(20)

Philippine Commercial International Bank vs. Balmaceda

G.R. No. 158143, September 21, 2011
By: Alba, Ma. Angela

Topic: Checks; Crossed Checks

Doctrine: A crossed check is one where two parallel lines are drawn across its face or across its corner.
When a check is crossed, it is the duty of the collecting bank to ascertain that the check is only
deposited to the payee’s account.

Antonio Balmaceda is the Branch Manager of one of PCIB’s branches. By taking advantage of his position as branch
manager, he fraudulently obtained and encashed 31 Manager’s checks from different clients in various occasions in
the total amount of P10,782,150.00. The Bank filed an action against Balmaceda before the RTC and impleaded
Rolando Ramos as one of the recipients of a portion of the proceeds from Balmaceda’s alleged fraud. The RTC ruled
that Ramos acted in collusion with Balmaceda because although of the Manager’s checks payable to Ramos were
crossed checks, Balmaceda was still able to encash the checks. After Balmaceda encashed three of these Manager’s
checks, he deposited most of the money into Ramos’ account.

A.Is the ruling of the RTC correct?

No. Ramos’ participation cannot be established by that alone. It is PCIB who is at fault as employer. A telling
indicator of PCIB’s negligence is the fact that it allowed Balmaceda to encash the Manager’s checks that were
plainly crossed checks.

A crossed check is one where two parallel lines are drawn across its face or across its corner. Based on
jurisprudence, the crossing of a check has the following effects: (a) the check may not be encashed but only
deposited in the bank; (b) the check may be negotiated only once—to the one who has an account with the bank;
and (c) the act of crossing the check serves as a warning to the holder that the check has been issued for a definite
purpose and he must inquire if he received the check pursuant to this purpose; otherwise, he is not a holder in due
course. In other words, the crossing of a check is a warning that the check should be deposited only in the account
of the payee. When a check is crossed, it is the duty of the collecting bank to ascertain that the check is only
deposited to the payee’s account. In complete disregard of this duty, PCIB’s systems allowed Balmaceda to encash
Manager’s checks which were all crossed checks, or checks payable to the “payee’s account only.”
 (21)
Gonzales v. PCIB
G.R. No. 180257, February 23, 2011
By: Arid, Hannah Mhae G.

Topic: Accommodation Party

Doctrine: “[T]he relation between an accommodation party and the accommodated party is one of principal and
surety—the accommodation party being the surety. As such, he is deemed an original promissor and debtor from
the beginning, he is considered in law as the same party as the debtor in relation to whatever is adjudged touching
the obligation of the latter since their liabilities are interwoven as to be inseparable. Although a contract of
suretyship is in essence accessory or collateral to a valid principal obligation, the surety’s liability to the creditor is
immediate, primary and absolute; he is directly and equally bound with the principal. As an equivalent of a regular
party to the undertaking, a surety becomes liable to the debt and duty of the principal obligor even without
possessing a direct or personal interest in the obligations nor does he receive any benefit therefrom.

Facts: Gonzales was a client of PCIB for a good 15 years. He was granted a credit line by the bank through a
Credit-On-Hand-Loan Agreement (COHLA). He drew from the credit line through a check and said credit line was
secured by a collateral in the form of his accounts with PCIB which was a foreign currency deposit worth USD 8000.
He obtained several loans from PCIB which are: 1. obtained with his wife worth 500,000.00; and b. obtained with
spouses Panlilio worth P1M, P300K.The aforementioned loans totalling 1.8M were covered by 3 promissory notes
and were secured by a real estage mortgage on a land co owned by Gonzales and spouses Panlilio. the promissory
notes states the solidary liability of Gonzales andspouses Panlilio. However, it was the spouses Panlilio who
received the proceeds of 1.8M. The monthly interest dues were paid by the spouses Panlilio through auto debit
from their PCIB account. however, they defaulted in the payment because their PCIB account had insufficient
deposits. Gonzales issued a check to Rene Unson worth 250K drawn against his credit line but said check was
subsequently dishonored due to termination of gonzales’ credit line because of the unpaid period interest dues from
the loans. PCIB also froze the foreign currency deposit account of Gonzales.

Issue: W/N Gonzales is liable for the three promissory notes covering PHP1.8M loan he made with spouses Panlilio

Held: Yes, he is liable. Gonzales was an accommodation party of the loan. An accommodation party is one who
meets all the three requisites according to Sec 29 of NIL: 1. he must be a party to the instrument, signing as a
maker, drawer, acceptor, or indorser; 2. he must not receive value therefor; and 3. he must sign for the purpose
of lending his name or credit to some other person. An accommodation party lends his name to enable the
accommodated party to obtain credit or raise money. He receives no part but assumed liability. The relation
between an accommodation party is one of principal and surety, the accommodation party being the surety. As
such, he is deemed an original promisor and debtor from the beginning. He is considered in law as the same party
as the debtor in relation to whatever is adjudged touching the obligation of the latter since their liabilities are
interwoven.

Hence, as an accommodation party Gonzales is solidarily liable with the spouses Panlilio for the loans. Moreover,
the solidary nature of the loan was expressly stated in the promissory notes which state: “…the undersigned
JOINTLY AND SEVERALLY promiseto pay xx” hence, Gonzales’ is directly liable for the payment of the promissory
notes being that his liability is solidary even though he did not receive any amount from the loans.

