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NEGOTIABLE INST.

LAW ( CASE DIGESTS FOR COMMREV)

Philippine Education Co. Vs. Soriano, 39 SCRA 587

FACTS: Enrique Montinola sought to purchase from the Manila Post Office 10 money orders (P200 each),
offering to pay for them with a private check. Montinola was able to leave the building with his check and
the 10 money orders without the knowledge of the teller. Upon discovery that it was stolen, message was
sent to all postmasters and banks involving the unpaid money orders. One of the money orders was received
by the Philippine Education Co. as part of its sales receipt. It was deposited by the company with the Bank of
America, which cleared it with the Bureau of Post. The Postmaster, through the Chief of the Money Order
Division of the Manila Post Office informed the bank of the irregular issuance of the money order. The bank
debited the account of the company. The company moved for reconsideration.

ISSUE: Whether postal money orders are negotiable instruments and the petitioner as a holder in due course
can demand payment.

HELD: Philippine postal statutes are patterned from those of the United States, and the weight of authority
in said country is that Postal money orders are not negotiable instruments inasmuch as the establishment of
a postal money order is an exercise of governmental power for the public’s benefit. Furthermore, some of
the restrictions imposed upon money order by postal laws and regulations are inconsistent with the
character of negotiable instruments. For instance, postal money orders may be withheld under a variety of
circumstances, and which are restricted to not more than one indorsement. Hence, petitioner cannot
demand payment and recover the amount debited.

Philippine Airlines vs. CA, 181 SCRA 557

FACTS:
On November 8, 1967, Amelia Tan, under the name and style of Able Printing Press commenced a complaint
for damages before the CFI. The CFI favored Amelia Tan against Philippine Airlines Inc. (PAL). CA affirmed
with modifications. On May 18, 1978, PAL received a copy of the first alias writ of execution issued on the
same day directing Special Sheriff Jaime K. del Rosario to levy on execution in the sum of P25,000.00 with
legal interest thereon from July 20,1967 when respondent Amelia Tan made an extra-judicial demand
through a letter

PAL filed an urgent motion to quash the alias writ of execution stating that no return of the writ had as yet
been made and that the judgment debt had already been fully satisfied as evidenced by the cash vouchers
signed and received by Deputy Sheriff Reyes who absconded

On May 26,1978, a notice of garnishment was served on the depository bank of PAL.

ISSUE: Whether or not payment made to the absconding sheriff by check in his name operate to satisfy the
judgment debt.

HELD: NO. Payment must be made to the obligee himself or to an agent having authority, express or implied,
to receive the particular payment. The receipt of money due on ajudgment by an officer authorized by law to
accept it will, therefore, satisfy the debt. Since a negotiable instrument is only a substitute for money and
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not money, the delivery of such an instrument does not, by itself, operate as payment . The payment made
by the PAL to the absconding sheriff was not in cash or legal tender but in checks.

As between two innocent persons, one of whom must suffer the consequence of a breach of trust, the one
who made it possible by his act of confidence must bear the loss. PAL without prudence, departed from
what is generally observed and done, and placed as payee in the checks the name of the errant Sheriff and
not the name of the rightful payee

Metropolitan Bank & Trust Company vs. CA, Feb. 18, 1991, 194 SCRA 169;

Facts: Gomez opened an account with Golden Savings and deposited 38 treasury warrants. All these
warrants were subsequently indorsed by Castillo, cashier of Golden Savings and deposited to its Savings
Account in Metrobank. Gloria Castillo went several times to Metrobank for the cleared warrants.
Exasperated over Gloria’s repeated inquiries and also as an accommodation for a valued client, she was
allowed to withdraw from the proceeds of the warrants. In turn, Golden Savings subsequently allowed
Gomez to make withdrawals. After the withdrawal of Gomez, Metrobank informed Golden Savings that the
warrants were dishonoured by the Bureau of Treasury for forgery of signatures and demanded the refund of
the amount contending that by indorsing the warrants in general, Golden Savings assumed the warranty of a
general indorser under Section 66.

Issue: Whether or not Golden Savings should be liable as a general indorser under Section 66.

Held: No, Section 66 is not applicable to the warrants because the same is non-negotiable. The indication of
Fund 501 as the source of the payment to be made on the treasury warrants makes the order not
unconditional and the warrants themselves non-negotiable.

Caltex Phils. vs. CA, 212 SCRA 448

Facts: Defendant bank issued 280 certificates of time deposit (CTD) in favor of Angela Dela Cruz upon
deposit in the amount of P1,120,000. A sample text of the CTD is as follows:
“This is to certify that BEARER has deposited in this Bank the sum of Four Thousand Only...”
Dela Cruz deliver the CTD to petition for the purchase of fuel products. Thereafter, he informed the branch
manager that the CTD was lost based on her affidavit, which the branch manager accepted and issued a
replacement. Thereafter, Dela Cruz negotiated and obtained a loan from the bank in the amount of P875,00
and executed a notarized Deed of Assignment of time deposit.
In 1982, Credit Manager of Caltex went to the defendant bank's and presented for verification the CTDs
declared lost by Angel Dela Cruz alleging that the same were delivered to herein plaintiff "as security for
purchases made with Caltex Philippines, Inc." by said depositor. However, this was rejected by the
defendant. When the loan of Dela Cruz fell due, the latter set-off and applied the time deposits in question
to the payment of the matured loan. However, 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 damages as well as attorney's fees. On appeal, the CA held in favor of defendant
bank on the basis that CTD was not a negotiable instrument, hence, Caltex cannot be a holder in due course.

Issue: Whether or not the Certificate of Time Deposit (CTD) is a negotiable instrument and Caltex was a
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holder in due course?

Held: The Certificate of Time Deposit is a negotiable instrument. The negotiability or non-negotiability of an
instrument is determined from the writing, that is, from the face of the instrument itself. The duty of the
court in such case is to ascertain, not what the parties may have secretly intended as contra distinguished
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.

