Development Bank of Rizal vs.

Sima Wei
G.R. No. 85419 March 9, 1993
219 SCRA 736

FACTS:
Sima Wei executed and delivered to the petitioner a promissory note Ior a loan extended
to it. Sima Wei issued two crossed checks payable to petitioner Bank drawn against China
Banking Corporation. The said checks were allegedly issued in Iull settlement oI the drawer`s
account evidenced by the promissory note. These two checks were not delivered to the
petitioner-payee or to any oI its authorized representatives. These checks came into the
possession oI respondent Lee Kian Huat, who deposited the checks without the petitioner-
payee`s indorsement (Iorged or otherwise) to the account oI respondent Plastic Corporation, with
the Producers Bank. Branch Manager oI Producers Bank, instructed the cashier oI Producers
bank to accept the checks Ior deposit and to credit them to the account oI said Plastic
Corporation, inspite oI the Iact that the checks were crossed and payable to petitioner Bqank and
bore no indorsement oI the latter. Hence, petitioner Iiled a complaint against Sima Wei, Lee Kian
Huat, Plastic Corporation, the branch Manager oI Producers Bank.

ISSUE:
Whether petitioner acquired any right or interest in the checks and can thereIore assert
cause oI action on the same.

DECISION:
Only as against Sima Wei. The payee oI negotiable instrument acquires no interest with
respect thereto until delivery to him. Delivery oI an instrument means transIer oI possession,
actual or constructive, Irom one person to another. Without the initial delivery oI the instrument
Irom the drawer to the payee, there can be no liability on the instrument. Moreover, such
delivery must be intended to give eIIect to the instrument.
The normal parties to a check are the drawer, the payee and the drawee bank. All the
drawer has to do when he wishes to issue a check is to properly Iill up the blanks and sign it.
However, the mere Iact that he has done these does not give rise to any liability on his part, until
and unless the check is delivered to the payee or his representative. Notwithstanding the above, it
does not necessarily Iollow that the drawer Sima Wei is Ireed Irom liability to petitioner Bank
under the loan evidenced by the promissory note agreed to by her. Her allegation that she has
paid the balance oI her loan with the two checks payable to petitioner Bank has no merit Ior, as
we have earlier explained, these checks were never delivered to petitioner Bank. And even
granting, without admitting, that there was delivery to petitioner Bank, the delivery oI checks in
payment oI an obligation does not constitute payment unless they are cashed or their value is
impaired through the Iault oI the creditor. None oI these exceptions were alleged by respondent
Sima Wei.
However, insoIar as the other respondents are concerned, petitioner Bank has no privity
with them. Since petitioner Bank never received the checks on which it is based its action against
respondents, it never owned them (the checks) nor did it acquire any interest therein. Thus,
anything which the respondents may have done with respect to said checks could not have
prejudices petitioner Bank. It had no right or interest in the checks which could have been
violated by said respondents. Petitioner Bank has thereIore no cause oI action against said
respondents, in the alternative or otherwise. II at all, it is Sima Wei, the drawer, who would have
a cause oI action against her co-respondents, iI the allegations in the complaint are Iound to be
true.













Gempesaw vs. Court of Appeals
G.R. No. 92244 February 9, 1993
218 SCRA 682

FACTS:
Petitioner issued a total oI 82 checks in Iavor oI several suppliers. The checks were
prepared and Iilled up as to all material particulars by her trusted bookkeeper. The completed
checks were submitted to the petitioner Ior her signature, together with the corresponding invoice
receipts which indicate the correct obligations due and payable to her suppliers. Petitioner signed
each and every check without bothering to veriIy the accuracy oI the checks against the
corresponding invoices because she reposed Iull and implicit trust and conIidence on her
bookkeeper. The issuance and delivery oI the checks to the payees named therein were leIt to the
bookkeeper. But the payees did not receive nor even see the subject checks. All the 82 checks
with Iorged signatures oI the payees, making it appear that they were all indorsed by the payees
named therein, were brought instead directly to the ChieI Accountant oI respondent drawee
Bank, who, without authority thereIor, accepted them all Ior deposit in the accounts oI AlIredo
Y. Romero and Benito Lam. Although the respondent drawee Bank notiIied petitioner oI all
checks presented to and paid by the bank, petitioner did not veriIy the correctness oI the returned
checks, much less check iI the payees actually received the checks in payment Ior the supplies
she received. It was only aIter the lapse oI more than 2 years that petitioner Iound out about the
Iraudulent manipulations oI her bookkeeper. Petitioner made a written demand on respondent
Bank to credit her account with the money value oI the 83 checks Ior having been wrongIully
charged against her account. Respondent drawee Bank reIused to grant petitioner`s demand and
thus petitioner Iiled the complaint against drawee Bank.

ISSUE:
Whether petitioner could recover Irom the respondent drawee Bank on the money value
oI all the 82 checks.


DECISION:
Respondent drawee Bank is adjudged liable to share the loss with the petitioner on a
IiIty-IiIty ratio.
As a rule, a drawee Bank who has paid a check on which an indorsement has been Iorged
cannot charge the drawee`s account Ior the amount oI said check. An exception to this rule is
where the drawer is guilty oI such negligence which causes the Bank to honor such a check or
checks. A diIIerent situation arises where the indorsement was Iorged by an employee or agent
oI the drawer, or done with the active participation oI the latter. The negligence oI a depositor
which will prevent recovery oI an unauthorized payment is based on Iailure oI the depositor to
act as a prudent businessman would under the circumstances.
In the case at bar, the petitioner relied implicitly upon the honesty and loyalty oI her
bookkeeper, and did not even veriIy the accuracy oI the amounts oI the checks she signed against
the invoices attached thereto. Furthermore, although she regularly received her bank statements,
she apparently did not careIully examine the same nor the check stubs and the returned checks,
and did not compare them with the sales invoices. Otherwise, she could have easily discovered
the discrepancies between the checks and the documents serving as bases Ior the checks. And
since it was her negligence which caused the respondent drawee Bank to honor the Iorged checks
or prevented it Irom recovering the amount it had already paid on the checks, petitioner cannot
now complain should the Bank reIuse to recredit her account with the amount oI such checks.
Under Section 23 oI the NIL, she is now precluded Irom using the Iorgery to prevent the bank`s
debiting oI her account.
However, the Iact that the respondent drawee Bank did not discover the irregularity with
respect to the acceptance oI checks with second indorsement Ior deposit even without the
approval oI the branch manager despite periodic inspection conducted by a team oI auditors Irom
the main oIIice constitutes negligence on the part oI the Bank in carrying out its obligations to its
depositors. When it violated its internal rules that second endorsements are not to be accepted
without the approval oI its branch managers and it did accept the same upon the mere approval
oI Boon, a chieI accountant, it contravened the tenor oI its obligation at the very least, iI it were
not actually guilty oI Iraud or negligence.



Republic Planters Bank vs. Court of Appeals and Canlas
GR. No. 93073, December 21, 1992
216 SCRA 738

FACTS:
DeIendant Yamaguchi and private respondent Canlas, oIIicers oI Pinch ManuIacturing
Corporation, were authorized to apply Ior credit Iacilities with the petitioner Republic Planters
Bank. Petitioner Bank issued nine promissory notes, which were uniIormly worded in the
Iollowing manner: ', aIter date, Ior value received, I/we, jointly and severally
promise to pay to the ORDER oI the REPUBLIC PLANTERS BANK, at its oIIice in Manila,
Philippines, the sum oI PESOS (), Philippine currency... On the right bottom
margin oI the promissory notes appeared the signatures oI Yamaguchi and Canlas above their
printed names with the phrase 'and (in) his personal capacity typewritten below. In the
promissory notes, the name Pinch ManuIacturing Corporation was apparently rubber stamped
above the signatures oI deIendant and private respondent. Petitioner Bank Iiled a complaint Ior
the recovery oI sums oI money covered among others, by the nine promissory notes.

ISSUE:
Whether private respondent Canlas is solidarily liable with other deIendants, namely
Pinch ManuIacturing Corporation and Yamaguchi, on the nine promissory notes.

DECISION:
YES. Canlas is solidarily liable on each oI the promissory notes bearing his signature.
Under the NIL, persons who write their names on the Iace oI promissory notes are
makers and are liable as such. By signing the notes, the maker promises to pay to the orser oI the
payee or any holder according to the tenor thereoI. Where an instrument containing the words 'I
promise to pay is signed by two or more persons, they are deemed to be jointly and severally
liable thereon. An instrument which begins with 'I, 'We, or 'Either oI us promise to pay,
whensigned by two or more persons, makes them solidarily liable. The Iact that the singular
pronoun is used indicates that the promise is individual as to each other; meaning that each oI the
co-signers is deemed to have made an independent singular promise to pay the notes in Iull.
Finally, where the agent signs his name but nowhere in the instrument has disclosed the
Iact that he is acting in a representative capacity or the name oI the third party Ior whom he
might have acted as agent, the agent is personally liable to the holder oI the instrument and
cannot be permitted to prove that he was merely acting as agent oI another and parol or extrinsic
evidence is not admissible to avoid the agent`s personal liability.


























Republic Bank vs. Ebrada
G.R. No. L-40796 1uly 31, 1975
65 SCRA 680

FACTS:
A check was issued to one Martin Lorenzo who turned out to have been dead almost
eleven years beIore it was issued. At the back oI the check, Martin Lorenzo apparently indorsed
the check to Ramon Lorenzo, Irom Ramon Lorenzo to Delia Dominguez and then Dominguez to
Ebrada. It was encashed by Ebrada at the Republic Bank`s main oIIice at the Escolta. InIorming
the Bank that the payee`s (Lorenzo) indorsement on the reverse side oI the check was Iorgery,
the Bureau oI Treasury requested the Bank to reIund the amount. The Bank sued Ebrada beIore
the city court when she reIused to return the amount. The court ruled Ior the Bank, so the case
was elevated to the CFI which likewise rendered an adverse decision against Ebrada. An appeal
was Iiled.

ISSUE:
Whether the lower court erred in ordering Ebrada to pay the Iace value oI the subject
check aIter Iinding that the drawer issued the subject check to a person already deceased Ior 11
years and that Ebrada did not beneIit Irom encashing said check.

DECISION:
As last indorser, Ebrada was supposed to have warranted that she has good title to said
check. It turned out, however, that the signature oI the original payee oI the check, Martin
Lorenzo was a Iorgery because he was already dead almost 11 years beIore the check in question
was issued by the Bureau oI Treasury.
However, the existence oI one Iorged signature therein will NOT render void all the other
negotiations oI the check with respect to the other parties whose signature are genuine. It is only
the negotiation predicated on the Iorged indorsement that should be declared inoperative. This
means that the negotiation oI the check in question Irom Martin Lorenzo, the original payee, to
Ramon R. Lorenzo, the second indorser, should be declared oI no eIIect, but the negotiation oI
the aIoresaid check Irom Ramon R. Lorenzo to Adelaida Dominguez, the third indorser, and
Irom Adelaida Dominguez to the deIendant-appellant who did not know oI the Iorgery, should
be considered valid and enIorceable, barring any claim oI Iorgery.
The drawee oI a check can recover Irom the holder the money paid to him on a Iorged
instrument. It is not supposed to be its duty to ascertain whether the signatures oI the payee or
indorsers are genuine or not. This is because the indorser is supposed to warrant to the drawee
that the signatures oI the payee and previous indorsers are genuine, warranty not extending only
to holders in due course. Ebrada, upon receiving the check in question Irom Dominguez, was
duty-bound to ascertain whether the check in question was genuine beIore presenting it to
plaintiII Bank Ior payment.
Although Ebrada to whom the plaintiII Bank paid the check was not proven to be the
author oI the supposed Iorgery, yet as last indorser oI the check, she has warranted that she has
good title to it even iI in Iact she did not have it because the payee oI the check was already dead
11 years beIore the check was issued.


















San Carlos Milling Co., Ltd. vs. BPI and China Banking Corp.
G.R. No. L-37467, December 11, 1933
59 Phil. 59

FACTS:
The plaintiII gave a general power oI attorney to Baldwin relative to the dealings with
BPI, one oI the banks in Manila in which plaintiII maintained a deposit. Wilson, a principal
employee oI the plaintiII, conspiring with a messenger-clerk in plaintiII`s Manila oIIice,
requested a telegraphic transIer Irom its principal oIIice in Hawaii, to the China banking
Corporation oI Manila oI $100,000, likewise a bank in which plaintiII maintained. Upon its
receipt, the China banking Corporation issued a manager`s check payable to plaintiII or order
Iollowing the instructions oI a letter aIIixed with the Iorged signature oI Baldwin. A manager`s
check on the China Banking Corporation payable to plaintiII or order was receipted Ior by the
messenger-clerk oI the plaintiII which was indorsed to BPI again under a Iorged signature oI
Baldwin as an agent. BPI thereupon credited the current account oI plaintiII and passed the
cashier`s check in the ordinary course oI business through the clearing house, where it was paid
by the China Banking Corporation. The next day, Dolores presented a check to BPI Ior the sum
oI P200, 000, purporting to be signed by Baldwin as agent. Shortly thereaIter the crime was
discovered, and upon the deIendant bank reIusing to credit plaintiII with the amount withdrawn,
this suit was brought.

ISSUE:
Whether BPI and China Banking Corporation should be held liable to plaintiII.

DECISION:
Only BPI. China Banking Corporation drew its check payable to the order oI plaintiII and
delivered it to plaintiII`s agent who was authorized to receive it. A bank that cashes a check must
know to whom it pays. In connection with the cashier`s check, this duty was thereIore upon the
Bank oI the Philippine Islands, and the China Banking Corporation was not bound to inspect and
veriIy all endorsements oI the check, even iI some oI them were also those oI depositors in the
bank. It had a right to rely upon the endorsement oI the Bank oI the Philippine Islands when it
gave the latter bank credit Ior its own cashier`s check.
Even iI it is treated that China Banking Corporation`s cashier`s check be the same as the
check oI a depositor and hold the China Banking Corporation indebted to plaintiII, the Court at
the same time has to hold that BPI was indebted to the China Banking Corporation in the same
amount. As, however, the money was in Iact paid to plaintiII corporation, the Court must hold
that the China Banking Corporation is indebted neither to plaintiII nor to BPI, and the judgment
as it absolved the China Banking Corporation Irom responsibility is aIIirmed. As to BPI, a bank
is bound to know the signatures oI its customers; and iI it pays a Iorged check, it must be
considered as making the payment out oI its own Iunds, and cannot ordinarily charge the amount
so paid to the account oI the depositor whose name was Iorged. The bank paid out its money
because it relied upon the genuineness oI the purported signatures oI Baldwin. The proximate
cause oI loss was due to the negligence oI the Bank oI the Philippine Islands in honoring and
cashing the two Iorged checks.

















Philippine National Bank vs. National City Bank of New York
GR 43596, 31 October 1936
63 Phil. 711

FACTS:
On April 7 and 9, 1933, an unknown person or persons negotiated with Motor Service
Company, Inc. (MSCI), two checks in payment Ior automobile tires purchased Irom MSCI's
stores, purporting to have been issued by the 'Pangasinan Transportation Co., Inc. (Pantranco) by
J.L. Klar, Manager and Treasurer', against the Philippine National Bank (PNB) and in Iavor oI
the International Auto Repair Shop, Ior P144.50 and P215.75. Said checks were indorsed by said
unknown persons in the manner indicated at the back thereoI, the MSCI, believing at the time
that the signatures oI J.L. Klar, Manager and Treasurer oI Pantranco on both checks were
genuine. The checks were then indorsed Ior deposit by MSCI at the National City Bank oI New
York and the Iormer was accordingly credited with the amounts thereoI, or P144.50 and
P215.75. On April 8 and 10, 1933, the said checks were cleared at the clearing house and PNB
credited the National City Bank Ior the amounts thereoI, believing at the time that the signatures
oI the drawer were genuine, that the payee is an existing entity and the endorsements at the bank
thereoI regular and genuine. The PNB then Iound out that the purported signatures oI J.L. Klar,
as Manager and Treasurer oI Pantranco were Iorged when so inIormed by the said Company, and
it accordingly demanded Irom the National City Bank and MSCI and the reimbursement oI the
amounts Ior which it credited the National City Bank at the clearing house and Ior which the
latter credited MSCI, but MSCI and National City Bank reIused, and continue to reIuse, to make
such reimbursements. Pantranco objected to have the proceeds oI said check deducted Irom their
deposit. PNB Iiled the case in the municipal court oI Manila against National City Bank and
MSCI. Upon PNB's motion, the case was dismissed beIore trial as to the National City Bank. A
decision was thereaIter rendered giving PNB judgment Ior the total amount oI P360.25, with
interest and costs. From this decision MSCI appealed.




