KRAUFFMAN VS.

PNB
42 PHIL 162
GR No. 16454, Sept. 29, 1921

FACTS:

Herein plaintiff George A. Kauffman, the president of a domestic corporation engaged chiefly in
the exportation of hemp from the Philippine Islands and known as the Philippine Fiber and
Produce Company was entitled to P98,000 of the Company’s dividend for the year 1917.

George B. Wicks, treasurer of the Company, requested that a telegraphic transfer of $45,000 to
the plaintiff in New York City. Wicks drew and delivered a check for the amount of P90,355.50,
total cost of said transfer, including exchange and cost of message which was accepted by the
officer selling the exchange in payment of the transfer in question. As evidence of this
transaction, a document was made out and delivered to Wicks, which is referred to by the bank's
assistant cashier as its official receipt. On the same day, the Philippine National Bank dispatched
to its New York agency a cablegram for $45,000. However, the bank's representative in New
York replied suggesting the advisability of withholding this money from Kauffman.

The PNB dispatched to its New York agency another message to withhold the Kauffman
payment as suggested. Meanwhile, upon advice of Wicks that the money has been placed to his
credit, Kauffman presented himself at the office of the Philippine National Bank in New York
and demanded the money. By this time, however, the message from the Philippine National
Bank directing the withholding of payment had been received in New York, and payment was
therefore refused. Thus, the present complaint to recover said sum, with interest and costs.

ISSUE:
Whether or not Act No. 2031 or the Negotiable Instruments Law is applicable in the above case?

RULING:
NO. The provisions of the Negotiable Instruments Law to come into operation, there must be a
document in existence of the character described in section 1 of the Law; and no rights properly
speaking arise in respect to said instrument until it is delivered. In the case before us there was an
order transmitted by the defendant bank to its New York branch, for the payment of a specified
sum of money to George A. Kauffman. But this order was not made payable "to order or "to
bearer," as required in Section 1(d) of that Act; and inasmuch as it never left the possession of
the bank, or its representative in New York City, there was no delivery in the sense intended in
Section 16 of the same Law. In this connection it is unnecessary to point out that the official
receipt delivered by the bank to the purchaser of the telegraphic order, and already set out above,
cannot itself be viewed in the light of a negotiable instrument, although it affords complete proof
of the obligation actually assumed by the bank.

GSIS VS. CA (GR No. L-40824, Feb. 23, 1989)

FACTS:
Private respondents, Mr.and Mrs. Isabelo R. Racho, together with the Lagasca spouses, executed
adeed of mortgage in favor of petitioner GSIS. Subsequently, another deed of mortgage was
executed in connection with earlier two loans granted. A parcel of land, co-owned by said
mortgagor spouses, was given as security under the aforesaid two deeds and they also executed
a"promissory note". The Lagasca spouses executed an instrumentdenominated "Assumption of
Mortgage" under which they obligatedthemselves to assume obligation to the GSIS. This
undertaking was notfulfilled. Upon failure of the mortgagors to comply with the conditions of
the mortgage, particularly the payment of the amortizations due, GSISextra-judicially foreclosed
the mortgage and caused the mortgagedproperty to be sold at public auction.

Private respondents filed a complaintagainst the petitioner and the Lagasca spouses praying that
the extrajudicial foreclosure be declared null and void. In their aforesaidcomplaint, they alleged
that they signed the mortgage contracts not assureties or guarantors for the Lagasca spouses but
they merely gave theircommon property to the said co-owners who were solely benefited by
theloans from the GSIS. Trial court dismissed the case. CA reversed decisionstating that the
respondents are that only of an accommodation party.

ISSUE:
Whether or not the NIL is applicable to the promissory note and mortgage deed

HELD:
No. Both parties relied on the provisions of Section 29 of ActNo. 2031, otherwise known as the
Negotiable Instruments Law, which provide that an accommodation party is one who has signed
aninstrument as maker, drawer, acceptor of indorser without receiving valuetherefore, but is held
liable on the instrument to a holder for value althoughthe latter knew him to be only an
accommodation party. This approach ofboth parties appears to be misdirected and their reliance
misplaced. Thepromissory note hereinbefore quoted, as well as the mortgage deedssubject of this
case, are clearly not negotiable instruments. Thesedocuments do not comply with the fourth
requisite to be considered assuch under Section 1 of Act No. 2031 because they are neither
payable toorder nor to bearer. The note is payable to a specified party, the GSIS.Absent the
aforesaid requisite, the provisions of Act No. 2031 would notapply, governance shall be
afforded, instead, by the provisions of the CivilCode and special laws on mortgages.
TIBAJIA VS. CA

