Cases in Negotiable Instruments Law

I. Negotiability.
1. PHILIPPINE EDUCATION CO., INC., plaintiff-appellant, vs. MAURICIO A. SORIANO,
ET AL., defendant-appellees. 39 SCRA 587
Facts:
Enrique Montinola sought to purchase from Manila Post Office ten money orders of
200php each payable to E. P. Montinola. Montinola offered to pay with the money orders with a
private check. Private check were not generally accepted in payment of money orders, the teller
advised him to see the Chief of the Money Order Division, but instead of doing so, Montinola
managed to leave the building without the knowledge of the teller. Upon the disappearance of the
unpaid money order, a message was sent to instruct all banks that it must not pay for the money
order stolen upon presentment. The Bank of America received a copy of said notice. However,
The Bank of America received the money order and deposited it to the appellants account upon
clearance. Mauricio Soriano, Chief of the Money Order Division notified the Bank of America that
the money order deposited had been found to have been irregularly issued and that, the amount
it represented had been deducted from the banks clearing account. The Bank of America debited
appellants account with the same account and give notice by mean of debit memo.
Issue: Wether or not the postal money order in question is a negotiable instrument
Held:
No. It is not disputed that the Philippine postal statutes were patterned after similar statutes in
force in United States. The Weight of authority in the United States is that postal money orders
are not negotiable instruments, the reason being that in establishing and operating a postal
money order system, the government is not engaged in commercial transactions but merely
exercises a governmental power for the public benefit. Moreover, some of the restrictions
imposed upon money orders by postal laws and regulations are inconsistent with the character of
negotiable instruments. For instance, such laws and regulations usually provide for not more than
one endorsement; payment of money orders may be withheld under a variety of circumstances.
2. Caltex Phil vs. Court of Appeals. 212 SCRA 448
Facts: In 1982, Angel de la Cruz obtained certificates of time deposit (CTDs) from Security Bank
and Trust Company for the formers deposit with the said bank amounting to P1,120,000.00. The
said CTDs are couched in the following manner:
This is to Certify that B E A R E R has deposited in this Bank the sum of
PESOS: FOUR THOUSAND ONLY, SECURITY BANK SUCAT OFFICE P4,000 &
00 CTS Pesos, Philippine Currency, repayable to said depositor 731 days.
after date, upon presentation and surrender of this certificate, with interest
at the rate of 16% per cent per annum. Angel de la Cruz subsequently delivered the CTDs to
Caltex in connection with the purchase of fuel products from Caltex.
In March 1982, Angel de la Cruz advised Security Bank that he lost the CTDs. He executed an
affidavit of loss and submitted it to the bank. The bank then issued another set of CTDs. In the
same month, Angel de la Cruz acquired a loan of P875,000.00 and he used his time deposits as
collateral.
In November 1982, a representative from Caltex went to Security Bank to present the CTDs
(delivered by de la Cruz) for verification. Caltex advised Security Bank that de la Cruz delivered
Caltex the CTDs as security for purchases he made with the latter. Security Bank refused to
accept the CTDs and instead required Caltex to present documents proving the agreement made
by de la Cruz with Caltex. Caltex however failed to produce said documents.
In April 1983, de la Cruz loan with Security bank matured and no payment was made by de la
Cruz. Security Bank eventually set-off the time deposit to pay off the loan.

Caltex sued Security Bank to compel the bank to pay off the CTDs. Security Bank argued that the
CTDs are not negotiable instruments even though the word bearer is written on their face
because the word bearer contained therein refer to depositor and only the depositor can
encash the CTDs and no one else.
ISSUE: Whether or not the certificates of time deposit are negotiable.
HELD: Yes. The CTDs indicate that they are payable to the bearer; that there is an implication
that the depositor is the bearer but as to who the depositor is, no one knows. It does not say on
its face that the depositor is Angel de la Cruz. If it was really the intention of respondent bank to
pay the amount to Angel de la Cruz only, it could have with facility so expressed that fact in clear
and categorical terms in the documents, instead of having the word BEARER stamped on the
space provided for the name of the depositor in each CTD. On the wordings of the documents,
therefore, the amounts deposited are repayable to whoever may be the bearer thereof.
Thus, de la Cruz is the depositor insofar as the bank is concerned, but obviously other parties
not privy to the transaction between them would not be in a position to know that the depositor is
not the bearer stated in the CTDs.
However, Caltex may not encash the CTDs because although the CTDs are bearer instruments,
a valid negotiation thereof for the true purpose and agreement between Caltex and De la Cruz,
requires both delivery and indorsement. As discerned from the testimony of Caltex
representative, the CTDs were delivered to them by de la Cruz merely for guarantee or security
and not as payment.
3. Metrobank vs. Court of Appeals. 194 SCRA 168
Facts:
Eduardo Gomez opened an account with Golden Savings and deposited 38 treasury
warrants. All warrants were subsequently indorsed by Gloria Castillo as Cashier of Golden
Savings and deposited to its Savings account in Metrobank branch in Calapan, Mindoro. They
were sent for clearance. Meanwhile, Gomez is not allowed to withdraw from his account, later,
however, exasperated over Floria repeated inquiries and also as an accommodation for a
valued client Metrobank decided to allow Golden Savings to withdraw from proceeds of the
warrants. In turn, Golden Savings subsequently allowed Gomez to make withdrawals from his
own account. Metrobank informed Golden Savings that 32 of the warrants had been dishonored
by the Bureau of Treasury and demanded the refund by Golden Savings of the amount it had
previously withdrawn, to make up the deficit in its account. The demand was rejected. Metrobank
then sued Golden Savings.
Issue:
1. Whether or not Metrobank can demand refund agaist Golden Savings with regard to the
amount withdraws to make up with the deficit as a result of the dishonored treasury warrants.
2. Whether or not treasury warrants are negotiable instruments
Held:
No. Metrobank is negligent in giving Golden Savings the impression that the treasury
warrants had been cleared and that, consequently, it was safe to allow Gomez to withdraw.
Without such assurance, Golden Savings would not have allowed the withdrawals. Indeed,
Golden Savings might even have incurred liability for its refusal to return the money that all
appearances belonged to the depositor, who could therefore withdraw it anytime and for any
reason he saw fit.
It was, in fact, to secure the clearance of the treasury warrants that Golden Savings
deposited them to its account with Metrobank. Golden Savings had no clearing facilities of its
own. It relied on Metrobank to determine the validity of the warrants through its own services. The
proceeds of the warrants were withheld from Gomez until Metrobank allowed Golden Savings
itself to withdraw them from its own deposit.

Metrobank cannot contend that by indorsing the warrants in general, Golden Savings assumed
that they were genuine and in all respects what they purport to be, in accordance with Sec. 66 of
NIL. The simple reason that NIL is not applicable to non negotiable instruments, treasury
warrants.
No. The treasury warrants are not negotiable instruments. Clearly stamped on their face
is the word: non negotiable. Moreover, and this is equal significance, it is indicated that they are
payable from a particular fund, to wit, Fund 501. An instrument to be negotiable instrument must
contain an unconditional promise or orders to pay a sum certain in money. As provided by Sec 3
of NIL an unqualified order or promise to pay is unconditional though coupled with: 1 st, an
indication of a particular fund out of which reimbursement is to be made or a particular account to
be debited with the amount; or 2 nd, a statement of the transaction which give rise to the
instrument. But an order to promise to pay out of particular fund is not unconditional. The
indication of Fund 501 as the source of the payment to be made on the treasury warrants makes
the order or promise to pay not conditional and the warrants themselves non-negotiable. There
should be no question that the exception on Section 3 of NIL is applicable in the case at bar.
4. Sesbreno vs. Court of Appeals. 244 SCRA 466
FACTS: Raul Sesbreno made a money market placement in the amount of P300,000 with
PhilFinance, with a term of 32 days. PhilFinance issued to Sesbreno the Certificate of
Confirmation of Sale of a Delta Motor Corporation Promissory Note (DMC PN No. 2731), the
Certificate of Securities Delivery Receipt indicating the sale of the Note with notation that said
security was in the custody of Pilipinas Bank, and postdated checks drawn against the Insular
Bank of Asia and America for P304,533.33 payable on 13 March 1981. The checks were
dishonored for having been drawn against insufficient funds. Philfinance delivered to petitioner
Denominated Custodian Receipt (DCR).
Petitioner approached Ms. Elizabeth de Villa of private respondent Pilipinas, and handed her a
demand letter informing the bank that his placement with Philfinance in the amount reflected in
the DCR had remained unpaid and outstanding, and that he in effect was asking for the physical
delivery of the underlying promissory note. Petitioner then examined the original of the DMC PN
No. 2731 and found: that the security had been issued on 10 April 1980; that it would mature on 6
April 1981; that it had a face value of P2,300,833.33, with the Philfinance as payee and private
respondent Delta Motors Corporation (Delta) as maker; and that on face of the promissory
note was stamped NON NEGOTIABLE. Pilipinas did not deliver the Note, nor any certificate of
participation in respect thereof, to petitioner.
Petitioner later made similar demand letters again asking private respondent Pilipinas for physical
delivery of the original of DMC PN No. 2731.
Petitioner also made a written demand upon private respondent Delta for the partial satisfaction
of DMC PN No. 2731, explaining that Philfinance, as payee thereof, had assigned to him said
Note to the extent of P307,933.33. Delta, however, denied any liability to petitioner on the
promissory note.
As petitioner had failed to collect his investment and interest thereon, he filed an action for
damages against private respondents Delta and Pilipinas.
ISSUE: WON DMC PN No. 2731 marked as non-negotiable may be assigned?
HELD: YES. Only an instrument qualifying as a negotiable instrument under the relevant statute
may be negotiated either by indorsement thereof coupled with delivery, or by delivery alone

