Lee v Court of Appeals G.R. NO. 117913.

February 1, 2002 since no part of the proceeds of the loan transactions were delivered
to MICO or to any of the petitioners-sureties. Petitioners-sureties
A trust receipt is considered as a security transaction allege that Chua Siok Suy was the beneficiary of the proceeds of the
intended to aid in financing importers and retail dealers loans and that the latter made them sign the surety agreements in
who do not have sufficient funds or resources to finance the blank. Thus, they maintain that they should not be held accountable
importation or purchase of merchandise, and who may not for any liability that might arise therefrom.
be able to acquire credit except through utilization, as
collateral of the merchandise imported or purchased.
Facts: Charles Lee, as President of MICO wrote private respondent Issue:
Philippine Bank of Communications (PBCom) requesting for a grant
of a discounting loan/credit line in the sum of Three Million Pesos 1) whether or not the proceeds of the loans and letters of credit
(P3,000,000.00) for the purpose of carrying out MICOs line of transactions were ever delivered to MICO
business as well as to maintain its volume of business. On the same 2) whether or not the individual petitioners, as sureties, may be held
day, Charles Lee requested for another discounting loan/credit line of liable under the two (2) Surety Agreements
Three Million Pesos (P3,000,000.00) from PBCom for the purpose of
opening letters of credit and trust receipts. nother loan of One Million
Pesos (P1,000,000.00) was availed of by MICO from PBCom which
was likewise later on renewed. Charles Lee, Chua Siok Suy, Held:
Mariano Sio, Alfonso Yap and Richard Velasco, in their personal
capacities executed a Surety Agreement in favor of PBComwhereby 1) whether or not the proceeds of the loans and letters of credit
the petitioners jointly and severally, guaranteed the prompt payment transactions were ever delivered to MICO
on due dates or at maturity of overdrafts, promissory notes, discounts,
drafts, letters of credit, bills of exchange, trust receipts, and other
obligations of every kind and nature, for which MICO may be held The letter of credita, as well as the security agreements, have not
accountable by PBCom. Charles Lee, in his capacity as president of merely created a prima facie case but have actually proved the solidary
MICO, wrote PBCom and applied for an additional loan in the sum of obligation of MICO and the petitioners, as sureties of MICO, in favor
Four Million Pesos (P4,000,000.00). The loan was intended for the of respondent PBCom.
expansion and modernization of the companys machineries. Upon
approval of the said application for loan, MICO availed of the
While the presumption found under the Negotiable Instruments Law
additional loan of Four Million Pesos (P4,000,000.00).
may not necessarily be applicable to trust receipts and letters of credit,
the presumption that the drafts drawn in connection with the letters
To secure the trust receipts transactions, MICO and Lee executed a of credit have sufficient consideration. Under Section 3(r), Rule 131 of
real estate mortgage in favor of PBCOM over several properties it the Rules of Court there is also a presumption that sufficient
owns. Upon maturity of all credit availments obtained by MICO consideration was given in a contract.
from PBCom, the latter made a demand for payment.[For failure of
petitioner MICO to pay the obligations incurred despite repeated
Hence, petitioners should have presented credible evidence to rebut
demands, PBCom extrajudicially foreclosed MICOs real estate
that presumption as well as the evidence presented by private
mortgage and sold the said mortgaged properties in a public auction
respondent PBCom. The letters of credit show that the pertinent
sale. Lee contends that the letters of credit, surety agreements and
materials/merchandise have been received by MICO. The drafts
loan transactions did not ripen into valid and binding contracts
signed by the beneficiary/suppliers in connection with the

1
corresponding letters of credit proved that said suppliers were paid by
PBCom for the account of MICO. On the other hand, aside from their
bare denials petitioners did not present sufficient and competent
evidence to rebut the evidence of private respondent PBCom.
2) whether or not the individual petitioners, as sureties, may be held
liable under the two (2) Surety Agreements
A perusal of the By-Laws of MICO, however, shows that the power to
borrow money for the company and issue mortgages, bonds, deeds of
trust and negotiable instruments or securities, secured by mortgages
or pledges of property belonging to the company is not confined solely
to the president of the corporation. The Board of Directors of MICO
can also borrow money, arrange letters of credit, execute trust receipts
and promissory notes on behalf of the corporation.[35] Significantly,
this power of the Board of Directors according to the by-laws of MICO,
may be delegated to any of its standing committee, officer or
agent.[36] Hence, PBCom had every right to rely on the Certification
issued by MICOs corporate secretary, P.B. Barrera, that Chua Siok
Suy was duly authorized by its Board of Directors to borrow money
and obtain credit facilities in behalf of MICO from PBCom.
