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2ND SEMESTER AY 2014-2015

State Investment House Inc. vs. CA
Nora Moulic issued to Corazon Victoriano, as security for
pieces of jewellery to be sold on commission, two postdated checks
in the amount of fifty thousand each. Thereafter, Victoriano
negotiated the checks to State Investment House, Inc. When Moulic
failed to sell the jewellry, she returned it to Victoriano before the
maturity of the checks. However, the checks cannot be retrieved as
they have been negotiated. Before the maturity date Moulic
withdrew her funds from the bank contesting that she incurred no
obligation on the checks because the jewellery was never sold and
the checks are negotiated without her knowledge and consent.
Upon presentment of for payment, the checks were dishonoured for
insufficiency of funds.
1. Whether or not State Investment House inc. was a holder of the
check in due course
2. Whether or not Moulic can set up against the petitioner the
defense that there was failure or absence of consideration
Yes, Section 52 of the NIL provides what constitutes a holder in due
course. The evidence shows that: on the faces of the post dated
checks were complete and regular; that State Investment House
Inc. bought the checks from Victoriano before the due dates; that it
was taken in good faith and for value; and there was no knowledge
with regard that the checks were issued as security and not for
value. A prima facie presumption exists that a holder of a

negotiable instrument is a holder in due course. Moulic failed to

prove the contrary.
No, Moulic can only invoke this defense against the petitioner if it
was a privy to the purpose for which they were issued and therefore
is not a holder in due course.
No, Section 119 of NIL provides how an instruments be discharged.
Moulic can only invoke paragraphs c and d as possible grounds for
the discharge of the instruments. Since Moulic failed to get back the
possession of the checks as provided by paragraph c, intentional
cancellation of instrument is impossible. As provided by paragraph
d, the acts which will discharge a simple contract of payment of
money will discharge the instrument. Correlating Article 1231 of the
Civil Code which enumerates the modes of extinguishing obligation,
none of those modes outlined therein is applicable in the instant
case. Thus, Moulic may not unilaterally discharge herself from her
liability by mere expediency of withdrawing her funds from the
drawee bank. She is thus liable as she has no legal basis to excuse
herself from liability on her check to a holder in due course.
Moreover, the fact that the petitioner failed to give notice of
dishonor is of no moment. The need for such notice is not absolute;
there are exceptions provided by Sec 114 of NIL.
Traders Royal Bank vs. CA
Filriters through a Detached Agreement transferred ownership to
Philfinance a Central Bank Certificate of Indebtedness. It was only
through one of its officers by which the CBCI was conveyed without
authorization from the company. Petitioner and Philfinance
later entered into a Repurchase agreement, on which
petitioner bought the CBCI from Philfinance. The latter agreed
to repurchase the CBCI but failed to do so. When the petitioner tried
to have it registered in its name in the CB, the latter didn't want to
recognize the transfer.

The CBCI is not a negotiable instrument. The instrument
provides for a promise to pay the registered owner Filriters. Very
clearly, the instrument was only payable to Filriters. It lacked
the words of negotiability which should have served as an
expression of the consent that the instrument may be
transferred by negotiation.
The language of negotiability which characterize a negotiable
paper as a credit instrument is its freedom to circulate as a
substitute for money. Hence, freedom of negotiability is the
touchstone relating to the protection of holders in due course, and
the freedom of negotiability is the foundation for the protection,
which the law throws around a holder in due course. This
freedom in negotiability is totally absent in a certificate of
indebtedness as it merely acknowledges to pay a sum of
money to a specified person or entity for a period of time.
The transfer of the instrument from Philfinance to TRB was
merely an assignment, and is not governed by the negotiable
instruments law. The pertinent question then iswas the
transfer of the CBCI from Filriters to Philfinance and
subsequently from Philfinance to TRB, in accord with existing
law, so as to entitle TRB to have the CBCI registered in its name
with the Central Bank? Clearly shown in the record is the
fact that Philfinances title over CBCI is defective since it
acquired the instrument from Filriters fictitiously. Although the
deed of assignment stated that the transfer was for value
received, there was really no consideration involved. What
happened was Philfinance merely borrowed CBCI from Filriters,
a sister corporation. Thus, for lack of any consideration, the
assignment made is a complete nullity. Furthermore, the transfer
wasn't in conformity with the regulations set by the CB. Giving
more credence to rule that there was no valid transfer or
assignment to petitioner.

Firestone Tire and Rubber Company of the Philippines vs. Ca

and Luzon Development Bank
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. FojasArca 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 character.

Caltex Philippines v. Court of Appeals

On various dates, defendant, a commercial banking institution,
through its Sucat Branch issued 280 certificates of time deposit
(CTDs) in favor of one Angel dela Cruz who is tasked to deposit
aggregate amounts.
One time Mr. dela Cruz delivered the CTDs to Caltex Philippines in
connection with his purchased of fuel products from the latter.
However, Sometime in March 1982, he informed Mr. Timoteo
Tiangco, the Sucat Branch Manger, 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
defendant bank's procedure, if he desired replacement of said lost
Angel dela Cruz negotiated and obtained a loan from defendant
bank and executed a notarized Deed of Assignment of Time
Deposit, which stated, among others, that he surrenders to
defendant bank "full control of the indicated time deposits from and
after date" of the assignment and further authorizes said bank to
pre-terminate, set-off and "apply the said time deposits to the
payment of whatever amount or amounts may be due" on the loan
upon its maturity.
In 1982, Mr. Aranas, Credit Manager of plaintiff Caltex (Phils.) Inc.,
went to the defendant bank's Sucat branch and presented for
verification the CTDs declared lost by Angel dela Cruz alleging that
the same were delivered to herein plaintiff "as security for
purchases made with Caltex Philippines, Inc." by said depositor.
Mr dela Cruz received a letter from the plaintiff formally informing
of its possession of the CTDs in question and of its decision to preterminate the same. ccordingly, defendant bank rejected the

plaintiff's demand and claim for payment of the value of the CTDs
in a letter dated February 7, 1983.
The loan of Angel dela Cruz with the defendant 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.
However, the plaintiff filed the instant complaint, praying that
defendant 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 damages as well as attorney's fees.
On appeal, CA affirmed the lower court's dismissal of the complaint,
and ruled (1) that the subject certificates of deposit are nonnegotiable despite being clearly negotiable instruments; (2) that
petitioner did not become a holder in due course of the said
certificates of deposit; and (3) in disregarding the pertinent
provisions of the Code of Commerce relating to lost instruments
payable to bearer.
a) Whether certificates of time deposit (CTDs) are negotiable
b) Is the depositor also the bearer of the document?
c) Whether petitioner can rightfully recover on the CTDs?
The CTDs in question are not negotiable instruments. Section 1 Act
No. 2031, otherwise known as the Negotiable Instruments Law,
enumerates the requisites for an instrument to become negotiable,

(a) It must be in writing and signed by the maker or drawer;

