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NEGOTIABLE

INSTRUMENTS LAW| CASE DIGEST | S.Y. 2018 – 2019



Case #1 BARRETTO REALTY moved for reconsideration alleging that
JUDGE LAGUIO could no longer grant MOSLARES' motion
G.R. No. 132362 June 28, 2001 since the prior sale of subject lots in its favor had already
PIO BARRETTO REALTY DEVELOPMENT, INC., petitioner, been recognized when the sheriff was directed to deliver the
vs. checks it issued in payment to MOSLARES and ATTY.
COURT OF APPEALS, JUDGE PERFECTO A. S. LAGUIO, JR., TRINIDAD.
RTC-Branch 18, Manila, and HONOR P.
MOSLARES, respondents. ISSUE: Whether the checks did not produce the effect of
payment because it was not encashed and is not a legal
FACTS: HONOR P. MOSLARES instituted an action for tender.
annulment of sale before the Regional Trial Court of Manila
against the Testate Estate of NICOLAI DREPIN represented RULING: NO. Clearly then respondent JUDGE LAGUIO no
by ATTY. TOMAS TRINIDAD and PIO BARRETTO REALTY longer had any jurisdiction to grant the motion for execution
DEVELOPMENT CORPORATION and alleged that the Deed of and supplement thereto filed by MOSLARES.
Sale over four parcels of land of the DREPIN ESTATE executed
in favor of the BARRETTO REALTY was null and void on the The fact that the check paid to MOSLARES by BARRETTO
ground that the same parcels of land had already been sold to REALTY was never encashed should not be invoked against
him by NICOLAI DREPIN. the latter because MOSLARES never questioned the tender
done three years earlier. While delivery of a check produces
To settle the case, the parties executed a compromise the effect of payment only when it is encashed, the rule is
agreement which gave MOSLARES and BARRETTO REALTY the otherwise if the debtor was prejudiced by the creditor's
option to buy the lots but the one who paid first had priority unreasonable delay in presentment.
in right. MOSLARES claimed that he bought the lots first by
delivering to ATTY. TOMAS TRINIDAD a check for the DREPIN Acceptance of a check implies an undertaking of due diligence
ESTATE worth P1.35 million and a check for BARRETTO in presenting it for payment. If no such presentment was
REALTY worth P3 million. BARRETTO REALTY denied receiving made, the drawer cannot be held liable irrespective of loss or
the check and claimed that it bought the properties by injury sustained by the payee. Payment will be deemed
tendering a check for P1million to MOSLARES, and check effected and the obligation for which the check was given as
for P1 million and another check for P350,000.00 TO ATTY. conditional payment will be discharged.
TOMAS TRINIDAD but MOSLARES and ATTY. TRINIDAD
refused to accept the checks.
Case # 2
BARRETTO REALTY filed a motion before the trial court
alleging that it complied with its monetary obligations under G.R. No. L-222 April 26, 1950
the compromise agreement but its offers of payment were SALVACION F. VDA. DE EDUQUE, ETC., plaintiff-appellee,
refused, and to compel MOSLARES and ATTY. TRINIDAD to vs.
comply with the compromise agreement and to turn over the JOSE M. OCAMPO, defendant-appellant.
owner's duplicate certificates of title over the lots but
instead, JUDGE LAGUIO, JR. ordered the parties to deposit in FACTS: DR. JOSE EDUQUE secured two loans from MARIANO
Court their respective monetary obligations under the OCAMPO DE LEON and DOÑA ESCOLASTICA DE LOS REYES for
compromise agreement and allowed the deputy sheriff to P 40,000 and from DON JOSE M. OCAMPO for P 15,000
deliver to the parties the bank certified checks. payable within 20 years with 5% interest. Payment for the
loan was secured by mortgage of real property. In the
SHERIFF APOLONIO L. GOLFO personally delivered the checks mortgage contract it is stipulated that any of the mortgage
issued by BARRETTO REALTY in favor of MOSLARES and ATTY. creditors may receive payment and execute deeds of
TOMAS TRINIDAD. More than 3 years later MOSLARES filed cancellation of the mortgage debts.
a Motion for Execution alleged that he bought the lots and he
paid the amounts specified in the compromise agreement Administratrix of the estate of the deceased DR. JOSE
and contended that the checks tendered by BARRETTO EDUQUE, tendered payment, by means of cashier's check, of
REALTY did not produce the effect of payment because the total amount of the two loans, P55,000, JOSE M.
checks were not legal tender. JUDGE LAGUIO granted the OCAMPO but refused to accept payment. Because of the
motion for execution and ordered conveyance of the lots in refusal, an action was brought and the check be deposited in
favor of MOSLARES court. After trial, judgment was rendered against JOSE M.


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OCAMPO, compelling him to accept the check worth P55,000 thereof, NEW PACIFIC TIMBER & SUPPLY CO. INC alleged that
and to issue a deeds for cancellation of the mortgage debt. JUDGE SENERIS abused his discretion in not granting the
requested motion for the reason that there was already a full
JOSE M. OCAMPO accepted the judgement only with respect satisfaction of the judgement before the auction sale was
to the P15,000 . conducted with the deposit of P50,000.00 in Cashier’s Check
of the Equitable Banking Corporation and P13,130.00 in cash
ISSUE: Whether the cashier’s check is a legal tender. for a total of P63,130.00.

RULING: YES. Japanese military notes were legal tender In upholding the refusal of RICARDO A. TONG to accept the
during the Japanese occupation. JOSE M. OCAMPO accepted check, JUDGE SENERIS cited Article 1249 of the New Civil
impliedly the consignation of the cashier's check when he Code which provides that payments of debts shall be made in
himself asked the court that out of the money thus consigned the currency which is the legal tender of the Philippines and
he be paid the amount of the second loan of P15,000. It is a Section 63 of the Central Bank Act which provides that checks
rule that "a cashier's check may constitute a sufficient tender representing deposit money do not have legal tender power
where no objection is made on this ground." and Article 1248 of the New Civil Code which provides that
creditor cannot be compelled to accept partial payment
unless there is an express stipulation to the contrary.
Case # 3
ISSUE: Can the check be considered a valid payment of the
G.R. No. L-41764 December 19, 1980 judgment obligation?
NEW PACIFIC TIMBER & SUPPLY COMPANY, INC., petitioner,
vs. RULING: Yes. It is to be emphasized in this connection that
HON. ALBERTO V. SENERIS, RICARDO A. TONG and EX- the check deposited by the petitioner in the amount of
OFFICIO SHERIFF HAKIM S. ABDULWAHID, respondents. P50,000.00 is not an ordinary check but a Cashier's Check of
the Equitable Banking Corporation, a bank of good standing
FACTS: RICARDO A. TONG filed a complaint for collection of and reputation. As testified to by the Ex-Officio Sheriff with
money against NEW PACIFIC TIMBER & SUPPLY CO. INC whom it has been deposited, it is a certified crossed check. It
where JUDGE SENERIS rendered a compromise judgment is a well-known and accepted practice in the business sector
based on the amicable settlement entered by the parties that a Cashier's Check is deemed as cash.
wherein NEW PACIFIC TIMBER & SUPPLY CO. INC will pay to
private RICARDO A. TONG P54,500.00 at 6% interest per Moreover, since the said check had been certified by the
annum and P6,000.00 as attorney’s fee of which P5,000.00 drawee bank, by the certification, the funds represented by
has been paid. the check are transferred from the credit of the maker to that
of the payee or holder, and for all intents and purposes, the
Upon failure of against NEW PACIFIC TIMBER & SUPPLY CO. latter becomes the depositor of the drawee bank, with rights
INC to pay the judgment obligation, a writ of execution was and duties of one in such situation. Where a check is certified
issued, pursuant to which, the Sheriff levied upon the by the bank on which it is drawn, the certification is
personal properties of the petitioner and set a date for the equivalent to acceptance.
auction sale.
Said certification "implies that the check is drawn upon
Before the date of the auction sale, NEW PACIFIC TIMBER & sufficient funds in the hands of the drawee, that they have
SUPPLY CO. INC deposited with the Clerk of Court in his been set apart for its satisfaction, and that they shall be so
capacity as the Ex-Officio Sheriff P50,000.00 in Cashier’s applied whenever the check is presented for payment. It is an
Check of the Equitable Banking Corporation and P13,130.00 understanding that the check is good then, and shall continue
in cash for a total of P63,130.00. good, and this agreement is as binding on the bank as its
notes in circulation, a certificate of deposit payable to the
RICARDO A. TONG refused to accept the check and the cash order of the depositor, or any other obligation it can assume.
and requested for the auction sale to proceed. The properties The object of certifying a check, as regards both parties, is to
were sold to RICARDO A. TONG as the highest bidder for enable the holder to use it as money."
P50,000.00 with a deficiency of P13,130.00.
When the holder procures the check to be certified, "the
NEW PACIFIC TIMBER & SUPPLY CO. INC subsequently filed an check operates as an assignment of a part of the funds to the
ex-parte motion for issuance of certificate of satisfaction of creditors." Hence, the exception to the rule enunciated under
judgment which was denied by the respondent Judge. In view Section 63 of the Central Bank Act to the effect "that a check

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NEGOTIABLE INSTRUMENTS LAW| CASE DIGEST | S.Y. 2018 – 2019

which has been cleared and credited to the account of the In view of the alleged breach of contract, ROMAN CATHOLIC
creditor shall be equivalent to a delivery to the creditor in BISHOP OF MALOLOS cancelled the contract and considered
cash in an amount equal to the amount credited to his all previous payments forfeited.
account"
RTC rendered judgment in favor of, ROMAN CATHOLIC
BISHOP OF MALOLOS and found that ROBES-FRANCISCO
Case #4 REALTY AND DEVELOPMENT had insufficient funds available
G.R. No. 72110 November 16, 1990 to fulfill the obligation but CA reversed and stated that
ROMAN CATHILIC BISHOP OF MALOLOS, INC., petitioner, ROBES-FRANCISCO REALTY AND DEVELOPMENT has sufficient
vs. funds and that it had tendered payment.
INTERMEDIATE APPELLATE COURT, and ROBES-FRANCISCO
REALTY AND DEVELOPMENT CORPORATION, respondents. ISSUE: Whether there is tender of payment by issuance of a
certified check
FACTS: A contract of sale over a land was executed between
ROMAN CATHOLIC BISHOP OF MALOLOS as vendor and MR. RULING: NO. ROBES-FRANCISCO REALTY AND DEVELOPMENT
CARLOS F. ROBES as president of ROBES-FRANCISCO REALTY used a certified personal check which is not legal tender nor
AND DEVELOPMENT, as vendee. It was agreed that P23,930 the currency stipulated, and therefore, cannot constitute
will be initially paid as downpayment and the balance of valid tender of payment. The first paragraph of Art. 1249 of
P100,000 plus 12% interest will be paid within 4 years from the Civil Code provides that "the payment of debts in money
execution of the contract. The contract likewise provides for shall be made in the currency stipulated, and if it is not
cancellation, forfeiture of previous payments, and possible to deliver such currency, then in the currency which
reconveyance of the land in case of failure to pay within the is legal tender in the Philippines
period.
Since a negotiable instrument is only a substitute for money
ROBES-FRANCISCO REALTY AND DEVELOPMENT through its and not money, the delivery of such an instrument does not,
new president, ATTY. ADALIA FRANCISCO, after the expiration by itself, operate as payment. A check whether a manager’s
of the period for payment, wrote to ROMAN CATHOLIC check or ordinary check, is not legal tender, and an offer of a
BISHOP OF MALOLOS a formal request that they be allowed check in payment of a debt is not a valid tender of payment
to pay the amount of P100,000 in three equal instalments and may be refused receipt by the obligee or creditor.
and the interest of P24,000 to be paid immediately upon
approval of the request. Hence, where the tender of payment by the private
respondent was not valid for failure to comply with the
ROMAN CATHOLIC BISHOP OF MALOLOS through its counsel, requisite payment in legal tender or currency stipulated
ATTY. CARMELO FERNANDEZ, formally denied the request but within the grace period and as such, was validly refused
granted a grace period of 5 days from the receipt of the receipt by the petitioner, the subsequent consignation did
denial to pay the total balance of P124,000. ATTY. not operate to discharge the former from its obligation to the
FRANCISCO, wrote to ATTY. CARMELO FERNANDEZ requesting latter.
an extension of 30 days from to fully settle its account but c
denied the request.
Case #5
ATTY. FRANCISCO wrote a letter directly addresses to ROMAN G.R. No. 89252 May 24, 1993
CATHOLIC BISHOP OF MALOLOS, protesting the alleged RAUL SESBREÑO, petitioner,
refusal of the latter to accept the tender of payment vs.
purportedly made by the former and demended the HON. COURT OF APPEALS, DELTA MOTORS CORPORATION
execution of a deed of absolute sale over the land and after AND PILIPINAS BANK, respondents.
which it would pay the account in full. ATTY. CARMELO
FERNANDEZ wrote a reply and stated that the refusal of FACTS: RAUL SESBRENO made a money market placement in
ROMAN CATHOLIC BISHOP OF MALOLOS to execute the deed the amount of P300,000 with the PHILIPPINE UNDERWRITERS
of absolute sale was due to the failure of ROBES-FRANCISCO FINANCE CORPORATION (PHILFINANCE), with a term of 32
REALTY AND DEVELOPMENT to pay its full obligation and days. PHILFINANCE issued to RAUL SESBRENO the Certificate
denied having received any tender of payment within the of Confirmation of Sale of a DELTA MOTOR CORPORATION
grace period. Promissory Note, the Certificate of Securities Delivery Receipt
indicating the sale of the note with notation that said security
was in the custody of PILIPINAS BANK, and postdated checks

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drawn against the Insular Bank of Asia and America for FACTS:
P304,533.33 payable on March 13, 1981. 1. Filriters Guaranty Assurance Corporation (Filriters)
executed a 'Detached Assignment' whereby Filriters,
The checks were dishonored for having been drawn against as registered owner, sold, transferred, assigned and
insufficient funds. PILIPINAS BANK never released the note, delivered unto Philippine Underwriters Finance
nor any instrument related thereto, to RAUL SESBRENO; but Corporation (Phil︎ Finance) all its rights and title to
RAUL SESBRENO learned that the security which was issued Central Bank Certificates of Indebtedness (CBCI),
on April 10, 1980, maturing on 6 April 1981, has a face value inclusive, each in the denomination of
of P2,300,833.33 with PHILFINANCE as payee and DELTA (P500,000.00).
MOTORS as maker; and was stamped “non-negotiable” on its 2. The aforesaid Detached Assignment contains an
face. express authorization executed by the transferor
intended to complete the assignment through the
As RAUL SESBRENO was unable to collect his investment and registration of the transfer in the name of
interest thereon, he filed an action for damages against PhilFinance.
DELTA MOTORS and PILIPINAS BANK. DELTA MOTORS 3. Eventually, Traders Royal Bank (TRB) entered into a
contends that said promissory note was not intended to be Repurchase Agreement with PhilFinance, whereby,
negotiated or otherwise transferred by PHILFINANCE as for and in consideration of the sum of (P500,000.00),
manifested by the word "non-negotiable" stamped across the PhilFinance sold, transferred and delivered to
face of the Note. petitioner CBCI 4-year, with a face value of
P500,000.00, which CBCI was among those
ISSUE: Whether the non-negotiability of a promissory note previously acquired by PhilFinance from Filriters.
prevents its assignment. 4. PhilFinance transferred and assigned all its rights and
title in the said CBCI to petitioner and, furthermore,
RULING: A negotiable instrument, instead of being it did thereby 'irrevocably authorize the said issuer
negotiated, may also be assigned or transferred. The legal (respondent herein) to transfer the said
consequences of negotiation and assignment of the bond/certificate on the books of its fiscal agent.
instrument are different. A non-negotiable instrument may 5. TRB presented the CBCI, together with the two (2)
not be negotiated but may be assigned or transferred, absent aforementioned Detached Assignments, to the
an express prohibition against assignment or transfer written Securities Servicing Department of the respondent,
in the face of the instrument. The subject promissory note, and requested the latter to effect the transfer of the
while marked "non-negotiable," was not at the same time CBCI on its books and to issue a new certificate in
stamped "non-transferable" or "non-assignable." It contained the name of petitioner as absolute owner thereof.
no stipulation which prohibited Philfinance from assigning or Central Bank failed and refused to register the
transferring such note, in whole or in part. A non-negotiable transfer as requested.
instrument may not be negotiated but may be assigned or 6. Upon these assertions, TRB prayed for the
transferred, absent an express prohibition against assignment registration by the Central Bank of the subject CBCI
or transfer written on the face of the instrument. in its name. The action was originally filed as a
Petition for Mandamus, to compel the Central Bank
of the Philippines to register the transfer of the
Case #6 subject CBCI to petitioner Traders Royal Bank (TRB).
Traders Royal Bank vs. CA GR No. 93397. March 3, 1997
TRB’s Argument/Contention: Argued that the subject CBCI
DOCTRINE/PRINCIPLES APPLICABLE: was a negotiable instrument, and having acquired the said
The language of negotiability which characterize a negotiable certificate from PhilFinance as a holder in due course, its
paper as a credit instrument is its freedom to circulate as a possession of the same is thus free from any defect of title of
substitute for money. Hence, freedom of negotiability is the prior parties and from any defense available to prior parties
touchstone relating to the protection of holders in due among themselves, and it may thus, enforce payment of the
course, and the freedom of negotiability is the foundation for instrument for the full amount thereof against all parties
the protection which the law throws around a holder in due liable thereon.
course.
Filriters’s Argument/Contention: TRB had acted in bad faith
and with knowledge of the illegality and invalidity of the
assignment; a) The CBCI No. 891 is not a negotiable
instrument and as a certificate of indebtedness is not payable

