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TITLE STATE INVESTMENT HOUSE, INC., petitioner, vs. COURT OF APPEALS and NORA B. MOULIC, respondents.

FACTS
Private respondent Nora B. Moulic issued to Corazon Victoriano, as security for pieces of jewelry to be sold on commission, two (2) post-dated Equitable Banking Corporation checks in the amount of Fifty Thousand Pesos (P50,000.00) each, one dated 30 August 1979 and the other, 30 September 1979. Thereafter, the payee negotiated the checks to petitioner State Investment House. Inc. (STATE). MOULIC failed to sell the pieces of jewelry, so she returned them to the payee before maturity of the checks. The checks, however, could no longer be retrieved as they had already been negotiated. Consequently, before their maturity dates, MOULIC withdrew her funds from the drawee bank. Upon presentment for payment, the checks were dishonored for insufficiency of funds. Petitioner sued respondent for its non payment of the checks she issued. Respondent avers that she should not be liable for she issued the checks merely as security for the pieces of jewelry, and it was not intended to be negotiated.

ISSUE Whether or not respondent is liable on the checks issued merely as security to a holder in due course.

HELD
Yes. The respondent is liable. The issued checks are negotiable instruments. Culled from the foregoing, a prima facie presumption exists that the holder of a negotiable instrument is a holder in due course. Consequently, the burden of proving that STATE is not a holder in due course lies in the person who disputes the presumption. In this regard, MOULIC failed. The evidence clearly shows that: (a) on their faces the post-dated checks were complete and regular: (b) petitioner bought these checks from the payee, Corazon Victoriano, before their due dates; (c) petitioner took these checks in good faith and for value, albeit at a discounted price; and, (d) petitioner was never informed nor made aware that these checks were merely issued to payee as security and not for value. Consequently, STATE is indeed a holder in due course. As such, it holds the instruments free from any defect of title of prior parties, and from defenses available to prior parties among themselves; STATE may, therefore, enforce full payment of the checks. MOULIC cannot set up against STATE the defense that there was failure or absence of consideration. MOULIC can only invoke this defense against STATE if it was privy to the purpose for which they were issued and therefore is not a holder in due course. In addition, the Negotiable Instruments Law was enacted for the purpose of facilitating, not hindering or hampering transactions in commercial paper. Thus, the said statute should not be tampered with haphazardly or lightly. Nor should it be brushed aside in order to meet the necessities in a single case. The drawing and negotiation of a check have certain effects aside from the transfer of title or the incurring of liability in regard to the instrument by the transferor. The holder who takes the negotiated paper makes a contract with the parties on the face of the instrument. There is an implied representation that funds or credit are available for the payment of the instrument in the bank upon which it is drawn. Consequently, the withdrawal of the money from the drawee bank to avoid liability on the checks cannot prejudice the rights of holders in due course. In the instant case, such withdrawal renders the drawer, Nora B. Moulic, liable to STATE,

PARTIES Petitioners A- STATE INVESTMENT HOUSE, INC Respondents B- NORA B. MOULIC

a holder in due course of the checks.

TITLE

FACTS

ISSUE

HELD
YES. Respondent is liable. The Court finds that the checks are the all important evidence of petitioner's case; that these checks clearly established private respondent's indebtedness to petitioner; that private respondent was liable thereunder. It is important to stress that 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. Thus, the mere

G.R. No. L-56169 June Petitioner Travel-On. Inc. ("Travel-On") is a travel agency selling airline tickets on commission basis for and in behalf 26, 1992 TRAVEL-ON, INC., petitioner, vs. COURT OF APPEALS and ARTURO S.

Whether or not is of different airline companies. Private respondent Arturo S. respondent to a Miranda had a revolving credit line with petitioner. He liable procured tickets from petitioner on behalf of airline holder for value passengers and derived commissions therefrom. Petitioner issuing a sold and delivered various airline tickets to respondent at a in total price of P278,201.57; that to settle said account, postdated private respondent paid various amounts in cash and in kind, and thereafter issued six postdated checks amounting to checks although

MIRANDA, respondents

P115,000.00 which were all dishonored by the drawee banks. Travel-On filed suit before the Court of First Instance of Manila to collect on six checks issued by private respondent. Travel-On further alleged that in March 1972, private respondent made another payment of P10,000.00 reducing his indebtedness to P105,000.00. The writ of attachment was granted by the court a quo.

it is merely for accommodation .

introduction of the instrument sued on in evidence prima facie entitles the plaintiff to recovery. Further, the rule is quite settled that a negotiable instrument is presumed to have been given or indorsed for a sufficient consideration unless otherwise contradicted and overcome by other competent evidence. The fact that all the checks issued by private respondent to petitioner were presented for payment by the latter would lead to no other conclusion than that these checks were intended for encashment. There is nothing in the checks themselves (or in any other document for that matter) that states otherwise. We are unable to accept the Court of Appeals' conclusion that the checks here involved were issued for "accommodation" and that accordingly private respondent maker of those checks was not liable thereon to petitioner payee of those checks. In the first place, while the Negotiable Instruments Law does refer to accommodation transactions, no such transaction was here shown. In the case at bar, Travel-On was payee of all six checks, it presented these checks for payment at the drawee bank but the checks bounced. Travel-On obviously was not an accommodated party; it realized no value on the checks which bounced. Thus, we believe and so hold that private respondent must be held liable on the six checks here involved. Those checks in themselves constituted evidence of indebtedness of private respondent, evidence not successfully overturned or rebutted by private respondent.

PARTIES

Petitioners A- TRAVEL-ON, INC Respondents B- ARTURO S. MIRANDA

In his answer, private respondent admitted having had transactions with Travel-On during the period stipulated in the complaint. Private respondent, however, claimed that he had already fully paid and even overpaid his obligations and that refunds were in fact due to him. He argued that he had issued the postdated checks for purposes of accommodation, as he had in the past accorded similar favors to petitioner. During the proceedings, private respondent contested several tickets alleged to have been erroneously debited to his account. He claimed reimbursement of his alleged over payments, plus litigation expenses, and exemplary and moral damages by reason of the allegedly improper attachment of his properties.

TITLE

FACTS 3

ISSUE

HELD

G.R. No. L-15380 September 30, 1960 CHAN WAN, plaintiffappellant, vs. TAN KIM and CHEN SO, defendants-appellees. PARTIES

Petitioner presented for payment to the drawee bank eleven checks payable to "cash or bearer" which were drawn by defendant Tan Kim upon the Equitable Banking Corporation; but they "were all dishonored and returned to him unpaid due to insufficient funds and/or causes attributable to the drawer." At the hearing of the case, in the Manila court of first instance, the plaintiff did not take the witness stand. His attorney, however, testified only to identify the checks plus the letters of demand upon defendants. On the other hand, Tan Kim declared without contradiction that the checks had been issued to two persons named Pinong and Muy for some shoes the former had promised to make and "were intended as mere receipts". In view of such circumstances, the court declined to order payment for two principal reasons: (a) plaintiff failed to prove he was a holder in due course, and (b) the checks being crossed checks should not have been deposited instead with the bank mentioned in the crossing. Eight of the checks here in question bear across their face two parallel transverse lines between which these words are written: non-negotiable China Banking Corporation. These checks have, therefore, been crossed specially to the China Banking Corporation, and should have been presented for payment by China Banking, and not by Chan Wan. Nevertheless, on the backs of the checks, endorsements which apparently show they had been deposited with the China Banking Corporation and were, by the latter, presented to the drawee bank for collection. And then as the drawee has no fund, it was dishonored. Consequently, Chan Wan got hold of this dishonored check. Thus, apparently, he was not a holder in due course.

Whether or not the petitioner has a right to collect on the eleven commercial documents considering he is not a holder in due course.

Petitioners A- CHAN WAN Respondents B- TAN KIM C- CHEN SO

YES. It does not follow as a legal proposition, that simply because he was not a holder in due course Chan Wan could not recover on the checks. The Negotiable Instruments Law does not provide that a holder who is not a holder in due course, may not in any case, recover on the instrument. If B purchases an overdue negotiable promissory note signed by A, he is not a holder in due course; but he may recover from A, if the latter has no valid excuse for refusing payment. The only disadvantage of holder who is not a holder in due course is that the negotiable instrument is subject to defense as if it were non- negotiable. Tan Kim admitted on cross-examination either that the checks had been issued as evidence of debts to Pinong and Muy, and/or that they had been issued in payment of shoes which Pinong had promised to make for her. Needless to say, if it were true that the checks had been issued in payment for shoes that were never made and delivered, Tan Kim would have a good defense as against a holder who is not a holder in due course.

