OUTLINE 4
DEFENSES
Ernestina Crisologo-Jose v. CA G.R. 80599; Sept. 15, 1989
State Investment House v. CA and Moulic G.R. 101163; Jan. 11, 1993
PNB v. CA, Capitol City Devt, Bank, et al. G.R. 107508; April 25, 1996
MWSS v. CA G.R. L-6294; July 14, 1986
Jai-Alai Corp. v. BPI G.R. L-29432; Aug. 6, 1975
FEBTC v. Gold Palace Jewellery, Co. G.R. 168274; Aug. 20, 2008
Montinola v. PNB G.R. L- 2861; Feb. 26, 1951
Myron Papa v. A.U. Valencia, et al. G.R. 105188; Jan. 23, 1998
Gempesaw v. CA G.R. 92244; Feb. 9, 1993
Republic Bank v. Ebrada G.R. L-40769; July 31, 1975
Associated Bank v. CA G.R. 107382; Jan. 31, 1996
Westmont Bank v. Ong G.R. 132250; Jan. 30, 2002
Samsung Construction v. FEBTC G.R. 129015; Aug. 13, 2003
BDO v. Equitable Banking Corp. G.R. 74917; Jan. 20, 1988
Great Eastern Life Ins. V. HSBC and PNB G.R. 18657; Aug. 23, 1922
PNB v. Hon. Quimpo G.R. 53194; Mar. 14, 1988
BPI v. CA (216 SCRA 51; 1992)
Metropolitan Bank & Trust CO. v. First National City (G.R. L-55079; Nov. 19, 1982)
SMC vs Puzon GR 167567 September 22, 2010
Dy vs People GR 158312 November 14, 2008
Lunario vs. People GR 160127 November 11, 2008
Westmont Bank vs. Dela Rosa-Ramos GR 160260
OUTLINE 5
Far East Realty Investment, Inc. v. CA 166 SCRA 256 (1988)
Ansaldo v. CA G.R. 47696 (Aug. 29, 1989)
FEBTC v. Queremit G.R. 148582 (Jan. 16, 2002) ESCASINAS
Int’l Corporate Bank v. Spouses Gueco G.R. 141968 (Feb. 12, 2001)
Wong v. CA and Pp. G.R. 117857 (Feb. 2, 2001) TAN
Marigomen v. People G.R. 153451 (May 26, 2005) DOMINGUEZ
State Investment House v. CA and Moulic 217 SCRA 32 (1993)
Asia Banking Corp. v. Javier G.R. 19051 (April 1923) MANIBO
Gullas v. PNB G.R. 43191 (Nov. 13, 1935) ALCANTARA
Nyco Sales Corp. v. BA Finance Corp. G.R. 71694 (Aug. 16, 1991)
Great Asian Sales v. CA G.R. 105774 (April 25, 2002)
Velasquez v. Solidbank G.R. 157309 (Mar. 28, 2008) SAGMIT
RCBC v. Hi-Tri Devt. Corp. G.R. 192413 (June 13, 2012) DIATO
B. LIABILITIES OF PARTIES – Secs. 60 – 69; 18 – 23; 29; 127; 137
OUTLINE 4
DEFENSES
4. 1 Ernestina Crisologo-Jose v. CA
G.R. 80599; Sept. 15, 1989
ARIOLA
DOCTRINE: Sec. 29 of NIL which says that an accommodation party is liable to a
holder for value, does NOT apply to corporations because the issue or indorsement of
negotiable paper by a corporation without consideration and for the accommodation of
another is ultra vires (beyond one’s legal power).
FACTS:
Atty. Benares (President) and Ricardo Santos (VP) of Mover Enterprises, in
accommodation of their clients, sps. Ong, issued a check drawn against Traders Royal
bank payable to Erestina Crisologo-Jose. Since said check was under the account of
the corporation, it was signed by its president and vp.
The check was to be encashed upon the approval of a compromise agreement
by GSIS concerning a property which the latter agreed to sell to the president, sps. Ong.
But GSIS did not approve within the expected time period so the president replaced the
check with another bearing the same amount also payable to the petitioner, signed by
the pres. and vp. When Jose deposited said check in her bank, it was dishonored for
insufficiency of funds.
Jose filed a complaint for violation of BP 22. Pending preliminary investigation,
president tendered payment to Jose via check but the latter refused. So president
deposited the amount in question with the Clerk of Court.
Trial court dismissed the case. CA reversed and set aside said judgment of
dismissal and revived the complaint for consignation.
Petitioner contends that CA erred in holding that private respondents (not
Mover Enterprises) is an accommodation party and a debtor of the petitioner.
ISSUE/S: WON Mover Enterprises is an accommodation party. -- NO
HELD:
The issue or indorsement of negotiable paper by a corporation without
consideration and for the accommodation of another is ultra vires. Hence, one who has
taken the instrument with knowledge of the accommodation nature can’t recover against
a corporation where it is only an accommodation party. If the form of the instrument is
such as to charge the indorsee with knowledge that indorsement is for accommodation
of another, he can’t recover. As an exception, an officer/agent of a corporation shall
have the power to execute or indorse a negotiable paper in the name of the corporation
for accommodation of a 3rd person ONLY IF specifically authorized to do so. Corporate
officers have no power to execute for mere accommodation for their individual debts or
transactions arising from matters that the corporation has no legitimate concern.
There should be no legal obstacle for the petitioner to claim personally from the
president and vp of the corporation.
4.2 State Investment House v. CA and Moulic
G.R. 101163; Jan. 11, 1993
FOJAS
FACTS: Nora Moulic acquired several articles of jewelry from a certain Corazon
Victoriano, which she sought to sell via commission basis. As a security for the said
acquisition, she drew two postdated checks amounting to 50,000 pesos each, to be due
on August 30 and September 30, respectively. Despite Moulic's efforts in selling the
Jewelry, she was only met with failure. Thus, she returned the jewelry to Victoriano and
asked for the return of the checks given to her. However, the checks were no longer in
possession of Victoriano as she had exchanged the checks for cash and gave both
checks to State Investment due to her debt to State Investment with a remaining
balance of 800,000 Pesos. Upon knowledge of this, Moulic then rushed to withdraw
funds from her accounts which were to be drawn against by the instruments before their
maturity. Consequently, when State Investment presented the checks, they were duly
dishonored for insufficient funds. State Investment demanded Moulic to pay. Moulic
refused to pay because she said the checks were merely used as security for the
jewelry. Moulic further averred that she received no notice of dishonor.
ISSUE: Whether or not State Investment House is entitled to be paid, and that if State
Investment is a Holder in Due Course.
HELD: Yes.
State Investment is a holder in due course as it met all the requirements to be one
pursuant to Section 52 of the Negotiable Instruments Law, which provides for the
requirements in relation to the case at bar: (a) on their faces the post-dated checks were
complete and regular: (b) State Investment bought these checks from Victoriano, before
their due dates;  (c) State Investment took these checks in good faith and for value, (d)
State Investment  was never informed nor made aware that these checks were merely
issued to Victoriano as security and not for value.
Further, there is no need to issue a notice of dishonor to Moulic. Sec. 114. When notice
need not be given to drawer. — Notice of dishonor is not required to be given to the
drawer in the following cases: (a) Where the drawer and the drawee are the same
person; (b) When the drawee is a fictitious person or a person not having capacity to
contract; (c) When the drawer is the person to whom the instrument is presented for
payment: (d) Where the drawer has no right to expect or require that the drawee or
acceptor will honor the instrument; (e) Where the drawer had countermanded payment.
She did not retrieve the checks when she returned the jewelry. She simply withdrew her
funds from her drawee bank and transferred them to another to protect herself. After
withdrawing her funds, she could not have expected her checks to be honored. In other
words, she was responsible for the dishonor of her checks, hence, there was no need to
serve her Notice of Dishonor.
Moulic, however, is not left without recourse. The Judgement here does not bar her from
pursuing an action against Corazon Victoriano for her financial reparation, who latter
assumed responsibility for the expenses caused to Moulic.
4.3 PNB v. CA, Capitol City Devt, Bank, et al.
G.R. 107508; April 25, 1996
OLOSAN
Doctrine: 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
FACTS: A check with serial number 7-3666-223-3, dated August 7, 1981 in the amount
of P97,650.00 was issued by the Ministry of Education and Culture payable to F. Abante
Marketing. This check was drawn against Philippine National Bank (herein petitioner).F.
Abante Marketing, 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, petitioner PNB returned the check to PBCom and debited PBCom’s account
for the amount covered by the check, the reason 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. On the other hand, Capitol could not,
in turn, debit F. Abante Marketings account since the latter had already withdrawn the
amount of the check as of October 15, 1981. 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.
ISSUE:Whether or not an alteration of the serial number of a check is a material
alteration under the NIL.
HELD:NO,alteration of a serial number of a check is not a material alteration
contemplated under Sec. 125 of the NIL. In the present case what was altered is the
serial number of the check in question, an item which 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. If the purpose of the serial number is merely to identify
the issuing government office or agency, its alteration in this case had no material effect
whatsoever on the integrity of the check.  The identity of the issuing government office
or agency was not changed thereby and the amount of the check was not charged
against the account of another government office or agency which had no liability under
the check.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.
4.4 MWSS v. CA
G.R. L-6294; July 14, 1986
ESCASINAS
DOCTRINE: Forgery cannot be presumed. It must be established by clear, positive, and
convincing evidence. This was not done in the present case.
FACTS:
Metropolitan Waterworks and Sewerage System (MWSS) had an account with PNB.
When it was still called NAWASA, MWSS made a special arrangement with PNB so that
it may have personalized checks to be printed by Mesina Enterprises. These
personalized checks were the ones being used by MWSS in its business transactions.
From March to May 1969, MWSS issued 23 checks to various payees in the aggregate
amount of P320,636.26. During the same months, another set of 23 checks containing
the same check numbers earlier issued were forged. The aggregate amount of the
forged checks amounted to P3,457,903.00. This amount was distributed to the bank
accounts of three persons: Arturo Sison, Antonio Mendoza, and Raul Dizon.
MWSS then demanded PNB to restore the amount of P3,457,903.00. PNB refused. The
trial court ruled in favor of MWSS but the Court of Appeals reversed the trial court’s
decision.
ISSUE:
Whether or not PNB should restore the said amount.
HELD:
No. MWSS is precluded from setting up the defense of forgery. It has been proven that
MWSS has been negligent in supervising the printing of its personalized checks. It failed
to provide security measures and coordinate the same with PNB. Further, the signatures
in the forged checks appear to be genuine as reported by the National Bureau of
Investigation so much so that the MWSS itself cannot tell the difference between the
forged signature and the genuine one. The records likewise show that MWSS failed to
provide appropriate security measures over its own records thereby laying confidential
records open to unauthorized persons. Even if the twenty-three (23) checks in question
are considered forgeries, considering the MWSS’s gross negligence, it is barred from
setting up the defense of forgery under Section 23 of the Negotiable Instruments Law.
The Supreme Court further emphasized that forgery cannot be presumed. It must be
established by clear, positive, and convincing evidence. This was not done in the
present case.
4.5 Jai-Alai Corp. v. BPI
G.R. L-29432; Aug. 6, 1975
RODRIGUEZ
NEGOTIABLE INSTRUMENT; CHECKS; FORGED INDORSEMENTS EFFECT. — A
forged signature in a negotiable instrument makes it wholly inoperative and no right to
discharge it or enforce its payment can be acquired through or under the forged
signature except against a party who cannot invoke the forgery.
LIABILITY OF AN INDORSER; NO LOSS TO BE SUFFERED BY A BANK WHO
RELIED ON INDORSER'S WARRANTY. — Under Section 67 of the Negotiable
Instruments Law, "Where a person places his indorsement on an instrument negotiable
by delivery he incurs all the liability of an indorser," and under Section 66 of the same
statute a general indorser warrants that the instrument "is genuine and in all respects
what it purports to be." Where the depositor indorsed the checks with forged
indorsement when it deposited them with the collecting bank, the former as an endorser
guaranteed the genuineness of all prior indorsement thereon. The collecting bank which
relied upon this warranty cannot be held liable for the resulting loss.
FACTS: From April 2, 1959 to May 18, 1959, ten checks with a total face value of
P8,030.58 were deposited by the petitioner Jai -Alai in its current account with the
respondent bank BPI, which the former acquired from one Antonio Ramirez who was a
regular bettor at the jai-alai games and a sale agent of the Inter-Island Gas Service, Inc.,
the payee of the checks.
Drawn By: (drawer) Drawn Upon: (drawee) Payable to: (payee)
5 checks: Delta Engineering Service Pacific Banking Corporation Inter-Island Gas
Service or ORDER
2 checks: Enrique Cortiz & Co, Pacific Banking Corporation Inter-Island Gas Service or
BEARER
1 check: Luzon Tinsmith & Co. China Banking Corporation I nter-Island Gas Service or
BEARER
2 checks: Roxas Manufacturing Inc Philippine National Bank Inter-Island Gas Service or
ORDER
The deposits were all temporarily credited to petitioner's account in accordance with the
clause printed on the bank's deposit slip. Subsequently, Ramirez resigned and after the
checks had been submitted to inter-bank clearing, the Inter-Island Gas discovered that
all the indorsements made on the cheeks purportedly by its cashiers, as well as the
rubber stamp impression thereon reading "Inter-Island Gas Service, Inc.", were
forgeries. It informed petitioner, the respondent, the drawers and the drawee banks of
the said checks and forgeries and filed a criminal complaint against its former employee,
Ramirez with the Office of the City Fiscal of Manila. The drawers demanded
reimbursement from the drawee-banks, which in turn demanded from the respondent,
as collecting bank, the return of the amounts they had paid on account thereof. When
the drawee-banks returned the checks to the respondent bank BPI, the latter paid their
value, which the former in turn paid to the Inter-Island Gas. In view of these
circumstances, the respondent Bank, BPI debited the petitioner's current account and
forwarded to the latter the checks containing the forged indorsements, which petitioner
refused to accept. Later, petitioner drew against its current account a check for
P135,000.00 payable to the order of one Mariano Olondriz. This check was dishonored
by respondent bank for insufficiency of funds as its records showed that petitioner's
balance after netting out the value of the checks with the forged indorsement, was
insufficient to cover the value of the check drawn. Petitioner filed a complaint with the
Court of First Instance of Manila. The same was dismissed by the said court after due
trial, as well as by the Court of Appeals.
ISSUE: Whether or not respondent bank BPI had the right to debit from petitioner Jai-
Alai Corporation’s current account the value of the checks with the forged indorsements.
HELD: YES. The respondent BPI acted within legal bounds when it debited the
petitioner's account. When the petitioner deposited the checks with the respondent, the
nature of the relationship created at that stage was one of agency, that is, the bank was
to collect from the drawees of the checks the corresponding proceeds.
Pursuant to Sec. 23 of the NIL, a forged signature in a negotiable instrument is wholly
inoperative and no right to discharge it or enforce its payment can be acquired through
or under the forged signature except against a party who cannot invoke the forgery. It
stands to reason, upon the facts of the record, that the respondent, as a collecting bank
which indorsed the checks to the drawee-banks for clearing, should be liable to the latter
for reimbursement, for the indorsements on the checks had been forged prior to their
delivery to the petitioner. In legal contemplation, therefore, the payments made by the
drawee-banks to the respondent on account of the said checks were ineffective; and,
such being the case, the relationship of creditor and debtor between the petitioner and
the respondent had not been validly effected, the checks not having been properly and
legitimately converted into cash.
It is the obligation of the collecting bank to reimburse the drawee-bank the value of the
checks subsequently found to contain the forged indorsement of the payee. The reason
is that the bank with which the check was deposited has no right to pay the sum stated
therein to the forger "or anyone else upon a forged signature."
In contrast, it was petitioner’s duty to that the payee's endorsement was genuine before
cashing the check. The petitioner must in turn shoulder the loss of the amounts which
the respondent; as its collecting agent, had to reimburse to the drawee-banks. Having
indorsed the checks to respondent bank, petitioner is deemed to have given the
warranty prescribed in Section 66 of the NIL that every single one of those checks "is
genuine and in all respects what it purports to be." Respondent, which relied upon the
petitioner’s warranty, should not be held liable for the resulting loss.
Jai Alai Corporation is negligent in accepting the checks without question from Antonio
Ramirez notwithstanding that the payee was the Inter-Island Gas Services, Inc. and it
did not appear that he was authorized to indorse it.
4.6 FEBTC v. Gold Palace Jewellery, Co.
G.R. 168274; Aug. 20, 2008
DIATO
DOCTRINE: Effect of Alteration on Payee who is a holder in due course - The
collecting bank cannot debit the account of a payee who is a holder in due course if the
collecting bank returned the amount of the altered check to the drawee bank. The SC
ruled that it is the drawee bank that should bear the loss and if the collecting bank
reimbursed the drawee bank the amount of the altered check, the collecting bank would
only be considered as acting on its own and should be responsible for its own action.
The payee who is a holder in due course should not be made to suffer any loss.
FACTS:
 In june 2009 samuel tagoe, a foreigner purchased from respondent gold
palace jewellery several pieces of jewelry value at P258,000.00.
 As payment he paid using a foreign draft issued by the United Overseas Bank
(Malaysia) BHD Medan Pasar, Kuala Lumpur Branch (UOB), addressed to the
Land Bank of the Philippines, Manila (LBP), and payable to the respondent
company for P380,000.00.
 Before receiving the draft, respondent Judy Yang, the assistant general
manager of Gold Palace, inquired from petitioner Far East Bank & Trust
Company's (Far East's), the nature of the draft.
 The teller informed her that the same was similar to a manager's check, but
advised her not to release the pieces of jewelry until the draft had been
cleared.
 Following the bank's advice, Yang issued Cash Invoice and asked him to
come back, and informed him that the pieces of jewelry would be released
when the draft had already been cleared.
 Respondent Julie Yang-Go, the manager of Gold Palace, consequently
deposited the draft in the company's account with Far East branch on June 2,
1998.
 When Far East, the collecting bank, presented the draft for clearing to LBP,
the drawee bank, the latter cleared the same-UOB's account with LBP was
debited, and Gold Palace's account with Far East was credited with the
amount stated in the draft.
 The foreigner eventually returned to gold palace to claim the purchased
goods. After ascertaining that the draft had been cleared, respondent Yang
released the pieces of jewelry to Samuel Tagoe
 Since the amount in the draft was more than the value of the goods
purchased, she issued, as his change, Far East Check No. 173088112 for
P122,000.00. This check was later presented for encashment and was, in fact,
paid by the said bank.
 after three weeks, LBP informed Far East that the Foreign Draft had been
materially altered from P300.00 to P380,000.00 and that it was returning the
