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Metrobank vs.

Metropolitan Bank & Trust Company vs. Court of Appeals
G.R. No. 88866 February, 18, 1991
Cruz, J.:

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previously withdrawn, to make up the deficit in its account.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.

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

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

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
, 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
, 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.

On 9 February 1981, Raul Sesbreno made a money market placement in the amount of P300,000
with the Philippine Underwriters Finance Corporation (PhilFinance), with a term of 32 days.
PhilFinance issued to Sesbreno the Certificate of Confirmation of Sale of a Delta Motor Corporation
Promissory Note (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.
Pilipinas Bank never released the note, nor any instrument related thereto, to Sesbreno; but
Sesbreno learned that the security was issued 10 April 1980, maturing on 6 April 1981, has a face
value of P2,300,833.33 with PhilFinance as payee and Delta Motors as maker; and was stamped
non-negotiable on its face. As Sesbreno was unable to collect his investment and interest
thereon, he filed an action for damages against Delta Motors and Pilipinas Bank.
Whether non-negotiability of a promissory note prevents its assignment.
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 if it is in
bearer form. A negotiable instrument, instead of being negotiated, may also be assigned or
transferred. The legal consequences of negotiation and assignment of the instrument are
different. A negotiable instrument may not be negotiated but may be assigned or transferred,
absent an express prohibition against assignment or transfer written in the face of the instrument.
herein, there was no prohibition stipulated.

Firestone Tire vs. CA

Firestone Tire & rubber Co. vs. Court of Appeals
GR No. 113236 March 5, 2001
Quisumbing, J.:

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.

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.

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

In 1946, Ang Tek Lian approached Lee Hua and asked him if he could give him P4,000.00. He said
that he meant to withdraw from the bank but the banks already closed. In exchange, he gave Lee
Hua a check which is payable to the order of cash. The next day, Lee Hua presented the check
for payment but it was dishonored due to insufficiency of funds. Lee Hua eventually sued Ang Tek
Lian. In his defense, Ang Tek Lian argued that he did not indorse the check to Lee Hua and that
when the latter accepted the check without Ang tek Lians indorsement, he had done so fully aware
of the risk he was running thereby.
ISSUE: Whether or not Ang Tek Lian is correct.
HELD: No. Under the Negotiable Instruments Law (sec. 9 [d]), a check drawn payable to the order of
cash is a check payable to bearer hence a bearer instrument, and the bank may pay it to the
person presenting it for payment without the drawers indorsement. Where a check is made payable
to the order of cash, the word cash does not purport to be the name of any person, and hence the
instrument is payable to bearer. The drawee bank need not obtain any indorsement of the check, but
may pay it to the person presenting it without any indorsement.

G.R. No. 85419 March 9, 1993
--complete undelivered

Respondent Sima Wei executed and delivered to petitioner Bank a promissory
note engaging to pay the petitioner Bank or order the amount of P1,820,000.00. Sima
Wei subsequently issued two crossed checks payable to petitioner Bank drawn against
China Banking Corporation in full settlement of the drawer's account evidenced by the
promissory note. These two checks however were not delivered to the petitioner-payee
or to any of its authorized representatives but instead came into the possession of
respondent Lee Kian Huat, who deposited the checks without the petitioner-payee's
indorsement to the account of respondent Plastic Corporation with Producers
Bank. Inspite of the fact that the checks were crossed and payable to petitioner Bank
and bore no indorsement of the latter, the Branch Manager of Producers Bank
authorized the acceptance of the checks for deposit and credited them to the account of
said Plastic Corporation.

Whether petitioner Bank has a cause of action against Sima Wei for the undelivered

No. A negotiable instrument must be delivered to the payee in order to evidence its
existence as a binding contract. Section 16 of the NIL provides that 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. Without the initial delivery of the
instrument from the drawer to the payee, there can be no liability on the
instrument. Petitioner however has a right of action against Sima Wei for the balance
due on the promissory note.

PBCom vs Aruego

Philippine Bank of Commerce vs. Aruego
GR L-25836-37, 31 January 1981, 102 scra 530

To facilitate payment of the printing of a periodical called World Current Events.,
Aruego, its publisher, obtained a credit accommodation from the Philippine Bank of
Commerce. For every printing of the periodical, the printer collected the cost of printing
by drawing a draft against the bank, said draft being sent later to Aruego for
acceptance. As an added security for the payment of the amounts advanced to the
printer, the bank also required Aruego to execute a trust receipt in favor of the bank
wherein Aruego undertook to hold in trust for the bank the periodicals and to sell the
same with the promise to turn over to the bank the proceeds of the sale to answer for
the payment of all obligations arising from the draft. The bank instituted an action
against Aruego to recover the cost of printing of the latters periodical. Aruego however
argues that he signed the supposed bills of exchange only as an agent of the Philippine
Education Foundation Company where he is president.