Facts:

A writ of attachment was issued by the trial court in connection to the collection of a sum of money filed
by Eden Tan against the Tibajia spouses. The fund was then on deposit with the cashier of the Regional
Trial Court of Pasig. The Tibajia spouses thereafter delivered to the Deputy Sheriff the total money
judgment in the form of Cashier's Check worth P262,750.00. However, Eden Tan, refused to accept the
payment made and instead insisted that the garnished funds deposited with the cashier of the Regional
Trial Court of Pasig be withdrawn to satisfy the judgment obligation. Petitioners filed a motion to lift the
writ of execution on the ground that the judgment debt had already been paid but was denied by the
trial court on the ground that payment in cashier's check is not payment in legal tender. When the
petitioners' motion for reconsideration was denied, the spouses Tibajia filed herein petition.

ISSUE:

WON the delivery of the cashier's check is considered payment in legal tender?
HELD:

No.

A check, whether a manager's check or ordinary check, is not legal tender, and an offer of a check in
payment of a debt is not a valid tender of payment and may be refused receipt by the obligee or
creditor. (Philippine Airlines, Inc. vs. Court of Appeals and Roman Catholic Bishop of Malolos, Inc. vs.
Intermediate Appellate Court). The ruling in the two (2) abovementioned cases decided by the Supreme
Court applies the statutory provisions which lay down the rule that a check is not legal tender and that a
creditor may validly refuse payment by check, whether it be a manager's, cashier's or personal check.

PAL VS. CA

Facts:

CFI Manila ruled in favor of Amelia Tan [under the name and style of Able Printing Press] in a
complaint for damages against petitioner Philippine Airlines. On appeal, the CA upheld the decision of
the CFI with minor modifications as to the damages to be awarded. The corresponding writ of execution
was duly referred to Deputy Sheriff Emilio Z. Reyes for enforcement with checks in the name of the
latter. Four months later, Amelia Tan moved for the issuance of an alias writ of execution since the
judgment remained unsatisfied. The petitioner filed an opposition to the motion for the issuance of an
alias writ of execution stating that it had already fully paid its obligation to plaintiff through the deputy
sheriff of the respondent court, Emilio Z. Reyes, as evidenced by cash vouchers properly signed and
received by said Emilio Z. Reyes. On March 3,1978, the Court of Appeals denied the issuance of the alias
writ for being premature, ordering the executing sheriff Emilio Z. Reyes to appear with his return and
explain the reason for his failure to surrender the amounts paid to him by petitioner PAL. However, the
order could not be served upon Deputy Sheriff Reyes because he already absconded or disappeared.

ISSUE:

Whether or Not the payment rendered through a check made by PAL to the absconding sheriff
in his name operate to satisfy the judgment debt

HELD:

NO. The theory is where payment is made to a person authorized and recognized by the
creditor, the payment to such a person so authorized is deemed payment to the creditor. Under
ordinary circumstances, payment by the judgment debtor in the case at bar, to the sheriff should be
valid payment to extinguish the judgment debt.There are circumstances in this case, however, which
compel a different conclusion. The payment made by the petitioner to the absconding sheriff was not in
cash or legal tender but in checks. The checks were not payable to Amelia Tan or Able Printing Press but
to the absconding sheriff. The delivery of promissory notes payable to order, or bills of exchange or
other mercantile documents shall produce the effect of payment only when they have been cashed, or
when through the fault of the creditor they have been impaired. In the meantime, the action derived
from the original obligation shall be held in abeyance. 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. A
check, whether a manager’s check or ordinary check, is not legal tender, and an offer of a check in
payment of a debt is not a valid tender of payment and may be refused receipt by the obligee or
creditor. Mere delivery of checks does not discharge the obligation under a judgment. The obligation is
not extinguished and remains suspended until the payment by commercial document is actually realized
(Art. 1249, Civil Code, par. 3).

Payment in money or cash to the implementing officer may be deemed absolute payment of the
judgment debt but the Court has never, in the least bit, suggested that judgment debtors should settle
their obligations by turning over huge amounts of cash or legal tender to sheriffs and other executing
officers. Payment in cash would result in damage or interminable litigations each time a sheriff with
huge amounts of cash in his hands decides to abscond. [K]nowing as it does that the intended payment
was for the private party respondent Amelia Tan, the petitioner corporation, utilizing the services of its
personnel, without prudence, placed as payee in the checks the name of the errant Sheriff and not the
name of the rightful payee. PAL created a situation which permitted the said Sheriff to personally encash
said checks and misappropriate the proceeds thereof to his exclusive personal benefit. For the prejudice
that resulted, the petitioner himself must bear the fault. As between two innocent persons, one of
whom must suffer the consequence of a breach of trust, the one who made it possible by his act of
confidence must bear the loss. If particularly big amounts are involved, escrow arrangements with a
bank and carefully supervised by the court would be the safer procedure.