BAYANI v. PEOPLE
Topic: Consideration
DOCTRINE:
SECTION 28. Effect of want of consideration. Absence or failure of
consideration is a matter of defense as against any person not a
holder in due course; and partial failure of consideration is a
defense pro tanto, whether the failure is an ascertained and
liquidated amount or otherwise.
SECTION 24. Presumption of consideration. Every negotiable
instrument is deemed prima facie to have been issued for a valuable
consideration; and every person whose signature appears thereon to
have become a party thereto for value.
FACTS:
Alicia Rubia arrived at the grocery store of Dolores
Evangelista and subsequently asked the latter to rediscount
her PSBank check amounting to Php 55,000
The check was drawn by Leodegario Bayani, petitioner
herein, against his account with PSBank and then post-dated
August 29, 1992
Considering that both Rubia and Bayani were long-time
customers and knowing the fact that Bayani is a good man,
Evangelista agreed to rediscount the check
However, when Evangelista deposited the check in her
account with the Far East Bank and Trust company on
September 11, 1992, the check was dishonored for the reason
that Bayani had closed the said account with PSBank
The dishonoring of the check was evidenced by a stamp at its
dorsal portion
Evangelista then informed Rubia that the said check was
dishonored and demanded the return of her Php 55,000
Rubia, in her reply, stated that she was only requested by
Bayani to have the check rediscounted
A series of finger pointing ensued but ultimately it led to
Evangelista filing a case against Bayani for violating BP22
Bayani, in his defense stated that there was no valuable
consideration when Evangelista issued the check. He did not
receive the Php 55,000.
It must be noted that Bayani merely stated the fact that he
did not receive the money from Evangelista; no further effort
was given by Bayani to prove so.
RTC: ruled against Bayani
2
 CA: confirmed the decision by the RTC
ISSUE: Whether or not Bayanis defense of lack of valuable
consideration is valid
HELD:
NO
Petitioner cannot evade criminal liability by merely stating
that he did not receive the money
It was shown during the trial that Evangelista rediscounted
the check and gave the Php 55,000 to Rubia after the latter
endorsed the same; therefore, it must be considered that
Evangelista is a holder in due course
According to Section 28 of the NIL, absence or failure of
consideration is a matter of defense only as against any
person not in due course
Moreover in Section 24 of the NIL, it is presumed that there
is a valid consideration; mere denial of receipt of the money
cannot overcome this presumption
PETITION BY BAYANI IS DENIED
Vicky Ty v People 439 SCRA 220 (2004)
Facts: Tys mother was confined in Manila Doctor's Hospital to
which a medical bill amounting to 600,000 pesos was made to be
paid to TY, after signing a contract of responsibility with the hospital.
Ty, issued 7 checks to cover the said expenses, all of which were
dishonored for being drawn against a closed a account. Manila
Doctors Hospital then instituted criminal actions against Ty for
violation of BP22.
In her defense she alleged that she issued the checks involuntarily
because her mother threatened to commit suicide due to the
inhumane treatment she allegedly suffered while confined in the
hospital. She further claimed that no consideration was obtained by
her because all the checks were made as payment to the medical
bills.
Issue: Whether or not valuable consideration exists.
Held: Under Section 24 of the Negotiable Instruments Law, it is
presumed that valuable consideration exist upon the issuance of a
check in the absence of evidence to the contrary.Valuable
consideration is any benefit, interest or profit accruing to the party.
The use of the hospital facilities and services may be deemed as such.