Whether Aruego can be held liable by the petitioner although he signed the supposed
bills of exchange only as an agent of Philippine Education Foundation Company.

Aruego did not disclose in any of the drafts that he accepted that he was signing as
representative of the Philippine Education Foundation Company. For failure to disclose
his principal, Aruego is personally liable for the drafts he accepted, pursuant to Section
20 of the NIL which provides that when a person adds to his signature words indicating
that he signs for or on behalf of a principal or in a representative capacity, he is not
liable on the instrument if he was duly authorized; but the mere addition of words
describing him as an agent or as filing a representative character, without disclosing his
principal, does not exempt him from personal liability.

G.R. No. 116320 November 29, 1999

A. Francisco Realty & Development Corporation (AFRDC), of which petitioner Francisco
is the president, entered into a Land Development and Construction Contract with
private respondent Herby Commercial & Construction Corporation (HCCC), represented
by its President and General Manager private respondent Ong. Under the contract,
HCCC was to be paid on the basis of the completed houses and developed lands
delivered to and accepted by AFRDC and the GSIS. Sometime in 1979, Ong
discovered that Diaz and Francisco, the Vice-President of GSIS, had executed and
signed seven checks of various dates and amounts payable to HCCC for completed
and delivered work under the contract. Ong, however, claims that these checks were
never delivered to HCCC. It turned out that Francisco forged the indorsement of Ong
on the checks and indorsed the checks for a second time by signing her name at the
back of the checks, petitioner then deposited said checks in her savings account. A
case was brought by private respondents against petitioner to recover the value of said
checks. Petitioner however claims that she was authorized to sign Ong's 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

Whether petitioner cannot be held liable on the questioned checks by virtue of the
Certification executed by Ong giving her the authority to collect such checks from the

Petitioner is liable. 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. Even assuming that Francisco was
authorized by HCCC to sign Ong's name, still, Francisco did not indorse the instrument
in accordance with law. Instead of signing Ong's name, Francisco should have signed
her own name and expressly indicated that she was signing as an agent of
HCCC. Thus, the Certification cannot be used by Francisco to validate her act of

Jai-Alai Corp. of the Phil. vs. Bank of the Phil. Islands
G.R. No. L-29432 August 6, 1975 66 SCRA 29

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, Inter-Island Gas discovered that all the indorsements 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 indorsements which petitioner refused to accept.

Whether BPI had the right to debit from petitioner's current account the value of the
checks with the forged indorsements.

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."
On January 15, 1963, the Bureau of Treasury issued a back pay check to Martin Lorenzo in the
amount of P1,246.08. The drawee named therein is Republic Bank. The check was subsequently
indorsed to Ramon Lorenzo, then to Delia Dominguez and then to Mauricia Ebrada. Ebrada
encashed the check with the Republic Bank. Republic Bank paid the amount of the check to Ebrada.
Ebrada, upon receiving the cash, gave it to Dominguez; Dominguez in turn gave the cash to Ramon
Later, the Bureau of Treasury notified that the check was a forgery because the payee named
therein (Martin Lorenzo) was actually dead 11 years ago before the check was issued. Republic
Bank refunded the amount to the Bureau of Treasury. The bank then demanded Ebrada to refund
ISSUE: Whether or not Republic Bank may recover from Ebrada.
HELD: Yes. Ebrada, being the last indorser, warranted the genuineness of the signatures of the
payee and the previous indorsers. The drawee bank is not duty bound to ascertain whether or not
the signatures of the payee and the indorsers are genuine. One who purchases a check or draft is
bound to satisfy himself that the paper is genuine and that by indorsing it or presenting it for payment
or putting it into circulation before presentation he impliedly asserts that he has performed his duty
and the drawee (in this case Republic Bank) who has paid the forged check, without actual
negligence on his part, may recover the money paid from such negligent purchasers.
But Ebrada did not profit from this because she, upon receiving the encashment, gave the same to
She is still liable because she is considered as an accommodation party pursuant to Section 29 of
the Negotiable Instruments Law. An accommodation party is one who has signed the instrument as
maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending
his name to some other person. Such a person is liable on the instrument to a holder for value,
notwithstanding such holder at the time of taking the instrument knew him to be only an
accommodation party.