(b) Must contain an unconditional promise or order to pay a sum
certain in money;
(c) Must be payable on demand, or at a fixed or determinable future
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be
named or otherwise indicated therein with reasonable certainty.
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
Petitioner's insistence that the CTDs were negotiated to it begs the
question. Under the Negotiable Instruments Law, an instrument is
negotiated when it is transferred from one person to another in
such a manner as to constitute the transferee the holder thereof,
and a holder may be the payee or indorsee of a bill or note, who is
in possession of it, or the bearer thereof. In the present case,
however, there was no negotiation in the sense of a transfer of the
legal title to the CTDs in favor of petitioner in which situation, for

obvious reasons, mere delivery of the bearer CTDs would have

sufficed. Here, the delivery thereof only as security for the
purchases of Angel de la Cruz (and we even disregard the fact that
the amount involved was not disclosed) could at the most
constitute petitioner only as a holder for value by reason of his lien.
Accordingly, a negotiation for such purpose cannot be effected by
mere delivery of the instrument since, necessarily, the terms
thereof and the subsequent disposition of such security, in the
event of non-payment of the principal obligation, must be
contractually provided for.
During the Japanese occupation, Pacita Young issued three
promissory notes to Pacifica Jimenez. The total sum of the notes
was P21k. All three promissory notes were couched in this manner:
Received from Miss Pacifica Jimenez the total amount of
___________ payable six months after the war, without interest.
When the promissory notes became due, Jimenez presented the
notes for payment. Pacita and her husband died and so the notes
were presented to the administrator of the estate of the spouses
(Dr. Jose Bucoy). Bucoy manifested his willingness to pay but he
said that since the loan was contracted during the Japanese
occupation the amount should be deducted and the Ballantyne
Schedule should be used, that is peso-for-yen (which would lower
the amount due from P21k). Bucoy also pointed out that nowhere in
the not can be seen an express promise to pay because of the
absence of the words I promise to pay
ISSUE: Whether the amounts should be paid, peso for peso, or
whether a reduction should be made in accordance with the wellknown Ballantyne schedule.

HELD: No. The Ballantyne schedule may not be used here because
the debt is not payable during the Japanese occupation. It is
expressly stated in the notes that the amounts stated therein are
payable six months after the war. Therefore, no reduction could
be effected, and peso-for-peso payment shall be ordered in
Philippine currency.
The appellant administrator also calls attention to the fact that the
notes contained no express promise to pay a specified amount. The
SC rules: "An acknowledgment may become a promise by the
addition of words by which a promise of payment is naturally
implied, such as, "payable," "payable" on a given day, "payable on
demand," "paid . . . when called for," . . . "To constitute a good
promissory note, no precise words of contract are necessary,
provided they amount, in legal effect, to a promise to pay. In other
words, if over and above the mere acknowledgment of the debt
there may be collected from the words used a promise to pay it, the
instrument may be regarded as a promissory note.

Carmela Brobio Mangahas vs. Eufrocina Brobio

Pacifico died and left 3 parcels of land. He was survived by his wife,
Eufrocina, 4legit and 3 illegit children. Carmela is one of the
illegitimate children. The heirsexecuted a Deed of Extrajudicial
Settlement of Estate with Waiver. In the Deed,Carmela and the
other children, in consideration of their love and affection for
Eufrocina and the sum of P150k waived their shares over the land in
favor of Eufrocina. According to Carmela, Eufrocina promised to give
her an additional amount for her share in her fathers estate. After
the signing of the Deed, Carmela demanded from Eufrocina the
promised additional amount, but Eufrocina refused to pay. Later,
Eufrocina needed an original copy of the Deed for submission to the
BIR. She didnt have a copy anymore so she asked Carmela to

countersign a copy of the Deed. Carmela refused, demanding that

Eufrocina first give her the additional amount that she promised.
Carmela asked for P1M, but Eufrocina begged her to lower the
amount. Carmela agreed to lower it to P600k. Because Eufrocina did
not have the money at that time, Eufrocina executed a promissory
note. Upon maturity of the PN, Eufrocina failed and refused to pay
despite several demands so Carmela filed a complaint with the RTC.
Eufrocina alleged that she was practically held "hostage" by the
demand of Carmela because at that time, Eufrocina was so much
pressured to submit the documents to the BIR. She (Eufrocina) also
claimed that the circumstances in the execution of the promissory
note were obviously attended by involuntariness and the same was
issued without consideration at all or for illegal consideration. The
RTC ruled in favor of Carmela. The CA reversed the RTC decision
because there was a complete absence of consideration in the
execution of the promissory note, which made it inexistent and
without any legal force and effect. The court noted that "financial
assistance" was not the real reason why Eufrocina executed the
promissory note, but only to secure Carmelas signature. The CA
held that the waiver of Carmelas share in the properties may not
be considered as the consideration of the promissory note,
considering that Carmela signed the Deed way back in 2002 and
she had already received the consideration of P150k for signing the
same. The CA also found that intimidation attended the signing of
the promissory note. Eufrocina needed the Deed countersigned by
Carmela in order to comply with a BIR requirement so Eufrocina was
forced to sign the promissory note to assure Carmela that the
money promised to her would be paid.
1. W/N the CA erred in the appreciation of the facts of this case
when it foundthat intimidation attended the execution of the
promissory note subject of this case.
2. W/N the CA erred when it found that the promissory note was
without consideration. (this is the more relevant issue)



inadequate, the contract would not be invalidated, unless there has

been fraud, mistake, or undue influence. As previously stated, none
of these grounds had been proven present in this case.

Eufrocina insists that she was "forced" into signing the promissory
note because Carmela would not sign the document required by
the BIR.
Being forced into a situation does not amount to vitiated consent
where it is not shown that the party is deprived of free will and
choice. There is undue influence when aperson takes improper
advantage of his power over the will of another, depriving the latter
of a reasonable freedom of choice. For undue influence to
be present, the influence exerted must have so overpowered the
mind of a contracting party as to destroy his free agency, making
him express the will of another rather than his own. Eufrocina may
have desperately needed petitioners signature on the Deed, but
there is no showing that she was deprived of free agency when
she signed the promissory note.
Section 24 of the NIL provides that A contract is presumed to be
supported by cause or consideration. The presumption that a
contract has sufficient consideration cannot be overthrown by a
mere assertion that it has no consideration.
To overcome the presumption, the alleged lack of consideration
must be shown by preponderance of evidence. The burden to prove
lack of consideration rests upon whoever alleges it, which, in
the present case, is Eufrocina. Eufrocina failed to prove that the
promissory note was not supported by any consideration. From her
testimony and her assertions in the pleadings, it is clear that the
promissory note was issued for a cause or consideration, which, at
the very least, was Carmelas signature on the document.
It may very well be argued that if such was the consideration, it
was inadequate. Nonetheless, even if the consideration is

Philippine Bank of Commerce v. Jose M. Aruego

Lessons Applicable: Liabilities of the Parties (Negotiable Instruments

December 1, 1959: Philippine Bank of Commerce (PBC)

instituted against Jose M. Aruego for the recovery of the total
sum of about P 35K with interest from November 17, 1959
and commission of 3/8% for every thirty 30 days plus
attorney's fees of 10% of the total amount due and costs

represents the cost of the printing the periodical

published by the Aruego "World Current Events"