ISSUES:
1]: Whether the payment oI the checks in question made by the drawee bank constitutes
an "acceptance", and, consequently, the case should be governed by the provisions oI section 62
oI the Negotiable Instruments Law.
2]: Whether the law or business practice prevents the presentation oI checks Ior
acceptance beIore they are paid.
3]: Whether MSCI's negligence in purchasing the checks in question is such as to give
PNB the right to recover upon said checks, and on the other hand, whether PNB was not itselI
negligent, except Ior its constructive Iault in now knowing the signature oI the drawer and
detecting the Iorgery.
4]: Whether the drawee bank should be allowed recovery, as MSCI's position would not
become worse than iI the drawee had reIused the payment oI these checks upon their
presentation.

DECISION:
1]:A check is a bill oI exchange payable on demand and only the rules governing bills
oI exchange payable on demand are applicable to it, according to section 185 oI the Negotiable
Instruments Law. In view oI the Iact that acceptance is a step unnecessary in so Iar as bills oI
exchange payable on demand are concerned, it Iollows that the provisions relative to
"acceptance" are without application to checks. Acceptance implies, in eIIect, subsequent
negotiation oI the instrument, which is not true in case oI the payment oI a check because Irom
the moment a check is paid it is withdrawn Irom circulation. The warranty established by section
62, is in Iavor oI holders oI the instrument aIter its acceptance. When the drawee bank cashes or
pays a check, the cycle oI negotiation is terminated, and it is illogical thereaIter to speak oI
subsequent holders who can invoke the warranty provided in section 62 against the drawee.
Moreover, according to section 191, "acceptance" means "an acceptance completed by delivery
or notiIication" and this concept is entirely incompatible with payment, because when payment is
made the check is retained by the bank, and there is no such thing as delivery or notiIication to
the party receiving the payment. There can be no such thing as "acceptance" in the ordinary
sense oI the term. A check being payable immediately and on demand, the bank can IulIill its
duty to the depositor only by paying the amount demanded. The holder has no right to demand
Irom the bank anything but payment oI the check, and the bank has no right, as against the
drawer, to do anything but pay it. A check is not an instrument which in the ordinary course oI
business calls Ior acceptance. The holder can never claim acceptance as his legal right. He can
present Ior payment, and only Ior payment.

2]: There is nothing in the law or in business practice against the presentation oI checks
Ior acceptance, beIore they are paid, in which case there is a "certiIication" equivalent to
"acceptance" according to section 187, which provides that "where a check is certiIied by the
bank on which it is drawn, the certiIication is equivalent to an acceptance", and it is then that the
warranty under section 62 exists. This certiIication or acceptance consists in the signiIication by
the drawee oI his assent to the order oI the drawer, which must not express that the drawee will
perIorm his promise by any other means than the payment oI money. When the holder oI a check
procures it to be accepted or certiIied, the drawer will perIorm his promise by any other means
than the payment oI money. When the holder oI a check procedures it to be accepted or certiIied,
the drawer and all indorsers are discharged Irom liability thereon, and then the check operates as
an assignment oI a part oI the Iunds to the credit oI the drawer with the bank. There is nothing in
the nature oI the check which intrinsically precludes its acceptance, in like manner and with like
eIIect as a bill oI exchange or draIt may be accepted. The bank may accept iI it chooses; and it is
Irequently induced by convenience, by the exigencies oI business, or by the desire to oblige
customers, voluntarily to incur the obligation. The act by which the bank places itselI under
obligation to pay to the holder the sum called Ior by a check must be the expressed promise or
undertaking oI the bank signiIying its intent to assume the obligation, or some act Irom which
the law will imperatively imply such valid promise or undertaking. The most ordinary Iorm
which such an act assumes is the acceptance by the bank oI the check, or, as it is perhaps more
oIten called, the certiIying oI the check.

3]:Check number 637023-D was dated 6 April 1933, whereas check number 637020-D
and is dated 7 April 1933. ThereIore, the later check, which is prior in number to the Iormer
check, is however, issued on a later date. This circumstance must have aroused at least the
curiosity oI MSCI. MSCI Iurther accepted the two checks Irom unknown persons. Furthermore,
check 637023-D was indorsed by a subagent oI the agent oI the payee, International Auto Repair
Shop. MSCI made no inquiry whatsoever as to the extent oI the authority oI these unknown
persons. Check 637020-D, aside Irom having been indorsed by a supposed agent oI the
International Auto Repair Shop is crossed generally. The existence oI two parallel lines
transversally drawn on the Iace oI this check was a warning that the check could only be
collected through a banking institution. Yet MSCI accepted the check in payment Ior
merchandise. The Iacts oI case do not make it one between two equally innocent persons, the
drawee bank and the holder. Section 23 oI the Negotiable Instruments Act provides that "when a
signature is Iorged or made without the authority oI the person whose signature it purports to be,
it is wholly inoperative, and no right to retain the instrument, or to give a discharge thereIor, or
to enIorce payment thereoI against any party thereto, can be acquired through or under such
signature, unless the party against whom it is sought to enIorce such right is precluded Irom
setting up the Iorgery or want oI authority." It not appearing that PNB did not warrant to MCSI
the genuineness oI the checks in question, by its acceptance thereoI, nor did it perIorm any act
which would have induced MSCI to believe in the genuineness oI said instruments beIore MSCI
purchased them Ior value, it cannot be said that PNB is precluded Irom setting up the Iorgery
and, thereIore, MSCI is not entitled to retain the amount oI the Iorged check paid to it by PNB.

4]: A drawee oI a check, who is deceived by a Iorgery oI the drawer's signature may
recover the payment back, unless his mistake has placed an innocent holder oI the paper in a
worse position than he would have been in iI the discover oI the Iorgery had been made on
presentation. Forgeries oIten deceived the eye oI the most cautions experts; and when a bank has
been so deceived, it is a harsh rule which compels it to suIIer although no one has suIIered by its
being deceived. Herein, MSCI has lost nothing by anything which the drawee has done. It had in
its hands some Iorged worthless papers. It did not purchase or acquire these papers because oI
any representation made to it by the drawee. It purchased them Irom unknown persons and under
suspicious circumstances. It had no valid title to them, because the persons Irom whom it
received them did not have such title. MSCI could not have compelled the drawee to pay them,
and the drawee could have reIused payment had it been able to detect the Iorgery. By making a
reIund, MSCI would only be returning what it had received without any title or right. And when
MCSI pays back the money it has received it will be entitled to have restored to it the Iorged
papers it parted with. There is no good reason why the accidental payment made by PNB should
inure to the beneIit oI MSCI. II there were injury to MCSI said injury was caused not by the
Iailure oI PNB to detect the Iorgery but by the very negligence oI MCSI in purchasing
commercial papers Irom unknown persons without making inquiry as to their genuineness.
(The court held in the case (1) That where a check is accepted or certiIied by the bank on which
it is drawn, the bank is estopped to deny the genuineness oI the drawer's signature and his
capacity to issue the instrument; (2) That iI a drawee bank pays a Iorged check which was
previously accepted or certiIied by the said bank it cannot recover Irom a holder who did not
participate in the Iorgery and did not have actual notice thereoI; (3) That the payment oI a check
does not include or imply its acceptance in the sense that this word is used in section 62 oI the
Negotiable Instruments Law; (4) That in the case oI the payment oI a Iorged check, even without
Iormer acceptance, the drawee cannot recover Irom a holder in due course not chargeable with
any act oI negligence or disregard oI duty; (5) That to entitle the holder oI a Iorged check to
retain the money obtained thereon, there must be a showing that the duty to ascertain the
genuineness oI the signature rested entirely upon the drawee, and that the constructive
negligence oI such drawee in Iailing to detect the Iorgery was not aIIected by any disregard oI
duty on the part oI the holder, or by Iailure oI any precaution which, Irom his implied assertion
in presenting the check as a suIIicient voucher, the drawee had the right to believe he had taken;
(6) That in the absence oI actual Iault on the part oI the drawee, his constructive Iault in not
knowing the signature oI the drawer and detecting the Iorgery will not preclude his recovery
Irom one who took the check under circumstances oI suspicion and without proper precaution, or
whose conduct has been such as to mislead the drawee or induce him to pay the check without
the usual scrutiny or other precautions against mistake or Iraud; (7) That one who purchases a
check or draIt is bound to satisIy himselI that the paper is genuine, and that by indorsing it or
presenting it Ior payment or putting it into circulation beIore presentation he impliedly asserts
that he perIormed his duty; (8) That while the Ioregoing rule, chosen Irom a welter oI decisions
on the issue as the correct one, will not hinder the circulation oI two recognized mediums oI
exchange by which the great bulk oI business is carried on, namely, draIts and checks, on the
other hand, it will encourage and demand prudent business methods on the part oI those
receiving such mediums oI exchange; (9) That it being a matter oI record in the present case, that
PNB is no more chargeable with the knowledge oI the drawer's signature than MCSI is, as the
drawer was as much the customer oI MSCI as oI PNB, the presumption that a drawee bank is
bound to know more than any indorser the signature nature oI its depositor does not hold; (1) that
according to the undisputed Iacts oI the case MSCI in purchasing the papers in question Irom
unknown persons without making any inquiry as to the identity and authority oI the said persons
negotiating and indorsing them, acted negligently and contributed to PNB's constructive
negligence in Iailing to detect the Iorgery; and (11) that under the circumstances oI the case, iI
PNB is allowed to recover, there will be no change oI position as to the injury or prejudice oI
MCSI.)
























Travel-On, Inc. vs. Court of Appeals
G.R. No. L-56169 1une 26, 1992
210 SCRA 351

FACTS:
Travel-On Iiled suit beIore to collect on 6 checks issued by private respondent with total
Iace amount oI P115, 000.00. Petitioner sold and delivered various airline tickets to respondent
at a total price oI P278, 201.57. Petitioner alleged in the complaint that to settle said account,
private respondent paid various amounts in cash and in kind, and thereaIter issued 6 postdated
checks amounting to P115, 000.00 which were all dishonored by the drawee banks and that
private respondent made another payment oI P10, 000.00 reducing his indebtedness to P105,
000.00. Private respondent claimed that he had already Iully paid and even overpaid his
obligations and that reIunds were in Iact due to him. He argued that he had issued the postdated
checks Ior purposes oI accommodation, as he had in the past accorded similar Iavors to
petitioner.

ISSUE:
Whether the postdated checks are per se evidence oI liability on the part oI private
respondent and that even assuming that the checks were Ior accommodation, private respondent
is still liable thereunder considering that petitioner is a holder Ior value.

DECISION:
YES. The checks clearly established private respondent`s indebtedness to petitioner and
that private respondent was liable thereunder.
A check which is regular on its Iace is deemed prima Iacie to have been issued Ior a
valuable consideration and every person whose signature appears thereon is deemed to have
become a party thereto Ior value. Thus, the mere introduction oI the instrument sued on in
evidence prima Iacie entitles the plaintiII to recovery. Further, a negotiable instrument is
presumed to have been given or indorsed Ior a suIIicient consideration unless otherwise
contradicted and overcome by other competent evidence. Thus, it was up to private respondent to
show that he had indeed issued the checks without suIIicient consideration.
Further, while the NIL does reIer to accommodation transactions, no such transaction was shown
in the case at bar. In the case at hand, Travel-On was payee oI all 6 checks; it presented these
checks Ior payment at the drawee bank but the checks bounced. Travel-On obviously was not an
accommodated party; it realized no value on the checks which bounced.
Thus, private respondent must be held liable on the 6 checks here involved. Those checks
in themselves constituted evidence oI indebtedness oI private respondent, evidence not
successIully overturned or rebutted by private respondent.
























Chan Wan vs. Tan Kim
G.R. No. L-15380, September 30, 1960
109 Phil. 706

FACTS:
Checks were drawn by Tan Kim against Equitable Banking Corporation payable to 'cash
or bearer. These checks were presented Ior payment by Chan Wan but there were all dishonored
and returned to him unpaid due to insuIIicient Iunds and/or causes attributable to the drawer.
From the back oI the checks it would seem to show that they were previously deposited with
China Banking Corporation but as drawee had no Iunds, they were unpaid and returned, some oI
them stamped 'account closed. Tan Kim alleges that the checks had been issued to two persons
named Pinong and Muy Ior some shoes they have promised to make. The lower court declined to
order payment Ior the reason that Chan Wan Iailed to prove he was a holder in due course.

ISSUE:
Whether Chan Wan, not being a holder in due course, has no right to collect on the
subject checks.

DECISION:
NO. It does not Iollow as a legal proposition, that simply because Cahn Wan was not a
holder in due course, Chan Wan could not recover on the checks. The NIL does not provide that
a holder, who is not a holder in due course, may not in any case, recover on the instrument. The
only disadvantage oI a holder who is not a holder in due course is that the negotiable instrument
is subject to deIenses as iI it were non-negotiable.
However, iI it were true that the checks had been issued in payment Ior shoes that were
never made and delivered, Tan Kim would have a good deIense as against a holder who is not a
holder in due course.
Case was remanded Ior Iurther proceedings.


De Ocampo vs. Gatchalian
GR L-15126, 30 November 1961
3 SCRA 596

FACTS:
On or about 8 September 1953, in the evening, Anita C. Gatchalian who was then
interested in looking Ior a car Ior the use oI her husband and the Iamily, was shown and oIIered a
car by Manuel Gonzales who was accompanied by Emil Fajardo, the latter being personally
known to Gatchalian. Gonzales represented to Gatchalian that he was duly authorized by the
owner oI the car, Ocampo Clinic, to look Ior a buyer oI said car and to negotiate Ior and
accomplish said sale. Gatchalian, Iinding the price oI the car quoted by Gonzales to her
satisIaction, requested Gonzales to bring the car the day Iollowing together with the certiIicate oI
registration oI the car, so that her husband would be able to see same. On this request oI
Gatchalian, Gonzales advised her that the owner oI the car will not be willing to give the
certiIicate oI registration unless there is a showing that the party interested in the purchase oI
said car is ready and willing to make such purchase and that Ior this purpose Gonzales requested
Gatchalian to give him a check which will be shown to the owner as evidence oI buyer's good
Iaith in the intention to purchase the said car, the said check to be Ior saIekeeping only oI
Gonzales and to be returned to Gatchalian the Iollowing day when Gonzales brings the car and
the certiIicate oI registration. Relying on these representations oI Gonzales and with this
assurance that said check will be only Ior saIekeeping and which will be returned to Gatchalian
the Iollowing day when the car and its certiIicate oI registration will be brought by Gonzales to
Gatchalian, Gatchalian drew and issued a check that Gonzales executed and issued a receipt Ior
said check. On the Iailure oI Gonzales to appear the day Iollowing and on his Iailure to bring the
car and its certiIicate oI registration and to return the check on the Iollowing day as previously
agreed upon, Gatchalian issued a "Stop Payment Order" on the check with the drawee bank.
When Gonzales received the check Irom Gatchalian under the representations and conditions
above speciIied, he delivered the same to the Ocampo Clinic, in payment oI the Iees and
expenses arising Irom the hospitalization oI his wiIe. Vicente R. De Ocampo & Co. Ior and in
consideration oI Iees and expenses oI hospitalization and the release oI the wiIe oI Gonzales
Irom its hospital, accepted said check, applying P441.75 thereoI to payment oI said Iees and
expenses and delivering to Gonzales the amount oI P158.25 representing the balance on the
amount oI the said check. The acts oI acceptance oI the check and application oI its proceeds in
the manner speciIied were made without previous inquiry by De Ocampo Irom Gatchalian. De
Ocampo Iiled with the OIIice oI the City Fiscal oI Manila, a complaint Ior estaIa against
Gonzales based on and arising Irom the acts oI Gonzales in paying his obligations with De
Ocampo and receiving the cash balance oI the check and that said complaint was subsequently
dropped.
De Ocampo subsequently Iiled an action Ior the recovery oI the value oI a check Ior P600
payable to De Ocampo and drawn by Gatchalian. The Court oI First Instance oI Manila, through
Hon. Conrado M. Vasquez, presiding, sentenced Gatchalian and Gonzales to pay De Ocampo the
sum oI P600, with legal interest Irom 10 September 1953 until paid, and to pay the costs.
Gatchalian, et al. appealed.
ISSUES:
1]: Whether De Ocampo is a holder in due course.
2]: Whether the rule that a possessor oI the instrument is prima Iacie a holder in due
course applies.