FACTS: Twenty three checks were deposited by the payees Dizon, Sison and Mendoza in their respective current
accounts with the PCIB and PBC. Thru the Central Bank Clearing, these checks were presented for payment by PBC
and PCIB to the defendant PNB, and were paid. At the time of their presentation to PNB these checks bear the
standard indorsement which reads all prior indorsement and/or lack of endorsement guaranteed.
Subsequent investigation however, conducted by the NBI showed that Raul Dizon, Arturo Sison and Antonio
Mendoza were all fictitious persons.
NWSA addressed a letter to PNB requesting the immediate restoration to its Account No. 6, of the total sum of
P3,457,903.00 corresponding to the total amount of these twenty-three (23) checks claimed by NWSA to be forged
and/or spurious checks.
HELD: No. The NBI does not declare or prove that the signatures appearing on the questioned checks are forgeries.
These reports did not touch on the inherent qualities of the signatures which are indispensable in the determination of
the existence of forgery. There must be conclusive findings that there is a variance in the inherent characteristics of
the signatures and that they were written by two or more different persons. Forgery cannot be presumed. It must be
established by clear, positive, and convincing evidence. This was not done in the present case.
Even if the twenty-three (23) checks in question are considered forgeries, considering the petitioners gross
negligence, it is barred from setting up the defense of forgery under Section 23 of the Negotiable Instruments
One factor which facilitate this fraud was the delay in the reconciliation of bank (PNB) statements with the NAWASA
bank accounts. The records likewise show that the petitioner failed to provide appropriate security measures over its
own records thereby laying confidential records open to unauthorized persons.
We cannot fault the respondent drawee Bank for not having detected the fraudulent encashment of the checks
because the printing of the petitioners personalized checks was not done under the supervision and control of the
Bank. Under the circumstances, therefore, the petitioner was in a better position to detect and prevent the fraudulent
encashment of its checks
157 SCRA 188

BDO drew checks payable to member establishments. Subsequently, the
checks were deposited in Trencios account with Equitable. The checks
were sent for clearing and was thereafter cleared. Afterwards, BDO discovered that the
indorsements in the back of the checks were forged. It
then demanded that Equitable credit its account but the latter refused to do so. This prompted
BDO to file a complaint against Equitable and PCHC. The trial court and RTC held in favor of the
Equitable and PCHC.

First, PCHC has jurisdiction over the case in question. The articles of incorporation of PHHC
extended its operation to clearing checks and other clearing items. No doubt transactions on non-
negotiable checks are within the ambit of its jurisdiction. Further, the participation of the two banks in the
clearing operations is submission to the jurisdiction of the PCHC.

Petitioner is likewise estopped from raising the non-negotiability of the
checks in issue. It stamped its guarantee at the back of the checks and
subsequently presented it for clearing and it was in the basis of these
endorsements by the petitioner that the proceeds were credited in its
clearing account. The petitioner cannot now deny its liability as it assumed
the liability of an indorser by stamping its guarantee at the back of the checks.

Furthermore, the bank cannot escape liability of an indorser of a check and which may turn out to be a
forged indorsement. Whenever a bank treats the signature at the back of the checks as indorsements
and thus logically guarantees the same as such there can be no doubt that said bank had
considered the checks as negotiable.