To facilitate the payment of the printing, Aruego

obtained a credit accommodation from the PBC

the printer, Encal Press and Photo Engraving, collected

the cost of every printing by drawing a draft against
the PBC, which PBC later accepts

As an added security for the payment of the

amounts advanced to Encal Press and PhotoEngraving, PBC required Aruego to execute a
trust receipt (PBC hold in trust for Aruego the
periodicals and to sell the same with the
promise to turn over to the Aruego the proceeds
for the payment of all obligations arising from
the draft)

trial court: Aruego to pay to the PBC


signed the supposed bills of exchange as an agent of

the Philippine Education Foundation Company where
he is president
Section 20 of the Negotiable Instruments Law

"Where the instrument contains or 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."

signed the drafts only as an accommodation party and as

such, should be made liable only after a showing that the
drawer is incapable of paying
not really bills of exchange but mere pieces of evidence of
indebtedness because payments were made before

ISSUE: W/N Aruego should be personally liable


nowhere has he disclosed that he was signing as a

representative of the Philippine Education Foundation

For failure to disclose his principal, Aruego is personally liable

for the drafts he accepted

An accommodation party is one who has signed the instrument as

maker, drawer, indorser, without receiving value therefor and for

the purpose of lending his name to some other person. Such person
is liable on the instrument to a holder for value, notwithstanding
such holder, at the time of the taking of the instrument knew him to
be only an accommodation party

he signed as a drawee/acceptor
Under the Negotiable Instrument Law, a drawee is primarily

As long as a commercial paper conforms with the definition of a bill

of exchange, that paper is considered a bill of exchange

The nature of acceptance is important only in the

determination of the kind of liabilities of the parties
involved, but not in the determination of whether a
commercial paper is a bill of exchange or not

Republic of the Philipines vs. PNB

This is a complaint filed before the Court of First Instance of Manila
for escheat of certain unclaimed bank deposits balances under the
provisions of Act No. 3936 against several banks, among them the
First National City Bank of New York. It is alleged that pursuant to
Section 2 of said Act defendant banks forwarded to the Treasurer of
the Philippines a statement under oath of their respective managing
officials of all the credits and deposits held by them in favor of
persons known to be dead or who have not made further deposits
or withdrawals during the period of 10 years or more. Wherefore, it
is prayed that said credits and deposits be escheated to the
Republic of the Philippines by ordering defendant banks to deposit
them to its credit with the Treasurer of the Philippines.
In its answer the First National City Bank of New York claims that,
while it admits that various savings deposits, pre-war inactive
accounts, and sundry accounts contained in its report submitted to
the Treasurer of the Philippines pursuant to Act No. 3936, totalling

more than P100,000.00, which remained dormant for 10 years or

more, are subject to escheat however, it has inadvertently included
in said report certain items amounting to P18,589.89 which,
properly speaking, are not credits or deposits within the
contemplation of Act No. 3936. Hence, it prayed that said items be
not included in the claim of plaintiff.
After hearing the court a quo rendered judgment holding that
cashier's is or manager's checks and demand drafts as those which
defendant wants excluded from the complaint come within the
purview of Act No. 3936, but not the telegraphic transfer payment
which orders are of different category. Consequently, the complaint
was dismissed with regard to the latter. But, after a motion to
reconsider was filed by defendant, the court a quo changed its view
and held that even said demand drafts do not come within the
purview of said Act and so amended its decision accordingly.
Plaintiff has appealed.
Do demand draft and telegraphic orders come within the meaning
of the term "credits" or "deposits" employed in the law?
Can their import be considered as a sum credited on the books of
the bank to a person who appears to be entitled to it?
Do they create a creditor-debtor relationship between drawee and
the payee?
The answers to these questions require a digression the legal
meaning of said banking terminologies.
To begin with, we may say that a demand draft is a bill of exchange
payable on demand. Considered as a bill of exchange, a draft is said
to be, like the former, an open letter of request from, and an order
by, one person on another to pay a sum of money therein

mentioned to a third person, on demand or at a future time therein

specified. As a matter of fact, the term "draft" is often used, and is
the common term, for all bills of exchange. And the words "draft"
and "bill of exchange" are used indiscriminately.
On the other hand, a bill of exchange within the meaning of our
Negotiable Instruments Law (Act No. 2031) does not operate as an
assignment of funds in the hands of the draweewho is not liable on
the instrument until he accepts it. This is the clear import of Section
127. It says: "A bill of exchange of itself does not operate as an
assignment of the funds in the hands of the drawee available for
the payment thereon and the drawee is not liable on the bill unless
and until he accepts the same."
Since it is admitted that the demand drafts herein involved have
not been presented either for acceptance or for payment, the
inevitable consequence is that the appellee bank never had any
chance of accepting or rejecting them. Verily, appellee bank never
became a debtor of the payee concerned and as such the aforesaid
drafts cannot be considered as credits subject to escheat within the
meaning of the law.
The case, however, is different with regard to telegraphic
payment order. The purchaser of a telegraphic transfer upon
making payment completes the transaction insofar as he is
concerned, though insofar as the remitting bank is concerned the
contract is executory until the credit is established. The comment
the Solicitor General: "This is so because the drawer bank was
already paid the value of the telegraphic transfer payment order. In
the particular cases under consideration it appears in the books of
the defendant bank that the amounts represented by the
telegraphic payment orders appear in the names of the respective
payees. If the latter choose to demand payment of their telegraphic
transfers at the time the same was (were) received by the
defendant bank, there could be no question that this bank would
have to pay them. Hence, it is absurd to say that the drawer banks
are still the owners of said telegraphic payment orders."

WHEREFORE, the decision of the trial court is hereby modified in the

sense that the items specifically referred to and listed under
paragraph 3 of appellee bank's answer representing telegraphic
transfer payment orders should be escheated in favor of the
Republic of the Philippines. No costs.

Phil. Deposit Insurance Corporation vs. CA and John Francis

On September 22, 1983, plaintiffs-appellees invested in money
market placements with the Premiere Financing Corporation (PFC)
in the sum ofP10,000.00 each for which they were issued by the
PFC corresponding promissory notes and checks. On the same date
(September 22, 1983), John Francis Cotaoco, for and in behalf of
plaintiffs-appellees, went to the PFC to encash the promissory notes
and checks, but the PFC referred him to the Regent Saving Bank
(RSB). Instead of paying the promissory notes and checks, the RSB,
upon agreement of Cotaoco, issued the subject 13 certificates of
time deposit with Nos. 09648 to 09660, inclusive, each stating,
among others, that the same certifies that the bearer thereof has
deposited with the RSB the sum of P10,000.00; that the certificate
shall bear 14% interest per annum; that the certificate is insured up
to P15,000.00 with the PDIC; and that the maturity date thereof is
on November 3, 1983.
On the aforesaid maturity dated (November 3, 1983), Cotaoco went
to the RSB to encash the said certificates. Thereat, RSB Executive
Vice President Jose M. Damian requested Cotaoco for a deferment
or an extension of a few days. Cotaoco agreed but the RSB still
failed to pay the value of the certificates. Instead, RSB advised
Cotaoco to file a claim with the PDIC.