However, Petitioner's insistence that the CTDs were negotiated to it begs the question. Under the
Negotiable Instruments Law, 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 could at the most constitute petitioner
only as a holder for value by reason of his lien.

Ang Tek Lian vs. CA, 87 Phil. 383

Facts: In 1946, Ang Tek Lian approached Lee Hua and asked him if he could give him P4,000.00. He said that
he meant to withdraw from the bank but the bank’s already closed. In exchange, he gave Lee Hua a check
which is “payable to the order of ‘cash’”. The next day, Lee Hua presented the check for payment but it was
dishonored due to insufficiency of funds. Lee Hua eventually sued Ang Tek Lian. In his defense, Ang Tek Lian
argued that he did not indorse the check to Lee Hua and that when the latter accepted the check without
Ang tek Lian’s indorsement, he had done so fully aware of the risk he was running thereby.

ISSUE: Whether or not the indorsement of Ang Tek Lian is essential in a bearer instrument.

HELD: No. Under the Negotiable Instruments Law, a check drawn payable to the order of “cash” is a check
payable to bearer hence a bearer instrument, and the bank may pay it to the person presenting it for
payment without the drawer’s indorsement. The drawee bank need not obtain any indorsement of the
check, but may pay it to the person presenting it without any indorsement.

PNB vs. Rodriguez, G.R. No. 170325, September 26, 2008

FACTS:
Spouses Erlando and Norma Rodriguez were engaged in the informal lending business and had
a discounting arrangement with the Philnabank Employees Savings and Loan Association (PEMSLA), an
association of PNB employees. The association maintained current and savings accounts with Philippine
National Bank (PNB)

PEMSLA regularly granted loans to its members. Spouses Rodriguez would rediscount the postdated checks
issued to members whenever the association was short of funds.

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As was customary, the spouses would replace the postdated checks with their own checks issued in the
name of the members. It was PEMSLA’s 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 carried this out by forging the indorsement of
the named payees in the checks. Rodriguez’s 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 Branch. This became the usual practice for the parties. November 1998-
February 1999: spouses issued 69 checks totalling to P2,345,804. These were payable to 47 individual
payees who were all members of PEMSLA

PNB eventually found out about these fraudulent acts To put a stop to this scheme, PNB 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 amounts were duly debited from the Rodriguez account

Spouses filed a civil complaint for damages against PEMSLA, the Multi-Purpose Cooperative of Philnabankers
(MCP), and PNB. PNB credited the checks to the PEMSLA account even without indorsements
= PNB violated its contractual obligation to them as depositors - so PNB should bear the losses

ISSUE: W/N the 69 checks are payable to order for not being issued to fictitious persons thereby dismissing
PNB from liability

HELD: NO.
General 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 (Sections 8 and 9 of the NIL)

Exception: 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.

The distinction between bearer and order instruments lies in their manner of negotiation. Order instrument
- requires an indorsement from the payee or holder before it may be validly negotiated; While bearer
instrument - 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. One cannot expect a fictitious payee to negotiate the check by placing his
indorsement thereon. 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.
PNB did not obey the instructions of the drawers when it accepted absent indorsement, forged or
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otherwise. It was negligent in the selection and supervision of its employees.

Republic Planters Bank vs. CA, 216 SCRA 738

FACTS:
Yamaguchi and Canlas are officers of the Worldwide Garment Manufacturing, which later changed
its name to Pinch Manufacturing. They were authorized to apply for credit facilities with the petitioner
bank. The two officers signed the promissory notes issued to secure the payment of the obligations.
Later, the bank instituted an action for collection of
money, impleading also the two officers. The trial court held the two officers personally liable also.

Issue: Whether or not Canlas is solidarily liable for each of the promissory notes.

HELD:
Canlass is solidarily liable on each of the promissory notes to which his
signature appears. The promissory notes in question are negotiable instruments and thus, governed by
the Negotiable Instruments Law.

Under the Negotiable Instruments Law, persons who write their names in the instrument are makers
are liable as such. By signing the note, the maker promises to pay to the order of the payee or any holder
the tenor of the obligation. Based on the above provisions of the law, there is no denying that Canlass is one
of the co-makers of the promissory note.
Sps. Evangelista vs. Mercator Finance Corp., et al, August 21, 2003

Facts:

Spouses Evangelista filed a complaint for annulment of titles against Mercator Finance Corp, Lydia P.
Salazar, Lamecs Realty and Development Corporation, and the Register of Deeds of Bulacan. The spouses
Evangelista claimed being the registered owners of 5 parcels of land contained in the Real Estate Mortgage
executed by them and Embassy Farms, Inc. They alleged that they executed the Real Estate Mortgage in
favor of Mercator only as officers of Embassy Farms. They did not receive the proceeds of the loan
evidenced by a promissory note, as all of it went to Embassy Farms. Thus, they contended that the mortgage
was without any consideration as to them since they did not personally obtain any loan or credit
accommodations. There being no principal obligation on which the mortgage rests, the real estate mortgage
is void.

The spouses allege, inter alia, that there is an ambiguity in the wording of the promissory note and claim that
since it was Mercator who provided the form, then the ambiguity should be resolved against it.

The promissory not in question is worded as follows:


“For value received, I/we jointly and severally promise to pay to the order of Mercator Financing Company
……..”

Issue:
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Are the spouses jointly and severally liable?

Held:

The SC held that under Section 17 (g) of the NIL and Article 1216 of the Civil Code, where the promissory
note was executed jointly and severally by two or more persons, the payee of the promissory note had the
right to hold any one of the two (2) signers of the promissory note responsible for the payment of the whole
amount of the note.

The promissory note and the Continuing Suretyship Agreement prove that the spouses are solidary obligors
with Embassy Farms. The promissory notes subsequently executed by the spouses and Embassy Farms,
restructuring their loan, likewise prove that the spouses are solidarily liable with Embassy Farms. The
spouses allege that there is an ambiguity in the wording of the promissory note and claim that since it was
Mercator who provided the form, then the ambiguity should be resolved against it. Courts can interpret a
contract only if there is doubt in its letter. But, an examination of the promissory note shows no such
ambiguity.