(22)
 Cayanan v. North Star International Travel Inc.
G.R. No. 172594, October 5, 2011
By: Bernardo, Michael Gerard T.

Doctrine: Upon issuance of a check, in the absence of evidence to the contrary, it is presumed that the
same was issued for valuable consideration which may consist either in some right, interest, profit or
benefit accruing to the party who makes the contract, or some forbearance, detriment, loss or some
responsibility, to act, or labor, or service given, suffered or undertaken by the other side.

Topic: Presumption of consideration

Virginia Balagtas, the General Manager of North Star, in accommodation and upon the instruction of its client,
Cayanan, sent considerable amount of money to View Sea Ventures Ltd., in Nigeria from her personal account in
Citibank Makati. Likewise, on various dates, North Star extended credit to Cayanan for the airplane tickets of
Cayanan’s clients who will fly to Nigeria. To cover the payment of the foregoing obligations, Cayanan issued
multiple checks to North Star. However, when presented for payment, the checks were dishonored because of stop
payment order from Cayanan.

North Star demanded payment but Cayanan failed to pay. North Star later on instituted an action against Cayanan.
On his defense, Cayanan claim that North Star did not give any valuable consideration for the checks since the
amount involved was taken from the personal dollar account of Virginia and not the corporate funds of North Star.

Whether or not Cayanan can invoke the defense of lack of consideration.

No, Cayanan cannot invoke the defense of lack of consideration.

Section 24 of the Negotiable Instrument Law provides that every negotiable instrument is deemed prima facie to
have been issued for a valuable consideration; and every person whose signature appears thereon to have become
a party thereto for value.

As Cayanan alleged that there was no consideration for the issuance of the subject checks, it devolved upon him to
present convincing evidence to overthrow the presumption and prove that the checks were in fact issued without
valuable consideration. In this case, however, petitioner has not presented any credible evidence to rebut the
presumption that the checks were issued as payment for the amount petitioner owed. Cayanan himself specifically
named North Star as the payee of the checks is an admission of his liability to North Star and not to Virginia
Balagtas, who as manager merely facilitated the transfer of funds.

(25) Citytrust vs Cruz

G.R. No. 157049, August 11, 2010
By: Kathrina De Castro

Topic: Banks Liability

DOCTRINE: The banks were made liable for negligence, even without sufficient proof of malice or bad
faith on their part.

Respondent maintained savings and checking accounts at the petitioner’s Loyola Branch. The closure resulted in
the extreme embarrassment of the respondent, for checks that he had issued could not be honored although his
savings account was sufficiently funded and the accounts were maintained under the petitioner's check-o-matic
arrangement.

A. Can the bank be held liable in the acts or negligence by its teller?
Yes. The petitioner, being a banking institution, had the direct obligation to supervise very closely the employees
handling its depositors' accounts, and should always be mindful of the fiduciary nature of its relationship with the
depositors. Such relationship required it and its employees to record accurately every single transaction, and as
promptly as possible, considering that the depositors' accounts should always reflect the amounts of money the
depositors could dispose of as they saw fit, confident that, as a bank, it would deliver the amounts to whomever
they directed. If it fell short of that obligation, it should bear the responsibility for the consequences to the
depositors, who, like the respondent, suffered particular embarrassment and disturbed peace of mind from the
negligence in the handling of the accounts.
 (23)
Vicente Go v. MBTC
G.R. No. 168842, Auust 11, 2010
By: Bigornia, Donna

Topic: Crossed check; Indorsement; liability of Bank.

Doctrine: The crossing of a check is a warning that the check should be deposited only in the account of
the payee. Thus, it is the duty of the collecting bank to ascertain that the check be deposited to the
payee’s account only, lest it will be made liable.

Facts: Go, doing business under “Hope Pharmacy” filed a complaint for a sum of money with preliminary
attachment and damages against respondents MBTC and Chua, his pharmacist, trustee and caretaker of the
business. Petitioner averred that there were thirty-two (32) checks with Hope Pharmacy as payee, for varying
sums, that were not endorsed by him but were deposited under the personal account of Chua with respondent
bank. Petitioner continued the said checks were crossed checks payable to Hope Pharmacy only; and that without
the participation and connivance of respondent bank, the checks could not have been accepted for deposit to any
other account, except petitioner’s account. Respondent bank countered that petitioner is not entitled to
reimbursement because petitioner was not damaged thereby.

Issue: Whether or not petitioner is entitled to reimbursement of the whole amount of the crossed check alleged to
be unlawfully deposited in the account of and encashed by Chua in MBTC.

Held: Yes

Jurisprudence provides that the effect of crossing a check relates to the mode of payment, meaning that the
drawer had intended the check for deposit only by the rightful person, i.e., the payee named therein. The crossing
of a check is a warning that the check should be deposited only in the account of the payee. Thus, it is the duty of
the collecting bank to ascertain that the check be deposited to the payee’s account only, lest it will be made liable.

In this case, it was established that the payee of the subject checks were “Hope Pharmacy. Hence, the respondent
bank was negligent in permitting the deposit and encashment of the crossed checks without the proper
indorsement. An indorsement is necessary for the proper negotiation of checks specially if the payee named therein
or holder thereof is not the one depositing or encashing it. Knowing fully well that the subject checks were crossed,
that the payee was not the holder and that the checks contained no indorsement, respondent bank should have
taken reasonable steps in order to determine the validity of the representations made by Chua. Respondent bank
was amiss in its duty as an agent of the payee. Prudence dictates that respondent bank should not have merely
relied on the assurances given by Chua.