DECISION:
1]: NO. Section 52, Negotiable Instruments Law, deIines holder in due course as "A
holder in due course is a holder who has taken the instrument under the Iollowing conditions: (a)
That it is complete and regular upon its Iace; (b) That he became the holder oI it beIore it was
overdue, and without notice that it had been previously dishonored, iI such was the Iact; (c) That
he took it in good Iaith and Ior value; (d) That at the time it was negotiated to him he had no
notice oI any inIirmity in the instrument or deIect in the title oI the person negotiating it."
Although De Ocampo was not aware oI the circumstances under which the check was delivered
to Gonzales, the circumstances -- such as the Iact that Gatchalian had no obligation or liability to
the Ocampo Clinic, that the amount oI the check did not correspond exactly with the obligation
oI Matilde Gonzales to Dr. V. R. de Ocampo; and that the check had two parallel lines in the
upper leIt hand corner, which practice means that the check could only be deposited but may not
be converted into cash - should have put De Ocampo to inquiry as to the why and whereIore oI
the possession oI the check by Gonzales, and why he used it to pay Matilde's account. It was
payee's duty to ascertain Irom the holder Gonzales what the nature oI the latter's title to the check
was or the nature oI his possession. Having Iailed in this respect, De Ocampo was guilty oI gross
neglect in not Iinding out the nature oI the title and possession oI Gonzales, amounting to legal
absence oI good Iaith, and it may not be considered as a holder oI the check in good Iaith.

2]:The rule that a possessor oI the instrument is prima Iacie a holder in due course does
not apply because there was a deIect in the title oI the holder (Manuel Gonzales), because the
instrument is not payable to him or to bearer. On the other hand, the stipulation oI Iacts -- like
the Iact that the drawer had no account with the payee; that the holder did not show or tell the
payee why he had the check in his possession and why he was using it Ior the payment oI his
own personal account - show that holder's title was deIective or suspicious, to say the least. As
holder's title was deIective or suspicious, it cannot be stated that the payee acquired the check
without knowledge oI said deIect in holder's title, and Ior this reason the presumption that it is a
holder in due course or that it acquired the instrument in good Iaith does not exist. And having
presented no evidence that it acquired the check in good Iaith, it (payee) cannot be considered as
a holder in due course. In other words, under the circumstances oI the case, instead oI the
presumption that payee was a holder in good Iaith, the Iact is that it acquired possession oI the
instrument under circumstances that should have put it to inquiry as to the title oI the holder who
negotiated the check to it. The burden was, thereIore, placed upon it to show that
notwithstanding the suspicious circumstances, it acquired the check in actual good Iaith.











State Investment House Inc. (SIHI) vs. Intermediate Appellate Court
GR. No. L- 72764, 13 1uly 1989
175 SCRA 310

FACTS:
Shortly beIore 5 September 1980, New Sikatuna Wood Industries, Inc. (NSWII)
requested Ior a loan Irom Harris Chua. The latter agreed to grant the same subject to the
condition that the Iormer should wait until December 1980 when he would have the money. In
view oI this agreement, Anita Pena Chua (Harris Chua's wiIe) issued 3 crossed checks payable to
NSWII all postdated 22 December 1980. The total value oI the postdated checks amounted to P
299,450.00. Subsequently, NSWII entered into an agreement with State Investment House, Inc.
(SIHI) whereby Ior and in consideration oI the sum oI Pl, 047,402.91 under a deed oI sale, the
Iormer assigned and discounted with SIHI 11 postdated checks including the 3 postdated checks
issued by Pea Chua to NSWII. When the three checks issued by Pena Chua were allegedly
deposited by SIHI, these checks were dishonored by reason oI "insuIIicient Iunds", "stop
payment" and "account closed", respectively. SIHI claimed that despite demands on Pea Chua
to make good said checks, the latter Iailed to pay the same necessitating the Iormer to Iile an
action Ior collection against the latter and her husband beIore the Regional Trial Court oI Manila,
Branch XXXVII (Civil Case 82-10547). The spouses Chua Iiled a third party complaint against
NSWII Ior reimbursement and indemniIication in the event that they be held liable to SIHI. For
Iailure oI NSWII to answer the third party complaint despite due service oI summons, the latter
was declared in deIault. On 30 April 1984, the lower court rendered judgment against the
spouses, ordering them to pay jointly and severally to SIHI P 229,450.00 with interest at the rate
oI 12 per annum Irom 24 February 1981 until Iully paid; P 29,945.00 as and Ior attorney's Iees;
and the costs oI suit. On the third party complaint, NSWII was ordered to pay the spouses all
amounts said spouses may pay to SIHI on account oI the case. On appeal Iiled by the spouses
(AC-GR CV 04523), the Intermediate Appellate Court (now Court oI Appeals) reversed the
lower court's judgment in its decision, dismissing the complaint, with costs against SIHI. SIHI
Iiled the petition Ior review.


ISSUES:
1]: Whether SIHI is a holder in due course as to entitle it to proceed against the spouses
Chua Ior the amount stated in the dishonored cross checks.
2]:Whether SIHI is a proper party authorized to make presentment oI the cross checks
in question.
3]: Whether SIHI can still recover even iI it is not a holder in due course.

DECISION:
1]: NO. Section 52(c) oI the Negotiable Instruments Law deIines a holder in due course
as one who takes the instrument "in good Iaith and Ior value". On the other hand, Section 52(d)
provides that in order that one may be a holder in due course, it is necessary that "at the time the
instrument was negotiated to him he had no notice oI any deIect in the title oI the person
negotiating it." However, under Section 59 every holder is deemed prima Iacie to be a holder in
due course. Admittedly, the Negotiable Instruments Law regulating the issuance oI negotiable
checks as well as the lights and liabilities arising thereIrom, does not mention "crossed checks".
But the Court has taken cognizance oI the practice that a check with two parallel lines in the
upper leIt hand corner means that it could only be deposited and may not be converted into cash.
Consequently, such circumstance should put the payee on inquiry and upon him devolves the
duty to ascertain the holder's title to the check or the nature oI his possession. Failing in this
respect, the payee is declared guilty oI gross negligence amounting to legal absence oI good Iaith
and as such the consensus oI authority is to the eIIect that the holder oI the check is not a holder
in good Iaith. Relying on the ruling in Ocampo v. Gatchalian (GR L-15126, 30 November 1961),
the Intermediate Appellate Court (now Court oI Appeals), correctly elucidated that the eIIects oI
crossing a check are: the check may not be encashed but only deposited in the bank; the check
may be negotiated only once to one who has an account with a bank; and the act oI crossing the
check serves as a warning to the holder that the check has been issued Ior a deIinite purpose so
that he must inquire iI he has received the check pursuant to that purpose, otherwise he is not a
holder in due course. Further, the appellate court said that when SIHI rediscounted the check
knowing that it was a crossed check he was knowingly violating the avowed intention oI
crossing the check; that his Iailure to inquire Irom the holder, NSWII, the purpose Ior which the
three checks were cross despite the warning oI the crossing, prevents him Irom being considered
in good Iaith and thus he is not a holder in due course; that being not a holder in due course, SIHI
was subject to personal deIenses, such as lack oI consideration between the spouses and NSWII
(no deposits were made, hence no loan was made, hence the three checks are without
consideration as per Section 28, NIL); that NSWII negotiated the three checks in breach oI Iaith
in violation oI Section 55, Negotiable Instruments Law, which is a personal deIense available to
the drawer oI the check; that such instruments are mentioned in Section 541 oI the Code oI
Commerce; and that the payment made to a person other than the banker or institution shall not
exempt the person on whom it is drawn, iI the payment was not correctly made. The Supreme
Court agreed with the appellate court.

2]: NO. Under usual practice, crossing a check is done by placing two parallel lines
diagonally on the leIt top portion oI the check. The crossing may be special wherein between the
two parallel lines is written the name oI a bank or a business institution, in which case the
drawee should pay only with the intervention oI that bank or company, or crossing may be
general wherein between two parallel diagonal lines are written the words "and Co." or none at
all as in the case at bar, in which case the drawee should not encash the same but merely accept
the same Ior deposit. The eIIect thereIore oI crossing a check relates to the mode oI its
presentment Ior payment. Under Section 72 oI the Negotiable Instruments Law, presentment Ior
payment to be suIIicient must be made (a) by the holder, or by some person authorized to receive
payment on his behalI. As to who the holder or authorized person will be depends on the
instructions stated on the Iace oI the check. Herein, the three subject checks had been crossed
generally and issued payable to NSWII which could only mean that the drawer had intended the
same Ior deposit only by the rightIul person, i.e., the payee named therein. Apparently, it was not
the payee who presented the same Ior payment and thereIore, there was no proper presentment,
and the liability did not attach to the drawer. Thus, in the absence oI due presentment, the drawer
did not become liable. Consequently, no right oI recourse is available to SIHI against the drawer
oI the subject checks, Pena Chua, considering that SIHI is not the proper party authorized to
make presentment oI the checks in question.

3]: YES. It does not Iollow that simply because SIHI was not a holder in due course as
Iound by the appellate court Ior having taken the instruments in question with notice that the
same is Ior deposit only to the account oI payee named in the subject checks, SIHI could not
recover on the checks. The Negotiable Instruments Law does not provide that a holder who is not
a holder in due course may not in any case recover on the instrument. Herein, SIHI may recover
Irom NSWII iI the latter has no valid excuse Ior reIusing payment. The only disadvantage oI a
holder who is not in due course is that the negotiable instrument is subject to deIenses as iI it
were non-negotiable.

























Associated Bank vs. Court of Appeals
GR. No. L- 107382, 31 1anuary 1996
252 SCRA 620

FACTS:
The Province oI Tarlac maintains a current account with the Philippine National Bank
(PNB) Tarlac Branch where the provincial Iunds are deposited. Checks issued by the Province
are signed by the Provincial Treasurer and countersigned by the Provincial Auditor or the
Secretary oI the Sangguniang Bayan. A portion oI the Iunds oI the province is allocated to the
Concepcion Emergency Hospital. The allotment checks Ior said government hospital are drawn
to the order oI "Concepcion Emergency Hospital, Concepcion, Tarlac" or "The ChieI,
Concepcion Emergency Hospital, Concepcion, Tarlac." The checks are released by the OIIice oI
the Provincial Treasurer and received Ior the hospital by its administrative oIIicer and cashier. In
January 1981, the books oI account oI the Provincial Treasurer were post-audited by the
Provincial Auditor. It was then discovered that the hospital did not receive several allotment
checks drawn by the Province. On 19 February 1981, the Provincial Treasurer requested the
manager oI the PNB to return all oI its cleared checks which were issued Irom 1977 to 1980 in
order to veriIy the regularity oI their encashment. AIter the checks were examined, the Provincial
Treasurer learned that 30 checks amounting to P203, 300.00 were encashed by one Fausto
Pangilinan, with the Associated Bank acting as collecting bank. It turned out that Fausto
Pangilinan, who was the administrative oIIicer and cashier oI payee hospital until his retirement
on 28 February 1978, collected the checks Irom the oIIice oI the Provincial Treasurer. He
claimed to be assisting or helping the hospital Iollow up the release oI the checks and had oIIicial
receipts. Pangilinan sought to encash the Iirst check with Associated Bank. However, the
manager oI Associated Bank reIused and suggested that Pangilinan deposit the check in his
personal savings account with the same bank. Pangilinan was able to withdraw the money when
the check was cleared and paid by the drawee bank, PNB. AIter Iorging the signature oI Dr.
Adena Canlas who was chieI oI the payee hospital, Pangilinan Iollowed the same procedure Ior
the second check, in the amount oI P5, 000.00 and dated 20 April 1978, as well as Ior 28 other
checks oI various amounts and on various dates. The last check negotiated by Pangilinan was Ior
P8, 000.00 and dated 10 February 1981. All the checks bore the stamp oI Associated Bank which
reads "All prior endorsements guaranteed Associated Bank." Jesus David, the manager oI
Associated Bank, alleged that Pangilinan made it appear that the checks were paid to him Ior
certain projects with the hospital. He did not Iind as irregular the Iact that the checks were not
payable to Pangilinan but to the Concepcion Emergency Hospital. While he admitted that his
wiIe and Pangilinan's wiIe are Iirst cousins, the manager denied having given Pangilinan
preIerential treatment on this account. On 26 February 1981, the Provincial Treasurer wrote the
manager oI the PNB seeking the restoration oI the various amounts debited Irom the current
account oI the Province. In turn, the PNB manager demanded reimbursement Irom the
Associated Bank on 15 May 1981. As both banks resisted payment, the Province brought suit
against PNB which, in turn, impleaded Associated Bank as third-party deIendant. The latter then
Iiled a Iourth-party complaint against Adena Canlas and Fausto Pangilinan. AIter trial on the
merits, the lower court rendered its decision on 21 March 1988, on the basic complaint, in Iavor
oI the Province and against PNB, ordering the latter to pay to the Iormer, the sum oI P203,300.00
with legal interest thereon Irom 20 March 1981 until Iully paid; on the third-party complaint, in
Iavor oI PNB and against Associated Bank ordering the latter to reimburse to the Iormer the
amount oI P203,300.00 with legal interests thereon Irom 20 March 1981 until Iully paid; on the
Iourth-party complaint, the same was ordered dismissed Ior lack oI cause oI action as against
Adena Canlas and lack oI jurisdiction over the person oI Fausto Pangilinan as against the latter.
The court also dismissed the counterclaims on the complaint, third-party complaint and Iourth-
party complaint, Ior lack oI merit. PNB and Associated Bank appealed to the Court oI Appeals.
The appellate court aIIirmed the trial court's decision in toto on 30 September 1992. Hence the
consolidated petitions which seek a reversal oI the appellate court's decision.

ISSUE:
Whether PNB was at Iault and should solely bear the loss because it cleared and paid the
Iorged checks.

DECISION:
The present case concerns checks payable to the order oI Concepcion Emergency
Hospital or its ChieI. They were properly issued and bear the genuine signatures oI the drawer,
the Province oI Tarlac. The inIirmity in the questioned checks lies in the payee's (Concepcion
Emergency Hospital) indorsements which are Iorgeries. At the time oI their indorsement, the
checks were order instruments. Checks having Iorged indorsements should be diIIerentiated Irom
Iorged checks or checks bearing the Iorged signature oI the drawer. Where the instrument is
payable to order at the time oI the Iorgery, such as the checks in the case, the signature oI its
rightIul holder (here, the payee hospital) is essential to transIer title to the same instrument.
When the holder's indorsement is Iorged, all parties prior to the Iorgery may raise the real
deIense oI Iorgery against all parties subsequent thereto. An indorser oI an order instrument
warrants "that the instrument is genuine and in all respects what it purports to be; that he has a
good title to it; that all prior parties had capacity to contract; and that the instrument is at the time
oI his indorsement valid and subsisting." He cannot interpose the deIense that signatures prior to
him are Iorged. A collecting bank where a check is deposited and which indorses the check upon
presentment with the drawee bank is such an indorser. So even iI the indorsement on the check
deposited by the banks' client is Iorged, the collecting bank is bound by his warranties as an
indorser and cannot set up the deIense oI Iorgery as against the drawee bank. The bank on which
a check is drawn, known as the drawee bank, is under strict liability to pay the check to the order
oI the payee. The drawee bank is not similarly situated as the collecting bank because the Iormer
makes no warranty as to the genuineness oI any indorsement. The drawee bank's duty is but to
veriIy the genuineness oI the drawer's signature and not oI the indorsement because the drawer is
its client. Moreover, the collecting bank is made liable because it is privy to the depositor who
negotiated the check. The bank knows him, his address and history because he is a client. It has
taken a risk on his deposit. The bank is also in a better position to detect Iorgery, Iraud or
irregularity in the indorsement. Hence, the drawee bank can recover the amount paid on the
check bearing a Iorged indorsement Irom the collecting bank. However, a drawee bank has the
duty to promptly inIorm the presentor oI the Iorgery upon discovery. II the drawee bank delays
in inIorming the presentor oI the Iorgery, thereby depriving said presentor oI the right to recover
Irom the Iorger, the Iormer is deemed negligent and can no longer recover Irom the presentor.
Herein, PNB, the drawee bank, cannot debit the current account oI the Province oI Tarlac
because it paid checks which bore Iorged indorsements. However, iI the Province oI Tarlac as
drawer was negligent to the point oI substantially contributing to the loss, then the drawee bank
PNB can charge its account. II both drawee bank-PNB and drawer-Province oI Tarlac were
negligent, the loss should be properly apportioned between them. The loss incurred by drawee
bank-PNB can be passed on to the collecting bank-Associated Bank which presented and
indorsed the checks to it. Associated Bank can, in turn, hold the Iorger, Fausto Pangilinan, liable.
II PNB negligently delayed in inIorming Associated Bank oI the Iorgery, thus depriving the
latter oI the opportunity to recover Irom the Iorger, it IorIeits its right to reimbursement and will
be made to bear the loss. The Court Iinds that the Province oI Tarlac was equally negligent and
should, thereIore, share the burden oI loss Irom the checks bearing a Iorged indorsement. The
Province oI Tarlac permitted Fausto Pangilinan to collect the checks when the latter, having
already retired Irom government service, was no longer connected with the hospital. With the
exception oI the Iirst check (dated 17 January 1978), all the checks were issued and released
aIter Pangilinan's retirement on 28 February 1978. AIter nearly three years, the Treasurer's oIIice
was still releasing the checks to the retired cashier. In addition, some oI the aid allotment checks
were released to Pangilinan and the others to Elizabeth Juco, the new cashier. The Iact that there
were now two persons collecting the checks Ior the hospital is an unmistakable sign oI an
irregularity which should have alerted employees in the Treasurer's oIIice oI the Iraud being
committed. There is also evidence indicating that the provincial employees were aware oI
Pangilinan's retirement and consequent dissociation Irom the hospital. Hence, due to the
negligence oI the Province oI Tarlac in releasing the checks to an unauthorized person (Fausto
Pangilinan), in allowing the retired hospital cashier to receive the checks Ior the payee hospital
Ior a period close to three years and in not properly ascertaining why the retired hospital cashier
was collecting checks Ior the payee hospital in addition to the hospital's real cashier, the
Province contributed to the loss amounting to P203,300.00 and shall be liable to the PNB Ior
50 thereoI. In eIIect, the Province oI Tarlac can only recover 50 oI P203, 300.00 Irom PNB.
The collecting bank, Associated Bank, shall be liable to PNB Ior 50 oI P203, 300.00. It is
liable on its warranties as indorser oI the checks which were deposited by Fausto Pangilinan,
having guaranteed the genuineness oI all prior indorsements, including that oI the chieI oI the
payee hospital, Dr. Adena Canlas. Associated Bank was also remiss in its duty to ascertain the
genuineness oI the payee's indorsement.




