (Associated Bank) to the drawee
bank (PNB). The stamp guaranteeing prior indorsements is not an empty rubric which a bank
must fulfill for the sake of convenience. It is within the bank's discretion to receive a check for no
banking institution would consciously or deliberately accept a check bearing a forged
indorsement. When a check is deposited with the collecting bank, it takes a risk on its depositor.
The collecting bank, Associated Bank, shall be liable to PNB for fifty (50%) percent of
P203,300.00. It is liable on its warranties as indorser of the checks which were deposited by
Fausto Pangilinan, having guaranteed the genuineness of all prior indorsements, including that of
the chief of the payee hospital, Dr. Adena Canlas. Associated Bank was also remiss in its duty to
ascertain the genuineness of the payee's indorsement.

20. TRADERS ROYAL BANK,vs. RADIO PHILIPPINES NETWORK, INC., INTERCONTINENTAL

BROADCASTING CORPORATION and BANAHAW BROADCASTING CORPORATION, through
the BOARD OF ADMINISTRATORS, and SECURITY BANK AND TRUST COMPANY
OCTOBER 10, 2002/G.R. No. 138510
CORONA,J.
DORTRINE: 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.

FACTS: The BIR assessed plaintiffs Radio Philippines Network (RPN), Intercontinental
Broadcasting Corporation (IBC), and Banahaw Broadcasting Corporation (BBC) of their tax
obligations for the taxable years 1978 to 1983. Mrs. Lourdes C. Vera, plaintiffs comptroller, sent
a letter to the BIR requesting settlement of plaintiffs tax obligations. The BIR granted the request

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and accordingly, plaintiffs purchased from defendant Traders Royal Bank (TRB) three (3)
managers checks to be used as payment for their tax liabilities, to wit:
Check Number Amount
30652 P 4,155.835.00
30650 3,949,406.12
30796 1,685,475.75
In September, 1988, the BIR again assessed plaintiffs for their tax liabilities for the years
1979-82. It was then they discovered that the three (3) managers checks (Nos. 30652, 30650 and
30796) intended as payment for their taxes were never delivered nor paid to the BIR by Mrs.
Vera. Instead, the checks were presented for payment by unknown persons to defendant
Security Bank and Trust Company (SBTC), Taytay Branch as shown by the banks routing symbol
transit number (BRSTN 01140027) or clearing code stamped on the reverse sides of the checks.
Meanwhile, for failure of the plaintiffs to settle their obligations, the BIR issued warrants of levy,
distraint and garnishment against them. Thus, they were constrained to enter into a compromise
and paid BIR P18,962,225.25 in settlement of their unpaid deficiency taxes. Thereafter, plaintiffs
sent letters to both defendants, demanding that the amounts covered by the checks be
reimbursed or credited to their account. The defendants refused.

RTC Ruled against both defendants. Traders Royal Bank- to pay actual damages in the sum of
Nine Million Seven Hundred Ninety Thousand and Seven Hundred Sixteen Pesos and Eighty-
Seven Centavos (P9,790,716.87) to plaintiffs: 1) RPN-9 - P4,155,835.00, 2) to Plaintiff IBC-13 -
P3,949,406.123, 3) to Plaintiff BBC-2 - P1,685,475.72. Security Bank and Trust Company- being
collecting bank, to reimburse the defendant Traders Royal Bank, all the amounts which the latter
would pay to the aforenamed plaintiffs; CA: Absolved defendant SBTC from any liability and held
TRB solely liable to respondent networks for damages and costs of suit.

ISSUE: WON, TRB should be held solely liable when it paid the amount of the checks in question
to a person other than the payee indicated on the face of the check, the BIR?

HELD: YES. Petitioner ought to have known that, where a check is drawn payable to the order
of one person and is presented for payment by another and purports upon its face to have been
duly indorsed by the payee of the check, it is the primary duty of petitioner to know that the
check was duly indorsed by the original payee and, where it pays the amount of the check to a
third person who has forged the signature of the payee, the loss falls upon petitioner who
cashed the check. Its only remedy is against the person to whom it paid the money. By encashing
in favor of unknown persons checks which were on their face payable to the BIR, a government
agency which can only act only through its agents, petitioner did so at its peril and must suffer
the consequences of the unauthorized or wrongful endorsement. Thus, TRB cannot exculpate
itself from liability by claiming that respondent networks were themselves negligent. A bank
is engaged in a business impressed with public interest and it is its duty to protect its many
clients and depositors who transact business with it. It is under the obligation to treat the
accounts of the depositors and clients with meticulous care, whether such accounts consist only
of a few hundreds or millions of pesos.

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As regards SBTC, the Court said, a collecting bank such as the latter which indorses a check
bearing a forged indorsement and presents it to the drawee bank guarantees all prior
indorsements, including the forged indorsement itself, and ultimately should be held liable
therefore. However, it agreed with the CAs doubt if the subject checks were ever presented to
and accepted by SBTC so as to hold it liable as a collecting bank. Since TRB did not pay the rightful
holder or other person or entity entitled to receive payment, it has no right to reimbursement.

FALLO: WHEREFORE, the appealed decision is MODIFIED by deleting the award of exemplary
damages. The CA decision is hereby AFFIRMED.

21. BPI, vs. CASA MONTESSORI INTERNATIONALE and LEONARDO T. YABUT,

May 28, 2004/G.R. No. 149454
Panganiban, J;
Doctrine: 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.
Facts: Casa opened an acoount with BPI with its president Lebron as its authorized signatories.
CASA learned that 9 checks against its account were encashed by sonny santos in the amount of
780k php. It turned out that the name santos was a fictitious name of yabut who is an external
auditor of CASA. PNP conducted an investigation by comparing the signatures of lebron and that
in the signatures bore by the encashed checks and concluded that they are not the signature of
Lebron. CASA filed a case for collection and damages against BPI. RTC: in favor of plaintiff against
BPI. CA: modified ruling that the two shall bear the loss equally since they both committed
negligence.

ISSUE: WON, BPI should be liable equally for the amount. YES.

RULE: Section 23 of the NIL provides: Section 23.Forged signature; effect of. -- When a signature
is forged or made without the authority of the person whose signature it purports to be, it is
wholly inoperative, and no right x x x to enforce payment 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. Under this
provision, a forged signature is a real or absolute defense, and a person whose signature on a
negotiable instrument is forged is deemed to have never become a party thereto and to have
never consented to the contract that allegedly gave rise to it. The counterfeiting of any writing,
consisting in the signing of anothers name with intent to defraud, is forgery. In the present case,
we hold that there was forgery of the drawers signature on the check. First, both the CA and the
RTC found that Respondent Yabut himself had voluntarily admitted, through an Affidavit, that he
had forged the drawers signature and encashed the checks.He never refuted these findings.That
he had been coerced into admission was not corroborated by any evidence on record. Second,
the appellate and the trial courts also ruled that the PNP Crime Laboratory, after its examination
of the said checks,had concluded that the handwritings thereon -- compared to the standard
signature of the drawer -- were not hers.This conclusion was the same as that in the Report that
the PNP Crime Laboratory had earlier issued to BPI -- the drawee bank -- upon the latters
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request.Indeed, we respect and affirm the RTCs factual findings, especially when affirmed by the
CA, since these are supported by substantial evidence on record. We have repeatedly
emphasized that, since the banking business is impressed with public interest, of paramount
importance thereto is the trust and confidence of the public in general. Consequently, the
highest degree of diligence] is expectedand high standards of integrity and performance are
even required, of it. By the nature of its functions, a bank is under obligation to treat the
accounts of its depositors with meticulous care, always having in mind the fiduciary nature of
their relationship. BPI contends that it has a signature verification procedure, in which checks are
honored only when the signatures therein are verified to be the same with or similar to the
specimen signatures on the signature cards. Nonetheless, it still failed to detect the eight
instances of forgery. Its negligence consisted in the omission of that degree of diligence
requiredof a bank. It cannot now feign ignorance, for very early on we have already ruled that 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 charge the
amount so paid to the account of the depositor whose name was forged. In fact, BPI was the
same bank involved when we issued this ruling seventy years ago.

22. METROPOLITAN WATERWORKS AND SEWERAGE SYSTEM v. CA

July 14, 1986/No. L-62943 / 143 SCRA 20
GUTIERREZ, JR., J.
DOCTRINE: 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.

FACTS: MWSS is a GOCC and is the successor-in-interest of the defunct NWSA. The PNB, on the
other hand, is the depository bank of MWSS and its predecessor-in-interest NWSA. Among the
several accounts of NWSA (later MWSS) with PNB is NWSA Account No. 6, the authorized
signature for said Account No. 6 were those of MWSS treasurer Jose Sanchez, its auditor Pedro
Aguilar, and its acting General Manager Victor L. Recio. Their respective specimen signatures
were submitted by the MWSS to and on file with the PNB. By special arrangement with the PNB,
the MWSS used personalized checks in drawing from this account. These checks were printed for
MWSS by its printer, F. Mesina Enterprises. During the months of March, April and May 1969,
twenty- three (23) checks were prepared, processed, issued and released by NWSA, all of which
were paid and cleared by PNB and debited by PNB against NWSA Account No. 6.

The foregoing checks were deposited by the payees Raul Dizon, Arturo Sison and Antonio
Mendoza in their respective current accounts with the Philippine Commercial and Industrial Bank
(PCIB) and Philippine Bank of Commerce (PBC). Thru the Central Bank Clearing, these checks
were presented for payment by PBC and PCIB to the defendant PNB, and paid, also in the
months of March, April and May 1969. At the time of their presentation to PNB these checks
bear the standard indorsement, which reads all prior indorsement and/or lack of endorsement
guaranteed. Subsequent investigation however, conducted by the NBI showed that Raul Dizon,
Arturo Sison and Antonio Mendoza were all fictitious persons.

Page 36 of 133
On June 11, 1969, NWSA addressed a letter to PNB requesting the immediate restoration to its
Account No. 6, of the total sum of P3,457,903.00 corresponding to the total amount of these
twenty-three (23) checks claimed by NWSA to be forged and/or spurious checks. In view of the
refusal of PNB to credit back to Account No. 6 the said total sum of P3,457,903.00 MWSS filed
the instant complaint before the CFI of Manila. PNB contended that the checks in question were
regular on its face in all respects, including the genuineness of the signatures of authorized
NWSA signing officers and there was nothing on its face that could have aroused any suspicion
as to its genuineness and due execution and; that NWSA was guilty of negligence which was the
proximate cause of the loss.

RTC/CFI of Manila rendered judgment in favor of the MWSS. CA reversed the ruling of the
lower court and rendered judgment in favor of PNB.

ISSUE: WON, MWSS is barred from setting up the defense of forgery under Section 23 of the NIL.

HELD: Yes, MWSS is barred from setting up the defense of forgery under Section 23 of the NIL
because it was guilty of negligence.

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. The records show that at the time the twenty-three (23) checks were
prepared, negotiated, and encashed, the petitioner was using its own personalized checks,
instead of the official PNB Commercial blank checks. In the exercise of this special privilege,
however, the petitioner failed to provide the needed security measures. There was gross
negligence in the printing of its personalized checks, shown by the following uncontroverted
facts, to wit: (1) The petitioner failed to give its printer, Mesina Enterprises, specific instructions
relative to the safekeeping and disposition of excess forms, check vouchers, and safety papers;
(2) The petitioner failed to retrieve from its printer all spoiled check forms; (3) The petitioner
failed to provide any control regarding the paper used in the printing of said checks; (4) The
petitioner failed to furnish the respondent drawee bank with samples of typewriting, check
writing, and print used by its printer in the printing of its checks and of the inks and pens used in
signing the same; and (5) The petitioner failed to send a representative to the printing office
during the printing of said checks.

Depository bank cannot be blamed for not detecting fraudulent encashment of checks where
depositor uses its own personalized checks. We cannot fault the respondent drawee Bank for
not having detected the fraudulent encashment of the checks because the printing of the
petitioners personalized checks was not done under the supervision and control of the Bank.
There is no evidence on record indicating that because of this private printing, the petitioner
furnished the respondent Bank with samples of checks, pens, and inks or took other
precautionary measures with the PNB to safeguard its interests. Under the circumstances,
therefore, the petitioner was in a better position to detect and prevent the fraudulent
encashment of its checks.

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VIII. CONSIDERATION
23. ENGR. JOSE E. CAYANAN VS NORTH STAR INTL TRAVEL, INC.
2011/G.R NO. 172954
J. Villarama, Jr.
DOCTRINE: Under the NIL, it is presumed that every party to an instrument acquires the same for
a consideration or for value. It devolved upon the party asserts the absence of consideration to
present convincing evidence to overthrow the presumption.
FACTS: North Star International Travel Incorporated (North Star) is a corporation engaged in the
travel agency business while petitioner is a client of North Star, who is the owner/general
manager of JEAC International Management and Contractor Services, a recruitment agency. On
March 17, 1994, Virginia Balagtas, the General Manager of North Star, upon the instruction of
the petitioner herein, sent the amount of US$60,000 to View Sea Ventures Ltd., in Nigeria from
her personal account in Citibank Makati. On March 29, 1994, Virginia again sent US $40,000 to
View Sea Ventures by telegraphic transfer, with US $15,000 coming from petitioner. To cover
payment of the foregoing obligations, petitioner issued five checks. When presented for
payment, the checks in the amount of P 1,500,000 and P 35,000 were dishonored for
insufficiency of funds while the other three checks were dishonored because of a stop payment
order from petitioner. North Star demanded payment, but petitioner failed to settle his
obligations. Hence, North Star instituted Criminal Case Nos. 166549-53 charging petitioner with
violation of BP 22 , or the Bouncing Checks Law before the MeTC. Petitioner was acquitted from
the criminal charge upon appeal to the RTC. Hence, only the issue on civil liability reached the
SC.

ISSUE: WON, the checks were issued for a valuable consideration and thus petitioner is liable for
their issuance.

HELD: Yes, the checks were issued for a valuable consideration and therefore, petitioner is civilly
liable thereof. Under the NIL, it is presumed that every party to an instrument acquires the same
for a consideration or for value. As petitioner alleged that there was no consideration for the
issuance of the subject checks, it devolved upon him to present convincing evidence to
overthrow the presumption and prove that the checks were in fact issued without valuable
consideration. Sadly, however, petitioner has not presented any credible evidence to rebut the
presumption, as well as North Stars assertion, that the checks were issued as payment for the
US$85,000 petitioner owed. Petitioner claims that North Star did not give any valuable
consideration for the checks since the US$85,000 was taken from the personal dollar account of
Virginia and not the corporate funds of North Star. The contention, however, deserves scant
consideration. The subject checks, bearing petitioners signature, speak for themselves. The fact
that petitioner himself specifically named North Star as the payee of the checks is an admission
of his liability to North Star and not to Virginia Balagtas, who as manager merely facilitated the
transfer of funds. Indeed, it is highly inconceivable that an experienced businessman like
petitioner would issue various checks in sizeable amounts to a payee if these are without
consideration.
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 Concomitantly, petitioners assertion that the dollars sent to Nigeria was for the account
of Virginia Balagtas and as her own investment with View Sea Ventures deserves no credence.
Virginia has not been shown to have any business transactions with View Sea Ventures and from
all indications; she only remitted the money upon the request and in accordance with
petitioners instructions. The evidence shows that it was petitioner who had a contract with View
Sea Ventures as he was sending contract workers to Nigeria; Virginia Balagtas participation was
merely to send the money through telegraphic transfer in exchange for the checks issued by
petitioner to North Star.

FALLO: WHEREFORE, the present appeal by way of a petition for review on certiorari is DENIED
for lack of merit.

24. Leogegario Bayani vs People of the Phils.

August 11, 2004/GR No. 154947
CALLEJO, SR., J.:
DOCTRINE: Section 28 of the NIL, absence or failure of consideration is a matter of defense only
as against any person not a holder in due course.
FACTS: On August 20, 1992, Alicia Rubia arrived at the grocery store of Dolores Evangelista and
asked the latter to rediscount PSBank Check in the amount of P55,000.00. The check was drawn
by Bayani against his account with the PSBank and postdated August 29, 1992. Rubia told
Evangelista that Bayani asked her to rediscount the check for him because he needed the
money. Considering that Rubia and Bayani were long-time customers at the store and she knew
Bayani to be a good man, Evangelista agreed to rediscount the check. After Rubia endorsed the
check, Evangelista gave her the amount of P55,000.00. However, when Evangelista
deposited the check in her account with the Far East Bank & Trust Company, it was dishonored
by the drawee bank for the reason that on September 1, 1992, Bayani closed his account with
the PSBank. As of August 27, 1992, the balance of Bayanis account with the bank
was P2,414.96. Evangelista then informed Rubia of the dishonor of the check and demanded the
return of her P55,000.00. Rubia replied that she was only requested by Bayani to have the check
rediscounted and advised Evangelista to see him. When Evangelista talked to Bayani, she was
told that Rubia borrowed the check from him. Thereafter, Evangelista, Rubia, Bayani and his
wife, Aniceta, had a conference in the office of Atty. Emmanuel Velasco, Evangelistas lawyer.
Later, in the Office of the Barangay Captain Nestor Baera, Evangelista showed Bayani a
photocopy of the dishonored check and demanded payment thereof. Bayani and Aniceta, on one
hand, and Rubia, on the other, pointed to each other and denied liability thereon. Aniceta told
Rubia that she should be the one to pay since the P55,000.00 was with her, but the latter
insisted that the said amount was in payment of the pieces of jewelry Aniceta purchased from
her. Upon Atty. Velascos prodding, Evangelista suggested Bayani and Rubia to pay P25,000.00
each. Still, Bayani and Rubia pointed to the other as the one solely liable for the amount of the
check. Rubia reminded Aniceta that she was given the check as payment of the pieces of jewelry
Aniceta bought from her.

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The trial court rendered judgment finding Bayani guilty beyond reasonable doubt of violation of
Section 1 of B.P. Blg. 22. On appeal, the petitioner averred that the prosecution failed to adduce
evidence that he affixed his signature on the check, or received from Rubia the amount
of P55,000.00, thus negating his guilt of the crime charged. The CA rendered judgment affirming
the decision of the RTC.

ISSUE: WON, PETITIONER is liable for violation of BP 22?

HELD: YES. We agree with the submission of the petitioner that Evangelistas testimony, that
Rubia told her that the petitioner requested that the subject check be rediscounted, is hearsay.
Evangelista had no personal knowledge of such request of the petitioner to Rubia. Neither is the
information relayed by Rubia to Evangelista as to the petitioners request admissible in evidence
against the latter, because the prosecution failed to present Rubia as a witness, thus, depriving
the petitioner of his right of cross-examination.
However, the evidence belies the petitioners assertion that the prosecution failed to adduce
evidence that he issued the subject check. Evangelista testified that when she talked to the
petitioner upon Rubias suggestion, the petitioner admitted that he gave the check to Rubia, but
claimed that the latter borrowed the check from him. The petitioner cannot escape criminal
liability by denying that he received the amount of P55,000.00 from Rubia after he issued the
check to her. The gravamen of the offense punished by BP 22 is the act of making and issuing a
worthless check or a check that is dishonored upon its presentation for payment. It is not the
non-payment of an obligation which the law punishes. The law is not intended or designed to
coerce a debtor to pay his debt. The thrust of the law is to prohibit, under pain of penal
sanctions, the making of worthless checks and putting them in circulation. Because of its
deleterious effects on the public interest, the practice is proscribed by the law. The law punishes
the act not as an offense against property, but an offense against public order. The evidence on
record shows that Evangelista rediscounted the check and gave P55,000.00 to Rubia after the
latter endorsed the same. As such, Evangelista is a holder of the check in due course. Under
Section 28 of the NIL, absence or failure of consideration is a matter of defense only as against
any person not a holder in due course, thus:

SECTION 28. Effect of want of consideration. Absence or failure of consideration is a matter of

defense as against any person not a holder in due course; and partial failure of consideration is a
defense pro tanto, whether the failure is an ascertained and liquidated amount or otherwise.

Moreover, Section 24 of the NIL provides the presumption of consideration, viz:

SECTION 24. Presumption of consideration. Every negotiable instrument is deemed prima facie to
have been issued for a valuable consideration; and every person whose signature appears
thereon to have become a party thereto for value. Such presumption cannot be overcome by
the petitioners bare denial of receipt of the amount of P55,000.00 from Rubia. In this case, the
prosecution adduced documentary evidence that when the petitioner issued the subject check
on or about August 20, 1992, the balance of his account with the drawee bank was
only P2,414.96. During the conference in the office of Atty. Emmanuel Velasco, Evangelista
showed to the petitioner and his wife a photocopy of the subject check, with the notation at its

Page 40 of 133
dorsal portion that it was dishonored for the reason account closed. Despite Evangelistas
demands, the petitioner refused to pay the amount of the check and, with his wife, pointed to
Rubia as the one liable for the amount. The collective evidence of the prosecution points to the
fact that at the time the petitioner drew and issued the check, he knew that the residue of the
funds in his account with the drawee bank was insufficient to pay the amount of the check.

FALLO: the petition is DENIED DUE COURSE. The decision of the CA is AFFIRMED.

25.CARMELA BROBIO MANGAHAS

2010/G.R. No. 183852
NACHURA, J.
DOCTRINE: A contract is presumed to be supported by cause or consideration. The presumption
that a contract has sufficient consideration cannot be overthrown by a mere assertion that it has
no consideration. To overcome the presumption, the alleged lack of consideration must be
shown by preponderance of evidence. The burden to prove lack of consideration rests upon
whoever alleges it.
FACTS:-In 2002, Pacifico S. Brobio died intestate, leaving 3 parcels of land & survived by his wife -
Eufrocina (Respondent), 4 legit children and 3 illegit (one of which is Carmela (Petitioner) -Few
months thereafter, heirs executed a Deed of Extrajudicial Settlement of Estate w/ Waiver - legit
and illegit children in consideration of their love and affection for respondent ceded their shares
over the 3 parcels of lands in favor of the latter.
-According to petitioner, respondent promised to give her an additional amount for her share in
her fathers estate. But after the signing of the Deed, when petitioner demanded from
respondent the additional amount, the latter refused to pay, claiming that she had no more
money
-A year later while processing respondent's tax obligations, she was required to submit an
original copy of the Deed but she has no more original copy, so she summoned petitioner to her
office & asked the latter to countersign a copy of the Deed.
-However, petitioner refused to countersign the document, demanding that respondent first
give her the additional amount that she promised amounting to P1 million
-Respondent asked to lower the amount into P600,000 and this was agreed to by petitioner so
the latter countersigned the Deed when respondent signed the promissory note
-When the promissory note fell due, respondent failed and refused to pay despite demand.
Petitioner made several more demands upon respondent but the latter kept on insisting that she
had no money, hence Complaint for Specific Performance was instituted against the latter
-Respondent alleged that she signed the note but she was forced to do so and the undertaking
was not supported by any consideration

RULING OF RTC:-In favor of petitioner, alleged pressure that led to execution of promi note not
constitutive of undue influence as would vitiate respondent's consent
-The pn was supported by valuable consideration.

RULING OF CA:-reversed the RTC decision and dismissed the complaint

Page 41 of 133
-there was a complete absence of consideration in the execution of the promissory note, which
made it inexistent and without any legal force and effect waiver not considered as
consideration
-Also, there was intimidation which attended the signing of the PN.

ISSUE: WON THE PN WAS WITHOUT CONSIDERATION

HELD:-There was a consideration (though inadequate)!

-A contract is presumed to be supported by cause or consideration. The presumption that a
contract has sufficient consideration cannot be overthrown by a mere assertion that it has no
consideration. To overcome the presumption, the alleged lack of consideration must be shown
by preponderance of evidence. The burden to prove lack of consideration rests upon whoever
alleges it, which, in the present case, is respondent.
-Respondent failed to prove that the promissory note was not supported by any consideration.
From her testimony and her assertions in the pleadings, the promissory note was issued for a
cause or consideration, which was petitioners signature on the document. This may be
inadequate consideration, but even so, the contract would not be invalidated, unless there has
been fraud, mistake, or undue influence

FALLO: WHEREFORE, premises considered, the CA Decision are REVERSED and SET ASIDE. The
RTC decision is REINSTATED.

26. Quirino Gonzalez Logging Concessionaires et. al. vs.

CA and Republic Planters Bank
G.R. No. 126568 April 30, 2003
CARPIO MORALES
FACTS: In the expansion of its logging business, petitioner QGLC, through its proprietor, general
manager Quirino Gonzales, applied for credit accommodations with respondent Bank. The Bank
approved QGLC's application on December 21, 1962, granting it a credit line. Pursuant to the
grant, the Bank and petitioners QGLC and the spouses Quirino and Eufemia Gonzales executed
ten documents: two denominated "Agreement for Credit in Current Account," four denominated
"Application and Agreement for Commercial Letter of Credit," and four denominated "Trust
Receipt." Petitioners' obligations under the credit line were secured by a real estate mortgage on
four parcels of land. In separate transactions, petitioners, to secure certain advances from the
Bank in connection with QGLC's exportation of logs, executed a promissory note in 1964 in favor
of the Bank. They were to execute three more promissory notes in 1967.

In 1965, petitioners having long defaulted in the payment of their obligations under the credit
line, the Bank foreclosed the mortgage and emerged as highest bidder in the auction sale held in
the same year. Ownership over the properties was later consolidated in the Bank and titles
thereto were issued to it.

Alleging non-payment of the balance of QGLC's obligation after the proceeds of the foreclosure
sale were applied thereto, and non-payment of the promissory notes despite repeated demands,

Page 42 of 133
the Bank filed a complaint for "sum of money" against petitioners before the RTC of Manila. The
sixth to ninth causes of action are anchored on the PN issued by petitioners. In their Answer,
petitioners deny having availed of the credit accommodations and having received the value of
the promissory notes, as they do deny having physically received the tractors and equipment
subject of the various Letter of Credits issued by the bank. Petitioners seek to evade liability by
claiming that petitioners Quirino and Eufemia Gonzales signed the promissory notes in blank;
that they had not received the value of said notes, and that the credit line thereon was
unnecessary in view of their money deposits in, and unremitted proceeds on log exports from,
the Bank.

ISSUE: WON, Petitioners had no liability on the PN due to want of consideration and it is signed
in blank.

HELD: NO. The genuineness and due execution of the notes had deemed admitted by
petitioners, having failed to deny the same under oath. Thus, their claim that they signed the
notes in blank does not lie. In any case, it is no defense that the PN were signed in blank as
Section 14 of the NIL concedes the prima facie authority of the person in possession of
negotiable instruments, such as the notes herein, to fill in the blanks.

Petitioners raise want of consideration. However, the PN appear to be negotiable as they meet
the requirements of Section 1 of the NIL. Such being the case, the notes are prima facie deemed
to have been issued for consideration. It bears noting that no sufficient evidence was adduced by
petitioners to show otherwise. Exhibits citied by petitioners in support of their claim that the
credit line on the notes was unnecessary because they had deposits in, and remittances due
from, thus the Bank deserve scant consideration. Said exhibits are merely claims by petitioners
under their then proposals for a possible settlement of the case dated February 3, 1978.
Parenthetically, the proposals were not even signed by petitioners but by certain Attorneys
Osmundo R. Victoriano and Rogelio P. Madriaga.

The CA Decision is AFFIRMED with MODIFICATION

IX. ACCOMMODATION PARTY

27. FIDELIZA J. AGLIBOT VS. INGERSOL L. SANTIA

December 05, 2012/ G.R. No. 185945
REYES, J.:
DOCTRINE: The relation between an accommodation party and the party accommodated is,
in effect, one of principal and surety the accommodation party being the surety.
FACTS: Engr. Ingersol Santia loaned the amount of Php 2.5 million to Pacific Lending & Capital
Corporation (PLCC), through its Manager, Fideliza J. Aglibot (Aglibot). Aglibot alleged that as a
guaranty or security for the payment of the note, Aglibot issued and delivered to Santia eleven
(11) post-dated personal checks drawn from her own demand account maintained at
Metrobank, Camiling Branch. Upon presentment of the aforesaid checks for payment, they were
dishonored by the bank for having been drawn against insufficient funds or closed account.

Page 43 of 133
Santia demanded payment from PLCC and Aglibot of the face value of the checks, but neither of
them heeded his demand. Hence upon Santias complaint, eleven (11) Informations for violation
of B.P. 22, corresponding to the number of dishonored checks, were filed against Aglibot before
the Municipal Trial Court in Cities (MTCC), Dagupan City.

MTCC: Acquitted Aglibot of all counts of the crime of violation of the bouncing checks law on
reasonable doubt but ordered to pay Php 3 million as the face value of the checks including
interests.
RTC: The civil aspect of the case was dismissed for failure to fulfill a condition precedent of
exhausting all means to collect from the principal debtor.
CA: Ordered Aglibot to personally pay Santia Php 3 million with interest at 12% per annum, from
the filing of the Informations until the finality of its decision, the sum due, to be compounded
with the accrued interest, will in turn be subject to annual interest of 12% from the finality of its
judgment until full payment.

AGLIBOTS ARGUMENT: Among others, she maintains that she was a mere guarantor of the said
debt of PLCC when she agreed to issue her own checks, and insists that Santia failed to exhaust
all means to collect the debt from PLCC, the principal debtor, and therefore he cannot now be
permitted to go after her subsidiary liability.

ISSUE: WON, Aglibot is a mere guarantor of PLCC and only becomes subsidiary liable after Santia
has exhausted all means to collect from PLCC (also called the benefit of excussion), as the
principal debtor.

HELD: No. The Court rejected Aglibots claim as a mere guarantor of the indebtedness of PLCC to
Santia for want of proof under Statute of Frauds (1403 (2)(b) Civil Code). In a guaranty
agreement, which is a promise to answer for the debt or default of another, the law clearly
requires that it, or some note or memorandum thereof, be in writing, otherwise, it would be
unenforceable unless ratified. Aglibot is an accommodation party and therefore liable to Santia.
An accommodation party is one who has signed the instrument as maker, drawer,
acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name
to some other person.Such a person is liable on the instrument to a holder for value
notwithstanding such holder at the time of taking the instrument knew him to be only an
accommodation party. As elaborated in The Phil. Bank of Commerce v. Aruego:

The relation between an accommodation party and the party accommodated is, in effect,
one of principal and surety the accommodation party being the surety. It is a settled rule that
a surety is bound equally and absolutely with the principal and is deemed an original promisor
and debtor from the beginning. The liability is immediate and direct. It is not a valid defense that
the accommodation party did not receive any valuable consideration when he executed the
instrument; nor is it correct to say that the holder for value is not a holder in due course merely
because at the time he acquired the instrument, he knew that the indorser was only an
accommodation party. Also in Aruego, unlike in a contract of suretyship, the liability of the
accommodation party remains not only primary but also unconditional to a holder for value,

Page 44 of 133
such that even if the accommodated party receives an extension of the period for payment
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 co-debtor. The mere fact, then, that Aglibot issued her own checks to Santia made her
personally liable to the latter on her checks without the need for Santia to first go after PLCC for
the payment of its loan. It would have been otherwise had it been shown that Aglibot was a
mere guarantor, except that since checks were issued ostensibly in payment for the loan, the
provisions of the Negotiable Instruments Law must take primacy in application.
FALLO: The decision of the CA was affirmed.

28. EUSEBIO GONZALES vs. PHILIPPINE COMMERCIAL AND INTERNATIONAL BANK, EDNA OCAMPO,
and ROBERTO NOCEDA
G.R. No. 180257/February 23, 2011
DOCTRINE: The relation between an accommodation party and the accommodated party
is one of principal and surety the accommodation party being the surety.

FACTS: On October 30, 1995, Gonzales and his wife obtained a loan for PhP
500,000. Subsequently, on December 26, 1995 and January 3, 1999, the spouses Panlilio and
Gonzales obtained two additional loans from PCIB. These three loans amounting to PhP
1,800,000 were covered by three PN. Notably, the PN specified, among others, the solidary
liability of Gonzales and the spouses Panlilio for the payment of the loans. However, it was the
spouses Panlilio who received the loan proceeds of PhP 1,800,000. The spouses Panlilio, from
the month of July 1998, defaulted in the payment of the periodic interest dues from their PCIB
account which apparently was not maintained with enough deposits. PCIB allegedly called the
attention of Gonzales regarding the July 1998 defaults and the subsequent accumulating
periodic interest dues which were left still left unpaid.