where the negotiable instrument is in bearer form. A negotiable instrument may, however, instead
of being negotiated, also be assigned or transferred. The legal consequences of negotiation as
distinguished from assignment of a negotiable instrument are, of course, different. A nonnegotiable instrument may, obviously, not be negotiated; but it may be assigned or transferred,
absent an express prohibition against assignment or transfer written in the face of the instrument:
The words not negotiable, stamped on the face of the bill of lading, did not destroy its
assignability, but the sole effect was to exempt the bill from the statutory provisions relative
thereto, and a bill, though not negotiable, may be transferred by assignment; the assignee taking
subject to the equities between the original parties. 12 (Emphasis added)
DMC PN No. 2731, while marked non-negotiable, was not at the same time stamped nontransferable or non-assignable. It contained no stipulation which prohibited Philfinance from
assigning or transferring, in whole or in part, that Note.
5. Firestone Tire vs. CA. 353 SCRA 601 (G.R. No. 113236, March 5, 2001)
Facts:
Forjas-Arca Enterprise Company is maintaining a special savings account with Luzon
Development Bank, the latter authorized and allowed withdrawals of funds though the medium of
special withdrawal slips. These are supplied by Fojas-Arca. Fojas-Arca purchased on credit with
FirestoneTire & Rubber Company, in payment Fojas-Arca delivered a 6 special withdrawal slips.
In turn, these were deposited by the Firsestone to its bank account in Citibank. With this, relying
on such confidence and belief Firestone extended to Fojas-Arca other purchase on credit of its
products but several withdrawal slips were dishonored and not paid. As a consequence, Citibank
debited the plaintiffs account representing the aggregate amount of the two dishonored special
withdrawal slips. Fojas-Arca averred that the pecuniary losses it suffered are a caused by and
directly attributes to defendants gross negligence as a result Fojas-Arca filed a complaint.
Issue:
Whether or not the acceptance and payment of the special withdrawal slips without the
presentation of the depositors passbook thereby giving the impression that it is a negotiable
instrument like a check.
Held:
No. Withdrawal slips in question were non negotiable instrument. Hence, the rules
governing the giving immediate notice of dishonor of negotiable instrument do not apply. The
essence of negotiability which characterizes a negotiable paper as a credit instrument lies in its
freedom to circulate freely as a substitute for money. The withdrawal slips in question lacked this
character.
II. Payable to Bearer
6. Ang Tek Lian vs. CA. 87 SCRA 383
Facts:
Ang Tek Lian knowing that he had no funds therefor, drew a check upon China Banking
Corporation payable to the order of cash. He delivered it toLee Hua Hong in exchange for
money. The check was presented by Lee Hua hong to the drawee bank for payment, but it was
dishonored for insufficiency of funds. With this, Ang Tek Lian was convicted of estafa.
Issue:
Whether or not the check issued by Ang Tek Lian that is payable to the order to cash
and not have been indorsed by Ang Tek Lian, making him not guilty for the crime of estafa.
Held:
No.Under Sec. 9 of NIL a check drawn payable to the order of cash is a check payable
to bearer and the bank may pay it to the person presenting it for payment without the drawers
endorsement. However, if the bank is not sure of the bearers identity or financial solvency, it has
the right to demand identification or assurance against possible complication, such as forgery of

drawers signature, loss of the check by the rightful owner, raising of the amount payable, etc. But
where the bank is satisfied of the identity or economic standing of the bearer who tenders the
check for collection, it will pay the instrument without further question; and it would incur no
liability to the drawer in thus acting.
III. Complete But Undelivered
7. Development Bank of the Phils vs. Sima Wei. 219 SCRA 383
*Baby, wala akong mahanap na ganitong case. Pero may iba akong nahanap na related
sa topic. Please see below.
Development Bank of Rizal vs. Sima Wei. G.R. No. 85419, March 9, 1993
FACTS: Respondent Sima Wei drew crossed checks for the petitioner, but were not delivered
accordingly. It came in the possession of Lee Kian Huat without petitioner-payees indorsement.
ISSUE: Whether or not there is a cause of action against respondent Sima Wei in as far as the
crossed checks are concerned.
RULING: NO. The payee of a negotiable instrument acquires no interest with respect thereto until
its delivery to him. Without the initial delivery of the instrument from the drawer to the payee,
there can be no liability on the instrument. Moreover, such delivery must be intended to give
effect to the instrument. Here, non-delivery of said checks to petitioner-payee, the former did not
acquire any right or interest therein and cannot therefore assert any cause of action, founded on
said checks, whether against the drawer Sima Wei or against any of the other respondents.
IV. Liability of Persons Signing as Agent
8. Philippine Bank of Commerce vs. Aruego. 102 SCRA 530
Facts:
Plaintiff instituted against Aruego a case for the recovery of Php. 35,000.00 with daily interest plus
attorneys fees. The sum sought to be recovered represents the cost of the printing of World
Current Events, a periodical published by the defendant. To facilitate the payment of the printing
the defendant obtained a credit accommodation from the plaintiff. Thus, for every printing, the
printer, Encal Press and Photo Engraving (EPPE), collected the cost of printing by drawing a draft
against the plaintiff, said draft being sent later to the defendant for acceptance. As an added
security for the payment of the amounts advanced to Encal Press and Photo-Engraving, the
plaintiff bank also required defendant Aruego to execute a trust receipt in favor of said bank
wherein said defendant undertook to hold in trust for plaintiff the periodicals and to sell the same
with the promise to turn over to the plaintiff the proceeds of the sale of said publication to answer
for the payment of all obligations arising from the draft.
Defendant argued that he is an accommodating party hence shall be liable only secondarily. The
defendant also contends that the drafts signed by him were not really bills of exchange but mere
pieces of evidence of indebtedness because payments were made before acceptance.
Issues:
1. Whether or not the defendant is an accommodation party
2. Whether or not the drafts signed were bills of exchange
Held:
1. No. Section 29 of the Negotiable Instruments Law (NIL) provides:
An accommodation party is one who has signed the instrument as maker, drawer, indorser,
without receiving value therefor and for the purpose of lending his name to some other person.
Such person is liable on the instrument to a holder for value, notwithstanding such holder, at the
time of the taking of the instrument knew him to be only an accommodation party.

In lending his name to the accommodated party, the accommodation party is in effect a surety for
the latter. He lends his name to enable the accommodated party to obtain credit or to raise
money. He receives no part of the consideration for the instrument but assumes liability to the
other parties thereto because he wants to accommodate another.
In the instant case, the defendant signed as a drawee/acceptor. Under the Negotiable Instrument
Law, a drawee is primarily liable. Thus, the defendant should not have signed as an
acceptor/drawee. In doing so, he became primarily and personally liable for the drafts.
2. Yes. Pursuant to Section 126 of the NIL, a bill of exchange is an unconditional order in writting
addressed by one person to another, signed by the person giving it, requiring the person to whom
it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money
to order or to bearer.
As long as a commercial paper conforms with the definition of a bill of exchange, that paper is
considered a bill of exchange. The nature of acceptance is important only in the determination of
the kind of liabilities of the parties involved, but not in the determination of whether a commercial
paper is a bill of exchange or not.
9. Francisco vs. CA. 319 SCRA 354
FACTS:

June 23, 1977: Adalia Francisco (Francisco) president of A. Francisco Realty &
Development Corporation (AFRDC) and Jaime C. Ong (Ong) President and General Manager
of Herby Commercial & Construction Corporation (HCCC), entered into a contract
where HCCC agreed to undertake the construction of 35 housing units and the development
of 35 hectares of land.

HCCC was to be paid on turn-key basis (basis of the completed houses and
developed lands delivered to and accepted by AFRDC and the GSIS)

To facilitate payment, AFRDC executed a Deed of Assignment in favor of HCCC

to enable the it to collect payments directly from the GSIS.

Furthermore, the GSIS and AFRDC put up an Executive Committee Account with
the Insular Bank of Asia & America (IBAA) of P4M from which checks would be issued and
co-signed by petitioner Francisco and the GSIS Vice-President Armando Diaz (Diaz).

February 10, 1978: HCCC filed a complaint w/ the RTC against Francisco, AFRDC and
the GSIS for the collection of the unpaid balance under the Land Development and
Construction Contract in the amount of P515,493.89 for completed and delivered housing
units and land development.

Sometime in 1979: Ong discovered that Diaz and Francisco had executed and signed 7
checks drawn against the IBAA and payable to HCCC but were never delivered to HCCC

GSIS gave Francisco custody of the checks since she promised that she would
deliver the same to HCCC.

Francisco forged the signature of Ong, without his knowledge or consent,

at the dorsal portion of the said checks to make it appear that HCCC had indorsed the
checks; Francisco then indorsed the checks for a second time by signing her name at the
back of the checks and deposited the checks in her IBAA savings account

June 7, 1979: Ong filed complaints charging Francisco with estafa thru falsification of
commercial documents - dismmised by the Assistant City Fiscal

According to Francisco, she agreed to grant HCCC the loans in the total amount
of P585K and covered by 18 promissory notes in order to obviate the risk of the noncompletion of the project.

As a means of repayment, Ong allegedly issued a Certification

authorizing Francisco to collect HCCCs receivables from the GSIS

RTC: favored Ong and against IBAA and Francisco

November 21, 1989: IBAA and HCCC entered into a Compromise Agreement which was
approved by the trial court, wherein HCCC acknowledged receipt of the amount of
P370,475.00 in full satisfaction of its claims against IBAA, without prejudice to the right of
IBAA to pursue its claims against Francisco.
CA affirmed RTC
Francisco claims that she was, in any event, authorized to sign Ongs name on the
checks by virtue of the Certification executed by Ong in her favor giving her the authority to
collect all the receivables of HCCC from the GSIS, including the questioned checks.

ISSUE: W/N Francisco can sign Ongs name on the checks and it was not forgery
HELD: NO.

Francisco had custody of the checks, as proven by the check vouchers bearing her
uncontested signature

Francisco forged the signature of Ong on the checks to make it appear as if Ong had
indorsed said checks

The Negotiable Instruments Law provides that where any person is under obligation to
indorse in a representative capacity, he may indorse in such terms as to negative personal
liability

An agent, when so signing, should indicate that he is merely signing in behalf of

the principal and must disclose the name of his principal; otherwise he shall be held
personally liable

Instead of signing Ongs name, Francisco should have signed her own name and
expressly indicated that she was signing as an agent of HCCC
V. Forgery
10. Jai-Alai vs. Bank of the Philippine Islands. 66 SCRA 29
FACTS:
Petitioner deposited 10 checks in its current account with BPI. The checks which were acquired
by petitioner from Ramirez, a sales agent of the Inter-Island Gas were all payable to Inter-Island
Gas Service, Inc. or order. After the checks had been submitted to Inter-bank clearing, InterIsland Gas discovered that all the endorsements made on the checks purportedly by its cashiers
were forgeries. BPI thus debited the value of the checks against petitioner's current account and
forwarded to the latter the checks containing the forged endorsements which petitioner refused to
accept.
ISSUE:
Whether BPI had the right to debit from petitioner's current account the value of the checks with
the forged endorsements.
RULING:
BPI acted within legal bounds when it debited the petitioner's account. Having indorsed the
checks to respondent bank, petitioner is deemed to have given the warranty prescribed in Section
66 of the NIL that every single one of those checks "is genuine and in all respects what it purports
to be." Respondent which relied upon the petitioner's warranty should not be held liable for the
resulting loss.
**The depositor of a check as indorser warrants that it is genuine and in all respects what it
purports to be. Having indorsed the checks to respondent bank, petitioner is deemed to have
given the warranty prescribed in Section 66 of the NIL that every single one of those checks " is
genuine and in all respects what it purports to be."
11. Republic Bank vs. Ebrada. 65 SCRA 680

