METROPOL (BACOLOD) FINANCING & INVESTMENT CORPORATION vs. SAMBOK MOTORS CO.

[February 28, 1983]

On April 15, 1969 Dr. Javier Villaruel executed a promissory note in favor of Ng Sambok Sons Motors Co., Ltd., in
the amount of P15,939 payable in 12 equal monthly installments, beginning May 18, 1969, with interest at the rate
of 1% per month. It is further provided that in case on non-payment of any of the installments, the total principal
sum then remaining unpaid shall become due and payable with an additional interest equal to 25% of the total
amount due.

On the same date, Sambok Motors, a sister company of Ng Sambok Sons Motors Co., negotiated and indorsed1 the
note in favor of Metropol Financing & Investment Corporation with the following indorsement:

The maker, Dr. Villaruel defaulted in the payment of his installments when they became due, so on October 30,
1969, Metropol formally presented the promissory note for payment to Dr. Villaruel, but Dr. Villaruel failed to pay
the promissory note as demanded. HENCE, Metropol notified Sambok as indorsee of said note of the fact that the
same has been dishonored and demanded payment. Sambok failed to pay.

Metropol filed a complaint for collection of a sum of money before CFI-Iloilo.

SAMBOK: did not deny its liability but contended that it could not be obliged to pay until after its co-defendant Dr.
Villaruel has been declared insolvent.

During the pendency of the case in the CFI, Dr. Villaruel died, hence the lower court, on motion, dismissed the
case against Dr. Villaruel.

CFI: rendered judgment ordering Sambok Motors Company to pay Metropol the sum of P15,939 plus the legal rate
of interest from October 30, 1969;

SAMBOK: argues that by adding the words "with recourse" in the indorsement of the note, it becomes a qualified
indorser. Being a qualified indorser, it does not warrant that if said note is dishonored by the maker on presentment,
it will pay the amount to the holder. It only warrants, pursuant to Section 65 of the Negotiable Instruments Law: (a)
that the instrument is genuine and in all respects what it purports to be; (b) that he has a good title to it; (c) that all
prior parties had capacity to contract; (d) that he has no knowledge of any fact which would impair the validity of the
instrument or render it valueless.

ISSUE: W/N CFI erred in not declaring that Sambok is a QUALIFIED indorser.

SC: NO, CFI did not err in its judgment. A QUALIFIED INDORSEMENT constitutes the indorser a mere assignor of
the title to the instrument. It may be made by adding to the indorser's signature the words "without recourse" or
any words of similar import. Such an indorsement relieves the indorser of the general obligation to pay if the
instrument is dishonored but not of the liability arising from warranties on the instrument as provided in Section 65
of the Negotiable Instruments Law. However, Sambok indorsed the note "with recourse" and even waived the
notice of demand, dishonor, protest and presentment.

"RECOURSE" means resort to a person who is secondarily liable after the default of the person who is primarily
liable. Sambok, by indorsing the note "with recourse" does not make itself a qualified indorser but a general
indorser who is secondarily liable, because by such indorsement, it agreed that if Dr. Villaruel fails to pay the note,
Metropol can go after Sambok. The effect of such indorsement is that the note was indorsed without qualification.
A person who indorses without qualification engages that on due presentment, the note shall be accepted or paid,
or both as the case may be, and that if it be dishonored, he will pay the amount thereof to the holder. Appellant
Sambok's intention of indorsing the note without qualification is made even more apparent by the fact that the
notice of demand, dishonor, protest and presentment were waived. The words added by said appellant do not limit
his liability, but rather confirm his obligation as a general indorser.

CFI did not err in not declaring appellant as only secondarily liable because after an instrument is dishonored by
non-payment, the person secondarily liable thereon ceases to be such and becomes a principal debtor. His liabiliy
becomes the same as that of the original obligor. Consequently, the holder need not even proceed against the maker
before suing the indorser.

1 Pay to the order of Metropol Bacolod with recourse. Notice of Demand; Dishonor; Protest; and Presentment are hereby waived.
SAMBOK MOTORS CO. (BACOLOD) By: RODOLFO G. NONILLO Asst. General Manager
NATIVIDAD GEMPESAW vs. CA and PHILIPPINE BANK OF COMMUNICATIONS [February 9, 1993]

Natividad Gempesaw owns and operates four grocery stores in Caloocan City. Gempesaw maintains a checking
account with PBCom’s Caloocan City Branch. To facilitate payment of debts to her suppliers, Gempesaw draws
checks against her checking account with PBCom as drawee. The checks were prepared and filled up as to all
material particulars by her bookkeeper, Alicia Galang, then submitted to the petitioner for her signature, together
with the corresponding invoice receipts which indicate the correct obligations due and payable to her suppliers.
Gempesaw signed each and every check without bothering to verify the accuracy of the checks against the
corresponding invoices because she reposed full and implicit trust and confidence on her bookkeeper.

The issuance and delivery of the checks to the payees named therein were left to the bookkeeper. Gempesaw did
not make any verification as to whether or not the checks were delivered to their respective payees, although
PBCom notified her of all checks presented to and paid by the bank. Most of the aforementioned checks were for
amounts in excess of her actual obligations to the various payees as shown in their corresponding invoices.
Practically, all the checks issued and honored by PBCom were crossed checks2. It was only after the lapse of more
two years that Gempesaw found out about the fraudulent manipulations of her bookkeeper.

All 82 checks with forged signatures of the payees were brought to the Buendia branch of PBCom where Ernest
Boon, Chief Accountant, accepted them all for deposit to the accounts of Alfredo Romero and Benito Lam. Boon was
a very close friend of Romero. About 30 of the payees whose names were specifically written on the checks
testified that they did not receive nor even see the subject checks and that the indorsements appearing at the
back of the checks were not theirs.