In the meantime, Gonzales issued a check dated in favor of Rene Unson (Unson) for PhP
250,000 drawn against the credit line (COHLA). However, upon presentment for payment by
Unson of said check, it was dishonored by PCIB due to the termination by PCIB of the credit line
under COHLA for the unpaid periodic interest dues from the loans of Gonzales and the spouses
Panlilio. PCIB likewise froze the FCD account of Gonzales. Consequently, Gonzales had a falling
out with Unson due to the dishonor of the check. Thereafter, Unson sent a demand letter to
Gonzales for the PhP 250,000. Gonzales, through counsel, wrote PCIB insisting that the check he
issued had been fully funded, and demanded the return of the proceeds of his FCD as well as
damages for the unjust dishonor of the check. PCIB replied on March 22, 1999 and stood its
ground in freezing Gonzales accounts due to the outstanding dues of the loans. PCIBs refusal to
heed his demands compelled Gonzales to file the instant case for damages with the RTC, on
account of the alleged unjust dishonor of the check issued in favor of Unson. The RTC found
Gonzales solidarily liable with the spouses Panlilio on the three PN relative to the outstanding
REM loan. The trial court found no fault in the termination by PCIB of the COHLA with Gonzales
and in freezing the latters accounts to answer for the past due PhP 1,800,000 loan. The trial
court ruled that the dishonor of the check issued by Gonzales in favor of Unson was proper

Page 45 of 133
considering that the credit line under the COHLA had already been terminated or revoked before
the presentment of the check. CA affirmed in toto.

ISSUE: WON, Gonzales is solidary liable with the spouses Panlilio.

RULING: YES. Gonzales is liable for the loans covered by the above PN. First, Gonzales admitted
that he is an accommodation party which PCIB did not dispute. In his testimony, Gonzales
admitted that he merely accommodated the spouses Panlilio at the suggestion of Ocampo, who
was then handling his accounts, in order to facilitate the fast release of the loan. Moreover, the
first note for PhP 500,000 was signed by Gonzales and his wife as borrowers, while the two
subsequent notes showed the spouses Panlilio sign as borrowers with Gonzales. It is, thus,
evident that Gonzales signed, as borrower, the PN covering the PhP 1,800,000 loan despite not
receiving any of the proceeds. The fact that the loans were undertaken by Gonzales when he
signed as borrower or co-borrower for the benefit of the spouses Panlilioas shown by the fact
that the proceeds went to the spouses Panlilio who were servicing or paying the monthly dues is
beside the point. For signing as borrower and co-borrower on the promissory notes with the
proceeds of the loans going to the spouses Panlilio, Gonzales has extended an accommodation
to said spouses. Third, as an accommodation party, Gonzales is solidarily liable with the spouses
Panlilio for the loans. In Ang v. Associated Bank, quoting the definition of an accommodation
party under Section 29 of the Negotiable Instruments Law, the Court cited that an
accommodation party is a person who has signed the instrument as maker, drawer, acceptor, or
indorser, without receiving value therefor, and for the purpose of lending his name to some
other person.The Court further explained:

[A]n accommodation party is one who meets all the three requisites, viz:
(1) he must be a party to the instrument, signing as maker, drawer, acceptor, or
indorser; (2) he must not receive value therefor; and (3) he must sign for the
purpose of lending his name or credit to some other person. An accommodation
party 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 party/ies thereto. The accommodation party is liable
on the instrument to a holder for value even though the holder, at the time of
taking the instrument, knew him or her to be merely an accommodation party, as
if the contract was not for accommodation.

Fourth, the solidary liability of Gonzales is clearly stipulated in the PN which uniformly
begin, For value received, the undersigned (the BORROWER) jointly and severally promise to pay
x x x. Solidary liability cannot be presumed but must be established by law or contract. Article
1207 of the Civil Code pertinently states that there is solidary liability only when the obligation
expressly so states, or when the obligation requires solidarity. This is true in the instant case
where Gonzales, as accommodation party, is immediately, equally, and absolutely bound with
the spouses Panlilio on the PN which indubitably stipulated solidary liability for all the
borrowers. Moreover, the three promissory notes serve as the contract between the
parties. Contracts have the force of law between the parties and must be complied with in good
faith.

Page 46 of 133
 29. ANG v. ASSOCIATED BANK
2007/ G.R. NO. 146511
PONENTE: AZCUNA, J.
DOCTRINE: an accommodation party is one who meets all the three requisites, viz: (1) he must
be a party to the instrument, signing as maker, drawer, acceptor, or indorser; (2) he must not
receive value therefor; and (3) he must sign for the purpose of lending his name or credit to
some other person.

FACTS: August 28, 1990: Associated Bank (formerly Associated Banking Corporation and now
known as United Overseas Bank Philippines) filed a collection suit against Antonio Ang Eng Liong
(principal debtor) and petitioner Tomas Ang (co-maker) for the 2 PN.
October 3 and 9, 1978: Antonio Ang Eng Liong (principal debtor) and petitioner Tomas Ang (co-
maker) obtained a loan of P50,000 and P30,000 evidenced by promissory note payable, jointly
and severally, on January 31, 1979 and December 8, 1978. Despite repeated demands for
payment, the latest on September 13, 1988 and September 9, 1986, they failed to settle their
obligations totalling to P539,638.96 as of July 31, 1990. Antonio Ang Eng Liong only admitted to
have secured a loan amounting to P80,000. Tomas Ang: bank is not the real party in interest as it
is not the holder of the PN, 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 on the notes
but merely lent his name as an accommodation party. Bank granted his co-defendant successive
extensions of time within which to pay, without his knowledge and consent. The bank imposed
new and additional stipulations on interest, penalties, services charges and attorney's fees more
onerous than the terms of the notes, without his knowledge and consent. He should be
reimbursed by his co-defendant any and all sums that he may be adjudged liable to pay, plus
P30,000, P20,000 and P50,000 for moral and exemplary damages, and attorney's fees,
respectively.

RTC held Antonio Ang Eng Liong was ordered to pay the principal amount of P80,000 plus 14%
interest per annum and 2% service charge per annum. Lower Court: Granted against the bank,
dismissing the complaint for lack of cause of action.

CA: ordered Ang to pay the bank - bank is a holder

CA observed that the bank, as the payee, did not indorse the notes to the Asset Privatization
Trust despite the execution of the Deeds of Transfer and Trust Agreement and that the notes
continued to remain with the bank until the institution of the collection suit. With the bank as
the "holder" of the promissory notes, the Court of Appeals held that Tomas Ang is accountable
therefor in his capacity as an accommodation party.

Page 47 of 133
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: W/N Ang is liable as accommodation party even without consideration and his co-
accommodation party was granted accommodation w/o his knowledge

HELD: YES. At the time the complaint was filed in the trial court, it was the Asset Privatization
Trust which had the authority to enforce its claims against both debtors. Petitioner signed the PN
as a solidary co-maker and not as a guarantor. This is patent even from the first sentence of the
promissory note which states as follows:
"Ninety one (91) days after date, for value received, I/we, JOINTLY and SEVERALLY
promise to pay to the PHILIPPINE BANK OF COMMUNICATIONS at its office in the City of
Cagayan de Oro, Philippines the sum of FIFTY THOUSAND ONLY (P50,000.00) Pesos,
Philippine Currency, together with interest x x x at the rate of SIXTEEN (16) per cent per
annum until fully paid."

Immaterial so far as the bank is concerned whether one of the signers, particularly petitioner,
has or has not received anything in payment of the use of his name. Since 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 of the period for payment 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
co-debtor.
30. BAUTISTA vs. AUTO PLUS TRADERS, INC.
August 6, 2008/ G.R. No. 166405
Quisumbing, J.
DOCTRINE: In the absence of concrete evidence, it cannot just be assumed that petitioner
intended to lend his name to the corporation.
FACTS: Two checks were issued by petitioner Claude Bautista, in his capacity as President of
Cruise Bus Lines and Transport Corp., for the purchase of various spare parts from private
respondent Auto Plus Traders, Inc. One check for P97,500 was drawn out of Cruise Bus Line's
current account, and the other check for P151,200 was drawn out of Bautista's personal
account. But, the checks were subsequently dishonored. Thus, two informations were filed
against Bautista for violation of the Bouncing Checks Law. In the MTCC, demurrer to evidence
was granted, but Cruise Bus Lines and Bautista were still ordered to pay Auto Plus the amount of
the checks with interests. This was appealed by Bautista.

ISSUE: WON, Bautista be held liable as an accommodation party for the check drawn out of his
personal account? NO.

HELD: Contrary to private respondent's contentions, petitioner cannot be considered liable as an

accommodation party for Check No. 58832. As gleaned from Section 29 of the NIL, an
accommodation party is one who meets all the three requisites, viz: (1) he must be a party to the
Page 48 of 133
instrument, signing as maker, drawer, acceptor, or indorser; (2) he must not receive value
therefor; and (3) he must sign for the purpose of lending his name or credit to some other
person. An accommodation party 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. The first two elements are present here, however
there is insufficient evidence presented in the instant case to show the presence of the third
requisite. All that the evidence shows is that petitioner signed the check drawn against his
personal account. There is no showing of when petitioner issued the check and in what capacity.
In the absence of concrete evidence, it cannot just be assumed that petitioner intended to lend
his name to the corporation. Hence, petitioner cannot be considered as an accommodation
party. Cruiser Bus Lines and Transport Corp., however, remains liable for the checks especially
since the debts covered by the subject checks have not been paid.

31. TOMAS ANG -VS- ASSOCIATED BANK

and ANTONIO ANG ENG LIONG
2007/G.R. No. 146511
Justice Azcuna
DOCTRINE: The accommodation party is liable on the instrument to a holder for value even
though the holder, at the time of taking the instrument, knew him or her to be merely an
accommodation party, as if the contract was not for accommodation.

FACTS: On August 28, 1990, respondent Associated Bank (formerly Associated Banking
Corporation and now known as United Overseas Bank Philippines) filed a collection suit against
Antonio Ang Eng Liong and petitioner Tomas Ang for the two (2) promissory notes that they
executed as principal debtor and co-maker, respectively. The Bank alleged in its complaint that
on October 3 and 9, 1978, the defendants obtained a loan of Php 50,000 and Php 30,000,
respectively and both evidenced by a promissory note. The loan was to be payable jointly and
severally on January 31, 1979 and December 8, 1978, respectively. Thereafter, when the debts
became due, the Bank made repeated demands to Antonio and Tomas. However, despite
repeated demands for payment, the two debtors failed and refused to settle their obligation,
resulting in a total indebtedness of P 539,638.96 as of July 31, 1990.

In his Answer, Antonio Ang Eng Liong only admitted to have secured a loan amounting to
P 80,000. He pleaded though that the bank be ordered to submit a more reasonable
computation considering that there had been no correct and reasonable statement of
account sent to him by the bank, which was allegedly collecting excessive interest, penalty
charges, and attorneys fees despite knowledge that his business was destroyed by fire, hence,
he had no source of income for several years. For his part, petitioner Tomas Ang filed an Answer
with Counterclaim and Cross-claim. He interposed the affirmative defenses 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 on the notes but merely lent his name as an
accommodation party; he accepted the promissory notes in blank, with only the printed
provisions and the signature of Antonio Ang Eng Liong appearing therein.
Page 49 of 133
ISSUES:
1. WON, the Bank is the real party in interest despite the fact that it is not the holder of the
PN.
2. WON, Tomas Ang is only an accommodation party and thus whether or not he is liable
under the promissory note.

HELD: 1. Respondent Bank does not appear to be the real party in interest when it instituted the
collection suit on August 28, 1990 against Antonio Ang Eng Liong and petitioner Tomas Ang. At
the time the complaint was filed in the trial court, it was the Asset Privatization Trust which had
the authority to enforce its claims against both debtors. The foregoing notwithstanding, the
Court cannot, at present, readily subscribe to petitioners insistence that the case must be
dismissed. Significantly, it stands without refute, both in the pleadings as well as in the evidence
presented during the trial and up to the time this case reached the Court, that the issue had
been rendered moot with the occurrence of a supervening event the buy-back of the bank by its
former owner, Leonardo Ty, sometime in October 1993. By such re-acquisition from the Asset
Privatization Trust when the case was still pending in the lower court, the bank reclaimed its real
and actual interest over the unpaid promissory notes; hence, it could rightfully qualify as a
holder thereof under the NIL.

2. Yes. Section 29 of the NIL, defines an accommodation party as a person who has signed the
instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the
purpose of lending his name to some other person.

An accommodation party 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 party/ies thereto. The accommodation party is liable on the instrument to a holder
for value even though the holder, at the time of taking the instrument, knew him or her to be
merely an accommodation party, as if the contract was not for accommodation.
The relation between an accommodation party and the accommodated party is one of principal
and surety the accommodation party being the surety. As such, he is deemed an original
promisor and debtor and is considered in law as the same party as the debtor in relation to
whatever is adjudged touching the obligation of the latter since their liabilities are interwoven as
to be inseparable. Although a contract of suretyship is in essence accessory or collateral to a
valid principal obligation, the suretys liability to the creditor is immediate, primary and absolute;
he is directly and equally bound with the principal. As an equivalent of a regular party to the
undertaking, a surety becomes liable to the debt and duty of the principal obligor even without
possessing a direct or personal interest in the obligation nor does he receive any benefit
therefrom.

FALLO: WHEREFORE, the Resolution of the CA are AFFIRMED.

32. Genevieve Lim vs. Florencio Saban

G.R. No. 163720/December 16, 2004

Page 50 of 133
 TINGA, J.
Doctrine: Section 29 of the NIL, the accommodation party is one who meets all these three
requisites, viz: (1) he signed the instrument as maker, drawer, acceptor, or indorser; (2) he did
not receive value for the signature; and (3) he signed for the purpose of lending his name to
some other person.

Facts: The late Eduardo Ybaez (Ybaez), the owner of a 1,000-square meter lot in Cebu City (the
lot), entered into an Agreement and Authority to Negotiate and Sell (Agency Agreement) with
respondent Florencio Saban (Saban) on February 8, 1994. Under the Agency Agreement, Ybaez
authorized Saban to look for a buyer of the lot for P200,000.00 and to mark up the selling price
to include the amounts needed for payment of taxes, transfer of title and other expenses
incident to the sale, as well as Sabans commission for the sale. Through Sabans efforts,
Ybaez and his wife were able to sell the lot to the petitioner Genevieve Lim (Lim) and the
spouses Benjamin and Lourdes Lim (the Spouses Lim) on March 10, 1994. The price of the lot as
indicated in the Deed of Absolute Sale is P200,000.00. It appears, however, that the vendees
agreed to purchase the lot at the price of P600,000.00, inclusive of taxes and other incidental
expenses of the sale. After the sale, Lim remitted to Saban the amounts of P113,257.00 for
payment of taxes due on the transaction as well as P50,000.00 as brokers commission. Lim also
issued in the name of Saban four postdated checks in the aggregate amount of P236,743.00.
Subsequently, Ybaez sent a letter dated June 10, 1994 addressed to Lim. In the letter
Ybaez asked Lim to cancel all the checks issued by her in Sabans favor and to extend another
partial payment for the lot in his (Ybaez) favor. Saban alleged that Ybaez told Lim that he (Saban)
was not entitled to any commission for the sale since he concealed the actual selling price of the
lot from Ybaez and because he was not a licensed real estate broker. Ybaez was able to convince
Lim to cancel all four checks. In his Answer, Ybaez claimed that Saban was not entitled to any
commission because he concealed the actual selling price from him and because he was not a
licensed real estate broker. Lim, for her part, argued that she was not privy to the agreement
between Ybaez and Saban, and that she issued stop payment orders for the three checks
because Ybaez requested her to pay the purchase price directly to him. Ybaez died during the
pendency of the case before the RTC. Upon motion of his counsel, the trial court dismissed the
case only against him without any objection from the other parties.

On May 14, 1997, the RTC rendered its Decision dismissing Sabans complaint, declaring the four
(4) checks issued by Lim as stale and non-negotiable, and absolving Lim from any liability towards
Saban.Saban appealed the trial courts Decision to the CA. The appellate court promulgated
its Decision reversing the trial courts ruling. It held that Saban was entitled to his commission.
The appellate court found that Ybaez and Lim connived to deprive Saban of his commission. It
declared that Lim is liable to pay Saban. The appellate court further ruled that, in issuing the
checks in payment of Sabans commission, Lim acted as an accommodation party. She signed the
checks as drawer, without receiving value therefor, for the purpose of lending her name to a
third person. As such, she is liable to pay Saban as the holder for value of the checks. Lim
filed a MR of the appellate courts Decision, but her Motion was denied.

Issue: WON, Lim, upon the issuance of the checks, became an accommodation party for Ybaez?

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Held: No. The appellate court erred in ruling that Lim is liable on the checks because she issued
them as an accommodation party. Section 29 of the Negotiable Instruments Law defines an
accommodation party as a person who has signed the negotiable instrument as maker, drawer,
acceptor or indorser, without receiving value therefor, for the purpose of lending his name to
some other person. The accommodation party is liable on the instrument to a holder for value
even though the holder at the time of taking the instrument knew him or her to be merely an
accommodation party. The accommodation party may of course seek reimbursement from the
party accommodated. As gleaned from the text of Section 29 of the Negotiable
Instruments Law, the accommodation party is one who meets all these three requisites, viz: (1)
he signed the instrument as maker, drawer, acceptor, or indorser; (2) he did not receive value
for the signature; and (3) he signed for the purpose of lending his name to some other person. In
the case at bar, while Lim signed as drawer of the checks she did not satisfy the two other
remaining requisites.
The absence of the second requisite becomes pellucid when it is noted at the outset that
Lim issued the checks in question on account of her transaction, along with the other
purchasers, with Ybaez which was a sale and, therefore, a reciprocal contract. Specifically, she
drew the checks in payment of the balance of the purchase price of the lot subject of the
transaction. And she had to pay the agreed purchase price in consideration for the sale of the lot
to her and her co-vendees. In other words, the amounts covered by the checks form part of the
cause or consideration from Ybaezs end, as vendor, while the lot represented the cause or
consideration on the side of Lim, as vendee. Lim received value for her signature on the checks.
Neither is there any indication that Lim issued the checks for the purpose of enabling Ybaez, or
any other person for that matter, to obtain credit or to raise money, thereby totally debunking
the presence of the third requisite of an accommodation party.
DISMISSED.

MODES OF NEGOTIATION

33. Caltex (Philippines), Inc. vs. CA and Security Bank and Trust Company
G.R. No. 97753/August 10, 1992
Regalado
Doctrine: Under the NIL, an instrument is negotiated when it is transferred from one person to
another in such a manner as to constitute the transferee the holder thereof, and a holder may
be the payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof.

Facts: On various dates, defendant, a commercial banking institution, through its Sucat Branch
issued 280 certificates of time deposit (CTDs) in favor of one Angel dela Cruz who deposited with
herein defendant the aggregate amount of P1,120,000.00. Angel dela Cruz delivered the said
certificates of time deposits(CTDs) to herein plaintiff in connection with his purchased of fuel
products from the latter.Angel dela Cruz informed Mr. Timoteo Tiangco, the Sucat Branch
Manager, that he lost all the certificates of time deposit in dispute. Mr. Tiangco advised said
depositor to execute and submit a notarized Affidavit of Loss, as required by defendant bank's
procedure, if he desired replacement of said lost CTDs. He executed and delivered to defendant

Page 52 of 133
bank the required Affidavit of Loss and 280 replacement CTDs were issued in favor of said
depositor. Angel dela Cruz negotiated and obtained a loan from defendant bank in the amount
of P875,000.00. He executed a notarized Deed of Assignment of Time Deposit which stated,
among others, that he (de la Cruz) 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 maturity. Sometime in November, 1982, Mr. Aranas,
Credit Manager of plaintiff Caltex (Phils.) Inc., went to the defendant bank's Sucat branch 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." by said
depositor.

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. The plaintiff filed the instant complaint, praying that defendant bank be ordered
to pay it the aggregate value of the certificates of time deposit of P1,120,000.00 plus accrued
interest and compounded interest. After trial, the court a quo rendered its decision dismissing
the instant complaint. On appeal, respondent court affirmed the lower court's dismissal of the
complaint,

Issue: WON, the CTDs are negotiable?

WON, the CTDs were negotiated to Caltex?

Held: 1.Yes. A sample text of the certificates of time deposit is reproduced below to provide a
better understanding of the issues involved in this recourse.

Date of Maturity FEB. 23, 1984 FEB 22, 1982, 19____

This is to Certify that B E A R E R has deposited in this Bank the sum of PESOS: FOUR THOUSAND
ONLY, SECURITY BANK SUCAT OFFICE P4,000& 00 CTS Pesos, Philippine Currency, repayable to
said depositor 731 days. after date, upon presentation and surrender of this certificate, with
interest at the rate of 16% per cent per annum.

The SC holds that the CTDs in question are negotiable instruments.

The CTDs in question undoubtedly 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 reffered to in the CTDs is no other than Mr. Angel de la Cruz.On this score, 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. In the construction of a bill or note, the
intention of the parties is to control, if it can be legally ascertained. While the writing may be
read in the light of surrounding circumstances in order to more perfectly understand the intent
and meaning of the parties, yet as they have constituted the writing to be the only outward and
visible expression of their meaning, no other words are to be added to it or substituted in its
stead. The documents provide that the amounts deposited shall be repayable to the depositor.

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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. If it was really the
intention of respondent bank to pay the amount to Angel de la Cruz only, it could have with
facility so expressed that fact in clear and categorical terms in the documents, instead of having
the word "BEARER" stamped on the space provided for the name of the depositor in each CTD.
On the wordings of the documents, therefore, the amounts deposited are repayable to whoever
may be the bearer thereof. Thus, petitioner's aforesaid witness merely declared that Angel 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. If it were true that the CTDs were delivered as payment and not as
security, petitioner's credit manager could have easily said so, instead of using the words "to
guarantee" in the letter aforequoted.

2. No. The petitioner's insistence that the CTDs were negotiated to it begs the question.
Under the NIL, an instrument is negotiated when it is transferred from one person to another in
such a manner as to constitute the transferee the holder thereof, and a holder may be the
payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof. In the
present case, however, 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. Here, the delivery thereof only as security for the purchases of Angel
de la Cruz (and we even disregard the fact that the amount involved was not disclosed) could at
the most constitute petitioner only as a holder for value by reason of his lien. Accordingly, a
negotiation for such purpose cannot be effected by mere delivery of the instrument since,
necessarily, the terms thereof and the subsequent disposition of such security, in the event of
non-payment of the principal obligation, must be contractually provided for. Consequently, the
mere delivery of the CTDs did not legally vest in petitioner any right effective against and binding
upon respondent bank. The requirement under Article 2096 aforementioned is not a mere rule
of adjective law prescribing the mode whereby proof may be made of the date of a pledge
contract, but a rule of substantive law prescribing a condition without which the execution of a
pledge contract cannot affect third persons adversely. On the other hand, the assignment of the
CTDs made by Angel de la Cruz in favor of respondent bank was embodied in a public
instrument. With regard to this other mode of transfer, the Civil Code specifically declares:

Art. 1625. An assignment of credit, right or action shall produce no effect as against third
persons, unless it appears in a public instrument, or the instrument is recorded in the Registry of
Property in case the assignment involves real property.

Respondent bank duly complied with this statutory requirement. Contrarily, petitioner,
whether as purchaser, assignee or lien holder of the CTDs, neither proved the amount of its
credit or the extent of its lien nor the execution of any public instrument which could affect or
bind private respondent. Necessarily, therefore, as between petitioner and respondent bank, the
latter has definitely the better right over the CTDs in question.

Page 54 of 133
 AFFIRMED.

34. People of the Philippines vs. Gilbert Reyes Wagas

G.R. No. 157943/ September 4, 2013
Bersamin, J.
Doctrine: Under the NIL, a check payable to cash was payable to the bearer and could be
negotiated by mere delivery without the need of an indorsement.

35. BPI vs. CA, Annabelle A. Salazar, And Julio R. Templonuevo

G.R. No. 136202/January 25, 2007
Azcuna, J.:
Doctrine: Negotiable instruments are negotiated by "transfer to one person or another in such a
manner as to constitute the transferee the holder thereof. If payable to bearer it is negotiated by
delivery. If payable to order it is negotiated by the indorsement completed by delivery."

Facts: A.A. Salazar Construction and Engineering Services filed an action for a sum of money with
damages against herein petitioner BPI. The complaint was later amended by substituting the
name of Annabelle A. Salazar as the real party in interest in place of A.A. Salazar Construction
and Engineering Services. Salazar had in her possession 3 checks which were deposited with the
petitioner bank to private respondent Salazars account. Private respondent Salazar prayed for
the recovery of the amount of P267,707.70 debited by petitioner BPI from her account.
Petitioner BPI, in its answer, alleged that Julio R. Templonuevo, third-party defendant and herein
also a private respondent, demanded from the former payment of the amount of P267,692.50
representing the aggregate value of three (3) checks, which were allegedly payable to the order
of JRT Construction and Trading, the name and style under which Templonuevo does business
but which were deposited with the petitioner bank to private respondent Salazars account
Account No. 0203-1187-67 without his knowledge and corresponding endorsement. Accepting
that Templonuevos claim was a valid one, petitioner BPI froze Account No. 0201-0588-48 of A.A.
Salazar and Construction and Engineering Services, instead of Account No. 0203-1187-67 where
the checks were deposited, since this account was already closed by private respondent Salazar
or had an insufficient balance. Private respondent Salazar was advised to settle the matter with
Templonuevo but they did not arrive at any settlement. In the answer to the third-party
complaint, respondent Templonuevo admitted the payment to him of P267,692.50 and argued
that said payment was to correct the malicious deposit made by private respondent Salazar to
her private account, and that petitioner banks negligence and tolerance regarding the matter
was violative of the primary and ordinary rules of banking.

After trial, the RTC rendered a decision favoring Salazar. On appeal, the CA affirmed the decision
of the RTC and held that respondent Salazar was entitled to the proceeds of the three (3) checks
notwithstanding the lack of endorsement thereon by the payee.

Page 55 of 133
Issue: WON, transfer of ownership of checks to Salazar was not valid and therefore warranted
the payment of the checks proceeds to Templonuevo?

Held: Yes. The records do not support the findings made by the CA and trial court that a prior
arrangement existed between Salazar and Templonuevo regarding the transfer of ownership of
the checks. 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. Transferees in this situation do not enjoy the presumption of ownership in favor of
holders since they are neither payees nor indorsees of such instruments. The weight of authority
is that the mere possession of a negotiable instrument does not in itself conclusively establish
either the right of the possessor to receive payment, or of the right of one who has made
payment to be discharged from liability. Thus, something more than mere possession by persons
who are not payees or indorsers of the instrument is necessary to authorize payment to them in
the absence of any other facts from which the authority to receive payment may be inferred.
The CA and the trial court surmised that the checks belonged to Salazar because
Templonuevo incurred one-year delay in demanding reimbursements. But according to the SC it
cannot estopped Templonuevo from asserting the ownership of the check since the same were
crossed checks.
In one case, the effects of cross checking the checks are: 1) that the checks may not be
encashed but only deposited in the bank; 2) that the check may be nogotiated only once--- to
the one who has an account with bank; 30 that he act of crossing the check serves as a warning
to the holder that the check has been issued for a definite purpose so that such holder must
inquire if the check has been received pursuant to that purpose.
Thus, even if the delay in the demand for reimbursement is taken in conjunction with
Salazars possession of the checks, it cannot be said that the presumption of ownership in
Templonuevos favor as the designated payee therein was sufficiently overcome. This is
consistent with the principle that if instruments payable to named payees or to their order have
not been indorsed in blank, only such payees or their indorsees can be holders and entitled to
receive payment in their own right.
The presumption under Section 131(s) of the Rules of Court stating that a negotiable
instrument was given for a sufficient consideration will not inure to the benefit of Salazar
because the term "given" does not pertain merely to a transfer of physical possession of the
instrument. The phrase "given or indorsed" in the context of a negotiable instrument refers to
the manner in which such instrument may be negotiated. Negotiable instruments are negotiated
by "transfer to one person or another in such a manner as to constitute the transferee

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the holder thereof. If payable to bearer it is negotiated by delivery. If payable to order it is
negotiated by the indorsement completed by delivery." The present case involves checks
payable to order. Not being a payee or indorsee of the checks, private respondent Salazar could
not be a holder thereof.
It is an exception to the general rule for a payee of an order instrument to transfer the
instrument without indorsement. Precisely because the situation is abnormal, it is but fair to the
maker and to prior holders to require possessors to prove without the aid of an initial
presumption in their favor, that they came into possession by virtue of a legitimate transaction
with the last holder. Salazar failed to discharge this burden, and the return of the check proceeds
to Templonuevo was therefore warranted under the circumstances despite the fact that
Templonuevo may not have clearly demonstrated that he never authorized Salazar to deposit
the checks or to encash the same. Noteworthy also is the fact that petitioner stamped on the
back of the checks the words: "All prior endorsements and/or lack of endorsements
guaranteed," thereby making the assurance that it had ascertained the genuineness of all prior
endorsements. Having assumed the liability of a general indorser, petitioners liability to the
designated payee cannot be denied.

36. SESBREO v. CA and DELTA MOTORS

GR 89252/May 24, 1993
Feliciano, J.
DOCTRINE: A non-negotiable instrument may not be negotiated but may be assigned or
transferred, absent an express prohibition against assignment or transfer written in the face of
the instrument.

FACTS: Raul Sesbreo made a money market placement in the amount of P300,000 with the
Philippine Underwriters Finance Corporation (PhilFinance), with a term of 32 days. PhilFinance
issued a Certificate of Confirmation of Sale of a Delta Motor Corporation Promissory Note, the
Certificate of Securities Delivery Receipt in favor of Sesbreo indicating the sale of the note with
notation that said security was in the custody of Pilipinas Bank, and postdated checks drawn
against the Insular Bank of Asia and America for P304,533.33 payable on March 13, 1981. The
checks were dishonored for having been drawn against insufficient funds. Pilipinas Bank never
released the note, nor any instrument related thereto, to Sesbreo but he found out that the
security has a face value of P2,300,833.33 with PhilFinance as payee and Delta Motors as maker.
The promissory note was stamped non-negotiable on its face. He filed an action for damages
against Delta Motors and Pilipinas Bank. Delta Motors contends that the promissory note was
not intended to be negotiated or otherwise transferred by Philfinance as manifested by the word
"non-negotiable" stamped across the face of the promissory note.

ISSUE: WON, the PN, marked as not negotiable be assigned?

RULING: YES. 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 where the negotiable instrument is in bearer form. A negotiable instrument may, however,
instead of being negotiated, also be assigned or transferred. The legal consequences of

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negotiation as distinguished from assignment of a negotiable instrument are, of course,
different. 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 the original parties.

The promissory note, while marked non-negotiable, was not at the same time stamped non-
transferable or non-assignable. It contained no stipulation which prohibited Philfinance from
assigning or transferring, in whole or in part, the promissory note.

Kinds of Indorsements

37. PNB VS. ERLANDO T. RODRIGUEZ, ET. AL

SEPTEMBER 26, 2008/G.R NO. 170325
REYES, R.T., J.
DOCTRINE: Section 9(c) of the NIL, a check payable to a specified payee may nevertheless be
considered as a bearer instrument if it is payable to the order of a fictitious or non-existing
person, and such fact is known to the person making it so payable.

