10thth week Sec. 185.
Check defined
Sec. 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 maker's own order, it is not complete until
indorsed by him.
 This particular section conforms to Sec. 1 of the Negotiable Instruments
Law as to what constitutes a Negotiable Instrument.
 While a promissory note shares the characteristic of being one that is
made in writing and engaging to pay on demand or at a fixed or
determinable future time a sum certain in money to order or to bearer,
with that of a bill of exchange, it varies in so far as a promissory note is
an unconditional promise made by one person to another, and signed by
the maker.
 In a promissory note, there are 2 parties – the maker and the payee,
where the maker is the one primarily liable and where generally only 1
presentment is needed for payment. In contrast to a bill of exchange
where there are 3 parties and the drawer is only secondarily liable and
accceptance and presentment is needed for payment.
 Promissory notes are used in a variety of credit transactions and usually
carry the name of the transaction involved. When used alone, the term
usually refers to the simplest kind of notes, that is, those merely
containing a promise by one person to pay a sum of money to another.
o Certificate of deposit. — It is a written acknowledgment by a
bank of the receipt of money received or on deposit which the
bank promises to pay to the depositor, or to him or his order, or
to some other person, or to him or his order, or to bearer, or to
a specified person or bearer, on demand or on a fixed date, often
with interest.
o Bond. — It is an evidence of indebtedness issued by a public or
private corporation, promising to pay a sum of money on a day
certain in die future.
o Bank note. — It is an instrument issued by a bank for
circulation as money payable to bearer on demand.
o Due bill. — It is a promissory note which shows on its face an
acknowledgment by a person of his indebtedness to another.
The word "due" is usually used.
o Collateral note. — It is used when the maker pledges securities
(shares of stocks, bonds, and other personal property) to the
payee to secure the payment of the amount of the note.
A check is a bill of exchange drawn on a bank payable on demand. Except as
herein otherwise provided, the provisions of this Act applicable to a bill of
exchange payable on demand apply to a check.
 The above provision gives the definition of a check. It has also been
defined as a written order addressed to a bank or persons carrying on the
business of banking by a party having money in their hands requesting
them to pay on presentment to a person named therein or to his order or
to bearer, a named sum of money
 Under this section, commentaries also discussed the differences between
a check and a promissory note:
o As to parties, a PN has 2 (maker and payee), C has 3 (drawer,
drawee bank and payee)
o As to where drawn, a PN can be drawn against any person, not
necessarily a bank, a C always drawn against a bank
o A PN must be payable on demand or at a fixed or determinable
future time, while C must be payable on demand
o A PN is a promise to pay, C an order to pay
 Check vs. Ordinary BoE
o A check is always drawn on a bank or banker, while an
ordinary bill may or may not be drawn on a bank;
o A check is always payable on demand, while an ordinary bill is
either payable on demand or at a fixed or determinable future
time
o A check is supposed to be drawn against a previous deposit of
funds, while an ordinary bill need hot be drawn against a
deposit;
o A check need not be presented for acceptance while an ordinary
bill is required to be presented for acceptance in certain cases
o A check is ordinarily intended for immediate payment, while an
ordinary bill is for circulation as an instrument of credit;
o The death of the drawer of a check with the knowledge of the
bank revokes the authority of the bank to pay, while the death
of the drawer of an ordinary bill does not revoke the authority
of the drawee to pay;
o A check must be presented for payment within a reasonable
time after its issue, while an ordinary bill must be presented for
payment within a reasonable time after its last negotiation
o The drawer of a check not presented within a reasonable time
after its issue is discharged from liability thereon to the extent
of the loss caused by the delay while the drawer of an ordinary
bill is totally discharged
o When a check is accepted or certified, the drawer and indorsers
are discharged from liability thereon, while in an ordinary bill,
they remain liable in spite of the acceptance.