Ilano vs. Hon. Espanol, G.R. No. 161756, 16 December 2005

Facts:

Amelia Alonzo is a trusted employee of Victoria Ilano. During those times that Ilano is in the Unied States for
medical check-up, Alonzo was entrusted with Ilano‘s Metrobank Check Book which contains both signed and
unsigned blank checks.

A Complaint for Revocation/Cancellation of Promissory Notes and Bills of Exchange (Checks) with Damages
and Prayer for Preliminary Injunction or Temporary Restraining Order (TRO) against Alonzo et al. before the
Regional Trial Court of Cavite. Ilano contends that Alonzo, by means of deceit and abuse of confidence
succeeded in procuring Promissory Notes and signed blank checks. Alonzo likewise succeeded in inducing
Ilano to sign antedated Promissory Notes. The RTC rendered a decision dismissing the complaint for lack of
cause of action and failure to allege the ultimate facts of the case. On appeal, the Court of Appeals affirmed
the dismissal of the complaint. Hence, this petition.

ISSUE:
Whether or not the Court erred in dismissing the complaint

HELD:
While some of the allegations may lack particulars, and are in the form of conclusions of law, the elements
of a cause of action are present. For even if some are not stated with particularity, Ilano alleged 1) her legal
right not to be bound by the instruments which were bereft of consideration and to which her consent was
vitiated; 2) the correlative obligation on the part of the defendants-respondents to respect said right; and 3)
the act of the defendants-respondents in procuring her signature on the instruments through “deceit,”
“abuse of confidence” “machination,” “fraud,” “falsification,” “forgery,” “defraudation,” and “bad faith,” and
“with malice, malevolence and selfish intent.”
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With respect to the checks subject of the complaint, it is gathered that, except for Check No. 0084078, they
were drawn all against Ilano’s Metrobank Account No. 00703-955536-7 shows that it was dishonored due to
“Account Closed.” When Ilano then filed her complaint, all the checks subject hereof which were drawn
against the same closed account were already rendered valueless or non-negotiable, hence, Ilano had, with
respect to them, no cause of action.

With respect to above-said Check No. 0084078, however, which was drawn against another account of Ilano,
albeit the date of issue bears only the year 1999, its validity and negotiable character at the time the
complaint was filed was not affected.

It is, however, with respect to the questioned promissory notes that the present petition assumes merit. For,
Ilano’s allegations in the complaint relative thereto, even if lacking particularity, does not as priorly stated
call for the dismissal of the complaint.

De la Victoria vs. Hon. Burgos, 245 SCRA 374;

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

ISSUE: Whether or not De La Victoria is correct.

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

Development Bank of Rizal vs. Sima Wei, 219 SCRA 736

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. However, two checks were not delivered to the petitioner or
to any of its authorized representatives. Instead for these checks came into the possession of respondent
Lee Kian Huat, who deposited the checks without the petitioner’s indorsement to the account of respondent
Plastic Corporation in Producers Bank which was afterwards credited to Plastic Corporation’s account.

Issue: Whether petitioner Bank can hold petitioner liable for the undelivered check.

Held: A negotiable instrument must be delivered to the payee in order to evidence its existence as a binding
contract. Delivery of an instrument means transfer of possession, actual or constructive, from one person to
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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.
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.

Metropol (Bacolod) Financing vs. Sambok Motors Co., et al., 120 SCRA 864);

Facts: Dr. Javier executed a promissory note in favor of Ng Sambok Sons Motors Co., Ltd. On the same date,
Sambok Motors, a sister company negotiated and indorsed the note in favour of Metropol Financing &
Investment Corporation adding the word “with recourse”. When Dr. Villaruel failed to pay the promissory
note after the demand of Metropol, the latter notified Sambok of the dishonor and demand payment.
Sambok contended that it could not be obliged to pay until after its co-defendant Dr. Villaruel has been
declared insolvent.

Issue: Whether or not Sambok Motors Company, by adding the words “with recourse” becomes a qualified
indorser and therefor does not warrant that if said note is dishonored, it will pay the amount to the holder.

Held: Recourse means resort to a person who is secondarily liable after the default of the person who is
primarily liable. Appellant, by indorsing the note “with recourse” does not make itself a qualified indorser
but a general indorser who is secondarily liable, because by such indorsement, it agreed that if Dr. Villaruel
fails to pay the note, plaintiff-appellee can go after said appellant. The effect of such indorsement is that the
note was indorsed without qualification.

De Ocampo vs. Gatchalian, 03 SCRA 596;

Facts: Anita Gatchalian was interested in buying a car when she was offered by Manuel Gonzales to a car
owned by the Ocampo Clinic. Anita accepted the offer but Gonzales advised that the owners would only
comply only upon showing of interest on the part of the buyer. Relying on the latter’s representation, Anita
issued a check.
The next day, Gonzales never appeared. The failure of Gonzales to appeal resulted in Gatchalian to issue a
STOP PAYMENT ORDER on the check. It was later found out that Gonzales used the check as payment to the
Vicente de Ocampo for the hospitalization fees of his wife. De Ocampo now demands payment for the check,
which Gatchalian refused, arguing that de Ocampo is not a holder in due course and that there is no
negotiation of the check.

Issue: Whether or not De Ocampo is a holder in due course.

Held: No. De Ocampo is not a holder in due course. Under the circumstances of the case, instead of the
presumption that payee was a holder in good faith, the fact is that it acquired possession of the instrument
under circumstances that should have put it to inquiry as to the title of the holder who negotiated the check
to it. The holder did not show or tell the payee why he had the check in his possession and why he was using
it for the payment of his own personal account which shows that holder's title was defective or suspicious.