FACTS: Respondents-Spouses Erlando and Norma Rodriguez have savings and demand/checking
accounts with petitioner PNB. The spouses were engaged in the informal lending business. They
had a discounting arrangement with the PEMSLA, an association of PNB employees who likewise
maintained current and savings accounts with PNB. PEMSLA regularly granted loans to its
members and spouses would rediscount the postdated checks issued to members whenever the
association was short of funds by replacing the postdated checks with their own checks issued in
the name of the members/ PEMSLA has a policy not to approve applications for loans of
members with outstanding debts. To subvert this policy, some PEMSLA officers devised a
scheme to obtain additional loans despite their outstanding loan accounts. They took out loans
in the names of unknowing members, without the knowledge or consent of the latter. The
officers forged the indorsement of the named payees in the checks. The checks issued for these
loans were then given to the spouses for rediscounting. In return, the spouses issued their
personal checks. The PEMSLA checks, on the other hand, were deposited by the spouses to their
account.

Rodriguez checks were deposited directly by PEMSLA to its savings account without any
indorsement from the named payees. This was an irregular procedure made possible through
the facilitation of Edmundo Palermo, Jr., treasurer of PEMSLA and bank teller in
the PNB. PNB eventually found out about these fraudulent acts and closed the current account
of PEMSLA. As a result, the PEMSLA checks deposited by the spouses were returned or
dishonored for the reason Account Closed. The corresponding Rodriguez checks, however, were

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deposited as usual to the PEMSLA savings account. The amounts were duly debited from the
Rodriguez account. Thus, because the PEMSLA checks given as payment were returned, spouses
Rodriguez incurred losses from the rediscounting transactions.
Spouses Rodriguez filed a civil complaint for damages to recover the value of their checks
that were deposited to the PEMSLA savings account. The spouses contended that because PNB
credited the checks to the PEMSLA account even without indorsements, PNB violated its
contractual obligation to them as depositors. PNB paid the wrong payees, hence, it should bear
the loss. RTC rendered judgment in favor of spouses Rodriguez. CA ruled that the checks were
payable to order. PNB failed to present sufficient proof to defeat the claim of the spouses
Rodriguez that they really intended the checks to be received by the specified payees. Thus, PNB
is liable for the value of the checks which it paid to PEMSLA without indorsements from the
named payees.

ISSUE: Whether the subject checks are payable to order and thus PNB bears the loss?

HELD: Yes. As a rule, when the payee is fictitious or not intended to be the true recipient of the
proceeds, the check is considered as a bearer instrument. A check is a bill of exchange drawn on
a bank payable on demand. It is either an order or a bearer instrument. The distinction between
bearer and order instruments lies in their manner of negotiation. Under Section 30 of the NIL, an
order instrument requires an indorsement from the payee or holder before it may be validly
negotiated. A bearer instrument, on the other hand, does not require an indorsement to be
validly negotiated. It is negotiable by mere delivery. A check that is payable to a specified payee
is an order instrument. However, under Section 9(c) of the NIL, a check payable to a specified
payee may nevertheless be considered as a bearer instrument if it is payable to the order of a
fictitious or non-existing person, and such fact is known to the person making it so payable. Thus,
checks issued to Prinsipe Abante or Si Malakas at si Maganda, who are well known
characters in Philippine mythology, are bearer instruments because the named payees are
fictitious and nonexistent.

In a fictitious payee situation, the drawee bank is absolved from liability and the drawer
bears the loss. When faced with a check payable to a fictitious payee, it is treated as a bearer
instrument that can be negotiated by delivery. Thus, in case of controversy, the drawer of the
check will bear the loss. In the case under review, the Rodriguez checks were payable to
specified payees. It is unrefuted that the 69 checks were payable to specific persons. Likewise, it
is uncontroverted that the payees were actual, existing, and living persons who were members
of PEMSLA that had a rediscounting arrangement with spouses Rodriguez. What remains to be
determined is if the payees, though existing persons, were fictitious in its broader context.
Fictitious payee rule to be available as a defense, PNB must show that the makers did not
intend for the named payees to be part of the transaction involving the checks. At most, the
banks thesis shows that the payees did not have knowledge of the existence of the checks. This
lack of knowledge on the part of the payees, however, was not tantamount to a lack of intention
on the part of respondents spouses that the payees would not receive the checks proceeds.
Considering that Respondents spouses were transacting with PEMSLA and not the individual
payees, it is understandable that they relied on the information given by the officers of PEMSLA

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that the payees would be receiving the checks. Verily, the subject checks are presumed order
instruments. This is because, as found by both lower courts, PNB failed to present sufficient
evidence to defeat the claim of respondents spouses that the named payees were the intended
recipients of the checks proceeds. The bank failed to satisfy a requisite condition of a fictitious
payee situationthat the maker of the check intended for the payee to have no interest in the
transaction. Because of a failure to show that the payees were fictitious in its broader sense,
the fictitious payee rule does not apply. Thus, the checks are to be deemed payable to order.
Consequently, the drawee bank bears the loss.

FALLO: Appealed decision is AFFIRMED.

38. PCIB VS CA
GR 121413/January 29, 2001
Quisumbing, J.
DOCTRINE: 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, doesnt entitle the bank to shift the loss to the
drawer-payor, in the absence of some circumstance raising estoppel against the drawer.

FACTS: On October 19, 1977, the plaintiff Ford drew and issued its Citibank Check No. SN-04867
in the amount of P 4,746,114.41, in favor of the Commissioner of Internal Revenue (CIR) as
payment of plaintiffs percentage or manufacturers sales taxes for the third quarter of 1977. The
aforesaid check was deposited with the defendant IBAA (now PCIBank) and was subsequently
cleared at the Central Bank. Upon presentment with the defendant Citibank, the proceeds of the
check were paid to IBAA as collecting or depository bank. The proceeds of the same Citibank
check of the plaintiff was never paid to or received by the payee thereof, the CIR. As a
consequence, upon demand of the CIR, the plaintiff was compelled to make a second payment.
It is further admitted by defendant Citibank that Citibank Check No. SN-04867 which was drawn
and issued by the plaintiff in favor of the Commissioner of Internal Revenue was a crossed check
in that, on its face were two parallel lines and written in between said lines was the phrase
Payees Account Only;

The Acting CIR addressed to the plaintiff that its check in the amount of P4,746,114.41 was not
paid to the government or its authorized agent and instead encashed by unauthorized persons,
hence, plaintiff has to pay the said amount within fifteen days from receipt of the letter. Upon
advice of the plaintiffs lawyers, plaintiff on March 11, 1982, paid to the Bureau of Internal
Revenue, the amount of P4,746,114.41, representing payment of plaintiffs percentage tax for
the third quarter of 1977. As a consequence of defendants refusal to reimburse plaintiff of the
payment it had made for the second time to the BIR of its percentage taxes, plaintiff filed on
January 20, 1983 its original complaint before the Court.

Defendant Citibank maintains that; the payment it made of plaintiffs Citibank Check No. SN-
04867 in the amount of P4,746,114.41 was in due course; it merely relied on the clearing stamp
of the depository/collecting bank, the defendant IBAA that all prior indorsements and/or lack of

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indorsements guaranteed; and the proximate cause of plaintiffs injury is the gross negligence of
defendant IBAA in indorsing the plaintiffs Citibank check in question. Although it was not among
the stipulated facts, an investigation by the NBI revealed that Citibank Check No. SN-04867 was
recalled by Godofredo Rivera, the Accountant of Ford. He purportedly needed to hold back the
check because there was an error in the computation of the tax due to the Bureau of Internal
Revenue (BIR). With Riveras instruction, PCIBank replaced the check with two Managers Checks
(MCs). Alleged members of a syndicate later deposited the two MCs with the Pacific Banking
Corporation.

ISSUE: WON, PCIBank, which affixed its indorsement on the subject check (All prior indorsement
and/or lack of indorsement guaranteed), is liable as collecting bank.

HELD: Yes. Indeed, the crossing of the check with the phrase Payees Account Only, is a warning
that the check should be deposited only in the account of the CIR. Thus, it is the duty of the
collecting bank PCIBank to ascertain that the check be deposited in payees account
only. Therefore, it is the collecting bank (PCIBank) which is bound to scrutinize the check and to
know its depositors before it could make the clearing indorsement all prior indorsements and/or
lack of indorsement guaranteed. Since the questioned crossed check was deposited with IBAA
[now PCIBank], which claimed to be a depository/collecting bank of the BIR, it has the
responsibility to make sure that the check in question is deposited in Payees account only.

As agent of the BIR (the payee of the check), defendant IBAA should receive instructions only
from its principal BIR and not from any other person especially so when that person is not known
to the defendant. It is very imprudent on the part of the defendant IBAA to just rely on the
alleged telephone call of one Godofredo Rivera and in his signature to the authenticity of such
signature considering that the plaintiff is not a client of the defendant IBAA. 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 agent. A bank which receives such paper for collection is the agent of the payee or holder.
Even considering arguendo, that the diversion of the amount of a check payable to the collecting
bank in behalf of the designated payee may be allowed, still such diversion must be properly
authorized by the payor. Otherwise stated, the diversion can be justified only by proof of
authority from the drawer, or that the drawer has clothed his agent with apparent authority to
receive the proceeds of such check. In presenting the checks for clearing and for payment, the
defendant made an express guarantee on the validity of all prior endorsements. Thus, stamped
at the back of the checks are the defendants clear warranty: ALL PRIOR ENDORSEMENTS
AND/OR LACK OF ENDORSEMENTS GUARANTEED. Without such warranty, plaintiff would not
have paid on the checks.

No amount of legal jargon can reverse the clear meaning of defendants warranty. As the
warranty has proven to be false and inaccurate, the defendant is liable for any damage arising
out of the falsity of its representation. Lastly, banking business requires that the one who first
cashes and negotiates the check must take some precautions to learn whether or not it is
genuine. And if the one cashing the check through indifference or other circumstance assists the

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forger in committing the fraud, he should not be permitted to retain the proceeds of the check
from the drawee whose sole fault was that it did not discover the forgery or the defect in the
title of the person negotiating the instrument before paying the check. For this reason, 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. In such cases the drawee bank has a right to believe that the cashing bank (or the
collecting bank) had, by the usual proper investigation, satisfied itself of the authenticity of the
negotiation of the checks. Thus, one who encashed a check which had been forged or diverted
and in turn received payment thereon from the drawee, is guilty of negligence which
proximately contributed to the success of the fraud practiced on the drawee bank. The latter
may recover from the holder the money paid on the check.

FALLO: WHEREFORE, the assailed Decision and Resolution of the CA are AFFIRMED. PCIBank,
known formerly as Insular Bank of Asia and America, is declared solely responsible for the loss of
the proceeds of Citibank Check No. SN 04867 in the amount P4,746,114.41, which shall be paid
together with six percent (6%) interest thereon to Ford Philippines Inc. from the date when the
original complaint was filed until said amount is fully paid.

39. METROBANK (formerly ASIANBANK CORPORATION) vs BA FINANCE CORPORATION

andMALAYAN INSURANCE CO., INC.
DECEMBER 4, 2009/ G.R. NO. 179952
CARPIO MORALES, J.
DOCTRINE: The payment of an instrument over a missing indorsement is the equivalent of
payment on a forged indorsement or an unauthorized indorsement in itself in the case of joint
payees.
FACTS: Lamberto Bitanga obtained from respondent BA Finance a loan to secure which, he
mortgaged his car to the latter. The mortgage contained a stipulation requiring the mortgagor to
insure the mortgaged property and make all loss payable to the mortgagee. Bitanga thus insured
the mortgage car to respondent Malayan Insurance which issued a policy stipulating that any
loss shall be payable to BA Finance Corp. The car was stolen. Pursuant to the insurance,
Malayan issued a check payable to the order of BA Finance Corporation and Lamberto Bitanga.
The check was crossed with the notation FOR DEPOSIT PAYEES ACCOUNT ONLY. Without
indorsement or authority from BA Finance, Bitanga deposited the check to his account with the
Asianbank Corporation, now merged with herein petitioner Metrobank. Bitanga subsequently
withdrew the entire proceeds of the check.

BA Finance, after default of Bitanga, learned of the loss of the car and the
issuance of a crossed check by Malayan as well as the subsequent deposit and withdrawal of the
entire proceeds thereof. It thereupon demanded the payment of the value of the check from
Asianbank but to no avail. A complaint for sum of money and damages was filed by BA Finance
against Asianbank and Bitanga. The RTC held that Asianbank was negligent in allowing Bitanga to
deposit the check to his account and to withdraw the proceeds thereof without his co-payee BA
Finance having either indorsed it or authorized him to indorse it in his behalf. It found Asiabank
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and Bitanga jointly and severally liable to BA Finance. The CA, upon appeal, affirmed the decision
of the trial court.

ISSUE: WON, there was an unauthorized indorsement of the check.

HELD: YES. Under Section 41 of the NIL, where an instrument is payable to the order of two or
more payees or indorsees who are not partners, all must indorse unless the one indorsing has
authority to indorse for the others. Bitanga alone endorsed the crossed check, and petitioner
allowed the deposit and release of the proceeds thereof, despite the absence of authority of
Bitangas co-payee, BA Finance, to endorse it on its behalf. Clearly, petitioner, through its
employee, was negligent when it allowed the deposit of the crossed check, despite the lone
indorsement of Bitanga, ostensibly ignoring the fact that the check did not carry the
indorsement of BA Finance. The banking business is imbued with public interest such that the
highest degree of diligence and highest standards of integrity and performance are expected of
banks in order to maintain the trust and confidence of the public in general in the banking
sector. Undoubtedly, BA Finance has a cause of action against petitioner.

FALLO: WHEREFORE, the Decision of the CA is AFFIRMED with MODIFICATION.

40. METROBANK, vs. PHILIPPINE BANK OF COMMUNICATIONS, FILIPINAS ORIENT FINANCE

CORPORATION, PIPE MASTER CORPORATION and TAN JUAN LIAN,
Oct. 18, 2007/G.R NO. 141408
Sandoval-Gutierrez, J.
DOCTRINE: The crossing of a check with the phrase Payees Account Only is a warning that the
check should be deposited in the account of the payee.
FACTS: Pipe Master represented by Yu Kio, its president, applied for check discounting with
Filipinas Orient Finance Corporation (Filipinas Orient). Filipinas Orient approved and granted the
same. The Board of Directors of Pipe Master issued a Board Resolution authorizing Yu Kio, in his
capacity as president, and/or Tan Juan Lian, in his capacity as vice-president, to execute, indorse,
make, sign, deliver or negotiate instruments, documents and such other papers necessary in
connection with any transaction coursed through Filipinas Orient for and in behalf of the
corporation. Tan Juan Lian then executed in favor of Filipinas Orient a continuing guaranty for
which Pipe Master may become liable; that the extent of his liability shall not at any one time
exceed the sum of P1,000,000.00; and that in the event of default by Pipe Master, Filipinas
Orient may proceed directly against him. In 1980, under the check discounting agreement
between Pipe Master and Filipinas Orient, Yu Kio sold to Filipinas Orient four Metro Bank checks
amounting to P1,000,000.00. In exchange, Filipinas Orient issued to Yu Kio four PBCom crossed
checks totaling P964,303.62, payable to Pipe Master with the statement for payees account only.
Yu Kio indorsed and deposited in his personal account in Metro Bank, three of the checks valued
at P721,596.95. As to the remaining check, he deposited it in Solid Bank, also in his personal
account. Eventually, PBCom paid Metro Bank and Solid Bank the amounts of the checks. In turn,
Metro Bank and Solid Bank credited the value of the checks to the personal accounts of Yu Kio.
When Filipinas Orient presented the four Metro Bank checks equivalent to P1,000,000.00
it received from Yu Kio, they were dishonored by the drawee bank. Pipe Master, the drawer,
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refused to pay the amounts of the checks, claiming that it never received the proceeds of the
PBCom checks as they were delivered and paid to the wrong party, Yu Kio, who was not the
named payee. Filipinas Orient then demanded that PBCom restore to its (Filipinas Orients)
account the value of the PBCom checks. In turn, PBCom sought reimbursement from Metro Bank
and Solid Bank, being the collecting banks, but they refused. Thus, Filipinas Orient filed a
complaint for a sum of money against Pipe Master, Tan Juan Lian and/or PBCom. Pipe Master
and Tan Juan Lian averred that they did not authorize Yu Kio to negotiate and enter into
discounting transaction with Filipinas Orient, and even if Yu Kio was so authorized, Pipe Master
never received the proceeds of the checks. Consequently, they filed a cross-claim against PBCom
for gross negligence for having paid the wrong party. In turn, PBCom, Pipe Master and Tan Juan
Lian filed third-party complaints against Metro Bank and Solid Bank. RTC rendered a Decision
against Metro Bank and Solid Bank. Appellate court affirmed in toto the Decision of the trial
court.

ISSUE: Won, Metro Bank and Solid Bank are liable to respondent Filipinas Orient for accepting
the PBCom crossed checks payable to Pipe Master.

HELD: YES. A check is defined by law as a bill of exchange drawn on a bank payable on
demand. This Court has taken judicial cognizance that the crossing of a check with the phrase
Payees Account Only is a warning that the check should be deposited in the account of the
payee. It is the collecting bank which is bound to scrutinize the check and to know its depositors
before it can make the clearing indorsement, all prior indorsements and/or lack of indorsement
guaranteed. Petitioner banks have the obligation to ensure that the PBCom checks were
deposited in accordance with the instructions stated in the checks. The four PBCom checks in
question had been crossed and issued for payees account only. This could only mean that the
drawer, Filipinas Orient, intended the same for deposit only by the payee, Pipe Master. The
effect of crossing a check means that the drawer had intended the check for deposit only by the
rightful person.

In this case, petitioner banks accommodated Yu Kio, being a valued client and the
president of Pipe Master, and accepted the crossed checks. They stamped at the back thereof
that all prior indorsements and/or lack of indorsements are guaranteed. In so doing, they
became general endorsers. Under Section 66 of NIL, an endorser warrants that the instrument is
genuine and in all respects what it purports to be; that he has a good title to it; that all prior
parties had capacity to contract; and that the instrument is at the time of his indorsement valid
and subsisting. Petitioner banks, being endorsers, cannot deny liability. PBCom, as the drawee
bank, cannot be held liable since it mainly relied on the express guarantee made by petitioners,
the collecting banks, of all prior indorsements. Petitioner banks were negligent in accepting the
checks and allowing the transaction to push through. One who accepts and encashes a check
from an individual knowing that the payee is a corporation does so at his peril. Therefore,
petitioner banks are liable to Filipinas Orient. The collecting bank, being primarily engaged in
banking, holds itself out to the public as the expert on this field, and the law thus holds it to a
high standard of conduct. Since petitioner banks negligence was the direct cause of the

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misappropriation of the checks, they should bear and answer for respondent Filipinas Orients
loss.

FALLO: We deny the petitions.

41. ALLIED BANKING CORP. v LIM SIO WAN, METROPOLITAN

BANK AND TRUST CO., and PRODUCERS BANK,
G.R. No. 133179
VELASCO, JR., J
DOCTRINE: The last indorser will be liable for the amount indicated in the negotiable instrument
even if a previous indorsement was forged. However, this general rule is subject to exceptions.
One such exception is when the issuance of the check itself was attended with negligence.
FACTS: On September 21, 1983, FCC had deposited a money market placement for respondent
Producers Bank which was received and acknowledged in a letter. The placement matured on
October 25, 1983 and was rolled-over until December 5, 1983. FCC demanded payment of the
proceeds of the placement the same day. Before FCCs demand, on November 14, 1983, Lim Sio
Wan deposited with petitioner Allied Banking Corporation (Allied) a money market placement of
P 1,152,597.35 for a term of 31 days to mature on December 15, 1983. On December 5, 1983, a
person claiming to be Lim Sio Wan called up Allied, and instructed the latter to pre-terminate
Lim Sio Wans money market placement, to issue a managers check representing the proceeds of
the placement, and to give the check to one Deborah Dee Santos who would pick up the check.
The managers check was issued in the name of Lim Sio Wan, as payee. The check was cross-
checked For Payees Account Only and given to Santos. Thereafter, the said managers check was
deposited in the account of Filipinas Cement Corporation (FCC) at respondent Metropolitan Bank
and Trust Co. (Metrobank), with the forged signature of Lim Sio Wan as indorser.

In short, the Allied check was deposited in FCCs account in Metrobank purportingly
representing the proceeds of FCCs money market placement proceeds. To clear the check and
in compliance with the requirements of the Philippine Clearing House Corporation (PCHC) Rules
and Regulations, Metrobank stamped a guaranty on the check, which reads: All prior
endorsements and/or lack of endorsement guaranteed. The check was sent to Allied through
the PCHC. Upon the presentment of the check, Allied funded the check even without checking
the authenticity of Lim Sio Wans purported indorsement. Thus, the amount on the face of the
check was credited to the account of FCC. On the date of maturity of her money market
placement, Lim Sio Wan tried to withdraw the same and was informed that she called to
preterminate it a few days earlier. She denied giving any instructions and receiving the proceeds
thereof. She desisted from further complaints when she was assured by the banks manager that
her money would be recovered. However, upon subsequent demand Allied refused to pay Lim
Sio Wan. Thus she filed with the RTC a Complaint against Allied to recover the proceeds of her
money market placement. Allied filed a third party complaint against Metrobank and Santos.
The trial and appellate court ordered Allied to pay sixty (60%) percent Metrobank forty (40%) of
the amount of plus 12% interest per annum.

Page 65 of 133
ISSUE/S: WON, petitioners liability to the extent of 60% of amount adjudged demandable and
Metrobank to the extent of 40% as guarantor of all endorsement on the check, it being the
collecting bank?

HELD/FALLO: Yes, the 60:40 ratio of the liabilities of Allied and Metrobank must be upheld.
Section 66 in relation to Sec. 65 of the Negotiable Instruments Law provides:

Section 66. Liability of general indorser. Every indorser who indorses without qualification,
warrants to all subsequent holders in due course;
a) The matters and things mentioned in subdivisions (a), (b) and (c) of the next preceding
section; and
b) That the instrument is at the time of his indorsement valid and subsisting;

And in addition, he engages that on due presentment, it 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 indorser who may be compelled to pay it.
Section 65. Warranty where negotiation by delivery, so forth.Every person negotiating an
instrument by delivery or by a qualified indorsement, warrants:
a) That the instrument is genuine and in all respects what it purports to be;
b) That he has a good title of it;
c) That all prior parties had capacity to contract;
d) That he has no knowledge of any fact which would impair the validity of the instrument or
render it valueless.

But when the negotiation is by delivery only, the warranty extends in favor of no holder other
than the immediate transferee. The provisions of subdivision (c) of this section do not apply to
persons negotiating public or corporation securities, other than bills and notes. As provided in
Section 66 in relation to Sec. 65 of the Negotiable Instruments Law, the warranty that the
instrument is genuine and in all respects what it purports to be covers all the defects in the
instrument affecting the validity thereof, including a forged indorsement. Thus, the last indorser
will be liable for the amount indicated in the negotiable instrument even if a previous
indorsement was forged. We held in a line of cases that 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 itself, and ultimately should be held liable
therefor. However, this general rule is subject to exceptions. One such exception is when the
issuance of the check itself was attended with negligence. In the instant case, Allied was
negligent in issuing the managers check and in transmitting it to Santos without even a written
authorization The liability of Allied, however, is concurrent with that of Metrobank as the last
indorser of the check. Given the relative participation of Allied and Metrobank to the instant
case, both banks cannot be adjudged as equally liable. Hence, the 60:40 ratio of the liabilities of
Allied and Metrobank must be upheld.

42. MELVA THERESA ALVIAR GONZALES VS. RCBC

Page 66 of 133
 Nov. 29, 2006/G.R. No. 156294
GARCIA, J.
DOCTRINE: The holder or subsequent endorser which caused the dishonor of the check for
irregular endorsement upon presentment to the drawee bank, through the qualified
endorsement of its employee, cannot hold prior endorsers liable on the instrument.
FACTS: A foreign check in the amount of $7,500 was drawn by Dr. Don Zapanta against the
drawee bank Wilshire Center Bank, N.A., of Los Angeles, California, U.S.A., and payable to
petitioner Gonzales mother, Eva Alviar. Petitioner Gonzales was an employee of RCBC as New
Accounts Clerk. Alviar then endorsed this check. Since RCBC, respondent, gives special
accommodations to its employees to receive the checks value without awaiting the clearing
period, Gonzales presented the foreign check to Olivia Gomez, the RCBCs Head of Retail
Banking. After examining this, Gomez requested Gonzales to endorse it which she did. Gomez
then acquiesced to the early encashment of the check and signed the check but indicated
thereon her authority of "up to P17,500.00 only". Afterwards, Gonzales presented the check to
RCBC employee Carlos Ramos and procured his signature and an "ok" annotation. After getting
the said signatures Gonzales presented the check to Rolando Zornosa, Supervisor of the
Remittance section of the Foreign Department of RCBC, who authorized its encashment.
Gonzales then received its peso equivalent of P155,270.85. RCBC then tried to collect the
amount of the check with the drawee bank by the latter through its correspondent bank, the
First Interstate Bank of California, on two occasions dishonored the check because of "END.
IRREG" or 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. Gonzales settled the matter by agreeing that payment be made thru
salary deduction. A letter was sent to Gonzales reminding her of her liability as an indorser of the
subject check and that for her to avoid litigation she has to fulfill her commitment to settle her
obligation as assured in her said letter. However, Gonzales resigned from RCBC. RCBC filed a
complaint for a sum of money against Eva Alviar, petitioner Gonzales and the latters husband
Gino Gonzales. RTC rendered a decision for plaintiff and as against defendant Eva Alviar as
principal debtor and defendant Gonzales as guarantor to pay plaintiff. CA affirmed.

ISSUE: WON, petitioner Gonzales, an accommodation party to a check subsequently endorsed

partially, should be held liable to RCBC as guarantor?

HELD: No. Under Sec. 66 of the NIL Every indorser who indorses without qualification, warrants
to all subsequent holders in due course; (a) The matters and things mentioned in subdivisions
(a), (b), and (c) of the next preceding section; and (b) That the instrument is, at the time of his
indorsement, valid and subsisting; And, in addition, he engages that, on due presentment, it 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 indorser who may be compelled to pay it. In this
case, the warranties for which Alviar and Gonzales are liable as general endorsers in favor of
subsequent endorsers extend only to the state of the instrument at the time of their
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endorsements, specifically, that the instrument is genuine and in all respects what it purports to
be; that they have good title thereto; that all prior parties had capacity to contract; and that the
instrument, at the time of their endorsements, is valid and subsisting. The provision, however,
cannot be used by the party which introduced a defect on the instrument, such as RCBC in this
case, which qualifiedly endorsed the same. While the foreign drawee bank did not specifically
state which among the four signatures found on the dorsal portion of the check made the check
irregularly endorsed, it is absolutely undeniable that only the signature of Olivia Gomez, an RCBC
employee, was a qualified endorsement because of the phrase "up to P17,500.00 only." The
foreign drawee bank would not have dishonored the check had it not been for this signature of
Gomez with the same phrase written by her. Therefore, RCBC, which caused the dishonor of the
check upon presentment to the drawee bank, through the qualified endorsement of its
employee, Olivia Gomez, cannot hold prior endorsers, Alviar and Gonzales in this case, liable on
the instrument.

FALLO: WHEREFORE, the assailed CA Decision is REVERSED and SET ASIDE and the Complaint in
this case DISMISSED for lack of merit.

43. BPI vs. Gregorio C. Roxas

G.R. NO. 157833 / October 15, 2007
DOCTRINE: As a general rule, every holder is presumed prima facie to be a holder in due course.
One who claims otherwise has the onus probandi to prove that one or more of the conditions
required to constitute a holder in due course are lacking.
FACTS: Gregoria Roxas is a trader. He delivered stocks of vegetable oil to Spouses Cawili. As a
payment thereof the latter issued a check in the amount of 348,805.05. However, when he tried
to encash the check, the same was dishonoured by the drawee bank. As a result, Spouses Cawili
then assured him that they would replace the bounced check with a cashiers check from the
Bank of the Philippine Islands.The respondent together with Spouses Cawili went to BPI and the
bank teller, prepared BPI Cashiers check in the amount of P348, 805.50, drawn against the
account of Marissa Cawili, payable to respondent. Rodrigo then handed the check to respondent
in the presence of Elma.Respondent returned to petitioners branch at Shaw Boulevard to
encash the cashiers check but it was dishonored. Elma who is the branch manager of BPI,
informed him that Marissas account was closed on that date. Despite respondents insistence,
the bank officers refused to encash the check and tried to retrieve it from respondent. He then
called his lawyer who advised him to deposit the check in his account at CityTrust. However, the
check was dishonored on the ground Account Closed. Hence, he filed a complaint for sum of
money against petitioner BPI.The RTC rendered a decision in favour of the plaintiff Gregorio. On
appeal, the CA affirms the decision of the RTC.

ISSUES:
1. WON, the respondent is a holder in due course
2. WON, the CA erred in holding that the petitioner

RULING: Under NIL Law, provides What constitutes a holder in due course. A holder in due
course is a holder who has taken the instrument under the following conditions:
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(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 person negotiating it.

As a general rule, under the above provision, every holder is presumed prima facie to be a holder
in due course. One who claims otherwise has the onus probandi to prove that one or more of
the conditions required to constitute a holder in due course are lacking. In this case, petitioner
contends that the element of value is not present, therefore, respondent could not be a holder
in due course. This contention is bereft of merits.

It is well settle rule that value in general terms may be some right, interest, profit or benefit to
the party who makes the contract or some forbearance, detriment, loan, responsibility, etc. on
the other side. Here, there is no dispute that respondent received Rodrigo Cawilis cashiers
check as payment for the formers vegetable oil. The fact that it was Rodrigo who purchased the
cashiers check from petitioner will not affect respondents status as a holder for value since the
check was delivered to him as payment for the vegetable oil he sold to spouses Cawili. Verily, the
Court of Appeals did not err in concluding that respondent is a holder in due course of the
cashiers check. Furthermore, it bears emphasis that the disputed check is a cashiers check. In
International Corporate Bank v. Spouses Gueco, this Court held that a cashiers check is really the
banks own check and may be treated as a promissory note with the bank as the maker. The
check becomes the primary obligation of the bank which issues it and constitutes a written
promise to pay upon demand.In New Pacific Timber & Supply Co. Inc. v. Seeris, this Court took
judicial notice of the well-known and accepted practice in the business sector that a cashiers
check is deemed as cash. This is because the mere issuance of a cashiers check is considered
acceptance thereof.

44. Robert Dino vs. Maria Luisa Judal-Loot, et. al.,

2010/G.R. No. 170912
CARPIO, J.
DOCTRINE: The NIL does not provide that a holder who is not a holder in due course may not in
any case recover on the instrument. The only disadvantage of a holder who is not in due course
is that the negotiable instrument is subject to defenses as if it were non-negotiable. Among such
defenses is the absence or failure of consideration.
FACTS: n 1992, a syndicate posing as owner of properties owned by the government induced
petitioner Robert Dino to lend the said group 3 million pesos secured by real estate mortgage on
the properties. Three Metrobank checks were issued by petitioner payable to Vivencia Ompok
Consing and/ or Fe Lobitana. When petitioner Robert Dino discovered the fraudulent scheme, he
immediately ordered Metrobank to stop payment. However, only the payment of Check No.C-
MA- 142119406-CA was stopped. The other two checks were already encashed by the payees.
Meanwhile, Fe Lobitana negotiated and indorsed Check No.C-MA- 142119406-CA to respondent
Page 69 of 133
spouses Loot for 948 thousand pesos. Upon inquiry by the spouses to the drawee bank, the
latter said that it was sufficiently funded. Upon depositing the said check, it was dishonored by
the same bank for the reason payment stopped. Thereafter, respondent spouses filed a
collection suit in the RTC against petitioner and Fe Lobitania. Respondents alleged that they are
holders in due course and for value and that they have no prior information about the
transaction between petitioner and Fe Lobitania. In his answer, petitioner Dino denied the
allegation that the respondents are holders in due course. Fe Lobitania interposed as a defense
that she was made only a payee in order to facilitate the discounting. RTC: Respondents are
holders in due course. They are not privy to the prior transaction. CA: Affirmed. Respondents
have no knowledge of any infirmity or defect upon the face of the check. Motion for
reconsideration in CA, petitioner Dino raised for the first time as a defense that it was a crossed
check. Denied.