 Special types of checks
o Personal check
o Memorandum check
 Like an ordinary check except that the words mem,
memo, memorandum is written upon the face of the
check, signifying that the drawer engages to pay the
bona fide holder absolutely, and not upon a condition
to pay upon presentment and non-payment should be
given
 The drawer may be sued the same as a maker upon a
promissory note
o Cashier’s check
 One drawn by the cashier of a bank upon the bank
itself, payable on demand to a payee.
 It is an accepted practice in the business sector that a
cashier’s check is deemed as cash.
 It is really the bank’s own check and may be treated
as a Promissory Note.
o Manager’s check
 One drawn by the bank’s manager upon the bank
itself.
 It is similare to the cashier’s chek both as to effect and
use.
o Traveler’s check
 One upon which the holder’s signature must appear
twice, one to be affixed by him at the time it is issued
and second or counter-signature, to be affixed by him
in the presence of the payee before it is paid,
otherwise, it is incomplete
o Certified check
 One which bears upon its face an agreement by the
drawee bank that the check will be paid on
presentation.
o Crossed check
 One which bears across its face 2 parallel line drawn
diagonally, usually on the upper left side.
o Stale check
 One which has not been presented for payment
within a reasonable time after its issue and the is
therefore valueless and should not be paid.
Sec. 186. Within what time a check must be presented. — 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.
 This section provides for the 3 requisites in order that the drawer may be
discharged from liability
o Check is not presented within a reasonable time after its issue
o The drawer suffers loss
o Loss suffered by the drawer is attributable to the delay
 Even if the check is presented for payment within a reasonable time after
its issue, the drawer will be discharged altogether from liability thereon if
he is not given a notice of dishonour within the prescribed time.
Sec. 187 Certification of check, effect of
Where a check is certified by the bank on which it is drawn, the certification
is equivalent to an acceptance
 Certification is, in effect, an agreement by the bank against whom
the check is drawn that the check will be paid upon presentment
 It is done by having the word “certified” stamped on the face of the
check together with the name of the bank, the date and the
handwritten signature or initials of the officer making the
certification
 Effect of certification
o It is equivalent to acceptance, making the bank primarily
liable on the check
o It discharges all persons secondarily liableif procurred by
the holder
o It operates as an assignment of the funds of the drawer in
the hands of the drawee bank
o For all intents and purposes, the payee or the holder
becomes the depositor of the drawee bank with all rights
and duties as one in such a situation
o The drawer may not issue a stop payment order on the
certified check
Sec. 188. Effect where the holder of a check procures it to be accepted or
certified. — Where the holder of a check procures it to be accepted or
certified, the drawer and all indorsers are discharged from liability thereon
 This section contemplates that if the holder has procured the certification
of a check, the drawer and the indorsers are discharged, on the theory
that the drawer’s credit deposit with the drawee is, to the extent of the
check, taken from his control and appropriated for the payment of the
check.
 It is as if the holder had drawn the money, redeposited it and taken a
certificate of deposit for it.
Sec. 189. When check operates as an assignment —A check of itself does not banks/branches, institutions or entities. Nothing in this section shall prevent direct
operate as an assignment of any part of the funds to the credit of the drawer settlement of returned items between the parties concerned.
with the bank, and the bank is not liable to the holder, unless and until it
accepts or certifies the check. Items which have been the subject of a material alteration or items bearing a forged
 When a check in its ordinary form has not been accepted nor certified by endorsement when such endorsement is necessary for negotiation shall be returned
the bank, it does not constitute as a transfer of any money of the drawer within twenty-four (24) hours after discovery of the alteration or the forgery but in
to the credit of the holder. no event beyond the period fixed or provided by law for filing of a legal action by
 It is simply an order by the drawer to pay the amount of the check on the returning bank/branch, institution or entity sending the same.
presentment
Missorts or items misdirected through clearing shall be returned at the next
 However, the moment the check is certified, the funds cease to be under
clearing session in special yellow envelopes and shall be accounted for as debits to
the control of the drawer. They are no longer his and it is as if the ban l
the bank/branch, institution or entity which had misdirected the items
had paid the money upon the check.
 A bank may refuse to pay checks drawn against it if:
o The bank is insolvent
o The drawer’s deposit is insufficient to he has no account with
the bank or said account has been closed or garnished
o Drawer is insolvent and proper notice is received by the bank
o Drawer dies and proper notice is received by the bank
o Drawer has countermanded payment
o Holder refuses to identify himself
o Bank has reason to believe that the check is a forgery
o The check is stale or post dated
 Relation between depositor and bank
o Creditor and debtor
 Bank deposit = loan
 Art. 1980: Fixed, savings and current deposits of
money in banks and similar institution shall be
governed by the provisions concerning simple loan”
o Principal and agent
 When checks are received by the bank merely for
collection and deposit
 Wherein the bank is to collect from the drawees of
the check of its depositor for sums not in excess of the
amount of his deposit.

BSP CIRC. LETTER NO. 580-89

SECTION 4. C
Procedure for Returned Items
Items which should be returned for any reason whatsoever shall be presented not
later than the next regular clearing for local exchanges. Out-of-town exchanges
shall be returned within the period specified in the Memorandum to Authorized
Agent Banks announcing the opening of clearing facilities in each of the authorized
regional clearing centers. Items for return shall be sealed in special red envelopes
and shall be considered and accounted for as debits to the demanding
banks/branches, institutions or entities and credits to the returning
 3. HSBC vs. People’s Bank and Trust

4. Metropolitan Bank vs. First National City Bank

5. Republic Bank vs. CA

6. Bank of America vs. Associated Citizen’s Bank

DOCTRINE: The 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 payee’s
order. The drawer’s 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 drawer’s account only for properly payable items.