Philippine National Bank vs. Seeto
G.R. No. L-4388, August 13, 1952
91 Phil. 756

FACTS:
On March 13, 1948, respondent Seeto presented a check to PNB at Surigao, Surigao,
dated March 10, 1948, payable to cash or bearer, and drawn by one Gan Yek Kiao against the
Cebu branch oI Philippine Bank oI Communications. Seeto made a general and unqualiIied
indorsement oI the check, and petitioner`s agency accepted it and paid respondent the amount
thereIor. The check was mailed to petitioner`s Cebu branch on March 20, 1948 and it was
presented to the drawee bank Ior payment on April 9, 1948, but the check was dishonored Ior
'insuIIicient Iunds. The check was returned to petitioner and it immediately sent a letter to the
respondent herein demanding immediate reIund oI the value oI the check. Respondent reIused to
make the reIund demanded, claiming that at the time oI the negotiation oI the check the drawer
had suIIicient Iunds in the drawee bank, and that had the petitioner not delayed to Iorward the
check until the drawer`s Iunds were exhausted, the same would have been paid.

ISSUE:
Whether there was unreasonable delay in the presentation oI the check Ior payment at the
drawee bank which discharges the respondent`s liability.

DECISION:
YES.
Section 84 is applicable, nonetheless, it should be read in correlation with Section 186,
which says that presentment should be within reasonable time.
The check is dated March 10 and was cashed by the petitioner`s agency on March 13,
1948. It was not mailed until seven days thereaIter, i.e., on March 20, 1948, or ten days aIter
issue. No excuse was given Ior this delay. Assuming that it took one week, or say ten days, or
until March 30, Ior the check to reach Cebu, neither can there be any excuse Ior not presenting it
Ior payment at the drawee bank until April 9, 1948, or 10 days aIter it reached Cebu. There was
unreasonable delay in the presentation oI the check Ior payment at the drawee bank, and that as a
consequence thereoI, the indorser, respondent herein, was thereby discharged.
The Court was unable to Iind any authority sustaining the proposition that an indorser oI
a check is not discharged Irom liability Ior an unreasonable delay in presentation Ior payment.
This is contrary to the essential nature and character oI negotiable instruments- their
negotiability. They are supposed to be passed on with promptness in the ordinary course oI
business transactions; not to be retained or kept Ior such time as the holder may want, otherwise
the smooth Ilow oI commercial transactions would be hindered.























Crystal vs. Court of Appeals
GR. No. L- 35767, 1une 18, 1976
71 SCRA 443

FACTS:
The Supreme Court, in its decision oI February 25, 1975, aIIirmed the decision oI the
Court oI Appeals, holding that Raymundo Crystal`s redemption oI the property acquired by
Pelagia Ocang, Pacita, Teodulo, Felicisimo, Pablo, Lydia, Dioscoro and Rodrigo, all surnamed
de Garcia, was invalid as the check which Crystal used in paying the redemption price has been
either dishonored or had become stale (Ergo, the value oI the check was never realized). Crystal
Iiled a motion Ior reconsideration.

ISSUE:
Whether the conIlicting circumstances oI the check being dishonored and becoming stale
aIIect the validity oI the redemption sale.

DECISION:
For a check to be dishonored upon presentment and to be stale Ior not being presented at
all in time are incompatible developments that have variant legal consequences. II indeed the
questioned check was dishonored, the redemption was null and void. II it had only become stale,
it becomes imperative that the circumstances that caused its non-presentment be determined, Ior
it was not due to the Iault oI the drawer, it would be unIair to deprive him oI the rights he had
acquired as redemptioner. Herein, it appears that there is a strong showing that the check was not
dishonored, although it became stale, and that Pelagia Ocang had actually been paid the Iull
value thereoI. The Supreme Court, thus, reconsidered its decision and remanded the case to the
trial court Ior Iurther proceedings.





Ang vs. Associated Bank
G.R. No. 146511, September 5, 2007
532 SCRA 244

FACTS:
The deIendants obtained a loan, evidenced by 2 promissory notes and was agreed that the
loan would be payable, jointly and severally. Despite repeated demands Ior payment, the
deIendants Iailed and reIused to settle their obligation. Petitioner Tomas Ang contends the bank
knew that he did not receive any valuable consideration Ior aIIixing his signatures on the notes
but merely lent his name as an accommodation party and thus should not be held liable.

ISSUE:
Whether the bank could proceed against Tomas Ang Ior the payment oI the loan.

DECISION:
YES. The accommodation party is liable on the instrument to a holder Ior value even
though the holder, at the time oI taking the instrument, knew him or her to be merely an
accommodation party, as iI the contract was not Ior accommodation.
In the instant case, petitioner agreed to be 'jointly and severally liable under the two
promissory notes that he co-signed with Antonio Ang Eng Liong as the principal debtor. This
being so, it is completely immaterial iI the bank would opt to proceed only against petitioner or
Antonio Ang Eng Liong or both oI them since the law conIers upon the creditor the prerogative
to choose whether to enIorce the entire obligation against any one, some or all oI the debtors.
Nonetheless, Petitioner, as an accommodation party, may seek reimbursement Irom Antonio Ang
Eng Liong, being the party accommodated.
Consequently, in issuing the two promissory notes, petitioner as accommodating party
warranted to the holder in due course that he would pay the same according to its tenor. It is no
deIense to state on his part that he did not receive any value thereIor because the phrase 'without
receiving value thereIor used in Sec. 29 oI the NIL means 'without receiving value by virtue oI
the instrument and not as it is apparently supposed to mean, 'without receiving payment Ior
lending his name.
Furthermore, since the liability oI an accommodation party remains not only primary but
also unconditional to a holder Ior value, even iI the accommodated party receives an extension oI
the period Ior payment without the consent oI the accommodation party, the latter is still liable
Ior the whole obligation and such extension does not release him because as Iar as a holder Ior
value is concerned, he is a solidary co-debtor.


























Montinola vs. Philippine National Bank (PNB)
G.R. No. L-2861, February 26, 1951
88 Phil. 178

FACTS:
Ramos, as a disbursing oIIicer oI an army division oI the USAFE, made cash
advancements with the Provincial Treasurer oI Lanao. In exchange, the Provincial Treasurer oI
Lanao gave him a P500, 000 check. ThereaIter, Ramos presented the check to Laya Ior
encashment. Laya in his capacity as Provincial Treasurer oI Misamis Oriental as drawer, issued a
check to Ramos in the sum oI P100, 000, on the Philippines National Bank as drawee; the P400,
000 value oI the check was paid in military notes.
Ramos was unable to encash the said check Ior he was captured by the Japanese. But
aIter his release, he sold P30, 000 oI the check to Montinola Ior P90, 000 Japanese Military
notes, oI which only P45, 000 was paid by the latter. The writing made by Ramos at the back oI
the check was to the eIIect that he was assigning only P30, 000 oI the value oI the document with
an instruction to the bank to pay P30, 000 to Montinola and to deposit the balance to Ramos`s
credit. This writing was, however, mysteriously obliterated and in its place, a supposed
indorsement appearing on the back oI the check was made Ior the whole amount oI the check. At
the time oI the transIer oI this check to Montinola, the check was long overdue by about 2
years. Montinola instituted an action against the PNB and the Provincial Treasurer oI Misamis
Oriental to collect the sum oI P100, 000, the amount oI the aIoresaid check. There now appears
on the Iace oI said check the words in parenthesis 'Agent, Phil. National Bank under the
signature oI Laya purportedly showing that Laya issued the check as agent oI the Philippine
National Bank.

ISSUE:
Whether the words, 'Agent, Philippine National Bank were added aIter Laya had issued
the check and thus constitutes material alteration which discharges the instrument.



DECISION:
YES. The words 'Agent, Phil. National Bank now appearing on the Iace oI the check
were added or placed in the instrument aIter it was issued by the Provincial treasurer Laya to
Ramos. The check was issued by only as Provincial Treasurer and as an oIIicial oI the
Government, which was under obligation to provide the USAFE with advance Iunds, and not as
agent oI the bank, which had no such obligation. The addition oI those words was made aIter the
check had been transIerred by Ramos to Montinola. The insertion oI the words 'Agent, phil.
National bank, which converts the bank Irom a mere drawee to a drawer and thereIore changes
its liability, constitutes a material alteration oI the instrument without the consent oI the parties
liable thereon, and so discharges the instrument.





















State Investment House Inc. vs. Court of Appeals
GR. No. L- 101163, 1anuary 11, 1993
217 SCRA 32

FACTS:
Nora B. Moulic issued to Corazon Victoriano, as security Ior pieces oI jewelry to be sold
on commission, 2 post-dated Equitable Banking Corporation checks in the amount oI P50,000
each, one dated 30 August 1979 and the other, 30 September 1979. ThereaIter, the payee
negotiated the checks to the State Investment House Inc. (SIHI). Moulic Iailed to sell the pieces
oI jewelry, so she returned them to the payee beIore maturity oI the checks. The checks,
however, could no longer be retrieved as they had already been negotiated. Consequently, beIore
their maturity dates, Moulic withdrew her Iunds Irom the drawee bank.Upon presentment Ior
payment, the checks were dishonored Ior insuIIiciency oI Iunds. On 20 December 1979, SIHI
allegedly notiIied Moulic oI the dishonor oI the checks and requested that it be paid in cash
instead, although Moulic avers that no such notice was given her. On 6 October 1983, SIHI sued
to recover the value oI the checks plus attorney's Iees and expenses oI litigation. In her Answer,
Moulic contends that she incurred no obligation on the checks because the jewelry was never
sold and the checks were negotiated without her knowledge and consent. She also instituted a
Third-Party Complaint against Corazon Victoriano, who later assumed Iull responsibility Ior the
checks. On 26 May 1988, the trial court dismissed the Complaint as well as the Third-Party
Complaint, and ordered SIHI to pay Moulic P3,000.00 Ior attorney's Iees. SIHI elevated the
order oI dismissal to the Court oI Appeals, but the appellate court aIIirmed the trial court on the
ground that the Notice oI Dishonor to Moulic was made beyond the period prescribed by the
Negotiable Instruments Law and that even iI SIHI did serve such notice on Moulic within the
reglementary period it would be oI no consequence as the checks should never have been
presented Ior payment. SIHI Iiled the petition Ior review.

ISSUES:
1]: Whether the alleged issuance oI the post-dated checks as security is a ground Ior the
discharge oI the instrument as against a holder in due course.
2]: Whether the requirement that SIHI should give Notice oI Dishonor to MOULIC is
indispensable.

DECISION:
1]: Section 119 oI the Negotiable Instrument Law outlined the grounds in which an
instrument is discharged. The provision states that "A negotiable instrument is discharged: (a) By
payment in due course by or on behalI oI the princiWhether the post-dated checks, issued as
security, is a ground Ior the discharge oI the instrument as against a holder in due course. pal
debtor; (b) By payment in due course by the party accommodated, where the instrument is made
or accepted Ior his accommodation; (c) By the intentional cancellation thereoI by the holder; (d)
By any other act which will discharge a simple contract Ior the payment oI money; (e) When the
principal debtor becomes the holder oI the instrument at or aIter maturity in his own right."
Obviously, MOULIC may only invoke paragraphs (c) and (d) as possible grounds Ior the
discharge oI the instrument. But, the intentional cancellation contemplated under paragraph (c) is
that cancellation eIIected by destroying the instrument either by tearing it up, burning it, or
writing the word "cancelled" on the instrument. The act oI destroying the instrument must also
be made by the holder oI the instrument intentionally. Since MOULIC Iailed to get back
possession oI the post-dated checks, the intentional cancellation oI the said checks is altogether
impossible. On the other hand, the acts which will discharge a simple contract Ior the payment oI
money under paragraph (d) are determined by other existing legislations since Section 119 does
not speciIy what these acts are, e.g., Art. 1231 oI the Civil Code which enumerates the modes oI
extinguishing obligations. Again, none oI the modes outlined therein is applicable in the instant
case as Section 119 contemplates oI a situation where the holder oI the instrument is the creditor
while its drawer is the debtor. Herein, the payee, Corazon Victoriano, was no longer MOULIC's
creditor at the time the jewelry was returned. Correspondingly, MOULIC may not unilaterally
discharge herselI Irom her liability by the mere expediency oI withdrawing her Iunds Irom the
drawee bank. She is thus liable as she has no legal basis to excuse herselI Irom liability on her
checks to a holder in due course.

2]:The need Ior notice is not absolute; there are exceptions under Section 114 oI the
Negotiable Instruments Law. Section 114 (When notice need not be given to drawer) provides
that "Notice oI dishonor is not required to be given to the drawer in the Iollowing cases: (a)
Where the drawer and the drawee are the same person; (b) When the drawee is a Iictitious person
or a person not having capacity to contract; (c) When the drawer is the person to whom the
instrument is presented Ior 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." Indeed, MOULIC'S actuations leave much to be desired. She did not retrieve the
checks when she returned the jewelry. She simply withdrew her Iunds Irom her drawee bank and
transIerred them to another to protect herselI. AIter withdrawing her Iunds, she could not have
expected her checks to be honored. In other words, she was responsible Ior the dishonor oI her
checks, hence, there was no need to serve her Notice oI Dishonor, which is simply bringing to
the knowledge oI the drawer or indorser oI the instrument, either verbally or by writing, the Iact
that a speciIied instrument, upon proper proceedings taken, has not been accepted or has not
been paid, and that the party notiIied is expected to pay it. In addition, the Negotiable
Instruments Law was enacted Ior the purpose oI Iacilitating, not hindering or hampering
transactions in commercial paper. Thus, the said statute should not be tampered with haphazardly
or lightly. Nor should it be brushed aside in order to meet the necessities in a single case. The
holder who takes the negotiated paper makes a contract with the parties on the Iace oI the
instrument. There is an implied representation that Iunds or credits are available Ior the payment
oI the instrument in the bank upon which it is drawn. Consequently, the withdrawal oI the money
Irom the drawee bank to avoid liability on the checks cannot prejudice the rights oI holders in
due course. Herein, such withdrawal renders the drawer, Moulic, liable to SIHI, a holder in due
course oI the checks. SIHI could not expect payment as MOULIC leIt no Iunds with the drawee
bank to meet her obligation on the checks, so that Notice oI Dishonor would be Iutile.








Westmont Bank vs. Eugene Ong
GR. No. L- 132560, 1anuary 30, 2002
375 SCRA 212


FACTS:
Respondent Eugene Ong maintained a current account with petitioner Westmont Bank.
Ong sold certain shares oI stock through Island Securities Corporation. To pay Ong, Island
securities purchased two PaciIic Banking Corporation manager`s checks. BeIore Ong could get
hold oI the checks, his Iriend Paciano Tanlimco got hold oI them, Iorged Ong`s signature and
deposited these with petitioner, where Tanlimco was also a depositor. Eventhough Ong`s
specimen signature was on Iile, petitioner accepted and credited both checks to the account oI
Tanlimco, without veriIying the 'signature indorsements appearing at the back thereoI.
Taanlimco then immediately withdrew the money and absconded.
Instead oI going straight to the bank to stop or question the payment, Ong Iirst sought the
help oI Tanlimco`s Iamily to recover the amount. Later, he reported the incident to the Central
Bank, which like the Iirst eIIort, unIortunately proved Iutile.
It was only on October 7, 1977, about 5 months Irom discovery oI the Iraud, did Ong cry
Ioul and demanded in his complaint that petitioner pay the value oI the two checks Irom the bank
on whose gross negligence he imputed his loss. The trial court and the appellate court ruled in
Iavor oI respondent Ong. Hence this petition Ior review.