A long line of cases also held that in the matter of forgery in
endorsements, it is the collecting bank that generally suffers the loss
because it had the dutyh to ascertain the genuineness of all prior indorsements considering that
the act of presenting the check for payment
to the drawee is an assertion that the party making the presentment has done its duty to ascertain the
genuineness of the indorsements.
GR 92244, 9 February 1993
Natividad Gempesaw issued checks, prepared by her bookkeeper, a total of 82 checks in favor of
several supplies. Most of the checks for amounts in excess of actual obligations as shown in their
corresponding invoices. It was only after the lapse of more than 2 years did she discovered the
fraudulent manipulations of her bookkeeper. It was also learned that the indorsements of the
payee were forged, and the checks were brought to the chief accountant of Philippine Bank of
Commerce (the Drawee Bank, Buendia Branch) who deposited them in the accounts of Alfredo
Romero and Benito Lam. Gempesaw made demand upon the bank to credit the amount charged
due the checks. The bank refused. Hence, the present action.
Who shall bear the loss resulting from the forged indorsements.
As a rule, a drawee bank who has paid a check on which an indorsement has been forged cannot
charge the drawers account for the amount of said check. An exception to the rule is where the
drawer is guilty of such negligence which causes the bank to honor such checks. Gempesaw did
not exercise prudence in taking steps that a careful and prudent businessman would take in
circumstances to discover discrepancies in her account. Her negligence was the proximate cause
of her loss, and under Section 23 of the Negotiable Instruments Law, is precluded from using
forgery as a defense.
On the other hand, the banking rule banning acceptance of checks for deposit or cash payment
with more than one indorsement unless cleared by some bank officials does not invalidate the
instrument; neither does it invalidate the negotiation or transfer of said checks. The only kind of
indorsement which stops the further negotiation of an instrument is a restrictive indorsement
which prohibits the further negotiation thereof, pursuant to Section 36 of the Negotiable
Instruments Law.
In light of any case not provided for in the Act that is to be governed by the provisions of existing
legislation, pursuant to Section 196 of the Negotiable Instruments Law, the bank may be held
liable for damages in accordance with Article 1170 of the Civil Code. The drawee bank, in its
failure to discover the fraud committed by its employee and in contravention banking rules in
allowing a chief accountant to deposit the checks bearing second indorsements, was adjudged
liable to share the loss with Gempesaw on a 50:50 ratio.
Negotiable Instruments Law Liabilities of Parties 252 SCRA 620 Forgery Collecting Bank vs
Drawee Bank
The Province of Tarlac was disbursing funds to Concepcion Emergency Hospital via checks drawn
against its account with the Philippine National Bank (PNB). These checks were drawn payable to
the order of Concepcion Emergency Hospital. Fausto Pangilinan was the cashier of Concepcion
Emergency Hospital in Tarlac until his retirement in 1978. He used to handle checks issued by the
provincial government of Tarlac to the said hospital. However, after his retirement, the provincial
government still delivered checks to him until its discovery of this irregularity in 1981. By forging the
signature of the chief payee of the hospital (Dr. Adena Canlas), Pangilinan was able to deposit 30
checks amounting to P203k to his account with the Associated Bank.
When the province of Tarlac discovered this irregularity, it demanded PNB to reimburse the said
amount. PNB in turn demanded Associated Bank to reimburse said amount. PNB averred that
Associated Bank is liable to reimburse because of its indorsement borne on the face of the checks:
All prior endorsements guaranteed ASSOCIATED BANK.
ISSUE: What are the liabilities of each party?
HELD: The checks involved in this case are order instruments.
Liability of Associated Bank
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 holders indorsement is forged, all parties prior to the forgery may raise the
real defense of forgery against all parties subsequent thereto.
A collecting bank (in this case Associated Bank) where a check is deposited and which indorses the
check upon presentment with the drawee bank (PNB), is such an indorser. So even if the
indorsement on the check deposited by the bankss client is forged, Associated Bank is bound by its
warranties as an indorser and cannot set up the defense of forgery as against the PNB.
EXCEPTION: If it can be shown that the drawee bank (PNB) unreasonably delayed in notifying the
collecting bank (Associated Bank) of the fact of the forgery so much so that the latter can no longer
collect reimbursement from the depositor-forger.
Liability of PNB
The bank on which a check is drawn, known as the drawee bank (PNB), is under strict liability to pay
the check to the order of the payee (Provincial Government of Tarlac). Payment under a forged
indorsement is not to the drawers order. When the drawee bank pays a person other than the
payee, it does not comply with the terms of the check and violates its duty to charge its customers
(the drawer) account only for properly payable items. Since the drawee bank did not pay a holder or
other person entitled to receive payment, it has no right to reimbursement from the drawer. The
general rule then is that the drawee bank may not debit the drawers account and is not entitled to
indemnification from the drawer. The risk of loss must perforce fall on the drawee bank.
EXCEPTION: If the drawee bank (PNB) can prove a failure by the customer/drawer (Tarlac
Province) to exercise ordinary care that substantially contributed to the making of the forged
signature, the drawer is precluded from asserting the forgery.
In sum, by reason of Associated Banks indorsement and warranties of prior indorsements as a party
after the forgery, it is liable to refund the amount to PNB. The Province of Tarlac can ask
reimbursement from PNB because the Province is a party prior to the forgery. Hence, the instrument
is inoperative. HOWEVER, it has been proven that the Provincial Government of Tarlac has been
negligent in issuing the checks especially when it continued to deliver the checks to Pangilinan even
when he already retired. Due to this contributory negligence, PNB is only ordered to pay 50% of the
amount or half of P203 K.
BUT THEN AGAIN, since PNB can pass its loss to Associated Bank (by reason of Associated
Banks warranties), PNB can ask the 50% reimbursement from Associated Bank. Associated Bank
can ask reimbursement from Pangilinan but unfortunately in this case, the court did not acquire
jurisdiction over him.