ISSUE: WON, respondents are holders in due course of Metrobank Check as to entitle them to
collect the face value of the check from its drawer or petitioner Robert Dino.

HELD: NO. It must be stressed, however, that petitioner consistently argues that respondents are
not holders in due course of the subject check, which is one of the possible effects of crossing a
check. 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 the holder thereof must inquire if he has received the check
pursuant to that purpose; otherwise, he is not a holder in due course. Contrary to respondents
view, petitioner never changed his theory, that respondents are not holders in due course of the
subject check, as would violate fundamental rules of justice, fair play, and due process. Besides,
the subject check was presented and admitted as evidence during the trial and respondents did
not and in fact cannot deny that it is a crossed check.

Section 52 of the NIL, defines a holder in due course, thus:

In the case of a crossed check, as in this case, the following principles must additionally be
considered: A crossed check (a) may not be encashed but only deposited in the bank; (b) may be
negotiated only once to one who has an account with a bank; and (c) warns the holder that it
has been issued for a definite purpose so that the holder thereof must inquire if he has received
the check pursuant to that purpose; otherwise, he is not a holder in due course. Based on the
foregoing, respondents had the duty to ascertain the indorsers, in this case Lobitanas, title to
the check or the nature of her possession. This respondents failed to do. Respondents
verification from Metrobank on the funding of the check does not amount to determination of
Lobitanas title to the check. Failing in this respect, respondents are guilty of gross negligence
amounting to legal absence of good faith, contrary to Section 52(c) of the Negotiable
Instruments Law. Hence, respondents are not deemed holders in due course of the subject
check. The NIL does not provide that a holder who is not a holder in due course may not in any
case recover on the instrument. The only disadvantage of a holder who is not in due course is
that the negotiable instrument is subject to defenses as if it were non-negotiable. Since there is
in fact no valid loan to speak of, there is no consideration for the issuance of the check.
Consequently, petitioner cannot be obliged to pay the face value of the check.

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Respondents can collect from the immediate indorser,in this case Lobitana. Significantly,
Lobitana did not appeal the trial courts decision, finding her solidarily liable to pay, among
others, the face value of the subject check. Therefore, the trial courts judgment has long
become final and executory as to Lobitana.

FALLO: WHEREFORE, we GRANT the petition. We SET ASIDE the Resolutions of the CA.
45. HI-CEMENT CORPORATION vs. INSULAR BANK OF ASIA AND AMERICA
(later PCIB and now EQUITABLE-PCI BANK)
SEPTEMBER 28, 2007/G.R. NO. 132403
CORONA, J.
DOCTRINE: 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.
FACTS: Petitioners Spouses Tan were the controlling stockholders of petitioner corporation E.T.
Henry & Co., Inc. Petitioner corporation Hi-Cement is a customer of E.T. Henry. For its purchases,
Hi-Cement issued postdated checks to E.T. Henry.
Respondent Insular Bank of Asia and America granted a facility to E.T. Henry for the re-
discounting of checks. E.T. Henry was able to re-discount its clients checks with the Insular.
However, 20 checks of Hi-Cement (which were crossed and which bore the restriction: DEPOSIT
TO PAYEES ACCOUNT ONLY) were dishonored. Insular filed a complaint for sum of money against
E.T. Henry, spouses Tan, and Hi-Cement. In its answer, Hi-Cement alleged, among others, that
Insular was not a holder in due course as it should not have discounted them for being crossed
checks.The RTC rendered a judgment in favor of Insular. It held that Hi-Cement is liable to
Insular. The CA, upon appeal, affirmed the assailed decision in toto.

ISSUE: WON, Insular is a holder in due course?

HELD: NO. Insular is not a holder in due course.

Under Sec. 52 of the NIL, a holder in due course is a holder who has taken the instrument under
the following conditions:
1. That is complete and regular upon its face;
2. 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;
3. That he took it in good faith and for value;
4. 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.

In the case at bar, the last two requirements were not met. 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. Insular was all too aware that subject checks were crossed and bore restrictions that
they were for deposit to payees account only; hence, they could not be further negotiated to it.
The records likewise reveal that respondent completely disregarded a telling sign of irregularity

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in the re-discounting of the checks when the general manager did not acquiesce to it as only the
treasurers signature appeared on the deed of assignment. As a banking institution, it behooved
respondent to act with extraordinary diligence in every transaction. Its business is impressed
with public interest, thus, it was not expected to be careless and negligent, especially so where
the checks it dealt with were crossed. The drawer of the postdated crossed check is not liable to
the holder who was deemed not a holder in due course. Since Insular is not a holder in due
course, liability did not attach to Hi-Cement. However, the Negotiable Instruments Law does not
absolutely bar a holder who is not a holder in due course from recovering on the checks. It may
recover from the party who indorsed/encashed the checks if the latter has no valid excuse for
refusing payment. Here, there was no doubt that it was E.T. Henry that re-discounted Hi-
Cements checks and received their value from Insular. Since E.T. Henry had no justification to
refuse payment, it should pay respondent.

FALLO: WHEREFORE, the assailed decision of the CA is hereby AFFIRMED with MODIFICATION.
Accordingly, petitioner Hi-Cement Corporation is discharged from any liability. Only petitioner
E.T. Henry & Co. is ORDERED to pay respondent Insular Bank of Asia and America (later PCIB and
now Equitable-PCI Bank).

46.Spouses Violago vs. BA Finance Corporation

G.R. No. 158262/July 21, 2008
DOCTRINE: Section 52 of the NIL provides that: A 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.

Facts: Avelino Violago, the president of VMSC, offered to sell a car to his cousin Pedro and the
latters wife Florencia under the term that they would pay the down payment and the balance to
be financed by BA Finance Corporation. The spouses and Avelino paid the down payment and
signed a promissory note under which they bound themselves to pay jointly and severally to the
order of VMSC the amount in monthly installments.VMSC then issued a sales invoice in favor of
the spouses and in turn, the spouses executed a chattel mortgage over the car in favor of VMSC
as security. VMSC, through Avelino, endorsed the promissory note to BA Finance without
recourse and after receiving the amount of the promomissory noted, executed a Deed of
Assignment of its rights and interests under the said promissory note and chattel mortgage in
favor of BA Finance. It turned out that the car subject of the sale was already registered
Esmeraldo Violago, another cousing of Avelino. For failure of VMSC to deliver the car, Pedro did
not pay the monthly amortization to BA Finance which led the latter to file a complaint for
replevin and damages against Pedro and Florencia. RTC ruled in favor of BA Finance. The
appellate court ruled that the promissory note was a negotiable instrument and that BA Finance
was a holder in due course, applying Secs. 8, 24, and 52 of the NIL.

Issue: WON, BA Finance is a holder in due course.

Page 72 of 133
Held: BA Finance is a holder in due course. What constitutes a holder in due course. The law
presumes that a holder of a negotiable instrument is a holder thereof in due course. In this case,
BA Finance meets all the foregoing requisites:
In the present recourse, on its face, (a) the Promissory Note, Exhibit A, is complete and regular;
(b) the Promissory Note was endorsed by the VMSC in favor of the Appellee; (c) the Appellee,
when it accepted the Note, acted in good faith and for value; (d) the Appellee was never
informed, before and at the time the Promissory Note was endorsed to the Appellee, that the
vehicle sold to the Defendants-Appellants was not delivered to the latter and that VMSC had
already previously sold the vehicle to Esmeraldo Violago. Although Jose Olvido mortgaged the
vehicle to Generoso Lopez, who assigned his rights to the BA Finance Corporation (Cebu Branch),
the same occurred only on May 8, 1987, much later than August 4, 1983, when VMSC assigned
its rights over the Chattel Mortgage by the Defendants-Appellants to the Appellee. Hence,
Appellee was a holder in due course

FALLO: WHEREFORE, the CAs Decision and Resolution are SET ASIDE insofar as they dismissed
without prejudice the third party complaint of petitioners-spouses Pedro and Florencia Violago
against respondent Avelino Violago.

47. Cely Yang vs. CA,

G.R. No. 138074/Aug. 15, 2003

Doctrine: Every holder of a negotiable instrument is presumed to be a holder in due course.

FACTS: Petitioner Cely Yang agreed with private respondent Prem Chandiramani to procure from
Equitable Banking Corp. and Far East Bank and Trust Company (FEBTC) two cashiers checks in
the amount of P2.087 million each, payable to Fernando David and FEBTC dollar draft in the
amount of US$200,000.00 payable to PCIB FCDU account No. 4195-01165-2. Yang gave the
checks and the draft to Danilo Ranigo to be delivered to Chandiramani. Ranigo was to meet
Chandiramani to turn over the checks and the dollar draft, and the latter would in turn deliver to
the former Phil. Yang gave the cashiers checks and dollar drafts to her business associate, Albert
Liong, to be delivered to Chandiramani by Liongs messenger, Danilo Ranigo. Commercial
International Bank (PCIB) managers check in the sum of P4.2 million and the dollar draft in the
same amount to be issued by Hang Seng Bank Ltd. of Hong Kong. But Chandiramani did not
appear at the rendezvous and Ranigo allegedly lost the two cashiers checks and the dollar draft.
Liong, in turn, informed Yang, and the loss was then reported to the police. The loss was then
reported to the police. It transpired, however that the checks and the dollar draft were never
lost, for Chandiramani was able to get hold of them without delivering the exchange
consideration consisting of PCIB Managers checks. Two hours after Chandiramani was able to
meet Ranigo, the former delivered to David the two cashiers checks of Yang and, in exchange,
got US $360,000 from David, who in turn deposited them. Chandiramani also deposited the
dollar draft in PCIG FCDU No. 4194-0165-2.

Page 73 of 133
He also deposited FEBTC Dollar Draft No. 4771, drawn upon the Chemical Bank, New York for
US$200K in PCIB FCDU Account No. 4195-01165-2 on the same date. Yang requested FEBTC and
Equitable to stop payment on the instruments she believed to be lost. Both Banks complied with
her request, but upon the representation of PCIB, FEBTC subsequently lifted the stop payment
order on FEBTC Dollar Draft No. 4771, thus, enabling the holder PCIB FCDU Account No. 4194-
0165-2 to receive the amount of US $ 200, 000. Yang filed against David and Chandiramani. CA
affirms RTC: in favor of David
ISSUE: Won, David may be considered a holder in due course.

RULING: YES. Every holder of a negotiable instrument is presumed to be a holder in due course.
This is especially true if one is a holder because he is the payee or endorsee of the instrument.
In the case at bar, it is evident that David was the payee of the checks. The prima facie
presumption of him being a holder in due course is in his favor. Nonetheless, this
presumption is disputable. On whether he took the check under the conditions set forth in
Section 52 must be proven. Petitioner relies on two arguments on why David isnt a holder in
due coursefirst, because he took the checks without valuable consideration; and second,
he failed to inquire on Chandiramani title to the checks given to him. The law gives rise to the
presumption of valuable consideration. Petitioner has the burden of debunking such
presumption, which it failed to do so. Her allegation that David received the checks without
consideration is unsupported and devoid of any evidence. Furthermore, petitioner wasn't able to
show any circumstance which should have placed David in inquiry as to why and wherefore of
the possession of the checks by Chandiramani. David wasn't a privy to the transactions
between Yang and Chandiramani. Instead, Chandiramani and David had the agreement
between themselves of the delivery of the checks. David even inquired with the banks on the
genuineness of the checks in issue. At that time, he wasn't aware of any request for the
stoppage of payment. Under these circumstances, David 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.

FALLO: WHEREFORE, the instant petition is DENIED. The assailed decision of the CA is AFFIRMED.

48. ALVIN PATRIMONIO vs NAPOLEON GUTIERREZ and

OCTAVIO MARASIGAN III
JUNE 4, 2014/ G.R. NO. 187769
BRION, J.
DOCTRINE: Acquisition in good faith means taking without knowledge or notice of equities of any
sort which could be set up against a prior holder of the instrument. It means that he does not
have any knowledge of fact which would render it dishonest for him to take a negotiable paper.
The absence of the defense, when the instrument was taken, is the essential element of good
faith.

49. ATRIUM MANAGEMENT CORPORATION vs. CA

February 28, 2001/ 323 SCRA 23
PARDO, J.
Page 74 of 133
DOCTRINE: The NIL does not provide that a holder not in due course cannot recover on the
instrument. One such defense is absence or failure of consideration.
FACTS: Hi-Cement Corporation through its corporate signatories, petitioner Lourdes M. de
Leon, treasurer, and the late Antonio de las Alas, Chairman, issued checks in favor of E.T. Henry
and Co. Inc., as payee. E.T. Henry and Co., Inc., in turn, endorsed the four checks to petitioner
Atrium Management Corporation for valuable consideration. Upon presentment for payment,
the drawee bank dishonored all four checks for the common reason payment stopped. Atrium,
thus, instituted an action after its demand for payment of the value of the checks was denied.
Atrium Management Corporation filed with the RTC Manila an action for collection of the
proceeds of four postdated checks in the total amount of P2 million. The trial court rendered a
decision ordering Lourdes M. de Leon, her husband Rafael de Leon, E.T. Henry and Co., Inc. and
Hi-Cement Corporation to pay petitioner Atrium, jointly and severally, the amount of P2 million
corresponding to the value of the four checks, plus interest and attorneys fees. Lourdes M. de
Leon submitted that the trial court erred in ruling that she was solidarilly liable with Hi-Cement
for the amount of the check. Also, that the trial court erred in ruling that Atrium was an ordinary
holder, not a holder in due course of the rediscounted checks. Hi-Cement on its part submitted
that the trial court erred in ruling that even if Hi-Cement did not authorize the issuance of the
checks, it could still be held liable for the checks. And assuming that the checks were issued with
its authorization, the same was without any consideration, which is a defense against a holder in
due course and that the liability shall be borne alone by E.T. Henry.

ISSUE: WON, petitioner is a holder in due course.

RULING: No. The NIL, Section 52 defines a holder in due course. In the instant case, the checks
were crossed checks and specifically indorsed for deposit to payees account only. From the
beginning, Atrium was aware of the fact that the checks were all for deposit only to payees
account, meaning E.T. Henry. Clearly, then, Atrium could not be considered a holder in due
course. However, it does not follow as a legal proposition that simply because petitioner Atrium
was not a holder in due course for having taken the instruments in question with notice that the
same was for deposit only to the account of payee E.T. Henry that it was altogether precluded
from recovering on the instrument. The Negotiable Instruments Law does not provide that a
holder not in due course cannot recover on the instrument. The disadvantage of Atrium in not
being a holder in due course is that the negotiable instrument is subject to defenses as if it were
non-negotiable. One such defense is absence or failure of consideration.

FALLO: WHEREFORE, the petitions are hereby DENIED. The decision and resolution of the CA are
hereby AFFIRMED in toto.

52. EULALIO PRUDENCIO VS CA

G.R. NO. L-34539, JULY 14, 1986
GUTIERREZ, JR., J.
DOCTRINE: A holder for value under Section 29 of the NIL is one who must meet all the
requirements of a holder in due course under Section 52 of the same law except notice of want

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of consideration. If he does not qualify as a holder in due course then he holds the instrument
subject to the same defenses as if it were non-negotiable.

FACTS: In 1955, Concepcion and Tamayo Construction Enterprise had a contract with the Bureau
of Public Works. The firm needed fund to push through with the contract so it convinced spouses
Eulalio and Elisa Prudencio to mortgage their parcel of land with the Philippine National Bank for
P10,000.00. Prudencio, without consideration, agreed and so he mortgaged the land and
executed a promissory note for P10k in favor of PNB. Prudencio also authorized PNB to issue the
P10k check to the construction firm. In December 1955, the firm executed a Deed of Assignment
in favor of PNB which provides that any payment from the Bureau of Public Works in
consideration of work done (by the firm) so far shall be paid directly to PNB this will also
ensure that the loan gets to be paid off before maturity.

Notwithstanding the provision in the Deed of Assignment, the Bureau of Public Works asked PNB
if it can make the payments instead to the firm because the firm needs the money to buy
construction materials to complete the project. Notwithstanding the provision of the Deed of
Assignment, PNB agreed. And so the loan matured without PNB actually receiving any payment
from the Bureau of Public Works. Prudencio, upon learning that no payment was made on the
loan, petitioned to have the mortgage cancelled (to save his property from foreclosure). The trial
court ruled against Prudencio; the Court of Appeals affirmed the trial court.

ISSUES: 1. WON, the Prudencios' as accommodating party are liable as solidary debtors so real
estate mortgage executed by them cannot be cancelled.
2. WON, PNB was a holder in due course.

HELD: 1. Yes. Section 29 of the Negotiable Instrument Law: Liability of accommodation party.
An accommodation party is one who has signed the instrument as maker, drawer, acceptor, or
indorser, without receiving value therefor, and for the purpose of lending his name to some
other person. Such a person is liable on the instrument to a holder for value, notwithstanding
such holder at the time of taking the instrument knew him to be only an accommodation party.
Liability of the accommodation party remains not only primary but also unconditional to a holder
for value. Remedy is a matter of concern exclusively between accommodation indorser and
accommodated party.

2. No. Payee PNB is an immediate party and, therefore, is NOT a holder in due course and stands
on no better footing than a mere assignee. Holder in due course - payee either acquired the note
from another holder or has not directly dealt with the maker thereof. PNB, in effect, waived
payments of the first three releases. It had dealt directly with the petitioners knowing fully well
that the latter only signed as accommodation but petitioners were made to believe and on that
belief entered into the agreement that no other conditions would alter the terms thereof and
yet, PNB altered the same. PNB cannot be regarded as having acted in good faith which is also
one of the requisites of a holder in due course under Section 52 of the Negotiable Instruments
Law. It was only when the deed of assignment was shown to the spouses that they consented to
the mortgage and signed the promissory note in the Bank's favor.

Page 76 of 133
There is no question that as accommodation makers, petitioners would be primarily and
unconditionally liable on the promissory note to a holder for value, regardless of whether they
stand as sureties or solidary co-debtors since such distinction would be entirely immaterial and
inconsequential as far as a holder for value is concerned. Consequently, the petitioners
cannot claim to have been released from their obligation simply because at the time of
payment of such obligation was temporarily deferred by the PNB without their knowledge
and consent. There has to be another basis for their claim of having been freed from their
obligation. It has to be determined if PNB was a holder for value. A holder for value is one who
meets the requirement of being a holder in due course except the notice for want of
consideration. In the case at bar, PNB may not be considered as a holder for value. Not only
was PNB an immediate party or privy to the promissory note, knowing fully well that
petitioners only signed as accommodation parties, but more importantly it was the Deed of
Assignment which moved the petitioners to sign the promissory note. Petitioners also relied
on the belief that there will be no alterations to the terms of the agreement. The deed provided
that there will no further conditions which could possibly alter the agreement without the
consent of the petitioner such as the grant of greater priority to obligations other than the
payment of the loan. This notwithstanding, the bank approved the release of payments to
the Company instead of the same to the bank. This was in violation of the deed of
assignment and prejudiced the rights of petitioners. The bank was not in good faitha
requisite for a holder to be one in due course.

53. SPS. PEDRO VIOLAGO VS BA FINANCE CORPORATION

G.R. NO. 158262, JULY 21, 2008
VELASCO, JR., J.

DOCTRINE: Section 1. Form of Negotiable Instruments. Section 52. What constitutes a holder in
due course.

FACTS: Avelino Violago, President of Violago Motor Sales Corporation (VMSC), offered to sell a
Toyota Cressida Model 1983 to increase the sales quota to his cousin, Pedro F. Violago and his
wife, Florencia. Spouses would just have to pay a down payment of PhP 60.5K while the balance
would be financed by BA Finance. The spouses would pay the monthly installments to BA
Finance while Avelino would take care of the documentation and approval of financing of the
car. August 4, 1983: the spouses and Avelino signed a promissory note under which they bound
themselves to pay jointly and severally to the order of VMSC the amount of PhP 209,601 in 36
monthly installments of PhP 5,822.25 a month, the first installment to be due and payable on
September 16, 1983. Avelino prepared a Disclosure Statement of Loan/Credit Transportation
which showed the net purchase price of the vehicle, down payment, balance, and finance
charges. VMSC then issued a sales invoice in favor of the spouses with a detailed description of
the Toyota Cressida car.

In turn, the spouses executed a chattel mortgage over the car in favor of VMSC as security for
the amount of PhP 209,601. VMSC, through Avelino, endorsed the promissory note to BA

Page 77 of 133
Finance without recourse. After receiving the amount of PhP 209,601. VMSC executed a Deed of
Assignment of its rights and interests under the promissory note and chattel mortgage in favor
of BA Finance. Meanwhile, the spouses remitted the amount of PhP 60,500 to VMSC through
Avelino. Spouses were unaware that the same car had already been sold in 1982 to Esmeraldo
Violago, another cousin of Avelino. Since VMSC failed to deliver the car, Pedro did not pay any
monthly amortization to BA Finance. BA Finance filed with the RTC a complaint for Replevin with
Damages against the spouses.

RTC favored BA finance , however, declared that they are entitled to be indemnified by Avelino.
CA affirmed - promissory note was a negotiable instrument and that BA Finance was a holder in
due course.

ISSUE: WON, the holder of an invalid PN may be considered a holder in due course.

HELD: Yes. Section 52. What constitutes a holder in due course.A 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.

(a) the PN, Exhibit A, is complete and regular; (b) the PN was endorsed by the VMSC in
favor of the Appellee; (c) the Appellee, when it accepted the Note, acted in good faith and for
value; (d) the Appellee was never informed, before and at the time the Promissory Note was
endorsed to the Appellee, that the vehicle sold to the Defendants-Appellants was not delivered
to the latter and that VMSC had already previously sold the vehicle to Esmeraldo Violago.
Although Jose Olvido mortgaged the vehicle to Generoso Lopez, who assigned his rights to the
BA Finance Corporation (Cebu Branch), the same occurred only on May 8, 1987, much later than
August 4, 1983, when VMSC assigned its rights over the Chattel Mortgage by the Defendants-
Appellants to the Appellee. Hence, Appellee was a holder in due course. Since BA Finance is a
holder in due course, petitioners cannot raise the defense of non-delivery of the object and
nullity of the sale against the corporation. VMSC is a family-owned corporation of which Avelino
was president. Avelino committed fraud in selling the vehicle to petitioners, a vehicle that was
previously sold to Avelinos other cousin, Esmeraldo. Avelino clearly defrauded petitioners. His
actions were the proximate cause of petitioners loss. He cannot now hide behind the separate
corporate personality of VMSC to escape from liability for the amount adjudged by the trial court
in favor of petitioners. Obligation was incurred in the name of the corporation, the petitioner
would still be personally liable therefor because for all legal intents and purposes, he and the
corporation are one and the same.
54. EQUITABLE PCI BANK VS ROWENA ONG
G.R. NO. 156207, SEPTEMBER 15, 2006

Page 78 of 133
 CHICO-NAZARIO, J.
DOCTRINE: Sec. 62. Liability of acceptor. The acceptor by accepting the instruments engages
that he will pay it according to the tenor of his acceptance; and admits
(a) The existence of the drawer, the genuineness of his signature, and his capacity and authority
to draw the instrument; and (b) The existence of the payee and his then capacity to indorse.
FACTS: Warliza Sarande deposited in her account at Philippine Commercial International Bank a
check in the amount of P225,000.00. Sarande was then informed that said check has been
cleared. Relying on such assurance, she issued two (2) checks where one was issued to
respondent Rowena Ong Owing to a business transaction. The latter then requested PCI Bank to
convert the proceeds thereof into a manager's check, which the PCI Bank obliged. When Ong
deposited the manager's check in her account with Equitable Banking Corporation, she received
a check return-slip informing her that PCI Bank had stopped the payment of the said check on
the ground of irregular issuance. Ong then filed a complaint for sum of money against herein
petitioner. Petitioner countered that the check was returned as the account against which it was
drawn was already closed.

ISSUE: WON, petitioner Bank is liable to pay questioned check.

HELD: Yes. This Court held that by admitting it committed an error, clearing the manager's check
of Sarande and issuing in favor of Ong not just any check but a manager's check for that matter,
PCI Bank's liability is fixed. Since the Bank had certified that check, such certification is equivalent
to acceptance and petitioner bank as drawee bank is bound on the instrument upon certification
and it is immaterial to such liability in favor of the plaintiff who is a holder in due course whether
the drawer had funds or not with the defendant-bank or the drawer was indebted to the bank
for more than the amount of the check as the certifying bank as all the liabilities under Sec. 62
of the Negotiable Instruments Law which refers to liability of acceptor.

It may be true that said check was actually not funded but since plaintiff became a holder in due
course, defendant-bank cannot interpose a defense of want or lack of consideration because
that defense is equitable or personal and cannot prosper against a holder in due course pursuant
to Section 28 of the Negotiable Instruments Law. Therefore, when the aforementioned check
was endorsed and presented by the plaintiff and certified to and accepted by defendant-bank in
the purchase of PCIB Manager's Check No. 1983 in the amount of P132,000.00, there was a valid
consideration. Moreover, what Ong obtained from PCI Bank was not just any ordinary check but
a manager's check. A manager's 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 its peculiar
character and general use in commerce, a manager's check is regarded substantially to be as
good as the money it represents. A manager's check stands on the same footing as a certified
check. The effect of certification is found in Section 187, NIL, which provides: "Where a check is
certified by the bank on which it is drawn, the certification is equivalent to an acceptance." By
accepting said check and issuing in turn a manager's check in exchange thereof, PCI Bank
assumed the liabilities of an acceptor under Section 62 of the Negotiable Instruments Law.

LIABILITIES OF PARTIES- DRAWER

Page 79 of 133
 55. NATIVIDAD GEMPESAW VS CA
G.R. NO. 92244, FEBRUARY 9, 1993
CAMPOS, JR., J.
DOCTRINE: 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 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.

FACTS: Gempensaw was the owner of many grocery stores. She paid her suppliers 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. This is not a suit by the party whose signature was forged on a check drawn
against the drawee bank. The payees are not parties to the case. Rather, it is the drawer, whose
signature is genuine, who instituted this action to recover from the drawee bank the money
value of eighty-two (82) checks paid out by the drawee bank to holders of those checks where
the indorsements of the payees were forged. How and by whom the forgeries were committed
are not established on the record, but the respective payees admitted that they did not receive
those checks and therefore never indorsed the same.

ISSUES: 1. WON, petitioner can set up the defense of forgery by reason of her gross negligence ?
NO.
2. WON, respondent drawee Bank may be held liable to share the loss with the petitioner? YES.

HELD: 1. NO.. Gempesaw cannot set up the defense of forgery by reason of her negligence. As a
rule, a drawee bank (in this case the Philippine Bank of Communications) who has paid a check
on which an indorsement has been forged cannot charge the drawers (Gempesaws) account for
the 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. 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 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. 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. In the case at bar, Gempesaw
relied implicitly upon the honesty and loyalty of Galang, and did not even verify the accuracy of
amounts of the checks she signed against the invoices attached thereto. Furthermore, although
she regularly received her bank statements, she apparently did not carefully examine the same
nor the check stubs and the returned checks, and did not compare them with the same invoices.

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Otherwise, she could have easily discovered the discrepancies between the checks and the
documents serving as bases for the checks. With such discovery, the subsequent forgeries would
not have been accomplished. It was not until two years after Galang commenced her fraudulent
scheme that Gempesaw discovered that eighty-two (82) checks were wrongfully charged to her
account, at which she notified the Philippine Bank of Communications. Under Section 23 of the
NIL, she is now precluded from using the forgery to prevent the bank's debiting of her account.

2. YES. Thus, it is clear that under the NIL, petitioner is precluded from raising the defense of
forgery by reason of her gross negligence. But under Section 196 of the NIL, any case not
provided for in the Act shall be governed by the provisions of existing legislation. Under the laws
of quasi-delict, she cannot point to the negligence of the respondent drawee Bank in the
selection and supervision of its employees as being the cause of the loss because negligence is
the proximate cause thereof and under Article 2179 of the Civil Code, she may not be awarded
damages. However, under Article 1170 of the same Code the respondent drawee Bank may be
held liable for damages. The article provides Those who in the performance of their
obligations are guilty of fraud, negligence or delay, and those who in any manner contravene the
tenor thereof, are liable for damages.

There is no question that there is a contractual relation between petitioner as depositor

(obligee) and the respondent 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 corresponds with the
circumstance of the persons, of the time and of the place. . . . Premises considered, respondent
drawee Bank is adjudged liable to share the loss with the petitioner on a fifty-fifty ratio in
accordance with Article 172 which provides: Responsibility arising from negligence in the
performance of every kind of obligation is also demandable, but such liability may be regulated
by the courts according to the circumstances.

RULES GOVERNING ACCEPTANCE

56. FAR EAST BANK & TRUST COMPANY vs. GOLD PALACE JEWELLERY CO.
August 20, 2008/G.R. No. 168274
NACHURA, J.

Page 81 of 133
DOCTRINE: Act No. 2031, or the NIL, explicitly provides that the acceptor, by accepting the
instrument, engages that he will pay it according to the tenor of his acceptance.

FACTS: Samuel Tagoe purchased jewelries worth P258,000 from herein respondent thru a
foreign draft. The foreign draft that is issued for P380,000 and was cleared and released by
herein petitioner in favor of the respondent. The said draft is addressed to Land Bank of the
Philippines who paid the petitioner of the said amount. However, LBP later found out that the
amount had been materially altered from P300.00 to P380,000.00. To this effect, it asked
reimbursement from the petitioner which paid the whole amount thereof. Hence, petitioner
took an action to recover the amount from the respondent by debiting their personal account
without notifying the latter but was able to recover a partial amount since respondent already
consumed some of it. After several demands remain unheeded, the petitioner filed an action for
collection of sum of money before the RTC. Respondents denied the allegations and interposed
as a defense that the complaint states no cause of action-the subject foreign draft having been
cleared and the respondent not being the party who made the material alteration. RTC ruled in
favor of the petitioner, reversed by CA upon appeal ruling that its remedy should be against the
party responsible for the alteration.
ISSUE: WON, there was acceptance on the part of the drawee bank?
HELD: YES. Act No. 2031 or the NIL explicitly provides that 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. The latter then credited
to Gold Palace's account the payment it received. Following the plain language of the law, the
drawee, by the said payment, recognized and complied with its obligation to pay in accordance
with the tenor of his acceptance. The tenor of the acceptance is determined by the terms of the
bill, as it is when the drawee accepts. Stated simply, 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.
Because of that engagement, 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 course-it 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. Having relied on the drawee bank's clearance and payment of the draft and not
being negligent (it delivered the purchased jewelry only when the draft was cleared and paid),
respondent is amply protected by the said Section 62. Commercial policy favors the protection of
any one who, in due course, changes his position on the faith of the drawee bank's clearance and
payment of a check or draft.
LIABILITIES OF PARTIES-INDORSER

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57. ALLIED BANKING CORPORATION vs. LIM SIO WAN, METROPOLITAN BANK AND TRUST CO., AND
PRODUCERS BANK
MARCH 27, 2008/G.R NO. 133179
VELASCO, JR.
DOCTRINE: 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 itself,
and ultimately should be held liable therefor. This general rule is subject to exceptions. One such
exception is when the issuance of the check itself was attended with negligence. Thus, the
institution issuing the check is just as liable as or more liable than the collecting bank.

FACTS: On November 14, 1983, respondent Lim Sio Wan deposited with petitioner Allied Banking
Corporation a money market placement of PhP 1,152,597.35 for a term of 31 days to mature
on December 15, 1983. On December 5, 1983, a person claiming to be Lim Sio Wan called up
Cristina So, an officer of Allied, and instructed the latter to pre-terminate respondents money
market placement, to issue a managers check representing the proceeds of the placement, and
to give the check to one Deborah Dee Santos. Later, Santos arrived at the bank and signed the
application form for a managers check to be issued. The bank issued the managers check
representing the proceeds of the respondent money market placement. The check was cross-
checked For Payees Account Only and given to Santos. Thereafter, the managers check was
deposited in the account of Filipinas Cement Corporation (FCC) at respondent Metrobank, with
the forged signature of the respondent as indorser.