Salas v CA
FACTS:
February 6, 1980: Juanita Salas bought a motor vehicle from the
Violago Motor Sales Corp. (VMS) for P58,138.20 as evidence by
a promissory note
This note was subsequently endorsed to Filinvest Finance
&Leasing Corp. (FFLC)
May 21, 1980: Salas defaulted in her installments allegedly due
to discrepancies in the engine and chassis number of the vehicle
delivered and discovery of certificate of reg. and deed of
mortgage
VMS initiated for a sum of money at the RTC
RTC: favored VMS
CA: Affirmed
ISSUE: W/N the promissory note is a negotiable which will bar
completely all defenses of Salas against VMS
HELD: YES. Affirmed
Requisites under the law (Sec. 1 of Negotiable Instruments Law)
it is in writing and signed by the maker (Salas)
3
 it contains an unconditional promise to pay the amount
P58,138.20
it is payable at a fixed or determinable future time which is
P1,614.95 monthly for 36 months due and payable on the
21st day of each month starting March 21, 1980 thru and
inclusive of Feb 21 1983
It is payable to VMS or order and as such
drawee is named or indicated with certainty
Filinvest = holder in due course
BPI v. CA G.R. No. 136202 January 25, 2007
Related topic: Sec. 49, NIL (Delivery without endorsement
of an order instrument)
FACTS: Salazar had in her possession three crossed checks with an
aggregate amount of P267, 692.50. These checks were payable to the
order of JRT Construction and Trading which was the name of
Templonuevos business. Despite lack of knowledge and
endorsement of Templonuevo, Salazar was able to deposit the checks
in her personal savings account with BPI and encash the same. The
three checks were deposited in three different occasions over the
span of eight months. A year after the last encashment, Templonuevo
protested the purportedly unauthorized encashments and demanded
from BPI the aggregate amount of the checks. BPI complied with
Templonuevos demand. Since the money could no longer be debited
from the account of Salazar where she deposited the checks, they
froze her other account with them. Later on, BPI issued a cashiers
check in favor of Templonuevo for the aggregate amount and debited
P267, 707.70 from Salazars account representing the aggregate
amount and the bank charges for the cashiers check. Salazar filed a
complaint against BPI. Trial court ruled in favor of her which was
affirmed by CA. Hence, this petition.
ISSUE/S: 1. Did BPI have the authority to unilaterally withdraw
from Salazars account the amount it has previously paid upon
certain unendorsed order instrument? 2. Did BPI act judiciously in
debiting Salazars account?
HELD: 1. Yes. Records show that no prior arrangement existed
between Salazar and Templonuevo regarding the transfer of
ownership of the checks. This fact is crucial as Salazars entitlement
to the value of the instruments is based on the assumption that she is
a transferee within the contemplation of Section 49 of the NIL.
Section 49 of the NIL contemplates a situation where the payee or
endorsee delivers a negotiable instrument for value without
endorsing it. The underlying premise of this provision, however, is
that a valid transfer of ownership of the negotiable instrument in
question has taken place. Transferees in this situation do not enjoy
the presumption of ownership in favor of holders since they are
neither payees nor endorsees of such instruments. Mere possession
of a negotiable instrument does not in itself conclusively establish
either the right of the possessor to receive payment, or of the right of
one who has made payment to be discharged from liability.
Something more than mere possession is necessary to authorize
payment to such possessor. The one-year delay of Templonuevo in
asserting ownership over the checks is not enough to prove that there
has a valid transfer of ownership has taken place. Salazar failed to
discharge the burden of presumption of ownership in Templonuevos
favor as the designated payee. Thus, the return of the check proceeds
to Templonuevo was therefore warranted. It is immaterial that the
account debited by BPI was di fferent from the original account to
which the proceeds of the check were credited because both belonged
to Salazar anyway. 2. No. Solely upon the prompting of
Templonuevo, BPI debited the account of Salazar without even
serving due notice upon her. Consequently, this caused damage to
Salazar such as having checks she issued dishonored because she was
not given prior notice of the deduction from her account. As such, the
award of damages must be sustained.
Vicente De Ocampo vs Anita Gatchalian
3 SCRA 596 Mercantile Law Negotiable Instruments Law
Rights of the Holder What Constitutes a Holder in Due Course Is
a payee a holder in due course?
FACTS: Matilde Gonzales was a patient of the De Ocampo Clinic
owned by Vicente De Ocampo. She incurred a debt amounting to
4
P441.75. Her husband, Manuel Gonzales designed a scheme in order
to pay off this debt: In 1953, Manuel went to a certain Anita
Gatchalian. Manuel purported himself to be selling the car of Vicente
De Ocampo. Gatchalian was interested in buying said car but Manuel
told her that De Ocampo will only sell the car if Gatchalian shows her
willingness to pay for it. Manuel advised Gatchalian to draw a check of
P600.00 payable to De Ocampo so that Manuel may show it to De
Ocampo and that Manuel in the meantime will hold it for safekeeping.