ISSUE:
Whether or not respondent Ong can recover the value oI the two checks Irom petitioner.

DECISION:
YES. Under section 23 oI the Nil, 'When a signature is Iorged or made without the
authority oI the person whose signature it purports to be, it is wholly inoperative, and no right to
retain the instrument, or to give discharge thereIor, or to enIorce payment thereoI against any
party thereto, can be acquired through or under such signature, unless the party against whom it
is sought to enIorce such right is precluded Irom setting up the Iorgery or want oI authority.
Since the signature oI the payee, in the case at bar, was Iorged to make it appear that he
had made an indorsement in Iavor oI the Iorger, such signature should be deemed as inoperative
and ineIIectual. Petitioner, as the collecting bank grossly erred in making payment by virtue oI
said Iorged signature. The payee, herein respondent, should thereIore be allowed to recover Irom
the collecting bank.
The collecting bank is liable to the payee and must bear the loss because it is its legal
duty to ascertain that the payee`s endorsement was genuine beIore cashing the check. As a
general rule, a bank or corporation who has obtained possession oI check upon an unauthorized
or Iorged indorsement oI the payee`s signature and who collects the amount oI the check Irom
the drawee, is liable Ior the proceeds thereoI to the payee or other owner, notwithstanding that
the amount has been paid to the person Irom whom the check was obtained.
Petitioner avers that respondent Ong is barred by laches Ior Iailing to assert his right Ior
recovery Irom the bank as soon as he discovered the scam. The lapse oI Iive months beIore he
went to seek relieI Irom the bank, according to petitioner, constitutes laches.
In the case at bar, it cannot be said that respondent sat on his rights. He immediately
acted aIter knowing oI the Iorgery by proceeding to seek help Irom the Tanlimco Iamily and later
the Central Bank, to remedy the situation and recover his money Irom the Iorger, Paciano
Tanlimco.Only aIter he had exhausted possibilities oI settling the matter amicably with the
Iamily oI Tanlimco and through the CB, about Iive months aIter the unlawIul transaction took
place, did he resort to making the demand upon the petitioner and eventually beIore the court Ior
recovery oI the money value oI the two checks. These acts cannot be construed as undue delay in
or abandonment oI the assertion oI his rights.
Moreover, the claim oI petitioner that respondent should be barred by laches is clearly a
vain attempt to deIlect responsibility Ior its negligent act. As explained by the appellate court, it
is petitioner which had the last clear chance to stop the Iraudulent encashment oI the subject
checks had it exercised due diligence and Iollowed the proper and regular banking procedures in
clearing checks. As we had earlier ruled, the one who had the last clear opportunity to avoid the
impending harm but Iailed to do so is chargeable with the consequences.



Sumacad vs. Province of Samar
G.R. No. L-8155. October 23, 1956.
100 Phil. 72


FACTS:
A check was issued by province oI Samar to Paulino M. Santos drawn against the
Philippine National bank Cebu Branch. The payee negotiated the check with James McGuire.
James McGuire presented the check to the municipal treasurer oI Borongan Ior payment, but the
latter (who merely noted it) was not able or did not choose to pay the same. Upon seeking
payment oI the check with Philippine National bank, the latter requested the Bureau oI Posts to
Iurnish it with photostatic copies oI the check and requested James McGuire to present the check
to the provincial treasurer and the provincial auditor Ior certiIication. BeIore the check could be
certiIied, the province oI Samar, withdraw its money with PNB and leIt an insuIIicient balance to
cover the check. James McGuire transIerred hid rights to the check to the herein plaintiIIs who,
unable to cash it, Iiled in the Court oI First Instance oI Samar.

ISSUE:
Whether PNB is liable Ior the amount oI the check.

DECISION:
YES. An implied acceptance oI the check by the appellant bank was thereby created. The
request by the appellant bank Irom the Bureau oI Posts Ior photostatic copies oI the check and
the subsequent requirement by it Ior its presentation by James McGuire to the provincial
treasurer and the provincial auditor Ior certiIication, would be an empty gesture iI the appellant
did not thereby mean to assume the obligation oI paying the check and holding suIIicient deposit
oI the drawer Ior the purpose. Even so, appellant`s resulting obligation is merely subsidiary, the
province oI Samar being primarily liable to pay the check.



Philippine National Bank vs. Quimpo
GR No. L-53194, 14 March 1988
158 SCRA 582



FACTS:
On 3 July 1973, Francisco S. Gozon II, who was a depositor oI the Caloocan City
Branch oI the Philippine National Bank (PNB), went to the bank in his car accompanied by his
Iriend Ernesto Santos whom he leIt in the car while he transacted business in the bank. When
Santos saw that Gozon leIt his check book he took a check thereIrom, Iilled it up Ior the amount
oI P5, 000.00, Iorged the signature oI Gozon, and thereaIter he encashed the check in the bank
on the same day. The account oI Gozon was debited the said amount. Upon receipt oI the
statement oI account Irom the bank, Gozon asked that the said amount oI P5, 000.00 should be
returned to his account as his signature on the check was Iorged but the bank reIused. Upon
Gozon`s complaint on 1 February 1974 Ernesto Santos was apprehended by the police
authorities and upon investigation he admitted that he stole the check oI Gozon, Iorged his
signature and encashed the same with the Bank. Gozon Iiled the complaint Ior recovery oI the
amount oI P5, 000.00, plus interest, damages, attorney's Iees and costs against the bank in the
CFI Rizal (Branch XIC, Hon. Romulo S. Quimpo presiding). AIter the issues were joined and
the trial on the merits ensued, a decision was rendered on 4 February 1980, by the Court,
ordering the bank to return the amount oI P5, 000 which it had unlawIully withheld, with interest
at the legal rate Irom 22 September 1972 until the amount is Iully delivered. The bank was
Iurther condemned to pay Gozon the sum oI P2, 000.00 as attorney's Iees and to pay the costs oI
the suit. The bank Iiled a petition Ior review on certiorari.

ISSUE:
Whether the act oI Gozon in putting his checkbook containing the Iorged check into the
hands oI Santos was the proximate cause oI the loss, precluding him Irom setting up the deIense
oI Iorgery.


DECISION:
The prime duty oI a bank is to ascertain the genuineness oI the signature oI 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 to it. A bank is bound to know the signatures oI its
customers; and iI it pays a Iorged check, it must be considered as making the payment out oI its
own Iunds, and cannot ordinarily change the amount so paid to the account oI the depositor
whose name was Iorged. This rule is absolutely necessary to the circulation oI draIts and checks,
and is based upon the presumed negligence oI the drawee in Iailing to meet its obligation to
know the signature oI its correspondent. There is nothing inequitable in such a rule. II the paper
comes to the drawee in the regular course oI business, and he, having the opportunity
ascertaining its character, pronounces it to be valid and pays it, it is not only a question oI
payment under mistake, but payment in neglect oI duty which the commercial law places upon
him, and the result oI his negligence must rest upon him. The act oI Gozon in leaving his
checkbook in the car while he went out Ior a short while cannot be considered negligence
suIIicient to excuse PNB Irom its own negligence. It should be borne in mind that when Gozon
leIt his car, Santos, a long time classmate and Iriend remained in the same. Gozon could not have
been expected to know that the said Santos would remove a check Irom his checkbook. Gozon
had trust in his classmate and Iriend. He had no reason to suspect that the latter would breach
that trust.











Republic Bank vs. Court of Appeals
G.R. No. 42725. April 22, 1991
196 SCRA 100

FACTS:
San Miguel Corporation issued dividend check Ior P240 in Iavor oI J. Roberto Delgado, a
stockholder. Delgado altered the amount oI the check to P9, 240. The check was indorsed and
deposited by Delgado with Republic Bank. Republic Bank endorsed the check to First National
City Bank (FNCB), the drawee bank, by stamping on the back oI the check 'all prior and/or lack
oI indorsements guaranteed. Relying on the endorsement, FNCB paid the amount to Republic
Bank. Later on, San Miguel inIormed FNCB oI the material alteration oI the amount. FNCB
recredited the amount to San Miguel`s account, and demanded reIund Irom Republic Bank.
Republic Bank reIused. Hence, the present action.

ISSUE:
Who shall bear the loss resulting Irom the altered check?

DECISION:
When an indorsement is Iorged, the collecting bank or last indorser, as a general rule,
bears the loss. But the unqualiIied indorsement oI the collecting bank on the check should be
read together with the 24-hour regulation on clearing house operation. Thus, when the drawee
bank Iails to return a Iorged or altered check to the collecting bank within the 24-hour clearing
period (as provided by Section 4c oI Central Bank Circular 9, as amended), the collecting bank is
absolved Irom liability. The drawee bank, FNCB, should bear the loss Ior the payment oI the
altered check Ior its Iailure to detect and warn Republic Bank oI the Iraudulent character oI the
check within the 24-hour clearing house rule.





Yang vs. Court of Appeals
GR No. L-138074, 15 August 2003
409 SCRA 159


FACTS:
Yang and Chandimari entered into an agreement that the latter would issue to the Iormer
a manager`s check in exchange Ior two checks that Yang has payable to the order oI David.
The diIIerence in amount would be the proIit oI the two oI them. It was Iurther agreed
upon that Yang would secure a dollar draIt, which Chandimari would exchange with another
dollar draIt to be secured Irom a Hong Kong bank. At the agreed time oI rendezvous, it
was reported by Yang`s messenger that Chandimari didn't show up and the draIts and checks
were allegedly stolen. This wasn't true however. Chandimari was able to get hold oI the draIts
and checks. He was even able to deliver to David the two checks and was able to get
money in return. Consequently, Yang asked Ior the stoppage oI payment oI the checks she
believe to be lost, relying on the report oI her messenger. The stoppage order was
eventually liIted by the banks and the draIts and checks were able to be encashed. Yang then
Iiled an action Ior injunction and damages against the banks, Chandimari and David. The
trial court and CA held in Iavor oI David as a holder in due course.

ISSUE #1
Whether David was a holder in due course.

DECISION:
YES. Every holder oI a negotiable instrument is deemed prima Iacie a holder in due
course. However, this presumption arises only in Iavor oI a person who is a holder as deIined in
Section 191 oI the Negotiable Instruments Law, meaning a "payee or indorsee oI a bill or note,
who is in possession oI it, or the bearer thereoI." Herein, it is not disputed that David was the
payee oI the checks in question. The weight oI authority sustains the view that a payee may be a
holder in due course. Hence, the presumption that he is a prima Iacie holder in due course applies
in his Iavor. However, said presumption may be rebutted. Hence, what is vital to the resolution
oI this issue is whether David took possession oI the checks under the conditions provided Ior in
Section 52 oI the Negotiable Instruments Law. All the requisites provided Ior in Section 52 must
concur in David's case, otherwise he cannot be deemed a holder in due course. Yang's challenge
to David's status as a holder in due course hinges on two arguments: (1) the lack oI prooI to show
that David tendered any valuable consideration Ior the disputed checks; and (2) David's Iailure to
inquire Irom Chandiramani as to how the latter acquired possession oI the checks, thus resulting
in David's intentional ignorance tantamount to bad Iaith. In sum, Yang posits that the last two
requisites oI Section 52 are missing, thereby preventing David Irom being considered a holder in
due course. UnIortunately Ior Yang, her arguments on this score are less than meritorious and Iar
Irom persuasive.

ISSUE # 2
Whether there is lack oI prooI to show that David tendered any valuable consideration
Ior the disputed checks.

DECISION:
With respect to consideration, Section 24 oI the Negotiable Instruments Law creates a
presumption that every party to an instrument acquired the same Ior a consideration or Ior value.
Thus, the law itselI creates a presumption in David's Iavor that he gave valuable consideration
Ior the checks in question. In alleging otherwise, Yang has the onus to prove that David got hold
oI the checks absent said consideration. In other words, Yang must present convincing evidence
to overthrow the presumption. The records, however, shows that Yang Iailed to discharge her
burden oI prooI. Yang's averment that David did not give valuable consideration when he took
possession oI the checks is unsupported, devoid oI any concrete prooI to sustain it. Note that
both the trial court and the appellate court Iound that David did not receive the checks gratis, but
instead gave Chandiramani US$360,000.00 as consideration Ior the said instruments. Factual
Iindings oI the Court oI Appeals are conclusive on the parties and not reviewable by the Supreme
Court; they carry great weight when the Iactual Iindings oI the trial court are aIIirmed by the
appellate court.


ISSUE #3:
Whether David's Iailure to inquire Irom Chandiramani as to how the latter acquired
possession oI the checks, resulted in David's intentional ignorance tantamount to bad Iaith.

DECISION:
Yang Iails to point any circumstance which should have put David on inquiry as to the
why and whereIore oI the possession oI the checks by Chandiramani. David was not privy to the
transaction between Yang and Chandiramani. Instead, Chandiramani and David had a separate
dealing in which it was precisely Chandiramani's duty to deliver the checks to David as payee.
The evidence shows that Chandiramani perIormed said task to the letter. Yang admits that David
took the step oI asking the manager oI his bank to veriIy Irom FEBTC and Equitable as to the
genuineness oI the checks and only accepted the same aIter being assured that there was nothing
wrong with said checks. At that time, David was not aware oI any "stop payment" order. Under
these circumstances, David thus had no obligation to ascertain Irom Chandiramani what the
nature oI the latter's title to the checks was, iI any, or the nature oI his possession. Thus, he
cannot be held guilty oI gross neglect amounting to legal absence oI good Iaith, absent any
showing that there was something amiss about Chandiramani's acquisition or possession oI the
checks. David did not close his eyes deliberately to the nature or the particulars oI a Iraud
allegedly committed by Chandiramani upon Yang, absent any knowledge on his part that the
action in taking the instruments amounted to bad Iaith.

ISSUE # 4:
Whether David should at least have inquired as to whether he was acquiring said checks
Ior the purpose Ior which they were issued, pursuant to Bataan Cigar & Cigarette Factory, Inc. v.
Court oI Appeals.

DECISION:
Yang's reliance on the Bataan Cigar case, however, is misplaced. The Iacts in the case are
not on all Iours with Bataan Cigar. In the latter case, the crossed checks were negotiated and sold
at a discount by the payee, while herein, the payee did not negotiate Iurther the checks in
question but promptly deposited them in his bank account. The Negotiable Instruments Law is
silent with respect to crossed checks, although the Code oI Commerce makes reIerence to such
instruments. Nonetheless, the Court has taken judicial cognizance oI the practice that a check
with two parallel lines in the upper leIt hand corner means that it could only be deposited and not
converted into cash. The eIIects oI crossing a check, thus, relates to the mode oI payment,
meaning that the drawer had intended the check Ior deposit only by the rightIul person, i.e., the
payee named therein. In Bataan Cigar, the rediscounting oI the check by the payee knowingly
violated the avowed intention oI crossing the check. Thus, in accepting the cross checks and
paying cash Ior them, despite the warning oI the crossing, the subsequent holder could not be
considered in good Iaith and thus, not a holder in due course. The ruling in Bataan Cigar
reiterates that in De Ocampo & Co. v. Gatchalian. The Iactual circumstances in De Ocampo and
in Bataan Cigar are not present herein. For here, there is no dispute that the crossed checks were
delivered and duly deposited by David, the payee named therein, in his bank account. In other
words, the purpose behind the crossing oI the checks was satisIied by the payee.