TITLE LEODEGARIO BAYANI, petitioner , vs. PEOPLE OF THE PHILIPPINES, resp ondent. PARTIES

FACTS
Alicia Rubia went to the grocery store of Dolores Evangelista in Candelaria, Quezon, and asked the latter to rediscount Philippine Savings Bank (PSBank) Check in the amount of P55,000.00. The check was drawn by Leodegario Bayani against his account with the PSBank and postdated August 29, 1992. Rubia told Evangelista that Bayani asked her to rediscount the check for him because he needed the money. Evangelista agreed to rediscount the check. After Rubia endorsed the check, Evangelista gave her the amount ofP55,000.00. However, when Evangelista deposited the check in her account with the Far East Bank & Trust Company on September 11, 1992, it was dishonored by the drawee bank for the reason that on September 1, 1992, Bayani closed his account with the PSBank. The reason for the dishonor of the check was stamped at its dorsal portion. As ofAugust 27, 1992, the balance of Bayanis account with the bank was P2,414.96. Evangelista then informed Rubia of the dishonor of the check and demanded the return of her P55,000.00. Rubia replied that she was only requested by Bayani to have the check rediscounted and advised Evangelista to see him. When Evangelista talked to Bayani, she was told that Rubia borrowed the check from him. Thereafter, Evangelista, Rubia, Bayani and his wife, Aniceta, had a conference in the office of Atty. Emmanuel Velasco, Evangelistas lawyer. Later, in the Office of the Barangay Captain Nestor Baera, Evangelista showed Bayani a photocopy of the dishonored check and demanded payment thereof. Bayani and Aniceta, on one hand, and Rubia, on the other, pointed to each other and denied liability thereon. Aniceta told Rubia that she should be the one to pay since the P55,000.00 was with her, but the latter insisted that the said amount was in payment of the pieces of jewelry Aniceta purchased from her. Upon Atty. Velascos prodding, Evangelista suggested Bayani and Rubio to pay P25,000.00 each. Still, Bayani and Rubia pointed to the other as the one solely liable for the amount of the check. Rubia reminded Aniceta that she was given the check as payment of the pieces of jewelry Aniceta bought from her.

ISSUE Whether or not petitioner is liable for issuing the checks although it was not issued for valuable consideration, as it was allegedly borrowed from him.

HELD
Yes. Petitioner is liable. Petitioner cannot use as defense want of valuable consideration against a person who is a holder in due course. SECTION 28. Effect of want of consideration . Absence or failure of consideration is a matter of defense as against any person not a holder in due course; and partial failure of consideration is a defensepro tanto, whether the failure is an ascertained and liquidated amount or otherwise. Evangelista is a holder of the check in due course. The evidence on record shows that Evangelista rediscounted the check and gave P55,000.00 to Rubia after the latter endorsed the same. Under Section 28 of the Negotiable Instruments Law (NIL), absence or failure of consideration is a matter of defense only as against any person not a holder in due course. Moreover, Section 24 of the NIL provides the presumption of consideration. SECTION 24. Presumption of consideration. negotiable instrument is deemed prima facie to been issued for a valuable consideration; and person whose signature appears thereon to become a party thereto for value. Every have every have

Petitioners A- LEODEGARIO BAYANI Respondents B- PEOPLE OF THE PHILIPPINES

Such presumption cannot be overcome by the petitioners bare denial of receipt of the amount of P55,000.00 from Rubia. Indubitably, it follows that there was a presumption of consideration between petitioner and Rubia for issuing the check.

TITLE G.R. No. 105836 March 7, 1994 SPOUSES GEORGE MORAN and LIBRADA P. MORAN, petitioners, vs. THE HON. COURT OF APPEALS and CITYTRUST BANKING CORPORATION, responde nts. PARTIES

FACTS
Petitioner spouses George and Librada Moran are the owners of the Wack-Wack Petron gasoline station. They regularly purchased bulk fuel and other related products from Petrophil Corporation on cash on delivery (COD) basis. Orders for bulk fuel and other related products were made by telephone and payments were effected by personal checks upon delivery. Petitioners maintained three joint accounts, namely one current account and two savings accounts with Citytrust Banking Corporation. The two savings account was covered by a pre-authorized transfer (PAT) agreement. It is intended for automatic transfer of funds from the savings account whenever the current account is not sufficient to pay withdrawals. On December 12, 1983, petitioners, through Librada

ISSUE Whether or not the respondent bank is liable for dishonoring the checks drawn by the Petitioners in favor of Petrophil in relation to the PAT agreement.

HELD
No. Respondent Bank is not liable. Petitioner had no reason to complain, for they alone were at fault. A drawer must remember his responsibilities every time he issues a check. He must personally keep track of his available balance in the bank and not rely on the bank to notify him of the necessity to fund certain check she previously issued. A check, as distinguished from an ordinary bill of exchange, is supposed to be drawn against a previous deposit of funds for it is ordinarily intended for immediately payment. The bank could not be faulted for not accepting either of the two checks. The first check issued was in the amount of P50,576.00, while the second one was for P56,090.00. Savings Account No. 1307001372 then had a balance of only P26,104.30. This being the case, Citytrust could not be

Petitioners A- SPOUSES GEORGE MORAN and LIBRADA P. MORAN Respondents B- CITYTRUST BANKING CORPORATION

Moran, drew a check for P50,576.00 payable to Petrophil Corporation. The next day, December 13, 1983, petitioners, again through Librada Moran, issued another check in the amount of P56,090.00 in favor of the same corporation. The total sum of the two checks was P106,666.00. On December 14, 1983, Petrophil Corporation deposited the two aforementioned checks to its account with the Pandacan branch of the Philippine National Bank (PNB), the collecting bank. In turn, PNB, Pandacan branch presented them for clearing with the Philippine Clearing House Corporation in the afternoon of the same day. The records show that on December 14, 1983, Current Account had a zero balance, while Savings Account No. 1037001372 (covered by the PAT) had an available balance of P26,104.30 and Savings Account No. 1037002387 had an available balance of P43,268.39. It was clear that the savings accounts were not sufficient to cover the two checks earlier issued. It was only on Dec. 15 that the Morans deposited money in the bank sufficient to pay the two checks. Thus, petrophil refused to deliver fuel on credit basis because the two checks they had previously issued were dishonored upon presentment for payment.

expected to accept for payment either one of the two checks nor partially honor one check. A bank is under no obligation to make part payment on a check, up to only the amount of the drawer's funds, where the check is drawn for an amount larger than what the drawer has on deposit. Such a practice of paying checks in part has never existed. On the above premises which irresistibly commend themselves to our acceptance, we find no cogent and sufficient to award actual, moral, or exemplary damages to petitioners. Although we take judicial notice of the fact that there is a fiduciary relationship between a bank and its depositors, as well as the extent of diligence expected of it in handling the accounts entrusted to its care, the bank may not be held responsible for such damages in the absence of fraud, bad faith, malice, or wanton attitude.

TITLE EUMELIA R. MITRA, - versus PEOPLE OF THE PHILIPPINES and FELICISIMO S. TARCELO,

FACTS Petitioner Eumelia R. Mitra (Mitra) was the Treasurer, and Florencio L. Cabrera, Jr. (now deceased) was the President, of Lucky Nine Credit Corporation(LNCC), a corporation engaged in money lending activities. Between 1996 and 1999, private respondent invested money in LNCC. As the usual practice in money placement transactions, Tarcelo issued checks equivalent to the amounts 7

ISSUE Whether or not petitioner is liable to private respondent for issuing the checks.