Earlier, on September 21, 1983, FCC had deposited a money market placement for PhP 2
million with respondent Producers Bank. Santos was the money market trader assigned to
handle FCCs account. When the placement matured, FCC demanded the payment of the
proceeds of the placement. On December 5, 1983, the same date that So received the phone call
instructing her to pre-terminate the respondents placement, the managers check in the name of
Lim Sio Wan was deposited in the account of FCC, purportedly representing the proceeds of
FCCs money market placement with Producers Bank. In other words, the Allied check was
deposited with Metrobank in the account of FCC as Producers Banks payment of its obligation to
FCC. To clear the check and in compliance with the requirements of the PCHC Rules and
Regulations, Metrobank stamped a guaranty on the check, which reads: All prior endorsements
and/or lack of endorsement guaranteed. The check was sent to Allied and upon presentment, it
funded the check even without checking the authenticity of Lim Sio Wans purported
indorsement.
Upon the maturity date of the first money market placement, respondent went to Allied
to withdraw it. She was then informed that the placement had been pre-terminated upon her
instructions. She denied giving any instructions and receiving the proceeds thereof. Later on
respondent sent a demand letter to Allied asking for the payment of the first placement. Allied
refused to pay Lim Sio Wan, claiming that the latter had authorized the pre-termination of the
placement and its subsequent release to Santos. Respondent filed with the RTC a Complaint
against Allied to recover the proceeds of her first money market placement.

ISSUE: Whether or not the CA erred in holding Allied and Metrobank liable?
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HELD: NO. Respondent did not authorize the release of her money market placement to Santos
and the bank had been negligent in so doing. Allied avers that even if it had issued the check
payment, the money represented by the check would still be lost because of Metrobanks
negligence in indorsing the check without verifying the genuineness of the indorsement thereon.
The warranty that the instrument is genuine and in all respects what it purports to be covers all
the defects in the instrument affecting the validity thereof, including a forged
indorsement. Thus, the last indorser will be liable for the amount indicated in the negotiable
instrument even if a previous indorsement was forged. 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 itself, and ultimately should be held liable
therefor. This general rule is subject to exceptions. One such exception is when the issuance of
the check itself was attended with negligence. Thus, this Court held the institution issuing the
check just as liable as or more liable than the collecting bank. In this case, the RTC correctly
found Allied negligent in issuing the managers check and in transmitting it to Santos without
even a written authorization. Allied did not even ask for the certificate evidencing the money
market placement or call up the respondent at her residence or office to confirm her
instructions. To reiterate, had Allied exercised the diligence due from a financial institution, the
check would not have been issued and no loss of funds would have resulted. In fact, there would
have been no issuance of indorsement had there been no check in the first place. The liability of
Allied is concurrent with that of Metrobank as the last indorser of the check. When Metrobank
indorsed the check in compliance with the PCHC Rules and Regulations without verifying the
authenticity of Lim Sio Wans indorsement and when it accepted the check despite the fact that it
was cross-checked payable to payees account only, its negligent and cavalier indorsement
contributed to the easier release of Lim Sio Wans money and perpetuation of the fraud. Given
the relative participation of Allied and Metrobank to the instant case, both banks cannot be
adjudged as equally liable. Hence, the 60:40 ratio of the liabilities of Allied and Metrobank, as
ruled by the CA, must be upheld.

58. ANAMER SALAZAR vs. J.Y. BROTHERS MARKETING CORPORATION

October 20, 2010/G.R. No. 171998
PERALTA, J.
DOCTRINE: There are only two ways, which indicate the presence of novation and thereby
produce the effect of extinguishing an obligation by another, which substitutes the same. First,
novation must be explicitly stated and declared in unequivocal terms, as novation is never
presumed. Secondly, the old and the new obligations must be incompatible on every point. The
test of incompatibility is whether or not the two obligations can stand together, each one having
its independent existence. If they cannot, they are incompatible and the latter obligation novates
the first.
FACTS: J.Y. Brothers Marketing (J.Y. Bros.) is a corporation engaged in the business of selling
sugar, rice and other commodities. On October 15, 1996, Anamer Salazar, a freelance sales
agent, was approached by Isagani Calleja and Jess Kallos, if she knew a supplier of rice.
Answering in the positive, petitioner accompanied the two to J.Y. Bros. As a consequence,
petitioner with Calleja and Kallos procured from J. Y. Bros. 300 cavans of rice worth P214,000.00.
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As payment, petitioner negotiated and indorsed to J.Y. Bros. Prudential Bank Check No. 067481
dated October 15, 1996 issued by Nena Jaucian Timario in the amount of P214,000.00 with the
assurance that the check is good as cash. On that assurance, J.Y. Bros. parted with 300 cavans of
rice to Salazar. However, upon presentment, the check was dishonored due to closed account.
Informed of the dishonor of the check, Calleja, Kallos and Salazar delivered to J.Y. Bros. a
replacement cross Solid Bank Check No. PA365704 dated October 29, 1996 again issued by Nena
Jaucian Timario in the amount of P214,000.00 but which, just the same, bounced due to
insufficient funds. When despite the demand letter dated February 27, 1997, petitioner failed to
settle the amount due J.Y. Bros., the latter charged Salazar and Timario with the crime of estafa
before the Regional Trial Court of Legaspi City.

ISSUE: WON, respondent's acceptance of the Solid Bank check which replaced the dishonored
Prudential bank check resulted to novation which discharged the latter check?

HELD: NO. There are only two ways, which indicate the presence of novation and thereby
produce the effect of extinguishing an obligation by another, which substitutes the same. First,
novation must be explicitly stated and declared in unequivocal terms, as novation is never
presumed. Secondly, the old and the new obligations must be incompatible on every point. The
test of incompatibility is whether or not the two obligations can stand together, each one having
its independent existence. If they cannot, they are incompatible and the latter obligation novates
the first.
In this case, respondents acceptance of the Solid Bank check, which replaced the
dishonored Prudential Bank check, did not result to novation as there was no express agreement
to establish that petitioner was already discharged from his liability to pay respondent the
amount of P214,000.00 as payment for the 300 bags of rice. Novation is never presumed, there
must be an express intention to novate. When the Solid Bank check was delivered to
respondent, the same was also indorsed by petitioner which shows petitioners recognition of the
existing obligation to respondent to pay P214,000.00 subject of the replaced Prudential Bank
check. Respondents acceptance of the Solid Bank check did not result to any incompatibility,
since the two checks Prudential and Solid Bank checks were precisely for the purpose of
paying the amount of P214,000.00, i.e., the credit obtained from the purchase of the 300 bags of
rice from respondent. Indeed, there was no substantial change in the object or principal
condition of the obligation of petitioner as the indorser of the check to pay the amount of
P214,000.00. It would appear that respondent accepted the Solid Bank check to give petitioner
the chance to pay her obligation. Petitioner also contends that the acceptance of the Solid Bank
check, a non-negotiable check being a crossed check, which replaced the dishonored Prudential
Bank check, a negotiable check, is a new obligation in lieu of the old obligation arising from the
issuance of the Prudential Bank check, since there was an essential change in the circumstance
of each check. Such argument deserves scant consideration. Among the different types of checks
issued by a drawer is the crossed check. The Negotiable Instruments Law is silent with respect to
crossed checks, although the Code of Commerce makes reference to such instruments. We have
taken judicial cognizance of the practice that a check with two parallel lines in the upper left
hand corner means that it could only be deposited and could not be converted into cash. Thus,
the effect of crossing a check relates to the mode of payment, meaning that the drawer had

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intended the check for deposit only by the rightful person, i.e., the payee named therein. The
change in the mode of paying the obligation was not a change in any of the objects or principal
condition of the contract for novation to take place. When the Solid Bank check, which replaced
the Prudential Bank check, was presented for payment, the same was again dishonored; thus,
the obligation, which was secured, by the Prudential Bank check was not extinguished and the
Prudential Bank check was not discharged. Thus, we found no reversible error committed by the
CA in holding petitioner liable as an accommodation indorser for the payment of the dishonored
Prudential Bank check.

59. MARIA TUAZON, ET. AL. vs. HEIRS OF BARTOLOME RAMOS

July 14, 2005/ G.R NO 156262
PANGANIBAN, J.
DOCTRINE: As indorser warranted that upon due presentment, the checks were to be accepted
or paid or both, according to their tenor; and that in case they were dishonored, she would pay
the corresponding amount. After an instrument is dishonored by nonpayment, indorsers cease
to be merely secondarily liable; they become principal debtors whose liability becomes identical
to that of the original obligor.

FACTS: Respondents Heirs of Bartolome alleged that between the period of May 2, 1988 and
June 5, 1988, spouses Leonilo and Maria Tuazon purchased a total of 8,326 cavans of rice from
(the deceased Bartolome) Ramos predecessor-in-interest of respondents. That he paid 4,437
cavans leaving unpaid 3,889 cavans valued at P1,211,919.00. In payment, the spouses Tuazon
issued several Traders Royal Bank checks. But when these checks were encashed, all of the
checks bounced due to insufficiency of funds. Respondents advanced that before issuing said
checks, spouses Tuazon already knew that they had no available fund to support the checks, and
they failed to provide for the payment of these despite repeated demands made on them.
Respondents averred that because spouses Tuazon anticipated that they would be sued, they
conspired with the other defendants to defraud them as creditors by executing fictitious sales of
their properties. They executed simulated sales of three lots in favor of the spouses
Buenaventura. The titles of these properties issued in the names of spouses Tuazon were
cancelled and new ones were issued in favor of the co-defendants spouses Buenaventura,
Alejandro Tuazon and Melecio Tuazon. There was no more property left registered in the names
of spouses Tuazon answerable to creditors.Defendants denied having purchased rice from
Ramos. They alleged that it was Magdalena Ramos, wife of said deceased, who owned and
traded the merchandise and Maria Tuazon was merely her agent. That it was Evangeline Santos
who was the buyer of the rice and issued the checks to Maria Tuazon as payments. That in good
faith the checks were received by petitioner from Evangeline Santos and turned over to Ramos
without knowing that these were not funded. It is for this reason that petitioners have been
insisting on the inclusion of Evangeline Santos as an indispensable party, and her non-inclusion
was a fatal error.
RTC held that petitioner Maria Tuazon had indorsed the questioned checks in favor of
respondents, in accordance with Sections 31 and 63 of the NIL. That Santos was the drawer of
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the checks is thus immaterial to the respondents cause of action. The CA ruled in favor of the
respondents.

ISSUE: WON, petitioner Maria Tuazon is liable for indorsing the said checks to subsequent
holders?

HELD: Yes. As indorser, petitioner Maria Tuazon warranted that upon due presentment, the
checks were to be accepted or paid, or both, according to their tenor; and that in case they were
dishonored, she would pay the corresponding amount. After an instrument is dishonored by
nonpayment, indorsers cease to be merely secondarily liable; they become principal debtors
whose liability becomes identical to that of the original obligor. The holder of a negotiable
instrument need not even proceed against the maker before suing the indorser.Clearly,
Evangeline Santos, as the drawer of the checks, is not an indispensable party in an action against
Maria Tuazon, the indorser of the checks.

60. BPI vs. CA AND BENJAMIN NAPIZA

February 29, 2000/G.R. No. 112392
YNARES-SANTIAGO, J.
DOCTRINE: The collecting bank or last endorser generally suffers the loss because it/he 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 manager's check.

FACTS: Private Respondent (Benjamin Father) deposited in Foreign Currency Deposit Unit
(FCDU) Savings Account in petitioner bank's Buendia Avenue Ext. Branch, a Continental Bank
Manager's Check dated August 17, 1984, payable to "cash" in the amount of $2,500.00 and duly
endorsed by PR on its dorsal side. It appears that the check belonged to a certain Henry who
requested him (PR-Benjamin Father) to deposit the check in his dollar account by way of
accommodation and for the purpose of clearing the same. PR acceded, and agreed to deliver to
Chan a signed blank withdrawal slip, with the understanding that as soon as the check is cleared,
both of them would go to the bank to withdraw the amount of the check upon private
respondent's presentation to the bank of his passbook. Using said withdrawal slip given to Chan,
one Ruben Gayon, Jr. was able to withdraw the amount of $2,541.67 from Private respondents
FCDU Savings Account Notably, the withdrawal slip shows that the amount was payable to
Ramon A. de Guzman and Agnes C. de Guzman and was duly initialed by the branch assistant
manager.Petitioner received communication from the Wells Fargo Bank International of New
York that the said check deposited by PR was a counterfeit check because it was "not of the type
or style of checks issued by Continental Bank International." Mr. Reyes, the manager of
petitioner's Buendia Avenue Ext. Branch, instructed one of its employees, Benjamin IV, (PRs
son), to inform his father that the check bounced. Reyes sent a telegram to PR regarding the
dishonor of the check. In turn, private respondent's son wrote to Reyes stating that the check
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been assigned "for encashment" to Ramon A. de Guzman and/or Agnes C. de Guzman after it
shall have been cleared upon instruction of Chan. He also said that upon learning of the
dishonor of the check, his father immediately tried to contact Chan but the latter was out of
town. Benjamin IV (the son) undertook to return the $2,500 to petitioner but it was not
returned. Hence, petitioner filed a complaint for the return of said amount against private
respondent. Private respondent wrote petitioner's counsel stating that he deposited the check
"for clearing purposes" only to accommodate Chan. RTC ruled in favor of private respondent and
the CA affirmed it.

ISSUE: Whether or not respondent Napiza is liable under his warranties as a general indorser?

HELD: No. PR may be held liable as an indorser of the check or even as an accommodation party.
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. As
correctly held by the CA, in depositing the check in his name, private respondent did not become
the outright owner of the amount 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 manager's 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 respondent's 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 Court's pronouncement that "the collecting bank or last endorser generally suffers the
loss because 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 manager's check.
In the case at bar, petitioner, in allowing the withdrawal of private respondents deposit,
failed to exercise the diligence of a good father of a family. In total disregard of its own rules,
petitioners personnel negligently handled private respondents account to petitioners
detriment. Petitioner violated its own rules by allowing the withdrawal of an amount that is
definitely over and above the aggregate amount of private respondents dollar deposits that had
yet to be cleared. The proximate cause of the withdrawal and eventual loss of the amount of
$2,500.00 on petitioners part was its personnels negligence in allowing such withdrawal in
disregard of its own rules and the clearing requirement in the banking system. In so doing,
petitioner assumed the risk of incurring a loss on account of a forged or counterfeit foreign
check and hence, it should suffer the resulting damage.

LIABILITIES OF PARTIES WARRANTIES

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NOTICE OF DISHONOR- EFFECT OF NOTICE

65. AMADA RETERIO VS PEOPLE OF THE PHILIPPINES

GR NO. 177438/SEPTMBER 24, 2012
BERSAMIN, J.

DOCTRINE: A notice of dishonor received by the maker or drawer of the check is thus
indispensable before a conviction can ensue. The notice of dishonor may be sent by the
offended party or the drawee bank. The notice must be in writing. A mere oral notice to pay a
dishonored check will not suffice.

FACTS: That on May, 2002 accused make, draw and issue China Bank Check in the amount of
50,000.00 payable to the order of Bernardo T. Villadolid to apply on account or for value, the
accused fully knowing well that at the time of the issuance of said check that she does not have
sufficient funds in or credit with the drawee bank for the payment of such check in full upon its
presentment; or the accused having sufficient funds in or credit with the drawee bank when she
make/s or draw/s and issue/s a check but she failed to keep sufficient funds or maintain a credit
to cover the full amount of the check, which check when presented for encashment was
dishonored by the drawee bank for the reason "ACCT. CLOSED" or would have been dishonored
for the same reason had not the drawer, without any valid reason ordered the bank to stop
payment, and despite notice of dishonor and demands for payment, said accused failed and
refused and still fails and refuses to redeem the check or to make arrangement for payment in
full by the drawee of such check within five (5) banking days after receiving the notice of
dishonor

MTCC found the petitioner guilty as charged. RTC affirmed the conviction.

CA: affirmed lower court

ISSUE: WON, all the elements of a violation of BP. 22 were established beyond reasonable doubt.

HELD: NO. For a violation of Batas Pambansa Blg. 22, the Prosecution must prove the following
essential elements, namely:

(1) The making, drawing, and issuance of any check to apply for account or for value;
(2) The knowledge of the maker, drawer, or issuer that at the time of issue there were no
sufficient funds in or credit with the drawee bank for the payment of such check in full
upon its presentment; and
(3) The dishonor of the check by the drawee bank for insufficiency of funds or credit or
the dishonor for the same reason had not the drawer, without any valid cause, ordered
the drawee bank to stop payment.

The existence of the first element of the violation is not disputed. According to the petitioner,
she was "required to issue a check as a collateral for the obligation," and that "she was left with

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no alternative but to borrow the check of her friend and used the said check as a collateral of her
loan." During her cross-examination, she stated that she did not own the check that she drew
and issued to complainant Bernardo Villadolid. Yet, to avoid criminal liability, the petitioner
contends that BP. 22 was applicable only if the dishonored check was actually owned by her; and
that she could not be held liable because the check was issued as a mere collateral of the loan
and not intended to be deposited. The petitioners contentions do not persuade. What Batas
Pambansa Blg. 22 punished was the mere act of issuing a worthless check. The law did not look
either at the actual ownership of the check or of the account against which it was made, drawn,
or issued, or at the intention of the drawee, maker or issuer. Also, that the check was not
intended to be deposited was really of no consequence to her incurring criminal liability under
BP 22.

The State likewise proved the existence of the third element. On direct examination, Villadolid
declared that the check had been dishonored upon its presentment to the drawee bank through
the Bank of the Philippine Islands (BPI) as the collecting bank. The return check memorandum
issued by BPI indicated that the account had already been closed. The petitioner did not deny or
contradict the fact of dishonor. The remaining issue is whether or not the second element. To
establish the existence of the second element, the State should present the giving of a written
notice of the dishonor to the drawer, maker or issuer of the dishonored check. The rationale for
this requirement is to hold a person liable under B.P. Blg. 22, the prosecution must not only
establish that a check was issued and that the same was subsequently dishonored, it must
further be shown that accused knew at the time of the issuance of the check that he did not
have sufficient funds or credit with the drawee bank for the payment of such check in full upon
its presentment.

This knowledge of insufficiency of funds or credit at the time of the issuance of the check is the
second element of the offense. Inasmuch as this element involves a state of mind of the person
making, drawing or issuing the check which is difficult to prove, Section 2 of B.P. Blg. 22 creates a
prima facie presumption of such knowledge.

For this presumption to arise, the prosecution must prove the following:

(a) the check is presented within ninety (90) days from the date of the check;
(b) the drawer or maker of the check receives notice that such check has not been paid by the
drawee; and
(c) the drawer or maker of the check fails to pay the holder of the check the amount due
thereon, or make arrangements for payment in full within five (5) banking days after receiving
notice that such check has not been paid by the drawee.

In other words, the presumption is brought into existence only after it is proved that the issuer
had received a notice of dishonor and that within five days from receipt thereof, he failed to pay
the amount of the check or to make arrangements for its payment. The presumption or prima
facie evidence as provided in this section cannot arise, if such notice of nonpayment by the
drawee bank is not sent to the maker or drawer, or if there is no proof as to when such notice

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was received by the drawer, since there would simply be no way of reckoning the crucial 5-day
period.

A notice of dishonor received by the maker or drawer of the check is thus indispensable before a
conviction can ensue. The notice of dishonor may be sent by the offended party or the drawee
bank. The notice must be in writing. A mere oral notice to pay a dishonored check will not
suffice. To prove that he had sent the written notice of dishonor to the petitioner by registered
mail, Villadolid presented the registry return receipt for the first notice of dishonor dated June
17, 2002 and the registry return receipt for the second notice of dishonor dated July 16, 2002.
However, the petitioner denied receiving the written notices of dishonor. The mere presentment
of the two registry return receipts was not sufficient to establish the fact that written notices of
dishonor had been sent to or served on the petitioner as the issuer of the check. Considering
that the sending of the written notices of dishonor had been done by registered mail, the
registry return receipts by themselves were not proof of the service on the petitioner without
being accompanied by the authenticating affidavit of the person or persons who had actually
mailed the written notices of dishonor, or without the testimony in court of the mailer or mailers
on the fact of mailing. The authentication by affidavit of the mailer or mailers was necessary in
order for the giving of the notices of dishonor by registered mail to be regarded as clear proof of
the giving of the notices of dishonor to predicate the existence of the second element of the
offense. No less would fulfill the quantum of proof beyond reasonable doubt, for, as the Court
said in Ting v. Court of Appeals:

Aside from the above testimony, no other reference was made to the demand letter by the
prosecution. As can be noticed from the above exchange, the prosecution alleged that the
demand letter had been sent by mail. To prove mailing, it presented a copy of the demand letter
as well as the registry return receipt. However, no attempt was made to show that the demand
letter was indeed sent through registered mail nor was the signature on the registry return
receipt authenticated or identified. It cannot even be gleaned from the testimony of private
complainant as to who sent the demand letter and when the same was sent. In fact, the
prosecution seems to have presumed that the registry return receipt was proof enough that the
demand letter was sent through registered mail and that the same was actually received by
petitioners or their agents.

Also, that the wife of Villadolid verbally informed the petitioner that the check had bounced did
not satisfy the requirement of showing that written notices of dishonor had been made to and
received by the petitioner. The verbal notices of dishonor were not effective because it is already
settled that a notice of dishonor must be in writing.

66. MA. ROSARIO CAMPOS vs PEOPLE OF THE PHILIPPINES AND FIRST WOMENS CREDIT CORP.
September 17, 2014/G.R. No. 187401
REYES, J.:
DOCTRINE: Sec. 2. Evidence of knowledge of insufficient funds. The making, drawing, and
issuance of a check payment of which is refused by the drawee because of insufficient funds in
or credit with such bank, when presented within ninety days from the date of the check, shall

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be prima facie evidence of knowledge of such insufficiency of funds or credit unless such maker
or drawer pays the holder thereof the amount due thereon, or makes arrangements for payment
in full by the drawee of such check within five (5) banking days after receiving notice that such
check has not been paid by the drawee.

FACTS: Ma. Rosario Campos obtained a loan, payable on installments, from respondent First
Womens Credit Corporation (FWCC) in the amount of P50,000.00. She issued several postdated
checks in favor of FWCC to cover the agreed installment payments. Fourteen of these checks
drawn against her Current Account No. 6005-05449-92 with BPI Family Bank-Head Office,
however, were dishonored when presented for payment. The checks were declared by the
drawee bank to be drawn against a closed account.After Campos failed to satisfy her
outstanding obligation with FWCC despite demand, she was charged before the Metropolitan
Trial Court (MeTC) of Pasay City with violations of B.P. 22. Campos was tried in absentia, as she
failed to attend court proceedings after being arraigned. The MeTC rendered its decision
convicting the accused of fourteen (14) counts of violations of Batas Pambansa Blg. 22. Feeling
aggrieved Campos appealed to the RTC which uphold Camposconviction. The same were
appealed to CA which affirmed the ruling of the RTC. Hence, this petition.

ISSUE: WON, a demand letter that was sent through registered mail is sufficient to satisfy the
requirements of [BP 22] as to knowledge of the fact of the dishonor of the subject checks?

RULING: Yes. In the instant case, both the RTC and the CA affirmed the MeTCs finding that
the required notice of dishonor from FWCC was received by Campos. To be liable for violation of
B.P. 22, the following essential elements must be present: (1) the making, drawing, and issuance
of any check to apply for account or for value; (2) the knowledge of the maker, drawer, or issuer
that at the time of issue he 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 subsequent dishonor of the
check by the drawee bank for insufficiency of funds or credit or dishonor for the same reason
had not the drawer, without any valid cause, ordered the bank to stop payment. The presence of
the first and third elements is undisputed. In a line of cases, the Court has emphasized the
importance of proof of receipt of such notice of dishonor, although not as an element of the
offense, but as a means to establish that the issuer of a check was aware of insufficiency of funds
when he issued the check and the bank dishonored it, in relation to the second element of the
offense and Section 2 of B.P. 22. Considering that the second element involves a state of mind
which is difficult to establish, Section 2 of B.P. 22 creates a presumption of knowledge of
insufficiency of funds, as it reads:
Sec. 2. Evidence of knowledge of insufficient funds. The making, drawing, and issuance of a
check payment of which is refused by the drawee because of insufficient funds in or credit with
such bank, when presented within ninety days from the date of the check, shall be prima
facie evidence of knowledge of such insufficiency of funds or credit unless such maker or drawer
pays the holder thereof the amount due thereon, or makes arrangements for payment in full by
the drawee of such check within five (5) banking days after receiving notice that such check has
not been paid by the drawee.

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The Court has in truth repeatedly held that the mere presentation of registry return receipts that
cover registered mail was not sufficient to establish that written notices of dishonor had been
sent to or served on issuers of checks. The authentication by affidavit of the mailers was
necessary in order for service by registered mail to be regarded as clear proof of the giving of
notices of dishonor and to predicate the existence of the second element of the offense.

Campos categorically declared in her petition that, [she] has in her favor evidence to show that
she was in good faith and indeed made arrangements for the payment of her obligations
subsequently after the dishonor of the checks. Clearly, this statement was a confirmation that
she actually received the required notice of dishonor from FWCC. Campos could have avoided
prosecution by paying the amounts due on the checks or making arrangements for payment in
full within five (5) days after receiving notice. Unfortunately for Campos, these circumstances
were not established in the instant case. She failed to sufficiently disclose the terms of her
alleged arrangement with FWCC, and to establish that the same had been fully complied with so
as to completely satisfy the amounts covered by the subject checks.

NOTICE OF DISHONOR- FORM OF NOTICE

67. JAIME ALFEREZ vs PEOPLE OF THE PHILIPPINES AND PINGPING CO

G.R. No. 182301/January 31, 2011
NACHURA, J.
DOCTRINE: Receipts for registered letters and return receipts do not by themselves prove
receipt; they must be properly authenticated to serve as proof of receipt of the letter, claimed to
be a notice of dishonor.

FACTS: Petitioner Jaime Alferez purchased construction materials from Cebu ABC Sales
Commercial. As payment for the goods, he issued three (3) checks for the total amount
of P830,998.40. However, the checks were dishonored for having been drawn against a closed
account. Petitioner was thus charged with three (3) counts of violation of Batas Pambansa
Bilang (B.P. Blg.) 22 before the Municipal Trial Court in Cities (MTCC). During the trial, the
prosecution presented its lone witness, private complainant Pingping Co. Thereafter, the
prosecution formally offered the following documentary evidence: (BPI Checks, demand letter,
registry receipt of the Post Office and the returned check ticket).Instead of presenting evidence,
petitioner filed a Demurrer to Evidence on August 8, 2003, or approximately ten (10) months
after the prosecution rested its case. Petitioner averred that the prosecution failed to show that
he received the notice of dishonor or demand letter. The MTCC issued a resolution denying
petitioners Demurrer to Evidence, and rendering judgment finding petitioner guilty as
charged.RTC: On appeal, the RTC rendered Judgment affirming in toto the MTCC decision. In the
same Order, the RTC modified the MTCC resolution by sentencing petitioner to suffer the
penalty of imprisonment for six (6) months for each count of violation of B.P Blg. 22, instead of
fine as originally imposed.

CA: In the assailed Decision, the CA dismissed the petition for lack of merit. It sustained
petitioners conviction as the elements of the crime had been sufficiently established. As to the

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service on petitioner of the notice of dishonor, the appellate court pointed out that petitioner
did not testify, and that he did not object to the prosecutions evidence aimed at proving the fact
of receipt of the notice of dishonor. Consequently, the registry receipt and the return card
adequately show the fact of receipt.

ISSUE: Whether the Registry Receipt and Registry Return Receipt alone without presenting the
person who mailed and/or served the demand letter is sufficient notice of dishonor as required
by BP 22.

RULING: No. After a careful evaluation of the records of the case, we believe and so hold that the
totality of the evidence presented does not support petitioners conviction for violation of B.P.
Blg. 22. Accordingly, this Court has held that the elements of the crime are, as follows: (1) the
making, drawing, and issuance of any check to apply on account or for value; (2) the knowledge
of the maker, drawer, or issuer that at the time of issue he 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 subsequent dishonor of the check by the drawee bank for insufficiency of funds or credit, or
dishonor for the same reason had not the drawer, without any valid cause, ordered the bank to
stop payment. In this case, the first and third elements of the crime have been adequately
established. The prosecution, however, failed to prove the second element. Because this
element involves a state of mind which is difficult to establish, Section 2 of B.P. Blg. 22 creates a
presumption of knowledge of insufficiency of funds under the following circumstances:Sec.
2. Evidence of knowledge of insufficient funds. The making, drawing, and issuance of a check
payment of which is refused by the drawee because of insufficient funds in or credit with such
bank, when presented within ninety days from the date of the check, shall be prima
facie evidence of knowledge of such insufficiency of funds or credit unless such maker or drawer
pays the holder thereof the amount due thereon, or makes arrangements for payment in full by
the drawee of such check within five (5) banking days after receiving notice that such check has
not been paid by the drawee.

In this case, the prosecution merely presented a copy of the demand letter, together with the
registry receipt and the return card, allegedly sent to petitioner. However, there was no attempt
to authenticate or identify the signature on the registry return card. Receipts for registered
letters and return receipts do not by themselves prove receipt; they must be properly
authenticated to serve as proof of receipt of the letter, claimed to be a notice of dishonor. To be
sure, the presentation of the registry card with an unauthenticated signature, does not meet the
required proof beyond reasonable doubt that petitioner received such notice. It is not enough
for the prosecution to prove that a notice of dishonor was sent to the drawee of the check. The
prosecution must also prove actual receipt of said notice, because the fact of service provided
for in the law is reckoned from receipt of such notice of dishonor by the drawee of the check. As
there is insufficient proof that petitioner received the notice of dishonor, the presumption that
he had knowledge of insufficiency of funds cannot arise. The failure of the prosecution to prove
the receipt by petitioner of the requisite notice of dishonor and that he was given at least five (5)
banking days within which to settle his account constitutes sufficient ground for his acquittal.
Nonetheless, petitioners acquittal for failure of the prosecution to prove all elements of the

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offense beyond reasonable doubt does not include the extinguishment of his civil liability for the
dishonored checks. In case of acquittal, the accused may still be adjudged civilly liable.
PROTEST
68. MARLOU L. VELASQUEZ vs SOLIDBANK CORPORATION
G.R. No. 157309/March 28, 2008
REYES, R.T., J
DOCTRINE: Section 152. In what cases protest necessary. Where a foreign bill appearing on its
face to be such is dishonored by non-acceptance, it must be duly protested for non-acceptance,
and where such a bill which has not been previously dishonored by non-acceptance, is
dishonored by non-payment, it must be duly protested for non-payment. If it is not so protested,
the drawer and indorsers are discharged. Where a bill does not appear on its face to be a foreign
bill, protest thereof in case of dishonor is unnecessary.
FACTS: Petitioner is engaged in the export business operating under the name Wilderness
Trading. Respondent is a domestic banking corporation organized under Philippine laws. The
case arose out of a business transaction for the sale of dried sea cucumber for export to South
Korea between Wilderness Trading, as seller, and Goldwell Trading of Pusan, South Korea, as
buyer. To facilitate payment of the products, Goldwell Trading opened a letter of credit in favor
of Wilderness Trading in the amount of US$87,500.00 with the Bank of Seoul, Pusan, Korea.
Petitioner applied for credit accommodation with respondent bank for pre-shipment financing
and subsequently was granted. Petitioner was successful in his first two export transactions both
drawn on the letter of credit. The third export shipment, however, yielded a different result.
Petitioner submitted to respondent the necessary documents for his third shipment. Wanting to
be paid the value of the shipment in advance, petitioner negotiated for a documentary sight
draft to be drawn on the letter of credit, chargeable to the account of Bank of Seoul. The sight
draft represented the value of the shipment in the amount of US$59,640.00. As a condition for
the issuance of the sight draft, petitioner executed a letter of undertaking in favor of
respondent. Under the terms of the letter of undertaking, petitioner promised that the draft will
be accepted and paid by Bank of Seoul according to its tenor. Petitioner also held himself liable if
the sight draft was not accepted. By virtue of the letter of undertaking, respondent advanced the
value of the shipment which, at the current rate of exchange at that time was P1,495,115.16,
less bank charges, to petitioner. Respondent then sent all the documents pertinent to the export
transaction to the Bank of Seoul.