On September 4, 1984, plaintiffs-appellees filed with the PDIC their

respective claims for the amount of the certificates. To their dismay,
PDIC refused the aforesaid claims on the ground that the Traders
Royal Bank Check No. 299255 dated September 22, 1983 for the
amount of P125,846.07 issued by PFC for the aforementioned
certificates was returned by the drawee bank for having been
drawn against insufficient funds; and said check was not replaced
by the PFC, resulting in the cancellation of the certificates as
indebtedness or liabilities of RSB.[1]
The Court of Appeals further concluded that the subject CTDs are
negotiable. Petitioner, on the other hand, contends that the CTDs
are non-negotiable since they do not contain an unconditional
promise or order to pay a sum in money are they made payable to
order or bearer, as required by Section 1 of the Negotiable
Instruments Law.
ISSUE: Whether or not the CTDs in question are negotiable or not.
In the case at bar, the Court of Appeals initially found the subject
CTDs to be negotiable. But the Supreme Court disagree with
respondent courts rationale. The fact that the certificates state
that the certificates are insured by PDIC does not ipso facto make
the latter liable for the same should the contingency insured
against arise. As stated earlier, the deposit liability of PDIC is
determined by the provisions of R.A. No. 3519, and statements in
the certificates that the same are insured by PDIC are not binding
upon the latter.
The mere fact that a certificate recites on its face that a certain
sum has been deposited, or that officers of the bank may have
stated that the deposit is protected by the guaranty law, does not
make the guaranty fund liable for payment, if in fact a deposit has
not been made xxx. The banks have nothing to do with the
guaranty fund as such. It is a fund raised by assessments against

all state banks, administered by officers of the state to protect

deposits in banks.
In order that a claim for deposit insurance with the PDIC may
prosper, the law requires that a corresponding deposit be placed in
the insured bank. This is implicit from a reading of the following
provisions of R.A. 3519:
SECTION 1. There is hereby created a Philippine Deposit Insurance
Corporation. xxx which shall insure, as provided, the deposits of all
banks which are entitled to the benefits of insurance under this Act
xxx. (Italics supplied).
SEC. 10 ( c) Whenever an insured bank shall have been closed on
account of insolvency, payment of the insured deposits in such
bank shall be made by the Corporation as soon as possible
xxx. (Italics supplied.)
The check in question appears on the records as Exhibit 3 and is
described in RSBs offer of evidence as Traders Royal Bank Check
No. 292555 dated September 22, 1983 covering the amount
or P125,846.07. At the back of said check are the words Refer to
Drawer, indicating that the drawee bank (Traders Royal Bank)
refused to pay the value represented by said check. By reason of
the checks dishonor, RSB cancelled the corresponding as
evidenced by an RSB ticket dated November 4, 1983.
These pieces of evidence convincingly show that the subject CTDs
were indeed issued without RSB receiving any money therefor. No
deposit, as defined in Section 3 (f) of R.A. No. 3591, therefore came
into existence. Accordingly, petitioner PDIC cannot be held liable
for value of the certificates of time deposit held by private


Due to dire financial needs of petitioner spouses who were engaged
in the construction business, they secured loans from
Vicencio. At every loan secured, the lender compelled the
spouses to issue an undated check despite the admission of
spouses that their bank account has insufficient
funds or as on a later date, already closed. Lender assured them
that the issuance of the check was only evidence of indebtedness,
that it would not be presented to the bank, and it would be for
formalities only. On the date wherein there was an unpaid balance
to the loans secured by the spouses, the lender had them place
a date on two of the later checks issued. Surprised later on,
the spouses were charged with estafa as the checks were
presented for encashment and was dishonored.
Whether or not the Pachecos should be charge with estafa.
deceit on the part of the spouses because they agreed with the
lender at the time of the issuance and postdating of the checks
that the same shall not be encashed or presented to the
bank. As per assurance of the lender, the checks are nothing
but evidence of the loan or security thereof in lieu of and for
the same purpose as a promissory note.

Mitra vs. People of the Philippines

Felicismo invested his money in Lucky Nine Credit
Corporation(LNCC). As was the practice, the corporation thru its
officers, Eumelia(MITRA) and Florencio Cabrera, treasurer and
president, respectively, of the corporation, issued to him several
post-dated checks representing the principal amount plus interest
of the amounts he invested.
When presented for payment, the checks were dishonoured for
reason account closed. Demand was made by Felicisimo to both
Eumelia and Florencio for them pay the face value of the checks,
hence Felicismo filed a case for violation of BP 22 against the
accused. The lower court convicted them, affirmed by the RTC and
the Court of Appeals. Only Eumelia elevated her appeal to the
Supreme Court as Florencio died in the interim.
In her appeal, Eumelia anchors her defense on the theory that the
corporation should first be held liable before they, the signatories
can be held personally liable. Also, no notice of dishonour was
received by them.

liable under this Act. This provision recognizes the reality that a
corporation can only act through its officers. Hence, its wording is
unequivocal and mandatory that the person who actually signed
the corporate check shall be held liable for a violation of BP 22. This
provision does not contain any condition, qualification or limitation.
In the case of Llamado v. Court of Appeals, the Court ruled that the
accused was liable on the unfunded corporate check which he
signed as treasurer of the corporation. He could not invoke his lack
of involvement in the negotiation for the transaction as a defense
because BP 22 punishes the mere issuance of a bouncing check,
not the purpose for which the check was issued or in consideration
of the terms and conditions relating to its issuance. In this case,
Mitra signed the LNCC checks as treasurer. Following Llamado, she
must then be held liable for violating BP 22.
x xxxxxxx
(For the second one)

(For the first issue)

Mitra alleges that there was no proper service on her of the notice
of dishonor and, so, an essential element of the offense is missing.
This contention raises a factual issue that is not proper for review. It
is not the function of the Court to re-examine the finding of facts of
the Court of Appeals. Our review is limited to errors of law and
cannot touch errors of facts unless the petitioner shows that the
trial court overlooked facts or circumstances that warrant a
different disposition of the case11 or that the findings of fact have
no basis on record. Hence, with respect to the issue of the propriety
of service on Mitra of the notice of dishonor, the Court gives full
faith and credit to the consistent findings of the MTCC, the RTC and
the CA.