same.
 It is noted at this point that the material alteration was discovered by UOB after
LBP had informed it that its funds were being depleted following the
encashment of the subject draft.
 Intending to debit the amount from respondent's account, Far East
subsequently refunded the P380,000.00 earlier paid by LBP.
 on July 20, 1998, as the outstanding balance of its account was already
inadequate, Far East was able to debit only P168,053.36,but this was done
without a prior written notice to the account holder. Far East only notified by
phone the representatives of the respondent company.
 On August 12, 1998, petitioner demanded from respondents the payment of
P211,946.64 or the difference between the amount in the materially altered
draft and the amount debited from the respondent company's account.
REGIONAL TRIAL COURT
 Because Gold Palace did not heed the demand, Far East consequently
instituted Civil for sum of money and damages before the Regional Trial Court
 Respondents specifically denied the material allegations in the complaint 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.
 After trial on the merits, the RTC rendered the Decision in favor of Far East,
ordering Gold Palace to pay the former P211,946.64 as actual damages and
P50,000.00 as attorney's fees. The trial court ruled that, on the basis of its
warranties as a general indorser, Gold Palace was liable to Far East.
COURT OF APPEALS
 On appeal, the CA, reversed the ruling of the trial court and awarded
respondents' counterclaim.
 It ruled in the main that Far East failed to undergo the proceedings on the
protest of the foreign draft or to notify Gold Palace of the draft's dishonor; thus,
Far East could not charge Gold Palace on its secondary liability as an indorser.
 The appellate court further ruled that the drawee bank had cleared the check,
and its remedy should be against the party responsible for the alteration.
ISSUE:
W/N gold palace jewellery is liable as a general indorser
HELD:
We deny the petition.
 Act No. 2031, or the Negotiable Instruments Law (NIL), explicitly provides that
the acceptor, by accepting the instrument, engages that he will pay it according
to the tenor of his acceptance. 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.36 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. We note at this point that 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.37 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.38
 This construction and application of the law gives effect to the plain language
of the NIL39 and is in line with the sound principle that where one of two
innocent parties must suffer a loss, the law will leave the loss where it finds
it.40 It further reasserts the usefulness, stability and currency of negotiable
paper without seriously endangering accepted banking practices. Indeed,
banking institutions can readily protect themselves against liability on altered
instruments either by qualifying their acceptance or certification, or by relying
on forgery insurance and special paper which will make alterations obvious.41
This is not to mention, but we state nevertheless for emphasis, that the drawee
bank, in most cases, is in a better position, compared to the holder, to verify
with the drawer the matters stated in the instrument. As we have observed in
this case, were it not for LBP's communication with the drawer that its account
in the Philippines was being depleted after the subject foreign draft had been
encashed, then, the alteration would not have been discovered. What we
cannot understand is why LBP, having the most convenient means to
correspond with UOB, did not first verify the amount of the draft before it
cleared and paid the same. Gold Palace, on the other hand, had no facility to
ascertain with the drawer, UOB Malaysia, the true amount in the draft. It was
left with no option but to rely on the representations of LBP that the draft was
good...
 As the transaction in this case had been closed and the principal-agent
relationship between the payee and the collecting bank had already ceased,
the latter in returning the amount to the drawee bank was already acting on its
own and should now be responsible for its own actions. Neither can petitioner
be considered to have acted as the representative of the drawee bank when it
debited respondent's account, because, as already explained, the drawee bank
had no right to recover what it paid. Likewise, Far East cannot invoke the
warranty of the payee/depositor who indorsed the instrument for collection to
shift the burden it brought upon itself. This is precisely because the said
indorsement is only for purposes of collection which, under Section 36 of the
NIL, is a restrictive indorsement.47 It did not in any way transfer the title of the
instrument to the collecting bank. Far East did not own the draft, it merely
presented it for payment. Considering that the warranties of a general indorser
as provided in Section 66 of the NIL are based upon a transfer of title and are
available only to holders in due course,48 these warranties did not attach to the
indorsement for deposit and collection made by Gold Palace to Far East.
Without any legal right to do so, the collecting bank, therefore, could not debit
respondent's account for the amount it refunded to the drawee bank.
 that Far East could not debit the account of Gold Palace, and for doing so, it
must return what it had erroneously taken. Far East's remedy under the law is
not against Gold Palace but against the drawee-bank or the person responsible
for the alteration. However, we delete the exemplary damages awarded by the
appellate court.
4.7 Montinola v. PNB
G.R. L- 2861; Feb. 26, 1951
PELAYO
Doctrine:
As a mere assignee Montinola is subject to all the defenses available against assignor
Ramos; Partial indorsement is not a negotiation contemplated under NIL.
FACTS:
In August, 1947, Enrique P. Montinola filed a complaint in the CFI Manila
against the Philippine National Bank and the Provincial Treasurer of Misamis Oriental to
collect the sum of P100,000 that was issued on May 2, 1942 by the Provincial Treasurer
of Misamis Oriental to Mariano V. Ramos and supposedly indorsed to Montinola.
In May 1942, Ubaldo Laya, as provincial treasurer of Misamis Oriental issued a
P100,000.00 Philippine National Bank (PNB) check to Mariano Ramos. The said check
was to be used by Ramos, as disbursing officer of the US forces at that time, for military
purposes.  Before Ramos can encash the check, he was made a prisoner of war by the
invading Japanese forces. When he got free in December 1944, he needed some cash
to buy medicine and foodstuff and so he went to a certain Enrique Montinola and made
arrangements.
On the back of the check, Ramos wrote:
Pay to the order of Enrique P. Montinola P30,000 only. The balance to be deposited in
the Philippine National Bank to the credit of M. V. Ramos.
In consideration thereof, Montinola promised to pay 90,000 in Japanese notes.
However, he was only able to pay 45k in Japanese notes to Ramos.
Later, Montinola sought to have the check encashed but PNB dishonored the
check. It appears that there was an insertion made. Under the signature of Laya, the
words “Agent, Philippine National Bank” was inserted, thus making it appear that Laya
disbursed the check as an agent of PNB and not as provincial treasurer of Misamis
Oriental (NOTE: at that time, a provincial treasurer is an ex officio agent of the
government’s bank).
ISSUE:
Whether or not, the instrument is a Negotiable Instrument
HELD:
No. It was not negotiated according to the Negotiable Instruments Law hence it
is not a negotiable instrument. There was only a partial indorsement and not a
negotiation contemplated under the NIL. Only P30k of the P100k amount of the check
was indorsed. This merely make Montinola a mere assignee – and this is the clear intent
of Ramos. Ramos was merely assigning P30k to Montinola. Montinola may therefore
not be regarded as an indorsee and PNB has all the right to dishonor the check. As
mere assignee, he is subject to all defenses available to the drawer Provincial Treasurer
of Misamis Oriental and against Ramos.
Anent the issue of alteration, the apparent purpose of which is to make the
drawee (PNB) the drawer against which Montinola can recover from directly. Such
material alteration which was done by Montinola without the consent of the parties liable
thereon discharges the instrument, pursuant to Sec. 124 of the NIL.
Montinola cannot be said to be a holder. He is an assignee. And even if he is a
holder, he is not in good faith because he did not pay the full amount of the
consideration for which the P30k was issued to him – he only paid 45k Japanese notes
out of the 90k Japanese notes consideration. At any rate, even assuming that there is
proper negotiation, Montinola can no longer encash said check because when he
sought to have it encashed in January 1945, it is already stale there being two and half
years passing since its time of issuance, thus, Montinola can not be said to be a holder
in due course.
As already stated, as a mere assignee Montinola is subject to all the defenses
available against assignor Ramos. And, Ramos had he retained the check may not now
collect its value because it had been issued to him as disbursing officer. As observed by
the trial court, the check was issued to M. V. Ramos not as a person but M. V. Ramos
as the disbursing officer of the USAFFE. Therefore, he had no right to indorse it
personally to plaintiff. It was negotiated in breach of trust, hence he transferred nothing
to the plaintiff. 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.
4.8 Myron Papa v. A.U. Valencia, et al.
G.R. 105188; Jan. 23, 1998
ENCIO
FACTS:
On 15 June 1973, Myron Papa allegedly sold to Felix Penarroyo, through A.U.
Valencia and Co., Inc., a parcel of land owned by Angela Butte in La Loma, Quezon
City. Prior to the alleged sale, the said property, together with several other parcels of
land owned by Butte, had been mortgaged by her to Associated Banking Corporation.
After the alleged sale, but before the title to the subject property had been released,
Butte passed away. The bank never gave the title of the subject property to A.U.
Valencia.
Sometime in April 1977, A.U. Valencia discovered that the mortgage rights of
the bank has been assigned to one Tomas Parpana, as special administrator of the
Estate of Ramon Papa, Jr., and since then Papa has been collecting monthly rentals
from the tenants of the property. A.U. Valencia repeatedly demanded from Papa the
delivery of the title of the subject property but the latter refused to do so. A.U. Valencia
filed a complaint for specific performance, praying that Papa be ordered to deliver the
title to the subject property.
On 29 June 1987, the trial court rendered a decision in favor of A.U. Valencia.
Papa appealed the decision of the trial court to the CA, alleging among others that the
sale was never “consummated” as he did not encash the check (worth P40,000) given
by A.U. Valencia in payment of the full purchase price of the subject lot. He maintained
that what A.U. Valencia had actually paid was only the amount of P5,000 (in cash) as
earnest money.
The CA affirmed the trial court’s decision. Contrary to Papa'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. On the other
hand, respondent Peñarroyo testified in court that petitioner Papa had received the
amount of P45,000.00 and issued receipts therefor. According to respondent court, the
presumption is that the check was encashed, especially since the payment by check
was not denied by defendant-appellant (herein petitioner) who, in his Answer, merely
alleged that he "can no longer recall the transaction which is supposed to have
happened 10 years ago."
ISSUE:
Whether or not the delivery of the check effectively produced payment.
HELD:
YES. It is an undisputed fact that respondents A.U. Valencia and Peñarroyo
had given petitioner Myron C. Papa the amounts of P5,000.00 in cash on 24 May 1973,
and 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, 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 part 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, 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 non-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.
Considering that respondents Valencia and Peñarroyo 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.
4.9 Gempesaw v. CA
G.R. 92244; Feb. 9, 1993
MARQUEZ
Doctrine:
- A forged signature is wholly inoperative, no one can gain title to the
instrument through such forged indorsement. Such indorsement prevents
any subsequent party from acquiring any right as against parties prior to the
forgery. Although rights may exist between and among parties subsequent
to the forged instrument, not one of the can acquire rights against parties
prior to the forgery. Such forged instrument cuts-off the rights of all
subsequent parties as against parties prior to the forgery. However, the law
makes an exception to these rules where party is precluded from setting up
forgery as a defense.
Facts:
Natividad O. Gempesaw owns and operates four grocery stores. To facilitate
the payment of debts to her suppliers, Gempesaw draws checks against her checking
account with the respondent bank as drawee. In the normal course of her business, her
trusted bookkeeper, Alicia Galang would prepare the checks and fill up all the material
particulars and submit them to Gempesaw for her signature. Gempesaw signed each
and every check without ascertaining its contents and did not verify whether the checks
were actually delivered to their respective payees. Gempesaw signed a total of eighty-
two checks in this manner, amounting to P1, 208, 606.89. All of the eighty-two (82)
checks with forged signatures of the payees were brought to Ernest L. Boon, Chief
Accountant of respondent drawee Bank, who, without authority, accepted them all for
deposit to the credit and/or in the accounts of Alfredo Y. Romero and Benito Lam. It was
only after 2 years that Gempesaw found out about the fraudulent manipulations of her
bookkeeper and upon discovering such, she made a written demand to the respondent
drawee bank to credit her account with the value of the eighty-two checks for having
been wrongfully charged against her account but the drawee bank refused to grant her
demand.
The Regional Trial Court, tried the case and dismissed the complaint as well as
the counterclaim of the drawee bank. The Court of Appeals, on appeal, affirmed the
decision of the RTC on two grounds, 1) that the gross negligence of Gempesaw in
issuing the checks was the proximate cause of the loss and 2) assuming that the bank
was also negligent, the loss nevertheless must be borne by the party whose negligence
was the proximate cause of the loss. Hence, a petition for review was filed before the
SC.
Issue:
Whether or not the drawee bank should bear the loss resulting from the forged
instruments.
Held:
No. The SC ruled that the drawee bank is adjudged liable to share the loss with
petitioner on a fifty-fifty ratio.
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 the rule is where the drawer is guilty of such negligence that causes the bank to
honor such checks. Gempesaw did not exercise prudence in taking steps that a careful
and prudent businessman would take in circumstances to discover discrepancies in her
account. Had Gempesaw examined her records more carefully and had she been more
vigilant in going over her current account or at least made random scrutiny of her
cancelled checks returned by the bank at the close of each month, she could have
easily discovered the fraud being perpetrated and could have reported the matter to the
drawee bank, who then could have taken immediate steps to prevent further
commission of such fraud. The negligence of Gempesaw is the proximate cause of the
loss and as such under Sec. 23 of the NIL, she is now precluded from using forgery as a
defense.
Section 23 of the NIL provides that,
- 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. 
On the other hand, the banking business is so impressed with public interest where the
trust and confidence of the public in general is of paramount importance such that the
appropriate standard of diligence must be a high degree of diligence. Drawee bank
cannot claim it exercised such a degree of diligence in its failure to discover the fraud
committed by its employee and in contravention with banking rules in allowing a chief
accountant to deposit the checks bearing second indorsements, in accordance with Art.
1170 of the Civil Code, and as such should bear the loss with the petitioner.
4. 10 Republic Bank v. Ebrada
G.R. L-40769; July 31, 1975
PALMERO
FACTS:
Respondent Ebrada encashed a back pay check dated January 15, 1963 at Republic
Bank. The Bureau of Treasury, which issued the check advised the bank that the
alleged indorsement of the check by one “Martin Lorenzo” was a forgery as the latter
has been dead since 14 July 1952; and requested that it be refunded he sum deducted
from its account. The bank refunded the amount to the Bureau and demanded upon
Ebrada the sum in question, who refused.
ISSUES:
1) Whether the bank can recover from Ebrada who was the last indorser of the
check with the forged indorsement.
2) Whether the existence of one forged signature in the check will render void
all the other negotiations of the check with respect to the other parties whose signature
are genuine.
RULING:
1) Republic Bank should suffer the loss when it paid the amount of the check in
question to Ebrada but it has the remedy to recover from the latter the amount it paid to
her because as last indorser of the check, she has warranted that she has good title to it
even if in fact she did not because the payee of the check was already dead 11 years
before the check was issued.
2) The negotiation of the check in question from Martin Lorenzo, the original
payee whose indorsement was forged, to the second indorser, should be declared of no
affect, but the negotiation of the aforesaid check from the second indorser to the third
indorser, and from the third indorser to Ebrada who did not know of the forgery, should
be considered valid and enforceable, barring any claim of forgery.
**The existence of one forged signature in the check will not render void all the other
negotiations of the check with respect to the other parties whose signature are genuine.
As last indorser of the check, petitioner warranted that she has good title to it even if in
fact she did not because the payee of the check was already dead 11 years before the
check was issued
4. 11 Associated Bank v. CA
G.R. 107382; Jan. 31, 1996
SANTOS
Facts: Faustino Pangilinan, cashier of the Concepcion Emergency Hospital, forged the
signature of Dr. Adena Canlas who was the Chief of the said hospital and endorsed 30
checks amounting to P203, 300.00 to himself. The money was drawn from the account
of the Province of Tarlac with PNB. Pangilinan deposited the checks to his personal
savings account with Associated Bank which was cleared and paid for by PNB. The
checks have a stamp of Associated Bankwhich reads “All prior endorsements
guaranteed by Associated Bank”.
The Province of Tarlac, through the Provincial Treasurer, wrote PNB to restore the
various amounts debited from the current account of the Province. PNB on its part
demanded reimbursement from Associated Bank. Both banks resisted payment which
led to the Province of Tarlac suing PNB. PNB in turn impleaded Associated Bank in the
suit as a third-party defendant while Associated Bank impleaded Canlas and Pangilinan
as fourth-party defendants.
The trial court ruled that 1) PNB should pay the Province of Tarlac the P203, 300.00
with legal interests, 2) Associated Bank should be pay the same amount to PNB and 3)
dismissed the complaints against Canlas and Pangilinan. On appeal, the CA affirmed
the ruling of the trial court  G.R. 132250; Jan. 30, 2002
Issue: Who should bear the loss arising from the forgery, the Province of Tarlac,
PNB, Associated Bank or Pangilinan?
Held:  Since the signature of the payee was forged to make it appear that he had made an
There   is   a   distinction   on   forged   indorsements   with   regard   bearer instruments
and instruments payable to order.  
 