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to bearer but is registered in the name of Filriters; b) The certificate of indebtedness as it merely
provision on transfer of the CBCIs, provides that the Central acknowledges to pay a sum of money to a specified
Bank shall treat the registered owner as the absolute owner person or entity for a period of time.
and that the value of the registered certificates shall be 4. Thus, the transfer of the instrument from Philfinance
payable only to the registered owner; a su︎ cient notice to to TRB was merely an assignment, and is not
plaintiff that the assignments do not give them the registered governed by the negotiable instruments law.
owner's right as absolute owner of the CBCIs. 5. Petitioner, being a commercial bank, cannot feign
ignorance of Central Bank Circular 769, and its
RTC’s Decision: Rendered in favor of Filriters and against requirements. An entity which deals with corporate
Traders Royal Bank. The assignment of CBCI in favor of agents within circumstances showing that the agents
Philfinance and the subsequent assignment of the same CBCI are acting in excess of corporate authority, may not
by Philfinance in favor of TRB was null and void and of no hold the corporation liable.
force and effect. 6. The transfer made by Filriters to Philfinance did not
conform to the said Central Bank Circular, which for
CA’s Decision: CBCI is not a negotiable instrument. The CBCI all intents, is considered part of the law. As found by
lacked the words of negotiability which serve as an the courts a quo, Alfredo O. Banaria, who had signed
expression of consent that the instrument may be transferred the deed of assignment from Filriters to Philfinance,
by negotiation. purportedly for and in favor of Filriters, did not have
the necessary written authorization from the Board
ISSUE: of Directors of Filriters to act for the latter. As it is,
1. WON the CBCI was considered as a negotiable the sale from Filriters to Philfinance was fictitious,
instrument. (NO) and therefore void and inexistent, as there was no
2. WON the assignment made by Filriters to consideration for the same. This is fatal to the
PhilFinance and subsequent assignment from petitioner's cause, for then, Philfinance had no title
PhilFinance to TRB was null and void. (YES) over the subject certificate to convey to Traders
Royal Bank. Nemo potest nisi quod de jure potest —
RULING: no man can do anything except what he can do
1. Admittedly, the subject CBCI is not a negotiable lawfully.
instrument in the absence of words of negotiability 7. Consequently, the title of Filriters over the subject
within the meaning of the negotiable instruments certificate of indebtedness must be upheld over the
law (Act 2031). The pertinent portions of the subject claimed interest of Traders Royal Bank.
CBCI read: xxx xxx xxx

“The Central Bank of the Philippines (the Bank) for Case #7
value received, hereby promises to pay to bearer, or Baldomero Inciong vs CA and PNB, G.R. No. 96405, 257 SCRA
if this Certificate of indebtedness be registered, to 578
FILRITERS GUARANTY ASSURANCE CORPORATION,
the registered owner hereof, the principal sum of Doctrine:
FIVE HUNDRED THOUSAND PESOS.” A solidary or joint and several obligation is one in which each
debtor is liable for the entire obligation, and each creditor is
2. A reading of the subject CBCI indicates that the same entitled to demand the whole obligation.
is payable to FILRITERS, and to no one else, thus,
discounting the petitioner's submission that the Facts:
same is a negotiable instrument, and that it is a 1. On February 3, 1983, Baldomero L. Inciong, Jr.,
holder in due course of the certificate. together with Rene C. Naybe and Gregorio D.
3. The language of negotiability which characterize a Pantanosas, signed a promissory note, amounting to
negotiable paper as a credit instrument is its P50,000 and due on May 5, 1983, holding
freedom to circulate as a substitute for money. themselves jointly and severally liable to Philippine
Hence, freedom of negotiability is the touchstone Bank of Communications (PBC).
relating to the protection of holders in due course, 2. The due date expired without the promissors having
and the freedom of negotiability is the foundation paid their obligation. Hence, PBC sent Inciong
for the protection which the law throws around a telegrams demanding payment thereof and
holder in due course (Citation omitted). This subsequently by registered mail a final letter of
freedom in negotiability is totally absent in a demand to Rene Naybe

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3. Since both obligors did not respond to the demands Case #8
made, PBC filed a complaint for collection of the sum Philippine National Bank v. Rodriguez
of P50,000.00 against the three obligors.
4. PBC asked for the dismissal of the complaint against Facts:
and Pantanosas while Naybe had gone to Saudi o Respondents-Spouses Erlando and Norma Rodriguez
Arabia so he cannot be served with summon. Inciong were clients of petitioner Philippine National Bank
was left to face the suit. (PNB), Amelia Avenue Branch, Cebu City; and,
5. In his answer, Inciong alleged that he was persuaded maintained savings and demand/checking accounts,
by one Campos to act as a "co-maker" in the loan of namely, PNBig Demand Deposits (Checking/Current
Naybe, which he agreed but with the understanding Account No. 810624-6 under the account name
that he would only be a co-maker for the loan of Erlando and/or Norma Rodriguez), and PNBig
P5,000.00. Demand Deposit (Checking/Current Account No.
6. Inciong alleged further that 5 copies of a blank 810480-4 under the account name Erlando T.
promissory note were brought to him by Campos at Rodriguez).
his office. He affixed his signature thereto but in one o The spouses were engaged in the informal lending
copy, he indicated that he bind himself only for the business wherein they had a discounting
amount of P5,000.00. Thus, it was by trickery, fraud arrangement with Philnabank Employees Savings
and misrepresentation that he was made liable for and Loan Association (PEMSLA), likewise a client
the amount of P50,000.00. of PNB Amelia Avenue Branch.
7. RTC ruled against Inciong and noted that the o Spouses Rodriguez would rediscount the postdated
typewritten figure "P50,000-" clearly appears checks issued to members whenever the association
directly below the admitted signature of Inciong in was short of funds and would replace the postdated
the promissory note. The latter's uncorroborated checks with their own checks issued in the name of
testimony on his limited liability cannot prevail over the members.
the presumed regularity and fairness of the o It was PEMSLAs policy not to approve applications
transaction. CA affirmed. for loans of members with outstanding debts;
PEMSLAs officers took out loans in the names of
Issue: Whether or not Inciong can be held liable for the unknowing members, without the knowledge or
promissory note. consent of the latter; then the checks issued for loan
were given to spouses for rediscounting. The officers
Ruling: carried this out by forging the indorsement of the
Yes. Petitioner's attempt to prove fraud failed as it was named payees in the checks.
evidenced only by his own uncorroborated and, expectedly, o The spouses would issue personal checks, named in
self-serving testimony. Fraud must be established by clear the members ; on the other hand, PEMSLAs checks
and convincing evidence, mere preponderance of evidence, would be deposited to the latter’s account.
not even being adequate. o It becomes usual that the spouses’ checks were
deposited directly to PEMSLA to its saving accounts
A solidary or joint and several obligation is one in which each without any indorsement from the named payees;
debtor is liable for the entire obligation, and each creditor is this was an irregular procedure made possible
entitled to demand the whole obligation. Because the through the facilitation of Edmundo Palermo, Jr.,
promissory note involved in this case expressly states that the treasurer of PEMSLA and bank teller in
three signatories therein are jointly and severally liable, any the PNB Branch.
one, some or all of them may be proceeded against for the o When petitioner PNB found out about these
entire obligation. The choice is left to the solidary creditor to fraudulent acts, PNB closed the current account of
determine against whom he will enforce PEMSLA. As a result, the PEMSLA checks deposited
collection. Consequently, the dismissal of the case against by the spouses were returned or dishonored for the
Judge Pontanosas may not be deemed as having discharged reason Account Closed, however, Rodriguez’s
petitioner from liability as well. As regards Naybe, suffice it to checks, were deposited as usual to the PEMSLA
say that the court never acquired jurisdiction over savings account. Thus, Rodriguez incurred losses
him. Petitioner, therefore, may only have recourse against his from rediscounting transactions.
co-makers, as provided by law. o The spouses Rodriguez filed a civil complaint for
damages against PEMSLA, the Multi-Purpose
Cooperative of Philnabankers (MCP), and petitioner
PNB; contended that because PNB credited the

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NEGOTIABLE INSTRUMENTS LAW| CASE DIGEST | S.Y. 2018 – 2019

checks to the PEMSLA account even without that one cannot expect a fictitious payee to
indorsements, PNB violated its contractual negotiate the check by placing his indorsement
obligation to them as depositors. PNB moved to thereon. And since the maker knew this limitation,
dismiss the complaint. he must have intended for the instrument to be
o RTC rendered judgment in favor of spouses negotiated by mere delivery. Thus, in case of
Rodriguez (plaintiffs). controversy, the drawer of the check will bear the
o CA reversed and set aside the RTC disposition, CA loss. This rule is justified for otherwise, it will be
found that the checks were bearer instruments, thus most convenient for the maker who desires to
they do not require indorsement for negotiation; escape payment of the check to always deny the
and that spouses Rodriguez and PEMSLA conspired validity of the indorsement. This despite the fact that
with each other to accomplish this money-making the fictitious payee was purposely named without
scheme. any intention that the payee should receive the
o The spouses Rodriguez moved for proceeds of the check.
reconsideration; the CA reversed itself, ruled that o However, there is a commercial bad faith exception
the checks were payable to order. to the fictitious-payee rule. A showing of
commercial bad faith on the part of the drawee
Issue: bank, or any transferee of the check for that
o Whether the subject checks are payable to order or matter, will work to strip it of this defense. The
to bearer and who bears the loss? exception will cause it to bear the loss. Commercial
bad faith is present if the transferee of the check
Ruling: ORDER/ the drawee acts dishonestly, and is a party to the fraudulent
o As a rule, when the payee is fictitious or not scheme.
intended to be the true recipient of the proceeds, o In the case under review, the Rodriguez checks were
the check is considered as a bearer instrument. A payable to specified payees. It is unrefuted that the
check is a bill of exchange drawn on a bank payable 69 checks were payable to specific persons. Likewise,
on demand. it is uncontroverted that the payees were actual,
o It is either an order or a bearer instrument. Sections existing, and living persons who were members of
8 and 9 of the NIL PEMSLA that had a rediscounting arrangement with
o The distinction between bearer and order spouses Rodriguez.
instruments lies in their manner of o PNB was remiss in its duty as the drawee bank. It
negotiation. Under Section 30 of the NIL, an order does not dispute the fact that its teller or tellers
instrument requires an indorsement from the payee accepted the 69 checks for deposit to the PEMSLA
or holder before it may be validly negotiated. A account even without any indorsement from the
bearer instrument, on the other hand, does not named payees. It bears stressing that order
require an indorsement to be validly negotiated. It is instruments can only be negotiated with a valid
negotiable by mere delivery. A check that is payable indorsement.
to a specified payee is an order o A bank that regularly processes checks that are
instrument. However, under Section 9(c) of the NIL, neither payable to the customer nor duly indorsed
a check payable to a specified payee may by the payee is apparently grossly negligent in its
nevertheless be considered as a bearer instrument if operations.
it is payable to the order of a fictitious or non- o In a checking transaction, the drawee bank has the
existing person, and such fact is known to the person duty to verify the genuineness of the signature of
making it so payable. the drawer and to pay the check strictly
o A check made expressly payable to a non-fictitious in accordance with the drawers instructions, i.e., to
and existing person is not necessarily an order the named payee in the check. It should charge to
instrument. If the payee is not the intended the drawers accounts only the payables authorized
recipient of the proceeds of the check, the payee is by the latter. Otherwise, the drawee will be violating
considered a fictitious payee and the check is a the instructions of the drawer and it shall be liable
bearer instrument. for the amount charged to the drawers account.
o In a fictitious-payee situation, the drawee bank is o Respondents-spouses were the banks depositors.
absolved from liability and the drawer bears the The checks were drawn against respondents-spouses
loss. When faced with a check payable to a fictitious accounts. PNB, as the drawee bank, had the
payee, it is treated as a bearer instrument that can responsibility to ascertain the regularity of the
be negotiated by delivery. The underlying theory is indorsements, and the genuineness of the signatures

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on the checks before accepting them for • Under the Negotiable Instruments Law, an
deposit. Lastly, PNB was obligated to pay the checks instrument is negotiated when it is transferred from
in strict accordance with the instructions of the one person to another in such a manner as to
drawers. Petitioner miserably failed to discharge this constitute the transferee the holder thereof, and a
burden. holder may be the payee or indorsee of a bill or
o The checks were presented to PNB for deposit by a note, who is in possession of it, or the bearer
representative of PEMSLA absent any type of thereof.
indorsement, forged or otherwise. The facts clearly • Where the holder has a lien on the instrument
show that the bank did not pay the checks in strict arising from contract, he is deemed a holder for
accordance with the instructions of the drawers, value to the extent of his lien. As such holder of
respondents-spouses. Instead, it paid the values of collateral security, he would be a pledgee but the
the checks not to the named payees or their order, requirements therefor and the effects thereof, not
but to PEMSLA, a third party to the transaction being provided for by the Negotiable Instruments
between the drawers and the payees. Law, shall be governed by the Civil Code provisions
on pledge of incorporeal rights:
§ Art. 2095. Incorporeal rights, evidenced by
CASE #9 negotiable instruments, . . . may also be pledged.
CALTEX (PHILIPPINES), INC. vs. COURT OF APPEALS AND The instrument proving the right pledged shall be
SECURITY BANK AND TRUST COMPANY, G.R. NO. 97753, delivered to the creditor, and if negotiable, must be
AUGUST 10, 1992 (212 SCRA 448) indorsed.
§ Art. 2096. A pledge shall not take effect against third
Doctrine/s: persons if a description of the thing pledged and the
• Section 1 Act No. 2031, otherwise known as the date of the pledge do not appear in a public
Negotiable Instruments Law, enumerates the instrument.
requisites for an instrument to become § Art. 1625. An assignment of credit, right or action
negotiable, viz: shall produce no effect as against third persons,
(a) It must be in writing and signed by the maker or unless it appears in a public instrument, or the
drawer; instrument is recorded in the Registry of Property in
(b) Must contain an unconditional promise or order case the assignment involves real property.
to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or Facts:
determinable future time; • Security Bank and Trust Company (Security Bank), a
(d) Must be payable to order or to bearer; and commercial banking institution, through its Sucat
(e) Where the instrument is addressed to a drawee, Branch issued 280 certificates of time deposit (CTDs)
he must be named or otherwise indicated therein in favor of Angel dela Cruz who deposited with
with reasonable certainty. Security Bank the total amount of P1,120,000; that
• The accepted rule is that the negotiability or non- Angel delivered the CTDs to Caltex for his purchase of
negotiability of an instrument is determined from fuel products.
the writing, that is, from the face of the instrument • Angel informed Mr. Tiangco, the Sucat Branch
itself. In the construction of a bill or note, the Manager that he lost all CTDs, submitted the required
intention of the parties is to control, if it can be Affidavit of Loss and received the replacement; that
legally ascertained. While the writing may be read in subsequently, Angel dela Cruz negotiated and
the light of surrounding circumstances in order to obtained a loan from Security Bank in the amount of
more perfectly understand the intent and meaning P875,000 and executed a notarized Deed of
of the parties, yet as they have constituted the Assignment of Time Deposit; and that Mr. Aranas,
writing to be the only outward and visible expression Credit Manager of Caltex went to the Sucat branch to
of their meaning, no other words are to be added to verify the CTDs declared lost by Angel.
it or substituted in its stead. The duty of the court in • Consequently, Security Bank received a letter from
such case is to ascertain, not what the parties may Caltex formally informing it of its possession of the
have secretly intended as contradistinguished from CTDs in question and of its decision to pre-terminate
what their words express, but what is the meaning the same; that Caltex was requested by Security Bank
of the words they have used. What the parties to furnish: (a) a copy of the document evidencing the
meant must be determined by what they said. guarantee agreement with Mr. Angel dela Cruz; and

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(b) the details of Mr. Angel's obligation against which requisite (d) set forth above. It is noted that Mr.
Caltex proposed to apply the time deposits. Timoteo P. Tiangco, Security Bank's Branch Manager
• Security Bank rejected Caltex demand for payment way back in 1982, testified in open court that the
because it failed to furnish a copy of its agreement depositor reffered to in the CTDs is no other than
with Angel; that subsequently, the loan of Angel dela Mr. Angel de la Cruz.
Cruz with Security Bank matured; and that the CTDs • The accepted rule is that the negotiability or non-
were set-off with the matured loan. negotiability of an instrument is determined from
• Caltex filed a complaint praying the bank to pay the writing, that is, from the face of the instrument
P1,120,000.00 plus 16% interest; that the RTC itself. In the construction of a bill or note, the
dismissed complaint which was affirmed by the CA. intention of the parties is to control, if it can be
legally ascertained. While the writing may be read in
Respondent’s (CA) Argument: Respondent court ruled that the light of surrounding circumstances in order to
the CTDs in question are non-negotiable instruments, more perfectly understand the intent and meaning
nationalizing as follows: of the parties, yet as they have constituted the
. . . While it may be true that the word "bearer" appears writing to be the only outward and visible expression
rather boldly in the CTDs issued, it is important to note that of their meaning, no other words are to be added to
after the word "BEARER" stamped on the space provided it or substituted in its stead. The duty of the court in
supposedly for the name of the depositor, the words "has such case is to ascertain, not what the parties may
deposited" a certain amount follows. The document further have secretly intended as contradistinguished from
provides that the amount deposited shall be "repayable to what their words express, but what is the meaning
said depositor" on the period indicated. Therefore, the text of of the words they have used. What the parties
the instrument(s) themselves manifest with clarity that they meant must be determined by what they said.
are payable, not to whoever purports to be the "bearer" but • If it was really the intention of respondent bank to
only to the specified person indicated therein, the depositor. pay the amount to Angel de la Cruz only, it could
In effect, the appellee bank acknowledges its depositor Angel have with facility so expressed that fact in clear and
dela Cruz as the person who made the deposit and further categorical terms in the documents, instead of
engages itself to pay said depositor the amount indicated having the word "BEARER" stamped on the space
thereon at the stipulated date. provided for the name of the depositor in each CTD.
2. No. The records reveal that Angel de la Cruz, whom
Issue: petitioner chose not to implead in this suit for
1. Whether or not the CTDs are negotiable. reasons of its own, delivered the CTDs amounting to
2. Whether or not Caltex as a holder in due course can P1,120,000.00 to petitioner without informing
rightfully recover on the CTDs. respondent bank thereof at any time. Unfortunately
for petitioner, although the CTDs are bearer
Ruling: instruments, a valid negotiation thereof for the true
1. Yes. The CTDs in question are negotiable purpose and agreement between it and De la Cruz,
instruments. Section 1 Act No. 2031, otherwise as ultimately ascertained, requires both delivery and
known as the Negotiable Instruments Law, indorsement. For, although petitioner seeks to
enumerates the requisites for an instrument to deflect this fact, the CTDs were in reality delivered to
become negotiable, viz: it as a security for De la Cruz' purchases of its fuel
(a) It must be in writing and signed by the maker or products. Any doubt as to whether the CTDs were
drawer; delivered as payment for the fuel products or as a
(b) Must contain an unconditional promise or order security has been dissipated and resolved in favor of
to pay a sum certain in money; the latter by petitioner's own authorized and
(c) Must be payable on demand, or at a fixed or responsible representative himself.
determinable future time; • Under the Negotiable Instruments Law, an
(d) Must be payable to order or to bearer; and instrument is negotiated when it is transferred from
(e) Where the instrument is addressed to a drawee, one person to another in such a manner as to
he must be named or otherwise indicated therein constitute the transferee the holder thereof, and a
with reasonable certainty. holder may be the payee or indorsee of a bill or note,
• The CTDs in question undoubtedly meet the who is in possession of it, or the bearer thereof.
requirements of the law for negotiability. The • In the case at bar, there was no negotiation in the
parties' bone of contention is with regard to sense of a transfer of the legal title to the CTDs in