The Court finds itself unable to agree with Mitras posture. The
third paragraph of Section 1 of BP 22 reads: Where the check is
drawn by a corporation, company or entity, the person or persons
who actually signed the check in behalf of such drawer shall be

The defense postulated that there was no demand served upon the
accused, said denial deserves scant consideration. Positive
allegation of the prosecution that a demand letter was served upon
the accused prevails over the denial made by the accused. Though,

1. WON the elements of violation of BP 22 must be proved
beyond reasonable doubt as against the corporation who
carries the account where the subject checks were drawn
before liability attaches to the signatories.
2. WONthere is proper service of Notice of Dishonor and
demand to pay to the petitioner and the late Cabrera.

having denied that there was no demand letter served on April 10,
2000, however, the prosecution positively alleged and proved that
the questioned demand letter was served upon the accused on April
10, 2000, that was at the time they were attending Court hearing
before Branch I of this Court. In fact, the prosecution had submitted
a Certification issued by the other Branch of this Court certifying
the fact that the accused were present during the April 10, 2010
hearing. With such straightforward and categorical testimony of the
witness, the Court believes that the prosecution has achieved what
was dismally lacking in the three (3) cases of Betty King, Victor Ting
and Caras evidence of the receipt by the accused of the demand
letter sent to her. The Court accepts the prosecutions narrative that
the accused refused to sign the same to evidence their receipt
thereof. To require the prosecution to produce the signature of the
accused on said demand letter would be imposing an undue
hardship on it. As well, actual receipt acknowledgment is not and
has never been required of the prosecution either by law or


With the notice of dishonor duly served and disregarded, there

arose the presumption that Mitra and Cabrera knew that there were
insufficient funds to cover the checks upon their presentment for
payment. In fact, the account was already closed.


April 25, 1991: Vicente Alegre (Alegre), invested with Cebu

Tibajia vs. CA

Whether or not payment by means of cashiers check is considered

payment in legal tender.
NO. A check, whether a managers check or ordinary check, is not
legal tender, and an offer of a check in payment of a debt is not a
valid tender of payment and may be refused receipt by the obligee
or creditor. A check is not legal tender and that a creditor may
validly refuse payment by check, whether it be a managers,
cashiers or personal check. The Supreme Court stressed that, We
are not, by this decision, sanctioning the use of a check for the
payment of obligations over the objection of the creditor.

Cebu International Finance Corporation v. Court of Appeals

International Finance Corporation (CIFC),a quasi-banking

institution, P500,000.00
CIFC issued a promissory note to mature on May 27, 1991.

The note for P516,238.67 covered private respondent's

placement plus 20.5% interest for 32 days.
May 27, 1991: CIFC issued BPI Check No. 513397 for

P514,390.94 in favor of Alegre as proceeds of his matured

investment plus interest. The CHECK was drawn from CIFC's
current account in the Bank of the Philippine Islands (BPI)
June 17, 1991: Alegre's wife deposited the check with Rizal

Tibajia spouses delivered to Sheriff the total money judgment in
cashiers check and cash.Private respondent, Eden Tan, refused to
accept the payment made by the Tibajia spouses and instead
insisted that the garnished funds deposited with the cashier of the
Regional Trial Court of Pasig, Metro Manila be withdrawn to satisfy
the judgment obligation. Tibajias filed a motion to lift the writ of
execution on the ground that the judgment debt had already been
paid. The motion was denied.

Commercial Banking Corp. (RCBC) in Puerto Princesa, Palawan.

BPI dishonored the CHECK with the annotation, that

compromise agreement, which was submitted for the

the "Check (is) Subject of an Investigation

BPI took custody of the CHECK pending an

investigation of several counterfeit checks drawn against CIFC's

aforestated checking account.
BPI used the check to trace the perpetrators of

the forgery.
Immediately, Alegre notified CIFC of the dishonored CHECK

account of CFIC payable to Alegre

In case BPI shall be adjudge liable to Alegre, he cannot

and demanded, on several occasions, that he be paid in cash.

CIFC refused the request, and instead instructed him

go after BPI
July 27, 1993: BPI filed a separate collection suit against

to wait for its ongoing bank reconciliation with BPI.

Alegre, through counsel, made a formal demand

for the payment of his money market placement

CIFC promised to replace the CHECK but

required an impossible condition that the original must first be

February 25, 1992: Alegre filed a complaint for recovery of a

sum of money w/ the RTC against CIFC

CIFC filed a motion for leave of court to file a third-

party complaint against BPI - dismissed bec. of the other case

CIFC asserted that the CHECK it issued in favor of

Alegre was genuine, valid and sufficiently funded.

July 13, 1992: CIFC sought to recover its lost funds and

formally filed against BPI

alleged that BPI unlawfully deducted from CIFC's
checking account, counterfeit checks amounting to

approval of the court

BPI pay CFIC P1,724,364.58 + P20,000 litigation
BPI shall debit of P514,390.94 from the current


alleged that Alegre connived w/ Lina A. Pena and Lita

A. Anda and forged several checks of CIFC totalling
to P1,724,364.58 deducting P514,390.94 = P914,198.57
+ P20,000 cost of suit
September 27, 1993: RTC favored Alegre
CIFC appealed but CA Affirmed

ISSUE: W/N a check is of legal tender thereby extinguishing the

obligation of CIFC to pay Alegre

HELD: NO. CA Affirmed.

Section 137 of the Negotiable Instruments Law

BPI primarily liable for accepting the checks

Art. 1249 of the New Civil Code

The payment of debts in money shall be made in the

currency stipulated, and if it is not possible to deliver such
currency, then in the currency, which is legal tender in the

The delivery of promissory notes payable to order, or bills of

exchange or other mercantile documents shall produce the
effect of payment only when they have been cashed, or when
through the fault of the creditor they have been impaired.
money market - a market dealing in standardized short-term

credit instruments (involving large amounts) where lenders and

borrowers do not deal directly with each other but through a
middle man or dealer in open market. In a money
market transaction, the investor is a lender who loans his money
to a borrower through a middleman or dealer.
In the case at bar, the money market transaction between

the CIFC and the Alegre is in the nature of a loan.

Alegre accepted the CHECK, instead of requiring

payment in money.
Yet, when he presented it to RCBC for

encashment, as early as June 17, 1991, the same was

dishonored by non-acceptance, with BPI's annotation: "Check
(is) subject of an investigation."
Under these circumstances, and after the notice

of dishonor, the holder has an immediate right of recourse

against the drawer, and consequently could immediately file an
action for the recovery of the value of the check.
In a loan transaction, the obligation to pay a sum certain in

money may be paid in money, which is the legal tender or, by

the use of a check.
A check is not a legal tender, and therefore cannot
constitute valid tender of payment.

Although the value of the CHECK was deducted from the

funds of CIFC, it was not delivered to Alegre - did not not ipso
facto operate as a discharge or payment
A compromise is a contract whereby the parties, by making

reciprocal concessions, avoid a litigation or put an end to one

already commenced
unenforceable against Alegre who is not a party
BPI's confiscation of Alegre's money constitutes garnishment

without the parties going through a valid proceeding in court.

In effect, CIFC has not yet tendered a valid payment of its

obligation to theAlegre
GR compromise has upon the parties the effect and authority

of res judicata, with respect to the matter definitely stated

holds true even if the agreement has not been

judicially approved
CIFC cannot go against BPI

Chan Wan vs. Tan Kim

Tan Kim and her husband (Chen So) issued 11 checks payable to
cash or bearer to be drawn against their account with the
Equitable Banking Corporation. The checks were negotiated to the
White House Shoe Supply (company). White House then deposited
the checks to their China Bank account. China Bank then presented
the checks to Equitable Bank but the checks were returned because
Equitable Bank then had no funds to cover the checks. China Bank
then stamped the checks with Account Closed and Non
negotiable China Bank Corporation.