Gatchalian agreed and gave Manuel the check. After that, Manuel
never showed himself to Gatchalian.
Meanwhile, Manuel gave the check to his wife who in turn gave the
check to De Ocampo as payment of her bills with the clinic. De
Ocampo received the check and even gave Matilde her change (sukli).
On the other hand, since Gatchalian never saw Manuel again, she
placed a stop-payment on the P600.00 check so De Ocampo was not
able to cash on the check. Eventually, the issue reached the courts and
the trial court ordered Gatchalian to pay De Ocampo the amount of
the check.
Gatchalian argued that De Ocampo is not entitled to payment because
there was no valid indorsement. De Ocampo argued tha he is a holder
in due course because he is the named payee.
ISSUE: Whether or not De Ocampo is a holder in due course.
HELD: No. Section 52 of the Negotiable Instruments Law, defines
holder in due course, thus:
A holder in due course is a holder who has taken the instrument under
the following conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and without
notice that it had been previously dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him he had no notice of any
infirmity in the instrument or defect in the title of the person
negotiating it.
The Supreme Court emphasized that if one is such a holder in due
course, it is immaterial that he was the payee and an immediate party
to the instrument. The Supreme Court however ruled that De Ocampo
is not a holder in due course for his lack of good faith. De Ocampo
should have inquired as to the legal title of Manuel to the said check.
The fact that Gatchalian has no obligation to De Ocampo and yet hes
named as the payee in the check hould have apprised De Ocampo; that
the check did not correspond to Matilde Gonzales obligation with the
clinic because of the fact that it was for P600.00 more than the
indebtedness; that why was Manuel in possession of the check all
these gave De Ocampo the duty to ascertain from the holder Manuel
Gonzales what the nature of the latters title to the check was or the
nature of his possession.
Jai-Alai Corp. of the Phil. vs. Bank of the Phil. Islands
G.R. No. L-29432 August 6, 1975 66 SCRA 29
-forgery
FACTS:
Petitioner deposited 10 checks in its current account with BPI. The
checks which were acquired by petitioner from Ramirez, a sales agent
of the Inter-Island Gas were all payable to Inter-Island Gas Service,
Inc. or order. After the checks had been submitted to Inter-bank
clearing, 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.
ISSUE: Whether BPI had the right to debit from petitioner's current
account the value of the checks with the forged indorsements.
RULING:
BPI acted within legal bounds when it debited the petitioner's
account. Having indorsed the checks to respondent bank, petitioner
5
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."
RAMON K. ILUSORIO v. COURT OF APPEALS. G.R. No.
139130. November 27, 2002.
FACTS:
Ramon Ilusorio entrusted his credit cards and checkbooks and blank
checks to his secretary. Apparently, his secretary was able to encash
and deposit to her personal account 17 checks drawn against his
account.
Ilusorio requested to restore to his account the value of the checks that
were wrongfully encashed but the bank refused, hence the case.
In court, the bank testified that they make sure that the sign on the
check is verified. When asked by the NBI to submit standard signs to
compare, Ilusorio failed to comply. The lower held held in favor of
defendant.
ISSUE: Whether the bank was negligent in receiving the checks.
RULING:
The SC affirmed the lower court's decision. Ilusorio failed to prove that
the bank was negligent on their part as he has the burden of proof. The
bank's employees did not know the secretary's modus operandi as she
was always transacting in behalf of Ilusorio.
The SC even held that it was Ilusorio who was negligent as he trusted
his secretary of unusual degree.
Ilusorio also cites Sec. 23 of the NIL that a forged check is inoperative
and that he bank has no authority to pay. While true, the case at bar
falls under the exception stated in the section. The SC held that
Ilusorio is precluded from setting up the forgery, assuming there is
forgery, due to his own negligence in entrusting his secretary.
ALLIED BANKING CORPORATION vs. LIM SIO WAN,
METROPOLITAN BANK AND TRUST CO.