Facts: Mauricia T. Ebrada (defendant) encashed a check at the Republic Bank. The check was
issued by the Bureau of Treasury and was indorsed several times before falling into the hands of
the defendant. Defendant managed to cash the check (worth around 1200 pesos). It was
however discovered that the original payee, Martin Lorenzo, was already dead for more than a
decade. Therefore the initial endorsement must have been a forgery.
Issues:
(1) Whether or not Ebrada is liable to return the amount that she cashed.
(2) Whether or not a drawee of a check (bank) can recover from the holder (Ebrada) the money
paid from a forged instrument.
Held: Sec. 23 of the Negotiable Instruments Law dictates that where the signature on the
negotiable instrument is forged then the negotiation of the check is without force or effect. In this
specific case the court held that since the check was endorsed multiple times already it was not
the responsibility of the bank to ascertain if the signatures of the previous endorsements were
genuine or not. It was the responsibility of the holder of the check to satisfy himself that the paper
is genuine. The acts of presenting the check for payment or putting it into circulation asserts that
the holder has performed his duty to ascertain the validity of the instrument. Everyone with even
the least experience in business knows that no business man would accept a check in exchange
for money or goods unless he is satisfied that the check is genuine. If he is deceived he has
suffered a loss of his cash or goods through his own mistake. Ebrada, upon receiving the check
in question, was duty bound to ascertain if it was genuine or not before presenting it to plaintiff
Bank. The Bank may recover from Ebrada the amount she received for the check.
12. MWSS vs. CA. 143 SCRA 20
FACTS: Metropolitan Waterworks and Sewerage System (MWSS) had an account with PNB.
When it was still called NAWASA, MWSS made a special arrangement with PNB so that it may
have personalized checks to be printed by Mesina Enterprises. These personalized checks were
the ones being used by MWSS in its business transactions.
From March to May 1969, MWSS issued 23 checks to various payees in the aggregate amount of
P320,636.26. During the same months, another set of 23 checks containing the same check
numbers earlier issued were forged. The aggregate amount of the forged checks amounted to
P3,457,903.00. This amount was distributed to the bank accounts of three persons: Arturo Sison,
Antonio Mendoza, and Raul Dizon.
MWSS then demanded PNB to restore the amount of P3,457,903.00. PNB refused. The trial
court ruled in favor of MWSS but the Court of Appeals reversed the trial courts decision.
ISSUE: Whether or not PNB should restore the said amount.
HELD: No. MWSS is precluded from setting up the defense of forgery. It has been proven that
MWSS has been negligent in supervising the printing of its personalized checks. It failed to
provide security measures and coordinate the same with PNB. Further, the signatures in the
forged checks appear to be genuine as reported by the National Bureau of Investigation so much
so that the MWSS itself cannot tell the difference between the forged signature and the genuine
one. The records likewise show that MWSS failed to provide appropriate security measures over
its own records thereby laying confidential records open to unauthorized persons. Even if the
twenty-three (23) checks in question are considered forgeries, considering the MWSSs gross
negligence, it is barred from setting up the defense of forgery under Section 23 of the Negotiable
Instruments Law.
The Supreme Court further emphasized that forgery cannot be presumed. It must be established
by clear, positive, and convincing evidence. This was not done in the present case.

13. Banco de Oro vs. Equitable Banking Corporation. 157 SCRA 189
FACTS: Equitable Bank drew six crossed managers check payable to certain member
establishments of Visa Card. Subsequently, the checks were deposited with Banco De Oro (BDO)
to the credit of its depositor. Following normal procedures and after stamping at the back of the
checks the usual endorsements,BDOsent the checks for clearing through the Philippine Clearing
House Corporation (PCHC). Accordingly, Equitable Banking paid the checks; its clearing account
was debited for the value of the checks and BDOs clearing account was credited for the same
amount. Thereafter, Equitable Banking discovered that the endorsements appearing at the back
of the checks and purporting to be that of the payees were forged and/or unauthorized or
otherwise belong to persons other than the payees.Equitable Banking presented the checks
directly to BDO for the purpose of claiming reimbursement from the latter. However, BDO refused
to accept such direct presentation and to reimburse Equitable Banking for the value of the
checks.
ISSUES:
(a) Whether or not BDO is estopped from claiming that checks under consideration are nonnegotiable instruments.
(b) Whether or not BDO can escape liability by reasons of forgery.
(c) Whether or not only negotiable checks are within the jurisdiction of PCHC.
RULING:
(a) YES. BDO having stamped its guarantee of all prior endorsements and/or lack of
endorsements is now estopped from claiming that the checks under consideration are not
negotiable instruments. The checks were accepted for deposit by the petitioner stamping thereon
its guarantee, in order that it can clear the said checks with the respondent bank. By such
deliberate and positive attitude of the petitioner it has for all legal intents and purposes treated the
said cheeks as negotiable instruments and accordingly assumed the warranty of the endorser
when it stamped its guarantee of prior endorsements at the back of the checks. It led the said
respondent to believe that it was acting as endorser of the checks and on the strength of this
guarantee said respondent cleared the checks in question and credited the account of the
petitioner. Petitioner is now barred from taking an opposite posture by claiming that the disputed
checks are not negotiable instrument.
(b) NO. A commercial bank cannot escape the liability of an endorser of a check and which may
turn out to be a forged endorsement. Whenever any bank treats the signature at the back of the
checks as endorsements and thus logically guarantees the same as such there can be no doubt
said bank has considered the checks as negotiable.The collecting bank or last endorser generally
suffers the loss because it has the duty to ascertain the genuineness of all prior endorsements
considering that the act of presenting the check for payment to the drawee is an assertion that the
party making the presentment has done its duty to ascertain the genuineness of the
endorsements.

(c) NO. PCHCs jurisdiction is not limited to negotiable checks only. The term check as used in
the said Articles of Incorporation of PCHC can only connote checks in general use in commercial
and business activities. Thus, no distinction. Ubi lex non distinguit, nec nos distinguere debemus.
Checks are used between banks and bankers and their customers, and are designed to facilitate
banking operations. It is of the essence to be payable on demand, because the contract between
the banker and the customer is that the money is needed on demand.
14. Gempesaw vs. CA. 218 SCRA 682
Facts: Gempesaw filed for recovery of the money value of 82 checks charged against her
account due to forgery of indorsements made by Alicia Galang, her trusted bookkeeper. In the
normal course of her grocery business, it would be Galang who would write the amounts in the
check and Gempesaw would only sign the checks without ascertaining its contents. The checks
were deposited in the accounts of Romero and Lam, with the aggregate total amounting to 1.2
million pesos. Gempesaw filed a case with the RTC which held that Gempesaw was negligent in
handling her affairs by not ascertaining the values of the payments and if indeed the payments
reached the payees making forgery not a defense for her to recover. The CA affirmed.
Issue: Whether or not the forgery entitles Gempesaw to reimbursement
Held: Partly Yes & No. The SC found that Gempesaw is indeed negligent which precludes her
from raising the defense of forgery. However, the SC, using Art. 1170 of the Civil Code, said that
the bank becomes also liable for damages for accepting the check with a second indorsement. It
should be noted that in the current banking system, checks with second indorsements are not
generally accepted and given this fact, the Bank should also shoulder liability. Gempesaw and the
bank are liable 50-50 for the loss.
15. Associated Bank vs. CA. 252 SCRA 620
Facts: Faustino Pangilinan, cashier of the Concepcion Emergency Hospital, forged the signature
of Dr. Adena Canlas who was the Chief of the said hospital and endorsed 30 checks amounting to
P203,300 to himself. The money was drawn from the account of the Province of Tarlac with PNB.
Pangilinan deposited the checks to his personal savings account with Associated Bank which was
cleared and paid for by PNB. The checks have a stamp of Associated Bank which reads All prior
endorsements guaranteed by Associated Bank.
The Province of Tarlac, through the Provincial Treasurer, wrote PNB to restore the various
amounts debited from the current account of the Province. PNB on its part demanded
reimbursement from Associated Bank. Both banks resisted payment which led to the Province of
Tarlac suing PNB. PNB in turn impleaded Associated Bank in the suit as a third-party defendant
while Associated Bank impleaded Canlas and Pangilinan as fourth-party defendants.
The trial court ruled that 1) PNB should pay the Province of Tarlac the P203,300 with legal
interests, 2) Associated Bank should be pay the same amount to PNB and 3) dismissed the
complaints against Canlas and Pangilinan. On appeal, the CA affirmed the ruling of the trial court
Issue: Who should bear the loss arising from the forgery, the Province of Tarlac, PNB, Associated
Bank or Pangilinan?
Held: The SC held that the Province and Associated Bank should bear losses in the proportion of
50-50.

The Province can only recover 50% of the P203,300 from PNB because of the negligence they
exhibited in releasing the checks to the then already retired Pangilinan who is an unauthorized
person to handle the said checks.
On the other hand, Associated Bank is liable to PNB only to 50% of the same amount because of
its liability as indorser of the checks that were deposited by Pangilinan, and guaranteed the
genuineness of the said checks. They failed to exercise due diligence in checking the veracity of
indorsements.
16. Metrobank vs. First National City Bank. 118 SCRA 537
FACTS:

August 25, 1964: Check dated July 8, 1964 for P50,000.00, payable to CASH, drawn by

Joaquin Cunanan & Company on First National City Bank (FNCB) was deposited with
Metropolitan Bank and Trust Company (Metro Bank) by Salvador Sales.
Earlier that day, Sales had opened a current account with Metro Bank depositing

P500.00 in cash
Metro Bank immediately sent the cash check to the Clearing House of the

Central Bank with the following words stamped at the back of the check:
Metropolitan Bank and Trust Company Cleared (illegible) office All prior

endorsements and/or Lack of endorsements Guaranteed.

The check was cleared the same day. Private respondent paid petitioner through

clearing the amount of P50,000.00, and Sales was credited with the said amount in his
deposit with Metro Bank.
August 26, 1964: Sales made his 1st withdrawal of P480.00 from his current account
August 28, 1964: he withdrew P32,100.00
August 31, 1964: he withdrew the balance of P17,920 and closed his account with Metro

Bank
September 3, 1964: FNCB returned cancelled Check to drawer Joaquin Cunanan &

Company, together with the monthly statement of the company's account with FNCB.
notified FNCB that the check had been altered
actual amount of P50.00 was raised to P50,000.00
name of the payee, Manila Polo Club, was superimposed the word

CASH.
September 10, 1964: FNCB wrote Metro Bank asking for reimbursement
June 29, 1965: FNCB filed for recovery
CA affirmed Trial Court: Metro Bank to reimburse FNCB

ISSUE: W/N Metrobank should reimsburse FNCB for the altered amount as indorser
HELD: NO. FNCB liable.

Under the procedure prescribed, the drawee bank receiving the check for clearing from
the Central Bank Clearing House must return the check to the collecting bank within the 24hour period if the check is defective for any reason. - FNCB failed to do so

indorsement must be read together with the 24-hour regulation on clearing

House Operations of the Central Bank
Metro Bank can not be held liable for the payment of the altered check.
Moreover, FNCB did not deny the allegation of Metro Bank that before it allowed the
withdrawal of the balance of P17,920.00 by Salvador Sales, Metro Bank withheld payment
and first verified, through its Assistant Cashier Federico Uy, the regularity and genuineness of
the check deposit from Marcelo Mirasol, Department Officer of FNCB, because its (Metro
Bank) attention was called by the fast movement of the account

17. Republic Bank vs. CA. 196 SCRA 100

FACTS: On January 25, 1966, San Miguel Corporation (SMC) issued a P240.00 check in favor of
Roberto Delgado against SMCs account with the First National City Bank (FNCB). Delgado
fraudulently changed the amount written on the check to P9,240.00. Delgado made a check
deposit with Republic Bank. Republic Bank accepted the check and endorsed it to FNCB by
stamping on the back of the check all prior and/or lack of indorsement guaranteed. The check
cleared and FNCB paid Republic Bank P9,240.00.
On April 19, 1966, SMC notified FNCB that the check involved was forged. FNCB refunded SMC
the amount of the check. On May 19, 1966, FNCB informed Republic bank about the forgery, by
then Delgado withdrew his account from Republic Bank. On August 15, 1966, FNCB demanded
Republic Bank to refund the amount of the check.
ISSUE: Whether or not Republic Bank should refund the amount to FNCB.
HELD: No. The 24-hour clearing house rule embodied in Section 4(c) of Central Bank Circular
No. 9, as amended, applies to this case. This rule mandates banks that after a clearing, all
cleared items must be returned not later than 3:00 PM of the following business day.
It is true that when an endorsement is forged, the collecting bank or last endorser, as a general
rule, bears the loss. But the unqualified endorsement of the collecting bank on the check should
be read together with the 24-hour regulation on clearing house operation. Thus, when the drawee
bank (FNCB) fails to return a forged or altered check to the collecting bank (Republic Bank) within
the 24-hour clearing period, the collecting bank is absolved from liability.