Under the rules of PBCom, only a Branch Manager may accept a second indorsement on a check for deposit. In the
case at bar, all the deposit slips were approved for deposit by Boon. The Branch Managers of the Ongpin and Elcaño
branches accepted the deposits made in the Buendia branch and credited the accounts of Romero and Lam.

Gempesaw made a written demand on PBCom to credit her account with the money value of the eighty-two (82)
checks totalling P1,208.606.89 for having been wrongfully charged against her account. PBCom refused to grant the
demand. Thus, Gempesaw filed the complaint with the Regional Trial Court for recovery of the money value of 82
checks charged against her account with PBCom on the ground that the payees' indorsements were forgeries.

RTC: DISMISSED the complaint as well as PBCom’s counterclaim;

CA: AFFIRMED the decision of the RTC on two grounds, namely (1) that Gempesaw’s gross negligence in issuing the
checks was the proximate cause of the loss and (2) assuming that PBCom was also negligent, the loss must
nevertheless be borne by the party whose negligence was the proximate cause of the loss.

ISSUE: W/N Gempesaw may use as defense the fact that the payees’ indorsements on the subject checks were
forgeries.

SC: No, but PBCom may be liable for DAMAGES. PBCom is adjudged liable to share the loss with Gempesaw on a
fifty-fifty ratio in accordance with Article 172. Case is remanded to the trial court for the reception of evidence
determining the exact amount of loss suffered bu the petitioner.

Under Section 233 of the NIL, forgery is a real or absolute defense by the party whose signature is forged. A party
whose signature to an instrument was forged was never a party and never gave his consent to the contract which
gave rise to the instrument. Since his signature does not appear in the instrument, he cannot be held liable thereon
by anyone, not even by a holder in due course. Said section does not refer only to the forged signature of the
maker of a promissory note and of the drawer of a check. It covers also a forged indorsement.

GENERAL RULE: Such an indorsement prevents any subsequent party from acquiring any right as against any party
whose name appears prior to the forgery. Although rights may exist between and among parties subsequent to the
forged indorsement, not one of them can acquire rights against parties prior to the forgery.

2 CROSSED CHECK - the check can only be deposited directly into a bank account and cannot be immediately cashed by a bank or any other credit institution.

3
SEC. 23 - When a signature is forged or made without the authority of the person whose signature it purports to be, it is wholly inoperative, and no right to
retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any party thereto, can be acquired through or under such signature,
unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority.
Problems arising from forged indorsements of checks may generally be broken into two types of cases: (1) where
forgery was accomplished by a person not associated with the drawer — for example a mail robbery; and (2)
where the indorsement was forged by an agent of the drawer.

EXCEPTION: While there is no duty resting on the depositor to look for forged indorsements on his cancelled checks
in contrast to a duty imposed upon him to look for forgeries of his own name, a depositor is under a duty to set up
an accounting system and a business procedure as are reasonably calculated to prevent or render difficult the
forgery of indorsements, particularly by the depositor's own employees.

In the case at bar, Gempesaw completed the checks by signing them as drawer and thereafter authorized her
employee Alicia Galang to deliver the 82 checks to their respective payees. Instead of issuing the checks to the
payees as named in the checks, Galang delivered them to the Chief Accountant of the Buendia branch of PBCom,
Boon. It was established that the signatures of the payees as first indorsers were forged. The record fails to show
the identity of the party who made the forged signatures. The checks were then indorsed for the second time with
the names of Alfredo Romero and Benito Lam, and were deposited in the latter's accounts as earlier noted.

As a rule, a drawee bank who has paid a check on which an indorsement has been forged cannot charge the
drawer's account for the amount of said check. An exception to this rule is where the drawer is guilty of such
negligence which causes the bank to honor such a check or checks. If a check is stolen from the payee, the drawer
cannot possibly discover the forged indorsement by mere examination of his cancelled check. This accounts for the
rule that although a depositor owes a duty to his drawee bank to examine his cancelled checks for forgery of his own
signature, he has no similar duty as to forged indorsements.
[Great Eastern Life Insurance Co. vs. Hongkong & Shanghai Bank] DOCTRINE N/A. The check was fraudulently taken and the signature of the
payee was forged not by an agent or employee of the drawer. The drawer was not found to be negligent in the handling of its business affairs
and the theft of the check by a total stranger was not attributable to negligence of the drawer; neither was the forging of the payee's
indorsement due to the drawer's negligence. Since the drawer was not negligent, the BANK was duty-bound to restore to the drawer's account
the amount theretofore paid under the check with a forged payee's indorsement because the BANK did not pay as ordered by the drawer.

CROSSED CHECKS ARGUMENT: Issuing a crossed check imposes no legal obligation on the drawee not to honor such
a check. It is more of a warning to the holder that the check cannot be presented to the drawee bank for payment in
cash. Instead, the check can only be deposited with the payee's bank which in turn must present it for payment
against the drawee bank in the course of normal banking transactions between banks.

CHECKS W/ MORE THAN ONE INDORSEMENT: The banking rule banning acceptance of checks for deposit or cash
payment with more than one indorsement unless cleared by some bank officials does not invalidate the
instrument; neither does it invalidate the negotiation or transfer of the said check. In effect, this rule destroys the
negotiability of bills/checks by limiting their negotiation by indorsement of only the payee. Under the NIL, the only
kind of indorsement which stops the further negotiation of an instrument is a restrictive indorsement which
prohibits the further negotiation thereof.