HELD Yes. Petitioner is liable. A check is a negotiable instrument that serves as a substitute for money and as a convenient form of payment in financial transactions and obligations. The use of checks as payment allows commercial and banking transactions to proceed without the actual handling of money, thus, doing away with the need to physically count bills and coins whenever payment is made. It permits commercial and banking transactions to be carried

PARTIES

Petitioners A- EUMELIA R. MITRA Respondents B- FELICISIMO S. TARCELO

he invested plus the interest on his investments. The following checks, signed by Mitra and Cabrera, were issued by LNCC to Tarcelo. When Tarcelo presented these checks for payment, they were dishonored for the reason account closed. Tarcelo made several oral demands on LNCC for the payment of these checks but he was frustrated. Constrained, in 2002, he caused the filing of seven informations for violation of Batas Pambansa Blg. 22 (BP 22) in the total amount of P925,000.00 with the MTCC in Batangas City.

out quickly and efficiently. But the convenience afforded by checks is damaged by unfunded checks that adversely affect confidence in our commercial and banking activities, and ultimately injure public interest.

TITLE
[G.R. No. 141968. February 12, 2001] THE INTERNATIONAL CORPORATE BANK (now UNION BANK OF THE PHILIPPINES), petitioner, vs. SPS. FRANCIS S. GUECO and MA. LUZ E. GUECO, respondents.

FACTS
The respondents Gueco Spouses obtained a loan from petitioner International Corporate Bank (now Union Bank of the Philippines) to purchase a car a Nissan Sentra 1600 4DR, 1989 Model. In consideration thereof, the Spouses executed promissory notes which were payable in monthly installments and chattel mortgage over the car to serve as security for the notes.

ISSUE

HELD
No. There was no valid tender of payment. Thus, the obligation to pay has not been extinguished. The original obligation to pay certainly has not been erased. It has been held that, if the check had become stale, it becomes imperative that the circumstances that caused its non-presentment be determined. In the case at bar, there is no doubt that the petitioner bank held on the check and refused to encash the same because of the controversy surrounding the signing of the joint motion to dismiss. We see no bad faith or negligence in this position taken by the Bank. A stale check is one which has not been presented for

Whether or not there was a valid tender of payment in the delivery of the managers check to the The Spouses defaulted in payment of petitioner, installments. Consequently, the Bank filed the case Sum of although the Money with Prayer for a Writ of Replevin before the latter did not 8

Metropolitan Trial Court. As a result of the non-payment of the reduced amount, the car was detained inside the banks compound. On August 29, 1995, Dr. Gueco delivered a managers check in the amount of P150,000.00 but the car was not released because of his refusal to sign the Joint Motion to Dismiss. After several demand letters and meetings with bank representatives, the respondents Gueco spouses initiated a civil action for damages before the Metropolitan Trial Court of Quezon City. The Metropolitan Trial Court dismissed the complaint for lack of merit. On appeal to the Regional Trial Court, the decision of the Metropolitan Trial Court was reversed. In its decision, the RTC held that there was a meeting of the minds between the parties as to the reduction of the amount of indebtedness and the release of the car but said agreement did not include the signing of the joint motion to dismiss as a condition sine qua non for the effectivity of the compromise. Respondents would make us hold that petitioner should return the car or its value and that the latter, because of its own negligence, should suffer the loss occasioned by the fact that the check had become stale. It is their position that delivery of the managers check produced the effect of payment and, thus, petitioner was negligent in opting not to deposit or use said check.

sign the motion dismiss.

joint payment within a reasonable time after its issue. It is to valueless and, therefore, should not be paid. A check must

PARTIES

Petitioners A- UNION BANK OF THE


PHILIPPINES

Respondents B- SPS. FRANCIS S. GUECO


and MA. LUZ E. GUECO

be presented for payment within a reasonable time after its issue, and in determining what is a reasonable time, regard is to be had to the nature of the instrument, the usage of trade or business with respect to such instruments, and the facts of the particular case. The test is whether the payee employed such diligence as a prudent man exercises in his own affairs. This is because the nature and theory behind the use of a check points to its immediate use and payability. In the case at bar, however, the check involved is not an ordinary bill of exchange but a managers check. A managers check is one drawn by the banks manager upon the bank itself. It is similar to a cashiers check both as to effect and use. A cashiers check is a check of the banks cashier on his own or another check . In effect, it is a bill of exchange drawn by the cashier of a bank upon the bank itself, and accepted in advance by the act of its issuance. It is really the banks own check and may be treated as a promissory note with the bank as a maker . The check becomes the primary obligation of the bank which issues it and constitutes its written promise to pay upon demand. The mere issuance of it is considered an acceptance thereof. If treated as promissory note, the drawer would be the maker and in which case the holder need not prove presentment for payment or present the bill to the drawee for acceptance. Thus, even assuming that presentment is needed, 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. Failure to present on time, thus, 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.

TITLE

FACTS 9

ISSUE

HELD

G.R. No. 85419 March 9, 1993 DEVELOPMENT BANK OF RIZAL, plaintiff-petitioner, vs. SIMA WEI and/or LEE KIAN HUAT, MARY CHENG UY, SAMSON TUNG, ASIAN INDUSTRIAL PLASTIC CORPORATION and PRODUCERS BANK OF THE PHILIPPINES, defendantsrespondents.

PARTIES

In consideration for a loan extended by petitioner Bank to respondent Sima Wei, the latter executed and delivered to the former a promissory note, engaging to pay the petitioner Bank or order the amount of P1,820,000.00 on or before June 24, 1983 with interest at 32% per annum. Sima Wei made partial payments on the note, leaving a balance of P1,032,450.02. On November 18, 1983, Sima Wei issued two crossed checks payable to petitioner Bank drawn against China Banking Corporation, for

Whether or not petitioner Bank has a cause of action against any or all of the defendants, in the alternative or otherwise.

Petitioner bank has a cause of action only against respondent Sima Wei. The normal parties to a check are the drawer, the payee and the drawee bank. Courts have long recognized the business custom of using printed checks where blanks are provided for the date of issuance, the name of the payee, the amount payable and the drawer's signature. All the drawer has to do when he wishes to issue a check is to properly fill up the blanks and sign it. However, the mere fact that he has done these does not give rise to any liability on his part, until and unless the check is delivered to the payee or his representative. A negotiable instrument, of which a check is, is not only a written evidence of a contract right but is also a species of

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Petitioners A- DEVELOPMENT BANK OF


RIZAL

Respondents B- SIMA WEI C- LEE KIAN HUAT, MARY


CHENG UY, SAMSON TUNG D- ASIAN INDUSTRIAL PLASTIC CORPORATION D- PRODUCERS BANK OF THE PHILIPPINES

the amount of P550,000.00 and for the amount of P500,000.00. The said checks were allegedly issued in full settlement of the drawer's account evidenced by the promissory note. These two checks were not delivered to the petitioner-payee or to any of its authorized representatives. For reasons not shown, these checks came into the possession of respondent Lee Kian Huat, who deposited the checks without the petitioner-payee's indorsement (forged or otherwise) to the account of respondent Plastic Corporation, to the Producers Bank. Cheng Uy, Branch Manager of Producers Bank, relying on the assurance of respondent Samson Tung, President of Plastic Corporation, that the transaction was legal and regular, instructed the cashier of Producers Bank to accept the checks for deposit and to credit them to the account of said Plastic Corporation, inspite of the fact that the checks were crossed and payable to petitioner Bank and bore no indorsement of the latter. Hence, petitioner filed the complaint as aforestated.

property. Just as a deed to a piece of land must be delivered in order to convey title to the grantee, so must a negotiable instrument be delivered to the payee in order to evidence its existence as a binding contract. Section 16 of the Negotiable Instruments Law, which governs checks, provides in part: Every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto. Thus, the payee of a negotiable instrument acquires no interest with respect thereto until its delivery to him. 3Delivery of an instrument means transfer of possession, actual or constructive, from one person to another. 4Without 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. Notwithstanding the above, it does not necessarily follow that the drawer Sima Wei is freed from liability to petitioner Bank under the loan evidenced by the promissory note agreed to by her. Her allegation that she has paid the balance of her loan with the two checks payable to petitioner Bank has no merit for, as We have earlier explained, these checks were never delivered to petitioner Bank. And even granting, without admitting, that there was delivery to petitioner Bank, the delivery of checks in payment of an obligation does not constitute payment unless they are cashed or their value is impaired through the fault of the creditor. None of these exceptions were alleged by respondent Sima Wei. Therefore, unless respondent Sima Wei proves that she has been relieved from liability on the promissory note by some other cause, petitioner Bank has a right of action against her for the balance due thereon.