MWSS vs. CA
G.R. No. L-62943. 1uly 14, 1986
143 SCRA 20

FACTS:
The Metropolitan Waterworks and Sewerage System (MWSS) is a government owned
and controlled corporation created under RA 6234 as the successor-in-interest oI the deIunct
NWSA. The Philippine National Bank (PNB), on the other hand, is the depository bank oI
MWSS and its predecessor-in-interest NWSA. Among the several accounts oI NWSA with PNB
is NWSA Account 6, otherwise known as Account 381-777 and which is presently allocated
010-500281. The authorized signature Ior said Account 6 were those oI MWSS treasurer Jose
Sanchez, its auditor Pedro Aguilar, and its acting General Manager Victor L. Recio. Their
respective specimen signatures were submitted by the MWSS to and on Iile with the PNB. By
special arrangement with the PNB, the MWSS used personalized checks in drawing Irom this
account. These checks were printed Ior MWSS by its printer, F. Mesina Enterprises, located at
1775 Rizal Extension, Caloocan City. During the months oI March, April and May 1969, 23
checks were prepared, processed, issued and released by NWSA, all oI which were paid and
cleared by PNB and debited by PNB against NWSA Account 6. During the same months oI
March, April and May 1969, 23 checks bearing the same numbers as the NWSA checks were
likewise paid and cleared by PNB and debited against NWSA Account 6. The checks were
deposited by the payees Raul Dizon, Arturo Sison and Antonio Mendoza in their respective
current accounts with the Philippine Commercial and Industrial Bank (PCIB) and Philippine
Bank oI Commerce (PBC) in the months oI March, April and May 1969. Thru the Central Bank
Clearing, these checks were presented Ior payment by PBC and PCIB to the PNB, and paid, also
in the months oI March, April and May 1969. At the time oI their presentation to PNB these
checks bear the standard indorsement which reads 'all prior indorsement and/or lack oI
endorsement guaranteed. Subsequent investigation however, conducted by the NBI showed that
Dizon, Sison and Mendoza were all Iictitious persons. The respective balances in their current
account with the PBC and/or PCIB stood as Iollows: Dizon P3,455.00 as oI 30 April 1969;
Mendoza P18,182.00 as oI 23 May 1969; and Sison P1,398.92 as oI 30 June 1969. On 11 June
1969, NWSA addressed a letter to PNB requesting the immediate restoration to its Account 6, oI
the total sum oI P3,457,903.00 corresponding to the total amount oI the 23 checks claimed by
NWSA to be Iorged and/or spurious checks.
In view oI the reIusal oI PNB to credit back to Account 6 the said total sum oI P3,457,903.00
MWSS Iiled the present complaint on 10 November 1972 beIore the CFI Manila (Civil Case
88950). On 6 February 1976, the CFI Manila rendered judgment in Iavor oI the MWSS, ordering
the PNB to restore the total sum oI (P3,457,903.00) to MWSS's Account 6 with legal interest
thereon computed Irom the date oI the Iiling oI the complaint and until as restored in the said
account, dismissing the third-party complaint, and dismissing the counterclaims oI the third party
deIendants Ior lack oI evidence; without pronouncement as to costs.
On appeal and on 29 October 1982, the Court oI Appeals reversed the decision oI the CFI Manila
and rendered judgment in Iavor oI the respondent Philippine National Bank. A motion Ior
reconsideration Iiled by the MWSS was denied by the appellate court in a resolution dated 3
January 1983. Hence, the petition Ior review on certiorari.

ISSUE:
Whether MWSS can asks PNB to credit back its account by setting up the deIense oI
Iorgery?

DECISION:
NO. MWSS is barred Irom setting up the deIense oI Iorgery under Section 23 oI the
Negotiable Instruments Law which provides that "when the signature is Iorged or made without
authority oI the person whose signature it purports to be, it is wholly inoperative, and no right to
retain the instrument, or to give a discharge thereIor, or to enIorce payment thereoI against any
party thereto can be acquired through or under such signature unless the party against whom it is
sought to enIorce such right is precluded Irom setting up the Iorgery or want oI authority,"
because it was guilty oI negligence not only beIore the questioned checks were negotiated but
even aIter the same had already been negotiated.
MWSS committed gross negligence in the printing oI its personalized checks.
The records show that at the time the 23 checks were prepared, negotiated, and encashed, MWSS
was using its own personalized checks, instead oI the oIIicial PNB Commercial blank checks. In
the exercise oI this special privilege, however, MWSS Iailed to provide the needed security
measures. That there was gross negligence in the printing oI its personalized checks is shown by
the Iollowing uncontroverted Iacts, that MWSS Iailed to (1) give its printer, Mesina Enterprises,
speciIic instructions relative to the saIekeeping and disposition oI excess Iorms, check vouchers,
and saIety papers; (2) retrieve Irom its printer all spoiled check Iorms; (3) provide any control
regarding the paper used in the printing oI said checks; (4) Iurnish the respondent drawee bank
with samples oI typewriting, check writing, and print used by its printer in the printing oI its
checks and oI the inks and pens used in signing the same; and (5) send a representative to the
printing oIIice during the printing oI said checks. This gross negligence oI MWSS is very
evident Irom the sworn statement dated 19 June 1969 oI Faustino Mesina Jr., the owner oI the
printing press which printed MWSS's personalized checks. The NBI Report dated 2 November
1970 was more explicit in stating that laxity exists as NAWASA had no representative at the
printing press during the process oI the printing and no particular security measure instructions
adopted to saIeguard the interest oI the government in connection with printing oI this
accountable Iorm.
Drawee bank cannot be Iaulted Ior not detecting the Iraudulent encashment oI the checks
because the printing oI MWSS's personalized checks was not done under the supervision and
control oI the Bank. There is no evidence on record indicating that because oI the private
printing, MWSS Iurnished the Bank with samples oI checks, pens, and inks or took other
precautionary measures with the PNB to saIeguard its interests. Under the circumstances,
thereIore, MWSS was in a better position to detect and prevent the Iraudulent encashment oI its
checks.
Forgery cannot be presumed (Siasat, et al. v. Intermediate Appellate Court, et al, 139
SCRA 238). It must be established by clear, positive, and convincing evidence. This was not
done in the present case.
Even iI the 23 checks in question are considered Iorgeries, considering MWSS's gross
negligence, it is barred Irom setting up the deIense oI Iorgery under Section 23 oI the Negotiable
Instruments Law.
Moreover, the appellate court likewise applied Section 24 oI the Negotiable Instruments
Law which provides "Every negotiable instrument is deemed prima Iacie to have been issued Ior
valuable consideration and every person whose signature appears thereon to have become a party
thereto Ior value."
























Manila Lighter Transportation Inc. vs. CA
G.R. No. L-50373. February 15, 1990.
182 SCRA 251

FACTS:
A complaint Ior recovery oI the value oI 49 checks (P91,153.11) with alleged
Iorged/unauthorized indorsements oI the payee oI which 26 were paid to the company or order
and 23 to company or bearer, was Iiled by Manila Lighter Transportation Inc. against China
Banking Corporation on 22 May 1962. The complaint alleged that the checks were issued by
customers oI the company in payment oI brokerage/lighterage services and were all delivered,
without its knowledge, to its collector, Augusto Perez. Upon Iorged indorsements oI the
company's general manager, Luis Gaskell, the checks Iound their way into the accounts oI third
persons in the bank and the proceeds were later withdrawn, to the damage oI the company who
sought reimbursement or restoration by said bank oI the value oI the checks. Bank denied
liability Ior the company's loss which was due to its own negligence. It alleged that the company
is estopped Irom denying its collector's authority to receive the checks Irom the
drawers/customers; that the company Iailed to give Bank and the drawee Banks notice oI the
alleged Iorged or unauthorized indorsements within a reasonable time; and that its loss was
occasioned by its own Iailure to observe the proper degree oI diligence in the supervision oI its
employees, particularly its collector, Augusto Perez. Upon leave oI court, the Bank Iiled a third-
party complaint against Cao Pek & Co. and Ko Lit who had deposited the checks in question in
their respective accounts with the Iormer and had thereaIter withdrawn the proceeds thereoI. In
the decision oI 22 January 1972, the lower court Iound both parties equally negligent, the
company, Ior allowing a state oI aIIairs in which its employees could appropriate the checks and
IalsiIy the indorsement thereon oI its manager with impunity, and the bank, Ior not detecting the
IalsiIication made by the company's employees when the checks were presented to it. The court
ordered the bank to pay the company the amount equal to 50 oI the total amount oI the checks,
ordered the company to pay the bank the amount equal to 50 oI the Tabacalera check, ordered
third-party deIendants Ko Lit and Cao Pek to pay ChinaBank the amounts oI P90, 500.24 and
1,215.05 respectively, and ordered ChinaBank to pay the company 50 oI the amounts
recovered Irom the third-party deIendants; with the parties bearing their own costs and attorney`s
Iees.
Both the company and the bank appealed to the Court oI Appeals. Ko Lit and Cao Pek
also appealed but their appeal was dismissed Ior Iailure to pay the docket Iee and to Iile the
record on appeal. On 18 January 1979, the Court oI Appeals rendered judgment, modiIying that
oI the lower court, such that the complaint is dismissed and the bank is Ireed Irom any liability to
the company. The counterclaim oI P3, 453.53 is granted with interests Irom the date the amended
counterclaim was Iiled. The third-party deIendants are adjudged directly liable to the company
Ior the checks they respectively indorsed; without costs. The company Iiled a motion Ior
reconsideration oI the decision but it was denied. Hence, the petition Ior review.

ISSUE:
Whether petitioner can recover the amount oI the check Irom respondent China Banking
Corporation?

DECISION:
NO. The Bank was not negligent. Since the company was not a client oI Bank, i.e., did
not maintain an account in said Bank, the latter had no way oI ascertaining the authenticity oI its
indorsements on the checks which were deposited in the accounts oI the third-party deIendants in
said Bank. The Bank was not negligent because, in accordance with banking practice, it caused
the checks to pass through the clearing house beIore it allowed their proceeds to be withdrawn by
the depositors (third-party deIendants in the lower court).
Drawer has no cause oI action against collecting bank, since the duty oI collecting bank
is only to the payee. A collecting bank is not guilty oI negligence over a Iorged indorsement on
checks Ior it has no way oI ascertaining the authority oI the endorsement and when it caused the
checks to pass through the clearing house beIore allowing withdrawal oI the proceeds thereoI.





Ang Tiong vs. Ting
GR No. L- 26767, February 22, 1968
22 SCRA 713

FACTS:
Lorenzo Ting issued a check Ior P4, 000 payable to 'cash or bearer. With Felipe Ang`s
signature (indorsement in blank) at the back thereoI, the instrument was received by Ang Tiong
who thereaIter presented it to the bank Ior payment. The drawee bank dishonored it. Ang Tiong
made written demands on both Ting and Ang to make good the amount represented by the check.
These demands unheeded. Ang Tiong Iiled suit Ior collection. The trial court adjudged Ior Ang
Tiong. Only Ang appealed, maintaining that he is only an accommodation party.

ISSUE:
Whether Felipe Ang is an accommodation party.

DECISION:
Felipe Ang is a general indorser (Section 63, Negotiable Instruments Law), in the
absence oI an indication by appropriate words his intention to be bound in some other capacity.
Even on the assumption that Ang is a mere accommodation party, he is liable on the instrument
to a holder Ior value notwithstanding that such holder at the time oI the taking the instrument
knew him to be only an accommodation party (Section 29, Negotiable Instrument Law).
Assuming Iurther that Ang is an accommodation indorser, the Iact that Ang may obtain security
Irom the maker to protect himselI against the danger oI insolvency oI the latter cannot in any
manner aIIect his liability to Ang Tiong, as the said remedy is a matter oI concern exclusively
between an accommodation indorser and an accommodated party. The liability oI Felipe Ang
remains primary and unconditional.





Associated Bank vs. Court oI Appeals
GR No L- 89802, May 7, 1992
208 SCRA 465

FACTS:
Melissa`s RTW`s customers issued cross checks payable to Melissa`s RTW, which its
proprietor Merle Reyes did not receive. It was learned that the checks had been deposited with
the Associated Bank by one RaIael Sayson. Sayson was not authorized by Reyes to deposit and
encash said checks. Reyes Iiled an action Ior the recovery oI the total value oI the checks plus
damages.

ISSUE:
Whether the bank was negligent Ior the loss.

DECISION:
Crossing a check means that the drawee bank should not encash the checkbut merely
accept it Ior deposit, that the check may be negotiated only once by one who has an account in a
bank, and that the check serves as warning that it was issued Ior a deIinite purpose so that he
must inquire iI he has received the check pursuant to that purpose. The eIIect, thus, relate to the
mode oI its presentment Ior payment, in accordance with section 72 oI the Negotiable
Instruments Law. The bank paid the checks notwithstanding that title had not passed to the
indorser, as the checks had been crossed and issued 'Ior payee`s account only. It does did so in
its own peril and became liable to the payee Ior the value oI the checks. The Iailure oI the bank
to make an inquiry as to Sayson`s authority was a breach oI its duty. The bank is negligent and is
thus liable to Reyes.






Clark vs. Sellner
GR. No. L- 16477, November 22, 1921
42 Phil 384

FACTS:
George Sellner, with WH Clarke and John Mave, signed a note in Iavor oI RN Clark
dated July 1, 1914 in Manila Ior the amount oI P12, 000. The note matured, but its amount was
not paid. Action was Iiled in court. Sellner`s counsel allege that Sellner did not receive anything
oI value Ior the transaction, that the instrument was not presented to Sellner Ior payment, and
that Sellner, being an accommodation party is not liable unless the note is negotiated, which was
allegedly not done.

ISSUE:
Whether Sellner is an accommodation party liable Ior the note.

DECISION:
Sellner, as one oI the signers oI the note, is one oI the joint and several debtors on the
note, and as such he is liable under Section 60 oI the Negotiable Instrument law. Sellner lent his
name, not to the creditor, but to those who signed with him placing himselI with respect to the
creditor in the same position and with the same liability as the said signers; and thus is a joint
surety rather than an accommodation party. As to the presentment Ior payment, such action is not
necessary in order to charge the person primarily liable, as is Sellner (section 70, Negotiable
Instrument Law).








Firestone Tire and Rubber vs. Ines Cheves and Company
GR No L- 17106, October 19, 1966
18 SCRA 356

FACTS:
The check was intended as part oI the payment oI Ines Chaves` debt. When presented to
the Security Bank and Trust Co. by Iirestone, the check was returned Ior insuIIiciency oI Iunds.
Despite repeated demands, Ines Chaves Iailed to settle its account; hence, the suit.

ISSUE:
Whether good Iaith is required in the issuance oI a check.

DECISION:
Everyone must in the perIormance oI his duties, observe honesty and good Iaith. Where a
person issues a postdated check without Iunds to cover it and inIorms the payee oI this Iact, he
cannot be held guilty oI estaIa because there is no deceit. Herein, there is nothing in the record to
show that Firestone knew that there were no Iunds when it accepted the check, much less that
Firestone agreed to take the check with knowledge oI the lack oI Iunds. As Ines Chaves is guilty
oI Iraud (bad Iaith) in the perIormance oI its obligation, it is liable Ior damages. Its conduct
wanting in good Iaith, the award oI attorney`s Iees was warranted.











Hongkong and Shanghai Bank vs. People`s Bank and Trust
GR. No. L- 28226, September 30, 1970
35 SCRA 140

FACTS:
The Philippine Long Distance Telephone Company (PLDT) drew a check on the
Hongkong & Shanghai Banking Corporation (HSBC) in the latter`s Iavor Ior P14,608.05, and
sent it through mail. The check Iell into the hands oI Florentino Changco, who was able to erase
the name oI the payee and substituted his own, and deposited the altered check in his current
account with the People`s Bank and Trust Co. (PBTC). The check was cleared by HSBC, and
PBTC credited Changco the amount. The alteration was known when the cancelled check was
returned to PLDT. HSBC requested PBTC to reIund the amount, but the latter reIused.

ISSUE:
Whether HSBC can claim reimbursement Irom PBTC.

DECISION:
A person who presents Ior payment checks guarantees the genuineness oI the check, and
the drawee bank need to concern itselI with nothing but the genuineness oI the signature, and the
state oI the account with it oI the drawee. II at all, whatever remedy HSBC has would lie not
against PBTC but as against the party responsible Ior changing the name oI the payee (i.e.
Changco). Its Iailure to call the attention oI the PBTC as to such alteration until aIter the lapse oI
27 days would, in the light oI Central Bank Circular 9 (24-hour clearing house rule), negate
whatever right it might had against PBTC.