Therefore, respondent MBTC is liable to reimburse Go the amount encashed by Chua.

(26)
Salazar v. JY Bros
G.R. No. 171998, October 20, 2010
By: Gaite, Rhio Angeline

Topic: How a negotiable instrument is discharged; Crossed Checks

Doctrine: A negotiable instrument is discharged: (a) By payment in due course by or on behalf of the principal
debtor; (b) By payment in due course by the party accommodated, where the instrument is made or accepted for
his accommodation; (c) By the intentional cancellation thereof by the holder; (d) By any other act which will
discharge a simple contract for the payment of money; (e) When the principal debtor becomes the holder of the
instrument at or after maturity in his own right.

Facts: J.Y. Brothers Marketing is a corporation engaged in the business of selling sugar, rice and other
commodities. On October 15, 1996, Anamer Salazar, a freelance sales agent, was approached by Isagani Calleja
and Jess Kallos, if she knew a supplier of rice. Answering in the positive, Salazar accompanied the two to J.Y. Bros.
As a consequence, Salazar with Calleja and Kallos procured from J. Y. Bros. 300 cavans of rice worth P214,000.00.
As payment, Salazar negotiated and indorsed to J.Y. Bros. Prudential Bank Check No. 067481 dated October 15,
1996 issued by Nena Jaucian Timario in the amount of P214,000.00 with the assurance that the check is good as
cash. On that assurance, J.Y. Bros. parted with 300 cavans of rice to Salazar. However, upon presentment, the
check was dishonored due to closed account. Informed of the dishonor of the check, Calleja, Kallos and Salazar
delivered to J.Y. Bros. a replacement cross Solid Bank Check No. PA365704 dated October 29, 1996 again issued
by Nena Jaucian Timario in the amount of P214,000.00 but which, just the same, bounced due to insufficient funds.
When despite the demand letter dated February 27, 1997, Salazar failed to settle the amount due J.Y. Bros.

Issues: (1) Was the acceptance of the Solid Bank cheque which replaced the dishonored Prudential Bank cheque
discharged the liability?
(2) Was the acceptance of the Solid Bank crossed cheque which replaced the dishonored Prudential Bank check, a
negotiable check, is a new obligation in lieu of the old obligation arising from the issuance of the Prudential Bank
check, since there was an essential change in the circumstance of each check?

Held: (1) No. The acceptance of the Solid Bank check, which replaced the dishonored Prudential Bank check, did
not result to novation. The law provides that one of the acts for a negotiable instrument to be discharged is by any
other act which will discharge a simple contract for the payment of money. In this case, there was no express
agreement to establish that petitioner was already discharged from his liability to pay respondent the amount of
P214,000.00 as payment for the 300 bags of rice. In fact, when the Solid Bank check was delivered to respondent,
the same was also indorsed by petitioner which shows petitioners recognition of the existing obligation to
respondent to pay P214,000.00 subject of the replaced Prudential Bank check. Thus, Salazar was not discharged
from her liability.

(2) No. Among the different types of checks issued by a drawer is the crossed check. The Negotiable Instruments
Law is silent with respect to crossed checks, although the Code of Commerce makes reference to such instruments.
The Court have taken judicial cognizance of the practice that a check with two parallel lines in the upper left hand
corner means that it could only be deposited and could not be converted into cash. Thus, the effect of crossing a
check relates to the mode of payment, meaning that the drawer had intended the check for deposit only by the
rightful person, i.e., the payee named therein. The change in the mode of paying the obligation was not a change
in any of the objects or principal condition of the contract for novation to take place.
 (27) Dino vs. Judal-Loot
G.R. No. 170912, April 19, 2010
By: Grande, Jonicocel

Topic: Holder in due course

Doctrine: The Negotiable Instruments Law does not provide that a holder who is not a holder in due course may
not in any case recover on the instrument. The only disadvantage of a holder who is not in due course is that the
negotiable instrument is subject to defenses as if it were non-negotiable. Among such defenses is the absence or
failure of consideration.

A syndicate, one of whose members posed as an owner of several parcels of land approached petitioner and
induced him to lend the group ₱3,000,000.00 to be secured by a real estate mortgage on the properties. Enticed
and convinced by the syndicate’s offer, petitioner issued three Metrobank checks payable to Consing and/or
Lobitana. Petitioner discovered that the documents covered rights over government properties. Petitioner then
advised Metrobank to stop payment of his checks. Meanwhile, Lobitana negotiated and indorsed the check to
respondents. Before respondents accepted the check, they first inquired from the drawee bank, Metrobank to which
it answered in the positive. However, when respondents deposited the check with Metrobank, Cebu-Mabolo Branch,
the same was dishonored by the drawee bank for reason "PAYMENT STOPPED.”

A. Whether respondents are holder in due course.

NO.

Section 52 of the Negotiable Instruments Law defines a holder in due course, thus:
A holder in due course is a holder who has taken the instrument under the following conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and without notice that it has been previously
dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him, he had no notice of any infirmity in the instrument or defect in the
title of the person negotiating it.

Based on the foregoing, respondents had the duty to ascertain the indorser’s, in this case Lobitana’s, title to the
check or the nature of her possession. This respondents failed to do. Respondents’ verification from Metrobank on
the funding of the check does not amount to determination of Lobitana’s title to the check. Failing in this respect,
respondents are guilty of gross negligence amounting to legal absence of good faith, contrary to Section 52(c) of
the Negotiable Instruments Law. Hence, respondents are not deemed holders in due course of the subject check.