Facts:
 BA-Finance Corporation (BA Finance) and Miller Offset Press, Inc.
(Miller) entered into a credit line facility agreement whereby Miller can
discount and assign its trade receivables with the BA Finance.
 At the same time, Uy Kiat Chung, Ching Uy Seng, and Uy Chung Guan
Seng, acting for Miller, executed a Continuing Suretyship Agreement
with BA-Finance.
 Under the agreement, 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 BA-Finance.
 In consideration thereof, BA-Finance issued four checks payable to the
order of Miller with the notation “For Payee’s Account Only.”
o These checks were drawn against Bank of America.
 The four checks were deposited by Ching Uy Seng in Associated Citizens
Bank with his joint account with Uy Chung Seng.
 Associated Bank stamped the checks and guaranteed all prior
endorsements and/or lack of endorsements and sent them through
clearing.
 Later, Bank of America as drawee bank honored the checks and paid the
proceeds to Associated Bank as the collecting bank.
 When Miller failed to deliver to BA-Finance the proceeds of the assigned
trade receivables, BA-Finance filed a collection suit against Miller and
impleaded the three representative of the latter.
Additional Cases
 Bank of America filed a third party complaint against Associated Bank.
1. Moran vs. CA  In its answer to the third party complaint, Associated Bank admitted
having received the four checks for deposit in the joint account of Ching
2. PNB vs. Quimpo Uy Seng and Uy Chung Guan Seng, but alleged that Ching Uy Seng,
being one of the corporate officers of Miller, was duly authorized to act
for and on behalf of Miller.
 Facts:
Issues: Whether or not Bank of America is liable to pay BA-Finance and
whether or not Associated Bank should reimburse Bank of America the
amount of the four checks.
Held: 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 payee’s order. The drawer’s 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 drawer’s account only for
properly payable items. On the part of Associated Bank, the law imposes a duty of
diligence on the collecting bank to scrutinize checks deposited with it for the
purpose of determining their genuineness and regularity. The collecting bank
being primarily engaged in banking holds itself out to the public as the expert and
the law holds it to a high standard of conduct. In presenting the checks for clearing
and for payment, the defendant [collecting bank] made an express guarantee on
the validity of “all prior endorsements.” Thus, stamped at the back of the checks are
the defendant’s clear warranty. As the warranty has proven to be false and
inaccurate, Associated Bank is liable for any damage arising out of the falsity of its
representation.
Held: A bank that regularly processes checks that are neither payable to the
customer nor duly indorsed by the payee is apparently grossly negligent in its
operations. This Court has recognized the unique public interest possessed by the
banking industry and the need for the people to have full trust and confidence in
their banks. For this reason, banks are minded to treat their customer’s accounts
with utmost care, confidence, and honesty. In a checking transaction, the drawee
bank has the duty to verify the genuineness of the signature of the drawer and to
pay the check strictly in accordance with the drawer’s instructions, i.e., to the
named payee in the check. It should charge to the drawer’s accounts only the
payables authorized by the latter. Otherwise, the drawee will be violating the
instructions of the drawer and it shall be liable for the amount charged to the
drawer’s account. Rodriguez checks are payable to order since the bank failed to
prove that the named payees therein are fictitious.
Hence, the fictitious-payee rule which will make the instrument payable to bearer
does not apply. PNB accepted the 69 checks for deposit to the PEMSLA account
even without any indorsement from the named payees. It bears stressing that order
instruments can only be negotiated with a valid indorsement.
7. Westmont Bank vs. Ong (#11)
8. Associated Bank vs. CA (#12)
9. BDO vs. Engr. Lao
 Lao Allegations:
o He was doing business under the name “Selwyn Lao
Construction”
o He was a majority stockholder of Wing An Construction a
o He entered into a transaction with Everlink throught its
authorized rep Wu
 Everlink would supply him with HCG sanitary wares
 Lao then issued 2 Equitable crossed checks payable to
Everlink to pay for such supply
o When the checks were encashed, he contacted Everlink for the
immediate delivery of the sanitary wares, but Everlink failed to
do so
o Lao learned that the checks were deposited in 2 different bank
account at Union Bank, then International Exchange Bank
 These bank accounts belonged to Wu and a company
named New Wave Plastic represented by one
Antiporda
 Lao filed a complaint against Everlink and Wu for their failure to comply
with their obligation and against BDO for allowing the encashment of
the 2 checks
o Because Everlink has ceased to exist, Lao withdrew his
complaint
 BDO answer:
o It had no obligation to ascertain the owner of the account to
which the checks were deposited because the instruction to
deposit the said checks to the payee’s acount only was directed
to the payee and the collecting bank (Union Bank)
o As the drawee bank, its obligations consist in examing the
genuineness of the signatures on the checks and paying the
same if there were sufficient funds in the account under which
the checks were drawn
o The subject checks were properly negotiated and paid in