Respondent failed to collect on the sight draft as it was dishonored by non-acceptance by the
Bank of Seoul. The reasons given for the dishonor were late shipment, forged inspection
certificate, and absence of countersignature of the negotiating bank on the inspection
certificate. Goldwell Trading likewise issued a stop payment order on the sight draft because
most of the bags of dried sea cucumber exported by petitioner contained soil. Hence,
respondent demanded restitution of the sum advanced.Petitioner failed to heed the
demand.Respondent filed a complaint for recovery of sum of money with the RTC. In his answer,
petitioner alleged that his liability under the sight draft was extinguished when respondent failed
to protest its non-acceptance, as required under the Negotiable Instruments Law (NIL). The RTC
rendered judgment in favor of respondent. On appeal, the same was affirmed by the CA.

Page 95 of 133
ISSUE: WON, petitioner should be held liable to respondent under the sight draft or the letter of
undertaking.

RULING: NO. The petition is without merit. Petitioner is not liable under the sight draft but he is
liable under his letter of undertaking; liability under the letter of undertaking was not
extinguished by non-protest of the dishonor of the sight draft.Petitioners liability under the letter
of undertaking is independent from his liability under the sight draft. He may be held liable under
either the sight draft or the letter of undertaking or both. Admittedly, petitioner was discharged
from liability under the sight draft when respondent failed to protest it for non-acceptance by
the Bank of Seoul. A sight draft made payable outside the Philippines is a foreign bill of
exchange. When a foreign bill is dishonored by non-acceptance or non-payment, protest is
necessary to hold the drawer and indorsers liable. Verily, respondents failure to protest the non-
acceptance of the sight draft resulted in the discharge of petitioner from liability under the
instrument.

Section 152 of the NIL is explicit:

Section 152. In what cases protest necessary. Where a foreign bill appearing on its face to be
such is dishonored by non-acceptance, it must be duly protested for non-acceptance, and where
such a bill which has not been previously dishonored by non-acceptance, is dishonored by non-
payment, it must be duly protested for non-payment. If it is not so protested, the drawer and
indorsers are discharged. Where a bill does not appear on its face to be a foreign bill, protest
thereof in case of dishonor is unnecessary. (Emphasis added). Petitioner, however, can still be
made liable under the letter of undertaking. It bears stressing that it is a separate contract from
the sight draft. The liability of petitioner under the letter of undertaking is direct and primary. It
is independent from his liability under the sight draft. Liability subsists on it even if the sight draft
was dishonored for non-acceptance or non-payment. We cannot accept petitioners thesis that
he is only a mere guarantor under the letter of credit. Petitioner cannot be both the primary
debtor and the guarantor of his own debt. This is inconsistent with the very purpose of a
guarantee which is for the creditor to proceed against a third person if the debtor defaults in his
obligation. Certainly, to accept such an argument would make a mockery of commercial
transactions. Petitioner bound himself liable to respondent under the letter of undertaking if the
sight draft is not accepted. He also warranted that the sight draft is genuine; will be paid by the
issuing bank in accordance with its tenor; and that he will be held liable for the full amount of
the draft upon demand, without necessity of proceeding against the drawee bank. Petitioner
breached his undertaking when the Bank of Seoul dishonored the sight draft and Goldwell
Trading ordered a stop payment order on it for discrepancies in the export documents.

69. ALLIED BANKING CORP. vs CA AND G.G. SPORTSWEAR MFG. CORP, ET. AL
G.R. No. 125851/ July 11, 2006
QUISUMBING, J.
DOCTRINE: No protest on the export bill is necessary to charge all the respondents jointly and
severally liable with G.G. Sportswear since the respondents held themselves liable upon demand
in case the instrument was dishonored and on the surety, they even waived notice of dishonor
as stipulated in their Letters of Guarantee.

Page 96 of 133
FACTS: Petitioner ALLIED purchased Export Bill No. BDO-81-002 in the amount of US $20,085.00
from respondent G.G. Sportswear Mfg. Corporation (GGS). The bill, drawn under a letter of
credit No. BB640549 covered Mens Valvoline Training Suit that was in transit to West Germany
under Cont. #73/S0299. 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
amounting to P151,474.52 and the receipt of which was acknowledged by the latter in its letter
dated June 22, 1981. On the same date, respondents Nari Gidwani and Alcron International Ltd.
(Alcron) 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. Subsequently, the spouses
Leon and Leticia de Villa and Nari Gidwani also executed a Continuing Guaranty/Comprehensive
Surety (surety, for brevity), guaranteeing payment of any and all such credit accommodations
which ALLIED may extend to GGS. 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 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.In their joint answer, respondents GGS and Nari Gidwani admitted the due execution of
the export bill and the Letters of Guaranty in favor of ALLIED, but claimed that they signed blank
forms of the Letters of Guaranty and the Surety, and the blanks were only filled up by ALLIED
after they had affixed their signatures. They also added that the documents did not cover the
transaction involving the subject export bill. On the other hand, the respondents, spouses de
Villa, claimed that they were not aware of the existence of the export bill; they signed blank
forms of the surety; and averred that the guaranty was not meant to secure the export bill.

Respondent Alcron, for its part, alleged that as a foreign corporation doing business in the
Philippines, its branch in the Philippines is merely a liaison office confined to the following duties
and responsibilities, to wit: acting as a message center between its office in Hongkong and its
clients in the Philippines; conducting credit investigations on Filipino clients; and providing its
office in Hongkong with shipping arrangements and other details in connection with its office in
Hongkong. Respondent Alcron further alleged that neither its liaison office in the Philippines nor
its then representative, Hans-Joachim Schloer, had the authority to issue Letters of Guaranty for
and in behalf of local entities and persons. It also invoked laches against petitioner ALLIED. GGS
and Nari Gidwani filed a Motion for Summary Judgment on the ground that since the plaintiff
admitted not having protested the dishonor of the export bill, it thereby discharged GGS from
liability. But the trial court denied the motion. After the presentation of evidence by the
petitioner, only the spouses de Villa presented their evidence. The other respondents did
not. The trial court dismissed the complaint. On appeal, the Court of Appeals modified the ruling
of the trial court holding respondent GGS liable to reimburse petitioner ALLIED the peso
equivalent of the export bill, but it exonerated the guarantors from their liabilities under the
Letters of Guaranty.

ISSUE: WON, respondents, in their capacity as guarantors and surety, be held jointly and
severally liable under the Letters of Guaranty and Continuing Guaranty/Comprehensive Surety,

Page 97 of 133
in the absence of protest on the bill in accordance with Section 152 of the Negotiable
Instruments Law.

RULING: Yes. In this case, the Letters of Guaranty and Surety clearly show that respondents
undertook and bound themselves as guarantors and surety to pay the full amount of the export
bill. 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.

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 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. He cannot
complain that the creditor has not notified him in the absence of a special agreement to that
effect in the contract of suretyship. Therefore, no protest on the export bill is necessary to
charge all the respondents jointly and severally liable with G.G. Sportswear since the
respondents held themselves liable upon demand in case the instrument was dishonored and on
the surety, they even waived notice of dishonor as stipulated in their Letters of Guarantee.

As to respondent Alcron, it is bound by the Letter of Guaranty executed by its representative

Hans-Joachim Schloer. As to the other respondents, not to be overlooked is the fact that,
the Suretyship Agreement they executed, expressly contemplated a solidary obligation,
providing as it did that the sureties hereby guarantee jointly and severally the punctual payment
of any and all such credit accommodations, instruments, loans, which is/are now or may
hereafter become due or owing by the borrower.It is a cardinal rule that if the terms of a
contract are clear and leave no doubt as to the intention of the contracting parties, the literal
meaning of its stipulation shall control. In the present case, there can be no mistaking about
respondents intent, as sureties, to be jointly and severally obligated with respondent G.G.
Sportswear.

70. PRODUCERS BANK PF THE PHILS. vs EXCELSA INDUSTRIES, INC.

G.R. No. 152071/May 8, 2009
TINGA, J.
DOCTRINE: The failure to comply with the requirements of notice of dishonor and protest under
Sections 89 and 152, respectively, of the Negotiable Instruments Law, respondent may not
escape its liability under the separate undertakings, where respondent promised to pay on
demand the full amount of the drafts.

Page 98 of 133
FACTS: Respondent Excelsa Industries, Inc. is a manufacturer and exporter of fuel products,
particularly charcoal briquettes, as an alternative fuel source. Sometime in January 1987,
respondent applied for a packing credit line or a credit export advance with petitioner Producers
Bank of the Philippines, a banking institution duly organized and existing under Philippines
laws.The application was supported by letter of credit. Kwang Ju Bank, Ltd. of Seoul, Korea issued
the letter of credit through its correspondent bank, the BPI in the amount of US$23,000.00 for
the account of Shin Sung Commercial Co., Ltd., also located in Seoul, Korea. T.L. World
Development Corporation was the original beneficiary of the letter of credit. On 05 December
1986, for value received, T.L. World transferred to respondent all its rights and obligations under
the said letter of credit. Petitioner approved respondents application for a packing credit line in
the amount of P300,000.00, of which about P96,000.00 in principal remained outstanding.
Respondent executed the corresponding promissory notes evidencing the indebtedness. Prior to
the application for the packing credit line, respondent had obtained a loan from petitioner in the
form of a bill discounted and secured credit accommodation in the amount of P200,000.00, of
which P110,000.00 was outstanding at the time of the approval of the packing credit line. The
loan was secured by a real estate mortgage. Respondent presented for negotiation to petitioner
drafts drawn under the letter of credit and the corresponding export documents in consideration
for its drawings in the amounts of US$5,739.76 and US$4,585.79. Petitioner purchased the drafts
and export documents by paying respondent the peso equivalent of the drawings. The purchase
was subject to the conditions laid down in two separate undertakings by respondent.Kwang Ju
Bank, Ltd. notified petitioner through cable that the Korean buyer refused to pay respondents
export documents on account of typographical discrepancies. Kwang Ju Bank, Ltd. returned to
petitioner the export documents. Upon learning about the Korean importers non-payment,
respondent sent petitioner a letter, informing the latter that respondent had brought the matter
before the Korea Trade Court and that it was ready to liquidate its past due account with
petitioner. Respondent sent another letter, reiterating the same assurance. In a letter 05
October 1987, Kwang Ju Bank, Ltd. informed petitioner that it would be returning the export
documents on account of the non-acceptance by the importer. Petitioner demanded from
respondent the payment of the peso equivalent of the export documents, plus interest and
other charges, and also of the other due and unpaid loans. Due to respondents failure to heed
the demand, petitioner moved for the extrajudicial foreclosure on the real estate mortgage over
respondents properties. The RTC also that petitioner cannot be presumed to have received the
export proceeds, considering that respondent executed undertakings warranting that the drafts
and accompanying documents were genuine and accurately represented the facts stated therein
and would be accepted and paid in accordance with their tenor.Furthermore, the RTC concluded
that petitioner had no obligation to return the export documents and respondent could not
expect their return prior to the payment of the export advances because the drafts and export
documents were the evidence that respondent received export advances from petitioner. On
appeal, the CA rendered the assailed decision, reversing the RTCs decision. The Court of Appeals
found petitioners negligence as the cause of the refusal by the Korean buyer to pay the export
proceeds based on the following: first, petitioner had a hand in preparing and scrutinizing the
export documents wherein the discrepancies were found; and, second, petitioner failed to
advise respondent about the warning from Kwang Ju Bank, Ltd. that the export documents
would be returned if no explanation regarding the discrepancies would be made.

Page 99 of 133
ISSUE: WON, petitioner complied with the notice requirement?

RULING: The two undertakings signed by respondent are similarly-worded and contained
respondents express warranties. In Velasquez v. Solidbank Corporation, where the drawer
therein also executed a separate letter of undertaking in consideration for the banks negotiation
of its sight drafts, the Court held that the drawer can still be made liable under the letter of
undertaking even if he is discharged due to the banks failure to protest the non-acceptance of
the drafts. The Court explained, thus: Petitioner, however, can still be made liable under the
letter of undertaking. It bears stressing that it is a separate contract from the sight draft. The
liability of petitioner under the letter of undertaking is direct and primary. It is independent from
his liability under the sight draft. Liability subsists on it even if the sight draft was dishonored for
non-acceptance or non-payment.Respondent agreed to purchase the draft and credit petitioner
its value upon the undertaking that he will reimburse the amount in case the sight draft is
dishonored. The bank would certainly not have agreed to grant petitioner an advance export
payment were it not for the letter of undertaking. The consideration for the letter of undertaking
was petitioners promise to pay respondent the value of the sight draft if it was dishonored for
any reason by the Bank of Seoul. Thus, notwithstanding petitioners alleged failure to comply with
the requirements of notice of dishonor and protest under Sections 89 and 152, respectively, of
the Negotiable Instruments Law, respondent may not escape its liability under the separate
undertakings, where respondent promised to pay on demand the full amount of the drafts.

71. ANAMER SALAZAR vs. J.Y. BROTHERS MARKETING CORPORATION

October 20, 2010/G.R. No. 171998
PERALTA, J.
DOCTRINE: The obligation to pay a sum of money is not novated by an instrument that expressly
recognizes the old, changes only the terms of payment, adds other obligations not incompatible
with the old ones or the new contract merely supplements the old one.

72. PNB vs. CA, CAPITOL CITY DEVELOPMENT BANK, PHILIPPINE BANK OF COMMUNICATIONS, and
F. ABANTE MARKETING
April 25, 1996 / G.R. No. 107508
KAPUNAN, J.
DOCTRINE: An alteration is said to be material if it alters the effect of the instrument.

FACTS: A check dated August 7, 1981 in the amount of P97,650 was issued by the Ministry of
Education and Culture (now Department of Education, Culture and Sports [DECS]) payable to F.
Abante Marketing. This check was drawn against PNB (herein petitioner). On August 11, 1981, F.
Abante, 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. Petitioner cleared the check as good and, thereafter, PBCom credited Capitol's account
for the amount stated in the check. However, on October 19, 1981, petitioner returned the
check to PBCom and debited PBCom's account for the amount covered by the check, the reason

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being that there was a "material alteration" of the check number. PBCom, as collecting agent of
Capitol, then proceeded to debit the latter's account for the same amount, and subsequently,
sent the check back to petitioner. Petitioner, however, returned the check to PBCom. On the
other hand, Capitol could not, in turn, debit F. Abante's account since the latter had already
withdrawn the amount of the check. Capitol sought clarification from PBCom and demanded the
re-crediting of the amount. PBCom followed suit by requesting an explanation and re-crediting
from petitioner. Since the demands of Capitol were not heeded, it filed a civil suit with the
Regional Trial Court of Manila against PBCom which, in turn, filed a third-party complaint against
petitioner for reimbursement/indemnity with respect to the claims of Capitol. Petitioner, on its
part, filed a fourth-party complaint against F. Abante Marketing.

RTC: 1.) PNB is ordered to re-credit or reimburse plaintiff Capitol City Development Bank the
amount of P97,650.00, plus interest of 12 percent thereto from October 19, 1981 until the
amount is fully paid;
2.) PNB is ordered to reimburse and indemnify PBCom for whatever amount PBCom pays to
plaintiff;
3.) F. Abante Marketing is ordered to reimburse and indemnify PNB for whatever amount PNB
pays to PBCom;
4.) PBCom is ordered to pay Capitol City Development Bank attorney's fees in the amount of
P10k; but PBCom is entitled to reimbursement/indemnity from PNB; and Philippine National
Bank to be, in turn reimbursed or indemnified by F. Abante Marketing for the same amount;

CA: PBCom is exempted from liability to plaintiff-appellee for attorney's fees and ordering PNB to
honor the check for P97,650.00, with interest as declared by the trial court, and pay plaintiff-
appellee attorney's fees of P10,000.00. After the check shall have been honored by PNB, PBCom
shall re-credit plaintiff-appellee's account with it with the amount.

ISSUE: WON, an alteration of the serial number of a check is a material alteration under the NIL?
HELD: NO. Section 125 of the NIL which provides:
Sec. 125. What constitutes a material alteration. Any alteration which changes:
(a) The date;
(b) The sum payable, either for principal or interest;
(c) The time or place of payment;
(d) The number or the relations of the parties;
(e) The medium or currency in which payment is to be made;
(f) Or which adds a place of payment where no place of payment is specified, or
any other change or addition which alters the effect of the instrument in any
respect, is a material alteration.
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
Instruments Law. The aforementioned alteration did not change the relations between the

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parties. The name of the drawer and the drawee were not altered. The intended payee was the
same. The sum of money due to the payee remained the same.

73. THE INTERNATIONAL CORPORATE BANK, INC. vs. CA and PNB

September 5, 2006/G.R. No. 129910
CARPIO, J.:
DOCTRINE: Alterations of the serial numbers do not constitute material alterations on the
checks.

FACTS: 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.

RTC: Petitioner is not entitled to recover the value of the checks from respondent. The trial court
observed that there was no attempt from petitioner to verify the status of the checks before
petitioner paid the value of the checks or allowed withdrawal of the deposits.

CA: Reversed and set aside the decision of the RTC. It held that checks that have been materially
altered shall be returned within 24 hours after discovery of the alteration. However, the Court of
Appeals ruled that even if the drawee bank returns a check with material alterations after
discovery of the alteration, the return would not relieve the drawee bank from any liability for its
failure to return the checks within the 24-hour clearing period.

ISSUE: 1. WON, an alteration of the serial number of a check is a material alteration under the
NIL?
2. WON, respondent was negligent in failing to recognize within a reasonable period the altered
checks and in not returning the checks within the period?

HELD: PNB is liable to petitioner ICBI for the value of checks.

1.) Checks were not materially altered.

Sections 124 and 125 of the Negotiable Instruments Law, provide:

SEC. 124. Alteration of instrument; effect of. Where a negotiable instrument is

materially altered without the assent of all parties liable thereon, it is avoided, except as
against a party who has himself made, authorized, or assented to the alteration and
subsequent indorsers. But when an instrument has been materially altered and is in the
hands of a holder in due course, not a party to the alteration, he may enforce payment
thereof according to its original tenor.

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 SEC. 125. What constitutes a material alteration. Any alteration which changes:
(a) The date;
(b) The sum payable, either for principal or interest;
(c) The time or place of payment;
(d) The number or the relations of the parties;
(e) The medium or currency in which payment is to be made;
or which adds a place of payment where no place of payment is specified, or any other
change or addition which alters the effect of the instrument in any respect, is a material
alteration.

The case at the 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 aforementioned
alteration did not change the relations between the parties. The name of the drawer and
the drawee were not altered. The intended payee was the same. The sum of money due to
the payee remained the same. x x xThe checks serial number is not the sole indication of its
origin. The checks issuer was therefore sufficiently identified, rendering the referral to the
serial number redundant and inconsequential. x x x
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. Likewise, in the present
case the alterations of the serial numbers do not constitute material alterations on the checks.

2.) 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. Further, considering that respondents motion
for reconsideration was filed late, the Decision, which held respondent liable for the value of
the checks amounting to P1,447,920, had become final and executory.

74. METROPOLITAN BANK AND TRUST COMPANY vs. RENATO D. CABILZO December
6, 2006/G.R. No. 154469
CHICO-NAZARIO, J.:
DOCTRINE: An alteration is said to be material if it changes the effect of the instrument. It means
that 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 Instruments Law.

FACTS: On 12 November 1994, Cabilzo issued a Metrobank Check payable to "CASH" and
postdated on 24 November 1994 in the amount of One Thousand Pesos (P1,000.00). The check
was drawn against Cabilzos Account with Metrobank Pasong Tamo Branch under Current
Account No. 618044873-3 and was paid by Cabilzo to a certain Mr. Marquez, as his sales
commission. Subsequently, the check was presented to Westmont Bank for payment. Westmont
Bank, in turn, indorsed the check to Metrobank for appropriate clearing. Metrobank cleared the

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check for encashment. On 16 November 1994, Cabilzos representative was at Metrobank
Pasong Tamo Branch to make some transaction when he was asked by a bank personnel if
Cabilzo had issued a check in the amount of P91,000.00 to which the former replied in the
negative. On the afternoon of the same date, Cabilzo himself called Metrobank to reiterate
that he did not issue a check in the amount of P91,000.00 and requested that the questioned
check be returned to him for verification, to which Metrobank complied. Upon receipt of the
check, Cabilzo discovered that Metrobank Check which he issued on 12 November 1994 in the
amount of P1,000.00 was altered to P91,000.00 and the date 24 November 1994 was changed to
14 November 1994. Hence, Cabilzo demanded that Metrobank re-credit the amount of
P91,000.00 to his account. Metrobank, however, refused reasoning that it has to refer the
matter first to its Legal Division for appropriate action. Repeated verbal demands followed but
Metrobank still failed to re-credit the amount of P91,000.00 to Cabilzos account.

ISSUE: WON, CA gravely erred in holding metrobank, as drawee bank, liable for the alterations on
the subject check bearing the authentic signature of the drawer thereof?

HELD: Section 124.Alteration of instrument; effect of. Where a negotiable instrument is

materially altered without the assent of all parties liable thereon, it is avoided, except as against
a party who has himself made, authorized, and assented to the alteration and subsequent
indorsers. But when the instrument has been materially altered and is in the hands of a holder in
due course not a party to the alteration, he may enforce the payment thereof according to its
original tenor. Indubitably, Cabilzo was not the one who made nor authorized the alteration.
Neither did he assent to the alteration by his express or implied acts. There is no showing that he
failed to exercise such reasonable degree of diligence required of a prudent man which could
have otherwise prevented the loss. As correctly ruled by the appellate court, Cabilzo was never
remiss in the preparation and issuance of the check, and there were no indicia of evidence that
would prove otherwise. Indeed, Cabilzo placed asterisks before and after the amount in words
and figures in order to forewarn the subsequent holders that nothing follows before and after
the amount indicated other than the one specified between the asterisks. The degree of
diligence required of a reasonable man in the exercise of his tasks and the performance of his
duties has been faithfully complied with by Cabilzo. In fact, he was wary enough that he filled
with asterisks the spaces between and after the amounts, not only those stated in words, but
also those in numerical figures, in order to prevent any fraudulent insertion, but unfortunately,
the check was still successfully altered, indorsed by the collecting bank, and cleared by the
drawee bank, and encashed by the perpetrator of the fraud, to the damage and prejudice of
Cabilzo.

Verily, Metrobank cannot lightly impute that Cabilzo was negligent and is therefore prevented
from asserting his rights under the doctrine of equitable estoppel when the facts on record are
bare of evidence to support such conclusion. 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. Metrobanks reliance on this dictum, is misplaced.

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For one, Metrobanks representation that it is an innocent party is flimsy and evidently,
misleading. At the same time, Metrobank cannot asseverate that Cabilzo was negligent and this
negligence was the proximate cause of the loss in the absence of even a scintilla proof to
buttress such claim. Negligence is not presumed but must be proven by the one who alleges it.
Undoubtedly, Cabilzo was an innocent party in this instant controversy. He was just an ordinary
businessman who, in order to facilitate his business transactions, entrusted his money with a
bank, not knowing that the latter would yield a substantial amount of his deposit to fraud, for
which Cabilzo can never be faulted.

EFFECT OF MATERIAL ALTERATION

75. BANK OF AMERICA vs. PHILIPPINE RACING CLUB

July 30, 2009/ G.R. No. 150228
Associate Justice Teresita J. Leonardo-De Castro
DOCTRINE: The underlying precept on contributory negligence is that a plaintiff who is partly
responsible for his own injury should not be entitled to recover damages in full but must bear
the consequences of his own negligence. The defendant must thus be held liable only for the
damages actually caused by his negligence.

FACTS: Philippine Racing Club (PRCI) is a domestic corporation which maintains several accounts
with different banks in the Metro Manila area, one of which was with Bank of America (BA),
Paseo de Roxas Branch. The authorized joint signatories with respect to said Current Account
were PCIs President (Antonia Reyes) and Vice President for Finance (Gregorio Reyes). On or
about the 2nd week of December 1988, the President and Vice President of PCI were scheduled
to go out of the country in connection with the corporations business. In order not to disrupt
operations in their absence, they pre-signed several checks to insure continuity of operations by
making available cash/money especially to settle obligations that might become due. These
checks were entrusted to the accountant with instruction to make use of the same as the need
arose. The internal arrangement was, in the event there was need to make use of the checks, the
accountant would prepare the corresponding voucher and thereafter complete the entries on
the pre-signed checks.

It turned out that on December 16, 1988, a John Doe presented to BA bank for encashment a
couple of PCIs checks (Nos. 401116 and 401117) with the indicated value of P110,000.00 each.
It is admitted that these 2 checks were among those presigned.
The two (2) checks had similar entries with similar infirmities and irregularities. On the space
where the name of the payee should be indicated (Pay To The Order Of) the following 2-line
entries were instead typewritten: on the upper line was the word "CASH" while the lower line
had the following typewritten words, viz: "ONE HUNDRED TEN THOUSAND PESOS ONLY."

Despite the highly irregular entries on the face of the checks, BA bank, without as much as
verifying and/or confirming the legitimacy of the checks considering the substantial amount

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involved and the obvious infirmity/defect of the checks on their faces, encashed said checks. A
verification process even through a telephone call to PRCI office was not done by BA.
Investigation conducted and it turned out that there was no transaction involving PRCI that call
for the payment of P220,000.00 to anyone. The checks appeared to have come into the hands of
an employee of PRCI (one Clarita Mesina who was subsequently criminally charged for qualified
theft) who eventually completed without authority the entries on the pre-signed checks. PRCIs
demand for BA bank to pay fell on deaf ears. Hence, the complaint.
After due proceedings, the RTC ruled in favor of PCI. Petitioner appealed to CA, however, it
affirmed said decision in toto.

ISSUE: What is the extent of liability of the erring parties?

HELD: The bank shall be liable for the 60% of the actual damages, while PCI should bear 40% of
its own loss. It is admitted that neither of the subject checks contains any material alteration or
erasure. However, presence of irregularities in each check should have alerted the bank to be
cautious before proceeding to encash them which it did not do. It is well-settled that banks are
engaged in a business impressed with public interest, and it is their duty to protect in return
their many clients and depositors who transact business with them. They have the obligation to
treat their clients account meticulously and with the highest degree of care, considering the
fiduciary nature of their relationship. The diligence required of banks, therefore, is more than
that of a good father of a family.

"Material alterations," the misplacement of the typewritten entries for the payee and the
amount on the same blank and the repetition of the amount using a check writer were glaringly
obvious irregularities on the face of the check. Also, if the check had been filled up by the person
who customarily accomplishes the checks of respondent, it should have occurred to petitioners
employees that it would be unlikely such mistakes would be made. All these circumstances
should have alerted the bank to the possibility that the holder or the person who is attempting
to encash the checks did not have proper title to the checks or did not have authority to fill up
and encash the same.

In the case at bar, extraordinary diligence demands that petitioner should have ascertained from
respondent the authenticity of the subject checks or the accuracy of the entries therein not only
because of the presence of highly irregular entries on the face of the checks but also of the
decidedly unusual circumstances surrounding their encashment.

It is highly uncommon for a corporation to make out checks payable to "CASH" for substantial
amounts such as in this case. BA bank plainly failed to adhere to the high standard of diligence
expected of it as a banking institution.
However, PCIs officers practice of pre-signing of blank checks should be deemed seriously
negligent behavior and a highly risky means of purportedly ensuring the efficient operation of
businesses. It should have occurred to respondents officers and managers that the pre-signed
blank checks could fall into the wrong hands as they did in this case where the said checks were
stolen from the company accountant to whom the checks were entrusted. Nevertheless, even if

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we assume that both parties were guilty of negligent acts that led to the loss, the bank will still
emerge as the party foremost liable in this case. In instances where both parties are at fault, the
Court has consistently applied the doctrine of last clear chance in order to assign liability.
In the case at bar, the bank cannot evade responsibility for the loss by attributing negligence on
the part of respondent because, even if we concur that the latter was indeed negligent in pre-
signing blank checks, the former had the last clear chance to avoid the loss. Verily, petitioner had
the final opportunity to avert the injury that befell the respondent. In the interest of fairness,
however, we believe it is proper to consider respondents own negligence to mitigate
petitioners liability.

The underlying precept on contributory negligence is that a plaintiff who is partly responsible for
his own injury should not be entitled to recover damages in full but must bear the consequences
of his own negligence. The defendant must thus be held liable only for the damages actually
caused by his negligence.
Following established jurisprudential precedents, the allocation of sixty percent (60%) of the
actual damages involved in this case (represented by the amount of the checks with legal
interest) BA bank is proper under the premises. PCI should, in light of its contributory negligence,
bear forty percent (40%) of its own loss.

ACCEPTANCE
76.The HSBC Limited-Phil. Branches vs. CIR
June 04, 2014/ G.R. No. 166018
Associate Justice Teresita J. Leonardo-De Castro
DOCTRINE: The acceptance or payment of the subject bill of exchange or order for the payment of money
is done when there is presentment either for acceptance or for payment of the bill of exchange or order
for the payment of money. Whether it be presentment for acceptance or presentment for payment, the
negotiable instrument has to be produced and shown to the drawee for acceptance or to the acceptor for
payment.

FACTS: HSBC performs, among others, custodial services on behalf of its investor-clients,
corporate and individual, resident or non-resident of the Philippines, with respect to their
passive investments in the Philippines, particularly investments in shares of stocks in domestic
corporations. As a custodian bank, HSBC serves as the collection/payment agent with respect to
dividends and other income derived from its investor-clients passive investments. HSBCs
investor-clients maintain Philippine peso and/or foreign currency accounts, which are managed
by HSBC through instructions given through electronic messages. The said instructions are
standard forms known in the banking industry as SWIFT, or "Society for Worldwide Interbank
Financial Telecommunication." In purchasing shares of stock and other investment in securities,
the investor-clients would send electronic messages from abroad instructing HSBC to debit their
local or foreign currency accounts and to pay the purchase price therefor upon receipt of the
securities. Pursuant to the electronic messages of its investor-clients, HSBC purchased and paid
Documentary Stamp Tax (DST) from September to December 1997 and also from January to
December 1998 amounting to 19,572,992.10 and 32,904,437.30, respectively. On August 23,
1999, the Bureau of Internal Revenue (BIR) issued a BIR Ruling to the effect that instructions or

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advises from abroad on the management of funds located in the Philippines which do not involve
transfer of funds from abroad are not subject to DST.

HSBC then filed an administrative claim for the refund of the involved amounts allegedly
representing erroneously paid DST to the BIR. As its claims for refund were not acted upon by
the BIR, HSBC subsequently brought the matter to the CTA in order to suspend the running of
the two-year prescriptive period. CTA ruled in favor of HSBC. However, the Court of Appeals
reversed both decisions of the CTA and ruled that the electronic messages of HSBCs investor-
clients are subject to DST.

ISSUE: WON, there had been acceptance of a bill of exchange on the part of HSBC which would
render it accountable for the payment of DST.

HELD: No. 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 a fixed or determinable future time a sum certain in money to order or to bearer.
The electronic messages of HSBCs investor-clients containing instructions to debit their
respective local or foreign currency accounts in the Philippines and pay a certain named
recipient also residing in the Philippines is not the transaction contemplated under Section 181
of the Tax Code as such instructions are "parallel to an automatic bank transfer of local funds
from a savings account to a checking account maintained by a depositor in one bank." The
electronic messages "cannot be considered negotiable instruments as they lack the feature of
negotiability, which, is the ability to be transferred" and that the said electronic messages are
"mere memoranda" of the transaction consisting of the "actual debiting of the [investor-client-
payors] local or foreign currency account in the Philippines" and "entered as such in the books
of account of the local bank," HSBC.
The electronic messages are not signed by the investor-clients as supposed drawers of a bill of
exchange; they do not contain an unconditional order to pay a sum certain in money as the
payment is supposed to come from a specific fund or account of the investor-clients; and, they
are not payable to order or bearer but to a specifically designated third party. Thus, the
electronic messages are not bills of exchange. As there was no bill of exchange or order for the
payment drawn abroad and made payable here in the Philippines, there could have been no
acceptance or payment that will trigger the imposition of the DST under Section 181 of the Tax
Code. The law imposes DST on either (a) the acceptance or (b) the payment of a foreign bill of
exchange or order for the payment of money that was drawn abroad but payable in the
Philippines. Acceptance applies only to bills of exchange and defined under the Negotiable
Instruments Law as the signification by the drawee of his assent to the order of the drawer. The
acceptance must be in writing and signed by the drawee. It must not express that the drawee
will perform his promise by any other means than the payment of money.