In this kind of restrictive indorsement, the prohibition to transfer or negotiate must be written in express words at
the back of the instrument, so that any subsequent party may be forewarned that ceases to be negotiable. However,
the restrictive indorsee acquires the right to receive payment and bring any action thereon as any indorser, but he
can no longer transfer his rights as such indorsee where the form of the indorsement does not authorize him to do
so.

Under the NIL, petitioner is precluded from raising the defense of forgery by reason of her gross negligence. But
under Section 196 of the NIL, any case not provided for in the Act shall be governed by the provisions of existing
legislation. Under Article 1170 of the NCC, PBCom may be held liable for damages.4 There is no question that there is
a contractual relation between petitioner as depositor (obligee) and the respondent drawee bank as the obligor. In
the performance of its obligation, the drawee bank is bound by its internal banking rules and regulations which
form part of any contract it enters into with any of its depositors. When it violated its internal rules that second
endorsements are not to be accepted without the approval of its branch managers and it did accept the same upon
the mere approval of Boon, a chief accountant, it contravened the tenor of its obligation at the very least, if it were
not actually guilty of fraud or negligence.

4Art. 1170 - Those who in the performance of their obligations are guilty of fraud, negligence or delay, and those who in any manner contravene the tenor
thereof, are liable for damages.
FAR EAST BANK & TRUST COMPANY vs. GOLD PALACE JEWELLERY CO. [August 20, 2008]

In June 1998, Samuel Tagoe, a foreigner, purchased from the Gold Palace Jewellery Co. store at SM-North EDSA
several pieces of jewelry valued at P258,000. For payment, he offered Foreign Draft No issued by the United
Overseas Bank (Malaysia) addressed to the Land Bank of the Philippines and payable to Gold Palace for P380,000.
Judy Yang, assistant general manager of Gold Palace, issued a Cash Invoice to Tagoe, asked him to come back, and
informed him that the pieces of jewelry would be released when the draft had already been cleared. Julie Yang-
Go, the manager of Gold Palace, consequently deposited the draft in the company’s account with Far East.

When Far East (collecting bank) presented the draft for clearing to LBP (drawee bank), the latter cleared the same.
UOB’s account with LBP was debited, and Gold Palace’s account with Far East was credited with P380,000.

Tagoe eventually returned to Gold Palace to claim the purchased goods. After ascertaining that the draft had been
cleared, Yang released the pieces of jewelry to Tagoe and issued Tagoe, as change, a Far East Check
for P122,000. This check was later presented for encashment and was paid by Far East.

After around three weeks, LBP informed Far East that the amount in the Foreign Draft had been materially altered
from P300 to P380,000 and that it was returning the same. It is noted that the material alteration was discovered
by UOB after LBP had informed it that its funds were being depleted following the encashment of the subject
draft. Intending to debit the amount from Gold Palace’s account, Far East refunded the P380,000 paid by LBP.

However, Gold Palace had already utilized portions of the amount, so the outstanding balance of its account was
already inadequate. Far East was able to debit only P168,053.36, but this was done without a prior written notice to
the account holder. Far East only notified by phone the representatives of Gold Palace. Far East demanded from
Gold Palace the payment of P211,946.64. Because Gold Palace did not heed the demand, Far East consequently
instituted a civil case for sum of money and damages before RTC-Makati.

GOLD PALACE: interposed as a defense that the complaint states no cause of action, the subject foreign draft having
been cleared and Gold Palace not being the party who made the material alteration. Gold Palace further
counterclaimed, considering that Far East had confiscated without basis Gold Palaces balance in its account resulting
in operational loss, and had maliciously imputed to the latter the act of alteration.

RTC: rendered its decision in favor of Far East, ordering Gold Palace to pay Far East P211,946.64. The trial court
ruled that, on the basis of its warranties as a general indorser, Gold Palace was liable to Far East.

CA: reversed the ruling of the trial court and awarded Gold Palace’s counterclaim. It ruled that Far East failed to
undergo the proceedings on the protest of the foreign draft or to notify Gold Palace of the drafts dishonor; thus, Far
East could not charge Gold Palace on its secondary liability as an indorser. The appellate court further ruled that the
drawee bank had cleared the check, and its remedy should be against the party responsible for the alteration.
Considering that, in this case, Gold Palace neither altered the draft nor knew of the alteration, it could not be held
liable.

ISSUE: W/N Gold Palace may be held liable for the difference between the amount in the materially altered draft
and the amount debited from Gold Palace’s account.

SC: NO. Far East could not debit the account of Gold Palace, and for doing so, it must return what it had erroneously
taken. Far East’s remedy under the law is not against Gold Palace but against the drawee-bank or the person
responsible for the alteration.

The NIL provides that the acceptor, by accepting the instrument, engages that he will pay it according to the tenor
of his acceptance. This provision applies with equal force in case the drawee pays a bill without having previously
accepted it. His actual payment of the amount in the check implies not only his assent to the order of the drawer and
a recognition of his corresponding obligation to pay the aforementioned sum, but also, his clear compliance with
that obligation. Actual payment by the drawee is greater than his acceptance, which is merely a promise in writing to
pay. The payment of a check includes its acceptance.

In this case, the drawee bank cleared and paid the subject foreign draft and forwarded the amount thereof to the
collecting bank. The latter then credited to Gold Palaces account the payment it received. Following the plain
language of the law, the drawee, by the said payment, recognized and complied with its obligation to pay in
accordance with the tenor of his acceptance.
Thus, LBP was liable on its payment of the check according to the tenor of the check at the time of payment,
which was the raised amount.