TITLE

FACTS

ISSUE

HELD

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G.R. No. 117857 February 2, 2001 LUIS S. WONG, petitioner, vs. COURT OF APPEALS and PEOPLE OF THE PHILIPPINES, respondents. PARTIES

Petitioners A- LUIS S. WONG Respondents B- PEOPLE OF THE PHILIPPINES

Petitioner Wong was an agent of Limtong Press. Inc. (LPI), a manufacturer of calendars. LPI would print sample calendars, then give them to agents to present to customers. The agents would get the purchase orders of customers and forward them to LPI. 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. Hence, petitioners customers were required to issue postdated checks before LPI would accept their purchase orders. In early December 1985, Wong issued six (6) postdated checks totaling P18,025.00, all dated December 30, 1985 and drawn payable to the order of LPI. These checks were initially intended to guarantee the calendar orders of customers who failed to issue post-dated checks. However, following company policy, LPI refused to accept the checks as guarantees. Instead, the parties agreed to apply the checks to the payment of petitioners unremitted collections for 1984 amounting to P18,077.07. 3 LPI waived the P52.07 difference. Before the maturity of the checks, petitioner prevailed upon LPI not to deposit the checks and promised to replace them within 30 days. However, petitioner reneged on his promise. Hence, on June 5, 1986, 157 days after the date of the check, LPI deposited the checks with Rizal Commercial Banking Corporation (RCBC). The checks were returned for the reason "account closed." The dishonor of the checks was evidenced by the RCBC return slip. On June 20, 1986, complainant through counsel notified the petitioner of the dishonor. Petitioner failed to make arrangements for payment within five (5) banking days. On November 6, 1987, petitioner was charged

Whether or not the checks issued by petitioner became stale.

Under Section 186 of the Negotiable Instruments Law, "a check must be presented for payment within a reasonable time after its issue or the drawer will be discharged from liability thereon to the extent of the loss caused by the delay." By current banking practice, a check becomes stale after more than six (6) months, or 180 days. Private respondent herein deposited the checks 157 days after the date of the check. Hence said checks cannot be considered stale. Only the presumption of knowledge of insufficiency of funds was lost if not presented for payment within 90 days after the date of the check. But such knowledge could still be proven by direct or circumstantial evidence.

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with three (3) counts of violation of B.P. Blg. 22 under three separate Informations for the three checks amounting to P5,500.00, P3,375.00, and P6,410.00.

TITLE [G.R. No. 112214. June 18, 1998] SECURITY BANK & TRUST COMPANY, petitioner, vs. COURT OF APPEALS, CRISPULO IKE ARBOLEDA, and AMADOR

FACTS
Petitioner filed an action against private respondents for the recovery of a sum of money with damages and preliminary attachment. It alleged that sometime in 1983, A.T. Diaz Realty, through Anita Diaz, bought from Ricardo Lorenzo his undivided share in a parcel of land which he owned in common with Servando Solomon. In connection with this transaction, Diaz issued a check for P60,000.00 in the name of Ricardo Lorenzos agent, private respondent Crispulo Arboleda. The check, dated November 7, 1983, was to be drawn against the current account of A.T. Diaz Realty in the Marikina branch of the

ISSUE Whether or not petitioner Bank has a right to collect money from private respondent Arboleda considering he

HELD No. There was no contractual relation created between petitioner and private respondent as a result of the payment by the former of the amount of the check. Petitioner simply paid the check for and in behalf of Anita Diaz. Therefore, the question whether private respondent Crispulo Arboleda has a right to keep the proceeds of the check is very relevant to this action brought to recover the amount.

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LIBONGCO,respondents.

Security Bank and Trust Co. (SBTC). According to Diaz, the money was part of the purchase price of the land. It was to be used to pay the capital gains tax on the transaction and to reimburse Solomon for payments he had made for delinquent real estate taxes on the land. In return, Solomon would deliver to Diaz the title to the land. On November 8, 1983, Solomon informed Diaz that, as he had not yet been reimbursed by private respondent, he could not deliver to Diaz the title to the land. Diaz decided to reimburse Solomon and to pay the capital gains tax herself. Consequently, she issued two more checks, one for P20,000.00, in the name of Solomon for the reimbursement, and another one for P40,000.00, payable to bearer, for the payment of the tax. Thereafter, on the same date, she ordered petitioner to stop payment on the check. Diaz allegedly advised private respondent of the order and requested the return of the check to her. Instead of returning the check to Diaz, however, private respondent encashed it on November 24, 1983. For their part, employees of petitioner bank failed to notice that the check was the subject of a stop payment order and allowed private respondent to encash it. The error was discovered only the next day, November 25, 1983. Petitioner recredited the amount (P60,000.00) of the check to A.T. Diaz Realtys account. Bank officials went to see respondent Arboleda to ask for the return of the amount of P60,000.00. But they were told the money had been turned over to Amador Libongco. When asked by bank officials, Libongco did not deny receipt of the money, but said he would return it provided Diaz showed him the receipt for payment of the capital gains tax. As Diaz failed to show receipts, Arboleda and Libongco refused to return the money. Petitioner, therefore, filed the instant suit.

PARTIES

Petitioners A- SECURITY BANK & TRUST COMPANY Respondents B- CRISPULO IKE ARBOLEDA C- AMADOR LIBONGCO

denies owing Indeed, even if petitioner is considered to have paid Anita Diaz in behalf of Arboleda, its right any obligation to DIAZ, drawer to recover from Arboleda would be only to the extent that the payment benefitted Arboleda, . because the payment (recrediting) was made Who are the without the consent of Arboleda. Since Arboleda denies owing any obligation to Diaz, real parties to petitioner cannot ask for reimbursement. Art. the collection of 1236 of the Civil Code. payment of the check? Whether petitioner is liable to Anita Diaz for cashing the check after it had been ordered not to pay is a matter between them. By restoring the amount it had paid to the account of A.T. Diaz Realty, petitioner merely stepped into the shoes of the drawer. Consequently, its present action is subject to the defenses which private respondent Arboleda might raise had this action been instituted by Anita Diaz.

TITLE

FACTS 14

ISSUE

HELD

TRADERS ROYAL BANK, petitioner, vs. RADIO PHILIPPINES NETWORK, INC., INTERCONTINENTAL BROADCASTING CORPORATION and BANAHAW BROADCASTING CORPORATION, through the BOARD OF ADMINISTRATORS, and SECURITY BANK AND TRUST COMPANY

The Bureau of Internal Revenue (BIR) assessed Radio Philippines Network (RPN), Intercontinental Broadcasting Corporation (IBC), and Banahaw Broadcasting Corporation (BBC) of their tax obligations for the taxable years 1978 to 1983. Mrs. Lourdes C. Vera, respondents comptroller, sent a letter to the BIR requesting settlement of respondents tax obligations. The BIR granted the request and accordingly, respondents purchased from Traders Royal Bank (TRB) three (3) managers checks to be used as payment for their tax liabilities. TRB, through Aida Nuez, TRB Branch Manager at Broadcast City Branch, turned over the checks to Mrs. Vera who was supposed to deliver the same to the BIR in payment of respondents taxes. Later, the BIR again assessed respondents for their tax liabilities for the years 1979-82. It was then they discovered that the three (3) managers checks intended as payment for their taxes were never delivered nor paid to the BIR by Mrs. Vera. Instead, the checks were presented for payment by unknown persons to respondent Security Bank and Trust Company (SBTC), as shown by the clearing code stamped on the reverse sides of the checks. Meanwhile, for failure of the respondents to settle their obligations, the BIR issued warrants of levy, distraint and garnishment against them. Thus, they were constrained to enter into a compromise and paid BIR P18,962,225.25 in settlement of their unpaid deficiency taxes. Thereafter, respondents sent letters to petitioner, demanding that the amounts covered by the checks be reimbursed or credited to their account. The petitioner refused, hence, the instant suit.

PARTIES

whether or not petitioner TRB should be held solely liable when it paid the amount of the managers checks in question to a person other than the payee indicated on the face of the check, the Bureau of Internal Revenue.