Negotiable Instruments Case Digest:
Metrobank V. FNCB (1982)

G.R. No. L-55079 November 19, 1982
Lessons Applicable: Alteration (Negotiable Instruments Law)


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

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

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 24-hour 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

San Miguel Corporation issued a dividend check for P240 in favor of J. Roberto Delgado, a
stockholder. Delgado altered the amount of the check to P9,240. The check was indorsed and
deposited by Delgado with Republic Bank. Republic Bank endorsed the check to First National City
Bank (FNCB), the drawee bank, by stamping on the back of the check all prior and / or lack of
indorsements guaranteed. Relying on the endorsement, FNCB paid the amount to Republic Bank.
Later on, San Miguel informed FNCB of the material alteration of the amount. FNCB recredited the
amount to San Miguels account, and demanded refund from Republic Bank. Republic Bank
refused. Hence, the present action.
Who shall bear the loss resulting from the altered check.
When an indorsement is forged, the collecting bank or last indorser, as a general rule, bears the
loss. But the unqualified indorsement 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 fails to
return a forged or altered check to the collecting bank within the 24-hour clearing period (as
provided by Section 4c of Central Bank Circular 9, as amended), the collecting bank is absolved
from liability. The drawee bank, FNCB, should bear the loss for the payment of the altered check
for its failure to detect and warn Republic Bank of the fraudulent character of the check within
the 24-hour clearing house rule.

Negotiable Instruments Law Rights of the Holder 350 SCRA 446 What Constitutes a Holder in
Due Course Negligence of the Collecting Bank and the Drawee Bank
There are three cases consolidated here: G.R. No. 121413 (PCIB vs CA and Ford and Citibank),
G.R. No. 121479 (Ford vs CA and Citibank and PCIB), and G.R. No. 128604 (Ford vs Citibank and
PCIB and CA).
G.R. No. 121413/G.R. No. 121479
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.
G.R. No. 128604
In July 1978 and in April 1979, Ford drew two checks in the amounts of P5,851,706.37 and
P6,311,591.73 respectively. Both checks are again for tax payments. Both checks are for Payees
account only or for the CIRs bank savings account only with Metrobank. Again, these checks never
reached the CIR.
In an investigation, it was found that these checks were embezzled by the same syndicate to which
Rivera was a member. It was established that an employee of PCIB, also a member of the
syndicate, created a PCIB account under a fictitious name upon which the two checks, through high
end manipulation, were deposited. PCIB unwittingly endorsed the checks to Citibank which the latter
cleared. Upon clearing, the amount was withdrawn from the fictitious account by syndicate
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.
G.R. No. 128604
PCIB and Citibank are liable for the amount of the checks on a 50-50 basis.
As a general rule, a bank is liable for the negligent or tortuous act of its employees within the course
and apparent scope of their employment or authority. Hence, PCIB is liable for the fraudulent act of
its employee who set up the savings account under a fictitious name.
Citibank is likewise liable because it was negligent in the performance of its obligations with respect
to its agreement with Ford. The checks which were drawn against Fords account with Citibank
clearly states that they are payable to the CIR only yet Citibank delivered said payments to PCIB.
Citibank however argues that the checks were indorsed by PCIB to Citibank and that the latter has
nothing to do but to pay it. The Supreme Court cited Section 62 of the Negotiable Instruments Law
which mandates the Citibank, as an acceptor of the checks, to engage in paying the checks
according to the tenor of the acceptance which is to deliver the payment to the payees account
But the Supreme Court ruled that in the consolidated cases, that PCIB and Citibank are not the only
negligent parties. Ford is also negligent for failing to examine its passbook in a timely manner which
could have avoided further loss. But this negligence is not the proximate cause of the loss but is
merely contributory. Nevertheless, this mitigates the liability of PCIB and Citibank hence the rate of
interest, with which PCIB and Citibank is to pay Ford, is lowered from 12% to 6% per annum.