Yang vs. CA, G.R. No. 138074, August 15, 2003;


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FACTS:

Cely Yang and Prem Chandiramani agreed to exchange the latter's manager's check to two of Yang's checks
both payable to the order of Fernando David. They also agreed that Yang would secure a dollar draft in
exchange for Chandiramani's dollar draft.

At the time of exchange, Yang gave the checks to Danilo Ranigo. Ranigo said that Chandaramani did not
appear the rendezvous and that he lost the checks and draft, but in fact, the exchange transpired.

Yang requested the respective banks to stop payment on the instruments but was subsequently denied.
Yang filed a complaint for the return of the checks and for damages against Chandaramani and David.

The lower court sided with David and was held as holder in due course. The checks were complete in its face
when they were negotiated and that he had no notice that the checks were dishonored and took the checks
in good faith. The lower courts also said that David had taken the necessary precautions to verify the
genuineness of the checks.

ISSUE: Whether David was a holder in due course.

RULING:

The SC held that David was a holder in due course and Yang's petition is denied. Yang has the burden of
proof to prove that David was not a holder in due course which she failed to do so. It was noted that David
exchanged the checks for money when petitioner averred otherwise.

The SC also agreed with the findings of the lower court. In relation to the checks being crossed, the SC said
that in Bataan Cigar v. CA, the checks were negotiated while in this case it was only deposited.

Mesina vs. IAC, 145 SCRA 497

FACTS: Jose Go purchased from Associate Bank a Cashier’s Check, which he left on top of the manager’s
desk when left the bank. The bank manager then had it kept for safekeeping by one of its
employees. The employee was then in conference with one Alexander Lim. He left the check in his desk
and upon his return, Lim and the check were gone. When Go inquired about his check, the same
couldn't be found and Go was advised to request for the stoppage of payment which he did. He executed
also an affidavit of loss as well as reported it to the police. Thereafter, petitioner demanded payment on the
said check which she acquired as payment from Alexander Lim in certain transaction.

Issue: Whether or not petitioner is a holder in due course and can demand payment.

HELD: No, petitioner is not a holder in due course. Admittedly, petitioner became the holder of the cashier's
check as endorsed by Alexander Lim who stole the check. He refused to say how and why it was passed to
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him. He had therefore notice of the defect of his title over the check from the start. The holder of a cashier's
check who is not a holder in due course cannot enforce such check against the issuing bank which dishonors
the same.

Crisologo-Jose vs. CA, Sept. 15, 1989;

Facts: The VP of Mover Enterprises, Inc. issued a check drawn against Traders Royal Bank, payable to
petitioner Ernestina Crisologo-Jose, for the accommodation of his client. Petitioner payee was charged with
the knowledge that the check was issued for the personal account of teh President who merely prevailed
upon the VP to act as co-signatory in accordance with the arrangement of the corporation with its
depository bank.

Issue: Whether or not private respondent, is an accommodation party under NIL and is liable for the amount
of said check.

Held: Yes. To be considered an accommodation party, a person must (1) be a party to the instrument, (2) not
receive value therefor, (3) sign for the purpose of lending his name for the credit of some other person. It is
not a valid defense that the accommodation party did not receive any valuable consideration when he
executed the instrument. He is liable to a holder for value as if the contract was not for accommodation, in
whatever capacity such accommodation party signed the instrument, whether primarily or secondarily.

Sadaya vs. Sevilla, 19 SCRA 924;

FACTS: Sadaya, Sevilla and Varona signed solidarily a promissory note in favor of the bank. Varona was the
only one who received the proceeds of the note. Sadaya and Sevilla both signed as co-makers to
accommodate Varona. Thereafter, the bank collected from Sadaya. Varona failed to reimburse.
Consequently, Sevilla died and intestate estate proceedings were established. Sadaya filed a
creditor’s claim on his estate for the payment he made on the note. The administrator resisted the claim on
the ground that Sevilla didn't receive any proceeds of the loan.

Issue: Whether or not Sadaya had the right to demand payment.

HELD: A solidary accommodation maker—who made payment—has the right to contribution, from his
co-accomodation maker, in the absence of agreement to the contrary between them, subject to conditions
imposed by law. This right springs from an implied promise to share equally the burdens thay may
ensue from their having consented to stamp their signatures on the promissory note.

Travel-On vs. CA, 210 SCRA 352;

Facts: Travel-On filed suit to collect on 6 checks issued by private respondent with a total face amount of
P115 ,000 as payment of various airline tickets sold to respondent. Private respondent claimed that he had
already fully paid the obligations. He argued that he had issued postdated checks for purposes of
accommodation, as he had in past accorded similar favors to petitioner.

Issue: Whether or not said checks were for accommodation and that private respondent is still liable
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considering that petitioner is a holder for value.

Held: Travel-on is not an accommodated party; it realize no value on the checks bounced. It presented these
checks for payment at the drawee bank but the checks bounced. Thus private responded must be held liable
on the six checks here involved. Those checks in themselves constituted evidence of indebtedness of private
respondent.

Ang vs. Associated Bank, 05 September 2007;

Facts: On August 28, 1990, respondent Associated Bank 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. Subsequent amendments to the promissory notes as well as the disclosure statements
stipulated that the loan would earn interest. Despite repeated demands for payment on Antonio Ang Eng
Liong and Tomas Ang, respectively, respondent Bank claimed that the defendants failed and refused to settle
their obligation, resulting in a total indebtedness of P 539,638.96.

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 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.

Issue: Whether or not Petitioner is liable to the obligation despite being a mere co-maker and
accommodation party.

Held: Yes. Notably, 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.” As gleaned from the text, 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. 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.

Patrimonio v. Napoleon, G.R. No. 187769, June 4, 2014

FACTS:

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Herein petitioner and respondent Guttierez entered into a business venture under the name Slam Dunk
Corporation. To start it up, petitioner pre-signed several checks for the expenses of the business. Although
signed, however, there was no payee’s name, date or amount indicated in the said checks. The blank checks
were entrusted to Guttierez with the instruction that he cannot fill them out without petitioner’s approval.