Because of that engagement, LBP could no longer repudiate the payment it erroneously made to a due course
holder. Gold Palace was not a participant in the alteration of the draft, was not negligent, and was a holder in due
course – it received the draft complete and regular on its face, before it became overdue and without notice of any
dishonor, in good faith and for value, and absent any knowledge of any infirmity in the instrument or defect in the
title of the person negotiating it.

Having relied on the drawee bank’s clearance and payment of the draft and not being negligent (it delivered the
purchased jewelry only when the draft was cleared and paid), Gold Palace is amply protected by the said Section 62.

This construction and application of the law gives effect to the plain language of the NIL and is in line with the sound
principle that where one of two innocent parties must suffer a loss, the law will leave the loss where it finds it. It
further reasserts the usefulness, stability and currency of negotiable paper without seriously endangering accepted
banking practices. Banking institutions can readily protect themselves against liability on altered instruments either
by qualifying their acceptance or certification, or by relying on forgery insurance and special paper which will make
alterations obvious.

The drawee bank, in most cases, is in a better position, compared to the holder, to verify with the drawer the
matters stated in the instrument. As we have observed in this case, were it not for LBPs communication with the
drawer that its account in the Philippines was being depleted after the subject foreign draft had been encashed,
then, the alteration would not have been discovered. What we cannot understand is why LBP, having the most
convenient means to correspond with UOB, did not first verify the amount of the draft before it cleared and paid
the same. Gold Palace, on the other hand, had no facility to ascertain with the drawer, UOB Malaysia, the true
amount in the draft. It was left with no option but to rely on the representations of LBP that the draft was good.

ALTERNATE VIEW IN COMMON LAW JURISDICTIONS: A drawee bank, having paid to an innocent holder the amount
of an uncertified, altered check in good faith and without negligence which contributed to the loss, could recover
from the person to whom payment was made as for money paid by mistake. However, given the foregoing
discussion, we find no compelling reason to apply the principle to the instant case.

US Uniform Commercial Code: If an unaccepted draft is presented to a drawee for payment or acceptance and the
drawee pays or accepts the draft, the person obtaining payment or acceptance, at the time of presentment, and a
previous transferor of the draft, at the time of transfer, warrant to the drawee making payment or accepting the
draft in good faith that the draft has not been altered. Nonetheless, absent any similar provision in our law, we
cannot extend the same preferential treatment to the paying bank.

Considering that Gold Palace is protected by Section 62 of the NIL, its collecting agent, Far East, should not have
debited the money paid by the drawee bank from Gold Palace’s account. When Gold Palace deposited the check
with Far East, under the terms of the deposit and the provisions of the NIL, Far East became an agent of Gold Palace
for the collection of the amount in the draft. The payment by the drawee bank and the collection of the amount by
the collecting bank closed the transaction insofar as the drawee and the holder of the check or his agent are
concerned, converted the check into a mere voucher, and foreclosed the recovery by the drawee of the amount
paid.

RATIONALE: otherwise, uncertainty in commercial transactions, delay and annoyance will arise if a bank at some
future time will call on the payee for the return of the money paid to him on the check.

Neither can Far East be considered to have acted as the representative of the drawee bank when it debited Gold
Palace’s account, because, as already explained, the drawee bank had no right to recover what it paid. Likewise, Far
East cannot invoke the warranty of the payee/depositor who indorsed the instrument for collection to shift the
burden it brought upon itself. This is precisely because the said indorsement is only for purposes of collection
which, under Section 36 of the NIL, is a restrictive indorsement. It did not in any way transfer the title of the
instrument to the collecting bank. Far East did not own the draft, it merely presented it for payment. Considering
that the warranties of a general indorser as provided in Section 66 of the NIL are based upon a transfer of title and
are available only to holders in due course, these warranties did not attach to the indorsement for deposit and
collection made by Gold Palace to Far East. Without any legal right to do so, Far East could not debit Gold Palace’s
account for the amount it refunded to the drawee bank.
VICKY TY vs. PEOPLE OF THE PHILIPPINES [September 27, 2004]

Vicky Ty’s mother (Chua Lao So Un) and sister (Judy Chua) got confined at the Manila Doctors Hospital. The total hospital
bills of the two patients amounted to P1,075,592.95. On June 5, 1992, Ty executed a promissory note wherein she
assumed payment of the obligation in installments. To assure payment of the obligation, she drew several postdated
checks against Metrobank payable to the hospital. The seven checks, each covering the amount of P30,000, were all
deposited on their due dates. They were all dishonored by the drawee bank and returned unpaid to the hospital due to
insufficiency of funds, with the Account Closed advice. Manila Doctors sent demand letters to Ty, but they were not
heeded. Thus, Manila Doctors filed seven Information for violation of BP 22 against Ty before RTC-Manila.

VICKY TY: claimed that she issued the checks because of an uncontrollable fear of a greater injury. She averred that she
was forced to issue the checks to obtain release for her mother whom the hospital inhumanely and harshly treated and
would not discharge unless the hospital bills are paid. The debasing treatment, she pointed out, so affected her mother’s
mental, psychological and physical health that the latter contemplated suicide if she would not be discharged from the
hospital. Fearing the worst for her mother, and to comply with the demands of the hospital, Ty was compelled to sign a
promissory note, open an account with Metrobank and issue the checks to effect her mother’s immediate discharge.

RTC: found that Ty issued the checks subject of the case in payment of the hospital bills of her mother and rejected the
theory of the defense. RTC rendered a Decision finding Ty guilty of seven counts of violation of BP 22.

VICKY TY: There was absence of valuable consideration for the issuance of the checks and the payee had knowledge of
the insufficiency of funds in the account. She protested that the trial court should not have applied the law mechanically,
without due regard to the principles of justice and equity.