YES. TRB should be held solely liable. "When a signature is forged or made without the authority of the person whose signature it purports to be, it is wholly inoperative, and no right to retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any party thereto, can be acquired through or under such signature." 5 Consequently, if a bank pays a forged check, it must be considered as paying out of its funds and cannot charge the amount so paid to the account of the depositor. Petitioner ought to have known that, where a check is drawn payable to the order of one person and is presented for payment by another and purports upon its face to have been duly indorsed by the payee of the check, it is the primary duty of petitioner to know that the check was duly indorsed by the original payee and, where it pays the amount of the check to a third person who has forged the signature of the payee, the loss falls upon petitioner who cashed the check. Its only remedy is against the person to whom it paid the money. It should be noted further that one of the subject checks was crossed. The crossing of one of the subject checks should have put petitioner on guard; it was duty-bound to ascertain the indorsers title to the check or the nature of his possession. Petitioner should have known the effects of a crossed check: (a) the check may not be encashed but only deposited in the bank ; (b) the check may be negotiated only once to one who has an account with a bank and (c) the act of crossing the check serves as a warning to the holder that the check has been issued for a definite purpose so that he must inquire if he has received the check pursuant to that purpose, otherwise, he is not a holder in due course. By encashing in favor of unknown persons checks which were on their face payable to the BIR, a government agency which can only act only through its agents, petitioner did so at its peril and must suffer the consequences of the unauthorized or wrongful endorsement. In this light, petitioner TRB cannot exculpate itself from liability by claiming

Petitioners ABvs. Respondents C-

TRADERS ROYAL BANK(TRB)

RADIO PHILIPPINES NETWORK,

INC

D-

INTERCONTINENTAL BROADCASTING CORPORATION E- BANAHAW BROADCASTING CORPORATION F- BOARD OF ADMINISTRATORS, and SECURITY BANK AND TRUST COMPANY

15

that respondent networks were themselves negligent.

TITLE G.R. No. 97753 August 10, 1992 CALTEX (PHILIPPINES), INC., petitioner, vs. COURT OF APPEALS and SECURITY BANK AND TRUST COMPANY, respondents.

FACTS
On various dates, respondent , a commercial banking institution, issued 280 certificates of time deposit ( CTDs) in favor of one Angel dela Cruz who deposited with the bank the aggregate amount of P1,120,000.00. Angel dela Cruz delivered the said certificates of time (CTDs) to Caltex in connection with his purchase of fuel products from the latter. Angel dela Cruz informed Mr. Timoteo Tiangco, that he lost all the certificates of time deposit in dispute. Mr. Tiangco advised said depositor to execute and submit a notarized Affidavit of Loss, as required by the bank's

ISSUE 1. Whether or not subject certificates of deposit are non-negotiable. 2. The next query is whether Caltex can rightfully 16

HELD
1. YES. CTDs are negotiable instruments. We disagree with these findings and conclusions, and hereby hold that the CTDs in question are negotiable instruments. The CTDs in question undoubtedly meet the requirements of the law for negotiability. The parties' bone of contention is with regard to requisite (d) set forth above. It is noted that Mr. Timoteo P. Tiangco, Security Bank's Branch Manager way back in 1982, testified in open court that the depositor reffered to in the CTDs is no other than Mr. Angel de la Cruz . After trial, the court a quo rendered its decision dismissing the

PARTIES
procedure, if he desired replacement of said lost CTDs. On the basis of said affidavit of loss, 280 replacement CTDs were issued in favor of said depositor. On March 25, 1982, Angel dela Cruz negotiated and obtained a loan from respondent bank in the amount of P875,000.00. Sometime in November, 1982, Mr. Aranas, Credit Manager of Caltex, went to respondent bank and presented for verification the CTDs declared lost by Angel dela Cruz alleging that the same were delivered to Caltex "as security for purchases made with Caltex Philippines, Inc." by said depositor. On November 26, 1982, respondent bank received a letter from Caltex formally informing it of its possession of the CTDs in question and of its decision to preterminate the same. On December 8, 1982, Caltex was requested by respondent bank to furnish the former "a copy of the document evidencing the guarantee agreement with Mr. Angel dela Cruz" as well as "the details of Mr. Angel dela Cruz" obligation against which plaintiff proposed to apply the time deposits. No copy of the requested documents was furnished by Caltex. Accordingly, respondent bank rejected the plaintiff's demand and claim for payment of the value of the CTDs in a letter dated February 7, 1983. In April 1983, the loan of Angel dela Cruz with respondent bank matured and fell due and on August 5, 1983, the latter set-off and applied the time deposits in question to the payment of the matured loan. In view of the foregoing, Caltex filed the instant complaint, praying that respondent bank be ordered to pay it the aggregate value of the certificates of time deposit of P1,120,000.00 plus accrued interest and compounded interest therein at 16% per annum, moral and exemplary

recover on the instant complaint. CTDs.


On this score, the accepted rule is that the negotiability or non-negotiability of an instrument is determined from the writing, that is, from the face of the instrument itself. In the construction of a bill or note, the intention of the parties is to control, if it can be legally ascertained. While the writing may be read in the light of surrounding circumstances in order to more perfectly understand the intent and meaning of the parties, yet as they have constituted the writing to be the only outward and visible expression of their meaning, no other words are to be added to it or substituted in its stead . The duty of the court in such case is to ascertain, not what the parties may have secretly intended as contradistinguished from what their words express, but what is the meaning of the words they have used. What the parties meant must be determined by what they said. Contrary to what respondent court held, the CTDs are negotiable instruments. The documents provide that the amounts deposited shall be repayable to the depositor . And who, according to the document, is the depositor? It is the "bearer." The documents do not say that the depositor is Angel de la Cruz and that the amounts deposited are repayable specifically to him. Rather, the amounts are to be repayable to the bearer of the documents or, for that matter, whosoever may be the bearer at the time of presentment. 2. NO. Petitioner cannot rightfully recover on the CTDs. The records reveal that Angel de la Cruz, whom petitioner chose not to implead in this suit for reasons of its own, delivered the CTDs amounting to P1,120,000.00 to petitioner without informing respondent bank thereof at any time. Unfortunately for petitioner, although the CTDs are bearer instruments, a valid negotiation thereof for the true purpose and agreement between it and De la Cruz, as ultimately ascertained, REQUIRES BOTH DELIVERY AND INDORSEMENT. For, although petitioner seeks to deflect this fact, the CTDs were in reality delivered to it as a security

Petitioners A- CALTEX (PHILIPPINES), INC. Respondents B- SECURITY BANK AND TRUST COMPANY

17

damages as well as attorney's fees.

for De la Cruz' purchases of its fuel products. Any doubt as to whether the CTDs were delivered as payment for the fuel products or as a security has been dissipated and resolved in favor of the latter by petitioner's own authorized and responsible representative himself.

TITLE

FACTS

ISSUE

HELD

18

G.R. No. 93073 December 21, 1992 REPUBLIC PLANTERS BANK, petitioner, vs. COURT OF APPEALS and FERMIN CANLAS, respondents. PARTIES

Petitioners A- REPUBLIC PLANTERS BANK Respondents B- FERMIN CANLAS

From the records, these facts are established: Defendant Shozo Yamaguchi and private respondent Fermin Canlas were President/Chief Operating Officer and Treasurer respectively, of Worldwide Garment Manufacturing, Inc.. By virtue of Board Resolution, defendant Shozo Yamaguchi and private respondent Fermin Canlas were authorized to apply for credit facilities with the petitioner Republic Planters Bank in the forms of export advances and letters of credit/trust receipts accommodations. Petitioner bank issued nine promissory notes. In the promissory notes, the name Worldwide Garment Manufacturing, Inc. was apparently rubber stamped above the signatures of defendant and private respondent. On December 20, 1982, Worldwide Garment Manufacturing, Inc. noted to change its corporate name to Pinch Manufacturing Corporation. On February 5, 1982, petitioner bank filed a complaint for the recovery of sums of money covered among others, by the nine promissory notes with interest thereon, plus attorney's fees and penalty charges. Defendants Pinch Manufacturing Corporation and Shozo Yamaguchi did not file an Amended Answer and failed to appear at the scheduled pre-trial conference despite due notice. Only private respondent Fermin Canlas filed an Amended Answer wherein he, denied having issued the promissory notes in question since according to him, he was not an officer of Pinch Manufacturing Corporation, but instead of Worldwide Garment Manufacturing, Inc., and that when he issued said promissory notes in behalf of Worldwide Garment Manufacturing, Inc., the same were in blank, the typewritten entries not appearing therein prior to the time he affixed his signature.