In 1993, without petitioner’s knowledge and consent, Guttierez borrowed money from co-respondent
Marasigan in the amount of 200,000php. The latter aceded to Guttierez’ request and gave him the amount.
Simultaneously, Guttierez deliverd to Marasigan one of the blank checks pre-signed by petitioner. However,
the same was dishonored by the bank on the reason of closed account.

Marasigan sought recovery from Guttierez, but to no avail. Hence, he sent several demand letters to
petitioner, but to no avail as well. Thus, he filed a criminal case under BP 22 against petitioner. On the other
hand, Petitioner filed with the Regional Trial Court (RTC) a Complaint for Declaration of Nullity of Loan and
Recovery of Damages against Respondents, invoking that he never authorized the loan.

The trial court ruled in favor of Marasigan and found petitioner, in issuing the pre-signed blank checks, had
the intention of issuing the check even without his approval. On appeal to the Court of Appeals (CA), the
appellate court affirmed the decision of the RTC. Hence, this present case.

ISSUE: Whether or not petitioner is liable to the loan contracted by Guttierez to Marasigan?

RULING:

No.

That under Article 1878, paragraph 7 of the Civil Code, a written authority is required when the loan is
contracted through an agent.

In the present case, the petitioner is not bound by the contract of loan since the records reveal that
Guttierez did not have any authority to borrow money in behalf of petitioner. Records do not show that the
petitioner executed any special power of attorney in favor of Guttierez to borrow in his behalf, hence, the
act of Guttierez is in violation of the said provision, and thus, he should be the only one liable for the loan he
was not able to settle.

In the present case, the petitioner is not bound by the contract of loan since the records reveal that
Guttierez did not have any authority to borrow money in behalf of petitioner. Records do not show that the
petitioner executed any special power of attorney in favor of Guttierez to borrow in his behalf, hence, the
act of Guttierez is in violation of the said provision, and thus, he should be the only one liable for the loan he
was not able to settle.

Philippine National Bank vs. CA, 256 SCRA 491

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FACTS: DECS issued a check in favor of Abante Marketing containing a specific serial number, drawn
against PNB. The check was deposited by Abante in its account with Capitol and the latter consequently
deposited the same with its account with PBCOM which later deposited it with petitioner for clearing.
The check was thereafter cleared. However, on a relevant date, petitioner PNB returned the check on
account that there had been a material alteration on it. Subsequent debits were made but Capitol cannot
debit the account of Abante any longer for the latter had withdrawn all the money already from the
account. This prompted Capitol to seek reclarification from PBCOM and demanded the recrediting of
its account.

Issue: Whether or not PBCOM should bear the loss for the check materially altered.

HELD: An alteration is said to be material if it alters the effect of the instrument. It means an unauthorized
change in the instrument that purports to modify in any respect the obligation of a party or an
unauthorized addition of words or numbers or other change to an incomplete instrument relating to the
obligation of the party. In other words, a material alteration is one which changes the items which
are required to be stated under Section 1 of the NIL.
In this case, the alleged material alteration was the alteration of the serial number of the check in issue—
which is not an essential element of a negotiable instrument under Section 1. Therefore, there being no
material alteration in the check committed, PNB could not return the check to PBCOM. It should pay the
same.

Associated Bank vs. CA, January 31, 1996

Facts: The Province of Tarlac maintains a current account with PNB. Checks were issued and received by the
hospital’s administrative officer and cashier, Pangilinan. Panilinan, through the help of Associated Bank but
after forging the signature of the hospital’s chief was able to deposit the checks in his personal account. The
province discovered that the hospital did not receive several allotted checks, and sought the restoration of
the debited amounts from PNB. In turn, PNB demanded reimbursement from Associated Bank. Both banks
resisted payment. Hence, this present action.

Issue: Whether or not Associated Bank should bear the loss.

Held: Associated Bank, and not PNB, is the one duty-bound to warrant the instrument as genuine, valid and
subsisting at the time of indorsement pursuant to Section 66 of the NIL. The stamp guaranteeing prior
indorsement is not an empty rubric; the collecting bank is held accountable for checks deposited by its
customers.

Republic vs. Ebrada, July 31, 1975

Facts: A check was issued to Lorenzo who turned out to be dead for 11 years. The check was indorsed to
Lorenzo to Dominguez and to Ebrada. It was encashed by Ebrada at the Republic Bank’s main office.
Informing the bank that the indorsement of Lorenzo was forged, the Bureau of Treasury requested the Bank
to refund the amount. Thereafter, the Bank sued Ebrada to return the money.

Issue: Whether or not Ebrada is liable to return the value of the check bearing a forged signature.
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NEGOTIABLE INST. LAW ( CASE DIGESTS FOR COMMREV)

Held: Yes, as last indorser, Ebrada was supposed to have warranted that she has good title to said check. The
drawee of a check can recover from the holder the money paid to him on a forged instrument. This is
because the indorser is supposed to warrant to the drawee that the signatures of the payee and previous
indorser are genuine.

Gempesaw vs. CA, February 9, 1993

FACTS: 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 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 Gempesaw 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.

Issue: Whether or not the bank Gempesaw has the right to demand the credit of the amount forged.

HELD: Forgery is a real defense by the party whose signature was forged. As a rule, a drawee bank who has
paid a check on which an indorsement has been forged cannot debit the account of a drawer for the
amount of said check. An exception to this rule is when the drawer is guilty of negligence which
causes the bank to honor such checks. Petitioner in this case has relied solely on the honesty and
loyalty of her bookkeeper and never bothered to verify the accuracy of the amounts of the checks
she signed the invoices attached thereto. And though she received her bank statements, she didn't
carefully examine the same to double-check her payments. Petitioner didn't exercise reasonable
diligence which eventually led to the fruition of her bookkeeper’s fraudulent schemes.