B. Since the respondents are not holder in due course, can they still recover on the check?

NO.

The Negotiable Instruments Law does not provide that a holder who is not a holder in due course may not in any
case recover on the instrument. The only disadvantage of a holder who is not in due course is that the negotiable
instrument is subject to defenses as if it were non-negotiable. Among such defenses is the absence or failure of
consideration.

In this case, the petitioner issued the subject check supposedly for a loan in favor of Consing’s group, who turned
out to be a syndicate defrauding gullible individuals. Since there is in fact no valid loan to speak of, there is no
consideration for the issuance of the check. Hence, respondents may not recover on the check/instrument.
 (28) Bank of America NT & SA v. Phil. Racing Club
G.R. No. 150228, Jul. 30, 2009
By: Jovero, John Tristram V.

Topic: Material Alteration

Doctrine: Although not in the strict sense “material alterations,” the misplacement of the typewritten entries for
the payee and the amount on the same blank and the repetition of the amount using a check writer were glaringly
obvious irregularities on the face of the check that should have alerted the bank to the possibility that the holder or
the person who is attempting to encash the checks did not have proper title to the checks or did not have authority
to fill up and encash the same.

Facts: Phil. Racing Club (PRCI) has an account with Bank of America (paseo de roxas branch). The authorized
signatories were its president and vice president. To ensure continuity of operations, the president and the vp,
before going out of the country for corp. business, pre-signed several checks and entrusted them to the
accountant. The internal arrangement was, in the event there was need to make use of the checks, the accountant
would prepare the corresponding voucher and thereafter complete the entries on the pre-signed checks. Someone
presented to Bank of America bank for encashment a couple of PRCI’s checks with the indicated value of
P110,000.00 each. The two (2) checks had similar entries with similar infirmities and irregularities. On the space
where the name of the payee should be indicated (Pay To The Order Of) the following 2-line entries were instead
typewritten: on the upper line was the word ―CASH while the lower line had the following typewritten words, viz:
“ONE HUNDRED TEN THOUSAND PESOS ONLY.” Despite the highly irregular entries on the face of the checks,
defendant-appellant bank, without as much as verifying and/or confirming the legitimacy of the checks considering
the substantial amount involved and the obvious infirmity/defect of the checks on their faces, encashed said
checks. PRC demanded Bank of America to pay. The bank refused.

Issue: Whether or not there was no material alteration which justifies American Bank’s failure to verify
encashment with PRCI despite the erroneous entry.

Held: No material alteration. However, American Bank is liable for 60% (last clear chance was applied and PRCI
was made to answer for the 40% because of its contributory negligence).

A material alteration is defined in Section 125 of the NIL to be one which changes the date, the sum payable, the
time or place of payment, the number or relations of the parties, the currency in which payment is to be made or
one which adds a place of payment where no place of payment is specified, or any other change or addition which
alters the effect of the instrument in any respect.

Although not in the strict sense “material alterations,” the misplacement of the typewritten entries for the payee
and the amount on the same blank and the repetition of the amount using a check writer were glaringly obvious
irregularities on the face of the check. Clearly, someone made a mistake in filling up the checks and the repetition
of the entries was possibly an attempt to rectify the mistake. Also, if the check had been filled up by the person
who customarily accomplishes the checks of respondent, it should have occurred to petitioner’s employees that it
would be unlikely such mistakes would be made. All these circumstances should have alerted the bank to the
possibility that the holder or the person who is attempting to encash the checks did not have proper title to the
checks or did not have authority to fill up and encash the same. As noted by the CA, petitioner could have made a
simple phone call to its client to clarify the irregularities and the loss to respondent due to the encashment of the
stolen checks would have been prevented. Thus, although there was no material alteration, American Bank should
have verified the encashment with PRCI.
 (29) Bank of America v. Associated Citizens Bank
G.R. No. 141001, May 21, 2009
By: Lapuz, Jesus Ros

Topic: Crossed Checks

Doctrine: When the drawee bank pays a person other than the payee named on the check, it does not comply
with the terms of the check and violates its duty to charge the drawer’s account only for properly payable items—a
drawee should charge to the drawer’s accounts only the payables authorized by the latter. In addition, The
Supreme Court has taken judicial cognizance of the practice that a check with two parallel lines in the upper left
hand corner means that it could only be deposited and could not be converted into cash; The effects of crossing a
check as follows: (a) the check may not be encashed but only deposited in the bank; (b) the check may be
negotiated only once—to one who has an account with a bank; and (c) the act of crossing the check serves as a
warning to the holder that the check has been issued for a definite purpose so that he must inquire if he has
received the check pursuant to that purpose; otherwise, he is not a holder in due course. Lastly, collecting bank
where a check is deposited, and which endorses the check upon presentment with the drawee bank, is an
endorser; The Court has repeatedly held that in check transactions, the collecting bank or last endorser generally
suffers the loss because it has the duty to ascertain the genuineness of all prior endorsements considering that the
act of presenting the check for payment to the drawee is an assertion that the party making the presentment has
done its duty to ascertain the genuineness of the endorsements; When the collecting bank stamped the back of the
four checks with the phrase “all prior endorsements and/or lack of endorsement guaranteed,” that bank had for all
intents and purposes treated the checks as negotiable instruments and, accordingly, assumed the warranty of an
endorser.