Ilusorio was a businessman who was in charge of 20 or so corporations. He was a depositor in
good standing of Manila Banking Corporation. As he was in charge of a big number of
corporations, he was usually out of the country for business. He then entrusted his credit cards,
checkbook, blank checks, passbooks, etc to his secretary, Katherine Eugenio. Eugenio was also
in charge of verifying and reconciling the statements of Ilusorios checking account.

Eugenio was able to encash and deposit to her personal account checks drawn against Ilusorios
account with an aggregate amount of 119K. Ilusorio didnt bother to check his statement of
account until a business partner informed him that he saw Eugenio using his credit cards. Ilusorio
then fired her and instituted criminal case of Estafa thru falsification against Eugenio. Manila
Banking Corp. also instituted a complaint of estafa against Eugenio based on the affidavit of
Dante Razon, an employee. Razon stated that he personally examined and scrutinized the
encashed checks in accordance with their verification procedures.

Manila Bank sought the expertise of NBI in determining the genuineness of the checks but
Ilusorio failed to submit specimen signatures and thus, NBI could not conduct the examination.

Issue: W/N Manila Bank is liable for damages for failing to detect a forged check


No. To be entitled to damages, Ilusorio has the burden of poving that the bank was negligent in
failing to detect the discrepancy in the signatures on the checks. Ilusorio had to establish the fact
of forgery which he failed to do by failing to submit his specimen signatures for NBI to
conclusively establish forgery.

Furthermore, the Bank was not negligent in verifying the checks as they verified the drawers
signatures against their specimen signatures and in doubt, referred to more experienced verifier
for further verification.

On the contrary, it was Ilusorio who was found to be negligent. He accorded his secretary with
an unusual degree of trust and unrestricted access to his finances. Furthermore, despite the fact
that the bank was regularly sending statements of account, he failed to check them until he found
out that his secretary was using his credit cards.

Sec. 23 of the Negotiable Instruments law provides that a forged check is inoperative, meaning
there was no right to enforce payment against any party. But it also provides an exception:
unless the party against whom it is sought enforce such right is precluded from setting up the
forgery or want of authority. This case falls under the exception since Ilusorio is precluded from
setting up forgery due to his own negligence considering that he allowed his secretary access to
his credit cards, checkbook, and allowed his secretary to verify his statements of account.

Samsung Construction Company Phils., Inc vs FEBTC
(GR No 129015, Aug 13, 2004, Tinga)

Petitioner maintains a current account with the respondent bank. The petitioner
authorized Jong to sign checks in behalf of the company. The checks are in the
custody of an accountant Kyu. On one occasion, a certain Gonzaga presented a
check to FEBTC purportedly drawn by the Company in the amount of P999,500.
The check was payable to cash and appeared to be signed by Jong. FEBTC upon
ascertaining that there are sufficient fund to cover the check and finding the
signature of Jong appears to be genuine paid Gonzaga. Later, the forgery was
discovered. Samsung demanded that the amount paid to Gonzaga be credited
back to its account because they have not authorized the encashment of the
check. On the other hand, the respondent bank claimed negligence on the part
of the petitioner in protecting its check.

Who should bear the loss?

The SC held that the FEBTC should bear the loss. Under Sec. 62 of NIL, among
the warranties to be assumed by the acceptor is it admits the existence of the
drawer, the genuineness of his signature, and his capacity and authority to
draw the instrument. It is incumbent upon the drawee bank to ascertain the
genuineness of the signature of its depositor. The respondent bank in this case
did not exercise the degree of diligence required to enable it to detect the

***Aside from the warranties as an indorser, the collecting bank is made liable
because it is privy to the depositor who negotiated the check because it knows
him, his address and history for being a client thereof. Thus, it is in a better
position to detect forgery or irregularity in the indorsement. (Associated bank v.
CA, 252 SCRA 620). aka Doctrine of Comparative Negligence

PNB V. CA- Material Alteration
256 SCRA 491
DECS issued a check in favor of Abante Marketing containing a specific serial number, drawn
against PNB. The check was deposited by Abante in
its account with Capitol and the latter consequently deposited the same
with its account with PBCOM which later deposited it with petitioner for
clearing. The check was thereafter cleared. However, on a relevant date,
petitioner PNB returned the check on account that there had been a material alteration on
it. Subsequent debits were made but Capitol cannot debit the account of Abante any longer for the latter
had withdrawn all the money already from the account. This prompted Capitol to seek
reclarification from PBCOM and demanded the recrediting of its account. PBCOM followed suit by
doing the same against PNB. Demands unheeded,
it filed an action against PBCOM and the latter filed a third-party complaint against petitioner.
An alteration is said to be material if it alters the effect of the instrument. It means an unauthorized
change in the 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 the party. In other words, a material alteration is one which changes the items
which are required to be stated under Section 1 of the NIL.