Ilusorio vs. CA, 393 SCRA 89

FACTS: Petitioner was a prominent businessman who, because of different business commitments,
entrusted to his then secretary the handling of his credit cards and checkbooks. For a material
period of time, the secretary was able to encash and deposit in her personal account money from
the account of petitioner. Upon knowledge of her acts, she was fired immediately and criminal
actions were filed against her. Thereafter, petitioner requested the bank to restore its money but the
bank refused to do so.

Issue: Whether or not the bank is liable for the forged checks.

HELD: The petitioner doesn’t have a course of action against the bank. To be entitled to damages,
petitioner has the burden of proving negligence on the part of the bank for failure to detect the discrepancy
in the signatures on the checks. It is incumbent upon petitioner to establish the fact of forgery. It was
petitioner who was negligent in this case. He failed to examine his bank statements and this was the
proximate cause of his own damage. Because of this negligence, he is precluded from setting up the
defense of forgery with regard the checks.

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Samsung Construction vs. Far East Bank, 15 August 2004;

Facts: Petitioner maintains a current account with the respondent bank and authorized Jong to sign checks in
behalf of the company. The checks are in the custody of an accountant Kyu. On one occasion, a certain
Gonzaga presented a check to FEBTC purportedly drawn by the Company in the amount of P999,500. The
check was payable to cash and appeared to be signed by Jong. FEBTC upon ascertaining that there are
sufficient fund to cover the check and finding the signature of Jong appears to be genuine paid Gonzaga.
Later, the forgery was discovered. Samsung demanded that the amount paid to Gonzaga be credited back to
its account because they have not authorized the encashment of the check. On the other hand, the
respondent bank claimed negligence on the part of the petitioner in protecting its check.

Issue: Whether or not FEBTC should bear the loss.

Held: The SC held that the FEBTC should bear the loss. Under Sec. 62 of NIL, among the warranties to be
assumed by the acceptor is it admits the existence of the drawer, the genuineness of his signature, and his
capacity and authority to draw the instrument. It is incumbent upon the drawee bank to ascertain the
genuineness of the signature of its depositor. The respondent bank in this case did not exercise the degree
of diligence required to enable it to detect the forgery.

Metrobank vs. Cabilzo, 06 December 2006;

FACTS: Cabilzo issued a postdated Metrobank Check payable to “CASH”. The check was presented to
Westmont Bank for payment by Mr. Marquez. Metrobank cleared the check for encashment. Thereafter, it
was discovered that Metrobank Check which he issued in the amount of P1, 000.00 was altered to
P91,000.00. Cabilzo demanded that Metrobank re-credit the amount of P91,000.00 to his account.

Issue: Whether or not petitioner is liable for the amount of the materially altered check.

Held: The bank on which the check is drawn is under strict liability to pay to the order of the payee in
accordance with the drawer’s instructions. Payment made under materially altered instrument is not
payment done in accordance with the instruction of the drawer. When the drawee bank pays a materially
altered check, it violates the terms of the check, as well as its duty to charge its client’s account only for bona
fide disbursements he had made. Since the drawee bank, in the instant case, did not pay according to the
original tenor of the instrument, as directed by the drawer, then it has no right to claim reimbursement from
the drawer, much less, the right to deduct the erroneous payment it made from the drawer’s account which
it was expected to treat with utmost fidelity. Hence, petitioner is liable to reimburse the drawer for the
amount paid
Wong vs. CA, February 2, 2001

Facts: Petitioner Wong was an agent of Limtong Press, Inc. (LPI), a manufacturer of calendars. After printing
the calendars, LPI would ship the calendars directly to the customers. Thereafter, the agents would come
around to collect the payments. Petitioner, however, had a history of unremitted collections, which he duly
acknowledged in a confirmation receipt he co-signed with his wife.
Petitioner issued several checks in December 1985, initially to guarantee the payment of unremitted
collections, however, upon agreement between the parties, the checks will be applied to unremitted
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NEGOTIABLE INST. LAW ( CASE DIGESTS FOR COMMREV)

collections. Before maturity, petitioner advised not to deposit the said checks, but after failing to replace
them, respondent presented the check on June 1986 which was later on dishonoured by reason of “account
closed”. Having failed to pay, a case of violation of BP 22 was filed against petitioner. Petitioner contends
that he is not liable by reason of the delay in presenting the checks.

Issue: Whether or not the petitioner is discharged from the liability on the said checks due to delay in
presentment.

Held: Under Section 186 of the Negotiable Instruments Law, “a check must be presented for payment within
a reasonable time after its issue or the drawer will be discharged from liability thereon to the extent of the
loss caused by the delay.” By current banking practice, a check becomes stale after more than six (6)
months,23 or 180 days. Private respondent herein deposited the checks 157 days after the date of the check.
Hence, said checks cannot be considered stale.

International Corporate Bank vs. Sps. Gueco, February 12, 2001

FACTS: Gueco spouses obtained a loan from ICB to purchase a car. In consideration thereof, the debtors
executed PNs, and a chattel mortgage was made over the car. The spouses defaulted in payment of
their obligations whereupon they entered into a compromise agreement with the bank. After some
negotiation and computation, they tendered a manager’s check in favor of the bank based on the
reduced amount. Nonetheless, the car was still detained for the spouses refused to sign the joint motion to
dismiss. Because of this, the spouses filed an action for recovery of the car and damages against the bank.
As the result of the proceeding, the manager’s check tendered to the bank had become stale in the hands of
the bank.

Issue: Whether or not the bank should bear the loss on the stale manager’s check as a result of the
proceedings.

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

State Investment House vs. CA, 217 SCRA 32

FACTS:

Nora Moulic issued to Corazon Victoriano, as security for pieces of jewellery to be sold on commission, two
postdated checks in the amount of fifty thousand each. Thereafter, Victoriano negotiated the checks to State
Investment House, Inc. When Moulic failed to sell the jewellry, she returned it to Victoriano before the
maturity of the checks. However, the checks cannot be retrieved as they have been negotiated. Before the
maturity date Moulic withdrew her funds from the bank contesting that she incurred no obligation on the
checks because the jewellery was never sold and the checks are negotiated without her knowledge and
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consent. Upon presentment of for payment, the checks were dishonoured for insufficiency of funds.