18. Philippine Commercial International Bank vs. CA. 350 SCRA 446 (G.R. No. 121413,
January 29, 2001)
FACTS: In October 1977, Ford Philippines drew a Citibank check in the amount of P4,746,114.41
in favor of the Commissioner of the Internal Revenue (CIR). The check represents Fords tax
payment for the third quarter of 1977. On the face of the check was written Payees account
only which means that the check cannot be encashed and can only be deposited with the CIRs
savings account (which is with Metrobank). The said check was however presented to PCIB and
PCIB accepted the same. PCIB then indorsed the check for clearing to Citibank. Citibank cleared

the check and paid PCIB P4,746,114.41. CIR later informed Ford that it never received the tax
payment.
An investigation ensued and it was discovered that Fords accountant Godofredo Rivera, when
the check was deposited with PCIB, recalled the check since there was allegedly an error in the
computation of the tax to be paid. PCIB, as instructed by Rivera, replaced the check with two of
its managers checks.
It was further discovered that Rivera was actually a member of a syndicate and the managers
checks were subsequently deposited with the Pacific Banking Corporation by other members of
the syndicate. Thereafter, Rivera and the other members became fugitives of justice.
ISSUE: What are the liabilities of each party?
HELD: G.R. No. 121413/G.R. No. 121479
PCIB is liable for the amount of the check (P4,746,114.41). PCIB, as a collecting bank has been
negligent in verifying the authority of Rivera to negotiate the check. It failed to ascertain whether
or not Rivera can validly recall the check and have them be replaced with PCIBs managers
checks as in fact, Ford has no knowledge and did not authorize such. A bank (in this case PCIB)
which cashes a check drawn upon another bank (in this case Citibank), without requiring proof as
to the identity of persons presenting it, or making inquiries with regard to them, cannot hold the
proceeds against the drawee when the proceeds of the checks were afterwards diverted to the
hands of a third party. Hence, PCIB is liable for the amount of the embezzled check.

19. Ramon Ilusorio vs. CA. 393 SCRA 89 (G.R. No. 139130, November 27, 2002)
FACTS: Ramon Ilusorio entrusted his credit cards and checkbooks and blank checks to his
secretary. Apparently, his secretary was able to encash and deposit to her personal account 17
checks drawn against his account.
Ilusorio requested to restore to his account the value of the checks that were wrongfully encashed
but the bank refused, hence the case.
In court, the bank testified that they make sure that the sign on the check is verified. When asked
by the NBI to submit standard signs to compare, Ilusorio failed to comply. The lower held held in
favor of defendant.
ISSUE: Whether the bank was negligent in receiving the checks.
RULING: The SC affirmed the lower court's decision. Ilusorio failed to prove that the bank was
negligent on their part as he has the burden of proof. The bank's employees did not know the
secretary's modus operandi as she was always transacting in behalf of Ilusorio.
The SC even held that it was Ilusorio who was negligent as he trusted his secretary of unusual
degree.

Ilusorio also cites Sec. 23 of the NIL that a forged check is inoperative and that he bank has no
authority to pay. While true, the case at bar falls under the exception stated in the section. The SC
held that Ilusorio is precluded from setting up the forgery, assuming there is forgery, due to his
own negligence in entrusting his secretary.

20. Samsung Construction Co. Phils, Inc. vs. FEBTC and CA. G.R. No. 129015, August
13, 2004
Facts: Samsung Construction held an account with Far East Bank. One day a check worth
900,000, payable to cash, was presented by one Roberto Gonzaga in the Makati Branch of Far
East Bank. The check was certified to be true by Jose Sempio, the assistant accountant of
Samsung, who was also present during the time the check was cashed. Later however it was
discovered that no such check was ever approved by the Samsungs head accountant, the
president of the company also never signed any such check.
Issue: Whether or not Far East Bank is liable to reimburse Samsung for cashing out the forged
check, which was drawn from the account of Samsung
Held: Far East Bank is liable for reimbursement. Sec. 23 of the Negotiable Instrument Law states
that a forged signature makes the instrument wholly inoperative. If payment is made the drawee
(Far East) cannot charge it to the drawers account (Samsung). The fact that the forgery is clever
is immaterial. The forged signature may so closely resemble the genuine as to defy detection by
the depositor himself. And yet, if the bank pays the check, it is paying out with its own money and
not of the depositors. This rule of liability can be stated briefly in these words: A bank is bound to
know its depositors signature. The accusation of negligence on the part of Samsung was not
clearly proven. Absence of proof to the contrary, the presumption is that the ordinary course of
business was followed.
VI. Material Alteration (Section 124 and 125)
21. Philippine National Bank vs. Court of Appeals. 256 SCRA 491
FACTS: A check with serial number 7-3666-223-3, dated August 7, 1981 in the amount of
P97,650.00 was issued by the Ministry of Education and Culture payable to F. Abante Marketing.
This check was drawn against Philippine National Bank (herein petitioner).
F. Abante Marketing, a client of Capitol City Development Bank (Capitol), deposited the
questioned check in its savings account with said bank. In turn, Capitol deposited the same in its
account with the Philippine Bank of Communications (PBCom) which, in turn, sent the check to
petitioner for clearing.

Petitioner cleared the check as good and, thereafter, PBCom credited Capitols account for the
amount stated in the check. However, petitioner PNB returned the check to PBCom and debited
PBComs account for the amount covered by the check, the reason being that there was a
material alteration of the check number.
PBCom, as collecting agent of Capitol, then proceeded to debit the latters account for the same
amount. On the other hand, Capitol could not, in turn, debit F. Abante Marketings account since
the latter had already withdrawn the amount of the check.
ISSUE: WHETHER OR NOT AN ALTERATION OF THE SERIAL NUMBER OF A CHECK IS A
MATERIAL ALTERATION UNDER THE NEGOTIABLE INSTRUMENTS LAW.
HELD: No. An alteration is said to be material if it alters the effect of the instrument. It means an
unauthorized change in an instrument that purports to modify in any respect the obligation of a
party or an unauthorized addition of words or numbers or other change to an incomplete
instrument relating to the obligation of a party.In other words, a material alteration is one which
changes the items which are required to be stated under Section 1 of the Negotiable Instrument
Law
The case at the bench is unique in the sense that what was altered is the serial number of
the check in question, an item which, it can readily be observed, is not an essential
requisite for negotiability under Section 1 of the Negotiable Instruments Law. The
aforementioned alteration did not change the relations between the parties. The name of
the drawer and the drawee were not altered. The intended payee was the same. The sum
of money due to the payee remained the same.
If the purpose of the serial number is merely to identify the issuing government office or agency,
its alteration in this case had no material effect whatsoever on the integrity of the check. The
identity of the issuing government office or agency was not changed thereby and the amount of
the check was not charged against the account of another government office or agency which
had no liability under the check.
Petitioner, thus cannot refuse to accept the check in question on the ground that the serial
number was altered, the same being an immaterial or innocent one.
22. Montinola vs. Philippine National Bank. 88 Phil. 178
FACTS: In May 1942, Ubaldo Laya, as provincial treasurer of Misamis Oriental issued a
P100,000.00 Philippine National Bank (PNB) check to Mariano Ramos. The said check was to be
used by Ramos, as disbursing officer of the US forces at that time, for military purposes. Before
Ramos can encash the check, he was made a prisoner of war by the invading Japanese forces.
When he got free in December 1944, he needed some cash for himself and so he went to a
certain Enrique Montinola and made arrangements.
On the back of the check, Ramos wrote: Pay to the order of Enrique P. Montinola P30,000 only.
The balance to be deposited in the Philippine National Bank to the credit of M. V. Ramos.
In consideration thereof, Montinola promised to pay 85,000 in Japanese notes (that time peso
notes are valued higher). However, he was only able to pay 45k in Japanese notes to Ramos.

Later, Montinola sought to have the check encashed but PNB dishonored the check. It appears
that there was an insertion made. Under the signature of Laya, the words Agent, Philippine
National Bank was inserted, thus making it appear that Laya disbursed the check as an agent of
PNB and not as provincial treasurer of Misamis Oriental (NOTE: at that time, a provincial
treasurer is an ex officio agent of the governments bank).
ISSUE: Whether or not the subject check is a negotiable instrument.
HELD: No. It was not negotiated according to the Negotiable Instruments Law (NIL) hence it is
not a negotiable instrument. There was only a partial indorsement and not a negotiation
contemplated under the NIL. Only P30k of the P100k amount of the check was indorsed. This
merely make Montinola a mere assignee and this is the clear intent of Ramos. Ramos was
merely assigning P30k to Montinola. Montinola may therefore not be regarded as an indorsee
and PNB has all the right to dishonor the check. As mere assignee, he is subject to all defenses
available to the drawer Provincial Treasurer of Misamis Oriental and against Ramos.
Anent the issue of alteration, the apparent purpose of which is to make the drawee (PNB) the
drawer against which Montinola can recover from directly. Such material alteration which was
done by Montinola without the consent of the parties liable thereon discharges the instrument,
pursuant to Sec. 124 of the NIL.
Montinola cannot be said to be a holder. He is an assignee. And even if he is a holder, he is not in
good faith because he did not pay the full amount of the consideration for which the P30k was
issued to him he only paid 45k Japanese notes out of the 90k Japanese notes consideration.
At any rate, even assuming that there is proper negotiation, Montinola can no longer encash said
check because when he sought to have it encashed in January 1945, it is already stale there
being two and half years passing since its time of issuance.
VII. Accommodation Party
23. Sadaya vs. Sevilla. 19 SCRA 924
FACTS:

March 28, 1949: Victor Sevilla, Oscar Varona and Simeon Sadaya executed, jointly and

severally, in favor of the BPI, or its order, a promissory note for P15,000.00 with interest at 8%
per annum, payable on demand.
The P15,000.00 proceeds was received by Oscar Varona alone.
Victor Sevilla and Simeon Sadaya signed the promissory note as co-makers only

as a favor to Oscar Varona.

June 15, 1950: outstanding balance is P4,850.00. No payment thereafter made.
Oct 16 1952: bank collected from Sadaya total of P5,416.12(w/ int)
Varona failed to reimburse Sadaya despite repeated demands. V

Victor Sevilla died Francisco Sevilla was named administrator.

Sadaya filed a creditor's claim for the above sum of P5,746.12, plus attorneys fees in the

sum of P1,500.00
The administrator resisted the claim upon the averment that the deceased Victor

Sevilla "did not receive any amount as consideration for the promissory note," but signed it
only "as surety for Oscar Varona
June 5, 1957: Trial court order the administrator to pay
CA reversed.