accordance with Lao’s instructions in crossing them as they
were deposited in the account of payee Everlink with Union
Bank which then presented them for payment with BDO
 Lao filed an amended complaint, impleading Union Bank as an additional
defendant for allowing the deposit of crossed checks in two bank account
which were not payee Everlink’s
o This is purported to be in violation of its obligation to deposit
the same only to the payee’s account
 Union Bank answer:
o 1 check was deposited in Everlink’s account while another was
validly negotiated by Everlink to New Wave
 o That the 2nd check was presented for payment to BDO and then
the proceeds were credited to New Wave’s account
o That there was nothing in the check that indicated that it was
restricted only to Everlink’s account and such being a crossed
check does not destroy its negotiability and that the only
limitation of such is that it should be presented for payment by
a bank
 RTC: Absolved BDO from liability + Ordered Union Bank to pay Lao
o The 2nd of the 2 checks was irregularly encashed as it was not
issued for the account of Everlink, the payee, but for the
account of New Wave
o And opined that Union Bank was negligent in allowing the
deposit and encashment of the said check without proper
endorsement.
 CA: Affirmed RTC but ordered BDO to pay Lao and for Union Bank to
reimburse BDO for such payment
o Concurred with the RTC that Union Bank was liable because of
its negligence and its guarantee on the validity of all prior
endorsements or lack of it.
 With regard to BDO’s liability, the CA explained that it violated its duty
to charge to the drawer’s account only those authorized by the latter
when it paid the value of the second subject check
 Take note that when the appeal was taken to the Supreme Court, BDO
was no longer impleaded.
ISSUE: WON a drawee bank, in this case BDO, should be held liable for
unauthorized payment of checks to a person other than the payee named?
HELD: YES, the Court agrees with the appellate court that in cases of
unauthorized payment of checks to a person other than the payee named
therein, the drawee bank may be held liable to the drawer. The drawee bank,
in turn, may seek reimbursement from the collecting bank for the amount of
the check.
 This rule on the sequence of recovery in case of unauthorized check
transactions had already been deeply embedded in jurisprudence.
 HOWEVER, for simplification purposes, the aggrieved party may
be allowed to recover directly from the person which caused the
loss when circumstances warrant
o Associated Bank vs. Court of Appeals is instructive for this case
as it stated that “ to simplify proceedings, the payee of the
illegally encashed checks should be allowed to recover directly
from the bank responsible for such encashment regardless of
whether or not the checks were actually delivered to the payee.”
o To summarize, Lao, the drawer of the subject check, has a right
of action against BDO for its failure to comply with its duty as
the drawee bank. BDO, in turn, would have a right of action
against Union Bank because of the falsity of its warranties as
the collecting bank. Considering, however, that BDO was not
made a party in the appeal, it could no longer be held liable to
Lao. Thus, following Associated Bank, the proceedings for
recovery must be simplified and Lao should be allowed to
recover directly from Union Bank.
o
 The liability of the drawee bank is based on its contract with the drawer
and its duty to charge to the latter’s accounts only those payables
authorized by him.
o A drawee bank is under strict liability to pay the check only to
the payee or to the payee’s order.
o When the drawee bank pays a person other than the payee
named in the check, it does not comply with the terms of the
check and violates its duty to charge the drawer’s account only
for properly payable items.
 On the other hand, the liability of the collecting bank is anchored on its
guarantees as the last endorser of the check.
o Under Section 66 of the Negotiable Instruments Law, 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.”
 Generally, in check transactions, the collecting bank 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.
o If any of the warranties made by the collecting bank turns out
to be false, then the drawee bank may recover from it up to the
amount of the check.
 Applying such doctrines in the case, BDO was indeed in clear violation of
Lao’s instruction to charge to Lao’s account only those payables
authorized by him.
 Nevertheless, even with such clear violation by BDO of its duty, the loss
would have ultimately pertained to Union Bank.
o By stamping at the back of the subject check the phrase “all
prior endorsements and/or lack of it guaranteed,” Union Bank
had, for all intents and purposes treated the check as a
negotiable instrument and, accordingly, assumed the warranty
of an endorser.
 o Without such warranty, BDO would not have paid the
proceeds of the check.
o Thus, Union Bank cannot now deny liability after the
aforesaid warranty turned out to be false.

Note: The subject check in this case is a crossed check and therefore has these
following effects:
(1) that the check may not be encashed but only deposited in the bank;
(2) that the check may be negotiated only once - to one who has an account with a
bank; and
(3) that 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.

10. Far East Bank vs. Gold Palace (#13)

11. Security Bank vs. RCBC (#14)
12. Equitable Banking vs. Special Steel Products (#16)