BA-Finance Corporation (BA Finance) and Miller Offset Press, Inc. (Miller) entered into a credit line facility
agreement whereby Miller can discount and assign its trade receivables with the BA Finance. At the same time, Uy
Kiat Chung, Ching Uy Seng, and Uy Chung Guan Seng, acting for Miller, executed a Continuing Suretyship
Agreement with BA-Finance. Under the agreement, they jointly and severally guaranteed the full and prompt
payment of any and all indebtedness which Miller may incur with BA-Finance.

Miller discounted and assigned several trade receivables to BA-Finance by executing Deeds of Assignment in favor
of the latter. In consideration thereof, BA-Finance issued four checks payable to the order of Miller with the
notation “For Payee’s Account Only.” These checks were drawn against Bank of America. The four checks were
deposited by Ching Uy Seng in Associated Citizens Bank with his joint account with Uy Chung Seng. Associated
Bank stamped the checks and guaranteed all prior endorsements and/or lack of endorsements and sent them
through clearing. Later, Bank of America as drawee bank honored the checks and paid the proceeds to Associated
Bank as the collecting bank. When Miller failed to deliver to BA-Finance the proceeds of the assigned trade
receivables, BA-Finance filed a collection suit against Miller and impleaded the three representative of the latter.

Bank of America filed a third party complaint against Associated Bank. In its answer to the third party complaint,
Associated Bank admitted having received the four checks for deposit in the joint account of Ching Uy Seng and Uy
Chung Guan Seng, but alleged that Ching Uy Seng, being one of the corporate officers of Miller, was duly
authorized to act for and on behalf of Miller.

A. Whether or not Bank of America is liable to pay BA-Finance.

YES, Bank of America is liable to pay BA Finance for any damages.

The bank on which a check is drawn, known as the drawee bank, is under strict liability, based on the contract
between the bank and its customer (drawer), to pay the check only to the payee or the payee’s order. The drawer’s
instructions are reflected on the face and by the terms of the check. When the drawee bank pays a person other
than the payee named on the check, it does not comply with the terms of the check and violates its duty to charge
the drawer’s account only for properly payable items. On the part of Associated Bank, the law imposes a duty of
diligence on the collecting bank to scrutinize checks deposited with it for the purpose of determining their
genuineness and regularity. The collecting bank being primarily engaged in banking holds itself out to the public as
the expert and the law holds it to a high standard of conduct. In presenting the checks for clearing and for
payment, the defendant [collecting bank] made an express guarantee on the validity of “all prior endorsements.”
Thus, stamped at the back of the checks are the defendant’s clear warranty. As the warranty has proven to be
false and inaccurate, Associated Bank is liable for any damage arising out of the falsity of its representation.

B. Whether or not Associated Bank should reimburse Bank of America the amount of the four
checks.

YES, the Associated Bank should reimburse the Bank of America the amount of the four checks.

A bank that regularly processes checks that are neither payable to the customer nor duly indorsed by the payee is
apparently grossly negligent in its operations. This Court has recognized the unique public interest possessed by
the banking industry and the need for the people to have full trust and confidence in their banks. For this reason,
banks are minded to treat their customer’s accounts with utmost care, confidence, and honesty. In a checking
transaction, the drawee bank has the duty to verify the genuineness of the signature of the drawer and to pay the
check strictly in accordance with the drawer’s instructions, i.e., to the named payee in the check. It should charge
to the drawer’s accounts only the payables authorized by the latter. Otherwise, the drawee will be violating the
instructions of the drawer and it shall be liable for the amount charged to the drawer’s account. Rodriguez checks
are payable to order since the bank failed to prove that the named payees therein are fictitious.
 (30) Security Bank and Trust Company v. Rizal Commercial Banking Corporation
G.R. No. 170984, January 30, 2009
By: Mano, Razna I.

Topic: Checks

Doctrine: A manager’s check is one drawn by a banks manager upon the bank itself. It stands on the same footing
as a certified check, which is deemed to have been accepted by the bank that certified it.

Security Bank and Trust Company (SBTC) issued a manager’s check for P8 million, payable to CASH, as proceeds
of the loan granted to Guidon Construction and Development Corporation (GCDC). The P8-million check, along with
other checks, was deposited by Continental Manufacturing Corporation (CMC) in its Current Account No. 0109-
022888 with Rizal Commercial Banking Corporation (RCBC). Immediately, RCBC honored the P8-million check and
allowed CMC to withdraw the same. GCDC issued a Stop Payment Order to SBTC, claiming that the P8-million
check was released to a third party by mistake. Consequently, SBTC dishonored and returned the managers check
to RCBC. Thereafter, the check was returned back and forth between the two banks, resulting in automatic debits
and credits in each bank’s clearing balance.

RCBC filed a complaint for damages against SBTC with the RTC. The RTC and CA rendered decision in favor of
RCBC.

Whether SBTC is liable for damages to RCBC.

Yes, SBTC is liable to RCBC for damages.

A manager’s check becomes the primary obligation of the bank and is accepted in advance by the act of its
issuance.

In this case, RCBC, in immediately crediting the amount of P8 million to CMCs account, relied on the integrity and
honor of the check as it is regarded in commercial transactions. Where the questioned check, which was payable to
cash, appeared regular on its face, and the bank found nothing unusual in the transaction, as the drawer usually
issued checks in big amounts made payable to cash, RCBC cannot be faulted in paying the value of the questioned
check. By SBTC’s drawing of the instrument, SBTC admits the existence of the payee and his then capacity to
indorse; and engages that on due presentment, the instrument will be accepted, or paid, or both, according to its
tenor.