Under the law, therefore, what is accepted is a bill of exchange, and the acceptance of a bill of
exchange is both the manifestation of the drawees consent to the drawers order to pay money
and the expression of the drawees promise to pay. It is "the act by which the drawee manifests
his consent to comply with the request contained in the bill of exchange directed to him and it

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contemplates an engagement or promise to pay." Once the drawee accepts, he becomes an
acceptor. As acceptor, he engages to pay the bill of exchange according to the tenor of his
acceptance. Acceptance is made upon presentment of the bill of exchange, or within 24 hours
after such presentment. Presentment for acceptance is the production or exhibition of the bill of
exchange to the drawee for the purpose of obtaining his acceptance. Presentment for
acceptance is necessary only in the instances where the law requires it. In the instances where
presentment for acceptance is not necessary, the holder of the bill of exchange can proceed
directly to presentment for payment.

Presentment for payment is the presentation of the instrument to the person primarily liable for
the purpose of demanding and obtaining payment thereof. Thus, whether it be presentment for
acceptance or presentment for payment, the negotiable instrument has to be produced and
shown to the drawee for acceptance or to the acceptor for payment. The acceptance or
payment of the subject bill of exchange or order for the payment of money is done when there is
presentment either for acceptance or for payment of the bill of exchange or order for the
payment of money. Applying the above concepts to the matter subjected to DST in these cases,
the electronic messages received by HSBC from its investor-clients abroad instructing the former
to debit the latter's local and foreign currency accounts and to pay the purchase price of shares
of stock or investment in securities do not properly qualify as either presentment for acceptance
or presentment for payment. There being neither presentment for acceptance nor presentment
for payment, then there was no acceptance or payment that could have been subjected to DST
to speak of. Indeed, there had been no acceptance of a bill of exchange or order for the payment
of money on the part of HSBC. As HSBC could not have been an acceptor, then it could not have
made any payment of a bill of exchange or order for the payment of money drawn abroad but
payable here in the Philippines. Thus, HSBC erroneously paid DST on the said electronic
messages for which it is entitled to a tax refund.

77. Equitable PCI Bank vs. Rowena Ong

September 15, 2006/G.R. No. 156207
Associate Justice Minita Chico-Nazario
DOCTRINE: The mere issuance of a managers check is considered an acceptance thereof.

FACTS: On 29 November 1991, Warliza Sarande deposited in her account at Philippine

Commercial International (PCI) Bank Davao City Branch, a PCI Bank General Santos City Branch
Check in the amount of P225,000.00. Upon inquiry by Sarande at PCI Bank on 5 December 1991
on whether the check had been cleared, she received an affirmative answer. Relying on this
assurance, she issued two checks drawn against the proceeds of the said check. One of these
was PCI Bank Check No. 073661 for P132,000.00 which Sarande issued to respondent Rowena
Ong Owing to a business transaction. On the same day, Ong presented to PCI Bank said Check
No. 073661, and instead of encashing it, requested PCI Bank to convert the proceeds thereof
into a manager's check, which the PCI Bank obliged. Whereupon, Ong was issued PCI Bank
Manager's Check No. 10983 dated 5 December 1991 for the sum of P132,000.00, the value of
Check No. 073661. The next day, 6 December 1991, Ong deposited PCI Bank Manager's Check
No. 10983 in her account with Equitable Banking Corporation Davao City Branch. On 9 December

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1991, she received a check return-slip informing her that PCI Bank had stopped the payment of
the said check on the ground of irregular issuance. Despite several demands made by her to PCI
Bank for the payment of the amount in PCI Bank Manager's Check No. 10983, the same was met
with refusal; thus, Ong was constrained to file a Complaint for sum of money, damages and
attorney's fees against PCI Bank.
The trial court ordered PCI to pay the plaintiff P132,000.00 From this decision, PCI Bank sought
recourse before the Court of Appeals, however CA likewise denied the appeal.

ISSUE: WON, the act of PCI in issuing managers check constitute acceptance?
HELD: Yes. The NIL provides that where a check is certified by the bank on which it is drawn, the
certification is equivalent to an acceptance. What Ong obtained from PCI Bank was not just any
ordinary check but a manager's check. A manager's 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 its
peculiar character and general use in commerce, a manager's check is regarded substantially to
be as good as the money it represents. Also, it is a bill of exchange drawn by the cashier of a
bank upon the bank itself, and accepted in advance by the act of its issuance. It is really the
bank's own check and may be treated as a promissory note with the bank as a maker. The check
becomes the primary obligation of the bank which issues it and constitutes its written promise to
pay upon demand. The mere issuance of it is considered an acceptance thereof.
By accepting PCI Bank Check No. 073661 issued by Sarande to Ong and issuing in turn a
manager's check in exchange thereof, PCI Bank assumed the liabilities of an acceptor under
Section 62 of the Negotiable Instruments Law which states:

Sec. 62. Liability of acceptor. The acceptor by accepting the instruments engages that he
will pay it according to the tenor of his acceptance; and admits
(a) The existence of the drawer, the genuineness of his signature, and his capacity and
authority to draw the instrument; and
(b) The existence of the payee and his then capacity to indorse.

Indeed, the banking business is vested with the trust and confidence of the public; hence the
appropriate standard of diligence must be very high, if not the highest degree of diligence. It is
palpable and readily apparent that PCI Bank failed to exercise the highest degree of
care required of it under the law.

78. Security Bank and Trust Co. vs. RCBC

January 30, 2009/ G.R. No. 170984
Associate Justice Leonardo A. Quisumbing
DOCTRINE: By drawing the managers check, the bank admits the existence of the payee and his
then capacity to indorse; and engages that on due presentment, the instrument will be
accepted, or paid, or both, according to its tenor.

FACTS: Security Bank and Trust Company (SBTC) issued a managers check for 8 million, payable
to "CASH," as proceeds of the loan granted to Guidon Construction and Development
Corporation (GCDC). On the same day, the 8-million check, along with other checks, was

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deposited by Continental Manufacturing Corporation (CMC) in its Current Account with Rizal
Commercial Banking Corporation (RCBC). Immediately, RCBC honored the 8-million check and
allowed CMC to withdraw the same. On the next banking day, GCDC issued a "Stop Payment
Order" to SBTC, claiming that the 8-million check was released to a third party by mistake.
Consequently, SBTC dishonored and returned the managers check to RCBC. Thereafter, the
check was returned back and forth between the two banks, resulting in automatic debits and
credits in each banks clearing balance. On February 13, 1981, RCBC filed a complaint for
damages against SBTC. The RTC ruled in favor of RCBC. On appeal, the Court of Appeals affirmed
with modification the said decision.
ISSUE: WON, SBTC is liable to RCBC?

HELD: Yes. By the act of SBTC of drawing the managers check, it admits the existence of the
payee and his then capacity to indorse; and engages that on due presentment, the instrument
will be accepted, or paid, or both, according to its tenor. At the outset, it must be noted that the
questioned check issued by SBTC is not just an ordinary check but a managers check. A
managers check is one drawn by a banks manager upon the bank itself. It stands on the same
footing as a certified check, which is deemed to have been accepted by the bank that certified it.
As the banks own check, a managers check becomes the primary obligation of the bank and is
accepted in advance by the act of its issuance. In this case, RCBC, in immediately crediting the
amount of 8 million to CMCs account, relied on the integrity and honor of the check as it is
regarded in commercial transactions. Where the questioned check, which was payable to "Cash,"
appeared regular on its face, and the bank found nothing unusual in the transaction, as the
drawer usually issued checks in big amounts made payable to cash, RCBC cannot be faulted in
paying the value of the questioned check. SBTC cannot escape liability by invoking Monetary
Board Resolution No. 2202 prohibiting drawings against uncollected deposits. Monetary Board
Resolution No. 2202 provides that banks were given the discretion to allow immediate drawings
on uncollected deposits of managers checks, among others. Consequently, RCBC, in allowing the
immediate withdrawal against the subject managers check, only exercised a prerogative
expressly granted to it by the Monetary Board. Moreover, there exists an extraordinary nature of
the managers check and the relative rights of the parties thereto. SBTCs liability as drawer
remains the same by drawing the instrument, to reiterate, it admits the existence of the payee
and his then capacity to indorse; and engages that on due presentment, the instrument will be
accepted, or paid, or both, according to its tenor.

79. THE INTERNATIONAL CORPORATE BANK (now UNION BANK OF THE PHILIPPINES)vs. SPS.
FRANCIS S. GUECO and MA. LUZ E. GUECO,
February 12, 2001/G.R. No. 141968
Justice Kapunan
DOCTRINE: 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

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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.

FACTS: The respondent Gueco Spouses obtained a loan from petitioner International Corporate
Bank (now Union Bank of the Philippines) to purchase a car - a Nissan Sentra 1600 4DR, 1989
Model. In consideration thereof, the Spouses executed promissory notes which were payable in
monthly installments and chattel mortgage over the car to serve as security for the notes. The
Spouses defaulted in payment of installments. Consequently, the Bank filed on August 7, 1995 a
civil action docketed as Civil Case No. 658-95 for "Sum of Money with Prayer for a Writ of
Replevin. On August 29, 1995, Dr. Gueco delivered a manager's check in amount of P150,000.00
but the car was not released because of his refusal to sign the Joint Motion to Dismiss. It is the
contention of the Gueco spouses and their counsel that Dr. Gueco need not sign the motion for
joint dismissal considering that they had not yet filed their Answer. Petitioner, however, insisted
that the joint motion to dismiss is standard operating procedure in their bank to effect a
compromise and to preclude future filing of claims, counterclaims or suits for damages. After
several demand letters and meetings with bank representatives, the respondents Gueco spouses
initiated a civil action for damages before the Metropolitan Trial Court of Quezon City, Branch
33. The Metropolitan Trial Court dismissed the complaint for lack of merit. On appeal to the
Regional Trial Court, Branch 227 of Quezon City, the decision of the Metropolitan Trial Court was
reversed. The CA afiirmed in toto the decision of the RTC.

ISSUE: (1) whether the CA erred in holding that the Petitioner return the subject car to the
Respondents, without making any provision for the issuance of the new managers/cashiers
check by the Respondents in favor of the Petitioner in lieu of the original cashiers check that
already became stale.

RULING: In the meeting of August 29, 1995, respondent Dr. Gueco delivered a manager's check
representing the reduced amount of P150,000.00. Said check was given to Mr. Rivera, a
representative of respondent bank. However, since Dr. Gueco refused to sign the joint motion to
dismiss, he was made to execute a statement to the effect that he was withholding the payment
of the check. Subsequently, in a letter addressed to Ms. Desi Tomas, vice president of the bank,
dated September 4, 1995, Dr. Gueco instructed the bank to disregard the 'hold order" letter and
demanded the immediate release of his car, to which the former replied that the condition of
signing the joint motion to dismiss must be satisfied and that they had kept the check which
could be claimed by Dr. Gueco anytime. While there is controversy as to whether the document
evidencing the order to hold payment of the check was formally offered as evidence by
petitioners,it appears from the pleadings that said check has not been encashed.

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

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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 such diligence as a prudent man exercises in his own
affairs. This is because the nature and theory behind the use of a check points to its immediate
use and payability. In a case, a check payable on demand which was long overdue by about two
and a half (2-1/2) years was considered a stale check. Failure of a payee to encash a check for
more than ten (10) years undoubtedly resulted in the check becoming stale. Thus, even a delay
of one (1) week or two (2) days, under the specific circumstances of the cited cases constituted
unreasonable time as a matter of law.
In the case at bar, however, the check involved is not an ordinary bill of exchange but a
manager's check. A manager's check is one drawn by the bank's manager upon the bank itself. It
is similar to a cashier's check both as to effect and use. A cashier's check is a check of the bank's
cashier on his own or another check. In effect, it is a bill of exchange drawn by the cashier of a
bank upon the bank itself, and accepted in advance by the act of its issuance. It is really the
bank's own check and may be treated as a promissory note with the bank as a maker.30The check
becomes the primary obligation of the bank which issues it and constitutes its written promise to
pay upon demand. The mere issuance of it is considered an acceptance thereof. If treated as
promissory note, the drawer would be the maker and in which case the holder need not prove
presentment for payment or present the bill to the drawee for acceptance.

80. SPOUSES GIL AND NOELLI GARDOSE, vs. REYNALDO S. TARROZA,

May 19, 1998/ G.R. No. 130570
Penned By: Justice Puno
DOCTRINE: An accommodation party is one who has signed the instrument as maker, drawer,
indorser, without receiving value therefor and for the purpose of lending his name to some
other person. Such person is liable on the instrument to a holder for value, notwithstanding such
holder, at the time of the taking of the instrument knew him to be only an 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.

FACTS: Private respondent filed a complaint for a sum of money with preliminary attachment
against the petitioners, spouses Gil and Noelli Gardose, and a certain Cecilia "Baby"
Cacnio. Petitioners filed their Answer with Counterclaim. They invoked the principle of res
judicata. They also alleged that Noelli Gardose issued the checks in question merely to guarantee
the loans of Cacnio. The trial court rendered its Decision in favor of the private

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respondent. Petitioners again appealed to the Court of Appeals. On April 29, 1997, the appellate
court affirmed the decision of the trial court.

ISSUE: Whether or not petitioner Noelli Gardose is considered as an accommodation party

primarily and unconditionally liable to the private respondent for the three dishonored checks.

RULING: The mere fact that appellant Noelli Gardose issued the three (3) checks to appellee
make her liable to the latter without the need for the appellee to first go after Cecilia Cacnio
because the relationship between an accommodation party and the party accommodated is in
effect one of principal and surety (Coneda, Jr. vs. Court of Appeals, 181 SCRA 673; Prudencio vs.
Court of Appeals, 143 SCRA 7). In the recent case of Town Savings & Loan Bank, Inc. vs. Court of
Appeals, 223 SCRA 459, the Supreme Court held: An accommodation party is one who has signed
the instrument as maker, drawer, indorser, without receiving value therefor and for the purpose
of lending his name to some other person. Such person is liable on the instrument to a holder for
value, notwithstanding such holder, at the time of the taking of the instrument knew him to be
only an 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 (The Phil. Bank of Commerce vs. Aruego, 102 SCRA 530, 539, 540). "From
the foregoing pronouncement of the Supreme Court, it is clear that appellant Noelli Gardose as an
accommodation party is primarily and unconditionally liable to appellee for the three (3) checks that were
dishonored by the drawee bank.

81. MYRON C. PAPA, Administrator of the Testate Estate of Angela M. Butte vs.
A.U. VALENCIA and CO. INC., FELIX PEARROYO, SPS. ARSENIO B. REYES & AMANDA SANTOS, and
DELFIN JAO
January 23, 1998/G.R. No. 105188
Penned By: Justice Kapunan
DOCTRINE: 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 creditor's unreasonable delay in presentment.

FACTS: Sometime in June 1982, herein private respondents A.U. Valencia and Co., Inc. and Felix
Pearroyo, filed with the RTC of Pasig, a complaint for specific performance against herein
petitioner Myron C. Papa, in his capacity as administrator of the Testate Estate of one Angela M.
Butte. The complaint alleged that on 15 June 1973, petitioner Myron C. Papa, acting as attorney-
in-fact of Angela M. Butte, sold to respondent Pearroyo, through respondent Valencia, a parcel
of land, that prior to the alleged sale, the said property, together with several other parcels of
land likewise owned by Angela M. Butte, had been mortgaged by her to the Associated Banking
Corporation (now Associated Citizens Bank); that after the alleged sale, but before the title to
the subject property had been released, Angela M. Butte passed away; that despite

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representations made by herein respondents to the bank to release the title to the property sold
to respondent Pearroyo, the bank refused to release it unless and until all the mortgaged
properties of the late Angela M. Butte were also redeemed; that in order to protect his rights
and interests over the property, respondent Pearroyo caused the annotation on the title of an
adverse claim. The complaint further alleged that it was only upon the release of the title to the
property, sometime in April 1977, that respondents Valencia and Pearroyo discovered that the
mortgage rights of the bank had been assigned to one Tomas L. Parpana (now deceased), as
special administrator of the Estate of Ramon Papa, Jr., on 12 April 1977; that since then, herein
petitioner had been collecting monthly rentals in the amount of P800.00 from the tenants of the
property, knowing that said property had already been sold to private respondents on 15 June
1973; that despite repeated demands from said respondents, petitioner refused and failed to
deliver the title to the property. The trial court ruled in favor of the defendant, Petitioner
appealed the aforesaid decision of the trial court to the CA, alleging among others that the sale
was never "consummated" as he did not encash the check (in the amount of P40,000.00) given
by respondents Valencia and Pearroyo in payment of the full purchase price of the subject lot.
The CA rendered a decision, affirming with modification the trial court's decision. In affirming the
trial court's decision, respondent court held that contrary to petitioner's claim that he did not
encash the aforesaid check, and therefore, the sale was not consummated, there was no
evidence at all that petitioner did not, in fact, encash said check.

ISSUE: WON, there was presentment of the check?

RULING: YES. 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,9 and
having issued receipts therefor. Petitioner's assertion that he never 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 party 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.
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.

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 creditor's 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. It has, likewise, been held that if no presentment is made at all,

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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 no-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.13Considering that respondents Valencia and Pearroyo had fulfilled their part of the
contract of sale by delivering the payment of the purchase price, said respondents, therefore,
had the right to compel petitioner to deliver to them the owner's duplicate of TCT No. 28993 of
Angela M. Butte and the peaceful possession and enjoyment of the lot in question.

82. BANK OF AMERICA, NT & SA VS ASSOCIATED CITIZENS BANK,

BA-FINANCE CORPORATION,MILLER OFFSET PRESS, INC.,
UY KIAT CHUNG, CHING UY SENG,UY CHUNG GUAN SENG, and
CA
May 21, 2009/ G.R. No. 141001
Penned By: Justice Carpio
DOCTRINE: The bank on which a check is drawn, known as the drawee bank, is under strict
liability, based on the contract between the bank and its customer (drawer), to pay the check
only to the payee or the payees order.

FACTS: BA-Finance Corporation (BA-Finance) entered into a transaction with Miller Offset Press,
Inc. (Miller), through the latters authorized representatives, i.e., Uy Kiat Chung, Ching Uy Seng,
and Uy Chung Guan Seng. BA-Finance granted Miller a credit line facility through which the latter
could assign or discount its trade receivables with the former. On 20 October 1978, Uy Kiat
Chung, Ching Uy Seng, and Uy Chung Guan Seng executed a Continuing Suretyship Agreement
with BA-Finance whereby they jointly and severally guaranteed the full and prompt payment of
any and all indebtedness which Miller may incur with BA-Finance.

Miller discounted and assigned several trade receivables to BA-Finance by executing Deeds of
Assignment in favor of the latter. In consideration of the assignment, BA-Finance issued four
checks payable to the Order of Miller Offset Press, Inc. with the notation For Payees Account
Only. These checks were drawn against Bank of America.
The four checks were deposited by Ching Uy Seng (a.k.a. Robert Ching), then the corporate
secretary of Miller, in Account No. 989 in Associated Citizens Bank (Associated Bank). Account
No. 989 is a joint bank account under the names of Ching Uy Seng and Uy Chung Guan
Seng. Associated Bank stamped the checks with the notation all prior endorsements and/or lack
of endorsements guaranteed, and sent them through clearing. Later, the drawee bank, Bank of
America, honored the checks and paid the proceeds to Associated Bank as the collecting bank.

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Miller failed to deliver to BA-Finance the proceeds of the assigned trade receivables.
Consequently, BA-Finance filed a Complaint against Miller for collection of the amount
of P731,329.63 which BA-Finance allegedly paid in consideration of the assignment. Miller, Uy
Kiat Chung, and Uy Chung Guan Seng filed a Joint Answer (to the BA-Finances Complaint) with
Cross-Claim against Ching Uy Seng, wherein they denied that (1) they received the amount
covered by the four Bank of America checks, and (2) they authorized their co-defendant Ching
Uy Seng to transact business with BA-Finance on behalf of Miller. BA-Finance filed an Amended
Complaint impleading Bank of America as additional defendant for allegedly allowing
encashment and collection of the checks by person or persons other than the payee named
thereon. Bank of America filed a Third Party Complaint against Associated Bank. In its Answer to
the Third Party Complaint, Associated Bank admitted having received the four checks for deposit
in the joint account of Ching Uy Seng (a.k.a. Robert Ching) and Uy Chung Guan Seng, but alleged
that Robert Ching, being one of the corporate officers of Miller, was duly authorized to act for
and on behalf of Miller.

ISSUES: Whether the Court of Appeals erred in rendering judgment finding:

(1) Bank of America liable to pay BA-Finance the amount of the four checks;
(2)Associated Bank liable to reimburse Bank of America the amount of the four checks;
and
(3) Ching Uy Seng and/or Uy Chung Guan Seng liable to pay Associated Bank the amount
of the four checks.

RULING: The CA Appeals did not err in finding Bank of America liable to pay BA-Finance the
amount of the four checks.

Bank of America denies liability for paying the amount of the four checks issued by BA-Finance
to Miller, alleging that it (Bank of America) relied on the stamps made by Associated Bank stating
that all prior endorsement and/or lack of endorsement guaranteed, through which Associated
Bank assumed the liability of a general endorser under Section 66 of the NIL. The bank on which
a check is drawn, known as the drawee bank, is under strict liability, based on the contract
between the bank and its customer (drawer), to pay the check only to the payee or the payees
order. The drawers instructions are reflected on the face and by the terms of the check. When
the drawee bank pays a person other than the payee named on the check, it does not comply
with the terms of the check and violates its duty to charge the drawers account only for properly
payable items. Thus, we ruled in Philippine National Bank v. Rodriguez that a drawee should
charge to the drawers accounts only the payables authorized by the latter; otherwise, the
drawee will be violating the instructions of the drawer and shall be liable for the amount charged
to the drawers account.

Among the different types of checks issued by a drawer is the crossed check. The NIL is silent
with respect to crossed checks, although the Code of Commerce makes reference to such
instruments. This Court has taken judicial cognizance of the practice that a check with two
parallel lines in the upper left hand corner means that it could only be deposited and could not

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be converted into cash. Thus, the effect of crossing a check relates to the mode of payment,
meaning that the drawer had intended the check for deposit only by the rightful person, i.e., the
payee named therein. The crossing may be special wherein between the two parallel lines is
written the name of a bank or a business institution, in which case the drawee should pay only
with the intervention of that bank or company, or general wherein between two parallel
diagonal lines are written the words and Co. or none at all, in which case the drawee should not
encash the same but merely accept the same for deposit. In Bataan Cigar v. CA, we enumerated
the effects of crossing a check as follows: (a) the check may not be encashed but only deposited
in the bank; (b) the check may be negotiated only once to one who has an account with a bank;
and (c) 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.

In this case, the four checks were drawn by BA-Finance and made payable to the Order of Miller
Offset Press, Inc. The checks were also crossed and issued For Payees Account Only. Clearly, the
drawer intended the check for deposit only by Miller Offset Press, Inc. in the latters bank
account. Thus, when a person other than Miller, i.e., Ching Uy Seng, a.k.a. Robert Ching,
presented and deposited the checks in his own personal account (Ching Uy Sengs joint account
with Uy Chung Guan Seng), and the drawee bank, Bank of America, paid the value of the checks
and charged BA-Finances account therefor, the drawee Bank of America is deemed to have
violated the instructions of the drawer, and therefore, is liable for the amount charged to the
drawers account.
The CA did not err in finding Associated Bank liable to reimburse Bank of America the amount of
the four checks. A collecting bank where a check is deposited, and which endorses the check
upon presentment with the drawee bank, is an endorser. Under Section 66 of the NIL, an
endorser warrants that the instrument is genuine and in all respects what it purports to be; that
he has good title to it; that all prior parties had capacity to contract; and that the instrument is at
the time of his endorsement valid and subsisting. This Court has repeatedly held that in check
transactions, 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. When
Associated Bank stamped the back of the four checks with the phrase all prior endorsements
and/or lack of endorsement guaranteed, that bank had for all intents and purposes treated the
checks as negotiable instruments and, accordingly, assumed the warranty of an endorser. Being
so, Associated Bank cannot deny liability on the checks.
The CA did not err in finding Ching Uy Seng and/or Uy Chung Guan Seng liable to pay Associated
Bank the amount of the four checks. It is well-settled that a person who had not given value for
the money paid to him has no right to retain the money he received. This Court, therefore,
quotes with approval the ruling of the CA in its decision:

It appearing, however, from the evidence on record that since Ching Uy Seng
and/or Uy Chung Guan Seng received the proceeds of the checks as they were
deposited in their personal joint account with Associated Bank, they should,

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 therefore, be obliged to reimburse Associated Bank for the amount it has to pay
to Bank of America, in line with the rule that no person should be allowed to
unjustly enrich himself at the expense of another.

RULES GOVERNING ACCEPTANCE

83/84. FAR EAST BANK & TRUST COMPANY v GOLD PALACE JEWELLERY CO., as represented by
Judy L. Yang, Julie Yang-Go and Kho Soon Huat
2008/G.R. No. 168274
NACHURA, J.
DOCTRINE: Liability of acceptor - The acceptor, by accepting the instrument, engages that he will
pay it according to the tenor of his acceptance and admits:
(a) The existence of the drawer, the genuineness of his signature, and his capacity and authority
to draw the instrument; and
(b) The existence of the payee and his then capacity to indorse.
(SECTION 62, NIL)

PROMISSORY NOTES
85. RODRIGO RIVERA vs. SPOUSES SALVADOR CHUA AND VIOLETA S. CHUA
G .R. No. 184458/JANUARY 14, 2015

DOCTRINE: The Promissory Note in this case is made out to specific persons, herein respondents,
the Spouses Chua, and not to order or to bearer, or to the order of the Spouses Chua as payees.
However, even if Riveras Promissory Note is not a negotiable instrument and therefore outside
the coverage of Section 70 of the NIL which provides that presentment for payment is not
necessary to charge the person liable on the instrument, Rivera is still liable under the terms of
the Promissory Note that he issued.

FACTS: On 24 February 1995, Rivera obtained a loan from the Spouses Chua.
PROMISSORY NOTE 120,000.00 FOR VALUE RECEIVED, I, RODRIGO RIVERA promise to pay
spouses SALVADOR C. CHUA and VIOLETA SY CHUA, the sum of One Hundred Twenty Thousand
Philippine Currency (120,000.00) on December 31, 1995.xxxx
In October 1998, almost three years from the date of payment stipulated in the promissory note,
Rivera, as partial payment for the loan, issued and delivered to the Spouses Chua, as payee, two
checks drawn against Riveras current account with the Philippine Commercial International Bank
(PCIB). Upon presentment for payment, the two checks were dishonored for the reason
account closed. The Spouses Chua alleged that they have repeatedly demanded payment from
Rivera to no avail. Because of Riveras unjustified refusal to pay, the Spouses Chua were
constrained to file a suit on 11 June 1999. After trial, the MeTC ruled in favor of the Spouses
Chua. On appeal, the RTC affirmed the Decision of the MeTC. Both trial courts found the PN as
authentic and validly bore the signature of Rivera.

ISSUE: WON, there is a valid PN executed by Rivera.

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RULING: Rivera next argues that even assuming the validity of the Promissory Note, demand was
still necessary in order to charge him liable thereunder. Rivera argues that it was grave error on
the part of the appellate court to apply Section 70 of the Negotiable Instruments Law (NIL). We
agree that the subject promissory note is not a negotiable instrument and the provisions of the
NIL do not apply to this case. Section 1 of the NIL requires the concurrence of the following
elements to be a negotiable instrument: (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.

On the other hand, Section 184 of the NIL defines what negotiable promissory note is: SECTION
184. Promissory Note, Defined. A negotiable promissory note within the meaning of this Act is
an unconditional promise in writing made by one person to another, signed by the maker,
engaging to pay on demand, or at a fixed or determinable future time, a sum certain in money to
order or to bearer. Where a note is drawn to the makers own order, it is not complete until
indorsed by him.
The Promissory Note in this case is made out to specific persons, herein respondents, the
Spouses Chua, and not to order or to bearer, or to the order of the Spouses Chua as payees.
However, even if Riveras Promissory Note is not a negotiable instrument and therefore outside
the coverage of Section 70 of the NIL which provides that presentment for payment is not
necessary to charge the person liable on the instrument, Rivera is still liable under the terms of
the Promissory Note that he issued.

CROSSED CHECK
86.EQUITABLE BANKING CORP. VS. SPECIAL STEEL PRODUCTS, INC., ET. AL.,
June 13, 2012/ G.R. No. 175350
DEL CASTILLO, J.:
DOCTRINE: A crossed check with the notation account payee only can only be deposited in the
named payees account. It is gross negligence for a bank to ignore this rule solely on the basis of a
third partys oral representations of having a good title thereto.

FACTS: Respondent Special Steel Products, Inc. (SSPI) is a private domestic corporation selling
steel products. Its co-respondent Augusto L. Pardo (Pardo) is SSPIs President and majority
stockholder. International Copra Export Corporation (Interco) is its regular customer Jose Isidoro
Uy,alias Jolly Uy is an Interco employee, in charge of the purchasing department, and the son-in-
law of its majority stockholder. Petitioner Equitable Banking Corporation (Equitable or
bank) is a private domestic corporation engaged in banking and is the depository bank of Interco
and of Uy. SSPI soldwelding electrodes to Interco, as evidenced by sales invoices.In payment for
the above welding electrodes, Interco issued three checks payable to the order of SSPI Each
check was crossed with the notation account payee only and was drawn against Equitable.
The records only disclose that Uy presented each crossed check to Equitable on the day
of its issuance and claimed that he had good title thereto. He demanded the deposit of the
checks in his personal accounts in Equitable. .Equitable acceded to Uys demands on the
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assumption that Uy, as the son-in-law of Intercos majority stockholder, was acting pursuant to
Intercos orders. The bank also relied on Uys status as a valued client. Thus, Equitable accepted
the checks for deposit in Uys personal accountsand stamped ALL PRIOR ENDORSEMENT AND/OR
LACK OF ENDORSEMENT GUARANTEED on their dorsal portion.Uy promptly withdrew the
proceeds of the checks. Then, SSPI reminded Interco of the unpaid welding electrodes. SSPI
explained its immediate need for payment as it was experiencing some financial crisis of its own.
Interco replied that it had already issued three checks payable to SSPI and drawn against
Equitable. SSPI denied receipt of these checks. Interco finally paid the value of the three checks
to SSPI, plus a portion of the accrued interests. Interco refused to pay the entire accrued interest
on the ground that it was not responsible for the delay.SSPI was unable to collect tin interest
income.Thus, this prompted SSPI and its president, Pardo, filed a complaint for damages with
application for a writ of preliminary attachment against Uy and Equitable Bank. The complaint
alleged that the three crossed checks, all payable to the order of SSPI and with the notation
account payee only, could be deposited and encashed by SSPI only. However, due to Uys
fraudulent representations, and Equitables indispensable connivance or gross negligence, the
restrictive nature of the checks was ignored and the checks were deposited in Uys account. Had
the defendants not diverted the three checks in July 1991, the plaintiffs could have used them in
their business and earned money from them.

ISSUE: Whether Equitable Bank may be held liable for damages based on quasi- delict for the
payment of a crossed-check to a wrong payee?