With instruments payable to bearer, 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 holder in due course. 
 
In  instruments  payable  to  order,  the  signature  of  the  rightful  holder  is essential 
to  transfer  title to the same instrument. When the holder’s signature is forged,
all parties prior to the forgery may raise the real defense of forgery against all parties
subsequent thereto.
In connection to this, an indorser warrants that the instrument is genuine. A collecting
bank is such an indorser. So even if the indorsement 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.  
Furthermore, in cases involving checks with forged indorsements, such as the  case  at 
bar,  the  chain  of  liability  doesn't  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, the forger himself, if available.  In other words, the drawee bank can
seek reimbursement or a return of the amount it paid from the collecting bank or person.
The collecting bankgenerally  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 indorsements. 
 
With  regard  the  issue  of  delay,  a  delay  in  informing  the  bank  of  the forgery,
which deprives it of the opportunity to go after the forger, signifies negligence  on  the 
part  of  the  drawee  bank  and  will  preclude  it  from claiming reimbursement.  In this
case, PNB wasn't guilty of any negligent delay. Its  delay  hasn't  prejudiced  Associated 
Bank  in  any  way  because even  if  there  wasn't  delay,  the  fact  that  there  was 
nothing  left  of  the account of Pangilinan, there couldn't be anymore reimbursement.
4. 12 Westmont Bank v. Ong
ROSIT
DOCTRINE:
indorsement in favor of the forger, such signature should be deemed as inoperative and
ineffectual. The position of the bank taking the check on the forged and unauthorized
indorsement is the same as if it had taken the check and collected the money without
indorsement at all and the act of the bank amounts to conversion of the check.
FACTS:
Respondent maintained a current account with petitioner. He sold certain shares of
stocks to Island Securities Corporations. To pay Ong, Island Securities purchased 2
Pacific Banking Corporation mangers checks, issued in the name of respondent.
Ong’s friend Paciano Tanlimco got hold of the checks. Tanlimco forged Ong’s signature
and deposited said checks with petitioner bank. Even though Ong’s specimen signature
was on file, petitioner bank accepted and credited both checks to the account of
Tanlimco, without verifying the signature indorsements appearing at the back thereof.
Tanlimco, immediately withdrew the money and absconded.
Ong first sought the help of Tanlimcos family to recover the amount and reported the
incident to the Central Bank, which were both proved futile.
It was only about five months from discovery of fraud, did Ong demanded in his
complaint that petitioner pay the value of the checks from the bank on whose gross
negligence he imputed his loss. In his suit he insisted that he did not deliver, negotiate,
endorse or transfer to any person or entity the subject checks.
The petitioner bank contended that Ong never acquired ownership over the checks
because he never received them, hence, he had no legal personality to sue.
The trial court rendered a decision, ordering the defendant to pay the plaintiff. Petitioner
elevated the case to the Court of Appeals without success.
ISSUE:
W/N RESPONDENT HAS A CAUSE OF ACTION?
W/N RESPONDENT IS BARRED TO RECOVER THE MONEY DUE TO LACHES?
HELD
Petitioner argues that since Ong never had the possession of the checks nor did he
authorize anybody, he did not become a holder thereof hence he cannot sue in his own.
Respondent leans on the ruling of the trial court and the Court of Appeals against the
petitioner bank is a desirable shortcut to reach the party who ought in any event to be
ultimately liable. The Court find no reversible error in the assailed decisions of the
appellate and trial courts, hence, there is no justifiable reason to grant the petition.
1. Yes, respondent has a cause of action.
The complaint filed before the trial court expressly alleged respondents right as payee of
the managers checks to receive the amount involved, petitioners correlative duty as
collecting bank to ensure that the amount gets to the rightful payee or his order, and a
breach of that duty because of a blatant act of negligence on the part of petitioner which
violated respondents rights.
Under Section 23 of the Negotiable Instruments Law:
Sec. 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 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.
Since the signature of the payee was forged to make it appear that he had made an
indorsement in favor of the forger, such signature should be deemed as inoperative and
ineffectual. Petitioner grossly erred in making payment by virtue of said forged
signature. The payee should therefore be allowed to recover from collecting from bank.
The position of the bank taking the check on the forged and unauthorized indorsement
is the same as if it had taken the check and collected the money without indorsement at
all and the act of the bank amounts to conversion of the check.
Petitioner’s claim that since there was no delivery yet and respondent has never
acquired possession of the checks, respondent’s remedy is with the drawer and not with
petitioner bank. However, another view in certain cases holds that even if the absence
of delivery is considered, such consideration is not material. The rational for this is that
in said cases the plaintiff uses one action to reach the person who ought to be ultimately
liable as among the innocent persons involved in the transaction. In other words, the
payee ought to be allowed to recover directly from the collecting bank, regardless of
whether the check was delivered to the payee or not
Petitioner could not escape liability for its negligent acts. 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. The diligence required of banks
is more than that of a good father of a family. In the present case, petitioner was held to
be grossly negligent in performing his duties.
2. No, he is not barred.
It cannot be said that respondent sat on his rights. He immediately acted after knowing
the forgery by proceeding to seek help from the Tanlimco family and later the Central
Bank, to remedy the situation and recover his money from the forger. Only after he had
exhausted possibilities of settling the matter amicably did he resort to making the
demand upon the petitioner and eventually before the court for recovery of the money
value of the two checks. These acts cannot be construed as undue delay in or
abandonment of the assertion of his rights.
4.13 Samsung Construction v. FEBTC
G.R. 129015; Aug. 13, 2003
 TAN
Doctrine: A bank who pays out a forged check must bear the loss unless it is able to
prove that the check was not forged.
Facts: Petitioner Samsung had an account with Respondent bank. One day, a certain
Gonzaga presented for payment one of Samsung’s checks for the amount of 999.5K
payable in cash whose signature matched those provided by Samsung’s Project
Manager Jong. The bank went through its standard procedure of verifying checks whose
amounts are over 100k with 2 bank officers before encashing the same. One of the bank
officers noticed that one of Samsung’s employees, namely Sempio was there and tried
to verify with him the validity of said check. Sempio affirmed its validity and the same
was encashed.
The following day, Kyu the keeper of Samsung’s checks noticed that the company’s
account was missing 999.5k and that one of the checks was missing. He reported this to
Jong who later filed a criminal action against Sempio, the purported forger.
Samsung then later demanded that FEB credit the amount of 999.5k to its account since
the check was a forgery. FEB claimed otherwise saying that the check was not forged.
Issue: Who should bear the loss?
Held: The SC held that FEB should bear the loss pursuant to Section 23 of the NIL w/c
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.
FEB was not able to validly prove that the check was not forged by way of presenting
testimonial evidence of the PNP. Samsung, with the help of the NBI was able to validly
prove that the subject check was a forgery.
Also of note is the extraordinary diligence legally required of banks in the exercise of it’s
duties. The presentment of a check payable in cash with an amount of almost 1M
should have raised suspicion in the bank at the time of presentment. As stated by the
SC, a bank is liable, irrespective of its good faith, in paying a forged check.
4. 14 BDO v. Equitable Banking Corp.
G.R. 74917; Jan. 20, 1988
DURANTE
Facts.
BDO drew 6 crossed manager’s check having an aggregate amount P45,982.23 and
payable to certain member establishments of Visa Card. Subsequently, the Checks
were deposited with the defendant to the credit of its depositor, a certain Aida Trencio.
Following normal procedures, and after stamping at the back of the Checks the usual
endorsements. All prior and/or lack of endorsement guaranteed the defendant sent the
checks for clearing through the Philippine Clearing House Corporation (PCHC).
Accordingly, plaintiff paid the Checks; its clearing account was debited for the value of
the Checks and defendant's clearing account was credited for the same amount,
Thereafter, plaintiff discovered that the endorsements appearing at the back of the
Checks and purporting to be that of the payees were forged and/or unauthorized or
otherwise belong to persons other than the payees.
Issue.
1. Whether or not BDO is estopped from claiming that checks under consideration
are non-negotiable instruments
2. Whether or not BDO can escape liability by reasons of forgery.
Held.
1. YES. BDO having stamped its guarantee of “all prior endorsements and/or lack
of endorsements” is now estopped from claiming that the checks under
consideration are not negotiable instruments. The checks were accepted for
deposit by the petitioner stamping thereon its guarantee, in order that it can
clear the said checks with the respondent bank. By such deliberate and
positive attitude of the petitioner it has for all legal intents and purposes treated
the said cheeks as negotiable instruments and accordingly assumed the
warranty of the endorser when it stamped its guarantee of prior endorsements
at the back of the checks. It led the said respondent to believe that it was
acting as endorser of the checks and on the strength of this guarantee said
respondent cleared the checks in question and credited the account of the
petitioner. Petitioner is now barred from taking an opposite posture by claiming
that the disputed checks are not negotiable instrument.
2. NO. A commercial bank cannot escape the liability of an endorser of a check
and which may turn out to be a forged endorsement. Whenever any bank
treats the signature at the back of the checks as endorsements and thus
logically guarantees the same as such there can be no doubt said bank has
considered the checks as negotiable. 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.