ISSUE: W/N Sadaya can claim against the estate of Sevilla as co-accomodation party when
Verona as principal debtor is not yet insolvent
HELD: NO. Affirmed

Varona is bound by the obligation to reimburse Sadaya

solidary accommodation maker who made payment has the right to

contribution, from his co-accommodation maker, in the absence of agreement to the contrary
between them, and subject to conditions imposed by law
requisites before one accommodation maker can seek reimbursement from a co-

accommodation maker.
ART. 2073. When there are two or more guarantors of the same debtor and for

the same debt, the one among them who has paid may demand of each of the others the
share which is proportionally owing from him.
If any of the guarantors should be insolvent, his share shall be borne by the

others, including the payer, in the same proportion.

(1) A joint and several accommodation maker of a negotiable promissory note may

demand from the principal debtor reimbursement for the amount that he paid to the payee;
(2) a joint and several accommodation maker who pays on the said promissory note may

directly demand reimbursement from his co-accommodation maker without first directing his
action against the principal debtor provided that
(a) he made the payment by virtue of a judicial demand, or -no judicial demand

just voluntarily
(b) a principal debtor is insolvent. - Varona is not insolvent
24. Crisologo-Jose vs. CA. 177 SCRA 594

FACTS: Oscar Benares and Ricardo Santos are the president and vice-president, respectively, of
Mover Enterprises, Inc., in accommodation of his clients the Ongs, issued a check payable to
Jose. Since the check was under the account of the Enterprise, it was signed by Benares and
Santos.
The check was to be encashed after the approval of a compromise agreement which was
disapproved. The checks were then replaced and were signed by both. When Jose encashed the
checks, it was dishonored for insufficiency of funds.

Jose filed a complaint in the lower court citing that respondents were in violation of Art. 1256 of
the Civil Code. It was dismissed thus the petition to the SC.
Jose points out that the accommodation party in the case is the enterprise and not Santos.
ISSUE: Whether Mover Enterprises is an accommodation party.
RULING: The SC ruled that a corporation cannot be an accommodation party. The law on
accommodation parties does not include corporation because it is ultra vires on their part.
Thus, if one knows and takes an instrument that was accommodated by a corporation cannot
recover against the corporation.
25. Stelco Marketing vs. CA. 210 SCRA 51
Facts: Petitioner Stelco Marketing Corp (Stelco) is engaged in the distribution and sale to the
public of structural steel bars. It sold on 7 occasions quantities of steel bars and rolls of G.I sheets
with an aggregate amount of P126,859.61 to RYL Construction, Inc. (RYL). Despite the parties
agreement that payment would be on COD basis, RYL never paid upon delivery of the materials
and despite insistent demands.
One year later, RYL issued a check drawn against Metrobank to Armstrong Industries, the sister
company and manufacturing arm of Stelco, to the amount of its obligations to the latter. The
check however was a company check of another corporation Steelweld Corporation of the
Philippines (Steelweld) signed by its President and Vice President. Said check was issued by the
president of Steelweld at the request of the president of RYL as an accommodation and only as
guaranty but not to pay for anything. Armstrong subsequently deposited the check but was
dishonoured because it was DAIF*. It bore the endorsements of RYL and Armstrong. The latter
filed a complaint against the pres and vp of Steelweld for violation of BP22. The trial court
acquitted the defendants noting that the checks were not issued to apply on account for value, it
being merely for accommodation purposes. However, the court did not release Steelweld from its
liabilities, relying on Sec 29 of the NIL for issuing a check for accommodation.
Relying on the previous decision and averring that it was a holder in due course, Stelco
subsequently filed a complaint for recovery of the value of the materials from RYL and Steelweld.
However, RYL had already been dissolved leading the trial court to rule against Steelweld and
hold them liable. Steelweld appealed to the CA which reversed the decision of the RTC declaring
that STELCO was not a holder in due course and Steelweld was a stranger to the contract
between STELCO and RYL.
Issue: Whether or not STELCO was a holder in due course
Held: STELCOs reliance on the RTCs decision in the previous criminal case is misplaced.
Although the RTC maintained that Steelweld was liable for issuing a check for accommodation,

the RTC did not specify to whom it was liable. Despite the records showing that STELCO was in
possession of the check, such possession does not give a presumption that the holder is one for
value. There was no evidence that STELCO had possession before the checks were presented
and dishonoured nor evidence that the checks were given to STELCO, indorsed to STELCO in
any manner or form of payment. Only after said checks were dishonoured were they acquired by
STELCO.
STELCO never became a holder for value since nowhere in the check was STELCO identified as
payee, indorsee, or depositor. Evidence shows that Armstrong was the intended payee, that it
was the injured party, and the proper party to bring the action.

26. Travel-On vs. CA. 210 SCRA 352

Facts: Travel-On (petitioner) is a travel agency, selling airline tickets on commission basis for and
in behalf of different air-line companies. Arturo Miranda (respondent) had a running credit line
with said agency. He procured tickets from Travel-On on behalf of airline passengers and derived
commissions therefrom. Travel-On filed a suit to collect six (6) checks issued by the respondent
totalling 115,000 pesos. Respondent avers that he has no obligations to petitioner and argues
that the checks that the petitioner is seeking to collect from him were for purposes of
accommodation. The respondents story is that the General Manager of Travel-On asked
respondent to write the checks because she used them as evidence to show the Board of
Directors that the financial condition of the company was sound. Petitioner denies this accusation.
Issue: Whether or not the checks are evidence of the liability of the respondent to the petitioner
even assuming that they were for purposes of accommodation.
Held: The checks themselves are proof of the indebtedness of the respondent to petitioner. Even
if the checks were for purposes of accommodation, as described in Sec. 29 of the Negotiable
Instruments Law, the respondent would still be liable considering that the petitioner is a holder for
value. A check which is regular on its face is deemed prima facie to have been issued for a
valuable consideration and every person whose signature appears thereon is deemed to have
become a party thereto for value. The rule is quite settled that a negotiable instrument is
presumed to have been given or indorsed for a sufficient consideration unless otherwise
contradicted by other competent evidence. The facts that all checks issued by the respondent to
petitioner were presented for payment by the latter would lead to no other conclusion than that
these checks were intended for enchasment.
There is nothing in the checks themselves or in any
other document that states otherwise. The argument of the respondent that the checks were
merely simulated cannot stand without the clearest and most convincing kinds of evidence. No
such evidence was submitted by the respondent.

27. BPI vs. CA. 326 SCRA 641

Facts: Private respondent Benjamin Napiza deposited in his foreign current deposit with BPI a
dollar check owned by Henry Chan in which he affixed his signature at the dorsal side thereof.
For this purpose, Napiza gave Chan a signed blank withdrawal slip. However, Gayon Jr. got hold
of the withdrawal slip and used it to withdraw the proceeds of the dollar check, even before the
check was cleared and without the presentation of the bank passbook.
Issues:
(1) Whether or not petitioner can hold private respondent liable for the proceeds of the check for
having affixed his signature at the dorsal side as indorser; and
(2) Whether or not the bank was negligent as the proximate cause of the loss and should be held
liable.
Held:
(1) No. Ordinarily, private respondent may be held liable as an indorser of the check or even as
an accommodation party. However, to hold him liable would result in an injustice. The interest of
justice thus demands looking into the events that led to the encashment of the check.
Under the rules appearing in the passbook that BPI issued to private respondent, to be able to
withdraw under the Philippine foreign currency deposit system, two requisites must be presented
to petitioner BPI by the person withdrawing an amount:
1) A duly filled-up withdrawal slip; and
2) The depositors passbook.
Petitioner bank alleged that had private respondent indicated therein the person authorized to
receive the money, then Gayon could not have withdrawn any amount. However, the withdrawal
slip itself indicates a special instruction that the amount is payable to Ramon de Guzman and/or
Agnes de Guzman. Such being the case, petitioners personnel should have been duly warned
that Gayon was not the proper payee of the proceeds of the check. Moreover, the fact that private
respondents passbook was not presented during the withdrawal is evidenced by the entries
therein showing that the last transaction that he made was when he deposited the subject check.
(2) Yes. A bank is under obligation to treat the accounts of its depositors with meticulous care,
always having in mind the fiduciary nature of their relationship. Petitioner failed to exercise the
diligence of a good father of a family. In total disregard of its own rules, petitioners personnel
negligently handled private respondents account to petitioners detriment.
The proximate cause of the withdrawal and eventual loss of the amount of $2,500.00 on
petitioners part was its personnels negligence in allowing such withdrawal in disregard of its own
rules and the clearing requirement in the banking system. In so doing, petitioner assumed the risk

of incurring a loss on account of a forged or counterfeit foreign check and hence, it should suffer
the resulting damage.

28. Agro Conglomerate, Inc. vs. CA. 348 SCRA 450 (G.R. No. 117660, December 18,
2000)
FACTS:

July 17, 1982: Agro Conglomerates, Inc. (Agro) sold 2 parcels of land to Wonderland
Food Industries, Inc (Wonderland) for P 5M under terms and conditions:
1.
P 1M Pesos shall be paid in cash upon the signing of the agreement
2.
P 2M Pesos worth of common shares of stock of the Wonderland Food Industries, Inc.
3.
balance of P2,000,000.00 shall be paid in 4 equal installments, the first installment falling
due, 180 days after the signing of the agreement and every six months thereafter, with an
interest rate of 18% per annum, to be advanced by the vendee upon the signing of the
agreement

July 19, 1982: Agro, Wonderland and Regent Savings & Loan Bank (Regent) (formerly

Summa Savings & Loan Association) amended the arrangement resulting to a revision addedum was not notarized
Agro would secure a loan in the name of Agro Conglomerates Inc. for the total

amount of the initial payments, while the settlement of loan would be assumed by
Wonderland
Mario Soriano (of Agro) signed as maker several promissory notes, payable

to Regent in favor of Wonderland

subsidiary contract of suretyship had taken effect since Agro signed the

promissory notes as maker and accommodation party for the benefit of Wonderland
bank released the proceeds of the loan to Agro who failed to meet their
obligations as they fell due

bank, experiencing financial turmoil, gave Agro

opportunity to settle their account by extending payment due dates

Mario Soriano manifested his intention to re-

structure the loan, yet did not show up nor submit his formal written request
Regent filed 3 separate complaints before the RTC for Collection of sums of money
CA affirmed Trial court: held Agro liable

ISSUE: W/N Agro should be liable because there was no accomodation or surety

HELD: YES. CA affirmed.

First, there was no contract of sale that materialized.

The original agreement

was that Wonderland would pay cash and Agro would deliver possession of the
farmlands. But this was changed through an addendum, that Agro would instead secure
a loan and the settlement
of the same would be shouldered by Wonderland.
contract of surety between Woodland and petitioner was extinguished by the

rescission of the contract of sale of the farmland

With the rescission, there was confusion in the persons of the principal debtor

and surety. The addendum thereon likewise lost its efficacy

accommodation party - NOT in this case because of recission
person who has signed the instrument as:
maker
acceptor
indorser
without receiving value therefor
for the purpose of lending his name to some other person
is liable on the instrument to a holder for value, notwithstanding such holder at

the time of taking the instrument knew (the signatory) to be an accommodation party
has the right, after paying the holder, to obtain reimbursement from the party

accommodated, since the relation between them has in effect become one of principal and
surety, the accommodation party being the surety.
Suretyship
relation which exists where:
1 person has undertaken an obligation
another person is also under the obligation or other duty

to the obligee, who is entitled to but one performance

The suretys liability to the creditor or promisee is directly and

equally bound with the principal and the creditor may proceed against any one of the solidary
debtors
Novation - NOT in this case
extinguishment of an obligation by the substitution or change of the obligation by

a subsequent one which extinguishes or modifies the first, either by changing the object or
principal conditions, or by substituting another in place of the debtor, or by subrogating a third
person in the rights of the creditor
never presumed and it must be clearly and unequivocally shown
requisites:
1.
2.
3.
4.