But somehow, Chan Wan got hold of these checks (Chan Wan was
not able to explain in court how he got hold of the checks). Chan
Wan now wants to encash the checks but Equitable Bank refused
accept the said checks.
ISSUE: Whether or not Chan Wan is a holder in due course.
HELD: No. As a general rule, a dishonored check/instrument may
still be negotiated either by indorsement or delivery and the holder
may be a holder in due course provided that he received no notice
regarding the dishonor of the instrument. In this case, the checks
were already crossed on their face hence Chan Wan was properly
notified of the dishonor of the checks at the time of his acquisition.
But may Chan Wan still recover?
Yes. 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. The holder may recover directly from
the drawee, in this case Tan Kim and Chen So, unless the drawees
have a valid excuse in refusing payment. The only disadvantage of
a holder who is not a holder in due course is that the negotiable
instrument is subject to defense as if it were non- negotiable. The
case was remanded to the lower court for a proper determination as
to how Chan Wan acquired the checks and to determine if he is
indeed entitled to payment based on some other transactions
involving those checks.


Petitioner was doing business under the name Hope Pharmacy
which sells medicine and other pharmaceutical products in the City
of Cebu. Petitioner had in his employ Chua as his pharmacist and
trustee or caretaker of the business.

In petitioners case against Metrobank, he averred that there were

32 checks with Hope Pharmacy as payee, for varying sums,
amounting P1, 492,595.06,that were not endorsed by him but were
deposited under the personal account of Chua with respondent
bank. Petitioner claimed that the said checks were crossed checks
payable to Hope Pharmacy only; and that without the participation
and connivance of respondent bank, the checks could not have
been accepted for deposit to any other account, except petitioners
Petitioner prayed that Chua and respondent bank be ordered to pay
the principal amount of P1,492,595.06, plus interest at 12% from
the dates of the checks, until the obligation shall have been fully
paid; moral damages of (P500,000.00); exemplary damages of
P500,000.00; and attorneys fees and costs of P500,000.00
RTC rendered a decision dismissing plaintiffs complaint against
Chua but sentencing Metrobank liable to pay moral damages in the
amount of P50,000 plus attorneys fees and litigation at P25,000.
Trial court absolved Chua because of the finding that the subject
checks were payments of petitioner for his loans or borrowings
from the parents of Ma. Teresa Chua, through Ma. Teresa, who was
given the total discretion by petitioner to transfer money from the
offices of Hope Pharmacy to pay the advances and other obligations
of the drugstore; she was also given the full discretion where to
source the funds to cover the daily overdrafts.RTC declared
respondent bank liable for being negligent in allowing the deposit of
crossed checks without the proper indorsement.
Decision of RTC was affirmed on appeal to the CA.
Whether or not the CA erred In Not Holding Metrobank Liable for
the entire amount of the checks

HELD: A crossed check is one where two parallel lines are drawn
across its face or across the corner thereof. In order to preserve the
credit worthiness of checks, jurisprudence has pronounced that
crossing of a check has the following effects: (a) the check may not
be encashed but only deposited in the bank; (b) the check may
benegotiated only once to one who has an account with a bank;
and (c) the act of crossing the check serves as 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. The crossing
of a check is a warning that the check should be deposited only in
the account of the payee. Thus, it is the duty of the collecting bank
to ascertain that the check be deposited to the payees account
Respondent bank should not be held liable for the entire amount of
the checks considering that, the checks were actually given to Chua
as payments by petitioner for loans obtained from the parents of
Chua. Furthermore, petitioners non-inclusion of Chua and Tabaag
in the petition before this Court is, in effect, an admission by the
petitioner that Chua, in representation of her parents, had rightful
claim to the proceeds of the checks, as payments by petitioner for
money he borrowed from the parents of Chua. Therefore, petitioner
suffered no pecuniary loss in the deposit of the checks to the
account of Chua.
SC affirms the finding of the RTC that respondent bank was
negligent in permitting the deposit and encashment of the crossed
checks without the proper indorsement. Knowing fully well that the
subject checks were crossed, that the payee was not the holder and
that the checks contained no indorsement, respondent bank should
have taken reasonable steps in order to determine the validity of
the representations made by Chua. Respondent bank was amiss in
its duty as an agent of the payee.
Security Bank and Trust Company vs. Rizal Commercial
Banking Corp.


January 9, 1981: Security Bank and Trust Company (SBTC)

issued a managers check for P 8M, payable to "CASH," as
proceeds of the loan granted to Guidon Construction and
Development Corporation (GCDC)

deposited by Continental Manufacturing Corporation

(CMC) in its Current Account with Rizal Commercial
Banking Corporation (RCBC)

Immediately, RCBC honored the P8M check and

allowed CMC to withdraw

January 12, 1981: GCDC issued a "Stop Payment Order" to

SBTC claiming that the P 8M check was released to a 3rd
party by mistake

SBTC dishonored and returned the managers check to


February 13, 1981: RCBC filed a

complaint for damages against SBTC with CFI then
transferred to RTC

Following the rules of the Philippine Clearing House, RCBC

and SBTC stopped returning the checks to each other.

By way of a temporary arrangement pending

resolution of the case, the P 8 M check was equally
divided between RCBC and SBTC

May 9, 2000: RTC in favor of RCBC

CA: affirmed with modification RTC decision by adding


ISSUE: W/N SBTC should be held liable for its manager's check

HELD: YES. CA affirmed.

At the outset, it must be noted that the questioned check

issued by SBTC is not just anordinary check but a managers

managers check

one drawn by a banks manager upon the bank


same footing as a certified check which is

deemed to have been accepted by the bank
that certified it

As the banks own check, a managers

check becomes the primary obligation of
the bank and is accepted in advance by
the act of its issuance

RCBC, in immediately crediting the amount of P8 million to

CMCs account, relied on the integrity and honor of the check
as it is regarded in commercial transactions

July 9, 1980 Memorandum: banks were given the discretion

to allow immediate drawings on uncollected deposits of
managers checks, among others

important that banks should guard against injury attributable

to negligence or bad faith on its part

banking business is impressed with public interest, the

trust and confidence of the public in it is of paramount

highest degree of diligence is expected, and high

standards of integrity and performance are required of

People of the Philippines vs. David Nitafan

K.T. Lim (@ Mariano Lim) was charged before respondent
court with violation of BP 22 in an Information alleging "that on 10
January 1985, in the City of Manila, the said accused did then and
there wilfully, unlawfully and feloniously make or draw and issue to
Fatima Cortez Sasaki Philippine Trust Company Check No. 117383
dated February 9, 1985 in the amount of P143,000.00, xxx well
knowing that at the time of issue he did not have sufficient funds in
or credit with the drawee bank which check was subsequently
dishonored by the drawee bank for insufficiency of funds, and
despite receipt of notice of such dishonor, said accused failed to
pay said Fatima Cortez Sasaki the amount of said check or to make
arrangement for full payment of the same within five (5) banking
days after receiving said notice."
On 18 July 1986, Lim moved to quash the Information on the
ground that the facts charged did not constitute a felony as BP 22
was unconstitutional and that the check he issued was a
memorandum check which was in the nature of a promissory note,
perforce, civil in nature.
On 1 September 1986, Judge David G. Nitafan, ruling that BP
22 on which the Information was based was unconstitutional, issued
the Order quashing the Information.
Hence, the petition for review on certiorari filed by the
Solicitor General in behalf of the government.