4.15 Great Eastern Life Ins. V. HSBC and PNB
G.R. 18657; Aug. 23, 1922
MENDOZA
Facts:
Plaintiff drew its check on HSBC with whom it had an account, payable to the order of
Melicor.
Maasim fraudulently obtained possession of the check, forged Melicor's signature, as
an endorser, and then personally endorsed and presented it to PNB where the amount
of the check was placed to his credit.
After having paid the check, PNB endorsed the check to HSBC, which paid it, and
charged the amount of the check to the account of the plaintiff.
HSBC rendered a bank statement to the plaintiff showing that the amount of the check
was charged to its account, and no objection was then made to the statement.
About four months after the check was charged to the account of the plaintiff, it
discovered that Melicor, to whom the check was made payable, had never received it,
and that his signature, as an endorser, was forged by Maasim.
Plaintiff promptly made a demand upon HSBC that it should be given credit for the
amount of the forged check.
The bank refused to do, and thus the plaintiff commenced this action to recover the
amount paid on the forged check.
Issue:
Whether HSBC is responsible for the refund to the drawer of the amount of the check
drawn and payable to order, when its value was collected by a third person by means of
forgery of the signature of the payee.
Ruling:
Yes. Plaintiff authorized and directed HSBC to pay Melicor, or his order and not to any
other person. Neither is the plaintiff estopped or bound by the bank statement, which
was made to it by the HSBC. This is not a case where the plaintiff's own signature was
forged to one of its checks. In such a case, the plaintiff would have known of the forgery,
and it would have been its duty to have promptly notified the bank of any forged
signature, and any failure on its part would have released the bank from any liability.
Plaintiff had a right to assume that Melicor had personally endorsed the check, and that,
otherwise, the bank would not have paid it.
HSBC is liable to plaintiff and PNB is in turn liable to HSBC as it had no license or
authority to pay the money to Maasim or anyone else upon a forged signature. It was its
legal duty to know that Melicor's endorsement was genuine before cashing the check.
PNB‟s remedy is against Maasim to whom it paid the money.
4.16 PNB v. Hon. Quimpo
G.R. 53194; Mar. 14, 1988
MANIBO
Gancayo, J.:
“If the paper comes to the drawee in the regular course of business, and he, having the
opportunity ascertaining its character, pronounces it to be valid and pays it, it is not only
a question of payment under mistake, but payment in neglect of duty which the
commercial law places upon him, and the result of his negligence must rest upon him.”
FACTS:
Francisco Gozon II was a depositor of the Caloocan City Branch of the
Philippine National Bank. On July 3, 1973, he went to the bank in his car accompanied
by his friend Ernesto Santos whom he left in the car while he transacted business in the
bank. When Santos saw that Gozon left his checkbook, he (Santos) took a check
therefrom, filled it up for the amount of P5,000.00, forged the signature of Gozon, and
thereafter encashed the check in the bank on the same day which was debited on
Gozon’s account. Upon receipt of the statement of account from the bank, Gozon asked
that the P5,000.00 be returned to his account as his signature on the check was forged
but the bank refused.
Gozon filed a complaint against Santos on February 1, 1974 who later admitted
that he stole Gozon’s check, forged his signature and encashed the same with the
Bank.
Hence, Gozon filed the complaint for recovery of the amount of P5,000.00
against the bank in the Court of First Instance of Rizal which ruled in favor of Gozon and
ordered the bank to return the amount to him. Not satisfied therewith, the bank filed for
the petition for review.
ISSUE:
Whether or not the act of Gozon in putting his checkbook containing the check
in question into the hands of Ernesto Santos was indeed the proximate cause of the
loss, thereby precluding him from setting up the defense of forgery or want of
authority under Sec. 23, NIL?
HELD:
No. The Court ruled that the prime duty of a bank is to ascertain the
genuineness of the signature of the drawer or the depositor on the check being
encashed. It is expected to use reasonable business prudence in accepting and cashing
a check presented it. Obviously, petitioner was negligent in encashing said forged check
without carefully examining the signature which shows marked variation from the
genuine signature of private respondent. Moreover, if the paper comes to the drawee
in the regular course of business, and he, having the opportunity ascertaining its
character, pronounces it to be valid and pays it, it is not only a question of
payment under mistake, but payment in neglect of duty which the commercial law
places upon him, and the result of his negligence must rest upon him.
Gozon cannot be held negligent because he trusted Ernesto Santos as a
classmate and a friend. He brought him along in his car to the bank and he left his
personal belongings in the car. Santos however removed and stole a check from
Gozon’s checkbook without the knowledge and consent of the latter, thus Gozon had no
reason that his friend would breach his trust.
4. 17 BPI v. CA
216 SCRA 51; 1992
HERNANDO
DOCTRINE:
Section 23 of the Negotiable Instruments Law states:
When 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
discharge therefore, or to enforce payment thereof, against any party thereto, can be
acquired through or under such forged signature, unless the party against whom it is
sought to enforce such right is precluded from setting up the forgery or want of authority.
There are two (2) parts of the provision. The first part states the general rule while the
second part states the exception to the general rule. 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. The exception to this rule
is when the party relying in the forgery is "precluded from setting up the forgery or want
of authority. In this jurisdiction we recognize negligence of the party  invoking forgery as
an exception to the general rule. It is necessary to determine the rights and liabilities of
the parties under a forged endorsement by looking at the legal effects of the relative
negligence of the parties thereto.
 FACTS:
The story underlying this case began in the afternoon of October 9, 1981 with a
phone call to BPI's Money Market Department by a woman who identified herself as
Eligia G. Fernando who had a money market placement as evidenced by a promissory
note with a maturity date of November 11, 1981 and a maturity value of P2,462,243.19.
The caller wanted to preterminate the placement. The promissory note the caller wanted
to preterminate was a roll-over of an earlier 50-day money market placement that had
matured on September 24, 1981.
The caller of the previous Friday followed up with Eustaquio, merely by phone
again, on the pretermination of the placement. Although not familiar with the voice of the
real Eligia G. Fernando, Eustaquio "made certain" that the caller was the real Eligia G.
Fernando by "verifying" that the details the caller gave about the placement tallied with
the details in "the ledger/folder" of the account. Eustaquio knew the real Eligia G.
Fernando to be the Treasurer of Philippine American Life Insurance Company
(Philamlife) since he was handling Philamlife's corporate money market account. But
neither Eustaquio nor Bulan who originally handled Fernando's account, nor anybody
else at BPI, bothered to call up Fernando at her Philamlife office to verify the request for
pretermination.
Informed that the placement would yield less than the maturity value because
of its pretermination, the caller insisted on the pretermination just the same and asked
that two checks be issued for the proceeds, one for P1,800,000.00 and the second for
the balance, and that the checks be delivered to her office at Philamlife.
Eustaquio, thus, proceeded to prepare the "purchase order slip" for the
requested pretermination as required by office procedure, and from his desk, the
papers, following the processing route, passed through the position analyst, securities
clerk, verifier clerk and documentation clerk, before the two cashier's checks, nos.
021759 and 021760 for P1,800,000.00 and P613,215.16, respectively, both payable to
Eligia G. Fernando, covering the preterminated placement, were prepared. The two
cashier's checks, together with the papers consisting of the money market placement
was to be preterminated and the promissory note (No. 35623) to be preterminated, were
sent to Gerlanda E. de Castro and Celestino Sampiton, Jr., Manager and Administrative
Assistant, respectively, in BPI's Treasury Operations Department, both authorized
signatories for BPI, who signed the two checks that very morning. Having been singed,
the checks now went to the dispatcher for delivery.
Later in the same morning, however, the same caller changed the delivery
instructions; instead of the checks being delivered to her office at Philamlife, she would
herself pick up the checks or send her niece, Rosemarie Fernando, to pick them up.
Eustaquio then told her that if it were her niece who was going to get the checks, her
niece would have to being a written authorization from her to pick up the checks. This
telephone conversation ended with the caller's statement that "definitely" it would be her
niece, Rosemarie Fernando, who would pick up the checks. Thus, Eustaquio had to
hurriedly go to the dispatcher, Bernardo Laderas, to tell him of the new delivery
instructions for the checks; in fact, he changed the delivery instruction on the purchase
order slip, writing thereon "Rosemarie Fernando release only with authority to pick up.
 It was, in fact Rosemarie Fernando who got the two checks from the
dispatcher, as shown by the delivery receipt. Actually, as it turned out, the same
impersonated both Eligia G. Fernando and Rosemarie Fernando. Although the checks
represented the termination proceeds of Eligia G. Fernando's placement, not just a roll-
over of the placement, the dispatcher failed to get or to require the surrender of the
promissory note evidencing the placement. There is also no showing that Eligia G.
Fernando's purported signature on the letter requesting the pretermination and the latter
authorizing Rosemarie Fernando to pick up the two checks, both of which letters were
presumably handed to the dispatcher by Rosemarie Fernando, was compared or
verified with Eligia G. Fernando's signature in BPI's file. Such purported signature has
been established to be forged although it has a "close similarity" to the real signature of
Eligia G. Fernando (TSN of January 15, 1985, pp. 24 and 26).
The story's scene now shifted when, in the afternoon of October 13, 1981, a
woman who represented herself to be Eligia G. Fernando applied at CBC's Head Office
for the opening of a current account. The following day, October 14, 1981, the woman
holding herself out as Eligia G. Fernando deposited the two checks in controversy with
Current Account No. 126310-3. Her endorsement on the two checks was found to
conform with the depositor's specimen signature. CBC's guaranty of prior endorsements
and/or lack of endorsement was then stamped on the two checks, which CBC forthwith
sent to clearing and which BPI cleared on the same day.
Two days after, withdrawals began on Current Account No. 26310-3: On
October 16, 1981, by means of Check No. 240005 dated the same day for
P1,000,000.00, payable to "cash", which the woman holding herself out as Eligia G.
Fernando encashed over the counter, and Check No. 240003 dated October 15, 1981
for P48,500.00, payable to "cash" which was received through clearing from PNB Pasay
Branch; on October 19, 1981, by means of Check No. 240006 dated the same day for
P1,000,000.00, payable to "cash," which the woman identifying herself as Eligia G.
Fernando encashed over the counter; on October 22, 1981, by means of Check No.
240007 dated the same day for P370,000.00, payable to "cash" which the woman
herself also encashed over the counter; and on November 4, 1981, by means of Check
No. 240001 dated November 3, 1981 for P4,100.00, payable to "cash," which was
received through clearing from Far East Bank.
All these withdrawals were allowed on the basis of the verification of the
drawer's signature with the specimen signature on file and the sufficiency of the funds in
the account. However, the balance shown in the computerized teller terminal when a
withdrawal is serviced at the counter, unlike the ledger or usual statement prepared at
month-end, does not show the account's opening date, the amounts and dates of
deposits and withdrawals. The last withdrawal on November 4, 1981 left Current
Account No. 26310-3 with a balance of only P571.61.
The day of reckoning came on November 11, 1981, the maturity date of Eligia
G. Fernado's money market placement with BPI, when the real Eligia G. Fernando went
to BPI for the roll-over of her placement. She disclaimed having preterminated her
placement on October 12, 1981. She executed an affidavit stating that while she was
the payee of the two checks in controversy, she never received nor endorsed them and
that her purported signature on the back of the checks was not hers but forged. With her
surrender of the original of the promissory note (No. 35623 with maturity value of
P2,462,243.19) evidencing the placement which matured that day, BPI issued her a new
promissory note (No. 40314 with maturity date of December 23, 1981 and maturity value
of P2,500.266.77) to evidence a roll-over of the placement.
On November 12, 1981, supported by Eligia G. Fernando's affidavit, BPI
returned the two checks in controversy to CBC for the reason "Payee's endorsement
forged". A ping-pong started when CBC, in turn, returned the checks for reason "Beyond
Clearing Time", and the stoppage of this ping-pong, as we mentioned at the outset,
prompted the filing of this case.
The Arbitration Committee ruled in favor of petitioner BPI. However, upon
motion for reconsideration filed by respondent CBC, the Board of Directors of the PCHC
reversed the Arbitration Committee's decision.
ISSUE:
Whether or not the proximate cause for the loss of the proceeds of the two
checks in question was the negligence of the employees of China Banking Corporation
and not Bank of the Philippine Islands and consequently, even under section 23 of the
Negotiable Instruments Law, the latter was not precluded from raising the defense of
forgery
HELD:
Petitioner BPI's theory that the present clearing guarantee requirement
imposed on the representing or collecting bank under the PCHC rules and regulations is
independent of the Negotiable Instruments Law is not in order.
Another reason why the petitioner's theory is uncalled for is the fact that the
Negotiable Instruments Law (Act No. 2031) applied to negotiable instruments as defined
under section one thereof. Undeniably, the present case involves checks as defined by
and under the coverage of the Negotiable Instruments Law. To affirm the theory of the
petitioner would, therefore, violate the rule that rules and regulations implementing the
law should conform to the law, otherwise the rules and regulations are null and void.
Section 23 of the Negotiable Instruments Law states:
When 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
discharge therefore, or to enforce payment thereof, against any party thereto, can be
acquired through or under such forged signature, unless the party against whom it is
sought to enforce such right is precluded from setting up the forgery or want of authority.
There are two (2) parts of the provision. The first part states the general rule while the
second part states the exception to the general rule. 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. The exception to this rule
is when the party relying in the forgery is "precluded from setting up the forgery or want
of authority. In this jurisdiction we recognize negligence of the party  invoking forgery as
an exception to the general rule. It is necessary to determine the rights and liabilities of
the parties under a forged endorsement by looking at the legal effects of the relative
negligence of the parties thereto.
In the present petition the payee's names in the two (2) subject checks were forged.
Following the general rule, the checks are "wholly inoperative" and of no effect.
However, the underlying circumstances of the case show that the general rule on
forgery is not applicable. The issue as to who between the parties should bear the loss
in the payment of the forged checks necessities the determination of the rights and
liabilities of the parties involved in the controversy in relation to the forged checks.
The records show that petitioner BPI as drawee bank and respondent CBC as
representing or collecting bank were both negligent resulting in the encashment of the
forged checks.
Petitioner BPI's reliance on the doctrine of last clear chance to clear it from
liability is not well-taken. CBC had no prior notice of the fraud perpetrated by BPI's
employees on the pretermination of Eligia G. Fernando's money market placement.
Moreover, Fernando is not a depositor of CBC. Hence, a comparison of the signature of
Eligia G. Fernando with that of the impostor Eligia G. Fernando, which respondent CBC
did, could not have resulted in the discovery of the fraud. Respondent CBC had no way
to discover the fraud at all. In fact the records fail to show that respondent CBC had
knowledge, actual or implied, of the fraud perpetrated by the impostor and the
employees of BPI.
Again, applying the doctrine of proximate cause, petitioner BPI's contention
that CBC alone should bear the loss must fail. The gap of one (1) day between the
issuance and delivery of the checks bearing the impostor's name as payee and the
impostor's negotiating the said forged checks by opening an account and depositing the
same with respondent CBC is not controlling. It is not unnatural or unexpected that after
taking the risk of impersonating Eligia G. Fernando with the connivance of BPI's
employees, the impostor would complete her deception by encashing the forged checks.
There is therefore, greater reason to rule that the proximate cause of the payment of the
forged checks by an impostor was due to the negligence of petitioner BPI. This finding,
notwithstanding, we are not inclined to rule that petitioner BPI must solely bear the loss
of P2,413,215.16, the total amount of the two (2) forged checks. Due care on the part of
CBC could have prevented any loss.
The Court cannot ignore the fact that the CBC employees closed their eyes to
the suspicious circumstances of huge over-the-counter withdrawals made immediately
after the account was opened. The opening of the account itself was accompanied by
inexplicable acts clearly showing negligence. And while we do not apply the last clear
chance doctrine as controlling in this case, still the CBC employees had ample
opportunity to avoid the harm which befell both CBC and BPI. They let the opportunity
slip by when the ordinary prudence expected of bank employees would have sufficed to
seize it.
Both banks were negligent in the selection and supervision of their employees
resulting in the encashment of the forged checks by an impostor. Both banks were not
able to overcome the presumption of negligence in the selection and supervision of their
employees. It was the gross negligence of the employees of both banks which resulted
in the fraud and the subsequent loss. While it is true that petitioner BPI's negligence
may have been the proximate cause of the loss, respondent CBC's
negligence contributed  equally to the success of the impostor in encashing the
proceeds of the forged checks. Under these circumstances, we apply Article 2179 of the
Civil Code to the effect that while respondent CBC may recover its losses, such losses
are subject to mitigation by the courts.
4.18 Metropolitan Bank & Trust CO. v. First National City
G.R. L-55079; Nov. 19, 1982
UY
Facts:
Check No. 7166 dated July 8, 1964 for P50,000.00, payable to CASH, drawn by Joaquin
Cunanan & Company on First National City Bank was deposited with Metropolitan Bank
and Trust Company (Metro Bank for short) by a certain Salvador Sales. On the same
day, Sales had opened a current account with Metro Bank depositing P500.00 in cash.
Metro Bank immediately sent the cash check to the Clearing House of the Central Bank
with words stamped at the back “Metropolitan Bank and Trust Company Cleared
(illegible) office All prior endorsements and/or Lack of endorsements Guaranteed” and
was cleared. Private respondent paid petitioner through clearing the amount of
P50,000.00, and Sales was credited with the said amount in his deposit with Metro
Bank. Sales made his first withdrawal of P480.00 from his current account and withdrew
an amount of P32,100.00, 2 days after Aug 26. He then subsequently withdrew the
remaining cash in the said bank account. Nine days later, FNCB returned cancelled
Check No. 7166 to drawer Joaquin Cunanan & Company, together with the monthly
statement of the company's account with FNCB. That same day, the company notified
FNCB that the check had been altered. The actual amount of P50.00 was raised to
P50,000.00, and over the name of the payee, Manila Polo Club, was superimposed the
word CASH. FNCB notified Metro Bank of the alteration by telephone, confirming it the
same day with a letter, which was received by Metro Bank on the following day. FNCB
wrote Metro Bank asking for reimbursement of the amount of P50,000.00. The latter did
not oblige, so that FNCB reiterated its request on September 29, 1964. Metro Bank was
adamant in its refusal. FNCB filed in the Court of First Instance of Manila and the trial
court rendered its Decision ordering Metro Bank to reimburse FNCB the amount of
P50,000.00 with legal rate of interest from June 25, 1965 until fully paid, to pay
attorney's fees of P5,000.00, and costs. Hence this appeal.
Issue:
W/c bank is liable for the reimbursement of the said amount by reason of the alleged
altered amount as indorser
Held:
FNCB is liable. Pursuant to the Circular No. 138 with regards to clearing procedures a
24 hour clearing house regulation must be upheld. In the case at hand, since both
parties are banks, both are subject to the regulations of the Central Bank, they are
bound by the 24-hour clearing house rule of the Central Bank. Failure of FNCB to call
the attention of Metro Bank to the alteration of the check in question until after the lapse
of nine days, negates whatever right it might have had against Metro Bank in the light of
the said Central Bank Circular. Its remedy lies not against Metro Bank, but against the
party responsible for the changing the name of the payee 5 and the amount on the face
of the check. FNCB contends that the stamp reading “Metropolitan Bank and Trust
Company Cleared (illegible) office All prior endorsements and/or Lack of endorsements
Guaranteed.” With the ruling in the case of Hongkong & Shanghai Bank, “But Plaintiff
Bank insists that Defendant Bank is liable on its indorsement during clearing house
operations. The indorsement, itself, is very clear when it begins with words 'For
clearance, clearing office **** In other words, such an indorsement must be read
together with the 24-hour regulation on clearing House Operations of the Central Bank.
Once that 24- hour period is over, the liability on such an indorsement has ceased. This
being so, Plaintiff Bank has not made out a case for relief.” Therefore it is said the
Metrobank can’t be held liable for the reimbursement of the check. Moreover, FNCB did
not deny the allegation of Metro Bank that before it allowed the withdrawal of the
balance of P17,920.00 by Salvador Sales, Metro Bank withheld payment and first
verified, through its Assistant Cashier Federico Uy, the regularity and genuineness of
the check deposit from Marcelo Mirasol, Department Officer of FNCB, because its
(Metro Bank) attention was called by the fast movement of the account.
SMC vs Puzon
GR 167567
September 22, 2010
DOCTRINE: Ownership over postdated check is not transferred upon delivery if the
party delivering the instrument did not intend to give effect to it.
FACTS:
Puzon was a dealer of beer from SMC and purchased products on credit. As
business practice and to ensure payment, SMC required him to issue postdated checks
but would be returned once the transactions were settled in full. On Dec. 31, 2000
purchased on credit and gave SMC 2 checks to cover the transaction. Jan. 23, 2001
Puzon went to the SMC Sales office with his accountant to see a check but when he got
a hold of one of the checks he issued, he immediately left the office.
SMC demanded Puzon to return the checks but he ignored the demand.
Hence, SMC filed a complaint against him for theft.
Prosecutor’s office recommended the dismissal of the case for lack of
evidence. DOJ affirmed.
CA agreed with the previous decision on the ground that the postdated checks were
issued by Puzon merely as a security for the payment of his purchases and that these
were not intended to be encashed. Therefore SMC never acquired ownership over the
checks and they are duty bound to return the checks after the transactions were settled.
ISSUE/S: WON delivery of the checks vested SMC with ownership
HELD:
NO.
One of the essential elements of Theft is that the said property belongs to
another. It is important to determine whether ownership of subject check was transferred
to SMC. Under Sec. 12 Antedated and postdated of NIL, “…the person to whom an
instrument so dated is delivered acquires title thereto as of the date of delivery…”
However the party delivering the instrument must intend to give effect to it. In this case,
since the check was not given as payment there being no intent to give effect to the
instrument, then the ownership of the check was not transferred.
SC denied the petition.
Dy vs People
GR 158312
November 14, 2008
Facts: John Dy, under the business name Dyna Marketing, has been the distributor of
W.L. Food Products in Naga City, Bicol. Dy would pay W.L. Foods in either cash or
check upon pick up of stocks of snack foods at the latter's branch or main office in
Quezon City. At times, he would entrust the payment to one of his drivers.