Issues:
Whether or not State Investment House inc. was a holder of the check in due course

Held:

Yes, Section 52 of the NIL provides what constitutes a holder in due course. The evidence shows that: on the
faces of the postdated checks were complete and regular; that State Investment House Inc. bought the
checks from Victoriano before the due dates; that it was taken in good faith and for value; and there was no
knowledge with regard that the checks were issued as security and not for value. A prima facie presumption
exists that a holder of a negotiable instrument is a holder in due course. Moulic failed to prove the contrary.
Arceo, Jr. vs. People of the Philippines, G.R. No. 142641, 17 July 2006

FACTS:

Pacifico Arceo obtained a loan from Josefino Cenizal. He then issued a check in favor of Cenizal, in which he
promised verbally seven times that he would replace it with cash. After not replacing the check, he encashed
the check but was dishonored due to insufficient funds.

Cenizal went to Arceo's house to inform him of the dishonor but he was not around anymore so he went to
Arceo's lawyer and gave him a letter giving him three days to pay the check. When Arceo failed, Cenizal
charged him in violation of BP 22.

The lower court found him guilty. Arceo contends that he should not be held liable because it was presented
beyond the 90-day period provided under the law; that he only given three days to pay and not five banking
days as per law; and that he paid his obligation.

ISSUE: Whether Arceo is guilty.

HELD:

The SC denied Arceo's petition. The SC held that the life of a check is six months. Cenizal presented the check
within four months of issuance. The 90-day period in the law is not an element of the offense. Arceo cannot
claim that he was not given five banking days (the rule is three), because he still remained unpaid after five
days of his receipt of dishonor. Lastly, his claim that he paid the obligation was only mere allegation as there
was no proof of his payment and that the check still remained on Arceo.

Allied Banking vs. CA, GG Sportswear, 11 July 2006

Facts: Petitioner purchased a letter of credit from respondent G.G. Sportswear Mfg. Corporation. The export
bill was issued by Chekiang First Bank Ltd., Hongkong. With the purchase of the bill, ALLIED credited GGS the
peso equivalent of the aforementioned bill. On the same date, respondents executed their respective Letters
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of Guaranty, holding themselves liable on the export bill if it should be dishonored or retired by the drawee
for any reason.
When ALLIED negotiated the export bill to Chekiang, payment was refused due to some material
discrepancies in the documents submitted by GGS relative to the exportation covered by the letter of credit.
Consequently, ALLIED demanded payment from all the respondents based on the Letters of Guaranty and
Surety executed in favor of ALLIED. However, respondents refused to pay, prompting ALLIED to file an action
for a sum of money.
Respondents claim that the petitioner did not protest upon dishonor of the export bill by Chekiang First
Bank, Ltd. According to respondents, since there was no protest made upon dishonor of the export bill, all of
them, as indorsers were discharged under Section 152 of the Negotiable Instruments Law.

Issue: Whether or not protest upon dishonor is necessary on a guarantor of a commercial paper.

Held: No, Section 152 of the Negotiable Instruments Law pertaining to indorsers, relied on by respondents, is
not pertinent to this case. There are well-defined distinctions between the contract of an indorser and that
of a guarantor/surety of a commercial paper, which is what is involved in this case. The contract of
indorsement is primarily that of transfer, while the contract of guaranty is that of personal security. The
liability of a guarantor/surety is broader than that of an indorser. Unless the bill is promptly presented for
payment at maturity and due notice of dishonor given to the indorser 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 surety’s liability. Hence,
respondents are liable and protest upon dishonor is not necessary,.

Areza v. Express Savings Bank, Inc., G.R. No. 176697, September 10, 2014

Facts:
Petitioners Areza have two bank deposits with respondent Express Savings Bank. They were engaged in the
business of “buy and sell” of brand new and second-hand motor vehicles. In May 2000, they received an
order from a certain Gerry Mambuay for the purchase of a second-hand Mitsubishi Pajero and a brand-new
Honda CRV. The buyer, Mambuay, paid petitioners with nine (9) Philippine Veterans Affairs Office (PVAO)
checks payable to different payees and drawn against the Philippine Veterans Bank, each valued at Two
Hundred Thousand Pesos (P200,000.00) for a total of One Million Eight Hundred Thousand Pesos
(P1,800,000.00).

Michael Potenciano, the branch manager of Express Savings Bank, was present during the transaction and
immediately offered the services of the bank for the processing and eventual crediting of the checks to the
account of the petitioners because the Arezas were valued clients of the bank. The petitioners then
deposited the checks to Express Savings Bank which in turn deposited the checks with its depository bank,
Equitable-PCI Bank. Equitable-PCI Bank then presented the checks to the drawee bank, Philippine Veterans
Bank, which honoured the checks.

Sometime in July 2000, the checks were returned by PVAO to the drawee on the ground that the amount on
the face of the checks was altered from the original amount of P4,000.00 to P200,000.00. The drawee bank,
in turn, returned the checks to Equitable-PCI Bank. Equitable-PCI Bank then informed Express Savings Bank
that the drawee dishonored the checks on the ground of material alterations. It also debited the deposit
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NEGOTIABLE INST. LAW ( CASE DIGESTS FOR COMMREV)

account of Express Savings Bank in the amount of P1,800,000.00. Express Savings Bank insisted that it
informed the petitioners of what happened to the checks.

On the other hand, the petitioners maintained that the said bank never informed them of the said progress.
The petitioners then issued a check in the amount of P500,000.00 but it was dishonored. They demanded
the bank to honor the check but it refused. Instead, it closed the Special Savings Account of the
petitioners with a balance of P1,179,659.69 and transferred said amount to their savings account.
Express Savings Bank then withdrew the amount of P1,800,000.00 representing the returned checks
from petitioners’ savings account.