In this case, the alleged material alteration was the alteration of the serial
number of the check in issuewhich is not an essential element of a negotiable instrument under
Section 1. PNB alleges that the alteration was
material since it is an accepted concept that a TCAA check by its very
nature is the medium of exchange of governments, instrumentalities and
agencies. As a safety measure, every government office or agency is assigned checks bearing
different serial numbers.

But this contention has to fail. The checks serial number is not the sole indicia of its origin. The name of
the government agency issuing the check is clearly stated therein. Thus, the checks drawer is sufficiently
identified, rendering redundant the referral to its serial number.

Therefore, there being no material alteration in the check committed, PNB could not return the check to
PBCOM. It should pay the same.

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 90,000 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.

Negotiable Instruments Case Digest: Sadaya
V. Sevilla (1967)
G.R. No. L-17845 April 27, 1967
Lessons Applicable: Consideration and Accommodation Party (Negotiable Instruments)

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
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
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
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

CRISOLOGO JOSE V. CA - Accommodation Party
177 SCRA 594
The president of Movers Enterprises, to accommodate its clients Spouses
Ong, issued a check in favor of petitioner Crisologo-Jose. This was in consideration of a quitclaim
by petitioner over a parcel of land, which the
GSIS agreed to sell to spouses Ong, with the understanding that upon
approval of the compromise agreement, the check will be encashed
accordingly. As the compromise agreement wasn't approved during the expected period of time, the
aforesaid check was replaced with another one
for the same value. Upon deposit though of the checks by petitioner, it was dishonored. This
prompted the petitioner to file a case against Atty.
Bernares and Santos for violation of BP22. Meanwhile, during the
preliminary investigation, Santos tried to tender a cashiers check for the value of the dishonored
check but petitioner refused to accept such. This was consigned by Santos with the clerk of court and he
instituted charges against petitioner. The trial court held that consignation wasn't applicable to the case
at bar but was reversed by the CA.
Petitioner averred that it is not Santos who is the accommodation party to the instrument but the
corporation itself. But assuming arguendo that the
corporation is the accommodation party, it cannot be held liable to the
check issued in favor of petitioner. The rule on accommodation party
doesn't include or apply to corporations which are accommodation parties. This is because the issue or
indorsement of another is ultra vires. Hence, one who has taken the instrument with knowledge of the
accommodation nature thereof cannot recover against a corporation where it is only an
accommodation party. If the form of the instrument, or the nature of the transaction, is such as to charge
the indorsee with the knowledge that the
issue or indorsement of the instrument by the corporation is for the
accommodation of another, he cannot recover against the corporation thereon.

By way of exception, an officer or agent of a corporation shall have the
power to execute or indorse a negotiable paper in the name of the
corporation for the accommodation of a third party only is specifically
authorized to do so. Corollarily, corporate officers have no power to
execute for mere accommodation a negotiable instrument of the
corporation for their individual debts and transactions arising from or in
relation to matters in which the corporation has no legitimate concern. Since such accommodati
on paper cannot be enforced against the corporation, the signatories thereof shall be personally
liable therefore, as well as the consequences arising from their acts in connection therewith.
Stelco vs CA

Stelco Marketing vs. CA
GR 96160, 17 June 1992, 210 scra 51
--accommodation party

Stelco Marketing Corporation sold structural steel bars to RYL Construction Inc. RYL gave
Stelcos sister corporation, Armstrong Industries, a MetroBank check from Steelweld
Corporation. The check was issued by Steelwelds President to Romeo Lim, President of RYL,
by way of accommodation, as a guaranty and not in payment of an obligation. When Armstrong
deposited the check at its bank, it was dishonored because it was drawn against insufficient
funds. When so deposited, the check bore two indorsements, i.e. RYL and
Armstrong. Subsequently, Stelco filed a civil case against RYL and Steelweld to recover the
value of the steel products.