CA: affirmed the judgment of the trial court with modification. CA rejected Ty’s defenses of involuntariness in the issuance
of the checks and the hospital’s knowledge of her checking accounts lack of funds. It held that BP 22 makes the mere act
of issuing a worthless check punishable as a special offense, it being a malum prohibitum. What the law punishes is the
issuance of a bouncing check and not the purpose for which it was issued nor the terms and conditions relating to its
issuance. Neither was the Court of Appeals convinced that there was no valuable consideration for the issuance of the
checks as they were issued in payment of the hospital bills of Ty’s mother.

ISSUE: W/N there was absence of valuable consideration for the issuance of the subject checks.

SC: NO. Section 24 of the NIL creates a presumption that every party to an instrument acquired the same for a
consideration or for value. In alleging otherwise, Ty has the onus to prove that the checks were issued without
consideration. She must present convincing evidence to overthrow the presumption. A scrutiny of the records reveals that
Ty failed to discharge her burden of proof.

VALUABLE CONSIDERATION may in general terms, be said to consist either in some right, interest, profit, or benefit
accruing to the party who makes the contract, or some forbearance, detriment, loss or some responsibility, to act, or
labor, or service given, suffered or undertaken by the other aide. Simply defined, valuable consideration means an
obligation to give, to do, or not to do in favor of the party who makes the contract, such as the maker or indorser.

In this case, Tys mother and sister availed of the services and the facilities of the hospital. For the care given to her kin, Ty
had a legitimate obligation to pay the hospital by virtue of her relationship with them and by force of her signature on her
mother’s Contract of Admission acknowledging responsibility for payment, and on the promissory note she executed in
favor of the hospital. It is no defense to an action on a promissory note for the maker to say that there was no
consideration which was beneficial to him personally; it is sufficient if the consideration was a benefit conferred upon a
third person, or a detriment suffered by the promisee, at the instance of the promissor.

At any rate, the law punishes the mere act of issuing a bouncing check, not the purpose for which it was issued nor the
terms and conditions relating to its issuance. B.P. 22 does not make any distinction as to whether the checks within its
contemplation are issued in payment of an obligation or to merely guarantee the obligation. The thrust of the law is to
prohibit the making of worthless checks and putting them into circulation. What is primordial is that such issued checks
were worthless and the fact of its worthlessness is known to the appellant at the time of their issuance.

[Magno v. Court of Appeals] DOCTRINE N/A. In the 1992 case, the bounced checks were issued to cover a warranty deposit in a lease
contract, where the lessor-supplier was also the financier of the deposit. It was a modus operandi whereby the supplier was able to sell or
lease the goods while privately financing those in desperate need so they may be accommodated. The maker of the check thus became an
unwilling victim of a lease agreement under the guise of a lease-purchase agreement. The maker did not benefit at all from the deposit, since
the checks were used as collateral for an accommodation and not to cover the receipt of an actual account or credit for value. In the case at
bar, the checks were issued to cover the receipt of an actual account or for value. Substantial evidence has established that the checks were
issued in payment of the hospital bills of Ty’s mother.
KENNETH NGO vs. PEOPLE OF THE PHILIPPINES [July 14, 2004]

Complainant Paul Gotianse is an officer of Northern Hill Development Corporation. In October 1988, in Davao City,
Kenneth Ngo, in settlement of the indebtedness he had incurred with Northern Hill issued eight postdated checks
payable to Gotianse and all drawn against the Equitable Banking Corporation. The first five checks were honored
by the drawee bank but the three postdated checks were dishonored for the reason drawn against insufficient
funds. Notices of dishonor and demand were sent to Kenneth Ngo by Gotianse. Despite this, no payment or
arrangement with the drawee bank was made, to the damage and prejudice of Gotianse in the amount of P75,000.

Thus, three separate Information were filed before the RTC-Davao City against Kenneth Ngo charging him with
Violation BP 22, which are identical in contents except as to their respective dates of issue.

RTC: rendered a decision convicting Kenneth Ngo on the three criminal cases.

CA: ruled that all the elements of a violation of BP 22 with regard two of the criminal cases had been proven beyond
reasonable doubt. CA, however, modified the penalty of imprisonment and imposed instead a fine of P150,000, with
subsidiary imprisonment in case of insolvency. Finding that no written notice of dishonor or demand letter had been
sent to Ngo regarding one of the checks, the CA acquitted him in the lase Criminal Case.

ISSUE: W/N the checks had been issued for a valid consideration insofar as Gotianse was concerned.

KENNETH NGO: the Information indicated that the checks had been issued in favor of Paul Gotianse, yet the
prosecutor’s evidence established that the actual obligation for which they had been issued was in favor of Northern
Hill Development. On this basis, petitioner alleges that the prosecution failed to prove the elements of the offense,
since the checks had not been issued for a valid consideration insofar as Complainant Gotianse was concerned.

ELEMENTS OF BP 22: (1) the making, drawing and issuance of any check to apply on account or for value; (2) the
maker, drawer or issuer knows at the time of issue that he does not have sufficient funds in or credit with the
drawee bank for the payment of such check in full upon its presentment; and (3) the check is subsequently
dishonored by the drawee bank for insufficiency of funds or credit or would have been dishonored for the same
reason had not the drawer, without any valid cause, ordered the bank to stop payment.

In the present case, all the elements constituting a violation of BP 22 are present: 1) Ngo issued EBC Checks in
partial settlement of his obligation to Northern Hill Development; 2) The checks were deposited by the complainant
but were subsequently dishonored by the drawee bank for insufficiency of funds; 3) Ngo knew that at the time he
issued the postdated checks, he had no sufficient funds in or credit with the drawee bank.