Therefore, SBTC is liable for payment of damages to RCBC.

 (32) Philippine National Bank vs. Rodriguez
G.R. No. 170325, September 26, 2008
By: Pangilinan, Gene Alexis

Topic: Checks; Fictitious Payee Rule

Doctrine: When the payee is fictitious or not intended to be the true recipient of the proceeds, the check is
considered as a bearer instrument

The Rodriguez Spouses had a discounting arrangement with the PEMSLA, an association of PNB employees, and
was likewise a client of PNB. PEMSLA regularly granted loans to its members. Spouses Rodriguez would rediscount
the postdated checks issued to members whenever the association was short of funds. The spouses would replace
the postdated checks with their personal checks issued in the name of the members.

Some PEMSLA officers took out loans in the names of unknowing members, without their knowledge or consent.
The PEMSLA checks issued for these loans were then given to the spouses for rediscounting. The officers carried
this out by forging the indorsement of the named payees in the checks. In return, the spouses issued their
personal checks in the name of the members and delivered the checks to an officer of PEMSLA. The PEMSLA checks
were deposited by the spouses to their account. The personal checks of the spouses were deposited directly by
PEMSLA to its savings account without any indorsement from the named payees.

PNB discovered these fraudulent acts, and closed the account of PEMSLA. The PEMSLA checks deposited were
returned or dishonored for the reason “Account Closed.” The personal checks of the spouses, however, were
deposited to the PEMSLA savings account. The amounts were duly debited from the Rodriguez account. Thus, the
spouses incurred losses from the rediscounting transactions.

A. What is the fictitious-payee rule and who is liable under it? Is there any exception?
As a rule, when the payee is fictitious or not intended to be the true recipient of the proceeds, the check is
considered as a bearer instrument.

A check made expressly payable to a non-fictitious and existing person is not necessarily an order instrument. If
the payee is not the intended recipient of the proceeds of the check, the payee is considered a “fictitious” payee
and the check is a bearer instrument.

A showing of commercial bad faith on the part of the drawee bank, or any transferee of the check, will work to strip
it of the defense under the fictitious-payee rule. The exception will cause it to bear the loss. Commercial bad faith
is present if the transferee of the check acts dishonestly, and is a party to the fraudulent scheme.

B. Whether the personal checks of the spouses are payable to order or to bearer?
The personal checks are order instruments. Under Section 9(c) of the Negotiable Instruments Law, a check payable
to a specified payee may be considered as a bearer instrument if it is payable to the order of a fictitious or non-
existing person, and such fact is known to the person making it so payable. Additionally, if the payee is not the
intended recipient of the proceeds of the check, the payee is considered a “fictitious” payee and the check is a
bearer instrument.

In this case, PNB failed to present sufficient evidence to defeat the claim that the named payees were the intended
recipients of the checks’ proceeds. PNB failed to satisfy a requisite condition of a fictitious-payee situation—that the
maker of the check intended for the payee to have no interest in the transaction. Because of a failure to show that
the payees were “fictitious” in its broader sense, the fictitious-payee rule does not apply. Thus, the checks are to
be deemed payable to order. Consequently, the drawee bank bears the loss.
 (33) Violago vs. BA Finance Corporation
G.R. No. 158262. July 21, 2008.
By: Radovan, Althea Therese

Topic: Holder in due course

Doctrine: The law presumes that a holder of a negotiable instrument is a holder thereof in due course.

Avelino Vialogo, President of VMSC sold a car to Sps. Violago, assuring the latter that they would just have to pay a
down payment, while the balance would be financed by BA Finance. The spouses and Avelino signed a promissory
note under which they bound themselves to pay jointly and severally to the order of VMSC the amount of PhP
209,601 in 36 monthly installments of PhP 5,822.25 a month, the first installment to be due and payable on
September 16, 1983. The spouses also executed a chattel mortgage over the car in favor of VMSC as security for
the amount of PhP 209,601. VMSC, through Avelino, endorsed the promissory note to BA Finance without recourse.
After receiving the amount of PhP 209,601, VMSC executed a Deed of Assignment of its rights and interests under
the promissory note and chattel mortgage in favor of BA Finance. However, the vehicle was not delivered to the
Spouses, therefor they did not pay any monthly amortization to BA Finance. Thereafter, BA Finance filed a
complaint for Replevin with Damages against the spouses. The spouses argue that BA Finance was not a holder in
due course of the note since it knew, through its Cebu City branch, that the car was never delivered to the
spouses.

A. Whether the promissory note is a negotiable instrument and, hence, covered by the NIL?

Yes. Sec.1 of the NIL provides: An instrument to be negotiable must conform to the following requirements:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with
reasonable certainty.”
The promissory note clearly satisfies the requirements of a negotiable instrument under the NIL. It is in writing;
signed by the Violago spouses; has an unconditional promise to pay a certain amount, i.e., PhP 209,601, on
specific dates in the future which could be determined from the terms of the note; made payable to the order of
VMSC; and names the drawees with certainty. The indorsement by VMSC to BA Finance appears likewise to be
valid and regular.