Dy's driver went to the branch office to pick up stocks of snack foods. He introduced
himself to the checker, Mary Jane D. Maraca, who upon confirming Dy's 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.
The check was signed by Dy though it did not indicate a specific amount. Another
transaction was made on July 1 with the amount of Php226,794.35 in exchange for
Check No. 553615 w/c was again brought and picked up by Dy’s driver. Delivery
receipts issued to the driver were of without signature but was however filled later on by
Evelyn Ong, accountant of W.L Foods. Checks were dishonoured by reason of
insufficiency of funds in the said account. Later on a letter was sent to W.L foods
indicating Check # 553602 was returned to drawee bank for the reason of stop payment
order and then drawn against uncollected deposits and not because of insufficiency of
funds. Dy's 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. Despite demand, Dy
ignored such. 2 charges of estafa as well as violation of B.P 22 were likewise filed
against Dy. Dy was arrested and pleaded not guilty. RTC convicted Dy of the crimes
charged. CA affirmed. A motion for reconsideration was filed but was denied hence this
appeal.
Issue: WON the honorable CA gravely erred in finding that the prosecution has proven
the guilt of accused beyond reason doubt of ESTAFA on 2 counts.
Held: YES but only with regards to the 2nd check.
“Section 191 of the Negotiable Instruments Law14 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.”
“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.”
In the case at hand, 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 therefore 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.
This was a clear acknowledgment of receipt of the goods, when he expressed
willingness to pay W.L. Foods, or to replace the dishonored checks, which gave rise to
his duty to maintain or deposit sufficient funds to cover the amount of the checks.
Prima facie evidence of deceit was established against petitioner with regard to FEBTC
Check No. 553615 (2nd check) which was dishonored for insufficiency of funds. The
letter of petitioner's counsel dated November 10, 1992 shows beyond reasonable doubt
that petitioner received notice of the dishonor of the said check for insufficiency of funds.
Petitioner, however, failed to deposit the amounts necessary to cover his check within
three banking days from receipt of the notice of dishonor. Hence, as provided for by law,
the presence of deceit was sufficiently proven.
Petitioner failed to overcome the said proof of deceit. The trial court found no pre-
existing obligation between the parties. The existence of prior transactions between Lim
and Dy alone did not rule out deceit because each transaction was separate, and had a
different consideration from the others. Aside from the existing business relations
between petitioner and W.L. Foods, the primary inducement for the latter to part with its
stocks of snack foods was the issuance of the check in payment of the value of the said
stocks.
Since it good faith is a defense of ESTAFA — good faith may be manifested by making
arrangements for payment with the creditor and exerting best efforts to make good the
value of the checks. However petitioner presented no proof of good faith. Noticeably
absent from the records is sufficient proof of sincere and best efforts on the part of
petitioner for the payment of the value of the check that would constitute good faith and
negate deceit.
Lunario vs. People
GR 160127 November 11, 2008
UY
Facts:
Petitioner entered into a partnership agreement with private complainant Nemesio
Artaiz, in the conduct of a money-lending business, with the former as industrial partner
and the latter the financier. Petitioner, being a cashier of Far East Bank would offer
loans to prospective borrowers which his branch was unable to accommodate. He would
first inform Artaiz of the amount of the proposed loan, then the latter would issue a
check charged against his account in the bank (proceeds of which will go to a borrower),
while petitioner would in turn issue a check to Artaiz corresponding to the amount lent
plus the agreed share of interest.
The lending business progressed satisfactorily between the parties and sufficient trust
was established between the parties that they both agreed to issue pre-signed checks to
each other, for their mutual convenience. The checks were signed but had no payee's
name, date or amount, and each was given the authority to fill these blanks based on
each other's advice. The arrangement ended on November 1989, when Artaiz was no
longer willing to continue the partnership.4 One of the checks issued by petitioner to
Artaiz was dishonored for insufficient funds.5 When Artaiz went to petitioner to ask why
the latter's check had bounced, petitioner told Artaiz that he had been implicated in a
murder case and therefore could not raise the money to fund the check.6 Petitioner
requested Artaiz not to deposit the other checks that would become due as he still had a
case.
Petitioner was charged with murder but was acquitted. Artaiz, he went to petitioner, after
petitioner had been released on bail, and demanded payment for the money owed
Artaiz. Petitioner again requested more time to prepare the money and collect on the
loans. Artaiz agreed. petitioner owed Artaiz P844,000.00 and petitioner issued a post
dated check in that amount. Check was dishonour for it was already closed. RTC found
petitioner guilty. CA affirmed the decision hence this appeal.
Issue:
WON petitioner is liable for the violation of BP 22 — by the reason that prosecution
failed to establish that the subject check was duly "made" or "drawn" and "issued" by
petitioner.
Held:
Yes. The court held that prosecution had established the elements for the crime
committed. (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. (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. However
petitioner was insisting that check was not "made" or "drawn" within the contemplation
of the law, nor was it for a consideration.
According to the NIL Sec 14
“Blanks, when may be filled. - Where the instrument is wanting in any material
particular, the person in possession thereof has prima facie authority to complete it by
filling up the blanks therein.”
This practice is allowed. Because of the presumption of authority, the burden of proof
that there was no authority or that authority granted was exceeded is carried by the
person who questions such authority.
Records show that [petitioner] had not proven lack of authority on the part of Artaiz to fill
up such blanks. Having failed to prove lack of authority, it can be presumed that Artaiz
was within his rights to fill up blanks on the check. Under the second element,
[petitioner] states that the making and issuing of the check was devoid of consideration.
He claimed that the transaction for which the check was issued did not materialize.
However, it should be noted that when lack of consideration is claimed, it pertains to
total lack of consideration. In this case, records show that [petitioner] recognized that
there was an amount due to Artaiz, such that he had his own version of computation
with respect to the amount he owed to Artaiz. We also note that with respect to the
second element of the crime, consideration was duly established in Artaiz's testimony.
Westmont Bank vs. Dela Rosa-Ramos
GR 160260
ENCIO
OUTLINE 5
5.1 Far East Realty Investment, Inc. v. CA
166 SCRA 256 (1988)
LICSI
Facts:
Petitioner alleged that private respondents approached petitioner and asked to extend to
them an accommodation loan in the sum of P4,500.00 which they needed in their
business and which they promised to pay, jointly and severally, in one month time.
Respondents proposed to pay petitioner interest thereon for which they delivered a
China Banking Corporation Check, dated September 13, 1960, drawn by Dy Hian Tat
and signed by them at the back with the assurance that after one month the check
would be redeemed by them by paying cash, or the check can be presented for
payment on or immediately after one month and said bank would honor the same. The
petitioner agreed and actually extended to the private respondents an accommodation
loan in the sum of P4,500.00 under the aforesaid conditions proposed by the private
respondents, which amount was delivered to the latter. On March 5, 1964, the aforesaid
check was presented for payment to the China Banking Corporation, but said check
bounced and was not cashed by said bank, for the reason that the current account of
the drawer thereof had already been closed; and that subsequently, the petitioner
demanded from the private respondents the payment of their aforesaid loan obligation,
but the latter failed and refused to pay notwithstanding repeated demands. Private
respondents interposed as a defense, inter alia, that the check was not presented within
a reasonable time and, thus, they are discharged of liability.
Issue:
Whether or not presentment for payment and notice of dishonor of the questioned check
were made within reasonable time
Held:
Section 71. - Where the instrument is not payable on demand, presentment must be
made on the day it falls due. Where it is payable on demand, presentment must be
made within a reasonable time after issue, except that in the case of a bill of exchange,
presentment for payment will be sufficient if made within a reasonable time after the last
negotiation thereof.
Section 102. - Notice may be given as soon as the instrument is dishonored; and unless
delay is excused must be given within the time fixed by the law.
No hard and fast demarcation line can be drawn between what may be considered as a
reasonable or an unreasonable time, because "reasonable time" depends upon the
peculiar facts and circumstances in each case
It is obvious in this case that presentment and notice of dishonor were not made within a
reasonable time.
"Reasonable time" has been defined as so much time as is necessary under the
circumstances for a reasonable prudent and diligent man to do, conveniently, what the
contract or duty requires should be done, having a regard for the rights, and possibility substantial payments thereon and second, he made a waiver of demand, presentment,
of loss, if any, to the other party. etc.