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favor of petitioner in which situation, for obvious requested to see check #17657. He only requested
reasons, mere delivery of the bearer CTDs would #17657 but #27903 was attached too. He
have sufficed. immediately left the office, bringing the 2 checks
• Where the holder has a lien on the instrument with him
arising from contract, he is deemed a holder for 4. SMC sent letter to Puzon demanding the return of
value to the extent of his lien. As such holder of said checks, which Puzon ignored. SMC sued Puzon
collateral security, he would be a pledgee but the for theft before City Prosc. Office Paranaque.
requirements therefor and the effects thereof, not 5. PROSC – Relationshio between SMC and Puzon is a
being provided for by the Negotiable Instruments creditor-debtor relationship. The problem lies in the
Law, shall be governed by the Civil Code provisions reconciliation of accounts and the non-payment of
on pledge of incorporeal rights: beer empties which cannot give rise to a criminal
o Art. 2095. Incorporeal rights, evidenced by prosecution for theft. CASE DISMISSED FOR LACK OF
negotiable instruments, . . . may also be pledged. EVIDENCE.
The instrument proving the right pledged shall be 6. DOJ – AFFIRM prosc.
delivered to the creditor, and if negotiable, must be 7. CA – postdated checks were issued by Puzon as mere
indorsed. security for the payment of his purchases and these
o Art. 2096. A pledge shall not take effect against third were not intended to be encashed. SMC did not
persons if a description of the thing pledged and the acquire ownership of the checks as it was duty
date of the pledge do not appear in a public bound to return them to Puzon after transactions
instrument. were settled. AFFIRM prosc. NO THEFT. A person
o Art. 1625. An assignment of credit, right or action cannot be charged with theft for taking personal
shall produce no effect as against third persons, property that belongs to himself.
unless it appears in a public instrument, or the
instrument is recorded in the Registry of Property in RELEVANT ISSUES:
case the assignment involves real property. 1. WON Puzon had stolen from SMC check # 27903
• Respondent bank duly complied with this statutory amounting to P11,510,827.00? NO
requirement. Contrarily, petitioner, whether as 2. WON checks were issued as payment for beer
purchaser, assignee or lien holder of the CTDs, purchases or as mere security to ensure payment?
neither proved the amount of its credit or the extent MERE SECURITY
of its lien nor the execution of any public instrument
which could affect or bind private respondent. RULING:
Necessarily, therefore, as between petitioner and 1. ISSUE 1: Essential elements of the crime of theft are the
respondent bank, the latter has definitely the better following: (1) that there be a taking of personal property;
right over the CTDs in question. (2) that said property belongs to another; (3) that the
taking be done with intent to gain; (4) that the taking be
done without the consent of the owner; and (5) that the
Case #10 taking be accomplished without the use of violence or
SAN MIGUEL CORP v. PUZON intimidation against persons or force upon things.
2. Considering that the second element is that the thing
FACTS: taken belongs to another, it is relevant to determine
1. Bartolome Puzon Jr. Owner of Bartenmyk whether ownership of the subject check was transferred
Enterprises, was a dealer of beer products of San to SMC:
Miguel Corp (SMC) for Paranaque City a. NIL Sec. 12. Antedated and postdated The
2. Puzon purchased SMC products on credit. To ensure instrument is not invalid for the reason only that
payment and part of business practice, SMC required it is antedated or postdated, provided this is not
Puzon to issue postdated checks equivalent to the done for an illegal or fraudulent purpose. The
value of products on credit before it is being person to whom an instrument so dated
released to him and these check were returned to is delivered acquires the title thereto as of the
Puzon once paid or settled in full. date of delivery.
3. Puzon purchased products on credit amounting to b. Delivery as the term is used in the
P11,820,327 for which he issued 2 BPI checks (# aforementioned provision means that the party
27904 and #27903). Later, Puzon with his secretary delivering did so for the purpose of giving effect
went to SMC Sales to reconcile his account. Puzon thereto. Otherwise, it cannot be said that there
has been delivery of the negotiable

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NEGOTIABLE INSTRUMENTS LAW| CASE DIGEST | S.Y. 2018 – 2019

instrument. Once there is delivery, the person to 2. Sima Wei made partial payments on the note,
whom the instrument is delivered gets the title leaving a balance of P1,032,450.02.
to the instrument completely and irrevocably. 3. Sima Wei issued two crossed checks payable to
3. ISSUE 2: Although SMC’s witness, Gregorio L. Joven III, in petitioner Bank drawn against China Banking
his affidavit, that the check was given in payment of the Corporation, bearing respectively the serial numbers
obligation of Puzon, the same is contradicted by his 384934 and 384935.
statements, where he states that as a standard company 4. Said checks were allegedly issued in full settlement
operating procedure, all beer purchases by dealers on of the drawer's account evidenced by the promissory
credit shall be covered by postdated checks equivalent to note; however, these two checks were not delivered
the value of the beer products purchased; he states that to the petitioner-payee or to any of its authorized
the transaction covered by the said check had not yet been representatives.
paid for, and which clearly shows that partial payment is 5. These checks came into the possession of
expected to be made by the return of beer empties, and respondent Lee Kian Huat, who deposited the checks
not by the deposit or encashment of the check. Clearly the without the petitioner-payee's indorsement (forged
term cover was not meant to be used interchangeably or otherwise) to the account of respondent Plastic
with payment. Corporation, at the Producers Bank.
4. As the [liquid beer] contents are paid for, SMC returns to 6. Cheng Uy, Branch Manager of the Balintawak branch
Puzon the corresponding PDCs or requests him to replace of Producers Bank, assured by respondent Samson
them with whatever was the unpaid balance. Tung, President of Plastic Corporation, that the
5. It becomes clear that both parties did not intend for the transaction was legal and regular, instructed the
check to pay for the beer products. The evidence proves cashier of Producers Bank to accept the checks for
that the check was accepted, not as payment, but in deposit and to credit them to the account of said
accordance with the long-standing policy of SMC to Plastic Corporation, in spite of the fact that the
require its dealers to issue postdated checks to cover its checks were crossed and payable to petitioner Bank
receivables. and bore no indorsement of the latter.
6. The check was only meant to cover the transaction and in 7. Hence, petitioner Bank filed the complaint for a sum
the meantime Puzon was to pay for the transaction by of money against respondents.
some other means other than the check. This being so, 8. The trial court granted the defendants' Motions to
title to the check did not transfer to SMC; it remained Dismiss. The Court of Appeals affirmed this decision.
with Puzon. The second element of the felony of theft was
therefore not established. SMC was not able to show that Petitioner’s Argument:
Puzon took a check that belonged to another. Hence, the
prosecutor and the DOJ were correct in finding no Original complaint argument: Cause of action was based on
probable cause for theft. collection for sums

On appeal argument: Cause of action was not based on
Case #12 collecting the sum of money evidenced by the negotiable
Development v. Sima Wei GR-85419 instruments stated but on quasi-delict — a claim for damages
on the ground of fraudulent acts and evident bad faith of the
Doctrine: alternative respondents.
● Section 16 of the Negotiable Instruments Law, which
governs checks, provides in part: Respondent’s Argument: She has paid the balance of her
loan with the two checks payable to petitioner Bank
Every contract on a negotiable instrument is
incomplete and revocable until delivery of the Issue: Whether petitioner Bank has a cause of action against
instrument for the purpose of giving effect thereto. any or all of the defendants, in the alternative or otherwise

Facts: Ruling:
1. For a loan extended by petitioner Bank to
respondent Sima Wei, the latter executed and (YES) against Sima Wei
delivered to the former a promissory note, engaging (NO) against other respondents
to pay the petitioner Bank or order a certain
amount. The normal parties to a check are the drawer, the payee and
the drawee bank. Courts have long recognized the business

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custom of using printed checks where blanks are provided for Case #13
the date of issuance, the name of the payee, the amount Republic Planters Bank versus Court of Appeals and Fermin
payable and the drawer's signature. All the drawer has to do Canlas
when he wishes to issue a check is to properly fill up the Gr No. 93073, December 21, 1992
blanks and sign it.
Under the Negotiable Instruments Law, persons who
However, the mere fact that he has done these does not give write their names on the face of promissory notes
rise to any liability on his part, until and unless the check is are makers and are liable as such. By signing the
delivered to the payee or his representative. A negotiable notes, the maker promises to pay to the order of the
instrument, of which a check is, is not only a written evidence payee or any holder according to the tenor thereof.
of a contract right but is also a species of property. Just as a Based on the above provisions of law, there is no
deed to a piece of land must be delivered in order to convey denying that private respondent Fermin Canlas is one
title to the grantee, so must a negotiable instrument be of the co-makers of the promissory notes. As such, he
delivered to the payee in order to evidence its existence as a cannot escape liability arising therefrom.
binding contract.
FACTS:
Thus, the payee of a negotiable instrument acquires no • Shozo Yamaguchi and Fermin Canlas were President
interest with respect thereto until its delivery to him. Without and Treasurer respectively of the Worldwide
the initial delivery of the instrument from the drawer to the Garment Manufacturing, Inc (WGM), which were
payee, there can be no liability on the instrument. Moreover, also authorized to apply for credit facilities with the
such delivery must be intended to give effect to the petitioner Republic Planters Bank in the form of
instrument. export advances and letters of credit or trust
receipts accommodation.
Sima Wei is not freed from liability to petitioner Bank under • The bank issued nine promissory notes, written as
the loan evidenced by the promissory note agreed to by her. jointly and severally promise to pay to the order of
Her allegation that she has paid the balance of her loan with the petitioner bank, which on the right bottom
the two checks payable to petitioner Bank has no merit for margin, appeared the signatures of Shozo Yamaguchi
because these checks were never delivered to petitioner and Canlas indicated above their printed name and
Bank. And even granting, without admitting, that there was in his personal capacity.
delivery to petitioner Bank, the delivery of checks in payment • On 3 of the 9 promissory notes appeared the name
of an obligation does not constitute payment unless they are of Worldwide Garment Manufacturing, which was
cashed or their value is impaired through the fault of the rubber stamped above the signatures of the
creditor. None of these exceptions were alleged by Yamaguchi and Canlas.
respondent Sima Wei. • Subsequently, the Worldwide Garment
Manufacturing voted to change its corporate name
Against Sima Wei: Unless respondent Sima Wei proves that into Pinch Manufacturing Corporation (PMC).
she has been relieved from liability on the promissory note by • Sometime in 1982, petitioner bank filed a complaint
some other cause, petitioner Bank has a right of action for the recovery of sum of money covered among
against her for the balance due thereon. others by the nine promissory notes with interest
plus attorney’s fees, originally against the WGM but
Against other respondents: Insofar as the other respondents was amended substituting Pinch Manufacturing
are concerned, petitioner Bank has no privity with them. Corporation.
Since petitioner Bank never received the checks on which it • DEFENDANTS: PMC and Yamaguchi failed to file an
based its action against said respondents, it never owned amended answer while on the other hand, Canlas
them (the checks) nor did it acquire any interest therein. denied having issued the promissory notes and that
he was not an officer of the PMC but instead only to
Petitioner Bank has therefore no cause of action against said the WGM, and issuing in behalf of the latter
respondents, in the alternative or otherwise. If at all, it is mentioned.
Sima Wei, the drawer, who would have a cause of action
against her co-respondents, if the allegations in the complaint ISSUE: Whether or not Fermin Canlas can be considered
are found to be true. solidarily libale with PMC and Shozo Yamaguchi for the 9
promissory notes?



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RULING: YES. Case #14
The court held that Canlas is solidarily liable on each of the Samsung Construction Co. v. Far East Bank and Trust Co., &
promissory notes bearing his signature for the following CA [G.R. No. 129015, Aug. 13, 2004]
reasons: DOCTRINES:
1. Forgery is a real or absolute defense by the party
a) Under the Negotiable Instrument Law, persons who whose signature is forged.
write their names on the face of the promissory 2. A bank is bound to know its depositor’s signature.
notes are makers and are liable as such Banks are engaged in a business impressed with
b) By signing the notes, the maker promises to pay to public interest, and it is their duty to protect in
the order of the payee or any holder return their many clients and depositors who
transact business with them. They have the
Based on the Negotiable Instruments Law, there is no denying obligation to treat their clients account meticulously
that private respondent Canlas is one of the co – makers of and with the highest degree of care, considering the
the promissory notes, as such he cannot escape liability fiduciary nature of their relationship. The diligence
arising therefrom. required of banks, therefore, is more than that of a
good father of a family.
Where an instrument containing the words "I promise to pay" 3. The general rule is that the drawee who has paid
is signed by two or more persons, they are deemed to be upon the forged signature bears the loss. The
jointly and severally liable thereon exception to this rule arises only when negligence
can be traced on the part of the drawer whose
In the case at bar, the solidary liability of private respondent signature was forged.
Fermin Canlas is made clearer and certain, without reason for 4. A drawee bank is generally liable to its depositor in
ambiguity, by the presence of the phrase "Joint and several" paying a check which bears either a forgery of the
as describing the unconditional promise to pay to the order of drawer’s signature or a forged indorsement. But the
Republic Planters Bank. bank may, as a general rule, recover back the money
which it has paid on a check bearing a forged
A joint and several note is one in which the makers bind indorsement, whereas it has not this right to the
themselves both jointly and individually to the payee so that same extent with reference to a check bearing a
all may be sued together for its enforcement, or the creditor forgery of the drawer’s signature.
may select one or more as the object of the suit. 5. Negligence is not presumed, but must be proven by
him who alleges it.
Additionally, with or without the presence of said phrase “in 6. The mere fact that the depositor leaves his check
his personal capacity”, private respondent Fermin Canlas is book lying around does not constitute such
primarily liable as a co maker of each of the notes and his negligence as will free the bank from liability to him.
liability is that of a solidary debtor. The bare fact that the forgery was committed by an
employee of the party whose signature was forged
Finally, the corporation, upon such change in its name, is in cannot necessarily imply that such party’s negligence
no sense a new corporation, nor the successor of the original was the cause for the forgery.
corporation. It is the same corporation with a different name, 7. It is not sufficient for a bank to have merely
and its character is in no respect changed. complied with its internal procedures, but
mandatory that all earnest efforts be undertaken to
A change in the corporate name does not make a new ensure the validity of the check, and of the authority
corporation, and whether effected by special act or under a of person collecting payment therefor.
general law, has no effect on the identity of the corporation,
or on its property, rights, or liabilities. The corporation FACTS:
continues, as before, responsible in its new name for all debts 1. Plaintiff Samsung maintained a current account with
or other liabilities which it had previously contracted or defendant FEBTC. The sole signatory to Samsung’s
incurred. account was Jong, its Project Manager, while the
checks remained in the custody of the company’s
accountant, Kyu.
2. A certain Gonzaga presented for payment an FEBTC

check (P999,500.00) payable to cash and drawn
against Samsung’s current account. The bank teller