SC: The cause or reason for the issuance of a check is inconsequential in determining criminal culpability under BP
22. To determine the reason/s 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 communities. The gravamen of the offense punished by BP 22 is the act
of making and issuing a worthless check; that is, a check that is dishonored upon its presentation for payment. The
mere act of issuing a worthless check is malum prohibitum.

The claim that the prosecution failed to prove that the check had been issued to apply on account or for value in
favor of Paul Gotianse is irrelevant. The law does not require that the payee of a check be the same as the obligee
of the obligation in consideration for which the check has been issued. It should be noted that BP Blg. 22 punishes
the making or drawing and issuing of any check that is subsequently dishonored, even in payment of pre-existing
obligation, as indicated in Section 1 thereof by the phrase to apply on account. Section 1 also punishes the making or
drawing and issuing of a check that is subsequently dishonored, in payment of an obligation contracted at the time
of the issuance of the check, as indicated by the words for value.

When the checks were issued by petitioner to Paul Gotianse as payee, they were issued to apply on account; that is
to settle the formers obligation to the latter’s principal -- Northern Hill Development. The trial court found that Ngo
had agreed to settle his debt to the company by issuing the checks payable to its agent, Gotianse. Clearly, the
prosecution proved the first element of a violation of BP 22.
BANK OF THE PHILIPPINE ISLANDS vs. CA, ANNABELLE SALAZAR, and JULIO TEMPLONUEVO [January 25, 2007]
Annabelle Salazar previously had in her possession three checks. These checks, which had an aggregate amount of
P267,692.50, were payable to the order of JRT Construction and Trading, the name and style under which Julio
Templonuevo does business. Despite the lack of endorsement of the designated payee upon such checks, Salazar was able
to deposit the checks in her personal savings account with BPI and encash the same. BPI accepted and paid the checks on
three separate occasions over a span of eight months in 1990. On August 31, 1991, Templonuevo demanded from BPI
payment of P267,692.50 representing the aggregate value of three checks, but which were deposited to Salazar’s
account without his knowledge and endorsement.
Accepting that Templonuevo’s claim was a valid one, BPI froze the account of AA Salazar and Construction and
Engineering Services, instead of the account where the checks were deposited, since this account was already closed by
private respondent Salazar or had an insufficient balance.
Salazar was advised to settle the matter with Templonuevo but they did not arrive at any settlement. As it appeared that
Salazar was not entitled to the funds represented by the checks which were deposited and accepted for deposit, BPI
decided to debit the amount of P267,707.70 from the account of AA Salazar and Construction and P267,692.50 was paid
to Templonuevo by means of a cashier’s check. The difference between the value of the checks and amount debited from
her account represented bank charges in the issuance of a cashier’s check.
AA Salazar Construction and Engineering Services filed an action for a sum of money with damages against BPI before
RTC-Pasig City. The complaint was later amended by substituting the name of Annabelle Salazar as the real party in
interest in place of AA Salazar Construction. Salazar prayed for the recovery of P267,707.70 debited by BPI from her
account. She likewise prayed for damages and attorney’s fees.
RTC: rendered a decision in favor of Salazar, ordering BPI to pay Salazar P267,707.70.
CA: affirmed the decision of the RTC and held that Salazar was entitled to the proceeds of the three checks
notwithstanding the lack of endorsement thereon by the payee. CA concluded that Salazar and Templonuevo had
previously agreed that the checks payable to JRT Construction and Trading actually belonged to Salazar and would be
deposited to her account, with petitioner acquiescing to the arrangement. Deductions from the bank account of A.A.
Salazar Construction and Engineering Services were improper because there was no ineffective payment to Salazar
which would call for the exercise of petitioner’s right to set off against the former’s bank deposits.
BPI: There is no presumption in law that a check payable to order, when found in the possession of a person who is
neither a payee nor the indorsee thereof, has been lawfully transferred for value. Hence, the CA should not have
presumed that Salazar was a transferee for value within the contemplation of Section 49 of the Negotiable Instruments
Law, as the latter applies only to a holder defined under Section 191of the same.
ISSUE: W/N the presumption of consideration applies when a check payable to order is found in the possession of a
person who is neither a payee nor the indorsee thereof.
SC: NO. The presumption under Section 131(s) of the Rules of Court stating that a negotiable instrument was given for a
sufficient consideration will not inure to the benefit of Salazar because the term given does not pertain merely to a
transfer of physical possession of the instrument. The phrase “given or indorsed” in the context of a negotiable
instrument refers to the manner in which such instrument may be negotiated. Negotiable instruments are negotiated by
transfer to one person or another in such a manner as to constitute the transferee the holder thereof. If payable to bearer
it is negotiated by delivery. If payable to order it is negotiated by the indorsement completed by delivery. The present case
involves checks payable to order. Not being a payee or indorsee of the checks, Salazar could not be a holder thereof.
It is an exception to the general rule for a payee of an order instrument to transfer the instrument without indorsement.
Precisely because the situation is abnormal, it is but fair to the maker and to prior holders to require possessors to prove
without the aid of an initial presumption in their favor, that they came into possession by virtue of a legitimate
transaction with the last holder. Salazar failed to discharge this burden, and the return of the check proceeds to
Templonuevo was therefore warranted under the circumstances despite the fact that Templonuevo may not have clearly
demonstrated that he never authorized Salazar to deposit the checks or to encash the same.
Having assumed the liability of a general indorser, BPI’s liability to the designated payee cannot be denied.
Consequently, BPI, as the collecting bank, had the right to debit Salazar’s account for the value of the checks it
previously credited in her favor. It is of no moment that the account debited by petitioner was different from the original
account to which the proceeds of the check were credited because both admittedly belonged to Salazar, the former being
the account of the sole proprietorship which had no separate and distinct personality from her, and the latter being her
personal account. Nonetheless, BPI is still liable for DAMAGES.
ENGR. JOSE CAYANAN vs. NORTH STAR INTERNATIONAL TRAVEL, INC., [October 5, 2011]