The petitioners filed a Complaint for Sum of Money with Damages against Express Savings Bank and
Potenciano for the alleged arbitrary and groundless dishonouring of their checks and the unlawful and
unilateral withdrawal from their savings account.

Issue:

Whether or not the drawee bank is liable for the altered tenor of acceptance in case the negotiable
instrument is altered before acceptance.

Held:
Section 63 of Act No. 2031 or the Negotiable Instruments Law provides that the acceptor, by accepting the
instrument, engages that he will pay it according to the tenor of his acceptance. The acceptor is a drawee
who accepts the bill. In Philippine National Bank v. Court of Appeals, the payment of the amount of a check
implies not only acceptance but also compliance with the drawee’s obligation.

In case the negotiable instrument is altered before acceptance, is the drawee liable for the original or the
altered tenor of acceptance? There are two divergent intepretations
proffered by legal analysts. The first view is that the obligation of the acceptor should be
limited to the tenor of the instrument as drawn by the maker, as was the rule at common
law, but that it should be enforceable in favor of a holder in due course against the acceptor according to its
tenor at the time of its acceptance or certification.

The second view is that the acceptor/drawee despite the tenor of his acceptance is liable only to
the extent of the bill prior to alteration. This view appears to be in consonance with Section 124 of the
Negotiable Instruments Law which states that a material alteration avoids an instrument except as against
an assenting party and subsequent indorsers, but a holder in due course may
enforce payment according to its original tenor.

Thus, when the drawee bank pays a materially altered check, it violates the terms of the check, as well as its
duty to charge its client’s account only for bona fide disbursements he had made. If the drawee did not pay
according to the original tenor of the instrument, as directed by the drawer, then it has no right to claim
reimbursement from the drawer, much less, the right to deduct the erroneous payment it made from the
drawer’s account which it was expected to treat with utmost fidelity. The drawee, however, still has
recourse to recover its loss. It may pass the liability back to the collecting bank which is what the drawee
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NEGOTIABLE INST. LAW ( CASE DIGESTS FOR COMMREV)

bank exactly did in this case. It debited the account of Equitable-PCI Bank for the altered amount of the
checks.

Bataan Cigar vs. CA, 230 SCRA 648

Facts: Petitioner engaged one of its suppliers King Tim Pua George to deliver bales of tobacco leaf. In
consideration thereof, petitioner issued a crossed check. Relying on the supplier's representation, petitioner
agreed to purchase additional bales of tobacco leaves, despite the supplier's failure to deliver in accordance
with their earlier agreement upon which he issued post dated crossed checks. However, the supplier sold
the said check at a discount to private respondent State Investment House Inc.(SIHI). Upon failure to deliver
said bales of tobacco leaf, petitioner issued a stop order payment on all checks. SIHI then instituted this
action, upon dishonour of the check, on the ground that the same is a holder in due course and would be
able to collect from petitioner.

Issue: Whether or not SIHI, a holder of a crossed check, is a holder in due course and would be able to collect
from petitioner.

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

State Investment House vs. CA, 175 SCRA 311

Facts: New Sikatuna Wood Industries Inc. (NSWI) requested for a loan from Harris Chua, who issued 3
crossed checks. Subsequently, NSWI entered in an agreement with State Investment House Inc. (SIHI) where
the former discounted several checks including the crossed checks. When the crossed checks were
deposited by SIHI, the checks were dishonoured by reason of insufficient funds and account closed. SIHI
made demands upon Chua to make good said checks by Chua failed.

Issue: Whether SIHI is a holder in due course so as to recover the amounts in the checks from Chua.

Held: No.

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

Jurisprudence provides the following effects of crossing a check:

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1. The check may not be encashed but only deposited in the bank

2. The check may be negotiated only once—to one who has an account with a bank

3. The act of crossing the check serves the 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.

Nonetheless, the holder could still collect from New Sikatuna if the latter doesn't have a valid excuse
from refusing payment.

Villanueva vs. Nite, G.R. No. 148211, 25 July 2006;

Facts: Respondent took a loan from petitioner. To secure the loan, respondent issued petitioner an Asian
Bank Corporation check. The check was, however, dishonored due to a material alteration when petitioner
deposited the check on due date. Petitioner, however, filed an action for a sum of money against ABC which
was awarded by the court. When respondent went to withdraw from her account on ABC, she was unable to
do so because the trial court had ordered ABC to pay petitioner the value of respondent’s ABC check.
Respondent then filed a petition to annul and set aside the trial court’s decision ordering ABC to pay
petitioner the value of the ABC check.

Issue: Whether or not ABC may be held liable to petitioner for the dishonour of the check.

Held: If a bank refuses to pay a check notwithstanding the sufficiency of funds, the payee-holder cannot sue
the bank because there is no privity of contract exists between the drawee-bank and the payee. Contracts
take effect only between the parties, their assigns and heirs. In this case, the contract of loan was between
petitioner and respondent. No collection suit could prosper without respondent who was an indispensable
party

Equitable PCI vs. Ong, 15 September 2006;

Facts: Sarande deposited in her account with Philippine Commercial International (PCI) Bank a check in
amount of P225,000 which was cleared. Thereafter, Sarande issued a check amounting to P132,000 owing to
a business consideration. On the same day, Ong presented the check to PCI Bank but instead of depositing it,
she requested that proceeds thereof converted into a manger’s check whereupon a manager’s check was
issued. Thereafter, he deposited said check to Equitable Banking Corporation but was later on dishonored
because PCI Bank issued a stop payment owing to Sarande’s account being closed.

Issue: Whether or not Ong is a holder in due course in the absence of consideration in the issuance of the
manager’s check.

Held: The claim is without basis. Easily discernible is that 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 accepting PCI Bank Check
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NEGOTIABLE INST. LAW ( CASE DIGESTS FOR COMMREV)

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. Hence, Petitioner is liable to
pay the value of the check with damages.

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