Whether private respondent Fermin Canlas is solidarily liable with the other defendants, namely Pinch Manufacturing Corporation and Shozo Yamaguchi, on the nine promissory notes

YES. We hold that private respondent Fermin Canlas is solidarily liable on each of the promissory notes bearing his signature for the following reasons: The promissory notes are negotiable instruments and must be governed by the Negotiable Instruments Law. 2 Under the Negotiable lnstruments Law, persons who write their names on the face of promissory notes are makers and are liable as such. By signing the notes, the maker promises to pay to the order of the payee or any holder according to the tenor thereof. Based on the above provisions of law, there is no denying that private respondent Fermin Canlas is one of the co-makers of the promissory notes. As such, he cannot escape liability arising therefrom. Where an instrument containing the words "I promise to pay" is SIGNED BY TWO OR MORE PERSONS, they are deemed to be jointly and severally liable thereon. An instrument which begins" with "I" ,We" , or "Either of us" promise to, pay, when SIGNED BY TWO OR MORE PERSONS, makes them solidarily liable. In the case at bar, the solidary liability of private respondent Fermin Canlas is made clearer and certain, without reason for ambiguity, by the presence of the phrase "joint and several" as describing the unconditional promise to pay to the

19

order of Republic Planters Bank.

TITLE
G.R. No. 107382/G.R. No. 107612 January 31, 1996 ASSOCIATED BANK, petitioner, vs. HON. COURT OF APPEALS, PROVINCE OF TARLAC and PHILIPPINE NATIONAL BANK, respondents.

FACTS
The Province of Tarlac maintains a current account with the Philippine National Bank (PNB) where the provincial funds are deposited. Checks issued by the Province are signed by the Provincial Treasurer and countersigned by the Provincial Auditor or the Secretary of the Sangguniang Bayan.

ISSUE

HELD
A forged signature, whether it be that of the drawer or the payee, is wholly inoperative and no one can gain title to the instrument through it. A person whose signature to an instrument was forged was never a party and never consented to the contract which allegedly gave rise to such instrument. Section 23 does not avoid the instrument but only the forged signature. Thus, a forged indorsement does not operate as the payee's indorsement. The exception to the general rule in Section 23 is where

Where thirty checks bearing forged endorsements are paid, who A portion of the funds of the province is allocated to the bears the loss, Concepcion Emergency Hospital. The allotment checks for the drawer, the said government hospital are drawn to the order of drawee bank or "Concepcion Emergency Hospital, Concepcion, Tarlac " collecting or "The Chief, Concepcion Emergency Hospital, the bank? 20

PARTIES
Concepcion, Tarlac." The checks are released by the Office of the Provincial Treasurer and received for the hospital by its administrative officer and cashier. In January 1981, the books of account of the Provincial Treasurer were post-audited by the Provincial Auditor. It was then discovered that the hospital did not receive several allotment checks drawn by the Province. On February 19, 1981, the Provincial Treasurer requested the manager of the PNB to return all of its cleared checks which were issued from 1977 to 1980 in order to verify the regularity of their encashment. After the checks were examined, the Provincial Treasurer learned that 30 checks amounting to P203,300.00 were encashed by one Fausto Pangilinan, with the Associated Bank acting as collecting bank. It turned out that Fausto Pangilinan, who was the administrative officer and cashier of payee hospital until his retirement on February 28, 1978, collected the questioned checks from the office of the Provincial Treasurer. Pangilinan sought to encash the first check with Associated Bank. However, the manager of Associated Bank refused and suggested that Pangilinan deposit the check in his personal savings account with the same bank. Pangilinan was able to withdraw the money when the check was cleared and paid by the drawee bank, PNB. After forging the signature of Dr. Adena Canlas who was chief of the payee hospital , Pangilinan followed the same procedure for the second check, in the amount of P5,000.00, as well as for twenty-eight other checks of various amounts and on various dates. All the checks bore the stamp of Associated Bank which reads "All prior endorsements guaranteed ASSOCIATED BANK." On February 26, 1981, the Provincial Treasurer wrote the manager of the PNB seeking the restoration of the various amounts debited from the current account of the Province. 9 "a party against whom it is sought to enforce a right is precluded from setting up the forgery or want of authority." Parties who warrant or admit the genuineness of the signature in question AND those who, by their acts, silence or negligence are estopped from setting up the defense of forgery, are precluded from using this defense. Indorsers, persons negotiating by delivery and acceptors are warrantors of the genuineness of the signatures on the instrument. Example: if the drawee bank can prove a failure by the customer/drawer to exercise ordinary care that substantially contributed to the making of the forged signature, the drawer is precluded from asserting the forgery. If at the same time the drawee bank was also negligent to the point of substantially contributing to the loss, then such loss from the forgery can be apportioned between the negligent drawer and the negligent bank. In BEARER INSTRUMENTS, the signature of the payee or holder is unnecessary to pass title to the instrument. Hence, when the indorsement is a forgery, only the person whose signature is forged can raise the defense of forgery against a holder in due course. @@@@ The checks involved in this case are ORDER INSTRUMENTS, hence, the following discussion is made with reference to the effects of a forged indorsement on an instrument payable to order. ### Where the instrument is payable to order at the time of the forgery, such as the checks in this case, the signature of its rightful holder (here, the payee hospital) is essential to transfer title to the same instrument. When the holder's indorsement is forged, all parties prior to the

forgery may raise the real defense of forgery against all parties subsequent thereto.
An indorser of an order instrument warrants "that

21

In turn, the PNB manager demanded reimbursement from the Associated Bank on May 15, 1981. 10 As both banks resisted payment, the Province of Tarlac brought suit against PNB which, in turn, impleaded Associated Bank as third-party defendant. The latter then filed a fourth-party complaint against Adena Canlas and Fausto Pangilinan. 11

the instrument is genuine and in all respects what it purports to be; that he has a good title to it; that all prior parties had capacity to contract; and that the instrument is at the time of his indorsement valid and subsisting." He cannot interpose the defense that signatures prior to him are forged. A collecting bank where a check is deposited and which indorses the check upon presentment with the drawee bank, is such an indorser. So even if the indorsement on the check deposited by the banks's client is forged, the collecting bank is bound by his warranties as an indorser and cannot set up the defense of forgery as against the drawee bank. The bank on which a check is drawn, known as the drawee bank, is under strict liability to pay the check to the order of the payee. The drawer's instructions are reflected on the face and by the terms of the check. Payment under a forged indorsement is not to the drawer's order. The general rule then is that the drawee bank may not debit the drawer's account and is not entitled to indemnification from the drawer. 25 The risk of loss must perforce fall on the drawee bank. In cases involving a forged check, where the drawer's signature is forged, the drawer can recover from the drawee bank. No drawee bank has a right to pay a forged check. If it does, it shall have to recredit the amount of the check to the account of the drawer. The liability chain ends with the drawee bank whose responsibility it is to know the drawer's signature since the latter is its customer. In cases involving checks with forged indorsements, such as the present petition, the chain of liability does not end with the drawee bank. The drawee bank may not debit the account of the drawer but may generally pass liability back through the collection chain to the party who took from the forger and, of course, to the forger himself, if available. 28 IN OTHER WORDS, THE DRAWEE BANK CAN SEEK REIMBURSEMENT OR A RETURN
OF THE AMOUNT IT PAID PERSON. 29 Theoretically, the FROM THE PRESENTOR BANK OR

latter can demand reimbursement from the person who indorsed the check to it and so on. The loss falls on the party who took the check from the forger, or