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and the Senior Assistant Cashier found Jong’s forgery, it has failed to comply with its contract in
signature on the check to be genuine. this respect. Therefore, the bank is held liable.
3. Syfu, another bank officer, showed the check to 3. The fact that the forgery is a clever one is
Sempio, the assistant accountant of Samsung immaterial. The forgery may be committed by a
Construction, who happened to be in the bank. trusted employee or confidential agent. The bank
Confirming the identity of Gonzaga, Sempio vouched still must bear the loss. Even in a case where the
for the genuineness of Jong’s signature. Hence, Syfu forged check was drawn by the depositor’s partner,
authorized the banks encashment of the check to the loss was placed upon the bank.
Gonzaga. 4. The CA committed an error when it failed to decide
4. Kyu then found that the last blank check was missing which testimony to believe. On the other hand, the
and that a certain amount had been encashed. Jong, RTC believed NBI’s testimony as more credible
then proceeded to the bank and realized that his because the PNP’s document examiner revealed that
signature had been forged. A criminal case for there were a lot of differences in the questioned
qualified theft was filed against Sempio. signature as compared to the standard specimen
5. After demanding FEBTC to credit the amount on the signature. As found by the NBI’s expert witness, the
check, Samsung filed a complaint for violation of Sec. person who executed the questioned signature was
23 of NIL (on forgery) and prayed for the payment of hesitant when the signature was made.
the amount debited.
6. Samsung referred the check to the NBI which RE NEGLIGENCE
testified that Jong’s signature was forged; FEBTC 5. The general rule is that the drawee who has paid
sought the assistance of the PNP which testified that upon the forged signature bears the loss. The
the said signature was genuine. exception to this rule arises only when negligence
7. The RTC, choosing to believe NBI’s finding, ruled in can be traced on the part of the drawer whose
favor of Samsung. The CA set aside said judgment signature was forged, and the need arises to weigh
because the contradictory findings of the NBI and the comparative negligence between the drawer and
the PNP created doubt as to whether there was the drawee to determine who should bear the
forgery. The CA also held that, assuming there was burden of loss.
forgery, it occurred due to the negligence of 6. The presumption remains that every person takes
accountant Kyu, which if observed would have ordinary care of his concerns, and that the ordinary
prevented Sempio from gaining access thereto. course of business has been followed. Negligence is
not presumed, but must be proven by him who
ISSUE: alleges it. Hence, in the absence of evidence to the
Whether the check was forged (YES) and, corollary to that, contrary, it can be concluded that there was no
whether Samsung was negligent, hence, FEBTC was not liable negligence on Samsung Constructions part.
to Samsung (NO) 7. The settled rule is that the mere fact that the
depositor leaves his check book lying around does
HELD: not constitute such negligence as will free the bank
RE FORGERY from liability to him. The bare fact that the forgery
1. Forgery is a real or absolute defense by the party was committed by an employee of the party whose
whose signature is forged. The general rule is to the signature was forged cannot necessarily imply that
effect that a forged signature is wholly inoperative, such party’s negligence was the cause for the
and payment made through or under such signature forgery. Employers do not possess the preternatural
is ineffectual or does not discharge the instrument. gift of cognition as to the evil that may lurk within
The drawee is in a superior position to detect a the hearts and minds of their employees.
forgery because he has the maker’s signature and is 8. And for another, in point of fact Samsung
expected to know and compare it. Construction was not negligent at all since it
2. When a person deposits money in a general account reported the forgery almost immediately upon
in a bank, against which he has the privilege of discovery.
drawing checks in the ordinary course of business, 9. Checks below twenty-five thousand pesos require
the relationship between the bank and the depositor only the approval of the teller; those between
is that of debtor and creditor. When the bank twenty-five thousand to one hundred thousand
receives the deposit, it impliedly agrees to pay only pesos necessitate the approval of one bank officer;
upon the depositor’s order. When the bank pays a and should the amount exceed one hundred
check, on which the depositor’s signature is a

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thousand pesos, the concurrence of two bank warrantors of the genuineness of the signatures on
officers is required. the instrument.
10. In this case, not only did the amount in the check
nearly total one million pesos, it was also payable to FACTS:
cash. That latter circumstance should have aroused 1. The Province of Tarlac maintains a current account
the suspicion of the bank, as it is not ordinary with the Philippine National Bank (PNB) Tarlac
business practice for a check for such large amount Branch.
to be made payable to cash or to bearer, instead of 2. A portion of the funds of the province is allocated to
to the order of a specified person. Moreover, the the Concepcion Emergency Hospital. The allotment
check was presented for payment by one Roberto checks for said government hospital are released by
Gonzaga, who was not designated as the payee of the Office of the Provincial Treasurer and received
the check, and who did not carry with him any for the hospital by its administrative officer and
written proof that he was authorized by Samsung cashier.
Construction to encash the check. Gonzaga, a 3. Fausto Pangilinan was the administrative officer and
stranger to FEBTC, was not even an employee of cashier of the hospital until his retirement on
Samsung Construction. February 28, 1978.
11. It was not sufficient for FEBTC to have merely 4. For the period 1978 until 1981, Pangilinan has been
complied with its internal procedures, but receiving checks from the Provincial Treasure
mandatory that all earnest efforts be undertaken to payable to the hospital and appropriated them to
ensure the validity of the check, and of the authority himself by forging the signature of Dr. Adena Canlas
of Gonzaga to collect payment therefor. who was chief of the payee hospital as endorsement,
12. Even assuming that FEBTC had a standing habit of then depositing the check in his personal savings
dealing with Sempio, acting in behalf of Samsung account with the Associated Bank. Pangilinan was
Construction, the irregular circumstances attending able to withdraw the money when the check was
the presentment of the forged check should have cleared and paid by the drawee bank, PNB.
put the bank on the highest degree of alert. 5. A total of thirty (30) checks amounting to P203,300
were encashed by Pangilinan.
6. The fraud was discovered in January 1981 when the
Case #15 books of account of the Provincial Treasurer were
Associated Bank vs Court of Appeals _252 SCRA 620 post-audited by the Provincial Auditor.
7. The Provincial Treasurer wrote the manager of the
DOCTRINE/PRINCIPLES APPLICABLE: PNB seeking the restoration of the various amounts
1. A FORGED SIGNATURE IS WHOLLY INOPERATIVE AND debited from the current account of the Province.
NO ONE CAN GAIN TITLE TO THE INSTRUMENT 8. In turn, the PNB manager demanded reimbursement
THROUGH IT. - A forged signature, whether it be that from the Associated Bank.
of the drawer or the payee, is wholly inoperative and 9. As both banks resisted payment, the Province of
no one can gain title to the instrument through it. A Tarlac brought suit against PNB which, in turn,
person whose signature to an instrument was forged impleaded Associated Bank as third-party defendant.
was never aparty and never consented to the Assocaited Bank then filed a fourth-party complaint
contract which allegedly gave rise to such against Adena Canlas and Fausto Pangilinan.
instrument. Section 23 does not avoid the 10. Jesus David, the manager of Associated Bank
instrument but only the forged signature. Thus, a testified that Pangilinan made it appear that the
forged indorsement does not operate as the payees checks were paid to him for certain projects with the
indorsement. hospital.
2. EXCEPTION. The exception to the general rule in
Section 23 is where a party against whom it is sought Associated Bank’s Contention: PNB, the drawee bank, is
to enforce a right is precluded from setting up the estopped from asserting the defense of guarantee of prior
forgery or want of authority. Parties who warrant or indorsements against Associated Bank, the collecting bank. In
admit the genuineness of the signature in question stamping the guarantee (for all prior indorsements),
and those who, by their acts, silence or negligence Associated Bank merely followed a mandatory requirement
are estopped from setting up the defense of forgery, for clearing and had no choice but to place the stamp of
are precluded from using this defense. Indorsers, guarantee; otherwise, there would be no clearing. PNB, being
persons negotiating by delivery and acceptors are the drawee bank has the primary duty to verify the
genuineness of payees indorsement before paying the check.

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PNB’s Contention: Province of Tarlac should not be exempt 6. In cases involving checks with forged indorsements,
from liability because it was negligent when it delivered and such as the present petition, the drawee bank may
released the questioned checks to Fausto Pangilinan who was not debit the account of the drawer but may
then already retired as the hospitals cashier and generally pass liability back through the collection
administrative officer. chain to the party who took from the forger and, of
course, to the forger himself, if available. In other
Lower Court’s Decision: words, the drawee bank can seek reimbursement or
1. Ordered PNB to pay the Province the amount of a return of the amount it paid from the presentor
P203,300 with legal interest. bank or person.
2. Ordered Associated Bank to reimburse PNB the 7. In this case, the checks were indorsed by the
amount of P203, 300 with legal interest. collecting bank (Associated Bank) to the drawee
3. Complaints against Canlas and Francisco were bank (PNB). The former will necessarily be liable to
dismissed. the latter for the checks bearing forged
indorsements, without prejudice to the former
CA’s Decision: Affirmed in toto. proceeding against the forger.
8. The Court has consistently ruled that the collecting
ISSUE: Where checks bearing forged endorsements are paid, bank or last endorser generally suffers the loss
who bears the loss, the drawer, the drawee bank or the because it has the duty to ascertain the genuineness
collecting bank? of all prior endorsements considering that the act of
presenting the check for payment to the drawee is
RULING: The Collecting Bank, without prejudice to a right of an assertion that the party making the presentment
action against the forger. has done its duty to ascertain the genuineness of the
endorsements.
1. The Court finds as reasonable, the proportionate 9. Applying these rules to the case at bench, PNB, the
sharing of fifty percent - fifty percent (50%-50%). drawee bank, cannot debit the current account of
Due to the negligence of the Province of Tarlac in the Province of Tarlac because it paid checks which
releasing the checks to an unauthorized person bore forged indorsements. However, if the Province
(Fausto Pangilinan), the Province of Tarlac can only of Tarlac as drawer was negligent to the point of
recover fifty percent (50%) of P203,300.00 from substantially contributing to the loss, then the
PNB. The collecting bank, Associated Bank, shall be drawee bank PNB can charge its account. If both
liable to PNB for fifty (50%) percent of P203,300.00. drawee bank-PNB and drawer-Province of Tarlac
2. A collecting bank where a check is deposited and were negligent, the loss should be properly
which indorses the check upon presentment with apportioned between them. The loss incurred by
the drawee bank warrants that the instrument is drawee bank-PNB can be passed on to the collecting
genuine and in all respects what it purports to be. He bank-Associated Bank which presented and indorsed
cannot interpose the defense that signatures prior to the checks to it. Associated Bank can, in turn, hold
him are forged. the forger, Fausto Pangilinan, liable.
3. The bank on which a check is drawn, known as the 10. After careful examination of the records, the Court
drawee bank, is under strict liability to pay the check finds that the Province of Tarlac was equally
to the order of the payee. When the drawee bank negligent and should, therefore, share the burden of
pays a person other than the payee, the general rule loss from the checks bearing a forged indorsement.
is that the drawee bank may not debit the drawers Due to the negligence of the Province of Tarlac in
account and is not entitled to indemnification from releasing the checks to an unauthorized person
the drawer. (Fausto Pangilinan), in allowing the retired hospital
4. However, if the drawee bank can prove a failure by cashier to receive the checks for the payee hospital
the customer/drawer to exercise ordinary care that for a period close to three years and in not properly
substantially contributed to the making of the forged ascertaining why the retired hospital cashier was
signature, the drawer is precluded from asserting collecting checks for the payee hospital in addition
the forgery. to the hospitals real cashier, respondent Province
5. If at the same time the drawee bank was also contributed to the loss. In effect, the Province of
negligent to the point of substantially contributing to Tarlac can only recover fifty percent (50%) of
the loss, then such loss from the forgery can be P203,300.00 from PNB.
apportioned between the negligent drawer and the
negligent bank.

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Case #16 P 250,000, Exemplary or Corrective damage of P 100,000,
Westmont Bank (formerly Associated Banking Corp.) v. Attorney fees of P 50,000 and costs of suit.
Eugene Ong
G.R. No. 132560, January 30, 2002 IAC/CA Decision: On January 13, 1998, the CA-G.R. CV No.
28304 AFFIRMED the RTC decision in toto, and ordered
Facts: petitioner to pay respondent P 1,754,787.50 plus 12%
Respondent Eugene Ong (ONG) maintained a interest per annum computed from October 7, 1977, the date
CURRENT ACCOUNT with petitioner, Westmont Bank of the first extrajudicial demand, plus damages.
(WB/ABC) (formerly Associated Banking Corporation) and
sometime in May 1976, sold certain shares of stocks through Issue(s):
Island Securities Corporation (ISC), who had previously WoN WB/ABC is correct that ONG has no legal
purchased 2 Pacific Banking Corporation (PCB) Managers personality to sue as he is not a real party in interest?
Checks, both dated May 4, 1976, issued in the name of ONG
as Payee. Held: NO.
Petitioners claim that respondent has no cause of
Paciano Tanlimco (TANLIMCO), a friend of ONG, got action against the bank is clearly misplaced. As defined, a
hold of the checks before the latter, forged ONGs signature cause of action is the act or omission by which a party

and deposited the checks with WB/ABC, where the former is violates a right of another.

a depositor, however, even though ONGs specimen signature
was on file, WB/ABC accepted and credited both checks to The essential elements of a cause of action are:
the account of TANLIMCO, without verifying the signature (a) a legal right or rights of the plaintiff,
indorsements appearing at the back thereof, and (b) a correlative obligation of the defendant, and
subsequently, TANLIMCO immediately withdrew the money (c) an act or omission of the defendant in violation of
and absconded. said legal right.

Instead of going straight to the bank to stop or The complaint filed before the trial court expressly
question the payment, ONG: (1) first sought help of the alleged: (1) ONGs right as payee of the managers checks to
Tanlimcos family to recover the amount, and (2) reported the receive the amount involved, (2) WB/ABCs
incident to Central Bank, however, both proved futile. correlative duty as collecting bank to ensure that the amount
gets to the rightful payee or his order, and (3) a breach of that
October 7, 1977, about 5months from the discovery duty because of a blatant act of negligence on the part of

of the fraud, ONG demanded in his complaint against petitioner which violated respondents rights.
WB/ABC to pay him the value of the two checks from the
bank on whose gross negligence he imputed his loss, Under Section 23 of the Negotiable Instruments Law:
insisting that he did not deliver, negotiate, endorse or When a signature is forged or made without the authority of
transfer to any person or entity the subject checks issued to the person whose signature it purports to be, it is wholly
him and asserted that the signatures on the back were inoperative, and no right to retain the instrument, or to give a
spurious. discharge therefor, or to enforce payment thereof against any
party thereto, can be acquired through or under such
WB/ABC did not present evidence to the contrary, signature, unless the party against whom it is sought to
but simply contended that since plaintiff Ong claimed to have enforce such right is precluded from setting up the forgery or
never received the originals of the 2 checks in question from want of authority.
ISC, much less to have authorized Tanlimco to receive the
same, he never acquired ownership thereof, thus, he had no Since the signature of the payee, in the case at bar,
legal personality to sue as he is not a real party in interest, was forged to make it appear that he had made an
and further WB/ABC filed a demurrer to evidence which was indorsement in favor of the forger, such signature should be
denied. deemed as inoperative and ineffectual.

CFI/RTC Decision: On February 8, 1989, RTC Manila, Branch Petitioner, as the collecting bank, grossly erred in
38, dismissed the counter claims on lack of merit, ordered making payment by virtue of said forged signature. The
WB/ABC to pay ONG the sum of P 1,754, 787.50 representing payee, herein ONG, should therefore be allowed to recover
the total face value of the two checks in question with from the collecting bank.
interest of 12% per annum computed from October 7, 1977
(the date of the first extrajudicial demand), Moral damages of

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The collecting bank is liable to the payee and must
bear the loss because it is its legal duty to ascertain that the They have the obligation to treat their clients
payees endorsement was genuine before cashing the check. account meticulously and with the highest degree of care,
considering the fiduciary nature of their relationship. The
As a general rule, a bank or corporation who has diligence required of banks, therefore, is more than that of a
obtained possession of a check upon an unauthorized or good father of a family.
forged indorsement of the payees signature and who
collects the amount of the check from the drawee, is liable In the present case, petitioner was held to be grossly
for the proceeds thereof to the payee or other owner, negligent in performing its duties. As found by the trial court:
notwithstanding that the amount has been paid to the
person from whom the check was obtained. xxx (A)t the time the questioned checks
were accepted for deposit to Paciano
The theory of the rule is that the possession of the Tanlimcos account by defendant bank,
check on the forged or unauthorized indorsement is defendant bank, admittedly had in its files
wrongful, and when the money had been collected on the specimen signatures of plaintiff who
check, the bank or other person or corporation can be held as maintained a current account with them
for moneys had and received, and the proceeds are held for (Exhibits L-1 and M-1; testimony of
the rightful owners who may recover them. Emmanuel Torio). Given the substantial face
value of the two checks, totalling
The position of the bank taking the check on the P1,754,787.50, and the fact that they were
forged or unauthorized indorsement is the same as if it had being deposited by a person not the payee,
taken the check and collected the money without the very least defendant bank should have
indorsement at all and the act of the bank amounts to done, as any reasonable prudent man
conversion of the check. would have done, was to verify the
genuineness of the indorsements thereon.
Petitioners claim that since there was no delivery yet The Court cannot help but note that had
and respondent has never acquired possession of the checks, defendant conducted even the most
respondents remedy is with the drawer and not with cursory comparison with plaintiffs specimen
petitioner bank. Petitioner relies on the view to the effect signatures in its files (Exhibit L-1 and M-1) it
that where there is no delivery to the payee and no title vests would have at once seen that the alleged
in him, he ought not to be allowed to recover on the ground indorsements were falsified and were not
that he lost nothing because he never became the owner of those of the plaintiff-payee. However,
the check and still retained his claim of debt against the defendant apparently failed to make such a
drawer. verification or, what is worse did so but,
chose to disregard the obvious dissimilarity
However, another view in certain cases holds that of the signatures. The first omission makes
even if the absence of delivery is considered, such it guilty of gross negligence; the second of
consideration is not material. The rationale for this view is bad faith. In either case, defendant is liable
that in said cases the plaintiff uses one action to reach, by a to plaintiff for the proceeds of the checks in
desirable short cut, the person who ought in any event to be question.
ultimately liable as among the innocent persons involved in
the transaction. In other words, the payee ought to be These findings are binding and conclusive on the
allowed to recover directly from the collecting bank, appellate and the reviewing courts.
regardless of whether the check was delivered to the payee
or not.
Case #17
Considering the circumstances in this case, in our G.R. No. L-40796 July 31, 1975
view, petitioner could not escape liability for its negligent REPUBLIC BANK, plaintiff-appellee,
acts. Admittedly, respondent Eugene Ong at the time the vs.
fraudulent transaction took place was a depositor of MAURICIA T. EBRADA, defendant-appellant.
petitioner bank. Banks are engaged in a business impressed
with public interest, and it is their duty to protect in return FACTS:
their many clients and depositors who transact business with On January 15, 1963, the Bureau of Treasury issued a back
them. pay check to Martin Lorenzo in the amount of P1,246.08. The