B. Whether BA Finance is a holder in due course of the promissory note and may therefore enforce payment?

Yes. Sec. 52 of the NIL provides: A holder in due course is a holder who has taken the instrument under the
following conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and without notice that it had been previously
dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the
title of the person negotiating it.
The law presumes that a holder of a negotiable instrument is a holder thereof in due course.

In this case BA Finance meets all the foregoing requisites:

(a) The “Promissory Note,” is complete and regular;
(b) The “Promissory Note” was endorsed by the VMSC in favor of the Appellee;
(c) BA Finance, when it accepted the Note, acted in good faith and for value;
(d) BA Finance was never informed, before and at the time the “Promissory Note” was endorsed to it, that the
vehicle sold to the Defendants-Appellants was not delivered to the latter and that VMSC had already previously
sold the vehicle to Esmeraldo Violago. Although Jose Olvido mortgaged the vehicle to Generoso Lopez, who
assigned his rights to the BA Finance Corporation (Cebu Branch), the same occurred only on May 8, 1987, much
later than August 4, 1983, when VMSC assigned its rights over the “Chattel Mortgage” by the Defendants-
Appellants to BA Finance. Hence, BA Finance was a holder in due course.”

Since BA Finance is a holder in due course, petitioners cannot raise the defense of non-delivery of the object and
nullity of the sale against the corporation. Sec. 57 of the NIL provides: A holder in due course, however, holds the
instrument free from any defect of title of prior parties and from defenses available to prior parties among
themselves, and may enforce payment of the instrument for the full amount thereof.
 (34) Far East Bank & Trust Company vs. Gold Palace Jewellery Co.
G.R. No. 168274, August 20, 2008
By: Rosario, Patricia Kaye

Topic: Liability of drawee bank

Doctrine: The provision that the acceptor, by accepting the instrument, engages that he will pay it according to
the tenor of his acceptance, applies with equal force in case the drawee pays a bill without having previously
accepted it.

Samuel Tagoe, purchased from the respondent Gold Palace several pieces of jewelry valued at P258,000. In
payment of the same, he offered a foreign draft issued by the United Overseas Bank of Malaysia (UOB), addressed
to the Land Bank of the Philippines, Manila (LBP), and payable to the respondent company for P380,000.
Respondent Julie Yang-Go, the manager of Gold Palace, issued a cash invoice to Samuel, asked him to come back,
and informed him that the pieces of jewelry would be released when the draft had already been cleared. She
consequently deposited the draft in the company’s account with the petitioner Far East. When Far East, the
collecting bank, presented the draft for clearing to LBP, the drawee bank, the latter cleared the same. After
ascertaining that the draft had been cleared, respondent Yang released the pieces of jewelry to Samuel; and
because the amount in the draft was more than the value of the goods purchased, she issued, as his change, Far
East check for P122,000. This check was later presented for encashment and was, in fact, paid by the said bank.
After three weeks, LBP informed Far East that the amount in the draft had been materially altered from P300,000
to P380,000 and that it was returning the same. Far East subsequently refunded the P380,000 earlier paid by LBP
and debited the amount from respondent’s account. Petitioner demanded from respondents the payment of
P211,946.64 or the difference between the amount in the materially altered draft and the amount debited from the
respondent’s account. Respondents countered that the complaint states no cause of action since the subject foreign
draft having been cleared and the respondent not being the party who made the material alteration.

Whether petitioner Far East could debit the account of respondent Gold Palace for the amount it
refunded to LBP?

NO, Far East’s remedy under the law is not against Gold Palace but against the drawee-bank or the person
responsible for the alteration.

Under Section 62 of the Negotiable Instruments Law (NIL), the acceptor, by accepting the instrument, engages
that he will pay it according to the tenor of his acceptance. This provision applies with equal force in case the
drawee pays a bill without having previously accepted it. The payment of a check includes its acceptance. The
drawee bank, in most cases, is in a better position, compared to the holder, to verify with the drawer the matters
stated in the instrument.

Here, LBP, the drawee bank cleared and paid the subject foreign draft and forwarded the amount thereof to the
collecting bank. The drawee, by the said payment, recognized and complied with its obligation to pay in accordance
with the tenor of his acceptance. The tenor of the acceptance is determined by the terms of the bill as it is when
the drawee accepts. Stated simply, LBP was liable on its payment of the check according to the tenor of the check
at the time of payment, which was the raised amount of P380,000. Having relied on the drawee bank’s clearance
and payment of the draft and not being negligent (it delivered the purchased jewelry only when the draft was
cleared and paid), respondent is amply protected by the said Section 62. LBP, having the most convenient means
to correspond with UOB, failed to first verify the amount of the draft before it cleared and paid the same. Gold
Palace, on the other hand, had no facility to ascertain with the drawer, UOB Malaysia, the true amount in the draft.
It was left with no option but to rely on the representations of LBP that the draft was good.