There must be a previous valid obligation - lacking

There must be an agreement of the parties concerned to a new contract
There must be the extinguishment of the old contract; and
There must be the validity of the new contract
Sec. 22 of the Civil Code provides:

Every person who through an act of performance by another, or any other means, acquires or
comes into possession of something at the expense of the latter without just or legal ground, shall
return the same to him.

Agro had no legal or just ground to retain the proceeds of the loan at the expense of

Wonderland.
Neither could Agro excuse themselves and hold Wonderland still liable to pay the loan

upon the rescission of their sales contract - surety no effect because of the rescission
If Agro sustained damages as a result of the rescission, they should have

impleaded Wonderland and asked damages

The non-inclusion of a necessary party does not prevent the court from

proceeding in the action, and the judgment rendered therein shall be without prejudice to the
rights of such necessary party
But respondent appellate court did not err in holding that Agro
are duty-bound under the law to pay the claims of Regent from whom they had obtained the
loan proceeds

VII. Holders in Due Course

29. De Ocampo vs. Gatchalian. 3 SCRA 596
FACTS: Anita Gatchalian was interested in buying a car. Manuel Gonzales offered to her a car
owned by plaintiff. Gonzales claimed that he was authorized by the plaintiff to sell the car.
Gonzales order defendant to issue a cross-check to comply on showing interest in buying the car.
Gonzales promised to return the check the next day.
When Gonzales never appeared after, defendant issue a stop payment order on the check. She
found out that Gonzales used the check as payment to plaintiff's clinic for his wife's fees. Plaintiff
now demands defendant for payment of the check, in which defendant refused citing that plaintiff
is a not a holder in due course.
The lower court held that defendant should pay plaintiff.
ISSUE: Whether or not De Ocampo is a holder in due course.
RULING: The SC held that plaintiff is a not a holder in due course. There were obvious instances
to show that the check was negligently acquired like plaintiff having no liability with defendant and
that the check was crossed. Plaintiff failed to exercise prudence and caution. Plaintiff should have
asked questions to further inquire upon suspicion.
The presumption of good faith did not apply to plaintiff because the defect was apparent on the
instruments face it was not payable to defendant or bearer.
30. Mesina vs. IAC. 145 SCRA 497
FACTS: Jose Go purchased from Associated Bank a cashier's check for P800,000.00.
Unfortunately, he left said check on the top of the desk of the bank manager when he left the

bank. The bank manager entrusted the check for safekeeping to a bank official, a certain Albert
Uy. While Uy went to the men's room, the check was stolen by his visitor in the person of
Alexander Lim. Upon discovering that the check was lost, Jose Go accomplished a "STOP
PAYMENT" order. Two days later, Associated Bank received the lost check for clearing from
Prudential Bank. After dishonoring the same check twice, Associated Bank received summons
and copy of a complaint for damages of Marcelo Mesina who was in possession of the lost check
and is demanding payment. Petitioner claims that a cashier's check cannot be countermanded in
the hands of a holder in due course.
ISSUE: Whether or not petitioner can collect on the stolen check on the ground that he is a holder
in due course.
RULING: No. Petitioner failed to substantiate his claim that he is a holder in due course and for
consideration or value as shown by the established facts of the case. Admittedly, petitioner
became the holder of the cashier's check as endorsed by Alexander Lim who stole the check. He
refused to say how and why it was passed to him. He had therefore notice of the defect of his title
over the check from the start. The holder of a cashier's check who is not a holder in due course
cannot enforce such check against the issuing bank which dishonors the same.
VII. Liability of the General Indorser
31. Metropol vs. Sambok. 120 SCRA 864
Facts: Dr. Javier Villaruel executed a promissory note in favor of Ng Sambok Sons Motors Co.,
Ltd. Payable in 12 equal monthly installments with interest. It is further provided that in case on
non-payment of any of the installments, the total principal sum then remaining unpaid shall
become due and payable with an additional interest. Sambok Motors co., a sister company of Ng
Sambok Sons negotiated and indorsed the note in favor of Metropol Financing & investment
Corporation. Villaruel defaulted in the payment, upon presentment of the promissory note he
failed to pay the promissory note as demanded, hence Ng Sambok Sons Motors Co., Ltd. notified
Sambok as indorsee that the promissory note has been dishonored and demanded payment.
Sambok failed to pay. Ng Sambok Sons filed a complaint for the collection of sum of money.
During the pendency of the case Villaruel died. Sambok argues that by adding the words with
recourse in the indorsement of the note, it becomes a qualified indorser, thus, it does not warrant
that in case that the maker failed to pay upon presentment it will pay the amount to the holder.
Issue: Whether or not Sambok Motors Co is a qualified indorser, thus it is not liable upon the
failure of payment of the maker.
Held: No. A qualified indorserment constitutes the indorser a mere assignor of the title to the
instrument. It may be made by adding to the indorsers signature the words without recourse or
any words of similar import. Such indorsement relieves the indorser of the general obligation to
pay if the instrument is dishonored but not of the liability arising from warranties on the
instrument as provided by section 65 of NIL. However, Sambok indorsed the note with recourse
and even waived the notice of demand, dishonor, protest and presentment.
Recourse means resort to a person who is secondarily liable after the default of the person who is
primarily liable. Sambok by indorsing the note with recourse does not make itself a qualified
indorser but a general indorser who is secondarily liable, because by such indorsement, it agreed
that if Villaruel fails to pay the not the holder can go after it. The effect of such indorsement is that
the note was indorsed witout qualification. A person who indorses without qualification engages

that on due presentment, the note shall be accepted or paid, or both as the case maybe, and that
if it be dishonored, he will pay the amount thereof to the holder. The words added by Sambok do
not limit his liability, but rather confirm his obligation as general indorser.
32. Maralit vs. Imperial. 301 SCRA 605 (1999)
Facts: Petitioner Maralit claimed that, as a consequence of the materially altered treasury
warrant encashed by respondent imperial, she was held personally liable by the PNB for the total
amount of P320,287.30. However, respondent claimed that she merely helped a relative, Aida
Abengoza, to encash the treasury warrant and that she did not know the amounts were altered
nor did she represent to petitioner that the treasury warrants are genuine and that upon being
informed of dishonor, she immediately contacted her relative and signed an acknowledgement to
pay the total amount of the treasury warrant.
Issue: Whether or not respondent should be held liable as a general indorse.
Held: The Court sympathizes with the petitioner that there was indeed damage and loss, but said
loss is chargeable to the respondent who upon her indorsements warrant that the instrument is
genuine in all respect what it purports to be and that she will pay the amount thereof in case of
dishonor. Thus, while
the MTC found petitioner partly responsible for the encashment of the altered checks, it found
respondent civilly liable because of her indorsements of the treasury warrants, in addition to the
fact that respondent executed a notarized acknowledgment of debt promising to pay the total
amount of said warrants.
33. Sapiera vs. Court of Appeals. 314 SCRA 370 (1999)
Facts: On several occasions, petitioner Sapiera, a sari-sari store owner, purchased from Monnico
Mart certain grocery items, mostly cigarettes, and paid for them with checks issued by one Arturo
de Guzman. These checks were signed at the back by the petitioner. When presented for
payment, the checks were dishonored because the drawers account was already closed. Private
respondent Roman Sua informed De Guzman and petitioner about the dishonor but both failed to
pay the value of the checks.
Issue: Whether or not petitioner be required to pay civil indemnity to private respondent.
Held: Yes. It is undisputed that the four (4) checks issued by De Guzman were signed by
petitioner at tieback without any indication as to how she should be bound thereby and, therefore,
she is deemed to bean indorser thereof. The NIL clearly provides Sec. 17. Construction where
instrument is ambiguous. ---Where the language of the instrument is ambiguous, or there are
admissions therein, the following rules of construction apply: x x x (f) Where a signature is so
placed upon the instrument that it is not clear in what capacity the person making the same
intended to sign, he is deemed an indorser.
34. BPI vs. CA. 326 SCRA 641 (G.R. No. 11239, February 29, 2000)
Facts: Private respondent Benjamin Napiza deposited in his foreign current deposit with BPI a
dollar check owned by Henry Chan in which he affixed his signature at the dorsal side thereof.
For this purpose, Napiza gave Chan a signed blank withdrawal slip. However, Gayon Jr. got hold
of the withdrawal slip and used it to withdraw the proceeds of the dollar check, even before the
check was cleared and without the presentation of the bank passbook.
Issues: Whether or not petitioner can hold private respondent liable for the proceeds of the check
for having affixed his signature at the dorsal side as indorser.
Held: No. It is thus clear that ordinarily private respondent may be held liable as an indorser of
the check or even as an accommodation party.[17] However, to hold private respondent liable for
the amount of the check he deposited by the strict application of the law and without considering
the attending circumstances in the case would result in an injustice and in the erosion of the

public trust in the banking system. The interest of justice thus demands looking into the events
that led to the encashment of the check.
VIII. Presentment for Payment/Acceptance
35. Prudential Bank vs. IAC. 216 SCRA 257
FACTS: To effect payment for machineries purchased by Philippine Rayon Mills with Nissho Co.,
Ltd, the former opened a commercial letter of credit with the Prudential Bank and Trust Company
in favor of Nissho. Drafts were drawn and issued by Nissho, which were all paid by the Prudential
Bank through its correspondent in Japan. Two of these drafts were accepted by Philippine Rayon
Mills while the others were not. Petitioner instituted an action for the recovery of the sum of
money it paid to Nissho as Philippine Rayon Mills was not able to pay its obligations arising from
the letter of credit. Respondent court ruled that with regard to the ten drafts which were not
presented and accepted, no valid demand for payment can be made. Petitioner however claims
that the drafts were sight drafts which did not require presentment for acceptance to Philippine
Rayon.
ISSUE: Whether presentment for acceptance of the drafts was indispensable to make Philippine
Rayon liable thereon.
HELD: In the case at bar, the drawee was necessarily the herein petitioner. It was to the latter
that the drafts were presented for payment. There was in fact no need for acceptance as the
issued drafts are sight drafts. Presentment for acceptance is necessary only in the cases
expressly provided for in Section143 of the Negotiable Instruments Law (NIL). In no other case is
presentment for acceptance necessary in order to render any party to the bill liable. Obviously
then, sight drafts do not require presentment for acceptance.
36. Wong vs. Court of Appeals. 351 SCRA 100 (G.R. No. 117857, February 2, 2001)
Facts: Petitioner Wong was an agent of Limtong Press, Inc. (LPI), a manufacturer of calendars.
After printing the calendars, LPI would ship the calendars directly to the customers. Thereafter,
the agents would come around to collect the payments. Petitioner, however, had a history of
unremitted collections, which he duly acknowledged in a confirmation receipt he co-signed with
his wife. Petitioner issued several checks in December 1985, initially to guarantee the payment of
unremitted collections, however, upon agreement between the parties, the checks will be applied
to unremitted collections. Before maturity, petitioner advised not to deposit the said checks, but
after failing to replace them, respondent presented the check on June 1986 which was later on
dishonoured by reason of account closed. Having failed to pay, a case of violation of BP 22 was
filed against petitioner. Petitioner contends that he is not liable by reason of the delay in
presenting the checks.
Issue: Whether or not the petitioner is discharged from the liability on the said checks due to
delay in presentment.
Held: Under Section 186 of the Negotiable Instruments Law, a check must be presented for
payment within a reasonable time after its issue or the drawer will be discharged from liability
thereon to the extent of the loss caused by the delay. By current banking practice, a check
becomesstale after morethan six (6) months, 23 or 180 days. Private respondent herein
deposited the checks 157 days after the date of the check. Hence, said checks cannot be
considered stale.
37. The International Corporate Bank vs. Sps. Francis S. Gueco and Ma. Luz E. Gueco.
351 SCRA 516 (G.R. No. 141968, February 12, 2001)
FACTS: Gueco spouses obtained a loan from ICB to purchase a car. In consideration thereof, the
debtors executed PNs, and a chattel mortgage was made over the car. The spouses defaulted in
payment of their obligations whereupon they entered into a compromise agreement with the
bank. After some negotiation and computation, they tendered a managers check in favor of the
bank based on the reduced amount. Nonetheless, the car was still detained for the spouses