Astro Electronics Corp. vs. Philippine Export and Foreign Loan Guarantee Corporation
GR. No. 136729, September 23, 2003
411 SCRA 462

FACTS:
Astro Electronics Corporation (Astro) was granted several loans by the Philippine Trust
Company (Philtrust) amounting to P3,000,000.00 with interest and secured by three promissory
notes: PN PFX-254 dated 14 December 1981 Ior P600,000.00, PN PFX-258 also dated 14
December 1981 Ior P400,000.00 and PN 15477 dated 27 August 1981 Ior P2,000,000.00. In each
oI these promissory notes, it appears that Peter Roxas signed twice, as President oI Astro and in
his personal capacity. Roxas also signed a Continuing Suretyship Agreement in Iavor oI Philtrust
Bank, as President oI Astro and as surety. ThereaIter, Philippine Export and Foreign Loan
Guarantee Corporation (Philguarantee), with the consent oI Astro, guaranteed in Iavor oI
Philtrust the payment oI 70 oI Astro's loan, subject to the condition that upon payment by
Philguarantee oI said amount, it shall be proportionally subrogated to the rights oI Philtrust
against Astro. As a result oI Astro's Iailure to pay its loan obligations, despite demands,
Philguarantee paid 70 oI the guaranteed loan to Philtrust. Subsequently, Philguarantee Iiled
against Astro and Roxas a complaint Ior sum oI money with the RTC oI Makati. In his Answer,
Roxas disclaims any liability on the instruments, alleging, inter alia, that he merely signed the
same in blank and the phrases "in his personal capacity" and "in his oIIicial capacity" were
Iraudulently inserted without his knowledge. AIter trial, the RTC rendered its decision in Iavor
oI Philguarantee, ordering Astro and Roxas to solidarily pay Philguarantee the sum oI
P3,621,187.52 representing the total obligation oI Astro and Roxas in Iavor oI Philguarantee as
oI 31 December 1984 with interest at the stipulated rate oI 16 per annum and stipulated penalty
charges oI 16 per annum computed Irom 1 January 1985 until the amount is Iully paid. On
appeal, the Court oI Appeals aIIirmed the RTC decision agreeing with the trial court that Roxas
Iailed to explain satisIactorily why he had to sign twice in the contract and thereIore the
presumption that private transactions have been Iair and regular must be sustained. Astro and
Roxas Iiled the petition Ior review on certiorari.

ISSUE:
Whether Roxas should be jointly and severally liable (solidary) with Astro Ior the sum awarded
by the RTC.
DECISION:
YES. Astro's loan with Philtrust Bank is secured by three promissory notes. These promissory
notes are valid and binding against Astro and Roxas. As it appears on the notes, Roxas signed
twice: Iirst, as president oI Astro and second, in his personal capacity. In signing his name aside
Irom being the President oI Astro, Roxas became a co-maker oI the promissory notes and cannot
escape any liability arising Irom it. Under the Negotiable Instruments Law, persons who write
their names on the Iace oI promissory notes are makers, promising that they will pay to the order
oI the payee or any holder according to its tenor. Thus, even without the phrase "personal
capacity," Roxas will still be primarily liable as a joint and several debtor under the notes
considering that his intention to be liable as such is maniIested by the Iact that he aIIixed his
signature on each oI the promissory notes twice which necessarily would imply that he is
undertaking the obligation in two diIIerent capacities, oIIicial and personal. Further, the three
promissory notes uniIormly provide: "FOR VALUE RECEIVED, I/We jointly, severally and
solidarily, promise to pay to PHILTRUST BANK or order." An instrument which begins with
"I", "We", or "Either oI us" promise to pay, when signed by two or more persons, makes them
solidarily liable. Also, the phrase "joint and several" binds the makers jointly and individually to
the payee so that all may be sued together Ior its enIorcement, or the creditor may select one or
more as the object oI the suit. Having signed under such terms, Roxas assumed the solidary
liability oI a debtor and Philtrust Bank may choose to enIorce the notes against him alone or
jointly with Astro. Furthermore, Roxas is the President oI Astro and reasonably, a businessman
who is presumed to take ordinary care oI his concerns. Absent any countervailing evidence, it
cannot be gainsaid that he will not sign a document without Iirst inIorming himselI oI its
contents and consequences. Clearly, he knew the nature oI the transactions and documents
involved as he not only executed these notes on two diIIerent dates but he also executed, and
again, signed twice, a "Continuing Suretyship Agreement" notarized on 31 July 1981. Such
continuing suretyship agreement even re-enIorced his solidary liability to Philtrust because as a
surety, he bound himselI jointly and severally with Astro's obligation. Roxas cannot now avoid
liability by hiding under the convenient excuse that he merely signed the notes in blank and the
phrases "in his personal capacity" and "in his oIIicial capacity" were Iraudulently inserted
without his knowledge.





























Great Asian Sales Center Corporation vs. Court oI Appeals
GR. No. 105774, April 25, 2002
381 SCRA 557

FACTS:
Great Asian is engaged in the business oI buying and selling household appliances. In
March 1981, the board oI directors oI Great Asian approved a resolution authorizing its
Treasurer and GM, Arsenio Lim Piat, Jr. to secure a loan Irom Bancasia in an amount not to
exceed P1 million and also authorized Arsenio to sign all papers, documents or promissory notes
necessary to secure the loan. In February 1982, the board oI directors oI Great Asian approved a
2
nd
resolution authorizing Great Asian to secure s discounting line with Bancasia in an amount
not exceeding P2Million and also designated Arsenio as the authorized signatory to sign all
instruments, documents and checks necessary to secure the discounting line.
In March 1981 and 1982, Tan Chiong Lin signed 2 Surety Agreements in Iavor Bancasia
to guarantee, solidarily, the debts oI Great Asian to Bancasia. Reat Asian, through Arsenio,
signed 4 Deeds oI Assignment oI Receivables, assigning to Bancasia 15 postdated checks issued
by various customers in payment Ior appliances and other merchandise. Arsenio endorsed all the
15 checks by signing his name at the back oI the checks. Eight oI the dishonored checks bore the
endorsement oI Arsenio below the stamped name oI 'Great Asian Sales Center, while the rest
oI the dishonored checks just bore the signature oI Arsenio. The drawee banks dishonored the 15
checks on maturity when deposited Ior collection by Bancasia, with any oI the Iollowing as
reason Ior the dishobor: 'account closed, 'payment stopped, 'account under garnishment, and
'insuIIiciency oI Iunds. AIter the drawee bank dishonored the checks, Bancasia sent letters to
Tan Chong Lin, notiIying him oI the dishonor and demanding payment Irom him. Neither Great
Asian nor tan Chong Lin paid Bancasia the dishonored checks.
In June 1982, Bancasia Iiled a complaint Ior collection oI a sum oI money against Great
Asian and tan chong Lin. Great Asian raised the alleged lack oI authority oI Arsenio to sign the
Deeds oI Assignment as well as the absence oI consideration and consent oI all the parties to the
Surety Agreements signed by Tan Chong Lin.

ISSUES:
1. Whether or not Great Asian is liable To Bancasia under the Deeds oI Assignment Ior
breach oI contract pursuant to the civil Code, independent oI the negotiable instrument
law.
2. Whether or not Tan Chiong Lin is liable to great Asian under the surety agreements.

DECISION:
1. YES. Bancasia`s complaint against Great Asian is Iounded on the latter`s breach oI
contract under the Deeds oI Assignment. The Deeds oI Assignment uniIormly provided
Ior one vital suspensive condition; in case the drawers Iail to pay the checks on maturity,
Great Asian obligated itselI to pay Bancasia the Iull Iace value oI the dishonored checks,
including penalty and attorney`s Iees. The Iailure oI the drawers to pay the checks is a
suspensive condition, the happening oI which gives rise to Bancasia`s right to demand the
payment Irom Great Asian. This conditional obligation oI Great Asian arises Irom its
written contracts with Bancasia as embodied in the Deeds oI Assignment.
By express provision in the Deeds oI Assignment, Great Asian unconditionally obligated
itselI to pay Bancasia the Iull value oI the dishonored checks. In short, Great Asian sold
the postdated checks on with recourse basis against itselI. This is an obligation that Great
Asian is bound to IaithIully comply because it has the Iorce oI law as between Great
Asian and Bancasia, as provided in Artile 1159 oI the Civil Code. Great Asian and
Bancasia agreed on this speciIic with recourse stipulation, despite the Iact that the
receivables were negotiable instruments with the endorsement oI Arsenio. The
contracting parties had the right to adopt the stipulation which is separate and distinct
Irom the warranties oI an endorser under the Negotiable Instrument Law.
The explicit with recourse stipulation against Great Asian eIIectively enlarges, by
agreement oI the parties, the liability oI Great Asian beyond that oI a mere endorser oI
negotiable instrument. Thus, whether or not Bancasia gives notice oI dishonor to Great
Asian, the latter remains liable to Bancasia because oI the with recourse stipulation which
is independent oI the warranties oI an endorser under the Negotiable Instrument Law.
There is nothing in the Negotiable Instrument Law or in the Financing Company Act, that
prohibits Great Asian and Bancasia parties Irom adopting the with recourse stipulation
uniIormly Iound in the Deeds oI assignment. Instead oI being negotiated, a negotiable
instrument may be assigned. Assignment oI a negotiable instrument is actually the
principal mode oI conveying accounts receivable under the Financing Company Act..
Since in discounting oI receivables the assignee is subrogated as creditor oI the
receivable, the endorsement oI the negotiable instrument becomes necessary to enable the
assignee to collect Irom the drawer. This is particularly true with checks because
collecting banks will not accept checks unless endorsed by the payee. The purpose oI the
endorsement is merely to Iacilitate collection oI the proceeds oI the checks.
The purpose oI the endorsement is not to make the assignee Iinance company a
holder in due course because policy considerations militate against according Iinance
companies the rights oI a holder in due course. Otherwise, consumers who purchase
appliances on installment, giving their promissory notes or checks to the seller, will have
no deIense against the Iinance company should the appliances later turn out to be
deIective. Thus, the endorsement does not operate to make the Iinance company a holder
in due course. For its own protection, thereIore, the Iinance company usually requires the
assignor, in a separate and distinct contract, to pay the Iinance company in the event oI
dishonor oI the notes or checks.
As endorsee oI Great Asian, Bancasia had the option to proceed against Great
Asian under the Negotiable Instrument law. Had it so proceeded, the Negotiable
Instrument law would have governed Bancasia`s cause oI action. Bancasia, however, did
not choose this route. Instead, bancasia decided to sue Great Asian Ior breach oI contract
under the Civil Code, a right that Bancasia had under the express with recourse
stipulation in the Deeds oI assignment.
The exercise by Bancasia oI its option to sue Ior breach oI contract under the
Civil Code will not leave Great Asian holding an empty bag. Great Asian, aIter paying
Bancasia, is subrogated back as creditor oI the receivables. Great Asian can then proceed
against the drawers who issued the checks. Even iI Bancasia Iailed to give timely notice
oI dishonor, still there would be no prejudice whatever to Great Asian. Under the
Negotiable Instrument Law, notice oI dishonor is not required iI the drawer has no right
to expect or require the bank to honor the check, or iI the drawer has countermanded
payment. In the instant case, all the checks were dishonored Ior any oI the Iollowing
reasons: 'account closed, 'account under garnishment, 'insuIIiciency oI Iunds, or
'payment stopped. In the Iirst three instances, the drawers had no right to expect or
require the bank to honor the checks, and in the last instance, the drawers had
countermanded payment.
2. YES.
Tan Chong Lin, by signing the Surety agreements, explicitly and unconditionally bound
himselI to pay Bancasia, solidarily with Great Asian, iI the drawers oI the checks Iail to
pay on due date. The condition on which Tan Chiong Lin`s obligation hinged had
happened. As surety, Tan Chiong Lin automatically became liable Ior the entire
obligation to the same extent as Great Asian.






















Atrium Management Corporation vs. Court oI Appeals
GR. No. 109491, February 28, 2001
353 SCRA 23

FACTS:
Hi-Cement Corporation (HCC) (through its corporate signatories de Leon and de las
Alas) issued checks in Iavor oI E.T. Henry and Company Inc. (ETH), as payee. ETH in turn
endorsed the checks to petitioner Atrium management Corporation Ior valuable consideration.
Upon presentment Ior payment, the drawee bank dishonored all Iour checks Ior the reason
'payment stopped. Atrium instituted this action aIter its demand Ior payment oI the value oI the
checks were denied. RTC rendered a decision ordering de Leon, ETC and HCC to pay Atrium,
jointly and severally, P2Million plus. Court oI appeals modiIied the decision, absolving HCC
Irom liability and dismissing the complaint against it, in part because the subject checks were not
issued Ior valuable consideration.
ISSUE:
Whether or not Atrium was a holder in due course and Ior value.
DECISION:
NO.
The Negotiable Instrument Law , Section 52 deIines a holder in due course, thus: ' A
holder in due course is a holder who has taken the instrument under the Iollowing conditions:
(a) That it is complete and regular upon its Iace;
(b) That he became the holder oI it beIore it was overdue, and without notice that it had been
previously dishonored, iI such was the Iact;
(c) That he took it in good Iaith and Ior value;
(d) That at the time it was negotiated to him he had no notice oI any inIirmity in the
instrument or deIect in the title oI the person negotiating it.
Here, the checks were crossed checks and speciIically indorsed Ior deposit to payee`s account
only. From the beginning, Atrium was aware oI the Iact that the checks were all Ior deposit only
to payee`s account, meaning E.T. Henry. Clearly, then, Atrium could not be considered a holder
in due course.
However, it does not Iollow as a legal proposition that simply because petitioner Atrium
was not a holder in due course Ior having taken the instruments in question with notice that the
same was Ior deposit only to the account oI payee E.T. Henry that it was altogether precluded
Irom recovering on the instrument. The Negotiable Instrument Law does not provide that a
holder not in due course cannot recover on the instrument.
The disadvantage oI Atrium in not being a holder in due course is that the negotiable
instrument is subject to deIenses as iI it were non-negotiable. One such deIense is absence or
Iailure oI consideration.























Samsung Construction Company Phils. Vs. Far East Bank and Trust Company
GR. No. 129015, August 13, 2004
436 SCRA 402

FACTS: PlaintiII Samsung Construction Company Philippines, Inc. ('Samsung Construction),
maintained a current account with deIendant Far East Bank and Trust Company ('FEBTC) at
the latter`s Bel-Air, Makati branch. The sole signatory to Samsung Construction`s account was
Jong Kyu Lee ('Jong), its Project Manager, while the checks remained in the custody oI the
company`s accountant, Kyu Yong Lee ('Kyu). On 19 March 1992, a certain Roberto Gonzaga
presented Ior payment FEBTC Check No. 432100 to the bank`s branch in Bel-Air, Makati . The
check, payable to cash and drawn against Samsung Construction`s current account, was in the
amount oI Nine Hundred Ninety Nine Thousand Five Hundred Pesos (P999,500.00). The bank
teller, CleoIe exercise the bank procedure in encashment using check. She then asked Gonzaga to
submit prooI oI his identity, and the latter presented three (3) identiIication cards.The bank
oIIicer SyIu also noticed Jose Sempio III ('Sempio), the assistant accountant oI Samsung
Construction , who supported the claim oI Gonzaga. SyIu showed the check to Sempio, who
vouched Ior the genuineness oI Jong`s signature. ConIirming the identity oI Gonzaga, Sempio
said that the check was Ior the purchase oI equipment Ior Samsung Construction. SatisIied with
the genuineness oI the signature oI Jong, SyIu authorized the bank`s encashment oI the check to
Gonzaga.
The Iollowing day Kyu, discovered that a check in the amount oI Nine Hundred Ninety Nine
Thousand Five Hundred Pesos (P999,500.00) had been encashed. Kyu perused the checkbook
and Iound that the last blank check was missing. He reported the matter to Jong, who then
proceeded to the bank. Jong learned oI the encashment oI the check, and realized that his
signature had been Iorged. The Bank Manager reputedly told Jong that he would be reimbursed
Ior the amount oI the check. Jong proceeded to the police station and consulted with his lawyers.
Subsequently, a criminal case Ior qualiIied theIt was Iiled against Sempio beIore the Laguna
court. FEBTC on the other hand, said that it was still conducting an investigation on the matter.
UnsatisIied, Samsung Construction Iiled aComplaint on 10 June 1992 Ior violation oI Section 23
oI the Negotiable Instruments Law, beIore the Regional Trial Court ('RTC) oI Manila , Branch
9.
During the trial, both sides presented their respective expert witnesses to testiIy on the claim that
Jong`s signature was Iorged. Samsung Corporation, which had reIerred the check Ior
investigation to the NBI, presented Senior NBI Document Examiner Roda B. Flores. She
testiIied that based on her examination, she concluded that Jong`s signature had been Iorged on
the check. On the other hand, FEBTC, which had sought the assistance oI the Philippine National
Police (PNP), presented Rosario C. Perez, a document examiner Irom the PNP Crime
Laboratory. She testiIied that her Iindings showed that Jong`s signature on the check was
genuine.
ISSUE:
Whether or not the signature oI Jong in the subject check was Iorged?
DECISION:
Upon examination oI the record, and based on the applicable laws and jurisprudence, we reverse
the Court oI Appeals decision. Indeed there was Iorgery in this case.
Section 23 oI the Negotiable Instruments Law states: When a signature is Iorged or made
without the authority oI the person whose signature it purports to be, it is wholly inoperative, and
no right to retain the instrument, or to give a discharge thereIor, or to enIorce payment thereoI
against any party thereto, can be acquired through or under such signature, unless the party
against whom it is sought to enIorce such right is precluded Irom setting up the Iorgery or want
oI authority. (Emphasis supplied)
The crucial Iact in question is whether or not the check was Iorged, not whether the bank could
have detected the Iorgery. The latter issue becomes relevant only iI there is need to weigh the
comparative negligence between the bank and the party whose signature was Iorged. In this case,
indeed there was Iorgery.
A bank is liable, irrespective oI its good Iaith, in paying a Iorged check. WHEREFORE, the
Petition is GRANTED. The Decision oI the Court oI Appeals dated 28 November 1996 is
REVERSED, and the Decision oI the Regional Trial Court oI Manila, Branch 9, dated 25 April
1994 is REINSTATED. Costs against respondent. SO ORDERED.