In this case, the check in question was issued on September 13, 1960, but was 5.3 FEBTC v. Queremit G.R. 148582
presented to the drawee bank only on March 5, 1964, and dishonored on the same Jan. 16, 2002
date. After dishonor by the drawee bank, a formal notice of dishonor was made by the ESCASINAS
petitioner through a letter dated April 27, 1968. Under these circumstances, the
petitioner undoubtedly failed to exercise prudence and diligence on what he ought to do DOCTRINE: The bank remains liable to the holder if it paid the certificate of deposit
al. required by law. The petitioner likewise failed to show any justification for the payable to bearer without requiring its surrender.
unreasonable delay.
FACTS:

On November 24, 1986, respondent Estrella O. Querimit opened a dollar savings

account in petitioner's Harrison Plaza branch, for which she was issued four (4)
5. 2 Ansaldo v. CA Certificates of Deposit with a total amount of $60,000.00. The certificates were to
G.R. 47696 (Aug. 29, 1989) mature in 60 days, on January 23, 1987, and were payable to bearer at 4.5% interest
per annum. The certificates bore the word "accrued," which meant that if they were not
Sec.  74.  Instrument must  be  exhibited. -  The  instrument must be exhibited  to  the  presented for encashment or pre-terminated prior to maturity, the money deposited with
person  from  whom  payment  is  demanded,  and when it is paid, must be delivered up accrued interest would be "rolled over" by the bank and annual interest would
to the party paying it. accumulate automatically. The petitioner bank's manager assured respondent that her
NECESSITY OF EXHIBITION OF INSTRUMENT deposit would be renewed and earn interest upon maturity even without the surrender of
•      Presentment  includes  not  only  demand  for  payment  but  also  the exhibition of the certificates if these were not indorsed and withdrawn. In 1989, respondent
the instrument accompanied her husband Dominador Querimit to the United States for medical
•      Purpose  is  to  enable  the  debtor  to  determine  the  genuineness  of  the treatment. Her husband died then she returned to the Philippines. She went to petitioner
instrument  and  the  right  of  the  holder  to  receive  payment  and  to Far East Bank and Trust Company (FEBTC) to withdraw her deposit but she was told
enable him to retain possession upon payment that her husband had withdrawn the money in deposit. Through a counsel, respondent
A DEMAND BY TELEPHONE IS INSUFFICIENT requested for an update and payment of the certificates of deposit, including interest
earned from the petitioner which was denied by the latter. Petitioner alleged that it had
WHEN EXHIBITION EXCUSED given respondent's late husband an "accommodation" to allow him to withdraw Estrella's
1.    When  the  debtor  doesn’t  demand  to  see  the  instrument  but refuses payment deposit. Petitioner presented certified true copies of documents showing that payment
on some other grounds had been made. The trial court rendered judgment for respondent. Court of Appeals
2.    When the instrument is lost or destroyed affirmed the decision of the trial court. The appeals court stated that petitioner failed to
prove that the certificates of deposit had been paid out of its funds, since the evidence
FACTS: stands unrebutted that the subject certificates of deposit until now remain unindorsed,
TFC  issued  promissory  notes  in  favor  of  PCIB.    At  about  the  same  time, TFC undelivered and unwithdrawn by her.
extended loans to Ansaldo and Reyes.  These loans were evidenced by promissory
notes, each waiving demand, presentment, protest, and notice of  protest  and  non- ISSUE:
payment.    TFC  then  paid  part  of  its  obligation  with
PCIB.  To pay for its outstanding balance, it endorsed the notes issued by Ansaldo  and  Whether or not the subject certificates have already been paid by the petitioner.
Reyes.    Claiming  that  the  notes  have  matured  without payment by Ansaldo and
Reyes, the bank instituted actions against them.    HELD:

HELD: NO. Petitioner bank failed to prove that it had already paid Estrella Querimit, the bearer
The  contention  of  Ansaldo  that  the  instrument  should  have  been  first presented to and lawful holder of the subject certificates of deposit. The finding of the trial court on
him is bereft of merit. this point, as affirmed by the Court of Appeals, is that petitioner did not pay either
respondent Estrella or her husband the amounts evidenced by the subject certificates of
First, it couldn’t be first raised on appeal.    deposit. A certificate of deposit is defined as a written acknowledgment by a bank or
banker of the receipt of a sum of money on deposit which the bank or banker promises
Second, it is a petty issue for if according to him, such an exhibition was needed   to  to pay to the depositor, to the order of the depositor, or to some other person or his
give  him  opportunity  to  determine  the  genuineness  of  the instrument,  this  was  order, whereby the relation of debtor and creditor between the bank and the depositor is
rendered  unnecessary  not  only  by  his  omission  to contest it, but also by his created. The principles governing other types of bank deposits are applicable to
admission of the authenticity of the note implicit from his averment that he made certificates of deposit, as are the rules governing promissory notes when they contain
an unconditional promise to pay a sum certain of money absolutely. The principle that
payment, in order to discharge a debt, must be made to someone authorized to receive
it is applicable to the payment of certificates of deposit. Thus, a bank will be protected in
making payment to the holder of a certificate indorsed by the payee, unless it has notice
of the invalidity of the indorsement or the holder's want of title. A bank acts at its peril
when it pays deposits evidenced by a certificate of deposit, without its production and
surrender after proper indorsement. As a rule, one who pleads payment has the burden
of proving it. Even where the plaintiff must allege non-payment, the general rule is that
the burden rests on the defendant to prove payment, rather than on the plaintiff to prove
payment. The debtor has the burden of showing with legal certainty that the obligation
has been discharged by payment. In this case, the certificates of deposit were clearly
marked payable to "bearer," which means, to "the person in possession of an
instrument, document of title or security payable to bearer or indorsed in blank."
Petitioner should not have paid respondent's husband or any third party without
requiring the surrender of the certificates of deposit.
5.4 Int’l Corporate Bank v. Spouses Gueco
G.R. 141968 (Feb. 12, 2001)
ARIOLA
FACTS:
Respondents spouses, obtained a loan from petitioner bank for the purchase of
a car. They executed promissory notes and was secured by a chattel mortgage paid by
monthly installments. Unable to pay the monthly amortizations the bank sued for
collection. Thru negotiations, the amount due was reduced and payment will release the
car. Respondent delivered a manager's check in the said amount but petitioner bank
refused to release the car for respondent's refusal to sign the joint motion to dismiss.
Unable to recover possession of the car, respondent filed an action for
damages against respondent based on fraud. Respondents alleged that the delivery of
the check produced the effect of payment. Petitioner, however, did not encash the check
because of the present case.
On appeal RTC reversed MeTC’s decision on the ground that the agreement
between the parties didn’t include signing of the joint motion to dismiss as a condition
sine qua non for the effectivity of the compromise and attributed fraud to petitioner in
requiring the respondent spouses to sign the joint motion to dimiss. On review CA
affirmed in toto.
Hence, this petition for review.
ISSUE/S:
WON petitioner bank is liable. -- NO
HELD:
The omission of petitioner in informing respondent that the signing of the joint
motion to dismiss is a standard operating procedure cannot be characterized as wanton,
fraudulent, reckless, oppressive, malevolent or in bad faith. That requirement cannot
cause prejudice to respondent but instead would have benefited him. Thus, petitioner is
not liable for damages.
A check must be presented for payment within a reasonable time after its
issue. In the case at bar, the check involved is a manager's check and is accepted in
advance by the act of issuance. Assuming that presentment is needed, failure to present
on time will result to the discharge of the drawer only to the extent of the loss caused by
the delay. In the case at bar, respondents have not alleged damage or loss caused by
the delay or non-presentment. Petitioner bank held on the check and refused to encash
it because of the controversy surrounding the signing of the joint motion to dismiss. We
see no bad faith or negligence in this position.
5.5 Wong v. CA and Pp.
G.R. 117857 (Feb. 2, 2001)
TAN
Doctrine
What the law punishes is the issuance of a bouncing check and not the purpose for
which it was issued nor the terms and conditions relating to its issuance. The mere act
of issuing a worthless check is malum prohibitum.
Facts
Petitioner Wong is an agent of LPI, a manufacturer of calendars. He is responsible for
taking the orders of customers, forwarding them to LPI and for collection of payments.
Wong has a history of unremitted collections. In Dec 1985, Petitioner issued 6 checks to
payable to LPI corresponding to the amounts of new orders from customers with the
checks serving as guarantees. Upon LPI’s policy, they were refused to accept personal
checks from Wong. Later it was agreed upon by the parties that the checks would be
used to offset the unremitted collections of Wong. Upon presentment to the bank, the
checks were dishonored due to the account being closed. LPI filed an action against
Wong for breach of BP 22.
Issues
WON LPI a holder for value and WON Wong is guilty
Held
Yes. LPI is considered a holder for value due to the fact that they accepted the checks
in order to offset Wong’s unremitted accounts instead of its initial purpose of being
guarantees of the customer’s orders. Wong’s argument that there was no value for the
acceptance of the checks is invalid and was thusly disproven in court on account of the
testimony of one of LPI’s employees.
Yes. Wong is guilty of violating BP 22 the requisites are present, 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 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) 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 second element is presumed to exist with the presence of the first and third
elements. To mitigate the harshness of BP 22, the maker of the dishonored check is
given 5 days from notice of the dishonor in order to make arrangements for the payment
to the payee.
Marigomen v. People
G.R. 153451 (May 26, 2005)
DOMINGUEZ
State Investment House v. CA and Moulic
217 SCRA 32 (1993)
RODRIGUEZ
Sec. 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 has
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.
Sec. 114. When notice need not be given to drawer. — Notice of dishonor is not
required to be given to the drawer in the following cases: (a) Where the drawer and the
drawee are the same person; (b) When the drawee is a fictitious person or a person not
having capacity to contract; (c) When the drawer is the person to whom the instrument
is presented for payment: (d) Where the drawer has no right to expect or require that the
drawee or acceptor will honor the instrument; (e) Where the drawer had countermanded
payment.
FACTS: Nora B. MOULIC issued to Corazon Victoriano, as security for pieces of jewelry
to be sold on commission, two post-dated Equitable Banking Corporation checks in the
amount of P50, 000.00 each, one on August 30, 1979 and other other on September 30,
1979. Thereafter, the payee negotiated the checks to petitioner State Investment House,
Inc. Moulic failed to sell the pieces of jewelry so she returned them to the payee before
the maturity of the said checks. However, the checks could no longer be retrieved as
they had already been negotiated. Consequently, before their maturity dates, MOULIC
withdrew her funds from the drawee bank. When State Investment House presented the
checks for payment, they were dishonored for insufficiency of funds. State allegedly
notified MOULIC of the dishonor and demanded to be paid in cash instead. This fact,
however, was denied by MOULIC. State sued MOULIC for the recovery of the amount
of the checks. In her answer, MOULIC avers that she incurred no obligation on the
checks because the jewelry was never sold and the checks were negotiated without her
knowledge and consent.
The trial court dismissed the complaint and ordered STATE the pay the attorney’s fees.
The appellate court affirmed the trial court on the ground that the Notice of Dishonor to
MOULIC was made beyond the period prescribed by the NIL and that even if STATE did
serve such Notice on MOULIC within the reglementary period, it would be of no
consequence as the checks should have never been presented for payment. The sale of
the jewelry was never effected, thus, the checks ceased to serve their purpose as
security for the jewelry.
ISSUE: Whether or not State Investment House, Inc. is a holder in due course of the
checks
HELD: Yes. State Investment is a holder in due course as it complies with all the
requirements pursuant to Section 52 of the Negotiable Instruments Law, which provides
for the requirements in relation to the case at bar: (a) On their faces, the post-dated
checks were complete and regular: (b) State Investment bought these checks from
Victoriano, before their due dates; (c) State Investment took these checks in good faith
and for value, (d) State Investment was never informed nor made aware that these
checks were merely issued to Victoriano as security and not for value.
Consequently, STATE is indeed a holder in due course. As such, it holds the
instruments free from any defect of title of prior parties and from defenses available to
prior parties among themselves. STATE, may, therefore, enforce full payment of the
checks.
Further, there is no need to issue a notice of dishonor to MOULIC. She did not retrieve
the checks when she returned the jewelry. She simply withdrew her funds from her
drawee bank and transferred them to another to protect herself. After withdrawing her
funds, she could not have expected her checks to be honored. In other words, she was
responsible for the dishonor of her checks, hence, there was no need to serve her
Notice of Dishonor.
5.6 Asia Banking Corp. v. Javier
G.R. 19051 (April 1923)
MANIBO
Avanceña, J: If, after a negotiable instrument is dishonored for non-acceptance of non-
payment, the endorser is not notified of the fact in the time and manner prescribed by
the law, said endorser is released from all liability upon the document.
FACTS:
On May 10, 1920, Salvador B. Chaves drew a check on the Philippine National
Bank for P11,000 in favor of La Insular, a concern doing business in this city. This check
was endorsed by the limited partners of La Insular, and then deposited by Salvador B.
Chaves in his current account with the plaintiff, Asia Banking Corporation (ABC). The
deposit was made on July 14, 1920.
On June 25, 1920, Salvador B. Chaves drew another check for P18,785.30 on
the Philippine National Bank, in favor of the aforesaid La Insular. This check was also
endorsed by the limited partners of La Insular, and was likewise deposited by Salvador
B. Chaves in his current account with ABC, on July 6, 1920.
After the checks were deposited in ABC bank, the amount represented by both
checks was used by Salvador B. Chaves by drawing checks on the plaintiff.
Subsequently these checks were presented by the ABC to the Philippine National Bank
for payment, but the latter refused to pay on the ground that the drawer, Salvador B.
Chaves, had no funds therein.
Lower court ruled in favor of the ABC, sentencing Javier to pay the value of
both checks; hence the appeal.
ISSUE:
Whether or not the liability of defendant Javier as endorser of the checks in
question was extinguished?
HELD:
YES. The Court ruled that the liability of the defendant never arose. Section 89
of the Negotiable Instruments Law (Act No. 2031) provides that, when a negotiable
instrument is dishonored for non-acceptance or non-payment, notice thereof must be
given to the drawer and of each of the endorsers, and those who are not notified that the
document was dishonored. Then, under the general principle of the law of procedure, it
will be incumbent upon the plaintiff, who seeks to enforce the defendant's liability upon
these checks as endorser, to establish said liability by proving that notice was given to
the defendant within the time, and in the manner, required by the law that the checks in
question had been dishonored. If these facts are not proven, the plaintiff has not
sufficiently established the defendant's liability. There is no proof in the record tending to
show that plaintiff ABC gave any notice whatsoever to the defendant that the checks in
question had been dishonored, and therefore it has not established its cause of action.
For the foregoing, the judgment appealed from is reversed and the defendant
is absolved from the complaint without special pronouncement as to costs.
5.7 Gullas v. PNB G.R. 43191
(Nov. 13, 1935)
ALCANTARA
Facts:
On August 2, 1933, the treasurer of the US for the United States Veterans Bureau
issued a Warrant in the amount of $361, payable to the order of Francisco Sabectoria
Bacos. Atty. Paulino Gullas and Pedro Lopez signed as endorsers of this check. The
check was then cashed by the Philippine National Bank, but was dishonored by Insular
Treasurer. At that time, the outstanding balance of Attorney Gullas on the books of the
bank was P509. On August 20, 1933, Attorney Gullas left his residence at Cebu for
Manila. The notices of dishonor informing him that the amount of $366 was applied to
his outstanding balance were not received by him. On August 31, 1933, upon his return
to Cebu, he received the notice of dishonor and paid the balance. However,
inconveniences were caused to Atty. Gullas, such as, insurance unpaid due to lack of
credit and periodicals in the vicinity gave prominence to the news to the great
mortification of Gullas.
ISSUE:
Whether or not the bank had the right to automatically credit Gullas account without
having received a notice of dishonor and it was not prejudicial to him
HELD:
NO. The Negotiable Instruments Law contains provisions establishing the liability of a
general indorser and giving the procedure for a notice of dishonor. The general indorser
of negotiable instrument engages that if he be dishonored and the, necessary
proceedings of dishonor be duly taken, he will pay the amount thereof to the holder. It
has been held a long line of authorities that notice of dishonor is in order to charge all
indorser and that the right of action against him does not accrue until the notice is given.
The general rule is that a bank has a right of set off of the deposits in its hands for the
payment of any indebtedness to it on the part of a depositor. However this may be, as to
an indorser the situation is different, and notice should actually have been given him in
order that he might protect his interests. We accordingly are of the opinion that the
action of the bank was prejudicial to Gullas. But to follow up that statement with others
proving exact damages is not so easy. For instance, for alleged libelous articles the
bank would not be primarily liable. The same remark could be made relative to the loss
of business which Gullas claims but which could not be traced definitely to this
occurrence. Also Gullas having eventually been reimbursed lost little through the actual
levy by the bank on his funds. On the other hand, it was not agreeable for one to draw
checks in all good faith, then, leave for Manila, and on return find that those checks had
not been cashed because of the action taken by the bank. That caused a disturbance in
Gullas' finances, especially with reference to his insurance, which was injurious to him.
All facts and circumstances considered, we are of the opinion that Gullas should be
awarded nominal damages because of the premature action of the bank against which
Gullas had no means of protection, and have finally determined that the amount should
be P250.
5.8 Nyco Sales Corp. v. BA Finance Corp.
G.R. 71694 (Aug. 16, 1991)
MENDOZA
FACTS:
Nyco Sales Corporation has discounting privileges with BA Finance Corporation. In
1978, brothers Renato Fernandez and Santiago Renato (officers of Sanshell
Corporation) approached Nyco Sales Corporation for a credit accommodation in order
for the brothers make use of Nyco’s discounting privileges. Nyco Sales agreed and so,
on November 15, 1978, Sanshell issued a post-dated (November 17, 1978) BPI check
to Nyco Sales in the amount of P60,000.00. Following the discounting process agreed
upon, Nyco Sales, thru its president Rufino Yao, endorsed the check in favor of BA
Finance. Thereafter, BA Finance issued a check payable to Nyco Sales which endorsed
it in favor of Sanshell. Sanshell then made use of and/or negotiated the check.
Accompanying the exchange of checks was a Deed of Assignment executed by Nyco
Sales (assignor) in favor of BA Finance (assignee) with the conformity of Sanshell.
Under the said Deed, the subject of the discounting was P60k BPI check.
The check bounced. BA Finance notified Sanshell. Sanshell substituted the BPI check
with a Security Bank and Trust Company check for P60k. This check again bounced. BA
Finance made repeated demands to Nyco Sales and Sanshell but neither of the two
settled the obligation. Hence, BA Finance sued Nyco Sales. Nyco Sales averred that it
received no notice of dishonor when the second check was dishonored.
ISSUE: Whether or not Nyco Sales is liable to pay BA Finance.
HELD: Yes. The relationship between Nyco Sales and BA Finance is one of assignor-
assignee. The assignor-vendor warrants both the credit itself (its existence and legality)
and the person of the debtor (his solvency), if so stipulated, as in the case at bar.
Consequently, if there be any breach of the above warranties, the assignor-vendor
should be held answerable therefor. There is no question then that the assignor-vendor
is indeed liable for the invalidity of whatever he assigned to the assignee-vendee.
Considering now the facts of the case at bar, it is beyond dispute that Nyco executed a
deed of assignment in favor of BA Finance with Sanshell Corporation as the debtor-
obligor. BA Finance is actually enforcing said deed and the check covered thereby is
merely an incidental or collateral matter. This particular check merely evidenced the
credit which was actually assigned to BA Finance. Thus, the designation is immaterial
as it could be any other check. It is only what is represented by the said checks that
Nyco is being asked to pay.
Nyco Sales’ pretension that it had not been notified of the fact of dishonor is belied not
only by the formal demand letter issued by BA Finance but also by the fact that Nyco
Sales and Sanshell had frequent contacts before, during and after the dishonor. More
importantly, as long as the credit remains outstanding, Nyco Sales shall continue to be
liable to BA Finance as its assignor. The dishonor of an assigned check simply stresses
its liability and the failure to give a notice of dishonor will not discharge it from such
liability. This is because the cause of action stems from the breach of the warranties
embodied in the Deed of Assignment, and not from the dishonoring of the check alone.
5.9 Great Asian Sales v. CA
G.R. 105774 (April 25, 2002)
Facts:
 On two occasions in March 1981 and February 1982, Great Asian Sales
Center Corporation, through a Board Resolution, authorized its Treasurer and
General Manager Arsenio Lim, Jr to secure a loan from Bancasia for an
amount not exceeding 1 million and a discounting line for 2 million.
 Prior to the contract with Bancasia, Tan Chong Lin, President of Great Asian
signed a surety agreement in favor of Bancasia to guarantee, solidarily the
debts of Great Asian.
 Great Asian, through Mr. Lim, signed four Deeds of Assignment of
Receivables, assigning 15 postdated checks, all endorsed by Mr. Lim, and the
said assigned checks were issued by various clients of Great Asian as
payments for appliances and other merchandise.
 The postdated checks were received by Bancasia for a discounted rate of 24%,
however, all 15 checks were dishonored by the drawee banks. The total
amount of the dishonored checks is P1,042,005
 After the checks were dishonored, Bancasia referred the matter to its lawyer
who thereafter sent notification to Tan Chong Lin and demanded payment from
him. Subsequently, another letter was personally delivered to Mr. Tan
demanding payment for all 15 dishonored checks but neither Mr. Tan nor Great
Asian made payment.
 On May 1982, Great Asian filed with the CFI of Manila a petition for insolvency
and in the attached Schedule and Inventory of Liabilities and Creditors,
Bancasia was listed as one of the creditors in the amount of P1,243,632. The
petition for voluntary insolvency, however, was later withdrawn.
 On June 1982, Bancasia filed a complaint for collection against Great Asian
and Tan Chong Lin.
 Tan Chong Lin denied responsibility claiming that the warranties in the Deed of
Assignment enlarge or increase his risks under the Surety Agreements and
has materially altered his obligations, and therefore he is released from any
liability.
 Great Asian claimed that Arsenio Lim had no authorization to execute the Deed
of Assignment and that Bancasia should have gone after the drawers of the
checks and not Great Asian because the assignment of the checks is not a
loan accommodation but a sale of checks.
 In both CFI and CA, the courts decided for Bancasia
Issue:
 WON Arsenio Lim was had the proper authorization to execute the Deed of
Assignment
 WON Tan Chong Lin was solidarily liable
 WON Great Asian was under the Deed of Assignment in breach of contract