refused to sign the joint motion to dismiss. Because of this, the spouses filed an action for
recovery of the car and damages against the bank. As the result of the proceeding, the managers
check tendered to the bank had become stale in the hands of the bank.
Issue: Whether or not the bank should bear the loss on the stale managers check as a result of
the proceedings.
HELD: Failure to present for payment within a reasonable time will result to the discharge of the
drawer only to the extent of the loss caused by the delay. It does not totally wipe out all liability. In
fact, the legal situation amounts to an acknowledgment of liability in the sum stated in the check.
In this case, the Gueco spouses have not alleged, much less shown that they or the bank which
issued the managers check has suffered damage or loss caused by the delay or nonpresentment. Definitely, the original obligation to pay certainly has not been erased.
IX. Checks (Section 185 and 186)
38. State Investment House vs. Court of Appeals. 217 SCRA 32
Facts: New Sikatuna Wood Industries Inc. (NSWI) requested for a loan from Harris Chua, who
issued 3crossed checks. Subsequently, NSWI entered in an agreement with State Investment
House Inc. (SIHI)where the former discounted several checks including the crossed checks.
When the crossed checks were deposited by SIHI, the checks were dishonoured by reason of
insufficient funds and account closed. SIHI made demands upon Chua to make good said checks
by Chua failed.
Issue: Whether SIHI is a holder in due course so as to recover the amounts in the checks from
Chua.
Held: No, the act of crossing a check serves as a warning to the holder that the check has been
issued for a definite purpose so that he must inquire if he has received the check pursuant to that
purpose, otherwise he is not a holder in due course. His failure to inquire from the holder the
purpose prevents him from being considered in good faith. SIHI, is subject to personal defences
for such as the lack of consideration between the NSWI and Chua.
39. Bataan Cigar and Cigarette Factory, Inc. vs. Court of Appeals. 230 SCRA 643
Facts: Petitioner engaged one of its suppliers King Tim Pua George to deliver bales of tobacco
leaf. Inconsideration thereof, petitioner issued a crossed check. Relying on the supplier's
representation, petitioner agreed to purchase additional bales of tobacco leaves, despite the
supplier's failure to deliver in accordance with their earlier agreement upon which he issued post
dated crossed checks. However, the supplier sold the said check at a discount to private
respondent State Investment House Inc.(SIHI).Upon failure to deliver said bales of tobacco leaf,
petitioner issued a stop order payment on all checks. SIHI then instituted this action, upon
dishonour of the check, on the ground that the same is a holder in due course and would be able
to collect from petitioner.
Issue: Whether or not SIHI, a holder of a crossed check, is a holder in due course and would be
able to collect from petitioner.
Held: It is a settled ruled that crossing of checks should put the holder on inquiry and upon him
devolves the duty to ascertain the indorsers title to the check or the nature of his possession.
Failing in this respect, the holder is declared guilty of gross negligence amounting to legal
absence of good faith and isto the effect that the holder of the check is not a holder in due course.
There being failure of consideration which is a personal defense, cannot be obliged to pay the
checks to SIHI who is not a holder in due course.
40. CItytrust Banking Corporation vs. IAC. 232 SCRA 559
Facts: Emme Herrero, businesswoman, made regular deposits with Citytrust Banking Corp. at its
Burgoa branch in Calamba, Laguna. She deposited the amount of P31, 500 in order to amply
cover 6 postdated checks she issued. All checks were dishonored due to insufficiency of funds

upon the presentment for encashment. Citytrust banking Corp. asserted that it was due to
Herreros fault that her checks were dishonored, for he inaccurately wrote his account number in
the deposit slip. RTC dismissed the complaint for lack of merit. CA reversed the decision of RTC.
Issue: Whether or not Citytrust banking Corp. has the duty to honor checks issued by Emme
Herrero despite the failure to accurately stating the account number resulting to insufficiency of
funds for the check.
Held: Yes, even it is true that there was error on the account number stated in the deposit slip, its
is, however, indicated the name of Emme Herrero. This is controlling in determining in whose
account the deposit is made or should be posted. This is so because it is not likely to commit an
error in ones name than merely relying on numbers which are difficult to remember. Numbers are
for the convenience of the bank but was never intended to disregard the real name of its
depositors. The bank is engaged in business impressed with public trust, and it is its duty to
protect in return its clients and depositors who transact business with it. It should not be a matter
of the bank alone receiving deposits, lending out money and collecting interests. It is also its
obligation to see to it that all funds invested with it are properly accounted for and duly posted in
its ledgers.
41. Ramon Tan vs. Court of Appeals. 239 SCRA 310
Facts: Ramon tan secured a cashiers from Philippine Commercial Industrial Bank (PCIB)
payable to his order. He deposited his check in his account with Rizal Commercial Banking
Corporation (RCBC) Binondo. On the same day, RCBC erroneously sent the same
cashiers check for clearing to the Central Bank which was returned for having been missent or
misrouted. The next day, RCBC debited the amount covered by the same cashiers check from
the account of the petitioner. Respondent bank at this time had not informed the petitioner of its
action. Relying that said checks were honoured, petitioner issued two personal check which was
dishonoured due to insufficiency of funds. Petitioner alleging to have suffered humiliation and loss
of face in the business sector due to the bounced check filed a complaint against RCBC.
Issue: Whether or not RCBC may be held liable for damages upon erroneous debit covered by
the cashiers check.
Held: A bank cannot exculpate itself from liability for the consequences of the use of wrong
deposit slip resulting in the misrouting of a regional check to the Central Bank for clearing. The
bank is not expected to be infallible but it must bear the blame for not discovering the mistake of
its teller despite the established procedure requiring the papers and bank books to pass through
a battery of bank personnelwhose duty it is to check and countercheck them for possible errors.
As the result of the negligence of the bank, the depositor has the right to recover moral damages
even if the banks negligence may not have been attended with malice and bad faith if the former
suffered mental anguish, serious anxiety, embarrassment and humiliation.
42. Papa vs. A.U. Valencia and Co. Inc. 284 SCRA 643
Facts: On 1992, a complaint was against Petitioner Myron C. Papa as attornery-in-fact of Angela
M. Butte sold to respondent Penaroyo through respondent Valencia a parcel of land on 1973.
Petitioner appealed decision, alleging among others that the sale was never consummated as
he did not encash the check given by respondents Valencia and Pearroyo in payment of the full
purchase price of the subject lot. He maintained that what said respondents had actually paid was
only the amount of P5,000.00 (in cash) as earnest money.
Issue: Whether or not the check did not amount to payment.
Held: While it is true that the delivery of a check produces the effect of payment only when it is
cashed, pursuant to Art. 1249 of the Civil Code, the rule is otherwise if the debtor is prejudiced by
the creditors unreasonable delay in presentment. The acceptance of a check implies an
undertaking of due diligence in presenting it for payment, and if he from whom it is received

sustains loss by want of such diligence, it will be held to operate as actual payment of the debt or
obligation for which it was given. It has, likewise, been held that if no presentment is made at all,
the drawer cannot be held liable irrespective of loss or injury unless presentment is otherwise
excused. This is in harmony with Article1249 of the Civil Code under which payment by way of
check or other negotiable instrument is conditioned on its being cashed, except when through the
fault of the creditor, the instrument is impaired. The payee of a check would be a creditor under
this provision and if its non-payment is caused by his negligence, payment will be deemed
effected and the obligation for which the check was given as conditional payment will be
discharged. Failure of a payee to encash a check for more than ten (10) years undoubtedly
resulted in the impairment of the check through his unreasonable and unexplained delay

Additional Cases
43. Allied Banking Corporation vs. Court of Appeals. G.R. No. 125851, July 11, 2006
Facts: Petitioner purchased a letter of credit from respondent G.G. Sportswear Mfg. Corporation.
The export bill was issued by Chekiang First Bank Ltd., Hongkong. With the purchase of the bill,
ALLIED credited GGS the peso equivalent of the aforementioned bill. On the same date,
respondents executed their respective Letters of Guaranty, holding themselves liable on the
export bill if it should be dishonored or retired by the drawee for any reason. When ALLIED
negotiated the export bill to Chekiang, payment was refused due to some material discrepancies
in the documents submitted by GGS relative to the exportation covered by the letter of credit.
Consequently, ALLIED demanded payment from all the respondents based on the Letters of
Guaranty and Surety executed in favor of ALLIED. However, respondents refused to pay,
prompting ALLIED to file an action for a sum of money. Respondents claim that the petitioner did
not protest upon dishonor of the export bill by Chekiang FirstBank, Ltd. According to respondents,
since there was no protest made upon dishonor of the export bill,all of them, as indorsers were
discharged under Section 152 of the Negotiable Instruments Law.
Issue: Whether or not protest upon dishonor is necessary on a guarantor of a commercial paper.
Held: No, Section 152 of the Negotiable Instruments Law pertaining to indorsers, relied on by
respondents, is not pertinent to this case. There are well-defined distinctions between the
contract of an indorser and that of a guarantor/surety of a commercial paper, which is what is
involved in this case. The contract of indorsement is primarily that of transfer, while the contract of
guaranty is that of personal security. The liability of a guarantor/surety is broader than that of an
indorser. Unless the bill is promptly presented for payment at maturity and due notice of dishonor
given to the indorser within a reasonable time, he will be discharged from liability thereon. On the
other hand, except where required by the provisions of the contract of suretyship, a demand or
notice of default is not required to fix the suretys liability. Hence, respondents are liable and
protest upon dishonor is not necessary.
44. Sincere Villanueva vs. Marlyn Nite. G.R. No. 146211, July 25, 2005
Facts: Respondent took a loan from petitioner. To secure the loan, respondent issued petitioner
an Asian Bank Corporation check. The check was, however, dishonored due to a material
alteration when petitioner deposited the check on due date. Petitioner, however, filed an action for
a sum of money against ABC which was awarded by the court. When respondent went to
withdraw from her account on ABC, she was unable to do so because the trial court had ordered
ABC to pay petitioner the value of respondents ABC check. Respondent then filed a petition to
annul and set aside the trial courts decision ordering ABC to pay petitioner the value of the ABC
check.
Issue: Whether or not ABC may be held liable to petitioner for the dishonour of the check.
Held: If a bank refuses to pay a check notwithstanding the sufficiency of funds, the payee-holder
cannot sue the bank because there is no privity of contract exists between the drawee-bank and