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drawee named therein was Republic Bank. The check was Lebron as one of its authorized signatories. In 1991, after
subsequently indorsed to Ramon Lorenzo, then to Delia conducting an investigation, plaintiff discovered that nine (9)
Dominguez and then to Mauricia Ebrada. Ebrada encashed of its checks had been encashed by a certain Sonny D. Santos
the check with the Republic Bank. Republic Bank paid the since 1990 in the total amount of P782,000.00. It turned out
amount of the check to Ebrada. Ebrada, upon receiving the that Sonny D. Santos with account at BPIs Greenbelt Branch
cash, gave it to Dominguez; Dominguez in turn gave the cash [was] a fictitious name used by third party defendant
to Ramon Lorenzo. Leonardo T. Yabut who worked as external auditor of CASA.
Third party defendant voluntarily admitted that he forged the
Later, the Bureau of Treasury notified that the check was a signature of Ms. Lebron and encashed the checks.
forgery because the payee named therein (Martin Lorenzo) The PNP Crime Laboratory conducted an examination
was actually dead 11 years ago before the check was issued. of the nine (9) checks and concluded that the handwritings
Republic Bank refunded the amount to the Bureau of thereon compared to the standard signature of Ms. Lebron
Treasury. The bank then demanded Ebrada to refund them. were not written by the latter.
On March 4, 1991, plaintiff filed the herein Complaint
ISSUE: for Collection with Damages against defendant bank.
Whether or not Republic Bank may recover from Ebrada.
ISSUE 1:
HELD: Was there forgery under the Negotiable Instruments
Yes. Law (NIL)?
Ebrada, being the last indorser, warranted the genuineness of
the signatures of the payee and the previous indorsers. The HELD:
drawee bank is not duty bound to ascertain whether or not YES. Forgery cannot be presumed. It must be established by
the signatures of the payee and the indorsers are genuine. clear, positive and convincing evidence. Under the best
One who purchases a check or draft is bound to satisfy evidence rule as applied to documentary evidence like the
himself that the paper is genuine and that by indorsing it or checks in question, no secondary or substitutionary evidence
presenting it for payment or putting it into circulation before may inceptively be introduced, as the original writing itself
presentation he impliedly asserts that he has performed his must be produced in court. But when, without bad faith on
duty and the drawee (in this case Republic Bank) who has the part of the offeror, the original checks have already been
paid the forged check, without actual negligence on his part, destroyed or cannot be produced in court, secondary
may recover the money paid from such negligent purchasers. evidence may be produced. Without bad faith on its part,
CASA proved the loss or destruction of the original checks
But Ebrada did not profit from this because she, upon through the Affidavit of the one person who knew of that
receiving the encashment, gave the same to Dominguez? fact- Yabut. He clearly admitted to discarding the paid checks
to cover up his misdeed. In such a situation, secondary
She is still liable because she is considered as an evidence like microfilm copies may be introduced in court.
accommodation party – pursuant to Section 29 of the Even with respect to documentary evidence, the best
Negotiable Instruments Law. An accommodation party is one evidence rule applies only when the contents of a document -
who has signed the instrument as maker, drawer, acceptor, - such as the drawers signature on a check -- is the subject of
or indorser, without receiving value therefor, and for the inquiry.
purpose of lending his name to some other person. Such a ISSUE 2:
person is liable on the instrument to a holder for value, Is BPI liable as the drawee bank for allowing payment
notwithstanding such holder at the time of taking the on the checks to a wrongful and fictitious payee?
instrument knew him to be only an accommodation party.
HELD:
YES. BPI -- the drawee bank -- becomes liable to its
Case #18 depositor-drawer for allowing payment on the checks to a
[G.R. No. 149454. May 28, 2004] wrongful and fictitious payee. Since the encashing bank is one
BANK OF THE PHILIPPINE ISLANDS, petitioner, vs. CASA of its branches, BPI can easily go after it and hold it liable for
MONTESSORI INTERNATIONALE and LEONARDO T. YABUT, reimbursement. It may not debit the drawers account and is
respondents. not entitled to indemnification from the drawer. In both law
and equity, when one of two innocent persons must suffer by
FACTS: the wrongful act of a third person, the loss must be borne by
CASA Montessori International opened a current the one whose negligence was the proximate cause of the
account with BPI with CASAs President Ms. Ma. Carina C.

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loss or who put it into the power of the third person to were delivered to the wrong party Yu Kio, who was
perpetrate the wrong. not the named payee.
A bank is bound to know the signatures of its 8. Filipinas Orient filed with RTC a complaint for a sum
customers; and if it pays a forged check, it must be of money against Pipe Master, Tan Juan Lian, and/or
considered as making the payment out of its own funds, and PBCom.
cannot ordinarily charge the amount so paid to the account 9. Petitioner’s Banks contend that respondents Pipe
of the depositor whose name was forged. Master, Tan Juan Lin and/or PBCom should be liable
to respondents Filipinas Orient for the value of the
checks.
Case #19 10. Respondents Pipe Master and Tan Juan Lin
Metropolitan Bank vs Philippine Bank of countered that although Yu Kio was expressly
Communicatons_536 SCRA 556 authorized to indorse Pipe Master checks, such
authority extended only to acts done in ordinary
Facts: course of business, not in his personal capacity.
1. Sometime in 1978, Pipe Master Corporation (Pipe 11. RTC rendered decision against Metro Bank and Solid
Master), represented by its President Yu Kio, applied Bank.
for check discounting with Filipinas Orient Finance 12. CA affirmed in toto the previous decision.
Corporation (Filipinas Orient). The latter approved
the same. Issue: Whether or not Metro Bank and Solid Bank are liable to
2. The Board of Directors of Pipe Master issued a Board Filipinas Orient for accepting the PBCom crossed checks
Resolution issued a Board Resolution authorizing Yu payable to Pipe Master.
Kio and Tan Juan Lian, Vice President, to execute,
indorse, make, sign, deliver or negotiate Held:
instruments, documents and other papers necessary 1. Yes. A check is defined by law as a bill of exchange drawn
in connection with any transaction coursed through on a bank payable on demand.The Negotiable Instruments
Filipinas Orient for and in behalf of the corporation. Law is silent with respect to crossed checks. Nonetheless, this
3. Tan Juan Lin executed in favour of Filipinas Orient a Court has taken judicial cognizance of the practice that a
continuing guaranty that he shall pay at maturity any check with two parallel lines on the upper left hand corner
and all promissory notes, drafts, checks, or other means that it could only be deposited and not converted into
instruments or evidence of indebtedness for which cash.The crossing of a check with the phrase Payees Account
Pipe Master may become liable; that the extent of Only is a warning that the check should be deposited in the
his liability shall not exceed the at any one time the account of the payee. It is the collecting bank which is bound
sum of P1,000,000; and in the event of default to scrutinize the check and to know its depositors before it
between Pipe Master, Filipinas Orient may proceed can make the clearing indorsement, all prior indorsements
directly against him. and/or lack of indorsement guaranteed.
4. In 1980, Yu Kio sold to Filipinas Orient four
Metropolitan Bank checks amounting to P1,000,000 2. Petitioner banks have the obligation to ensure that the
where in exchange, Filipinas Orient issued to Yu Kio PBCom checks were deposited in accordance with the
four Philippine Bank of Communications (PBCom) instructions stated in the checks. The four PBCom checks in
crossed checks totalling 964,303.62 payable to Pipe question had been crossed and issued for payees account
Master with the statement for payees account only. only. This could only mean that the drawer, Filipinas Orient,
5. Yu Kio indorsed and deposited all PBCom checks in intended the same for deposit only by the payee, Pipe
his personal accounts, three in Metro Bank Master. The effect of crossing a check means that the drawer
amounting P721,596.95 and the other one to Solid had intended the check for deposit only by the rightful
Bank Corporation (Solid Bank) amounting person, i.e., the payee named therein Pipe Master.
P242,706.67.
6. PBCom paid Metro Bank and Solid Bank and the 3. Petitioner banks accommodated Yu Kio, being a valued
amount was credited to the personal accounts of Yu client and the president of Pipe Master, and accepted the
kio. crossed checks. They stamped at the back thereof that all
7. When Filipinas Orient presented the four Metro prior indorsements and/or lack of indorsements are
Bank, they were dishonoured and Pipe Master guaranteed. In so doing, they became general endorsers.
refused to pay the amounts claiming that it never Under Section 66 of the Negotiable Instruments Law, an
received the proceeds of the PBCom checks as they endorser warrants that the instrument is genuine and in all
respects what it purports to be; that he has a good title to it;

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that all prior parties had capacity to contract; and that the
instrument is at the time of his indorsement valid and ISSUE:
subsisting. 1. Whether PCIB is liable to PNB due to its warranty on
the back of the check.
4. Clearly, petitioner banks, being endorsers, cannot deny 2. Whether “clearing” is the same as “acceptance”
liability. It must be emphasized that the law imposes on the under the Negotiable Instruments law.
collecting bank the duty to diligently scrutinize the checks 3. Whether PNB is entitled to reimbursement from
deposited with it for the purpose of determining their PCIB
genuineness and regularity. The collecting bank, being
primarily engaged in banking, holds itself out to the public as
the expert on this field, and the law thus holds it to a high RULING:
standard of conduct. 1. No. PCIB is not liable to PNB due to its warranty on
the back of the check.
• PCIB guaranteed “all prior indorsements,” not the
Case #20 authenticity of the signatures of the officers of GSIS
PNB vs. CA 25 SCRA 693 who signed on its behalf, because GSIS is not an
indorser of the check, but its drawer. Said warranty
DOCTRINE: is irrelevant, therefore, to the PNB’s alleged right to
1. In general, “acceptance”, under the Negotiable recover from the PCIB. It could have been availed of

Instruments Law is not required for checks, for the by a subsequent indorsee or a holder in due course
same are payable on demand. subsequent to PCIB, but, PNB is neither. Indeed,
2. “Acceptance” and “Payment” are essentially upon payment by the PNB, as drawee, the
different things, for the former is “a promise to check ceased to be a negotiable instrument, and
perform an act,” whereas the latter is the “actual became a mere voucher or proof of payment.
performance” thereof.
3. When one of two (2) innocent persons must suffer 2. No. “clearing” is different from “acceptance” under
by the wrongful act of a third person, the loss must the Negotiable Instruments law.
be borne by the one whose negligence was the • In general, “acceptance”, in the sense in which this

proximate cause of the loss or who put it into the term is used in the Negotiable Instruments Law is not
power of the third person to perpetrate the wrong. required for checks, for the same are payable on
demand.
FACTS: • Indeed, “acceptance” and “payment” are, within the
1. Augusto Lim deposited in his account in PCIB, a GSIS purview of said Law, essentially different things, for
Check for P57,415, drawn against PNB; however, 2 the former is “a promise to perform an act,” whereas
months before the deposit, GSIS notified PNB that the latter is the “actual performance” thereof. In the
the check had been lost and requested that its words of the Law, “the acceptance of a bill is the
payment be stopped. signification by the drawee of his assent to the order
2. PCIB stamped “All prior indorsements and/or Lack of of the drawer,” which, in the case of checks, is the
Endorsement Guaranteed, Philippine Commercial payment, on demand, of a given sum of money.
and Industrial Bank,” at the back of the check and Upon the other hand, actual payment of the amount
forwarded it to PNB, for clearance, through the of a check implies not only an assent to said order of
Central Bank. the drawer and a recognition of the drawer’s
3. PNB did not return the check but paid its amount to obligation to pay the aforementioned sum, but, also,
PCIB and debited it against GSIS’ account in the same a compliance with such obligation.
bank.
4. GSIS demanded the return of the money since the 3. NO. PNB is not entitled to reimbursement from PCIB
signatures the GSIS officers on the check were • PNB’s failure to return the check to PCIB implied,
forged; in turn, PNB demanded from PCIB the refund under the current banking practice, that PNB
of said sum however PCIB refused considered the check good and would honor it, thus
inducing PCIB, not only to believe that the check was
CFI Manila: Dismissed the complaint for the recovery of genuine and good in every respect, but, also, to pay
P57,415.00. its amount to Augusto Lim. In other words, PNB was

CA’s Decision: The CA affirmed

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the primary or proximate cause of the loss, and, The implication of the rule that a check shall
hence, may not recover from the PCIB. be returned within the 24-hour clearing
• It is a well-settled maxim of law and equity that period is that if the collecting bank paid the
when one of two (2) innocent persons must suffer by check before the end of the aforesaid 24-
the wrongful act of a third person, the loss must be hour clearing period, it would be responsible
borne by the one whose negligence was the therefor such that if the said check is
proximate cause of the loss or who put it into the dishonored and returned within the 24-hour
power of the third person to perpetrate the wrong. clearing period, the drawee bank cannot be
held liable… Nonetheless, the drawee bank
could still be held liable in certain instances.
Case #21 Even if the return of the check/s in question
G.R. No. 129910 September 5, 2006 is done within 24 hours after discovery, if it
THE INTERNATIONAL CORPORATE BANK, INC., petitioner, vs. can be shown that the drawee bank had
COURT OF APPEALS and PHILIPPINE NATIONAL BANK, been patently negligent in the performance
respondents. of its verification function, this Court finds
no reason why the said bank should be
FACTS: relieved of liability.
• The Ministry of Education and Culture issued 15 CA also rejected RTC’s opinion that ICB could have
checks drawn against PNB which International verified the status of the check by telephone calls
Corporate Bank (ICB) accepted for deposit on various since such imposition is not required in Central Bank
dates. After 24 hours from submission of the checks rules.
to PNB for clearing, ICB paid the value of the checks
and allowed the withdrawals of the deposits. ISSUES:
• However, PNB returned all the checks to ICB without 1. Whether or not there was a material alteration
clearing them on the ground that they were made on the checks.
materially altered (Note: alteration was made on 2. Whether PNB is liable to ICB for the value of the
the serial number). Because of this, the ICB filed an checks.
action for a collection of sum of money against PNB
in RTC Manila (originally filed in CFI Manila). RULING:
• RTC RULING: Dismissed the complaint and ruled that First Issue:
ICB is not entitled to recover the value of the checks; • No. Sections 124 and 125 of Act No. 2031, otherwise
PNB is expected to use reasonable business practices known as the Negotiable Instruments Law, provide:
in accepting and paying the checks presented to it, SEC. 124. Alteration of instrument; effect of. ―
hence, it cannot be faulted for the delay in clearing Where a negotiable instrument is materially altered
the checks considering the ingenuity in which the without the assent of all parties liable thereon, it is
alterations were effected; it observed that there was avoided, except as against a party who has himself
no attempt from ICB to verify the status of the made, authorized, or assented to the alteration and
checks before petitioner paid the value of the checks subsequent indorsers.
or allowed withdrawal of the deposits. It went But when an instrument has been materially altered
further that ICB could have had made the and is in the hands of a holder in due course, not a
verification through telephone. party to the alteration, he may enforce payment
• CA RULING: Reversed the RTC Decision. It held that thereof according to its original tenor.
checks that have been materially altered shall be
returned within 24 hours after discovery of the SEC. 125. What constitutes a material alteration. ―
alteration (per Sec. 4(c) of Central Bank Circular No. Any alteration which changes:
580, series of 1977). However, the CA ruled that (a) The date;
even if the drawee bank returns a check with (b) The sum payable, either for principal or interest;
material alterations after discovery of the alteration, (c) The time or place of payment;
the return would not relieve the drawee bank from (d) The number or the relations of the parties;
any liability for its failure to return the checks within (e) The medium or currency in which payment is to
the 24-hour clearing period if it fails to exercise due be made;
diligence in verifying the alterations made. It or which adds a place of payment where no place of
explained that: payment is specified, or any other change or addition


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which alters the effect of the instrument in any drawee banks. Travel-On further alleged that in
respect, is a material alteration. March 1972, private respondent made another
• The question on whether an alteration of the serial payment of P10,000.00 reducing his indebtedness to
number of a check is a material alteration under the P105,000.00.
Negotiable Instruments Law is already a settled 3. Miranda, however, claimed that he had already fully
matter. In Philippine National Bank v. Court of paid and even overpaid his obligations and that
Appeals, this Court ruled that the alteration on the refunds were in fact due to him. He argued that he
serial number of a check is not a material alteration: had issued the postdated checks for purposes of
An alteration is said to be material if it alters the accommodation, as he had in the past accorded
effect of the instrument. It means an unauthorized similar favors to petitioner. During the proceedings,
change in an instrument that purports to modify in private respondent contested several tickets alleged
any respect the obligation of a party or an to have been erroneously debited to his account,
unauthorized addition of words or numbers or other and thus claimed for reimbursement.
change to an incomplete instrument relating to the 4. To support his answer, Miranda testified that he had
obligation of a party. In other words, a material issued the checks in the name of Travel-On in order
alteration is one which changes the items which are that its General Manager, Elita Montilla, could show
required to be stated under Section 1 of the to Travel-On's Board of Directors that the accounts
Negotiable Instrument[s] Law. receivable of the company were still good. He
• In the present case the alterations of the serial further stated that Elita Montilla tried to encash the
numbers do not constitute material alterations on same, but that these were dishonored and were
the checks. subsequently returned to him after the
accommodation purpose had been attained.
Second Issue: 5. Elita Montilla, on the other hand, explained that the
• Yes. Since there were no material alterations on the "accommodation" extended to Travel-On by private
checks, PNB as drawee bank has no right to respondent related to situations where one or more
dishonor them and return them to ICB, the of its passengers needed money in Hongkong, and
collecting bank. Thus, PNB is liable to petitioner for upon request of Travel-On respondent would
the value of the checks, with legal interest from the contact his friends in Hongkong to advance
time of filing of the complaint until full payment. Hongkong money to the passenger. The passenger
• We rule that respondent Philippine National Bank is then paid Travel-On upon his return to Manila and
liable to petitioner International Corporate Bank, Inc. which payment would be credited by Travel-On to
for the value of the checks amounting to P1,447,920, respondent's running account with it.
with legal interest from 16 March 1982 until full
payment. CFI Manila: In favor of Miranda. Private respondent's
indebtedness to petitioner was not satisfactorily established
and that the postdated checks were issued not for the
Case # 22 purpose of encashment to pay his indebtedness but to
Travel-On, Inc. v. CA and Arturo Miranda G.R. No. L-56169 accommodate the General Manager of Travel-On to enable
(1992) her to show to the Board of Directors that Travel-On was
financially stable.
Facts:
1. Travel-On, Inc., a travel agency selling airline tickets CA: Affirmed CFI ruling but reduced award of damages.
on commission basis for and in behalf of different
airline companies, filed a suit before CFI Manila (Both CFI and CA rejected the checks as evidence of
against Arturo Miranda, a client with a revolving indebtedness on the ground that the various statements of
credit line with Travel-On and procures airline tickets account prepared by petitioner did not show that Private
for commissions. respondent had an outstanding balance of P115,000.00 which
2. Travel-On averred that it delivered various airline is the total amount of the checks he issued)
tickets to Miranda at a total price of P278,201.57;
that to settle said account, private respondent paid Issues:
various amounts in cash and in kind, and thereafter 1. WON the checks are evidence of liability on the part
issued six (6) postdated checks amounting to of Miranda. (YES)
P115,000.00 which were all dishonored by the 2. WON Miranda is an accommodation party. (NO)