GR No. 133179
Date: March 27, 2008
Facts
Nov. 14, 1983 - respondent Lim deposited with petitioner
Allied a money market placement of P1,152,597.35 for a term of 31
days to mature on December 15, 1983
On Dec. 5, 1983, a person claiming to be Lim called up an
officer of Allied, and instructed to pre-terminate Lims money market
placement, to issue a managers check representing the proceeds of the
placement, and to give the check to one Deborah Dee Santos who
would pick up the check
The bank issued Managers Check representing the proceeds
of Lims money market placement in the name of the latter, as payee.
The check was cross-checked For Payees Account Only and given to
Santos.
Thereafter, the managers check was deposited in the account
of Filipinas Cement Corporation (FCC) at Metrobank with the forged
signature of Lim as indorser.
Prior to the aforesaid event, on Sept. 21, 1983, FCC had
deposited a money market placement for P2M with Producers Bank.
Santos was the money market trader assigned to handle FCCs account
6
 When the placement matured, FCC demanded the payment of
the proceeds of the placement.
On December 5, 1983 (the same date that Allied received the
phone call instructing to pre-terminate Lims placement), the Allied
managers check in the name of Lim was deposited with Metrobank in
the account of FCC, purportedly representing the proceeds of FCCs
money market placement with Producers Bank.
To clear the check and in compliance with the Philippine
Clearing House Corporation(PCHC) rules, Metrobank stamped a
guaranty on the check, which reads: All prior endorsements and/or
lack of endorsement guaranteed.
Upon the presentment of the check, Allied funded the check
even without checking the authenticity of Lims purported
indorsement. Thus, the amount on the face of the check was credited
to the account of FCC.
On December 14, 1983, upon the maturity date of the first
money market placement, Lim went to Allied to withdraw it. She was
then informed that the placement had been pre-terminated upon her
instructions. She denied giving any instructions and receiving the
proceeds.
Lim sent a demand letter to Allied asking for the payment of
the placement. Allied refused to pay, claiming that the latter had
authorized the pre-termination and its subsequent release to Santos.
Lim filed with the RTC a complaint against Allied to recover
the proceeds of money market placement.
RTC rendered a decision against Allied. It ordered Allied to
pay Lim the amount of P1,158,648.49 plus interest until fully paid.
CA modified the RTCs decision. It ordered Allied to pay 60%
and Metrobank 40% of the amount of P1,158,648.49 plus 12% interest
until fully paid.
Issue/s
WON Metrobank should be ultimately liable as guarantor of all
endorsement on the check, it being the collecting bank.-NO
Ruling:
Pursuant to Sec. 66 in relation to Sec. 65 of the NIL, the warranty
that the instrument is genuine and in all respects what it purports to
be covers all the defects in the instrument affecting the validity
thereof, including a forged indorsement. Thus, the last indorser will
be liable for the amount indicated in the negotiable instrument even
if a previous indorsement was forged.
Precedents show that the court held in a line of cases that a collecting
bank which indorses a check bearing a forged indorsement and
presents it to the drawee bank guarantees all prior indorsements,
including the forged indorsement itself, and ultimately should be
held liable. However, this general rule is subject to exceptions. One
such exception is when the issuance of the check itself was attended
with negligence. Thus, where the checks were negligently issued, this
Court held the institution issuing the check just as liable as or more
liable than the collecting bank.
In the instant case, the trial court correctly found Allied negligent in
issuing the managers check and in transmitting it to Santos without
even a written authorization. In fact, Allied did not even ask for the
certificate evidencing the money market placement or call up Lim at
her residence or office to confirm her instructions. Both actions could
have prevented the whole fraudulent transactions. Allieds negligence
must be considered as the proximate cause of the resulting loss. To
reiterate, had Allied exercised the diligence due from a financial
institution, the check would not have been issued and no loss of
funds would have resulted. In fact, there would have been no
issuance of indorsement had there been no check in the first place.
7
The liability of Allied, however, is concurrent with that of Metrobank
as the last indorser of the check. When Metrobank indorsed the
check in compliance with the PCHC Rules and Regulations without
verifying the authenticity of Lims indorsement and when it accepted
the check despite the fact that it was cross-checked payable to payees
account only, its negligent indorsement contributed to the easier
release of Lims money and perpetuation of the fraud. Given the
relative participation of Allied and Metrobank, both banks cannot be
adjudged as equally liable. Hence, the 60:40 ratio of the liabilities of
Allied and Metrobank, as ruled by the CA, must be upheld.