the payee. Contracts take effect only between the parties, their assigns and heirs. In this case,
the contract of loan was between petitioner and respondent. No collection suit could prosper
without respondent who was an indispensable party.
45. Bank of the Philippine Island vs. Commissioner of Internal Revenue. G.R No.
137002, July 27, 2006
Facts: Petitioner Bank of the Philippine Islands (BPI) sold to the Central Bank of the Philippines
U.S. dollars. BPI instructed, by cable, its correspondent bank in New York to transfer U.S. dollars
deposited in BPIs account therein to the Federal Reserve Bank in New York for credit to the
Central Banks account therein. Thereafter, the funds had been credited to its account and the
Central Bank promptly transferred to the petitioners account in the Philippines the corresponding
amount in Philippine pesos. Under the NIRC Section 195, it imposes a documentary stamp tax on
(1) foreign bills of exchange, (2)letters of credit, and (3) orders, by telegraph or otherwise, for the
payment of money issued by express or steamship companies or by any person or persons.
Issue: Whether or not the instruction by cable is a bill of exchange included in the activities where
documentary stamp tax is imposed.
Held: From this enumeration, two common elements need to be present: (1) drawing the
instrument or ordering a drawee, within the Philippines; and (2) ordering that drawee to pay
another person a specified amount of money outside the Philippines. What is being taxed is the
facility that allows a party to draw the draft or make the order to pay within the Philippines and
have the payment made in another country. The fact that the funds belong to BPI and were not
advanced by the correspondent bank will not remove the transaction from the coverage of
Section 195 of the NIRC. A bill of exchange, when drawn in the Philippines but payable in another
country, would surely be covered by this section. And in the case of a bill of exchange, the funds
may belong to the drawer and need not be advanced by the drawee, as in the case of a check or
a draft. In the description of a draft provided hereunder, the drawee is in possession of funds
belonging to the drawer of the bill.
46. Citibank NA vs. Sabeniano. 504 SCRA 378, October 16, 2008
Facts: Respondent Modesta R. Sabeniano was a client of both petitioners Citibank and FNCB
Finance. Respondent filed a complaint to recover substantial deposits and money market
placements with petitioner. Petitioners admitted them however when respondent failed to pay her
loans with FNCB Finance despite repeated demands by petitioner Citibank, the latter exercised
its right to off-set. In support of respondents assertion that she had already paid whatever loans
she may have had with petitioner Citibank, she presented as evidence provisional receipts for the
acceptance of the checks.
Issue: Whether or not petitioner the provisional receipts upon acceptance of checks evidenced
the payment.
Held: Since a negotiable instrument is only a substitute for money and not money, the delivery of
such an instrument does not, by itself, operate as payment. A check, whether a managers check
or ordinary check, is not legal tender, and an offer of a check in payment of a debt is not a valid
tender of payment and may be refused receipt by the obligee or creditor. Mere delivery of checks
does not discharge the obligation under a judgment. The obligation is not extinguished and
remains suspended until the payment by commercial document is actually realized. Since the
provisional receipt was issued for the receipt of the check, the same cannot be considered as
evidence of payment hence the loan still subsist.
47. Equitable PCI Bank vs. Rowena Ong. G.R. No. 156207, September 15, 2006
Facts: Sarande deposited in her account with Philippine Commercial International (PCI) Bank a
check in amount of P225,000 which was cleared. Thereafter, Sarande issued a check amounting
to P132,000owing to a business consideration. On the same day, Ong presented the check to
PCI Bank but instead of depositing it, she requested that proceeds thereof converted into a

mangers check whereupon a managers check was issued. Thereafter, he deposited said check
to Equitable Banking Corporation but was later on dishonored because PCI Bank issued a stop
payment owing to Sarandes account being closed.
Issue: Whether or not Ong is a holder in due course in the absence of consideration in the
issuance of the managers check.
Held: The claim is without basis. Easily discernible is that what Ong obtained from PCI Bank was
not just any ordinary check but a managers check. A managers check is an order of the bank to
pay, drawn upon itself, committing in effect its total resources, integrity and honor behind its
issuance. By accepting PCI Bank Check issued by Sarande to Ong and issuing in turn a
managers check in exchange thereof, PCI Bank assumed the liabilities of an acceptor under
Section 62 of the Negotiable Instruments Law. Hence, Petitioner is liable to pay the value of the
check with damages.
48. International Corporate Bank vs. Court of Appeals and PNB. G.R. No. 129910,
September 5, 2006
Facts: The Ministry of Education and Culture issued 15 checks 5 drawn against respondent
which petitioner accepted for deposit on various dates. After 24 hours from submission of the
checks to respondent for clearing, petitioner paid the value of the checks and allowed the
withdrawals of the deposits. However, on 14 October 1981, respondent returned all the checks to
petitioner without clearing them on the ground that they were materially altered. Thus, petitioner
instituted an action for collection of sums of money against respondent to recover the value of the
checks.
Issue: Whether or not respondent should be held liable for the materially altered checks.
Held: The alterations in the checks were made on their serial numbers. Alteration on serial
numbers are not within the purview of material alteration as provided under Section 125 of NIL for
the name of the government agency which issued the check was prominently printed. Since there
were no material alterations on the checks, respondent as drawee bank has no right to dishonor
them and return them to petitioner, the collecting bank. Thus, respondent is liable to petitioner for
the value of the checks, with legal interest from the time of filing.
49. Melva Theresa Gonzales vs. Rizal Commercial Banking Corporation. G.R. No.
156294, November 29, 2006
Facts: Gonzales was an employee of Rizal Commercial Banking Corporation (RCBC). A foreign
check in the amount of $7,500 was drawn by Dr. Don Zapanta and payable to Gonzales mother,
defendant Eva Alviar. Alviar then endorsed this check. Gonzales presented the foreign check to
Olivia Gomez. After examining this, Olivia Gomez acquiesced to the early encashment of the
check and signed the check but indicated thereon her authority of up to P17,500.00 only. RCBC
then tried to collect the check with the drawee bank but was dishonored because of irregular
indorsement. Insisting, RCBC again sent the check to the drawee bank, but this time the check
was returned due to account closed. Unable to collect, RCBC demanded from Gonzales the
payment of the peso equivalent of the check that she received.
Issue: Whether or not Gonzales is liable to the subsequent indorser despite of the defect
introduced by the latter which rendered the instrument dishonored.
Held: The foreign drawee bank, Wilshire Center Bank N.A., refused to pay the bearer of this
dollar-check drawn by Don Zapanta because of the defect introduced by RCBC, through its
employee, Olivia Gomez. There is no doubt in the mind of the Court that a subsequent party
which caused the defect in the instrument cannot have any recourse against any of the prior
endorsers in good faith. The holder or subsequent endorser who tries to claim under the
instrument which had been dishonored for irregular endorsement must not be the irregular

endorser himself who gave cause for the dishonor. RCBC, which caused the dishonor of the
check upon presentment to the drawee bank, through the qualified endorsement of its employee,
Olivia Gomez, cannot hold prior endorsers, Alviar and Gonzales in this case, liable on the
instrument.
50. Metropolitan Bank and Trust Co. vs. Renato Cabilzo. G.R. No. 154469, December 6,
2006
FACTS: Cabilzo issued a postdated Metrobank Check payable to CASH. The check was
presented to Westmont Bank for payment by Mr. Marquez. Metrobank cleared the check for
encashment. Thereafter, it was discovered that Metrobank Check which he issued in the amount
of P1, 000.00 wasaltered to P91,000.00. Cabilzo demanded that Metrobank re-credit the amount
of P91,000.00 to his account.
Issue: Whether or not petitioner is liable for the amount of the materially altered check.
Held: The bank on which the check is drawn is under strict liability to pay to the order of the
payee in accordance with the drawers instructions. Payment made under materially altered
instrument is not payment done in accordance with the instruction of the drawer. When the
drawee bank pays a materially altered check, it violates the terms of the check, as well as its duty
to charge its clients account only for bona fide disbursements he had made. Since the drawee
bank, in the instant case, did not pay according to the original tenor of the instrument, as directed
by the drawer, then it has no right to claim reimbursement from the drawer, much less, the right to
deduct the erroneous payment it made from the drawers account which it was expected to t
reat with utmost fidelity. Hence, petitioner is liable to reimburse the drawer for the amount paid.
51. Theresa Macalalag vs. People of the Philippines. G.R. No. 164358, December 20,
2006
Facts: Petitioner obtained loans from Grace Estrella. Failure to pay the interest and the loan, she
executed two acknowledgement/affirmation receipts and as security for payment of the aforesaid
loans issued two PNB checks in favor of Estrella. However, when Estrella presented said checks
for payment with the drawee bank, the same were dishonored for the reason that the account
against which thesame was drawn was already closed. Estrella sent a notice of dishonor and
demand to make good thesaid checks to Macalalag, but the latter failed to do so. Hence, Estrella
filed two criminal complaints for Violation of Batas Pambansa Blg. 22.
Issue: Whether or not petitioner is violated BP 22 upon issuance of the check as security.
Held: We have repeatedly held that there is no violation of Batas Pambansa Blg. 22 if the
complainant was actually told by the drawer that he has no sufficient funds in a bank. Where, as
in the case at bar, the checks were issued as security for a loan, payment by the accused of the
amount of the check prior to its presentation for payment would certainly serve the same purpose.
When Estrella presented the checks for payment, the same were dishonored on the ground that
they were drawn against a closed account. Despite notice of dishonor, petitioner Macalalag failed
to pay the full face value of the second check issued. Only a full payment of the face value of the
second check at the time of its presentment or during the five-day grace period could have
exonerated her from criminal liability.
52. BPI vs. Court of Appeals. G.R. 136202, January 25, 2007
FACTS: Templonuevo demanded payment from petitioner of a sum of money representing the
aggregate value of three checks which were erroneously deposited with the petitioner to
A.A.Salazar Construction and Engineering Services account. Finding merit in the demands, the
bank then froze the account of the engineering firm as the account of Salazar was already closed
or had insufficient funds. Failure of any settlement between Templonuevo and Salazar, this
prompted the bank to debit the account of Salazar and give back the money to Templonuevo
through cashiers check. The account of Salazar was also debited for whatever charges incurred
for the issuance of the cashiers check. Hence, respondent Salazar filed this action for the
recovery of the money.

ISSUE: Whether or not the collecting bank have the authority to withdraw unilaterally from such
depositors account the amount it had previously paid upon certain unendorsed order instruments
deposited by the depositor to another account that she later closed?
HELD: Consequently, petitioner, as the collecting bank, had the right to debit Salazars account
for the value of the checks it previously credited in her favor. It is of no moment that the account
debited by petitioner was different from the original account to which the proceeds of the check
were credited because both admittedly belonged to Salazar, the former being the account of the
sole proprietorship which had no separate and distinct personality from her, and the latter being
her personal account. However, the bank is liable for damages caused to Salazar as a result of
the erroneous debit by reason of its failure to perform its obligation to treat their depositors with
meticulous care, having in mind the fiduciary nature of their relationship.