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3. WON Travel-On is a holder in due course and thus to private respondent to show that he had indeed
entitled to payment. (YES) issued the checks without sufficient consideration.
The Court considers that Private respondent was
Ruling: Reversed. unable to rebut satisfactorily this legal presumption.
1. Contrary to the view held by the Court of Appeals, It must also be noted that those checks were issued
this Court finds that the checks are the all important immediately after a letter demanding payment had
evidence of petitioner's case; that these checks been sent to private respondent by petitioner
clearly established private respondent's Travel-On.
indebtedness to petitioner; that private respondent
was liable thereunder. The fact that all the checks issued by private
respondent to petitioner were presented for
The Court examined the record and it showed that payment by the latter would lead to no other
the 7 April 1972 Statement of Account had simply conclusion than that these checks were intended for
not been updated; that if we use as basis the figure encashment. There is nothing in the checks
as of 31 January 1970 which is P278,432.74 and from themselves (or in any other document for that
it deduct P38,638.17 which represents some of the matter) that states otherwise.
payments subsequently made by private
respondent, the figure — P239,794.57 will be 2. The Court is unable to accept the Court of Appeals'
obtained. conclusion that the checks here involved were issued
for "accommodation" and that accordingly private
Also, the fact alone that the various statements of respondent maker of those checks was not liable
account had variances in figures, simply did not thereon to petitioner payee of those checks.
mean that private respondent had no more financial
obligations to petitioner. It must be stressed that In the first place, while the Negotiable Instruments
private respondent's account with petitioner was a Law does refer to accommodation transactions, no
running or open one, which explains the varying such transaction was here shown. Section 29 of the
figures in each of the statements rendered as of a Negotiable Instruments Law provides as follows:
given date.
Sec. 29. Liability of accommodation party. — An
The appellate court erred in considering only the accommodation party is one who has signed the
statements of account in determining whether instrument as maker, drawer, acceptor, or indorser,
private respondent was indebted to petitioner under without receiving value therefor, and for the purpose
the checks. By doing so, it failed to give due of lending his name to some other person. Such a
importance to the most telling piece of evidence of person is liable on the instrument to a holder for
private respondent's indebtedness — the checks value, notwithstanding such holder, at the time of
themselves which he had issued. taking the instrument, knew him to be only an
accommodation party.
It is important to stress that a check which is regular
on its face is deemed prima facie to have been In accommodation transactions recognized by the
issued for a valuable consideration and every person Negotiable Instruments Law, an accommodating
whose signature appears thereon is deemed to have party lends his credit to the accommodated party, by
become a party thereto for value. Thus, the mere issuing or indorsing a check which is held by a payee
introduction of the instrument sued on in evidence or indorsee as a holder in due course, who gave full
prima facie entitles the plaintiff to recovery. Further, value therefor to the accommodated party. The
the rule is quite settled that a negotiable instrument latter, in other words, receives or realizes full value
is presumed to have been given or indorsed for a which the accommodated party then must repay to
sufficient consideration unless otherwise the accommodating party, unless of course the
contradicted and overcome by other competent accommodating party intended to make a donation
evidence. to the accommodated party. But the accommodating
party is bound on the check to the holder in due
In the case at bar, the Court of Appeals, contrary to course who is necessarily a third party and is not the
these established rules, placed the burden of proving accommodated party. Having issued or indorsed the
the existence of valuable consideration upon check, the accommodating party has warranted to
petitioner. This cannot be countenanced; it was up

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the holder in due course that he will pay the same Travel-On admitted in its complaint to have been
according to its tenor. paid by private respondent sometime in March 1992.

In the case at bar, Travel-On was payee of all six (6) The award of moral damages to Private respondent
checks, it presented these checks for payment at the must be set aside, for the reason that Petitioner's
drawee bank but the checks bounced. Travel-On application for the writ of attachment rested on
obviously was not an accommodated party; it sufficient basis and no bad faith was shown on the
realized no value on the checks which bounced. part of Travel-On. If anyone was in bad faith, it was
private respondent who issued bad checks and then
3. Travel-On was entitled to the benefit of the statutory pretended to have "accommodated" petitioner's
presumption that it was a holder in due course, that General Manager by assisting her in a supposed
the checks were supported by valuable scheme to deceive petitioner's Board of Directors
consideration. Private respondent, maker of the and to misrepresent Travel-On's financial condition.
checks, did not successfully rebut these
presumptions. The only evidence aliunde that
private respondent offered was his own self-serving Case # 23
uncorroborated testimony. Ang vs Associated Bank
532 SCRA 244 (G.R. No. 146511 September 5, 2007)
He claimed that he had issued the checks to Travel-
On as payee to "accommodate" its General Manager Accommodation Party
who allegedly wished to show those checks to the
Board of Directors of Travel-On to "prove" that Facts:
Travel-On's account receivables were somehow "still On August 28, 1990, respondent Associated Bank
good." It will be seen that this claim was in fact a (formerly Associated Banking Corporation and now known as
claim that the checks were merely simulated, that United Overseas Bank Philippines) filed a collection suit
private respondent did not intend to bind himself against Antonio Ang Eng Liong and petitioner Tomas Ang for
thereon. Only evidence of the clearest and most the two (2) promissory notes that they executed as principal
convincing kind will suffice for that purpose; no such debtor and co-maker, respectively.
evidence was submitted by private respondent. The
latter's explanation was denied by Travel-On's Tomas Ang and Antonio Ang Eng Liong obtained a
General Manager; that explanation, in any case, loan of P50,000 and P30,000 on October 3 and 9, 1978
appears merely contrived and quite hollow to us. respectively evidenced by two promissory notes and was
Upon the other hand, the "accommodation" or agreed that the loan would be payable jointly and severally
assistance extended to Travel-On's passengers on January 31, 1979 and December 8,1978 respectively.
abroad as testified by petitioner's General Manager
involved, not the accommodation transactions Despite repeated demands for payment, respondent
recognized by the NIL, but rather the circumvention Bank claimed that the defendants failed and refused to settle
of then existing foreign exchange regulations by their obligation.
passengers booked by Travel-On, which incidentally
involved receipt of full consideration by private Petitioner Tomas Ang contends that the bank is not
respondent. the real party in interest as it is not the holder of the
promissory notes, much less a holder for value or a holder in
Thus, the Court believes and so hold that private due course; the bank knew that he did not receive any
respondent must be held liable on the six (6) checks valuable consideration for affixing his signatures on the notes
here involved. Those checks in themselves but merely lent his name as an accommodation party; he
constituted evidence of indebtedness of private accepted the promissory notes in blank, with only the printed
respondent, evidence not successfully overturned or provisions and the signature of Antonio Ang Eng Liong
rebutted by private respondent. appearing therein.

Since the checks constitute the best evidence of Respondent Bank countered that it is the real party
private respondent's liability to petitioner Travel-On, in interest and is the holder of the notes since the Associated
the amount of such liability is the face amount of the Banking Corporation and Associated Citizens Bank are its
checks, reduced only by the P10,000.00 which predecessors-in-interest. The fact that Tomas Ang never
received any money in consideration of the two (2) loans and

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that such was known to the bank are immaterial because as petitioner as accommodating party warranted to the holder
an accommodation maker, he is considered as a solidary in due course that he would pay the same according to its
debtor who is primarily liable for the payment of the tenor. It is no defense to state on his part that he did not
promissory notes. Citing Section 29 of the Negotiable receive any because the phrase “without receiving value
Instruments Law (NIL), the bank posited that absence or therefor” used in Sec. 29 of the NIL means “without receiving
failure of consideration is not a matter of defense; neither is value by virtue of the instrument” and not as it is apparently
the fact that the holder knew him to be only an supposed to mean, “without receiving payment for lending
accommodation party. his name.” Stated differently, when a third person advances
the face value of the note to the accommodated party at the
The Lower Court granted against the bank, time of its creation, the consideration for the note as regards
dismissing the complaint for lack of cause of action. its maker is the money advanced to the accommodated party.
It is enough that value was given for the note at the time of
The Court of Appeals ordered Ang to pay the bank its creation. As in the instant case, a sum of money was
because Tomas Ang cannot validly set up the defense that he received by virtue of the notes, hence, it is immaterial so far
did not receive any consideration therefor as the fact that the as the bank is concerned whether one of the signers,
loan was granted to the principal debtor already constitutes a particularly petitioner, has or has not received anything in
sufficient consideration. payment of the use of his name.

Issue: Whether or not Tomas Ang is liable as an
accommodation party even without consideration? Case #24
MELVA THERESA ALVIAR GONZALES vs. RIZAL COMMERCIAL
Held: BANKING CORPORATION
Yes. Notably, Section 29 of the NIL defines an G.R. No. 156294, November 29, 2006
accommodation party as a person “who has signed the
instrument as maker, drawer, acceptor, or indorser, without DOCTRINES:
receiving value therefor, and for the purpose of lending his 1. Sec. 66. Liability of general indorser. - Every indorser who
name to some other person.” As gleaned from the text, an indorses without qualification, warrants to all subsequent
accommodation party is one who meets all the three holders in due course;
requisites, viz: (1) he must be a party to the instrument, (a) The matters and things mentioned in subdivisions (a), (b),
signing as maker, drawer, acceptor, or indorser; (2) he must and (c) of the next preceding section; and
not receive value therefor; and (3) he must sign for the (a) That the instrument is genuine and in all respects
purpose of lending his name or credit to some other person. what it purports to be;
An accommodation party lends his name to enable the (b) That he has a good title to it;
accommodated party to obtain credit or to raise money; he (c) That all prior parties had capacity to contract;
receives no part of the consideration for the instrument but (b) That the instrument is, at the time of his indorsement,
assumes liability to the other party/ies thereto. The valid and subsisting
accommodation party is liable on the instrument to a holder 2. The holder or subsequent endorser who tries to claim
for value even though the holder, at the time of taking the under the instrument which had been dishonored for
instrument, knew him or her to be merely an accommodation "irregular endorsement" must not be the irregular endorser
party, as if the contract was not for accommodation. himself who gave cause for the dishonor.

In the instant case, petitioner agreed to be jointly FACTS:
and severally liable under the two promissory notes that he 1. Gonzales was an employee of Rizal Commercial
co-signed with Antonio Ang Eng Liong as the principal debtor. Banking Corporation (or RCBC) as New Accounts
This being so, it is completely immaterial if the bank would Clerk in the Retail Banking Department at its Head
opt to proceed only against petitioner or Antonio Ang Eng Office.
Liong or both of them since the law confers upon the creditor 2. A foreign check in the amount of $7,500 was drawn
the prerogative to choose whether to enforce the entire by Dr. Don Zapanta of the Ade Medical Group with
obligation against any one, some or all of the debtors. address at 569 Western Avenue, Los Angeles,
Nonetheless, petitioner, as an accommodation party, may California, against the drawee bank Wilshire Center
seek reimbursement from Antonio Ang Eng Liong, being the Bank, N.A., of Los Angeles, California, U.S.A., and
party accommodated. payable to Gonzales’ mother, defendant Eva Alviar
(or Alviar) which Alviar endorsed.
Consequently, in issuing the two promissory notes,

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3. Since RCBC gives special accommodations to its PETITIONER’s ARGUMENT: Gonzales signature does not
employees to receive the check’s value without constitute an indorsement but as an inter-bank approval of
awaiting the clearing period, Gonzales presented the signature necessary for the encashment of the check.
foreign check to Olivia Gomez, the RCBC’s Head of
Retail Banking; Gomez requested Gonzales to RESPONDENT’S ARGUMENT: Both Alviar and Gonzales are
endorse said check. (NOTE that Alviar did not liable as general indorsers
endorse the check to Gonzales here).
4. Olivia Gomez then acquiesced to the early TRIAL COURTS DECISION: Held Eva Alviar liable as principal
encashment of the check and signed the check but debtor and Melva Gonzales as guarantor.
indicated thereon her authority of "up to ₱17,500.00
only". Afterwards, Olivia Gomez directed Gonzales to CA DECISION: Affirmed the decision except for the award on
present the check to RCBC employee Carlos Ramos attorney’s fees.
and procure his signature.
5. . After inspecting the check, Carlos Ramos also ISSUE: WON Alviar and Gonzales, under the circumstances is
signed it with an "ok" annotation. After getting the liable as a general indorser.
said signatures Gonzales presented the check to
Rolando Zornosa, Supervisor of the Remittance RULING: NO

section of the Foreign Department of the RCBC Head 1. The dollar-check in question in the amount of $7,500.00
Office, who after scrutinizing the entries and drawn by Don Zapanta of Ade Medical Group (U.S.A.)
signatures therein authorized its encashment. against a Los Angeles, California bank, Wilshire Center
Gonzales then received its peso equivalent of Bank N.A., was dishonored because of "End. Irregular,"
₱155,270.85. i.e., an irregular endorsement. While the foreign drawee
6. RCBC tried to collect from the drawee bank, First bank did not specifically state which among the four
Interstate Bank of California, on two occasions signatures found on the dorsal portion of the check
dishonored the check because of "END. IRREG" or made the check irregularly endorsed, it is absolutely
irregular indorsement. The second time it tried to undeniable that only the signature of Olivia Gomez, an
collect, it was again dishonoured due to “account RCBC employee, was a qualified endorsement because of
closed.” the phrase "up to ₱17,500.00 only." There can be no
7. Unable to collect, RCBC demanded payment for the other acceptable explanation for the dishonor of the
peso equivalent, she agreed for a settlement thru foreign check than this signature of Olivia Gomez with
salary deduction. the phrase "up to ₱17,500.00 only" accompanying it.
8. The deductions were implemented from October This Court definitely agrees with the petitioner that the
1987; On March 7, 1988 RCBC sent a demand letter foreign drawee bank would not have dishonored the
to Alviar for the payment of the obligation which check had it not been for this signature of Gomez with
was unheeded. RCBC through counsel sent a letter to the same phrase written by her.
Gonzales reminding her of her liability as an indorser 2. The foreign drawee bank, Wilshire Center Bank N.A.,
check and that for her to avoid litigation she has to refused to pay the bearer of this dollar-check drawn by
fulfill her commitment to settle her obligation as Don Zapanta because of the defect introduced by RCBC,
assured in her said letter. On July 1988 Gonzales through its employee, Olivia Gomez. It is, therefore, a
resigned from RCBC. What had been deducted from useless piece of paper if returned in that state to its
her salary was only ₱12,822.20 covering ten months. original payee, Eva Alviar.
9. It was against the foregoing factual backdrop that 3. Sec. 66. Liability of general indorser. - Every indorser who
RCBC filed a complaint for a sum of money against indorses without qualification, warrants to all
Eva Alviar, Melva Theresa Alviar-Gonzales and the subsequent holders in due course;
latter’s husband Gino Gonzales. The spouses (a) The matters and things mentioned in subdivisions (a),
Gonzales filed an Answer with Counterclaim praying (b), and (c) of the next preceding section; and
for the dismissal of the complaint as well as payment (b) That the instrument is, at the time of his
of ₱10,822.20 as actual damages, ₱20,000.00 as indorsement, valid and subsisting;
moral damages, ₱20,000.00 as exemplary damages, And, in addition, he engages that, on due presentment, it
and ₱20,000.00 as attorney’s fees and litigation shall be accepted or paid, or both, as the case may be,
expenses. Defendant Eva Alviar, on the other hand, according to its tenor, and that if it be dishonored and
was declared in default for having filed her Answer the necessary proceedings on dishonor be duly taken, he
out of time. will pay the amount thereof to the holder, or to any
subsequent indorser who may be compelled to pay it.