Thus, considering that, in this case, Gold Palace is protected by Section 62 of the NIL, its collecting agent, Far East,
could not debit respondent’s account for the amount it refunded to LBP.
 (36) Metropolitan Bank and Trust Company vs. BA Finance
GR No. 179952, December 4, 2009
By: Torres, Ma. Roma

Topic:
Bitanga obtained from BA Finance a P329,280 loan secured by a mortgage on his car. As agreed, his car is also
insured by Malayan Insurance which agreed in its policy to pay BA Finance in the event of the loss of the car. The
car was stolen. Malayan insurance then issued a check payable to the order of B.A. Finance Corporation and
Bitanga for P224,500, drawn against China Bank. The check was crossed with the notation For Deposit Payees
Account Only. Without the indorsement or authority of his co-payee BA Finance, Bitanga deposited the check to his
account with the Asianbank, now merged with herein petitioner Metrobank. Bitanga subsequently withdrew the
entire proceeds of the check. Bitanga’s loan became past due, but despite demands, he failed to settle it. BA
Finance eventually learned of the loss of the car and of Malayan Insurance’s issuance of a crossed check payable to
it and Bitanga, and of Bitanga’s depositing it in his account at Asianbank and withdrawing the entire proceeds
thereof.

BA Finance thereupon demanded the payment of the value of the check from Asianbank but to no avail, prompting
it to file a complaint before the RTC for sum of money and damages against Asianbank and Bitanga, alleging that,
it is entitled to the entire proceeds of the check. Asianbank alleges that Bitanga is authorized to indorse the check
as the drawer names him as one of the payees. Moreover, his signature is not a forgery nor has he or anyone
forged the signature of the representative of BA Finance Corporation. No unauthorized indorsement appears on the
check.

WON Asianbank is liable to BA Finance for the entire proceeds of the check.

Yes.

Section 41 of the Negotiable Instruments Law provides: Where an instrument is payable to the order of two or
more payees or indorsees who are not partners, all must indorse unless the one indorsing has authority to indorse
for the others.

Bitanga alone endorsed the crossed check, and petitioner allowed the deposit and release of the proceeds thereof,
despite the absence of authority of Bitanga’s co-payee BA Finance to endorse it on its behalf. The payment of an
instrument over a missing indorsement is the equivalent of payment on a forged indorsement or an unauthorized
indorsement in itself in the case of joint payees. Clearly, petitioner, through its employee, was negligent when it
allowed the deposit of the crossed check, despite the lone endorsement of Bitanga, ostensibly ignoring the fact that
the check did not carry the indorsement of BA Finance.

A collecting bank, Asianbank in this case, where a check is deposited and which indorses the check upon
presentment with the drawee bank, is an indorser. This is because in indorsing a check to the drawee bank, a
collecting bank stamps the back of the check with the phrase all prior endorsements and/or lack of endorsement
guaranteed and, for all intents and purposes, treats the check as a negotiable instrument, hence, assumes the
warranty of an indorser. Without Asianbank’s warranty, the drawee bank (China Bank in this case) would not have
paid the value of the subject check. Petitioner, as the collecting bank or last indorser, generally suffers the loss
because it has the duty to ascertain the genuineness of all prior indorsements considering that the act of
presenting the check for payment to the drawee is an assertion that the party making the presentment has done
its duty to ascertain the genuineness of prior indorsements. Accordingly, one who credits the proceeds of a check
to the account of the indorsing payee is liable in conversion to the non-indorsing payee for the entire amount of the
check.

Moreover, granting petitioner’s appeal for partial liability would run counter to the existing principles on the
liabilities of parties on negotiable instruments, particularly on Section 68 of the Negotiable Instruments Law which
instructs that joint payees who indorse are deemed to indorse jointly and severally. Recall that when the maker
dishonors the instrument, the holder thereof can turn to those secondarily liable the indorser for recovery. When
the maker dishonors the instrument, the holder thereof can turn to those secondarily liable—the indorser—for
recovery. And since the law explicitly mandates a solidary liability on the part of the joint payees who indorse the
instrument, the holder thereof (assuming the check was further negotiated) can turn to either Bitanga or BA
Finance for full recompense.
 (38)
JUDE JOBY LOPEZ v. PEOPLE OF THE PHILIPPINES
G.R. No. 166810 26 June 2008
By: Valencia, Mary Clydeen L.

TOPIC: NOTICE OF DISHONOR

DOCTRINE: A Notice of Dishonor is not required to be given to the drawer where the drawer has no right
to expect or require that the drawee or acceptor will honor the check i.e. bank account was already closed
even before the issuance of a check.

QUESTION: Jude Joby Lopez (Lopez) was charged with, prosecuted for and convicted of the crime of Estafa
as defined under Article 315, par. 2(d) of the Revised Penal Code for issuing a check against a closed
account. On appeal, Lopez anchored his argument that no deceit was established by the prosecution,
because it failed to prove the fact of receipt by Lopez of the notice of dishonor of the check. Corollary, no
presumption or prima facie evidence of guilt would arise if there is no proof as to the date of receipt by the
drawer of the said notice since there would simply be no way of reckoning the crucial 3-day period from
receipt of notice of dishonor of the check within which the amount necessary to cover the check may be
done.

Is the argument tenable? Why or why not?

ANSWER: The argument is not tenable.

[The receipt by the drawer of the notice of dishonor is not an element of the offense. The presumption only
dispenses with the presentation of evidence of deceit if such notification is received and the drawer of the
check failed to deposit the amount necessary to cover his check within three (3) days from receipt of the
notice of dishonor of the check. Pertinently,] Section 114(d) of the Negotiable Instruments Law provides
that a Notice of Dishonor is not required to be given to the drawer where the drawer has no right to expect
or require that the drawee or acceptor will honor the check.

In the instant case, Lopez had no right to expect or require the drawee bank to honor his check, because
his bank account was already closed even before the issuance of the subject check. Thus, based on Section
114(d) of the NIL, Kipez is not entitled to be given a Notice of Dishonor.