Held:
First:
 Arsenio Lim had the authorization as stipulated in the two Board Resolutions
by the Board of Directors of Great Asian
Second
 Tan Chong Lin was solidarily liable with Great Asian, the stipulations of the
Surety Agreements he signed specifically providing for his guaranteeing “any
other obligations of every kind which the Principal may now or hereafter owe
the creditor”
Third
 Under the Civil Code, Great Asian was in Breach of Contract. “Obviously, there
is one vital suspensive condition in the Deeds of Assignment. That is, in case
the drawers fail to pay the checks maturity, Great Asian obligated itself to pay
Bancasia the full face value of the dishonored checks, including penalty and
attorney’s fees. The failure of the drawers to pay the checks is a suspensive
condition, the happening of which gives rise to Bancasia’s right to demand
payment from Great Asian. This conditional obligation of Great Asian arises
from its written contracts with Bancasia as embodied in the Deed of
Assignments.”
 The Deeds of Assignment uniformly stipulate that: “If for any reason the
receivables or any part cannot be paid by the obligor/s, the Assignor
unconditionally and irrevocably agress to pay the same, assuming the liability
to pay, by way of penalty three percent (3%) of the total amount unpaid, for the
period of delay until the same is fully paid.”
 By express provision in the Deeds of Assignment, Great Asian unconditionally
obligated itself to pay Bancasia the full value of the dishonored checks. In
short, Great Asian sold the postdated checks on with recourse basis against
itself. Great Asian and Bancasia agreed on this specific with recourse
stipulation, despite the fact that the receivables were negotiable instruments
with the endorsement of Arsenio. The explicit with recourse stiupulation against
Great Asian effectively enlarges, by agreement of the parties, the liability of
Great Asian beyond that of a mere endorser of a negotiable instrument. Thus,
whether or not Bancasia gives notice of dishonor to Great Asian, the latter
remains liable to Bancasia because of with recourse stipulation which is
independent of the warranties of an endorser under the Negotiable Instruments
Law.
 “Great Asian, moreover, claims that the assignment of the checks is not a loan
accommodation but a sale of checks. With the sale, the ownership of the
checks passed to Bancasia, which must now, according the Great Asian, sue
the drawers and endorser of the check who are parties primarily liable on the
checks. Great Asian forgets that under the Deed of Assignment, Great Asian
expressly undertook to pay the full value of the checks in case of dishonor.”
 “In summary, Great Asian’s four contracts assigning its fifteen postdated
checks to Bancasia expressly stipulate the suspensive condition that in the
event the drawers of the checks fail to pay, Great Asian itself will pay Bancasia.
Other important facts
 Discounting Line means a credit facility with a financing company or bank
which allows a business entity to sell, on a continuing basis, its accounts
receivables at a discount. The term “discount” means the sale of receivables at
less than its face value. The purpose of a discounting line is to enable a
business entity to generate instant cash out its receivables which are still to
mature at future dates. The financing company or bank which buys the
receivables makes profit out of the difference between the face value of the
receivable and the discounted price.
 Discounting Line vs. Loan Accommodation – If the accounts receivable, like
postdated checks, are sold for a consideration less than their face value, the
transaction is one of discounting, and is subject to the provisions of the
Financing Company Act. The assignee is immediately subrogated as creditor
of the accounts receivable. However, if the accounts receivable are merely
used as collateral for the loan, the transaction is only simple loan, and the
lender is not subrogated as creditor until there is default and the collateral is
closed.
5.10 Velasquez v. Solidbank
G.R. 157309 (Mar. 28, 2008)
SAGMIT
FACTS: 
The case arose out of a business transaction for the sale of dried sea cucumber for
export to South Korea between Wilderness Trading (of Velasquez), 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 with
the Bank of Seoul, Pusan, Korea.
Petitioner applied for credit accommodation with Solidbank for pre-shipment financing.
The credit accommodation 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 Solidbank 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.
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.
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.
Due to the dishonor of the sight draft and the stop payment order, respondent
demanded restitution of the sum advanced. Petitioner failed to heed the demand.
Solidbank 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). He also alleged that the letter of undertaking is not binding
because it is a superfluous document, and that he did not violate any of the provisions of
the letter of credit.
RTC rendered judgment in favor of respondent. The CA affirmed with modification.
hence this petition.
ISSUE: WON not petitioner should be held liable to respondent under the sight draft or
the letter of undertaking.
HELD: petition denied.
YES; letter of undertaking
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, respondent’s failure to protest the non-acceptance of
the sight draft resulted in the discharge of petitioner from liability under the instrument.
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 petitioner’s promise to pay respondent the value of the sight draft if it was
dishonored for any reason by the Bank of Seoul.
**GUARANTY**
We cannot accept petitioner’s 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.
5.11 RCBC v. Hi-Tri Devt. Corp.
G.R. 192413 (June 13, 2012)
DIATO
Facts:
Luz [R.] Bakunawa and her husband Manuel, now deceased are registered owners of
six (6) parcels of land covered by TCT Nos. 324985 and 324986 of the Quezon City
Register of Deeds, and TCT Nos. 103724, 98827, 98828 and 98829 of the Marikina
Register of Deeds. These lots were sequestered by the Presidential Commission on
Good Government. Teresita Millan, through her representative, Jerry Montemayor,
offered to buy said lots for "P 6,724,085.71", with the promise that she will take care of
clearing whatever preliminary obstacles there may[]be to effect a "completion of the
sale". The Spouses Bakunawa gave to Millan the Owner’s Copies of said TCTs and in
turn, Millan made a down payment of "P 1,019,514.29" for the intended purchase.
However, for one reason or another, Millan was not able to clear said obstacles. As a
result, the Spouses Bakunawa rescinded the sale and offered to return to Millan her
down payment of P 1,019,514.29. Milan refused and by reason of w/c Spouses, through
their company Hi-Tri, took a Manager’s Check in the amount of P 1,019,514.29 from
RCBC Ermita Branch, payable to Millan’s company Rosmil Realty and Development
Corporation ("Rosmil") c/o Teresita Millan. During the pendency of the case, since as
advised by the counsel of the spouses to retain custody of the check and to refrain from
cancelling or negotiating it, and without the knowledge of [Hi-Tri and Spouses, RCBC
reported the "P 1,019,514.29-credit existing in favor of Rosmil" to the Bureau of
Treasury as among its "unclaimed balances” which was signed and posted by
Florentino N. Mendoza, Manager and Head of RCBC’s Asset Management,
Disbursement & Sundry Department. Subsequently 3 years after, a case was filed to the
RTC the action below for Escheat by the OSG. Both parties agreed to an amicable
settlement of P3M however during the negotiations and evidently prior to said
settlement, they were dismayed when they were informed that the amount was already
subject of the escheat proceedings before the RTC. A letter was sent to RCBC stating “
the deposit that was supposed to be allocated for the payment of the Manager’s Check
was supposed to remain part of the Corporation[’s] RCBC bank account, which,
thereafter, continued to be actively maintained and operated. For this reason, We
hereby demand your confirmation that the amount of Php 1,019,514.29 continues to
form part of the funds in the Corporation’s RCBC bank account, since pay-out of said
amount was never ordered. We wish to point out that if there was any attempt on the
part of RCBC to consider the amount indicated in the Manager’s Check separate from
the Corporation’s bank account, RCBC would have issued a statement to that effect,
and repeatedly reminded the Corporation that the deposit would be considered dormant
absent any fund movement. Since the Corporation never received any statements of
account from RCBC to that effect, and more importantly, never received any single letter
from RCBC noting the absence of fund movement and advising the Corporation that the
deposit would be treated as dormant.” The trial court ordered the deposit of the
escheated balances with the Treasurer and credited in favor of the Republic.
RTC issued an Order denying the motion of respondents. The trial court explained that
the Republic had proven compliance with the requirements of publication and notice,
which served as notice to all those who may be affected and prejudiced by the
Complaint for Escheat.
CA reversed the decision contending RCBC failed to prove that the latter had
communicated with the purchaser of the Manager’s Check or the designated payee
immediately before the bank filed its Sworn Statement on the dormant accounts held
therein. Furthermore bank’s failure to notify respondents deprived them of an
opportunity to intervene in the escheat proceedings and to present evidence to
substantiate their claim, in violation of their right to due process & failed to issue
individual notices directed to all persons claiming interest in the unclaimed balances, as
well as to require them to appear after publication and show cause why the unclaimed
balances should not be deposited with the Treasurer of the Philippines hence this
appeal.
Issue: Whether or not the allocated funds may be escheated in favor of the Republic?

Held: No. There are sufficient grounds to affirm the CA on the exclusion of the funds
allocated for the payment of the MC in escheat proceedings.

An ordinary check refers to a bill of exchange drawn by a depositor (drawer) on a bank

(drawee), requesting the latter to pay a person named therein (payee) or to the order of
the payee or to the bearer, a named sum of money. The issuance of the check does not
of itself operate as an assignment of any part of the funds in the bank to the credit of the
drawer. Here, the bank becomes liable only after it accepts or certifies the check. After
the check is accepted for payment, the bank would then debit the amount to be paid to
the holder of the check from the account of the depositor-drawer.

There are checks of a special type called manager’s or cashier’s checks. These are bills
of exchange drawn by the bank’s manager or cashier, in the name of the bank, against
the bank itself. Typically, a manager’s or a cashier’s check is procured from the bank by
allocating a particular amount of funds to be debited from the depositor’s account or by
directly paying or depositing to the bank the value of the check to be drawn. Since the
bank issues the check in its name, with itself as the drawee, the check is deemed
accepted in advance. Ordinarily, the check becomes the primary obligation of the
issuing bank and constitutes its written promise to pay upon demand. Nevertheless, the
mere issuance of a manager’s check does not ipso facto work as an automatic transfer
of funds to the account of the payee. In case the procurer of the manager’s or cashier’s
check retains custody of the instrument, does not tender it to the intended payee, or fails
to make an effective delivery, we find the following provision on undelivered instruments
under the Negotiable Instruments Law applicable

“ Sec. 16. Delivery; when effectual; when presumed. – Every contract on a negotiable
instrument is incomplete and revocable until delivery of the instrument for the
purpose of giving effect thereto. As between immediate parties and as regards a
remote party other than a holder in due course, the delivery, in order to be effectual,
must be made either by or under the authority of the party making, drawing,
accepting, or indorsing, as the case may be; and, in such case, the delivery may be
shown to have been conditional, or for a special purpose only, and not for the
purpose of transferring the property in the instrument. But where the instrument is in
the hands of a holder in due course, a valid delivery thereof by all parties prior to
him so as to make them liable to him is conclusively presumed. And where the
instrument is no longer in the possession of a party whose signature appears
thereon, a valid and intentional delivery by him is presumed until the contrary is
proved.”

In the case at hand, petitioner acknowledges that the Manager’s Check was procured by
respondents, and that the amount to be paid for the check would be sourced from the
deposit account of Hi-Tri. When Rosmil did not accept the Manager’s Check offered by
respondents, the latter retained custody of the instrument instead of cancelling it. As the
Manager’s Check neither went to the hands of Rosmil nor was it further negotiated to
other persons, the instrument remained undelivered. Petitioner does not dispute the fact
that respondents retained custody of the instrument. Since there was no delivery,
presentment of the check to the bank for payment did not occur. An order to debit the
account of respondents was never made therefore there was no complete delivery.