22

on the forger himself. In this case, the checks were indorsed by the collecting bank (Associated Bank) to the drawee bank (PNB). The former will necessarily be liable to the latter for the checks bearing forged indorsements. If the forgery is that of the payee's or holder's indorsement, the collecting bank is held liable, without prejudice to the latter proceeding against the forger. Since a forged indorsement is inoperative, the collecting bank had no right to be paid by the drawee bank. The former must necessarily return the money paid by the latter because it was paid wrongfully. More importantly, by reason of the statutory warranty of a general indorser in section 66 of the Negotiable Instruments Law, a collecting bank which indorses a check bearing a forged indorsement and presents it to the drawee bank guarantees all prior indorsements, including the forged indorsement. It warrants that the instrument is genuine, and that it is valid and subsisting at the time of his indorsement. Because the indorsement is a forgery, the collecting bank commits a breach of this warranty and will be accountable to the drawee bank. This liability scheme operates without regard to fault on the part of the collecting/presenting bank. Even if the latter bank was not negligent, it would still be liable to the drawee bank because of its indorsement. Applying these rules to the case at bench, PNB, the drawee bank, cannot debit the current account of the Province of Tarlac because it paid checks which bore forged indorsements. However, if the Province of Tarlac as drawer was negligent to the point of substantially contributing to the loss, then the drawee bank PNB can charge its account. If both drawee bankPNB and drawer-Province of Tarlac were negligent, the loss should be properly apportioned between them. The loss incurred by drawee bank-PNB can be passed on to the collecting bank-Associated Bank which presented and indorsed the checks to it. Associated Bank can, in turn, hold the forger,

23

Fausto Pangilinan, liable. If PNB negligently delayed in informing Associated Bank of the forgery, thus depriving the latter of the opportunity to recover from the forger, it forfeits its right to reimbursement and will be made to bear the loss. After careful examination of the records, the Court finds that the Province of Tarlac was equally negligent and should, therefore, share the burden of loss from the checks bearing a forged indorsement. The drawee bank PNB also breached its duty to pay only according to the terms of the check. Hence, it cannot escape liability and should also bear part of the loss. As earlier stated, PNB can recover from the collecting bank. The situation in the case at bench is analogous to the above case, for it was not the payee who deposited the checks with the collecting bank. Here, the checks were all payable to Concepcion Emergency Hospital but it was Fausto Pangilinan who deposited the checks in his personal savings account. A bank is not required to accept all the checks negotiated to it. It is within the bank's discretion to receive a check for no banking institution would consciously or deliberately accept a check bearing a forged indorsement. When a check is deposited with the collecting bank, it takes a risk on its depositor. It is only logical that this bank be held accountable for checks deposited by its customers. The Court finds as reasonable, the proportionate sharing of fifty percent - fifty percent (50%-50%). Due to the negligence of the Province of Tarlac in releasing the checks to an unauthorized person (Fausto Pangilinan), in allowing the retired hospital cashier to receive the checks for the payee hospital for a period close to three years and in not properly ascertaining why the retired hospital cashier was collecting checks for the payee hospital in addition to the

24

hospital's real cashier, respondent Province contributed to the loss amounting to P203,300.00 and shall be liable to the PNB for fifty (50%) percent thereof. In effect, the Province of Tarlac can only recover fifty percent (50%) of P203,300.00 from PNB. The collecting bank, Associated Bank, shall be liable to PNB for fifty (50%) percent of P203,300.00. It is liable on its warranties as indorser of the checks which were deposited by Fausto Pangilinan, having guaranteed the genuineness of all prior indorsements, including that of the chief of the payee hospital, Dr. Adena Canlas. Associated Bank was also remiss in its duty to ascertain the genuineness of the payee's indorsement.

TITLE
G.R. No. 129015 August 13, 2004 SAMSUNG CONSTRUCTION COMPANY PHILIPPINES, INC., petitioner, vs. FAR EAST BANK AND TRUST COMPANY AND COURT OF APPEALS, respondents.

FACTS
Samsung Construction Company Philippines, Inc. ("Samsung Construction") maintained a current account with Far East Bank and Trust Company1 ("FEBTC").2 The sole signatory to Samsung Constructions account was Jong Kyu Lee ("Jong"), its Project Manager,3 while the checks remained in the custody of the companys accountant, Kyu Yong Lee ("Kyu").4 On 19 March 1992, a certain Roberto Gonzaga presented for payment FEBTC Check No. 432100 to the banks branch in Bel-Air, Makati. The check, payable to cash and drawn against Samsung Constructions current account, was in the

ISSUE if a bank pays out on a forged check, is it liable to reimburse the drawer from whose account the funds were paid out?

HELD
YES. Section 23 of the Negotiable Instruments Law states: When a signature is forged or made without the authority of the person whose signature it purports to be, it is wholly inoperative, and no right to retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any party thereto, can be acquired through or under such signature, unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority.

25

PARTIES

Petitioners A- SAMSUNG CONSTRUCTION


COMPANY PHILIPPINES, INC

Respondents C- FAR EAST BANK AND


TRUST COMPANY

D-

amount of (P999,500.00). The bank teller, Cleofe Justiani, first checked the balance of Samsung Constructions account. After ascertaining there were enough funds to cover the check,5 she compared the signature appearing on the check with the specimen signature of Jong as contained in the specimen signature card with the bank. After comparing the two signatures, Justiani was satisfied as to the authenticity of the signature appearing on the check. She then asked Gonzaga to submit proof of his identity, and the latter presented three (3) identification cards.6 At the same time, Justiani forwarded the check to the branch Senior Assistant Cashier Gemma Velez, as it was bank policy that two bank branch officers approve checks exceeding One Hundred Thousand Pesos, for payment or encashment. Velez likewise counterchecked the signature on the check as against that on the signature card. He too concluded that the check was indeed signed by Jong. Velez then forwarded the check and signature card to Shirley Syfu, another bank officer, for approval. Syfu then noticed that Jose Sempio III ("Sempio"), the assistant accountant of Samsung Construction, was also in the bank. Sempio was well-known to Syfu and the other bank officers, he being the assistant accountant of Samsung Construction. Syfu showed the check to Sempio, who vouched for the genuineness of Jongs signature. Confirming the identity of Gonzaga, Sempio said that the check was for the purchase of equipment for Samsung Construction. Satisfied with the genuineness of the signature of Jong, Syfu authorized the banks encashment of the check to Gonzaga. The following day, the accountant of Samsung Construction, Kyu, examined the balance of the bank account and discovered that a check in the amount of (P999,500.00) had been encashed. Aware that he had not prepared such a check for Jongs signature, Kyu perused the checkbook and found that the last blank check was missing. 7 He reported the matter to Jong, who then proceeded to the bank. Jong learned of the encashment of the check, and realized that his signature had been forged. The Bank Manager reputedly told Jong that he would be reimbursed for the amount of the check.8

Whether Samsung Construction was guilty of negligence; its employee commiting the forgery.

The traditional justification for the result is that the drawee is in a superior position to detect a forgery because he has the makers signature and is expected to know and compare it.22 Under Section 23 of the Negotiable Instruments Law, forgery is a real or absolute defense by the party whose signature is forged.26 On the premise that Jongs signature was indeed forged, FEBTC is liable for the loss since it authorized the discharge of the forged check. Such liability attaches even if the bank exerts due diligence and care in preventing such faulty discharge . Forgeries often deceive the eye of the most cautious experts; and when a bank has been so deceived, it is a harsh rule which compels it to suffer although no one has suffered by its being deceived. 27 The forgery may be so near like the genuine as to defy detection by the depositor himself, and yet the bank is liable to the depositor if it pays the check. The crucial fact in question is whether or not the check was forged, not whether the bank could have detected the forgery. The latter issue becomes relevant only if there is need to weigh the comparative negligence between the bank and the party whose signature was forged. We recognize that Section 23 of the Negotiable Instruments Law bars a party from setting up the defense of forgery if it is guilty of negligence .52 Yet, we are unable to conclude that Samsung Construction was guilty of negligence in this case. The bare fact that the forgery was committed by an employee of the party whose signature was forged cannot necessarily imply that such partys negligence was the cause for the forgery. Employers do not possess the preternatural gift of cognition as to the evil that may lurk within the hearts and minds of their employees.