Philippine National Bank vs. Court of Appeals
|GR 107508, 25 April 1996|
First Division, Kapunan (J): 4 concur
Facts: A check with serial number 7-3666-223-3, dated 7 August 1981 in the amount oI
P97,650.00 was issued by the Ministry oI Education Culture (now Department oI Education,
Culture and Sports |DECS|) payable to F. Abante Marketing. This check was drawn against
Philippine National Bank (PNB). On 11 August 1981, Abante Marketing, a client oI 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 oI
Communications (PBCom) which, in turn, sent the check to PNB Ior clearing. PNB cleared the
check as good and thereaIter, PBCom credited Capitol's account Ior the amount stated in the
check. However, on 19 October 1981, PNB returned the check to PBCom and debited PBCom's
account Ior the amount covered by the check, the reason being that there was a "material
alteration" oI the check number. PBCom, as collecting agent oI Capitol, then proceeded to debit
the latter's account Ior the same amount, and subsequently, sent the check back to petitioner.
PNB, however, returned the check to PBCom. On the other hand, Capitol could not in turn, debit
Abante Marketing's account since the latter had already withdrawn the amount oI the check as oI
15 October 1981. Capitol sought clariIication Irom PBCom and demanded the re-crediting oI the
amount. PBCom Iollowed suit by requesting an explanation and re-crediting Irom PNB. Since
the demands oI Capitol were not heeded, it Iiled a civil suit with the Regional trial Court oI
Manila against PBCom which in turn, Iiled a third-party complaint against PNB Ior
reimbursement/indemnity with respect to the claims oI Capitol. PNB, on its part, Iiled a Iourth-
party complaint against Abante Marketing. On 3 October 1989; the Regional Trial Court
rendered its decision, ordering PBCom to re-credit or reimburse Capitol the amount oI
P97,650.00, plus interest oI 12 thereto Irom 19 October 1981 until the amount is Iully paid;
PNB to reimburse and indemniIy PBCom Ior whatever amount PBCom pays to Capitol; F.
Abante Marketing to reimburse and indemniIy PNB Ior whatever amount PNB pays to PBCom.
On attorney's Iees, the trial court ordered PBCom to pay Capitol attorney's Iees in the amount oI
P10,000.00; but that PBCom is entitled to reimburse/indemniIy Irom PNB; and PNB to be, in
turn, reimbursed or indemniIied by F. Abante Marketing Ior the same amount. The court
dismissed the counterclaims oI PBCom and PNB; without pronouncement as to costs. An appeal
was interposed beIore the Court oI Appeals which rendered its decision on 29 April 1992, which
modiIied the appealed judgment by exempting PBCom Irom liability to Capitol Ior attorney's
Iees and ordering PNB to honor the check Ior P97,650.00, with interest as declared by the trial
court, and pay Capitol attorney's Iees oI P10,000.00. AIter the check shall have been honored by
PNB, the court ordered PBCom to re-credit Capitol's account with it the amount; without
pronouncement as to costs. A motion Ior reconsideration oI the decision was denied by the
appellate Court in its resolution dated 16 September 1992 Ior lack oI merit. PNB Iiled the
petition Ior review on certiorari.
ssue: Whether the change in the serial number oI the check may be considered a change that
alters the eIIect oI the instrument, and thus is a material alteration.
Held: The present case is unique in the sense that what was altered is the serial number oI the
check in question, an item which, it can readily be observed, is not an essential requisite Ior
negotiability under Section 1 oI the Negotiable Instruments Law. The aIorementioned alteration
did not change the relations between the parties. The name oI the drawer and the drawee were
not altered. The intended payee was the same. The sum oI money due to the payee remained the
same. The check's serial number is not the sole indication oI its origin. The name oI the
government agency which issued the subject check was prominently printed therein. The check's
issuer was thereIore insuIIiciently identiIied, rendering the reIerral to the serial number
redundant and inconsequential. II the purpose oI the serial number is merely to identiIy the
issuing government oIIice or agency, its alteration had no material eIIect whatsoever on the
integrity oI the check. The identity oI the issuing government oIIice or agency was not changed
thereby and the amount oI the check was not charged against the account oI the another
government oIIice or agency which had no liability under the check. The owner issuer oI the
check is boldly and clearly printed on its Iace, second line Irom the top: "MINISTRY OF
EDUCATION AND CULTURE," and below the name oI the payee are the rubber-stamped
words: "Ministry oI Educ. & Culture." These words are not alleged to have been Ialsely or
Iraudulently intercalated into the check. The ownership oI the check is established without the
necessity oI recourse to the serial number. Neither is there any prooI that the amount oI the check
was erroneously charged against the account oI a government oIIice or agency other than the
Ministry oI Education and Culture. Hence, the alteration in the number oI the check did not
aIIect or change the liability oI the Ministry oI Education and Culture under the check and,
thereIore, is immaterial. The genuineness oI the amount and the signatures therein oI then
Deputy Minister oI Education Hermenegildo C. Dumlao and oI the resident Auditor, Penomio C.
Alvarez are not challenged. Neither is the authenticity oI the diIIerent codes appearing therein
questioned. PNB, thus cannot reIuse to accept the check in question on the ground that the serial
number was altered, the same being an immaterial or innocent one.


























PNB vs. CA
G.R. No. L-26001, October 29, 1968.
25 SCRA 693

FACTS:
On 15 January 1962, one Augusto Lim deposited in his current account with the
Philippine Commercial and Industrial Bank (PCIB) branch at Padre Faura, Manila, GSIS Check
645915-B, in the sum oI P57,415, drawn against the PNB. Following an established banking
practice in the Philippines, the check was, on the same date, Iorwarded, Ior clearing, through the
Central Bank, to the PNB, which did not return said check the next day, or at any other time, but
retained, and paid its amount to the PCIB as well as debited it against account oI the GSIS in the
PNB. Subsequently on 31 January 1962, upon demand Irom the GSIS, said sum oI P57,415 was
re-credited to the latter's account, Ior the reason that the signatures oI its oIIicers on the check
were Iorged. Thereupon on 2 February 1962, the PNB demanded Irom PCIB the reIund oI said
sum, which the PCIB reIused to do. Hence, the present action against the PCIB, which was
dismissed the CFI Manila, whose decision was, in turn, aIIirmed by the Court oI Appeals. PNB
Iiled the petition Ior review on certiorari.
ISSUE:
Whether or not PNB can still recover the amount it paid to PCIB by virtue oI the Iorged
check.
DECISION:
NO.
Section 62 oI Act No. 2031 provides: "The acceptor by accepting the instrument engages
that he will pay it according to the tenor oI his acceptance; and admits: "(a) The existence oI the
drawer, the genuineness oI his signature, and his capacity and authority to draw the instrument;
and "(b) The existence oI the payee and his then capacity to indorse." The prevailing view is that
the same rule applies in the case oI a drawee who pays a bill without having previously accepted
it.
The PNB did not return the check to the PCIB the next day or at any other time. Said
Iailure to return the check to the PCIB implied, under the current banking practice, that the PNB
considered the check good and would honor it. In Iact, the PNB honored the check and paid its
amount to the PCIB; and only then did the PCIB allow Augusto Lim to draw said amount Irom
his current account. Thus, by not returning the check to the PCIB, by thereby indicating that the
PNB had Iound nothing wrong with the check and would honor the same, and by actually paying
its amount to the PCIB, the PNB induced the latter, not only to believe that the check was
genuine and good in every respect, but, also, to pay its amount to Augusto Lim. In other words,
the PNB was the primary or proximate cause oI the loss, and, hence, may not recover Irom the
PCIB.
"Acceptance", in the sense in which this term is used in the Negotiable Instruments Law
is not required Ior checks, Ior the same are payable on demand. Indeed, "acceptance" and
"payment" are, within the purview oI said Law, essentially diIIerent things, Ior the Iormer is "a
promise to perIorm an act," whereas the latter is the "actual perIormance" thereoI. In the words
oI the law, "the acceptance oI a bill is the signiIication by the drawee oI his assent to the order oI
the drawer," which, in the case oI checks, is the payment, on demand, oI a given sum oI money.
Upon the other hand, actual payment oI the amount oI a check implies not only an assent to said
order oI the drawer and a recognition oI the drawee's obligation to pay the sum, but, also, a
compliance with such obligation.















Agro Conglomerates vs. Court oI Appeals, Soriano
GR. No. 117660, December 18, 2000
348 SCRA 450

FACTS:
Petitioner sold to Wonderland Food Industries two parcels oI land. They
stipulated under a Memorandum oI Agreement that the terms oI payment would be P1, 000,000
in cash, P2, 000,000 in shares oI stock, and the balance would be payable in monthly
installments. ThereaIter, an addendum was executed between them, qualiIying the cash payment.
Instead oI cash payment, the vendee authorized the vendor to obtain a loan Irom the Iinancier on
which the vendee bound itselI to pay Ior. This loan was to cover Ior the payment oI P1, 000,000.
This addendum was not notarized.
Petitioner Soriano signed as maker the promissory notes payable to the bank. However,
the petitioners Iailed to pay the obligations as they were due. During that time, the bank was in
Iinancial distress and this prompted it to endorse the promissory notes Ior collection. The bank
gave ample time to petitioners then to satisIy their obligations. The trial court held in Iavor oI the
bank. It didn`t Iind merit to the contention that Wonderland was the one to be held liable Ior the
promissory notes.

ISSUE:
Whether or not petitioner be held liable Ior the payment oI the promissory notes.

HELD:
YES.
A subsidiary contract oI suretyship had taken eIIect since petitioners signed the
promissory notes as maker and accommodation party Ior the beneIit oI Wonderland. Petitioners
became liable as accommodation party. An accommodation party is a person who has signed the
instrument as maker, acceptor, or indorser, without receiving value thereIor, and Ior the purpose
oI lending his name to some other person and is liable on the instrument to a holder Ior value,
notwithstanding such holder at the time oI taking the instrument knew (the signatory) to be an
accommodation party. He has the right, aIter paying the holder, to obtain reimbursement Irom
the party accommodated, since the relation between them has in eIIect become one oI principal
and surety, the accommodation party being the surety. Suretyship is deIined as the relation which
exists where one person has undertaken an obligation and another person is also under the
obligation or other duty to the obligee, who is entitled to but one perIormance, and as between
the two who are bound, one rather than the other should perIorm. The surety`s liability to the
creditor or promisee oI the principal is said to be direct, primary and absolute; in other words, he
is directly and equally bound with the principal.

And the creditor may proceed against any one oI
the solidary debtors.
There was no contract oI sale that materialized. The original agreement was that
Wonderland would pay cash and petitioner would deliver possession oI the Iarmlands. But this
was changed through an addendum that petitioner would instead secure a loan and the settlement
oI the same would be shouldered by Wonderland. Petitioners became liable as accommodation
parties. They have the right aIter paying the instrument to seek reimbursement Irom the party
accommodated, since the relation between them has in eIIect became one oI principal and surety.
Furthermore, as it turned out, the contract oI surety between Woodland and petitioner
was extinguished by the rescission oI the contract oI sale oI the Iarmland. With the recission,
there was conIusion in the persons oI the principal debtor and surety. The addendum thereon
likewise lost its eIIicacy.













Prudencio vs. Court oI Appeals
GR. No. 34539, July 14, 1986
143 SCRA 7

FACTS:
Appellants are the owners oI a property, which they mortgaged to help secure a loan oI a
certain Domingo Prudencio. On a later date, they were approached by their relative who was the
attorney-in-Iact oI a construction company, which was in dire need oI Iunds Ior the completion
oI a municipal building. AIter some persuasion, the appellants amended the mortgage wherein
the terms and conditions oI the original mortgage were made an integral part oI the new
mortgage. The promissory note covering the second loan was signed by their relative. It was also
signed by them, indicating the request that the check be released by the bank.
AIter the amendment oI the mortgage was executed, a deed oI assignment was made by
Toribio, assigning all the payments to the Bureau to the construction company. This
notwithstanding, the Bureau with approval oI the bank, conditioned however that they should be
Ior labor and materials, made three payments to the company. The last request was denied by the
bank, averring that the account was long overdue, the remaining balance oI the contract price
should be applied to the loan.
The company abandoned the work and as consequence, the Bureau rescinded the contract
and assumed the work. Later on, the appellants wrote to the PNB that since the latter has
authorized payments to the company instead oI on account oI the loan guaranteed by the
mortgage, there was a change in the conditions oI the contract without the knowledge oI
appellants, which entitled the latter to cancel the mortgage contract.
The trial court held them still liable together with their co-makers. It has also been held
that iI the judgment is not satisIied within a period oI time, the mortgaged properties would be
Ioreclosed and sold in public auction.
In their appeals, petitioners contend that as accommodation makers, the nature oI their
liability is only that oI mere sureties instead oI solidary co-debtors such that a material alteration
in the principal contract, eIIected by the creditor without the knowledge and consent oI the
sureties, completely discharges the sureties Irom all liabilities on the contact oI suretyship.

ISSUE:
whether or not PNB can be considered a holder for value under Section 29 of the Negotiable
nstruments Law such that the petitioners must be necessarily barred from setting up the defense of
want of consideration or some other personal defenses which may be set up against a party who is
not a holder in due course.
DECSON:
NO.
A holder for value under Section 29 of the Negotiable nstruments Law is one who must meet all the
requirements of a holder in due course under Section 52 of the same law except notice of want of
consideration. (Agbayani, Commercial Laws of the Philippines, 1964, p. 208). f he does not qualify
as a holder in due course then he holds the instrument subject to the same defenses as if it were
non-negotiable (Section 58, Negotiable nstruments Law).
Although as a general rule, a payee may be considered a holder in due course we think that such a
rule cannot apply with respect to the respondent PNB. Not only was PNB an immediate party or in
privy to the promissory note, that is, it had dealt directly with the petitioners knowing fully well that
the latter only signed as accommodation makers but more important, it was the Deed of Assignment
executed by the Construction Company in favor of PNB which principally moved the petitioners to
sign the promissory note also in favor of PNB. Petitioners were made to believe and on that belief
entered into the agreement that no other conditions would alter the terms thereof and yet, PNB
altered the same. The Deed of Assignment specifically provided that Jose F. Toribio, on behalf of the
Company, "have assigned, transferred and conveyed and by these presents, do assign, transfer and
convey unto the said Philippine National Bank, its successors and assigns all payments to be
received from the Bureau of Public Works on account of contract for the construction of the Puerto
Princesa Municipal Building in Palawan, involving the total amount of P 36,000.00" and that "This
assignment shall be irrevocable and subject to the terms and conditions of the promissory note and
or any other kind of documents which the Philippine National Bank have required or may require the
assignor to execute to evidence the above-mentioned obligation."
Under the terms of the above Deed, it is clear that there are no further conditions which could
possibly alter the agreement without the consent of the petitioners such as the grant of greater
priority to obligations other than the payment of the loan due to the PNB and part of which loan was
guaranteed by the petitioners in the amount of P10,000.00.
This, notwithstanding, PNB approved the Bureau's release of three payments directly to the
Company instead of paying the same to the Bank. This approval was in violation of the Deed of
Assignment and without any notice to the petitioners who stood to lose their property once the
promissory note falls due without the same having been paid because the PNB, in effect, waived
payments of the first three releases. From the foregoing circumstances, PNB can not be regarded as
having acted in good faith which is also one of the requisites of a holder in due course under Section
52 of the Negotiable nstruments Law. The PNB knew that the promissory note which it took from the
accommodation makers was signed by the latter because of full reliance on the Deed of Assignment,
which, PNB had no intention to comply with strictly. Worse, the third payment to the Company in the
amount of P4,293.60 was approved by PNB although the promissory note was almost a month
overdue, an act which is clearly detrimental to the petitioners.
We, therefore, hold that respondent PNB is not a holder in due course. Thus, the petitioners can
validly set up their personal defense of release from the real estate mortgage against PNB. The
latter, in authorizing the third payment to the Company after the promissory note became due, in
effect, extended the term of the payment of the note without the consent of the accommodation
makers who stand as sureties to the accommodated party and to all other parties who are not
holders in due course or who do not derive their right from the same, including PNB.