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4. Under Section 66, the warranties for which Alviar and Case #26
Gonzales are liable as general endorsers in favor of Yang v CA_ G.R. No. 138074
subsequent endorsers extend only to the state of the
instrument at the time of their endorsements, DOCTRINE/PRINCIPLES APPLICABLE:
specifically, that the instrument is genuine and in all Every holder of a negotiable instrument is deemed prima
respects what it purports to be; that they have good title facie a holder in due course. However, this presumption arises
thereto; that all prior parties had capacity to contract; only in favor of a person who is a holder as defined in Section
and that the instrument, at the time of their 191 of the Negotiable Instruments Law, meaning a payee or
endorsements, is valid and subsisting. This provision, indorsee of a bill or note, who is in possession of it, or the
however, cannot be used by the party which introduced bearer thereof.
a defect on the instrument, such as respondent RCBC in
this case, which qualifiedly endorsed the same, to hold FACTS:
prior endorsers liable on the instrument because it 1. Petitioner Cely Yang and private respondent Prem
results in the absurd situation whereby a subsequent Chandiramani entered into an agreement whereby
party may render an instrument useless and inutile and there will be an exchange,
let innocent parties bear the loss while he himself gets a. Cely Yang to give 2 manager’s check each
away scot-free. It cannot be over-stressed that had it not for P2.087 M (total P4.174M). both payable
been for the qualified endorsement ("up to ₱17,500.00 to order of Private Respondent Fernando
only") of Olivia Gomez, who is the employee of RCBC, David
there would have been no reason for the dishonor of the b. Prem Chandiraman to give PCIB manager’s
check, and full payment by drawee bank therefor would check of P4.2 M
have taken place as a matter of course. Both agreed to split the P26,000 (4.2M-4.174M)
5. Section 66 of the Negotiable Instruments Law which difference as profit.
further states that the general endorser additionally 2. In addition, they agreed to exchange:
engages that, on due presentment, the instrument shall a. Yang to give a FEBTC dollar draft in the
be accepted or paid, or both, as the case may be, amount of US$200,000.00, payable to PCIB.
according to its tenor, and that if it be dishonored and b. Chandiramani Hang Seng Bank Ltd. of Hong
the necessary proceedings on dishonor be duly taken, he Kong dollar draft worth the same
will pay the amount thereof to the holder, or to any 3. On the day of the exchange, Yang (gave the checks
subsequent endorser who may be compelled to pay it, to her business associate) à Albert Liong (he gave it
must be read in the light of the rule in equity requiring to his messenger) à Danilo Ranigo (to give to) à
that those who come to court should come with clean Prem Chandiramani (who will give in exchange the
hands. The holder or subsequent endorser who tries to P4.2M check and $200K Hang Seng dollar draft)
claim under the instrument which had been dishonored 4. However,
for "irregular endorsement" must not be the irregular a. Chandiramani did not appear at the
endorser himself who gave cause for the dishonor. rendezvous
Otherwise, a clear injustice results when any subsequent b. Ranigo allegedly lost the 2 checks and dollar
party to the instrument may simply make the instrument draft
defective and later claim from prior endorsers who have c. Yang reported this to the police
no knowledge or participation in causing or introducing 5. However, the checks weren’t really lost since at 3PM
said defect to the instrument, which thereby caused its in the afternoon, 2 hrs after the supposed meet up,
dishonor. Chandiramani:
6. RCBC, which caused the dishonor of the check upon a. Delivered to respondent David the 2 checks
presentment to the drawee bank, through the qualified of 2.087M each, one issued from Equitable
endorsement of its employee, Olivia Gomez, cannot hold and the other from FEBTC
prior endorsers, Alviar and Gonzales in this case, liable b. Received from David US$360,000.00, which
on the instrument. Chandiramani deposited in the savings
account of his wife, Pushpa Chandiramani;
and his mother, Rani Reynandas, in the
United Coconut Planters Bank
c. Deposited FEBTC Dollar Draft No. 4771,
dated December 22, 1987, drawn upon the
Chemical Bank, New York for


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US$200,000.00 in PCIB FCDU Account No. 3. Checks were cashiers checks. From the very nature
4195-01165-2 on the same date of cashiers checks, it is highly unlikely that he would
6. Yang requested FEBTC and Equitable stop payment have suspected that something was amiss.
on all lost instruments. But upon representation of 4. David also stresses negotiable instruments are
PCIB, FEBTC lifted the stop payment on the dollar presumed to have been issued for valuable
draft and it was deposited. consideration, and he who alleges otherwise must
7. Dec 28, 1987, Yang lodged 2 Complaints (Civil Case controvert the presumption with sufficient evidence.
No. 5479) and (Civil Case No. 5492) for Injunction The petitioner failed to discharge this burden,
and Damages praying for a writ of preliminary according to David. He points out that the checks
injunction and to return the instruments, with were delivered to him as the payee, and he took
interest. them as holder and payee thereof. Clearly, he
8. Trial court issued writs of preliminary injunctions for concludes, he should be deemed to be their holder
both cases. in due course.
9. As Civil Cases Nos. 5479 and 5492 arose from the
same set of facts, the two cases were consolidated. Lower Court’s Decision
10. The trial court then conducted pre-trial and trial of 1. Trial court ruled in favor of David. They held that
the two cases, but they were suspended after a fire David is a holder in due course since:
gutted the Pasay City Hall and destroyed the records a. The instruments were complete on their
of the courts. face upon negotiation to him.
11. After the records were reconstituted, the b. They were not yet overdue.
proceedings resumed and the parties agreed to c. He took the checks in good faith and for
invest the money in Treasury Bills to be received by value
the prevailing party. 2. He asked the manager of the China Banking
Corporation to inquire as to the genuineness of the
Petitioner Yang contends: cashiers checks. The reason for the lifting of the stop
1. Private respondent Fernando David is not a holder in order was that the bank realized that the checks
due course of the checks in question. David failed to were not lost but indeed reached the payee David.
inquire from Chandiramani about how the latter
acquired possession of said checks. CA’s Decision
2. Moreover, inasmuch as the checks were crossed, 1. The CA affirmed. defendant-appellee had taken the
then David should have, pursuant to our ruling necessary precautions to verify, through his bank,
in Bataan Cigar & Cigarette Factory, Inc. v. Court of China Banking Corporation, the genuineness of the
Appeals, G.R. No. 93048, March 3, 1994, 230 SCRA instruments.
643, been put on guard that the checks were issued 2. David had no notice for him to inquire further to the
for a definite purpose and accordingly, made infirmity or defect of the tilte of the holder. To
inquiries to determine if he received the checks mandate that each holder inquire about every
pursuant to that purpose. His failure to do so aspect on how the instrument came about will
negates the finding in the proceedings below that he unduly impede commercial transactions,
was a holder in due course. Although negotiable instruments do not constitute
3. Finally, the petitioner argues that there is no legal tender, they often take the place of money as
showing whatsoever that David gave Chandiramani a means of payment.
any consideration of value in exchange for the
aforementioned checks ISSUE: WON David is a holder in due course (YES)

Private respondent Fernando David counters: RULING: Petition DENIED.
1. The evidence on record shows that when he
received the checks, he verified their genuineness Every holder of a negotiable instrument is deemed prima
with his bank, and only after said verification did he facie a holder in due course. However, this presumption
deposit them. arises only in favor of a person who is a holder as defined in
2. He had no notice of previous dishonor or any Section 191 of the Negotiable Instruments Law, meaning a
infirmity that would have aroused his suspicions, the payee or indorsee of a bill or note, who is in possession of it,
instruments being complete and regular upon their or the bearer thereof.
face. However, said presumption may be rebutted. Hence, what is
vital to the resolution of this issue is whether David took

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possession of the checks under the conditions provided for in Case #27
Section 52 of the NIL. All the requisites provided for in Section ROBERT DINO vs. MARIA LUISA JUDAL-LOOT, 618 SCRA 393
52 must concur in Davids case, otherwise he cannot be
deemed a holder in due course. Doctrine:
First, Section 24 of the NIL creates a presumption that every • A holder in due course is a holder who has taken the
party to an instrument acquired the same for a instrument under the following conditions:
consideration or for value. Thus, the law itself creates a (a) That it is complete and regular upon its face;
presumption in David’s favor that he gave valuable (b) That he became the holder of it before it was
consideration for the checks in question. In alleging overdue, and without notice that it has been
otherwise, the petitioner has the burden of proof. previously dishonored, if such was the fact;
(c) That he took it in good faith and for value;
Our scrutiny of the records, however, shows that the (d) That at the time it was negotiated to him, he had
petitioner failed to discharge her burden of proof. Both RTC no notice of any infirmity in the instrument or defect
and CA found that David gave Chandiramani $360K as in the title of the person negotiating it.
consideration. Factual findings of the Court of Appeals carry • A crossed check (a) may not be encashed but only
great weight when the factual findings of the trial court are deposited in the bank; (b) may be negotiated only
affirmed by the appellate court. once — to one who has an account with a bank; and
(c) warns the holder that it has been issued for a
Second, petitioner fails to point any circumstance which definite purpose so that the holder thereof must
should have put David on inquiry as to the why and inquire if he has received the check pursuant to that
wherefore of the possession of the checks by Chandiramani. purpose; otherwise, he is not a holder in due course.
David was not privy to the transaction between petitioner • Presentment for payment, to be sufficient, must be
and Chandiramani. made:
(a) By the holder, or by some person authorized to
Petitioner admits that David took the step of asking the receive payment on his behalf;
manager of his bank to verify from FEBTC and Equitable as to (b) At a reasonable hour on a business day;
the genuineness of the checks and only accepted the same (c) At a proper place as herein defined;
after being assured that there was nothing wrong with said (d) To the person primarily liable on the instrument,
checks. At that time, David was not aware of any stop or if he is absent or inaccessible, to any person found
payment order. Under these circumstances, David thus had at the place where the presentment is made.
no obligation to ascertain from Chandiramani what the
nature of the latters title to the checks was, if any, or the Facts:
nature of his possession. Thus, we cannot hold him guilty of 1. One of the members of a syndicate, posing as an
gross neglect amounting to legal absence of good faith. owner of several parcels of land, approached Dino
and induced him to lend the group three million
The NIL is silent with respect to crossed checks, although the pesos to be secured by a real estate mortgage on the
Code of Commerce makes reference to such instruments. properties while another member, pretending to be
Nonetheless, this Court has taken judicial cognizance of the Vivencia Ompok Consing, even offered to execute a
practice that a check with two parallel lines in the upper left deed of Sale covering the properties.
hand corner means that it could only be deposited and not 2. Dino was convinced by the offer and issued three
converted into cash. The effects of crossing a check, thus, Metrobank checks totaling 3 million pesos. One
relates to the mode of payment, meaning that the drawer check amounting to 1 million pesos was postdated
had intended the check for deposit only by the rightful and payable to Vivencia Ompok Consing and/Fe
person, i.e., the payee named therein. The Petitioner’s Lobitana.
reliance on the cases are misplaced. The factual 3. Dino found out that the documents covered rights
circumstances in De Ocampo and in Bataan Cigar are not over government properties and realized he had
present in this case. For here, there is no dispute that the been deceived so he advised Metrobank to stop
crossed checks were delivered and duly deposited by David, payment of his checks. However, only the postdated
the payee named therein, in his bank account. In other check was ordered stopped. The other two checks
words, the purpose behind the crossing of the checks was were already encacashed by the payees.
satisfied by the payee. 4. Lobitana negotiated and indorsed the postdated
check for 948,000 to the spouses Loot, who first



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inquired the drawee bank if the check was In the case of a crossed check, as in this case, the
sufficiently funded, before accepting. following principles must additionally be considered: A
5. The check was subsequently dishonored due to crossed check (a) may not be encashed but only
“payment stopped” by Metrobank when the spouses deposited in the bank; (b) may be negotiated only once
Loot deposited the same; so they filed a collection — to one who has an account with a bank; and (c) warns
suit against petitioner and Lobitana, alleging that the holder that it has been issued for a definite purpose
they are holders in due course and for value of the so that the holder thereof must inquire if he has received
check and that they had no prior information the check pursuant to that purpose; otherwise, he is not
concerning the transaction between defendants. a holder in due course.
6. Dino denied spouses Loot’s allegations that "on the
face of the subject check, no condition or limitation Based on the foregoing, respondents had the duty to
was imposed" and that they are holders in due ascertain the indorser’s, in this case Lobitana’s, title to
course and for value of the check. the check or the nature of her possession. This
7. Lobitana denied the allegations in the complaint and respondents failed to do. Respondents’ verification from
basically claimed that the transaction leading to the Metrobank on the funding of the check does not amount
issuance of the subject check is a sale of a parcel of to determination of Lobitana’s title to the check. Failing
land by Vivencia Ompok Consing to Dino and that in this respect, respondents are guilty of gross negligence
she was made a payee of the check only to facilitate amounting to legal absence of good faith,15 contrary to
its discounting. Section 52(c) of the Negotiable Instruments Law. Hence,
8. RTC and CA ruled in favor of the spouses Loot, respondents are not deemed holders in due course of
declaring them due course holder of the subject the subject check.
check since there was no privity between Dino and 2. Under usual practice, crossing a check is done by
the spouses Loot; declaring Dino and Lobitana jointly placing two parallel lines diagonally on the left top
and severally liable to the spouses. portion of the check. The crossing may be special
9. Dino appealed raising that the CA erred in holding wherein between the two parallel lines is written the
the respondents as holders in due course, the fact name of a bank or a business institution, in which
that the check is a crossed check constitutes case the drawee should pay only with the
sufficient warning to the respondents to exercise intervention of that bank or company, or crossing
extraordinary diligence to determine the title of the may be general wherein between two parallel
indorser. diagonal lines are written the words "and Co." or
none at all as in the case at bar, in which case the
Issues: drawee should not encash the same but merely
1. Whether or not the spouses Loot are holders in due accept the same for deposit.
course. (No) The effect therefore of crossing a check relates to
2. Whether or not the spouses Loot have the right of the mode of its presentment for payment. Under
recourse against Dino. (No) Section 72 of the Negotiable Instruments Law,
3. Whether the spouses Loot can still recover on the presentment for payment to be sufficient must be
check (Yes) made (a) by the holder, or by some person
authorized to receive payment on his behalf xxx As
Ruling: to who the holder or authorized person will be
1. Section 52 of the Negotiable Instruments Law depends on the instructions stated on the face of the
defines a holder in due course, thus: check.
A holder in due course is a holder who has taken the Thus, in the absence of due presentment, the drawer
instrument under the following conditions: did not become liable. Consequently, no right of
(a) That it is complete and regular upon its face; recourse is available to petitioner against the drawer
(b) That he became the holder of it before it was of the subject checks, private respondent wife,
overdue, and without notice that it has been considering that petitioner is not the proper party
previously dishonored, if such was the fact; authorized to make presentment of the checks in
(c) That he took it in good faith and for value; question.
(d) That at the time it was negotiated to him, he had In this case, there is no question that the payees of
no notice of any infirmity in the instrument or defect the check, Lobitana or Consing, were not the ones
in the title of the person negotiating it. who presented the check for payment. Lobitana
negotiated and indorsed the check to respondents in
exchange for ₱948,000.00. It was respondents who

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presented the subject check for payment; however, 3. Manuel represented himself as duly authorized seller
the check was dishonored for reason "PAYMENT of the car of Vicente De Ocampo when in reality,
STOPPED." In other words, it was not the payee who Ocampo who did not know of such.
presented the check for payment; and thus, there 4. Gatchalian was interested in buying said car but
was no proper presentment. As a result, liability did Manuel told her that De Ocampo will only sell the
not attach to the drawer. Accordingly, no right of car if Gatchalian shows her willingness to pay for it.
recourse is available to respondents against the 5. Anita issued to Manuel, a crossed check amounting
drawer of the check, petitioner herein, since to P600.00 payable to Vicente de Ocampo so that
respondents are not the proper party authorized to Manuel may show it to De Ocampo and that Manuel
make presentment of the subject check. will hold it for safekeeping.
6. Manuel failed to appear the next day as well as to
3. The fact that respondents are not holders in due bring the car and its registration; hence, Anita issued
course does not automatically mean that they a “stop payment order” on the check.
cannot recover on the check. The Negotiable 7. Meanwhile, Manuel gave the check to his wife
Instruments Law does not provide that a holder who Matilde who in turn gave the check to De Ocampo as
is not a holder in due course may not in any case payment of their hospital bill. De Ocampo even gave
recover on the instrument. The only disadvantage of Matilde her change.
a holder who is not in due course is that the 8. De Ocampo was not able to encash the check due to
negotiable instrument is subject to defenses as if it the stop payment order; hence, he filed a complaint
were non-negotiable. Among such defenses is the for estafa against Manuel. The said complaint was
absence or failure of consideration, which petitioner subsequently dropped.
sufficiently established in this case. Petitioner issued 9. De Ocampo brought an action for the recovery of the
the subject check supposedly for a loan in favor of value of the check against Anita, et al, who dmitted
Consing’s group, who turned out to be a syndicate the issuance of the check but alleged that it was
defrauding gullible individuals. Since there is in fact issued subject to a condition, which was not fulfilled,
no valid loan to speak of, there is no consideration and that plaintiff was guilty of gross negligence in
for the issuance of the check. Consequently, not taking steps to protect itself.
petitioner cannot be obliged to pay the face value of 10. The Court of First Instance sentenced the defendants
the check. to pay the plaintiff the sum of P600, with legal
Respondents can collect from the immediate interest.
indorser, in this case Lobitana. 11. The defendants appealed contending that the check
is not a negotiable instrument, under the facts and
circumstances stated in the stipulation of facts, and
Case #28 that plaintiff is not a holder in due course.
VICENTE R. DE OCAMPO & CO. vs. ANITA GATCHALIAN, ET
AL. Issue:
Whether or not De Ocampo is a holder in due course.
Doctrine:
Every holder is deemed prima facie to be a holder in due Ruling:
course; but when it is shown that the title of any person who No. A holder in due course is a holder who has taken the
has negotiated the instrument was defective, the burden is instrument under the following conditions:
on the holder to prove that he or some person under whom (a) That it is complete and regular upon its face;
he claims acquired the title as holder in due course. But the (b) That he became the holder of it before it was
last-mentioned rule does not apply in favor of a party who overdue, and without notice that it had been previously
became bound on the instrument prior to the acquisition of dishonored, if such was the fact;
such defective title. (c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him he had no
Facts: notice of any infirmity in the instrument or defect in the
1. Matilde Gonzales was a patient of the De Ocampo title of the person negotiating it.
Clinic owned by Vicente De Ocampo, incurring a debt
of P441.75. The stipulation of facts expressly states that plaintiff-
2. Manuel Gonzales, husband of Matilde, went to a appellee was not aware of the circumstances under
certain Anita Gatchalian, who was interested in which the check was delivered to Manuel Gonzales, but
buying a car. the circumstances indicated in their briefs should have

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put the plaintiff-appellee to inquiry as to the why and the check to it. The burden was, therefore, placed upon
wherefore of the possession of the check by Manuel it to show that notwithstanding the suspicious
Gonzales, and why he used it to pay Matilde's account. It circumstances, it acquired the check in actual good faith.
was payee's duty to ascertain from the holder Manuel
Gonzales what the nature of the latter's title to the check When the case has taken such shape that the plaintiff is
was or the nature of his possession. Having failed in this called upon to prove himself a holder in due course to
respect, we must declare that plaintiff-appellee was be entitled to recover, he is required to establish the
guilty of gross neglect in not finding out the nature of the conditions entitling him to standing as such, including
title and possession of Manuel Gonzales, amounting to good faith in taking the instrument. It devolves upon
legal absence of good faith, and it may not be considered him to disclose the facts and circumstances attending
as a holder of the check in good faith. To such effect is the transfer, from which good or bad faith in the
the consensus of authority. transaction may be inferred.