Whether BP 22, which is ruled to be constitutional in Lozano

vs. Martinez (not contrary to right against imprisonment from debt),
applies also to a memorandum check.
Although a memorandum check may carry
understanding that it is not to be presented at the




bank but will be redeemed by the maker himself when the loan falls
due; with the promulgation of BP 22, such understanding or private
arrangement may no longer prevail to exempt it from penal
sanction imposed by the law. To require that the agreement
surrounding the issuance of checks be first looked into and
thereafter exempt such issuance from the punitive provisions of BP
22 on the basis of such agreement or understanding would frustrate
the very purpose for which the law was enacted to stem the
proliferation of unfunded checks. After having effectively reduced
the incidence of worthless checks changing hands, the country will
once again experience the limitless circulation of bouncing checks
in the guise of memorandum checks if such checks will be
considered exempt from the operation of BP 22. It is common
practice in commercial transactions to require debtors to issue
checks on which creditors must rely as guarantee of payment, or as
evidence of indebtedness, if not as mode of payment. To determine
the reasons for which checks are issued, or the terms and
conditions for their issuance, will greatly erode the faith the public
reposes in the stability and commercial value of checks as currency
substitutes, and bring about havoc in trade and in banking

Consolidated Plywood Industries Inc. vs. IFC Leasing and

Acceptance Corp. [GR 72593, 30 April 1987]

Facts: Consolidated Plywood Industries Inc. (CPII) is a corporation

engaged in the logging business. It had for its program of logging
activities for the year 1978 the opening of additional roads, and
simultaneous logging operations along the route of said roads, in its
logging concession area at Baganga, Manay, and Caraga, Davao
Oriental. For this purpose, it needed 2 additional units of tractors.
Cognizant of CPII's need and purpose, Atlantic Gulf & Pacific
Company of Manila, through its sister company and marketing
arm,Industrial Products Marketing (IPM), a corporation dealing in
tractors and other heavy equipment business,offered to sell to CPII
2 "Used" Allis Crawler Tractors, 1 an HD-21-B and the other an HD16-B. In order toascertain the extent of work to which the tractors
were to be exposed, and to determine the capability of the "Used"
tractors being offered, CPII requested the seller-assignor to inspect
the jobsite. After conducting said inspection, IPM assured CPII that
the "Used" Allis Crawler Tractors which were being offered were fit
for the job, and gave the corresponding warranty of 90 days
performance of the machines and availability of parts. With said
assurance and warranty, and relying on the IPM's skill and
judgment, CPII through Henry Wee and Rodolfo T. Vergara, president
and vice-president, respectively, agreed to purchase on installment
said 2 units of "Used" Allis Crawler Tractors. It also paid the down
payment of P210,000.00. On 5 April 1978, IPM issued the sales
invoice for the 2 units of tractors. At the same time, the deed of
sale with chattel mortgage with promissory note was executed.
Simultaneously with the execution of the deed of sale with chattel
mortgage with promissory note, IPM, by means of a deed of
assignment, assigned its rights and interest in the chattel mortgage
in favor of IFC Leasing and Acceptance Corporation. Immediately
thereafter, IPM delivered said 2 units of "Used" tractors to CPII's
jobsite and as agreed, IPM stationed its own mechanics to supervise
the operations of the machines. Barely 14 days had elapsed after
their delivery when one of the tractors broke down and after
another 9 days, the other tractor likewise broke down. On 25 April
1978, Vergara formally advised IPM of the fact that the tractors
broke down and requested for IPM's usual prompt attention under

the warranty. In response to the formal advice by Vergara, IPM sent

to the jobsite its mechanics to conduct the necessary repairs, but
the tractors did not come out to be what they should be after the
repairs were undertaken because the units were no longer
serviceable. Because of the breaking down of the tractors, the road
building and simultaneous logging operations of CPII were delayed
and Vergara advised IPM that the payments of the installments as
listed in the promissory note would likewise be delayed until IPM
completely fulfills its obligation under its warranty. Since the
tractors were no longer serviceable, on 7 April 1979, Wee asked IPM
to pull out the units and have them reconditioned, and thereafter to
offer them for sale. The proceeds were to be given to IFC Leasing
and the excess, if any, to be divided between IPM and CPII which
offered to bear 1/2 of the reconditioning cost. No response to this
letter was received by CPII and despite several follow-up calls, IPM
did nothing with regard to the request, until the complaint in the
case was filed by IFC Leasing against CPII, Wee, and Vergara. The
complaint was filed by IFC Leasing against CPII, et al. for the
recovery of the principal sum of P1,093,789.71, accrued interest of
P151,618.86 as of 15 August 1979, accruing interest thereafter at
the rate of 12% per annum, attorney's fees of P249,081.71 and
costs of suit. CPII, et al. filed their amended answer praying for the
dismissal of the complaint and asking the trial court to order IFC
leasing to pay them damages in an amount at the sound discretion
of the court, P20,000.00 as and for attorney's fees, and P5,000.00
for expenses of litigation, among others. In a decision dated 20
April 1981, the trial court rendered judgment, ordering CPII, et al. to
pay jointly and severally in their official and personal capacities the
principal sum of P1,093,798.71 with accrued interest of
P151,618.86 as of 15 August 1979 and accruing interest thereafter
at the rate of 12% per annum; and attorney's fees equivalent to
10% of the principal and to pay the costs of the suit. On 8 June
1981, the trial court issued an order denying the motion for
reconsideration filed by CPII, et al. CPII, et al.appealed to the
Intermediate Appellate Court. On 17 July 1985, the Intermediate
Appellate Court issued the decision affirming in toto the decision of

the trial court. CPII et al.'s motion for reconsideration was denied by
the Intermediate Appellate Court in its resolution dated 17 October
1985, a copy of which was received by CPII, et al. on 21 October
1985. CPII, et al. filed the petition for certiorari under rule 45 of the
Rules of Court.

Issue: Whether the promissory note in question is a negotiable


Held: The pertinent portion of the note provides that ""FOR VALUE
RECEIVED, I/we jointly and severally
promise to pay to the INDUSTRIAL PRODUCTS MARKETING, the sum
only (P1,093,789.71),
Philippine Currency, the said principal sum, to be payable in 24
monthly installments starting July 15, 1978 and every 15th of the
month thereafter until fully paid." Considering that paragraph (d),
Section 1 of the Negotiable Instruments Law requires that a
promissory note "must be payable to order or bearer," it cannot be
denied that the promissory note in question is not a negotiable
instrument. The instrument in order to be considered negotiable
must contain the so called "words of negotiability" i.e., must be
payable to "order" or "bearer." These words serve as an expression
of consent that the instrument may be transferred. This consent is
indispensable since a maker assumes greater risk under a
negotiable instrument than under a non-negotiable one. Without
the words "or order" or "to the order of," the instrument is payable
only to the person designated therein and is therefore nonnegotiable. Any subsequent purchaser thereof will not enjoy the
advantages of being a holder of a negotiable instrument, but will

merely "step into the shoes" of the person designated in the

instrument and will thus be open to all defenses available against
the latter. Therefore, considering that the subject promissory note is
not a negotiable instrument, it follows that IFC Leasing can never be
a holder in due course but remains a mere assignee of the note in
question. Thus, CPII may raise against IFC Leasing all defenses
available to it as against IPM. This being so, there was no need for
CPII to implead IPM when it was sued by IFC Leasing because CPII's
defenses apply to both or either of them.