Whether Steelweld as an accommodating party can be held liable by Stelco for the dishonored

Steelweld may be held liable but not by Stelco. Under Section 29 of the NIL, Steelweld Corp.
can be held liable for having issued the subject check for the accommodation of Romeo
Lim. An accommodation party is one who has singed the instrument as maker, drawer,
acceptor, or indorser, without receiving valued therefor, and for the purpose of lending his name
to some other person. Such a person is liable on the instrument to a holder for value,
notwithstanding such holder, at the time of taking the instrument, knew him to be only an
accommodation party. Stelco however, cannot be deemed a holder of the check for value as it
does not meet two essential requisites prescribed by statute, i.e. that it did not become the
holder of it before it was overdue, and without notice that it had been previously dishonored,
and that it did not take the check in good faith and for value.
Travel-On vs CA

Travel-On, Inc. vs Court of Appeals
G.R. No. L-56169 June 26, 1992
-accommodation party

Petitioner Travel-On Inc. is a travel agency from which Arturo Miranda procured tickets on
behalf of airline passengers and derived commissions therefrom. Miranda was sued by
petitioner to collect on the six postdated checks he issued which were all dishonored by the
drawee banks. Miranda, 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 not for the purpose of encashment to pay his indebtedness but for purposes
of accommodation, as he had in the past accorded similar favors to petitioner. Petitioner
however urges that the postdated checks are per se evidence of liability on the part of private
respondent and further argues that even assuming that the checks were for accommodation,
private respondent is still liable thereunder considering that petitioner is a holder for value.

Whether Miranda is liable on the postdated checks he issued even assuming that said checks
were issued for accommodation only.

There was no accommodation transaction in the case at bar. In accommodation transactions
recognized by the Negotiable Instruments Law, an accommodating party lends his credit to the
accommodated party, by issuing or indorsing a check which is held by a payee or indorsee as a
holder in due course, who gave full value therefor to the accommodated party. The latter, in
other words, receives or realizes full value which the accommodated party then must repay to
the accommodating party. But the accommodating party is bound on the check to the holder in
due course who is necessarily a third party and is not the accommodated party. In the case at
bar, Travel-On was payee of all six (6) 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. Miranda must be held liable on the checks
involved as petitioner is entitled to the benefit of the statutory presumption that it was a holder in
due course and that the checks were supported by valuable consideration.

**In accommodation transactions recognized by the Negotiable Instruments Law, an accommodating
party lends his credit to the accommodated party, by issuing or indorsing a check which is held by a
payee or indorsee as a holder in due course, who gave full value therefor to the accommodated party. In
the case at bar, Travel-On was the payee of all six (6) 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.
Benjamin Napiza maintains an account with the Bank of the Philippine Islands (BPI). In 1987, Napiza
was approached by Henry Chan and the latter gave him a $2,500 Continental Bank Managers
check. Chan asked if Napiza can deposit the check to his (Napizas BPI account) by way of
accommodation and for the purpose of clearing the said check. Napiza agreed and so he deposited
the check on September 3, 1987. Napiza then delivered a signed blank withdrawal slip to Chan with
the condition that the $2,500.00 may only be withdrawn if the check cleared. For some reason, the
withdrawal slip ended up in the hands of one Ruben Gayon who went to BPI and successfully
withdrew the $2,500.00. At the time of the withdrawal, the check was not yet cleared. Then days
later, BPI was notified by the drawee bank named in the check that the check is actually a
ISSUE: Whether or not Napiza may be held liable to refund the amount of the check.
HELD: No. The Supreme Court ruled that ordinarily, Napiza would have been liable because he is
an accommodation indorser. But due to the attendant circumstances, Napiza is discharged from
The withdrawal slip indicates as well as the rules promulgated by BPI that withdrawal from the bank
should be accompanied by the presentment of the account holders (Napizas) savings bankbook.
This was not done so in the case at bar because Gayon was able to withdraw without it. Further, BPI
allowed the withdrawal even before the check cleared. BPI already credited the $2,500.00 to
Napizas account even without the drawee bank clearing the check. This is contrary to common
banking practices and because of such negligence and lack of diligence, BPI, as the collecting bank,
shall suffer the loss.

Negotiable Instruments Case Digest: Agro
Conglomerates Inc. V. CA (2000)
G.R. No. 117660 December 18, 2000
Lessons Applicable: Consideration and Accommodation Party (Negotiable Instruments

July 17, 1982: Agro Conglomerates, Inc. (Agro) sold 2 parcels of land to
Wonderland Food Industries, Inc (Wonderland) for P 5M under terms and

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,

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

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 effic

accommodation party - NOT in this case because of recission

person who has signed the instrument as:




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.


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


1. There must be a previous valid obligation - lacking

2. There must be an agreement of the parties concerned to a new contract

3. There must be the extinguishment of the old contract; and

4. 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

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