North Star is a corporation engaged in the travel agency business while Engr. Jose Cayanan is the owner/general manager
of JEAC International Management and Contractor Services, a recruitment agency. In 1994, Virginia Balagtas, the General
Manager of North Star, in accommodation and upon the instruction of Cayanan, its client, sent the amount of
US$60,000 to View Sea Ventures Ltd., in Nigeria from her personal account in Citibank Makati. Later, Virginia again sent
US$40,000 to View Sea Ventures by telegraphic transfer, with US$15,000 coming from Cayanan. On various dates, North
Star extended credit to Cayanan for the airplane tickets of his clients, with the total amount of such indebtedness under
the credit extensions eventually reaching P510,035.47.

To cover payment of the foregoing obligations, Cayanan issued five checks to North Star. When presented for payment,
two of the checks were dishonored for insufficiency of funds while the other three checks were dishonored because of a
stop payment order from Cayanan. North Star informed Cayanan that the checks he issued had been dishonored. North
Star demanded payment, but petitioner failed to settle his obligations. Hence, North Star instituted FIVE Criminal Cases,
charging Cayanan with violation of BP 22, before the MeTC-Makati City.

MeTC: found petitioner guilty beyond reasonable doubt of violation of BP 22.

RTC: acquitted petitioner of the criminal charges. The RTC also held that there is no basis for the imposition of the civil
liability because the checks issued by the accused were presented beyond the period of 90 DAYS. Therefore, there is no
violation of the provision of BP 22 and the accused is not considered to have committed the offense. There being no
offense committed, accused is not criminally liable and there would be no basis for the imposition of the civil liability
arising from the offense.

CA: reversed the decision of the RTC insofar as the civil aspect is concerned and held petitioner civilly liable for the value
of the subject checks. The CA ruled that although Cayanan was acquitted of the criminal charges, he may still be held
civilly liable for the checks he issued since he never denied having issued the five postdated checks which were
dishonored.

ISSUE: W/N CA erred in holding Cayanan civilly liable to North Star for the value of the checks.

CAYANAN: argues that the CA erred in holding him civilly liable to North Star for the value of the checks since North Star
did not give any valuable consideration for the checks. He insists that the $85,000 sent to View Sea Ventures was not sent
for the account of North Star but for the account of Virginia as her investment. He points out that said amount was taken
from Virginia’s personal dollar account in Citibank and not from North Stars corporate account.

NORTH STAR: Cayanan is liable for the value of the five subject checks as they were issued for value. Respondent insists
that petitioner owes North Star P2,530,703 plus interest of P264,078.45, and that the P220,000 petitioner paid to North
Star is conclusive proof that the checks were issued for value.

SC: NO. Upon issuance of a check, in the absence of evidence to the contrary, it is presumed that the same was issued
for valuable consideration which may consist either in some right, interest, profit or benefit accruing to the party who
makes the contract, or some forbearance, detriment, loss or some responsibility, to act, or labor, or service given, suffered
or undertaken by the other side.

Under the Negotiable Instruments Law, it is presumed that every party to an instrument acquires the same for a
consideration or for value. As petitioner alleged that there was no consideration for the issuance of the subject checks,
it devolved upon him to present convincing evidence to overthrow the presumption and prove that the checks were in
fact issued without valuable consideration. Sadly, however, petitioner has not presented any credible evidence to rebut
the presumption, as well as North Stars assertion, that the checks were issued as payment for the US$85,000 petitioner
owed.

The subject checks, bearing petitioners signature, speak for themselves. The fact that petitioner himself specifically
named North Star as the payee of the checks is an admission of his liability to North Star and not to Virginia Balagtas, who
as manager merely facilitated the transfer of funds. Indeed, it is highly inconceivable that an experienced businessman like
petitioner would issue various checks in sizeable amounts to a payee if these are without consideration. The inevitable
conclusion is that when petitioner issued the subject checks to North Star as payee, he did so to settle his obligation
with North Star for the US$85,000. Since the only payment petitioner made to North Star was in the amount of P220,000,
which was applied to interest due, his liability is not extinguished. Having failed to fully settle his obligation under the
checks, the appellate court was correct in holding petitioner liable to pay the value of the five checks he issued in favor of
North Star.
CALTEX (PHILIPPINES), INC. vs. CA and SECURITY BANK AND TRUST COMPANY (August 10, 1992)

Security Bank- Sucat issued 280 certificates of time deposit in favor of Angel dela Cruz. Angel dela Cruz delivered the
CTDs to Caltex in connection with his purchase of fuel products from Caltex (aggregate amount of P1,120,000).

In March 1982, Angel informed Timoteo Tiangco, Sucat Branch Manager, that he lost all the certificates of time
deposit in dispute.. Tiangco advised Angel to execute and submit a notarized Affidavit of Loss, as required by
defendant bank's procedure, if he desired replacement of said lost CTDs. On the basis of the affidavit of loss, 280
replacement CTDs were issued in favor of Angel.