TITLE

FACTS

ISSUE

HELD

26

G.R. No. 74917 January 20, 1988 BANCO DE ORO SAVINGS AND MORTGAGE BANK, petitioner, vs. EQUITABLE BANKING CORPORATION, PHILIPPINE CLEARING HOUSE CORPORATION, AND REGIONAL TRIAL COURT OF QUEZON CITY, BRANCH XCII (92),

PARTIES

Petitioners A- BANCO DE ORO SAVINGS


AND MORTGAGE BANK

Respondents C- EQUITABLE BANKING


CORPORATION

It appears that some time in March, April, May and August 1983, A through its Visa Card Department, drew six crossed Manager's check having an aggregate amount of (P45,982.23) Pesos and payable to certain member establishments of Visa Card. Subsequently, the Checks were deposited with C to the credit of its depositor, a certain Aida Trencio. Following normal procedures, and after stamping at the back of the Checks the usual endorsements. All prior and/or lack of endorsement guaranteed C sent the checks for clearing through the Philippine Clearing House Corporation (PCHC). Accordingly, A paid the Checks; its clearing account was debited for the value of the Checks and C's clearing account was credited for the same amount, Thereafter, A 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. Pursuant to the PCHC Clearing Rules and Regulations, A presented the Checks directly to C for the purpose of claiming reimbursement from the latter. However, C refused to accept such direct presentation and to reimburse A for the value of the Checks; hence, this case.

Was the petitioner bank negligent and thus responsible for any undue payment?

Yes. petitioner is estopped from raising the defense of non-negotiability of the checks in question. It stamped its guarantee on the back of the checks and subsequently presented these checks for clearing and it was on the basis of these endorsements by the petitioner that the proceeds were credited in its clearing account. The petitioner by its own acts and representation can not now deny liability because it assumed the liabilities of an endorser by stamping its guarantee at the back of the checks. The petitioner having stamped its guarantee of "all prior endorsements and/or lack of endorsements" (Exh. A-2 to F-2) 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. 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.

D- PHILIPPINE CLEARING
HOUSE CORPORATION

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TITLE
ALLIED BANKING CORPORATION vs. LIM SIO WAN, METROPOLITAN BANK AND TRUST CO and PRODUCERS BANK

FACTS
Respondent Lim Sio Wan deposited with petitioner Allied Banking Corporation (Allied) a money market placement of PhP 1,152,597.35 for a term of 31 days to mature on December 15, 1983. On December 5, 1983, a person claiming to be Lim Sio Wan called up Cristina So, an officer of Allied, and instructed the latter to pre-terminate Lim Sio Wans money market placement, to issue a managers check representing the proceeds of the placement, and to give the check to one Deborah Dee Santos who would pick up the check. Lim Sio Wan described the appearance of Santos so that So

ISSUE Whether Allied is solely liable to Lim Sio Wan.

HELD
As to the liability of the parties, we find that Allied is liable to Lim Sio Wan. Fundamental and familiar is the doctrine that the relationship between a bank and a client is one of debtorcreditor. We cannot, however, say outright that Allied is solely liable to Lim Sio Wan. Section 66. Liability of general indorser.Every indorser who indorses without qualification, warrants to all subsequent holders in due course; a) The matters and things mentioned in subdivisions (a), (b) and (c) of the next preceding section; and

PARTIES

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could easily identify her.

Petitioners ABANKING CORPORATION ALLIED

Later, Santos arrived at the bank and signed the application form for a managers check to be issued. The bank issued Managers Check No. 035669 for PhP 1,158,648.49, representing the proceeds of Lim Sio Wans money market placement in the name of Lim Sio Wan, as payee. The check was cross-checked For Payees Account Only and given to Santos. Thereafter, the managers check was deposited in the account of Filipinas Cement Corporation (FCC) at respondent Metropolitan Bank and Trust Co. (Metrobank), with the forged signature of Lim Sio Wan as indorser. Earlier, on September 21, 1983, FCC had deposited a money market placement for PhP 2 million with respondent Producers Bank. Santos was the money market trader assigned to handle FCCs account. The placement matured on October 25, 1983 and was rolled-over until December 5, 1983. When the placement matured, FCC demanded the payment of the proceeds of the placement. On December 5, 1983, the same date that So received the phone call instructing her to pre-terminate Lim Sio Wans placement, the managers check in the name of Lim Sio Wan was deposited in the account of FCC, purportedly representing the proceeds of FCCs money market placement with Producers Bank.[17] In other words, the Allied check was deposited with Metrobank in the account of FCC as Producers Banks payment of its obligation to FCC. To clear the check and in compliance with the requirements of the Philippine Clearing House Corporation (PCHC) Rules and Regulations, Metrobank stamped a guaranty on the check, which reads: All prior endorsements and/or lack of endorsement guaranteed. The check was sent to Allied through the PCHC . Upon the presentment of the check, Allied funded the check even without checking the authenticity of Lim Sio Wans purported indorsement. Thus, the amount on the

b) That the instrument is at the time of his indorsement valid and subsisting; And in addition, he engages that on due presentment, it shall be accepted or paid, or both, as the case may be according to its tenor, and that if it be dishonored, and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder, or to any subsequent indorser who may be compelled to pay it. Section 65. Warranty where negotiation by delivery, so forth. Every person negotiating an instrument by delivery or by a qualified indorsement, warrants: a) That the instrument is genuine and in all respects what it purports to be; b) That he has a good title of it; c) That all prior parties had capacity to contract; d) That he has no knowledge of any fact which would impair the validity of the instrument or render it valueless. But when the negotiation is by delivery only, the warranty extends in favor of no holder other than the immediate transferee. The provisions of subdivision (c) of this section do not apply to persons negotiating public or corporation securities, other than bills and notes. (Emphasis supplied.) The warranty that the instrument is genuine and in all respects what it purports to be covers all the defects in the instrument affecting the validity thereof, including a forged indorsement. Thus, the last indorser will be liable for the amount indicated in the negotiable instrument even if a previous indorsement was forged. We held in a line of cases that a collecting bank which indorses a check bearing a forged indorsement and presents it to the drawee bank guarantees all prior indorsements, including the forged indorsement itself, and ultimately should be held liable therefor.[48] However, this general rule is subject to exceptions. One

Respondents C- LIM SIO WAN D- METROPOLITAN


BANK AND TRUST CO E- PRODUCERS BANK

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face of the check was credited to the account of FCC.] On December 9, 1983, Lim Sio Wan deposited with Allied a second money market placement to mature on January 9, 1984.[20] On December 14, 1983, upon the maturity date of the first money market placement, Lim Sio Wan went to Allied to withdraw it. She was then informed that the placement had been pre-terminated upon her instructions. She denied giving any instructions and receiving the proceeds thereof. She desisted from further complaints when she was assured by the banks manager that her money would be recovered. When Lim Sio Wans second placement matured on January 9, 1984, So called Lim Sio Wan to ask for the latters instructions on the second placement. Lim Sio Wan instructed So to roll-over the placement for another 30 days. On January 24, 1984, Lim Sio Wan, realizing that the promise that her money would be recovered would not materialize, sent a demand letter to Allied asking for the payment of the first placement. Allied refused to pay Lim Sio Wan, claiming that the latter had authorized the pre-termination of the placement and its subsequent release to Santos. Consequently, Lim Sio Wan filed with the RTC a Complaint against Allied to recover the proceeds of her first money market placement. Sometime in February 1984, she withdrew her second placement from Allied. Allied filed a third party complaint against Metrobank and Santos. In turn, Metrobank filed a fourth party complaint against FCC. FCC for its part filed a fifth party complaint against Producers Bank. Summonses were duly served upon all the parties except for Santos, who was no longer connected with Producers Bank.[30] On May 15, 1984, or more than six (6) months after funding the check, Allied informed Metrobank that the signature on the check was forged. [31] Thus, Metrobank withheld the amount represented by the check from FCC. Later on, Metrobank agreed to release the amount to

such exception is when the issuance of the check itself was attended with negligence. Thus, in the cases cited above where the collecting bank is generally held liable, in two of the cases where the checks were negligently issued, this Court held the institution issuing the check just as liable as or more liable than the collecting bank. In isolated cases where the checks were deposited in an account other than that of the payees on the strength of forged indorsements, we held the collecting bank solely liable for the whole amount of the checks involved for having indorsed the same. In Republic Bank v. Ebrada,[49] the check was properly issued by the Bureau of Treasury. While in Banco de Oro Savings and Mortgage Bank (Banco de Oro) v. Equitable Banking Corporation ,[50] Banco de Oro admittedly issued the checks in the name of the correct payees. And in Traders Royal Bank v. Radio Philippines Network, Inc. ,[51] the checks were issued at the request of Radio Philippines Network, Inc. from Traders Royal Bank.

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FCC after the latter executed an Undertaking, promising to indemnify Metrobank in case it was made to reimburse the amount.

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