Doctrine
Section 66 in relation to Sec. 65 of the Negotiable Instruments Law
provides:
Section 65. Warranty where negotiation by delivery, so forth.
Every person negotiating an instrument by delivery or by a qualified
indorsement, warrants:
a) That the instrument is genuine and in all respects what it
purports to be;
XXXX
Section 66. Liability of general indorser.Every indorser who
indorses without qualification, warrants to all subsequent holders in
due course;
a) The matters and things mentioned in subdivisions (a), (b) and (c)
of the next preceding section;
XXXX
Notes
-Two (2) money market placements were deposited by Lim but this
case only involves the first money placement
-Money Market - is 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 in the nature of a
loan
Traders Royal Bank V. Radio Philippines Network Inc.
(2002)
FACTS: Traders (sold 3 managers check)> RPN,IBC,BBC (received
by <Mrs. Vera) --(not received) BIR-- > SBTC (deposited by
unknown persons)
April 15, 1985: Bureau of Internal Revenue (BIR) assessed
Radio Philippines Network (RPN), Intercontinental
Broadcasting Corporation (IBC), and Banahaw Broadcasting
Corporation (BBC) of their tax obligations for the
taxable years 1978 to 1983.
March 25, 1987: Mrs. Lourdes C. Vera, RPN,IBC,BBC
comptroller, sent a letter to the BIR requesting settlement of
their tax obligations which was granted
June 26, 1986: RPN, IBC and BBC purchased from Traders 3
managers checks to be used as payment for their tax
liabilities
Traders, through Aida Nuez, turned over the checks to Mrs.
Vera who was supposed to deliver them to the BIR in
payment
September, 1988: BIR again assessed plaintiffs for their tax
liabilities for the years 1979-82. It was discovered the 3
managers checks were never delivered nor paid to the BIR by
Mrs. Vera. The checks were presented for payment by
8
 unknown persons to Security Bank and Trust Company
(SBTC).
BIR issued warrants of levy, distraint and garnishment
against them.
They were constrained to enter into a compromise
and paid BIR P18,962,225.25 in settlement
Traders sent letters to RPN and SBTC, demanding that the
amounts covered by the checks be reimbursed or credited to
their account
RTC: favored Traders against RPN and SBTC
CA: absolved SBTC and held Traders solely liable
SBTC denies liability on the ground that it had no
participation in the negotiation of the checks
ISSUE: W/N Traders should solely bare the loss for its negligence
HELD: YES. CA affirmed.
if a bank pays a forged check, it must be considered as paying
out of its funds and cannot charge the amount so paid to the
account of the depositor
Despite the fraud, Traders paid the 3 checks in the total
amount of P9,790,716.87
primary duty of Traders to know that the check was duly
indorsed by the original payee and, where it pays the amount
of the check to a third person who has forged the signature of
the payee, the loss falls upon it who cashed the check.
only remedy is against the person to whom it paid
the money
It should be noted further that one of the subject checks was crossed.
The crossing of one of the subject checks should
have put petitioner on guard
it was duty-bound to ascertain the indorsers
title to the check or the nature of his
possession.
effects of a crossed check:
(a) the check may not be encashed but only
deposited in the bank; (b) the check may be
negotiated only once to one who has an account with
a bank and
(c) the act of crossing the check serves as a warning
to the holder that the check has been issued for a
definite purpose so that he must inquire if he has
received the check pursuant to that purpose,
otherwise, he is not a holder in due course
A collecting bank which indorses a check bearing a forged
indorsement and presents it to the drawee bank guarantees
all prior indorsements, including the forged indorsement
itself, and ultimately should be held liable
therefor. However, it is doubtful if the subject checks were
ever presented to and accepted by SBTC so as to hold it liable
as a collecting bank, as held by the Court of Appeals.
Philippine Commercial International Bank vs Court of
Appeals (2001)
350 SCRA 446 Mercantile Law Negotiable Instruments Law
Rights of the Holder 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).
9
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 name.
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 members.
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
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
10
to the tenor of the acceptance which is to deliver the payment to the
payees account only.
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.
Associated Bank vs Court of Appeals (1996)
252 SCRA 620 Mercantile Law Negotiable Instruments Law
Liabilities of Parties 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
11
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.

12