Equitable Banking Corporation vs. Intermediate Appellate

-In 1975 Casals (who represented himself as general manager of
Casville Enterprises, a business engaged in processing and
procurement of lumber products) went to Edward J. Nell Co. and told
the companys sales engineer Claustro of his interest in purchasing
a Garrett skidder, one of the many merchandise the company was
-Casals was referred to Javier, Nells EVP, who asked for cash
payment for the skidders. Casals said that Casvile had a credit line
with Equitable Bank. Javier then agreed to have two units of
skidders paid by way of domestic letter of credit instead of cash.
Each unit was to cost P485,000. The domestic letter of credit was
to be payable in 36 months and was to be opened within 90 days
after date of shipment of the skidders. The first installement was to
be due 180 days after shipment and interest was pegged at 14%

-Casals requested that one unit be delivered to Cagayan de Oro

before April 24, 1976 together with all its accessories. The letter of
credit was to be opened on or before June 30, 1976. The skidder
was shipped on May 3.
-June 15, 1976 Casals handed Nell Co. a check amounting to
P300,000 postdated August 4, 1976 followed by another check with
the same date. Nell Co. considered the checks as partial payment
for the skidder or as reimbursement for the marginal deposit due
from Casals.
-Casals informed Nell Co. that its application for a letter of credit
had been approved by Equitable but informed the company that a
sum of P400,000 was needed to stand as collateral in favor of
Equitable. The amount include P100,000 to clear the title of the
Estrada property which was to act as security for the trust receipts
issued by the bank. To facilitate the transaction, Nell Co. issued a
check for the said amount in favor of Equitable even if the marginal
deposit was supposed to be produced by Casville.
-Casals wrote Equitable to apply for two letters of credit (an on sight
letter of credit for P485,000, a 36-month letter of credit for
P606,000 and cash marginal deposit of P300,000) to cover its
purchase of the skidders. The skidders were to be mortgaged as
security. The bank responded favorably, stipulating a required 30%
cash margin deposit, a real estate collateral and chattel mortgage
of the equipment.
-Casville sent three postdated checks to Nell Co. attached to a letter
informing the latter of the bank requirements. The cash margin
deposit was to amount to P327,300 and adding the P100,000
needed for the Estrada property, the total amount due to Equitable
was P427,300. The postdated checks from Casville were intended
to cover the checks issued by Nell Co. to Equitable. The postdated
checks amounted to P427,300.

-Nell Co. issued a check worth P427,300 payable to Equitable Bank.

The check was made payable to the order of Equitable Banking
Corp. A/C of Casville Enterprises. The check was sent to Equitable
through Casals. Casals deposited the check in Equitable Bank and
the teller accepted it as deposit in Casals checking account. Casals
then withdrew the amount deposited.
-Upon presentation for encashment, Nell Co. discovered that the
three checks amounting to P427,300 were all dishonored for having
been drawn against a closed account. Nell Co. checked the status
of the letter of credit and was informed by Equitable that no letter
of credit had been opened and that the entire amount of P427,300
had been withdrawn.
-Casals and Casville recognized their liability towards Nell Co. so
they assigned the Garrett skidder to the latter for the amount of
P450,000 as partial satisfaction.
-In determining the liability of Equitable Bank to Nell Co., the trial
court held that Casals, Casville and Equitable Bank were solidarily
liable to Nell Co. for the amount of P427,300 erroneously credited
by Equitable to Casvilles account.

WON Equitable is liable to Nell Co.

-The check was patently ambiguous. By making the check read
Pay to Equitable Banking Corp., order of A/C of Casville
Enterprises, the payee ceased to be indicated with reasonable
certainty. As worded it could be accepted as deposit to the account
of the party named after the symbols A/C or payable to the bank as

trustee or as agent for Casville Enterprises with the latter being the
ultimate beneficiary. The ambiguity was to be construed against
Nell Co. who caused the ambiguity.
-The check was also initially negotiable and neither was it crossed.
The crossing of the check and the stamping of the words nonnegotiable were made by the bank and not by Nell. It simply
meant that the same check would thereafter be no longer
-Nells own acts and omissions were the proximate causes of its
own defraudation.
Disposition Petition granted.
Bank of America vs. Philippine Racing Club
1. Plaintiff PRCI is a domestic corporation which maintains a current
account with petitioner Bank of America. Its authorized signatories
are the company President and Vice-President. By virtue of a travel
abroad for these officers, they pre-signed checks to accommodate
any expenses that may come up while they were abroad for a
business trip. The said pre-signed checks were left for safekeeping
by PRCs accounting officer. Unfortunately, the two (2) of said checks
came into the hands of one of its employees who managed to
encash it with petitioner bank. The said check was filled in with the
use of a check-writer, wherein in the blank for the 'Payee', the
amount in words was written, with the word 'Cash' written above it.
2. Clearly there was an irregularity with the filling up of the blank
checks as both showed similar infirmities and irregularities and yet,
the petitioner bank did not try to verify with the corporation and
proceeded to encash the checks.
3. PRC filed an action for damages against the bank. The lower
court awarded actual and exemplary damages. On appeal, the CA

affirmed the lower court's decision and held that the bank was
negligent. Hence this appeal.Petitioner contends that it was merely
doing its obligation under the law and contract in encashing the
checks, since the signatures in the checks are genuine.
Issue: Whether or not the petitioner can be held liable for
negligence and thus should pay damages to PRC

2. The PRC officers' practice of pre-signing checks is a seriously

negligent and highly risky behavior which makes them also
contributor to the loss. It's own negligence must therefore mitigate
the petitioner's liability. Moreover, the person who stole the checks
is also an employee of the plaintiff, a cleck in its accounting
department at that. As the employer, PRC supposedly should have
control and supervision over its own employees.

Both parties are held to be at fault but the bank has the last clear
chance to prevent the fraudulent encashment hence it is the one
foremost liable .

3. The court held that the petitioner is liable for 60% of the total
amount of damages while PRC should shoulder 40% of the said

1. There was no dispute that the signatures in the checks are

genuine but the presence of irregularities on the face of the check
should have alerted the bank to exercise caution before encashing
them. It is well-settled that banks are in the business impressed
with public interest that they are duty bound to protect their clients
and their deposits at all times. They must treat the accounts of
these clients with meticulousness and a highest degree of care
considering the fiduciary nature of their relationship. The diligence
required of banks are more than that of a good father of a family.

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