March 25, 1982, Angel negotiated and obtained a loan of P875,000 from Security; Angel also executed a notarized
Deed of Assignment of Time Deposit where Angel surrenders to Security Bank "full control of the 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 November, 1982,Aranas, Credit Manager of Caltex went to Security Bank and presented for verification the CTDs
declared lost by Angel, alleging that the same were delivered "as security for purchases made with Caltex.” Caltex
was requested by Security Bank to furnish "a copy of the document evidencing the guarantee agreement with Mr.
Angel dela Cruz" as well as "the details of Angel’s" obligation. No copy of the requested documents was furnished
herein defendant. Security Bank rejected Caltex’ demand and claim for payment of the value of the CTDs.

In April 1983, the loan of Angel dela Cruz with the defendant bank matured and fell due. On August 5, 1983, the
latter set-off and applied the time deposits in question to the payment of the matured loan. Caltex 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 interest. LOWER COURT: DISMISSED THE COMPLAINT; CA: AFFIRMED DISMISSAL

CA: subject certificates of deposit are non-negotiable; (2) Caltex did not become a holder in due course of CTDs; and
(3) in disregarding the pertinent provisions of the Code of Commerce relating to lost instruments payable to bearer.

The text of the instrument(s) themselves manifest with clarity that they are payable, not to whoever purports to be
the "bearer" but only to the specified person indicated therein, the depositor. In effect, the appellee bank
acknowledges its depositor Angel dela Cruz as the person who made the deposit and further engages itself to pay
said depositor the amount indicated thereon at the stipulated date.

This is to Certify that B E A R E R has deposited in this Bank the sum of PESOS: FOUR THOUSAND ONLY, SECURITY
BANK SUCAT OFFICE P4,000 & 00 CTS Pesos, Philippine Currency, repayable to said depositor 731 days. after date,
upon presentation and surrender of this certificate, with interest at the rate of 16% per cent per annum.

SC: CTDs are negotiable instruments. The documents provide that the amounts deposited shall be repayable to the
depositor. According to the document, the depositor is the "bearer." The documents do not say that the depositor is
Angel de la Cruz and that the amounts deposited are repayable specifically to him. Rather, the amounts are to be
repayable to the bearer of the documents or, for that matter, whosoever may be the bearer at the time of
presentment. If it was really the intention of respondent bank to pay the amount to Angel de la Cruz only, it could
have with facility so expressed that fact in clear and categorical terms in the documents, instead of having the word
"BEARER" stamped on the space provided for the name of the depositor in each CTD. On the wordings of the
documents, therefore, the amounts deposited are repayable to whoever may be the bearer thereof.

Caltex CANNOT rightfully recover on the CTDs. The records reveal that Angel de la Cruz, whom Caltex chose not to
implead in this suit for reasons of its own, delivered the CTDs amounting to P1,120,000 to Caltex without informing
respondent bank thereof at any time. Unfortunately for Caltex, although the CTDs are bearer instruments, a valid
negotiation thereof for the true purpose and agreement between it and De la Cruz requires both delivery and
indorsement. CTDs were in reality delivered to it as a security for De la Cruz' purchases of its fuel products. Any
doubt as to whether the CTDs were delivered as payment for the fuel products or as a security has been dissipated
and resolved in favor of the latter by petitioner's own

In the present case, 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 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.

The pertinent law on this point is that where the holder has a lien on the instrument arising from contract, he is
deemed a holder for value to the extent of his lien. As such holder of collateral security, he would be a pledgee but
the requirements therefor and the effects thereof, not being provided for by the Negotiable Instruments Law, shall
be governed by the Civil Code provisions on pledge of incorporeal rights, which inceptively provide:

Art. 2095. Incorporeal rights, evidenced by negotiable instruments, may also be pledged. The instrument proving the
right pledged shall be delivered to the creditor, and if negotiable, must be indorsed.

Art. 2096. A pledge shall not take effect against third persons if a description of the thing pledged and the date of
the pledge do not appear in a public instrument.

Aside from the fact that the CTDs were only delivered but not indorsed, the factual findings of respondent court
quoted at the start of this opinion show that petitioner failed to produce any document evidencing any contract of
pledge or guarantee agreement between it and Angel de la Cruz. Consequently, the mere delivery of the CTDs did
not legally vest in petitioner any right effective against and binding upon respondent bank. The requirement under
Article 2096 aforementioned is not a mere rule of adjective law prescribing the mode whereby proof may be made
of the date of a pledge contract, but a rule of substantive law prescribing a condition without which the execution of
a pledge contract cannot affect third persons adversely.

On the other hand, the assignment of the CTDs made by Angel de la Cruz in favor of respondent bank was embodied
in a public instrument. With regard to this other mode of transfer, the Civil Code specifically declares:

Art. 1625. An assignment of credit, right or action shall produce no effect as against third persons, unless it appears
in a public instrument, or the instrument is recorded in the Registry of Property in case the assignment involves real
property.

Caltex, whether as purchaser, assignee or lien holder of the CTDs, neither proved the amount of its credit or the
extent of its lien nor the execution of any public instrument which could affect or bind private respondent.
Necessarily, therefore, as between petitioner and respondent bank, the latter has definitely the better right over the
CTDs in question.

A close scrutiny of the provisions of the Code of Commerce laying down the rules to be followed in case of lost
instruments payable to bearer, which it invokes, will reveal that said provisions, even assuming their applicability to
the CTDs in the case at bar, are merely permissive and not mandatory. Significantly, none of the provisions cited by
petitioner categorically restricts or prohibits the issuance a duplicate or replacement instrument sans compliance
with the procedure outlined therein, and none establishes a mandatory precedent requirement therefor.

SC: On the modified premises above set forth, the petition of Caltex is DENIED. SECURITY BANK is not liable to pay it
the aggregate value of the certificates of time deposit of P1,120,000.