HELD: Yes. For its role in the conversion of the checks, which deprived SSPI of the use thereof,
Equitable is solidarily liable with Uy to compensate SSPI for the damages it suffered.The checks
that Interco issued in favor of SSPI were all crossed, made payable to SSPIs order, and contained
the notation account payee only. This creates a reasonable expectation that the payee alone
would receive the proceeds of the checks and that diversion of the checks would be averted.
This expectation arises from the accepted banking practice that crossed checks are intended for
deposit in the named payees account only and no other. The fact that a person, other than
the named payee of the crossed check, was presenting it for deposit should have put the bank
on guard. It should have verified if the payee (SSPI) authorized the holder (Uy) to present the
same in its behalf, or indorsed it to him.Considering however, that the named payee does not
have an account with Equitable (hence, the latter has no specimen signature of SSPI by which to
judge the genuineness of its indorsement to Uy), the bank knowingly assumed the risk of relying
solely on Uys word that he had a good title to the three checks. Such misplaced reliance on
empty words is tantamount to gross negligence. Equitable contends that its knowledge that
Uy is the son-in-law of the majority stockholder of the drawer, Interco, made it safe to assume
that the drawer authorized Uy to countermand the order appearing on the check. In other
words, Equitable theorizes that Interco reconsidered its original order and decided to give the
proceeds of the checks to Uy.That the bank arrived at this conclusion without anything on the
face of the checks to support it is demonstrative of its lack of caution. It is troubling that
Equitable proceeded with the transaction based only on its knowledge that Uy had close
relations with Interco. The bank did not even make inquiries with the drawer, Interco (whom the
bank considered a valued client), to verify Uys representation.

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FALLO: WHEREFORE, premises considered, the Petition is PARTIALLY GRANTED. The assailed
Decision of the CA is MODIFIED by:
1. REVERSING the dismissal of Equitable Banking Corporations cross-claim against Jose Isidoro
Uy, alias Jolly Uy. Jolly Uy is hereby ORDERED to REIMBURSE Equitable Banking Corporation the
amounts that the latter will pay to respondents.
2. Additionally, the Court hereby REVERSES the dismissal of Equitable Banking Corporations
counterclaim for damages against Special Steel Products, Inc. This Court ORDERSSpecial Steel
Products, Inc.to PAY Equitable Banking Corporation actual damages in the total amount of
P30,204.36, for the wrongful preliminary attachment of its properties.

87. PHILIPPINE COMMERCIAL INTERNATIONAL BANK, vs. ANTONIO B. BALMACEDA and ROLANDO
N. RAMOS,
September 21, 2011/ G.R. No. 158143
BRION, J.
DOCTRINE: the crossing of a check has the following effects: (a) the check may not be encashed
but only deposited in the bank; (b) the check may be negotiated only once to the one who has
an account with the bank; and (c) the act of crossing the check serves as a warning to the holder
that the check has been issued for a definite purpose and he must inquire if he received the
check pursuant to this purpose; otherwise, he is not a holder in due course.

FACTS: PCIB filed an action for recovery of sum of money with damages before the RTC against
Antonio Balmaceda alleging that by taking advantage of his position as branch manager,
fraudulently obtained and encashed 31 Managers checks. PCIB impleaded Rolando Ramos as
one of the recipients of a portion of the proceeds from Balmacedas alleged fraud. Balmaceda
did not file an Answer, he was declared in default. Ramos filed an Answer denying any
knowledge of Balmacedas scheme. According to Ramos, he is a reputable businessman engaged
in the business of buying and selling fighting cocks, and Balmaceda was one of his clients. Ramos
admitted receiving money from Balmaceda as payment for the fighting cocks that he sold to
Balmaceda, but maintained that he had no knowledge of the source of Balmacedas money.The
RTC found that Balmaceda, by taking undue advantage of his position and authority as branch
manager successfully obtained and misappropriated the banks funds by falsifying several
commercial documents. He accomplished this by claiming that he had been instructed by one of
the Banks corporate clients to purchase Managers checks on its behalf, with the value of the
checks to be debited from the clients corporate bank account. First, he would instruct the Bank
staff to prepare the application forms for the purchase of Managers checks, payable to several
persons. Then, he would forge the signature of the clients authorized representative on these
forms and sign the forms as PCIBs approving officer. Finally, he would have an authorized officer
of PCIB issue the Managers checks. Balmaceda would subsequently ask his subordinates to
release the Managers checks to him, claiming that the client had requested that he deliver the
checks. After receiving the Managers checks, he encashed them by forging the signatures of the
payees on the checks.

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In ruling that Ramos acted in collusion with Balmaceda, the RTC noted that although the
Managers checks payable to Ramos were crossed checks, Balmaceda was still able to encash the
checks. After Balmaceda encashed three of these Managers checks, he deposited most of the
money into Ramos account.The CA dismissed the complaint against Ramos. The mere fact that
Balmaceda made Ramos the payee in some of the Managers checks does not suffice to prove
that Ramos was complicit in Balmacedas fraudulent scheme. It observed that other persons
were also named as payees in the checks that Balmaceda acquired and encashed, and PCIB only
chose to go after Ramos. With PCIBs failure to prove Ramos actual participation in Balmacedas
fraud, no legal and factual basis exists to hold him liable.

ISSUE:.WON, PCIB is at fault when it allowed Balmaceda to encash the Managers checks that
were plainly crossed checks.

HELD: Yes. One point that cannot be disregarded is the significant role that PCIB played which
contributed to the perpetration of the fraud. We cannot ignore that Balmaceda managed to
carry out his fraudulent scheme primarily because other PCIB employees failed to carry out their
assigned tasks flaws imputable to PCIB itself as the employer.
Ms. Analiza Vega, an accounting clerk, teller and domestic remittance clerk testified that
Balmaceda broke the Banks protocol when he ordered the Banks employees to fill up the
application forms for the Managers checks, to be debited from the bank account of one of the
banks clients, without providing the necessary Authority to Debit from the client.PCIB also
admitted that these Managers checks were subsequently released to Balmaceda, and not to the
clients representative, based solely on Balmacedas word that the client had tasked him to
deliver these checks.Despite Balmacedas gross violations of bank procedures mainly in the
processing of the applications for Managers checks and in the releasing of the Managers checks
Balmacedas co-employees not only turned a blind eye to his actions, but actually complied
with his instructions. In this way, PCIBs own employees were unwitting accomplices in
Balmacedas fraud.Another telling indicator of PCIBs negligence is the fact that it allowed
Balmaceda to encash the Managers checks that were plainly crossed checks. A crossed check is
one where two parallel lines are drawn across its face or across its corner. Based on
jurisprudence, the crossing of a check has the following effects: (a) the check may not be
encashed but only deposited in the bank; (b) the check may be negotiated only once to the
one who has an account with the bank; and (c) the act of crossing the check serves as a warning
to the holder that the check has been issued for a definite purpose and he must inquire if he
received the check pursuant to this purpose; otherwise, he is not a holder in due course. In other
words, the crossing of a check is a warning that the check should be deposited only in the
account of the payee. When a check is crossed, it is the duty of the collecting bank to ascertain
that the check is only deposited to the payees account. In complete disregard of this duty,
PCIBs systems allowed Balmaceda to encash 26 Managers checks which were all crossed
checks, or checks payable to the "payees account only." The General Banking Law of
2000 requires of banks the highest standards of integrity and performance. The banking business
is impressed with public interest. Of paramount importance is the trust and confidence of the
public in general in the banking industry. Consequently, the diligence required of banks is more

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than that of a Roman pater familias or a good father of a family. The highest degree of diligence
is expected.

88. EQUITABLE BANKING CORPORATION, INC. vs. SPECIAL STEEL PRODUCTS, and AUGUSTO L.
PARDO
June 13, 2012/G.R. No. 175350
DEL CASTILLO, J.
DOCTRINE: A crossed check with the notation account payee only can only be deposited in the
named payees account. It is gross negligence for a bank to ignore this rule solely on the basis of a
third partys oral representations of having a good title thereto.

FACTS: Respondent Special Steel Products, Inc. (SSPI) is a private domestic corporation selling
steel products. International Copra Export Corporation (Interco) is its regular customer.Jose
IsidoroUy, alias Jolly Uy (Uy), is an Interco employee, in charge of the purchasing department,
and the son-in-law of its majority stockholder. Petitioner Equitable Banking Corporation
(Equitable or bank) is a private domestic corporation engaged in bankingand is the depository
bank of Interco and of Uy. SSPI sold welding electrodes to Interco. In payment for the above
welding electrodes, Interco issued three checks payable to the order of SSPI. Each check was
crossed with the notation "account payee only" and was drawn against Equitable. Uy presented
each crossed check to Equitable on the day of its issuance and claimed that he had good title
thereto.He demanded the deposit of the checks in his personal accounts in Equitable.Equitable
acceded to Uys demands on the assumption that Uy, as the son-in-law of Intercos majority
stockholder,was acting pursuant to Intercos orders. The bank also relied on Uys status as a
valued client. Thus, Equitable accepted the checks for deposit in Uys personal accounts. Uy
promptly withdrew the proceeds of the checks.
SSPI demanded from Interco of the unpaid welding electrodes. Interco replied that it had already
issued three checks payable to SSPI and drawn against Equitable. SSPI denied receipt of these
checks.SSPI requested information from Equitable regarding the three checks. The bank refused
to give any information invoking the confidentiality of deposits. It was determined that Uy, not
SSPI, received the proceeds of the three checks that were payable to SSPI. Interco finally paid the
value of the three checks to SSPI, plus a portion of the accrued interests. Interco refused to pay
the entire accrued interest on the ground that it was not responsible for the delay.SSPI and its
president, Pardo, filed a complaint for damages with application for a writ of preliminary
attachment against Uy and Equitable Bank. The complaint alleged that the three crossed checks,
all payable to the order of SSPI and with the notation "account payee only," could be deposited
and encashed by SSPI only. However, due to Uys fraudulent representations, and Equitables
indispensable connivance or gross negligence, the restrictive nature of the checks was ignored
and the checks were deposited in Uys account. Had the defendants not diverted the three
checks, the plaintiffs could have used them in their business and earned money from them.

Equitable argued that it is not liable to SSPI because it accepted the three crossed checks in good
faith.Equitable averred that, due to Uys close relations with the drawer of the checks, the bank
had basis to assume that the drawer authorized Uy to countermand the original order stated in
the check (that it can only be deposited in the named payees account). Since only Uy is

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responsible for the fraudulent conversion of the checks, he should reimburse Equitable for any
amounts that it may be made liable to plaintiffs. Uy answered that the checks were negotiated
to him; that he is a holder for value of the checks and that he has a good title thereto. He did not,
however, explain how he obtained the checks, from whom he obtained his title, and the value
for which he received them.

ISSUE: Won, the bank was negligent when it deposited the crossed checks in another persons
account other than the named payee.

HELD: YES. A crossed check with the notation account payee only can only be deposited in the
named payees account. It is gross negligence for a bank to ignore this rule solely on the basis of a
third partys oral representations of having a good title thereto.The checks that Interco issued in
favor of SSPI were all crossed, made payable to SSPIs order, and contained the notation
"account payee only." This creates a reasonable expectation that the payee alone would receive
the proceeds of the checks and that diversion of the checks would be averted. This expectation
arises from the accepted banking practice that crossed checks are intended for deposit in the
named payees account only and no other. At the very least, the nature of crossed checks should
place a bank on notice that it should exercise more caution or expend more than a cursory
inquiry, to ascertain whether the payee on the check has authorized the holder to deposit the
same in a different account. It is well to remember that "[t]he banking system has become an
indispensable institution in the modern world and plays a vital role in the economic life of every
civilized society. Whether as mere passive entities for the safe-keeping and saving of money or
as active instruments of business and commerce, banks have attained an [sic] ubiquitous
presence among the people, who have come to regard them with respect and even gratitude
and, above all, trust and confidence. In this connection, it is important that banks should guard
against injury attributable to negligence or bad faith on its part. As repeatedly emphasized, since
the banking business is impressed with public interest, the trust and confidence of the public in it
is of paramount importance. Consequently, the highest degree of diligence is expected, and high
standards of integrity and performance are required of it." The fact that a person, other than the
named payee of the crossed check, was presenting it for deposit should have put the bank on
guard. It should have verified if the payee (SSPI) authorized the holder (Uy) to present the same
in its behalf, or indorsed it to him. Considering however, that the named payee does not have an
account with Equitable (hence, the latter has no specimen signature of SSPI by which to judge
the genuineness of its indorsement to Uy), the bank knowingly assumed the risk of relying solely
on Uys word that he had a good title to the three checks. Such misplaced reliance on empty
words is tantamount to gross negligence, which is the "absence of or failure to exercise even
slight care or diligence, or the entire absence of care, evincing a thoughtless disregard of
consequences without exerting any effort to avoid them."
Managers Check

89. SECURITY BANK AND TRUST COMPANY vs. RIZAL COMMERCIAL BANKING CORPORATION
January 30, 2009/ G.R. No. 170984
QUISUMBING, Acting C.J.

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DOCTRINE: A managers check is one drawn by a banks manager upon the bank itself. It stands
on the same footing as a certified check, which is deemed to have been accepted by the bank
that certified it. As the banks own check, a managers check becomes the primary obligation of
the bank and is accepted in advance by the act of its issuance.

FACTS: Security Bank and Trust Company (SBTC) issued a managers check for 8 million, payable
to "CASH," as proceeds of the loan granted to Guidon Construction and Development
Corporation (GCDC). On the same day, the 8-million check, along with other checks, was
deposited by Continental Manufacturing Corporation (CMC) in its Current Account with Rizal
Commercial Banking Corporation (RCBC). RCBC honored the 8-million check and allowed CMC
to withdraw the same. On the next banking day, GCDC issued a "Stop Payment Order" to SBTC,
claiming that the 8-million check was released to a third party by mistake. SBTC dishonored and
returned the managers check to RCBC. Thereafter, the check was returned back and forth
between the two banks, resulting in automatic debits and credits in each banks clearing
balance.4 RCBC filed a complaint for damages against SBTC. Meanwhile, following the rules of the
Philippine Clearing House, RCBC and SBTC stopped returning the checks to each other. By way of
a temporary arrangement pending resolution of the case, the 8-million check was equally
divided between, and credited to, RCBC and SBTC.RCBC avers that the managers check issued by
SBTC is substantially as good as the money it represents because by its peculiar character, its
issuance has the effect of an advance acceptance. RCBC claims that it is a holder in due course
when it credited the 8-million managers check to CMCs account. Accordingly, RCBC asserts
that SBTCs refusal to honor its obligation justifies RCBC claim for lost interest income, exemplary
damages and attorneys fees. On the other hand, SBTC contends that RCBC violated Monetary
Board Resolution No. 2202 of the Central Bank of the Philippines mandating all banks to verify
the genuineness and validity of all checks before allowing drawings of the same. SBTC insists that
RCBC should bear the consequences of allowing CMC to withdraw the amount of the check
before it was cleared.

ISSUE: won, SBTC is liable to RCBC for the remaining 4 million

HELD: Yes. The questioned check issued by SBTC is not just an ordinary check but a managers
check. A managers check is one drawn by a banks manager upon the bank itself. It stands on
the same footing as a certified check,which is deemed to have been accepted by the bank that
certified it. As the banks own check, a managers check becomes the primary obligation of the
bank and is accepted in advance by the act of its issuance.In this case, RCBC, in immediately
crediting the amount of 8 million to CMCs account, relied on the integrity and honor of the
check as it is regarded in commercial transactions. Where the questioned check, which was
payable to "Cash," appeared regular on its face, and the bank found nothing unusual in the
transaction, as the drawer usually issued checks in big amounts made payable to cash, RCBC
cannot be faulted in paying the value of the questioned check.SBTC cannot escape liability by
invoking Monetary Board Resolution No. 2202 dated December 21, 1979, prohibiting drawings
against uncollected deposits. For we must point out that the Central Bank at that time issued a
Memorandum dated July 9, 1980, which interpreted said Monetary Board Resolution No. 2202.
In its pertinent portion, said Memorandum reads:

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"MEMORANDUM TO ALL BANKS
July 9, 1980
For the guidance of all concerned, Monetary Board Resolution No. 2202 dated December 31,
1979 prohibiting, as a matter of policy, drawing against uncollected deposit effective July 1,
1980, uncollected deposits representing managers cashiers/ treasurers checks, treasury
warrants, postal money orders and duly funded "on us" checks which may be permitted at the
discretion of each bank, covers drawings against demand deposits as well as withdrawals from
savings deposits."

It is clear from the July 9, 1980 Memorandum that banks were given the discretion to allow
immediate drawings on uncollected deposits of managers checks, among others. Consequently,
RCBC, in allowing the immediate withdrawal against the subject managers check, only exercised
a prerogative expressly granted to it by the Monetary Board.

91. BPI VS. WILFRED N. CHIOK,

G.R. No. 175302, Nov. 26, 2014
METROPOLITAN BANK AND TRUST COMPANY
vs. WILFRED N. CHIOK,
November 26, 2014/G.R. No. 172652
LEONARDO-DE CASTRO, J.
DOCTRINE: The legal effects of a managers check and a cashiers check are the same. A
managers check, like a cashiers 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 its peculiar
character and general use in commerce, a managers check or a cashiers check is regarded
substantially to be as good as the money it represents.

FACTS: Respondent Wilfred N. Chiok (Chiok) had been engaged in dollar trading for several years.
He usually buys dollars from Gonzalo B. Nuguid (Nuguid) at the exchange rate prevailing on the
date of the sale. Chiok pays Nuguid either in cash or managers check, to be picked up by the
latter or deposited in the latters bank account. Nuguid delivers the dollars either on the same
day or on a later date as may be agreed upon between them, up to a week later. July 5, 1995,
Asian Bank issued MC No. 025935 in the amount of P7,550,000.00 and MC No. 025939 in the
amount of P10,905,350.00 to Gonzalo Bernardo, who is the same person as Gonzalo B. Nuguid.
The two Asian Bank managers checks, with a total value of P18,455,350.00 were issued
pursuant toChioks instruction and was debited from his account. Chiok then deposited the three
checks (Asian Bank MC Nos. 025935 and 025939, and Metrobank CC No. 003380), with an
aggregate value of P26,068,350.00 in Nuguids account with FEBTC the predecessor-in-interest
of petitioner BPI Nuguid was supposed to deliver US$1,022,288.50,4 the dollar equivalent of the
three checks as agreed upon, in the afternoon of the same day. Nuguid, however, failed to do so,
prompting Chiok to request that payment on the three checks be stopped. Chiok was allegedly
advised to secure a court order within the 24-hour clearing period.Chiok filed a Complaint for
damages with application for ex parte restraining order and/or preliminary injunction with the
RTC of Quezon City against the spouses Gonzalo and Marinella Nuguid, and the depositary

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banks, Asian Bank and Metrobank. The RTC issued a TRO directing the spouses Nuguid to refrain
from presenting the said checks for payment and the depositary banks from honoring the
sameuntil further orders from the court. FEBTC, as the collecting bank, filed a complaint against
Asian Bank before the Philippine Clearing House Corporation (PCHC) Arbitration Committee for
the collection of the value of Asian Bank MC No. 025935 and 025939, which FEBTC had allegedly
allowed Nuguid to withdraw on July 5, 1995, the same day the checks were deposited.In their
own Answer, the spouses Nuguid claimed that Gonzalo Nuguid had delivered much more dollars
than what was required for the three checks at the time of payment. RTC- The contract to buy
foreign currency in the amount of $1,022,288.50 between plaintiff-appellee Wilfred N. Chiok and
defendant Gonzalo B. Nuguid is hereby rescinded. Corollarily, Managers Check Nos. 025935 and
025939 and Cashiers Check No. 003380 are ordered cancelled.

CA- Affirmed; by depositing the subject checks to the account of Nuguid, Chiok had already
performed his obligation under the contract, and the subsequent failure of Nuguid to comply
with what was incumbent upon him gave rise to an action for rescission pursuant to Article 1191
of the Civil Code
ISSUE: WON, (a) payment of managers and cashiers checks are subject to the condition that the
payee thereof should comply with his obligations to the purchaser of the checks
(b) the purchaser of managers and cashiers checks has the right to have the checks cancelled by
filing an action for rescission of its contract with the payee

HELD: (a) No. While indeed, it cannot be said that managers and cashiers checks are pre-
cleared, clearing should not be confused with acceptance. Managers and cashiers checks are
still the subject of clearing to ensure that the same have not been materially altered or
otherwise completely counterfeited. However, managers and cashiers checks are pre-accepted
by the mere issuance thereof by the bank, which is both its drawer and drawee. Thus, while
managers and cashiers checks are still subject to clearing, they cannot be countermanded for
being drawn against a closed account, for being drawn against insufficient funds, or for similar
reasons such as a condition not appearing on the face of the check. Long standing and accepted
banking practicesdo not countenance the countermanding of managers and cashiers checks on
the basis of a mere allegation of failure of the payee to comply with its obligations towards the
purchaser. On the contrary, the accepted banking practice is that such checks are as good as
cash.

(b) No. The right of rescission under Article 1191 of the Civil Code can only be exercised in
accordance with the principle of relativity of contracts under Article 1131 of the same code,
which provides:

Art. 1311. Contracts take effect only between the parties, their assigns and heirs, except
in case where the rights and obligations arising from the contract are not transmissible by
their nature, or by stipulation or by provision of law.

Reciprocal obligations are those which arise from the same cause, and in which

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each party is a debtor and a creditor of the other, such that the obligation of one is dependent
upon the obligation of the other. They are to be performed simultaneously such that the
performance of one is conditioned upon the simultaneous fulfillment of the other. When Nuguid
failed to deliver the agreed amount to Chiok, the latter had a cause of action against Nuguid to
ask for the rescission of their contract. On the other hand, Chiok did not have a cause of action
against Metrobank and Global Bank that would allow him to rescind the contracts of sale of the
managers or cashiers checks, which would have resulted in the crediting of the amounts
thereof back to his accounts.

In several cases, this Court has ruled that under the civil law principle of relativity of
contracts under Article 1131, contracts can only bind the parties who entered into it, and it
cannot favor or prejudice a third person, even if he is aware of such contract and has acted with
knowledge thereof. Metrobank and Global Bank are not parties to the contract to buy foreign
currency between Chiok and Nuguid. Therefore, they are not bound by such contract and cannot
be prejudiced by the failure of Nuguid to comply with the terms thereof.

FALLO: WHEREFORE, the Court resolves to DENY the Joint Manifestation and Motion filed with
this Court. The petitions are GRANTED. The Decision of the CA and the Resolution are hereby
REVERSED AND SET ASIDE, and a new one is issued ordering the DENIAL of the Amended
Complaint. The Writ of Preliminary Prohibitory Injunction enjoining Asian Banking Corporation
(now Global Business Bank, Inc.) from honoring MC No. 025935 and MC No. 025939, and
Metropolitan Bank & Trust Company from honoring CC No. 003380, is hereby LIFTED and SET
ASIDE.

CASHIERS CHECK
92. THE INTERNATIONAL CORPORATE BANK (now UNION BANK OF THE PHILIPPINES) vs. SPS.
FRANCIS S. GUECO and MA. LUZ E. GUECO
FEBRUARY 12, 2001/G.R. NO. 141968
KAPUNAN, J.
DOCTRINE: A cashiers check is a check of the banks cashier on his own or another check. In
effect, it is a bill of exchange drawn by the cashier of a bank upon the bank itself, and accepted in
advance by the act of its issuance. The check becomes the primary obligation of the bank which
issues it and constitutes its written promise to pay upon demand. The mere issuance of it is
considered an acceptance thereof.
FACTS: Respondent spouses Gueco obtained a loan from petitioner International Corporate Bank
(now Union Bank of the Philippines) to purchase a car. The Spouses executed promissory notes
which were payable in monthly installments and chattel mortgage over the car to serve as
security for the notes. The spouses defaulted on the payment of installments. The bank filed a
civil action for sum of money with prayer for a writ of replevin. Upon issuance of the writ, the car
was detained inside the banks compound. After some negotiations, Gueco delivered a
managers check amounting to P150,000 (which was the agreed amount) to the bank but the car
was not released because of his refusal to sign a Joint Motion to Dismiss. It is the contention of
Gueco that there is no need to sign the motion while the bank insisted that it is part of their
operating standard procedure to preclude future filing of claims, counterclaims or suits for
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damages.Failing to get the car from the bank, Gueco filed a civil action for damages before the
MTC. The action was dismissed. However, the decision was appealed and the RTC held that the
agreement between the parties did not include the signing of the joint motion to dismiss as a
condition sine qua non for the effectivity of the compromise. The RTC further ordered to return
immediately the subject car to the Spouses Gueco in good working condition; Appellee may
deposit the Managers check the proceeds of which have long been under the control of the
issuing bank in favor of the appellee since its issuance, whereas the funds have long been paid by
appellants to secure said Managers Check, over which appellants have no control.

The case was elevated to the CA which affirmed in toto the decision of the RTC.

ISSUE: WON, CA erred in holding that the petitioner return the subject car to the respondents,
without making any provision for the issuance of the new managers check/cashiers check by
the respondents in favor of the petitioner in lieu of the original cashiers check that already
became stale.

HELD: 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.A check must be presented for
payment within a reasonable time after its issue, and in determining what is 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 fact of the particular case. The test is whether the payee employed
such diligence as a prudent man exercises in his own affairs.

In the case at bar, however, the check involved is not an ordinary bill of exchange but a
managers check. A managers check is one drawn by the banks manager upon the bank itself. The
check becomes the primary obligation of the bank which issues it and constitutes its written
promise to pay upon demand. The mere issuance of it is considered an acceptance thereof. If
treated as promissory note, the drawer would be the maker and in which case the holder need
not prove presentment for payment or present the bill to the drawee for acceptance. Even
assuming that presentment is needed, 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.
Failure to present on time, thus, does not totally wipe out all liability. In fact, the legal situation
amounts to an acknowledgement of liability in the sum stated in the check. In this case, the
spouses Gueco 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.

FALLO: WHEREFORE, premises considered, the petition for review is given due course. The
decision of the CA affirming the decision of the RTC is SET ASIDE. Respondents are further
ordered to pay the original obligation amounting to P150,000 to the petitioner upon surrender
or cancellation of the managers check in the latters possession, afterwhich, petitioner is to
return the subject motor vehicle in good working condition.

93. EVANGELINE CABRERA vs PEOPLE OF THE PHILIPPINES and LUIS GO,

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 July 24, 2003
G.R NO.150618/ Callejo, Sr., J.

DOCTRINE: A check is an evidence of debt against the drawer, and although may not be intended
to be presented, has the same effect as an ordinary check, and if passed upon to a third person,
will be valid in his hands like any other check.

FACTS: Luis Go, the sole proprietor of DMPH Co., agreed to sell lumber materials and
merchandise to Boni Co on a credit basis. Go, however, required Co to issue postdated checks in
payment for his purchases. Since Co had no checking account with any bank, he offered
postdated checks issued by the petitioner. Co assured Go that he and the petitioner had a
business arrangement.Co failed to pay for his purchases which prompted Go to deposit the
petitioners postdated checks in his account. However, the checks were dishonored because the
accounts were already closed. Informations were filed against the petitioner for violation of B.P.
22 in connection with the dishonored checks. The petitioner admitted that she was the drawer
of the postdated checks but averred that she did not receive any valuable consideration when
she issued the same. She merely affixed her signature on the said checks without filling up the
names of the payees, the amount and the corresponding dates. She and Co agreed that the
checks would not be encashed or deposited but would merely serve as guarantee for the
payment of the purchases of Co.The trial court rendered a decision finding the petitioner guilty
beyond reasonable doubt of violation of B.P. Blg. 22. Upon appeal, the CA rendered a decision
affirming the decision of the trial court.The CA ruled that the petitioner voluntarily and validly
issued the blank checks. Thus, the presumption is that the checks were issued for valuable
consideration, notwithstanding the claim that they were issued merely as a form of deposit or
guaranty.

ISSUE: WON, the petitioner should be held liable for violation of B.P. Blg. 22?

HELD: NO. The petitioner should not be held criminally liable. B.P. Blg. 22 enumerates the
elements of the offense penalized therein as follows:
1. The drawing, making and issuance of any check to apply to account or for value;
2. The knowledge of the maker, drawer or issuer that at the time of issue he does not have
sufficient funds in or credit with the drawee bank for the payment of such check in full upon its
presentment; and
3. Subsequent dishonor of the check by the drawee bank for insufficiency of funds or credit or
dishonor for the same reason had not the drawer, without any valid cause, ordered the bank to
stop payment.

In this case, the prosecution failed to adduce in evidence any notice of dishonor of the postdated
checks or any letter of demand send to and received by the petitioner. The bars testimony of
Luis Go that he sent letters of demand to the petitioner notifying her of the dishonor of her
checks is utterly insufficient.However, the Court stressed that a check is an evidence of debt
against the drawer, and although may not be intended to be presented, has the same effect as

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an ordinary check, and if passed upon to a third person, will be valid in his hands like any other
check.

FALLO: WHEREFORE, the assailed decision of the CA affirming the decision of the RTC convicting
the petitioner of violation of B.P. Blg. 22 is hereby REVERSED and SET ASIDE.

SUFFICIENT FUNDS WITH THE DRAWEE BANK

94. SYCIP VS. CA

March 17, 2000/ 328 SCRA 447
QUISUMBING, J.
DOCTRINE: Knowledge of the insufficiency of funds is legally presumed from the dishonor of his
checks for insufficiency of funds.But such presumption cannot hold if there is evidence to the
contrary.
FACTS: Francisco Sycip agreed to buy, on installment, from Francel Realty Corporation (FRC), a
townhouse unit. Upon execution of the contract to sell, Sycip, as required issued to FRC 48 post
dated checks, each on the amount of P 9,304 covering 48 monthly instalments. After moving in
his unit, Sycip complained to FRC regarding defects in the unit and incomplete features of the
townhouse project. FRC ignored the complaint. Sycip served on FRC 2 notarial notices to the
effect that he was suspending his installment payments on the unit pending compliance with the
project plans and specifications, as approved by the HLURB. Notwithstanding the notarial
notices, FRC continued to present for encashment Sycips postdated checks in its possession.
Sycip sent stop payment orders to the bank. The bank (Citibank) advised Sycip to close his
checking account to avoid paying bank charges every time he made a stop payment order. Due
to the closure of petitioners checking account, the drawee bank dishonoured six postdated
checks. FRC filed a complaint against petitioner for violations of BP Blg 22 involving said
dishonoured checks. RTC and CA found petitioner guilty of violating of BP Blg 22 in each of the six
cases.

ISSUE: WON, the presumptions for insufficiency of funds is proper when checks are
dishonoured?
HELD: NO. Knowledge of the insufficiency of funds is legally presumed from the dishonor of his
checks for insufficiency of funds.But such presumption cannot hold if there is evidence to the
contrary. In this case, the petitioner has presented evidence to contradict said presumption.
Admittedly, what are involved here are postdated checks. Postdating simply means that on the
date indicated on its face, the check would be properly funded, not that the checks should be
deemed as issued only then. From the records, there was no showing that the time said checks
were issued petitioner had knowledge that his deposit or credit in the bank would be insufficient
to cover them when presented for encashment. On the contrary, there is testimony by petitioner
that at the time of presentation of the checks, he had P150,000.00 cash or credit with Citibank.
As the evidence for the defense showed, the closure of petitioner's account with Citibank was
not for insufficiency of funds. It was made upon the advice of the drawee bank, to avoid
payment of hefty bank charges each time petitioner issued a "stop payment" order to prevent
encashment of postdated checks in private respondent's possession. Said evidence contradicts
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the prima facie presumption of knowledge of insufficiency of funds. Petitioner definitely had no
knowledge that his funds or credit would be insufficient when the checks would be presented for
encashment. He could not have foreseen that he would be advised by his own bank in the
future, to close his account to avoid paying the hefty banks charges that came with each "stop
payment" order issued to prevent private respondent from encashing the 30 or so checks in its
possession. For the third element, given the incomplete features in the construction of
petitioner's and other units of the subject condominium bought on installment from FRC,
petitioner had a valid cause to order his bank to stop payment. Therefore, in the presence of a
valid cause to stop payment, this negates the third element of the crime.

FALLO: WHEREFORE, the instant petition is GRANTED.

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