In order to show that the defendant had "knowledge In the case at bar as the payee acquired the check under
of such facts that his action in taking the instrument circumstances which should have put it to inquiry, why
amounted to bad faith," it is not necessary to prove the holder had the check and used it to pay his own
that the defendant knew the exact fraud that was personal account, the duty devolved upon it, plaintiff-
practiced upon the plaintiff by the defendant's appellee, to prove that it actually acquired said check in
assignor, it being sufficient to show that the good faith. The stipulation of facts contains no
defendant had notice that there was something statement of such good faith, hence we are forced to
wrong about his assignor's acquisition of title, the conclusion that plaintiff payee has not proved that it
although he did not have notice of the particular acquired the check in good faith and may not be
wrong that was committed. deemed a holder in due course thereof.
It is sufficient that the buyer of a note had notice or
knowledge that the note was in some way tainted
with fraud. It is not necessary that he should know Case #29
the particulars or even the nature of the fraud, since Bank of America, NT and SA vs. Associated Citizens Bank
all that is required is knowledge of such facts that his G.R. No. 141001
action in taking the note amounted bad faith. 21 May 2009

In the case at bar the rule that a possessor of the FACTS:
instrument is prima facie a holder in due course does
not apply because there was a defect in the title of the BA-Finance entered into a transaction with Miller
holder (Manuel Gonzales), because the instrument is not granting the latter a credit line facility. Miller’s
payable to him or to bearer. On the other hand, the representatives, Uy Kiat Chung, Ching Uy Seng, and Uy Chung
stipulation of facts indicated by the appellants in their Guan Seng, executed a Continuing Suretyship Agreement
brief, like the fact that the drawer had no account with with BA-Finance whereby they jointly and severally
the payee; that the holder did not show or tell the payee guaranteed the full and prompt payment of any and all
why he had the check in his possession and why he was indebtedness, which Miller may incur with BA-Finance.
using it for the payment of his own personal account —
show that holder's title was defective or suspicious, to Miller discounted and assigned several trade
say the least. As holder's title was defective or receivables to BA-Finance. In consideration of the
suspicious, it cannot be stated that the payee acquired assignment, BA-Finance issued four checks amounting to a
the check without knowledge of said defect in holder's total of P741,227.78, payable to the Order of Miller with the
title, and for this reason the presumption that it is a notation For Payees Account Only. These checks were drawn
holder in due course or that it acquired the instrument against Bank of America.
in good faith does not exist. And having presented no
evidence that it acquired the check in good faith, it The four checks were deposited by Ching, then the
(payee) cannot be considered as a holder in due course. corporate secretary of Miller, in Account No. 989, a joint bank
In other words, under the circumstances of the case, account under the names of Ching and Uy, in Associated
instead of the presumption that payee was a holder in Bank. Associated Bank stamped the checks with the notation
good faith, the fact is that it acquired possession of the all prior endorsements and/or lack of endorsements
instrument under circumstances that should have put it guaranteed, and sent them through clearing. Bank of America
to inquiry as to the title of the holder who negotiated

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honored the checks and paid the proceeds to Associated Bank Inc. The checks were also crossed and issued For Payees
as the collecting bank. Account Only. Clearly, the drawer intended the check for
deposit only by Miller Offset Press, Inc. in the latter’s bank
Miller failed to deliver to BA-Finance the proceeds of the account. The drawee Bank of America is deemed to have
assigned trade receivables. Consequently, BA-Finance filed a violated the instructions of the drawer, and therefore, is
Complaint against Miller for collection, which BA-Finance liable for the amount charged to the drawers account.
allegedly paid in consideration of the assignment. Likewise
impleaded as party defendants were Miller’s representatives. 2.) No. The Court of Appeals did not err in finding
Subsequently, BA-Finance impleaded Bank of America as Associated Bank liable to reimburse Bank of America the
additional defendant for allegedly allowing encashment and amount of the four checks.
collection of the checks by person or persons other than the
payee named thereon. Under Section 66 of the Negotiable Instruments Law,
an endorser warrants that the instrument is genuine and in all
The RTC rendered a decision ordering Bank of respects what it purports to be; that he has good title to it;
America to pay BA Finance Corporation the sum of that all prior parties had capacity to contract; and that the
P741,277.78 and ordering Associated Citizens Bank to instrument is at the time of his endorsement valid and
reimburse Bank of America. subsisting. In check transactions, the collecting bank or last
endorser generally suffers the loss because it has the duty to
On appeal, the Court of Appeals affirmed the ascertain the genuineness of all prior endorsements
decision of the RTC with modifications. Associated Bank and considering that the act of presenting the check for payment
Bank of America filed their Motions for Reconsideration, but to the drawee is an assertion that the party making the
these were denied by the CA. Hence, these petitions. presentment has done its duty to ascertain the genuineness
ISSUES: of the endorsements.

Whether the Court of Appeals erred in rendering judgment When Associated Bank stamped the back of the four
finding: checks with the phrase all prior endorsements and/or lack of
(1) Bank of America liable to pay BA-Finance the amount of endorsement guaranteed, that bank had for all intents and
the four checks; purposes treated the checks as negotiable instruments and,
(2) Associated Bank liable to reimburse Bank of America the accordingly, assumed the warranty of an endorser. Being so,
amount of the four checks; and Associated Bank cannot deny liability on the checks.
(3) Ching Uy Seng and/or Uy Chung Guan Seng liable to pay
Associated Bank the amount of the four checks. Associated Bank was also clearly negligent in
disregarding established banking rules and regulations by
RULING: allowing the four checks to be presented by, and deposited in
the personal bank account of, a person who was not the
1.) No. The Court of Appeals did not err in finding Bank payee named in the checks. The checks were issued to the
of America liable to pay BA-Finance the amount of the four Order of Miller Offset Press, Inc., but were deposited, and
checks. paid by Associated Bank, to a personal joint account. When
the bank allowed its client to collect on crossed checks issued
The drawee bank is under strict liability, to pay the in the name of another, the bank is guilty of negligence.
check only to the payee or the payees order. The drawers Associated Bank is liable for the amount of the four checks
instructions are reflected on the face and by the terms of the and should reimburse the amount of the checks to Bank of
check. When the drawee bank pays a person other than the America.
payee named on the check, it does not comply with the terms
of the check and violates its duty to charge the drawers 3.) No. The Court of Appeals did not err in finding Ching
account only for properly payable items. It was held in an Uy Seng and/or Uy Chung Guan Seng liable to pay Associated
earlier case that a drawee should charge to the drawers Bank the amount of the four checks.
accounts only the payables authorized by the latter;
otherwise, the drawee will be violating the instructions of the It is well-settled that a person who had not given
drawer and shall be liable for the amount charged to the value for the money paid to him has no right to retain the
drawers account. money he received. The CA correctly held that since Ching Uy
Seng and/or Uy Chung Guan Seng received the proceeds of
In this case, the four checks were drawn by BA- the checks as they were deposited in their personal joint
Finance and made payable to the Order of Miller Offset Press, account with Associated Bank, they should be obliged to

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reimburse Associated Bank for the amount it has to pay to • Gold Palace specifically denied the material
Bank of America, in line with the rule that no person should allegations in the complaint and interposed as a defense that
be allowed to unjustly enrich himself at the expense of the complaint states no cause of action the subject foreign
another. draft having been cleared and it was not being the party who
made the material alteration.
The petitions are denied, and the CA’s decision is affirmed • RTC rendered decision in favor of Far East, ordering
with modification. Gold Palace to pay the former, on the basis of its warranties
as a general indorser, Gold Palace was liable to Far East.
• CA reversed. It ruled that Far East failed to undergo
Case #30 the proceedings on the protest of the foreign draft or to
FAR EAST BANK & TRUST COMPANY - versus - GOLD PALACE notify Gold Palace of the drafts dishonor, thus, could not
JEWELLERY CO., charge Gold Palace on its secondary liability as an indorser.
The appellate court further ruled that the drawee bank had
Drawer: United Overseas Bank (UOB) cleared the check, and its remedy should be against the party
Drawee: Land Bank Philippines (LBP) responsible for the alteration.
Payee: Gold palace Issue:
Collecting Bank: • Whether Far East can debit from Gold Palace's
account, the amount it had return to Land Bank.
Facts: Ruling:
• Samuel Tagoe, a foreigner, purchased from Gold • No. Far East could not debit the account of Gold
Palace Jewellery Co.s (Gold Palaces) store at SM-North EDSA Palace. Far Easts remedy under the law is not against Gold
several pieces of jewelry valued at P258,000.00. In payment Palace but against the drawee-bank or the person responsible
of the same, he offered Foreign Draft No. M-069670 issued by for the alteration.
the United Overseas Bank (UOB) Malaysia, addressed to the • Negotiable Instruments Law explicitly provides that
Land Bank of the Philippines, Manila (LBP), and payable to the acceptor, by accepting the instrument, engages that he
Gold Palace for P380,000.00. will pay it according to the tenor of his acceptance. His actual
• Judy Yang, Assistant Gen. manager of Gold Palace payment of the amount in the check implies not only his
issued Cash Invoice No. 1609 to Samuel and informed him assent to the order of the drawer and a recognition of his
that the pieces of jewelry would be released when the draft corresponding obligation to pay the aforementioned sum, but
had already been cleared. Later on, Julie Yang-Go, the also, his clear compliance with that obligation.
manager of Gold Palace, consequently deposited the draft in • In this case, the LBP cleared and paid the subject
the companys account with the Far East SM North Edsa foreign draft and forwarded the amount thereof to Far East.
branch. The latter then credited to Gold Palaces account the payment
• When Far East, the collecting bank, presented the it received. Following the plain language of the law, the
draft for clearing to LBP, the drawee bank, the latter cleared drawee, by the said payment, recognized and complied with
the same UOB's account with LBP was debited, and Gold its obligation to pay in accordance with the tenor of his
Palaces account with Far East was credited with the amount acceptance. The tenor of the acceptance is determined by the
stated in the draft. terms of the bill as it is when the drawee accepts.
• The Samuel eventually returned to Gold Palace store • The drawee bank, in most cases, is in a better
to claim the purchased goods. And Yang released the pieces position, compared to the holder, to verify with the drawer
of jewelry to Samuel. After around three weeks, LBP informed the matters stated in the instrument. As we have observed in
Far East that the amount in Foreign Draft No. M-069670 had this case, were it not for LBPs communication with the
been materially altered from P300.00 to P380,000.00 and drawer that its account in the Philippines was being depleted
that it was returning the same. after the subject foreign draft had been encashed, then, the
• Far East subsequently refunded the P380,000.00 alteration would not have been discovered. What we cannot
earlier paid by LBP and debited Gold Palace's account, understand is why LBP, having the most convenient means to
without a prior written notice to the account holder. Far East correspond with UOB, did not first verify the amount of the
only notified by phone the representatives of the Gold palace. draft before it cleared and paid the same. Gold Palace, on the
• Far East demanded from Gold Palace difference other hand, had no facility to ascertain with the drawer, UOB
between the amount in the materially altered draft and the Malaysia, the true amount in the draft. It was left with no
amount debited from Gold Palace's account, but the later did option but to rely on the representations of LBP that the draft
not heed , thus pronpting Far East to institute an action to was good.
recover sum of money and damages before RTC of Makati • LBP was liable on its payment of the check according
City. to the tenor of the check at the time of payment, which was

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the raised amount. Because of that engagement, LBP could Whether or not a payee may file an action against the
no longer repudiate the payment it erroneously made to a drawee bank for the payment of the check.
due course holder.
• This construction and application of the law gives Ruling:
effect to the plain language of the NIL and is in line with the No. A check is a bill of exchange drawn on a bank payable
sound principle that where one of two innocent parties must on demand. Except as herein otherwise provided, the
suffer a loss, the law will leave the loss where it finds it. provisions of this Act applicable to a bill of exchange
Indeed, banking institutions can readily protect themselves payable on demand apply to a check. A check of itself
against liability on altered instruments either by qualifying does not operate as an assignment of any part of the
their acceptance or certification, or by relying on forgery funds to the credit of the drawer with the bank, and the
insurance and special paper which will make alterations bank is not liable to the holder, unless and until it accepts
obvious. or certifies the check.
If a bank refuses to pay a check (notwithstanding the
sufficiency of funds), the payee-holder cannot, in view of
Case #31 the cited sections, sue the bank. The payee should
Villanueva vs. Nite 496 SCRA 549 instead sue the drawer who might in turn sue the bank.
Section 189 is sound law based on logic and established
Doctrine: legal principles: no privity of contract exists between the
A check is a bill of exchange drawn on a bank payable on drawee-bank and the payee. Indeed, in this case, there
demand. Except as herein otherwise provided, the was no such privity of contract between ABC and
provisions of this Act applicable to a bill of exchange petitioner.
payable on demand apply to a check. Petitioner should not have sued ABC. Contracts take
A check of itself does not operate as an assignment of effect only between the parties, their assigns and heirs,
any part of the funds to the credit of the drawer with the except in cases where the rights and obligations arising
bank, and the bank is not liable to the holder, unless and from the contract are not transmissible by their nature,
until it accepts or certifies the check. or by stipulation or by provision of law. None of the
foregoing exceptions to the relativity of contracts applies
Facts: in this case.
1. Marlyn Nite (respondent) took out a loan amounting The RTC decision may be annulled for lack of jurisdiction
to 409,000 from Sincere Z. Villanueva (petitioner) over the person of respondent.
and issued the latter an Asian Bank Corporation
(ABC) check in the amount of 325,500 dated
February 8, 1994, as security. Case #32
2. When Villanueva deposited the check on due date, it BANK OF THE PHILIPPINE ISLANDS vs SPOUSES REYNALDO
was, however, dishonored due to a material AND VICTORIA ROYECA
alteration. Doctrine:
3. On August 24, 1994, Nite’s representative remitted • Payment must be made in legal tender. A check is
to Villanueva, 235,000 as partial payment of the not legal tender and, therefore, cannot constitute a
loan. Villanueva, however, on the same day, filed an valid tender of payment. Since a negotiable
action for a sum of money and damages against ABC instrument is only a substitute for money and not
for the full amount of the dishonored check. money, the delivery of such an instrument does not,
4. RTC ruled in favor of Villanueva and ordered ABC to by itself, operate as payment. Mere delivery of
pay Villanueva the value of the ABC check. As a checks does not discharge the obligation under a
result, Nite could no longer withdraw from her judgment.
account. Facts:
5. ABC remitted to the sheriff a manager’s check 1. Spouses Reynaldo and Victoria Royeca (respondents)
amounting to P325,500 drawn on Nite’s account. executed and delivered to Toyota a promissory note
The check was duly received by petitioner on the payable in 48 equal monthly installments of
same day. P12,021.00, and as security, they executed a chattel
6. Nite filed a petition seeking to annul and set aside mortgage over a Toyota Corolla.
the trials’ court decision. CA granted the said 2. Toyota, with notice to respondents, assigned its
petition. rights, title and interest in the Chattel Mortgage to
Far East Bank and Trust Company (FEBTC).
Issue:

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3. FEBTC sent a formal demand for payment to spouses suspended until the payment by commercial
Royeca, claiming that the latter failed to pay four document is actually realized.
monthly amortizations. Respondents refused on the
ground that they had already paid their obligation to 2. The petitioner, as payee, did not have a legal
FEBTC. obligation to inform the respondents of the dishonor
4. FEBTC filed a complaint for Replevin and Damages of the checks. A notice of dishonor is required only
against the respondents praying for the delivery of to preserve the right of the payee to recover on the
the vehicle or the payment of the 4 monthly check. It preserves the liability of the drawer and the
amortizations. The complaint was later amended to indorsers on the check. Otherwise, if the payee fails
BPI as plaintiff when it merged with FEBTC. to give notice to them, they are discharged from
5. Respondents alleged that they delivered to FEBTC their liability thereon, and the payee is precluded
eight postdated checks and considering that they did from enforcing payment on the check. The
not receive any notice of dishonor from the drawee respondents, therefore, cannot fault the petitioner
banks or FEBTC, they believed in good faith that their for not notifying them of the non-payment of the
obligation had been fully paid. checks because whatever rights were transgressed
6. Certain Magpusao, an employee of FEBTC, testified by such omission belonged only to the petitioner.
that they had in fact received the 8 checks but since
2 of these checks were dishonored, the 2 remaining To establish their defense, the respondents therefore had to
checks were no longer deposited. present proof, not only that they delivered the checks to the
7. The MeTC dismissed the case. On appeal, the RTC set petitioner, but also that the checks were encashed. The
aside the MeTC decision and ordered respondents to respondents failed to do so. Had the checks been actually
pay the amount claimed. encashed, the respondents could have easily produced the
8. CA set aside the RTC decision and reinstated MeTC cancelled checks as evidence to prove the same. Instead, they
decision. merely averred that they believed in good faith that the
9. Petitioner BPI appealed insisting that the checks were encashed because they were not notified of the
respondents failed to sufficiently prove the alleged dishonor of the checks and three years had already lapsed
payment, citing that delivery of checks does not since they issued the checks.
constitute payment. It points out that this principle Because of this failure of the respondents to present
stands despite the fact that there was no notice of sufficient proof of payment, it was no longer necessary for
dishonor of the two checks and the demand to pay the petitioner to prove non-payment, particularly proof that
was made three years after default. the checks were dishonored. The burden of evidence is
10. The respondents postulate that they have shifted only if the party upon whom it is lodged was able to
established payment of the amount being claimed by adduce preponderant evidence to prove its claim.
the petitioner and, unless the petitioner proves that The petitioners possession of the documents pertaining to
the checks have been dishonored, they should not the obligation strongly buttresses its claim that the obligation
be made liable to pay the obligation again. has not been extinguished. The creditors possession of the
evidence of debt is proof that the debt has not been
Issue: discharged by payment. A promissory note in the hands of
Whether or not tender of checks constitutes payment. the creditor is a proof of indebtedness rather than proof of
(No) payment.[28] In an action for replevin by a mortgagee, it is
Whether or not BPI has the obligation to inform the prima facie evidence that the promissory note has not been
spouses of the dishonor of the checks (No) paid. Likewise, an uncanceled mortgage in the possession of
the mortgagee gives rise to the presumption that the
Ruling: mortgage debt is unpaid.
1. Settled is the rule that payment must be made in
legal tender. A check is not legal tender and,
therefore, cannot constitute a valid tender of
payment. Since a negotiable instrument is only a
substitute for money and not money, the delivery of
such an instrument does not, by itself, operate as
payment. Mere delivery of checks does not
discharge the obligation under a judgment. The
obligation is not extinguished and remains


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