RAUL SESBREÑO, petitioner,

vs.
HON. COURT OF APPEALS, DELTA MOTORS CORPORATION AND PILIPINAS
BANK, respondents.

FACTS:
Petitioner Raul Sesbreño made a money market placement in the amount of P300,000.00 with
the Philippine Underwriters Finance Corporation ("Philfinance") with a term of 32 days. for which
PhilFinance issued to Sesbreno the Certificate of Confirmation of Sale of a Delta Motor
Corporation 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 drawn against the Insular Bank of Asia and America for P304, 533.33 payable on 13
March 1981. Upon its maturity, petitioner sought to encash the postdated checks but they were
dishonored for having insufficient funds.

Petitioner then issued a demand letter to private respondent Pilipinas Bank, but the note was
never released nor any instrument related thereto. Petitioner also made a written demand upon
private respondent Delta as maker for the partial satisfaction of promissory note, explaining that
Philfinance, as payee of the note, had assigned to him said Note. Delta, however, denied any
liability to petitioner on the promissory note.

The said note was stamped “NON-NEGOTIABLE.” Despite repeated demand, petitioner failed
to collect his investment and interest thereon. he filed an action for damages with the RTC
against private respondents Delta and Pilipinas.The complaint was dismissed and was affirmed
by the CA on appeal.

ISSUE: WON the non-negotiability of a promissory note prevents its assignment?

HELD: No. A negotiable instrument, instead of being negotiated, may also be assigned or
transferred. The legal consequences of negotiation and assignment of the instrument are
different. A nonnegotiable instrument may not be negotiated but may be assigned or
transferred, absent an express prohibition against assignment or transfer written in the face of
the instrument. The subject promissory note, while marked "non-negotiable," was not at the
same time stamped "non-transferable" or "non-assignable." It contained no stipulation which
prohibited Philfinance from assigning or transferring such note, in whole or in part.

Only an instrument qualifying as a negotiable instrument under the relevant statute may
be negotiated either by indorsement thereof coupled with delivery or by delivery alone where the
negotiable instrument is in bearer form. A negotiable instrument may, however, instead of being
negotiated, also be assigned or transferred. The legal consequences of negotiation as
distinguished from assignment of a negotiable instrument are, of course, different. A non-
negotiable instrument may, obviously, not be negotiated; but it may be assigned or transferred,
absent an express prohibition against assignment or transfer written in the face of the
instrument.
In this case, while the promissory note was marked "non-negotiable," it was not at the same
time stamped "non-transferable" or "non-assignable." Hence, there is no stipulation which
prohibited the promissory note’s assigning or transferring, in whole or in part.
6. Postal Money Order
GR. L-22405 June 30, 1971
Philippine Education Co. Inc., v. Mauricio A. Soriano, et al.
FACTS: Enrique Montinola sought to purchase from the Manila Post Office 10 money orders
(P200 ea). Montinola managed to leave the building with his own check and the 10 money orders
w/o the knowledge of the teller. Upon discovery of the unpaid money orders, an urgent message
was sent to all postmasters, banks received the same notice on the following day, instructing
them not to pay anyone of the money orders aforesaid if presented for payment. The Bank of
America received a copy of said notice 3 days later.
Appellant(PH Education) received one of the unpaid postal money order and deposited the same
to the Bank of America, which the latter cleared with the Bureau of Posts and received its face
value of P200. The Postmaster(Enrico Palomar), through the Chief(Mauricio Soriano) of the
Money Order Division of the Manila Post Office informed the bank of the irregular issuance of
the money order. The bank debited the account of the company. The company moved for
reconsideration.
[Montinola got charged with theft, but acquitted on the ground of reasonable doubt.]
Municipal Court of Manila: Ordered respondents to indemnify petitioner P200 + 8 and ½
percent interest. Case appealed to CFI.
CFI Manila: Petitioners allege that the postal money order is a negotiable instrument.
ISSUES: Whether postal money orders are negotiable instruments
HELD: No.Philippine postal statutes are patterned from those of the United States, and the
weight of authority in said country is that Postal money orders are not negotiable
instrumentsinasmuch as the establishment of a postal money order is an exercise of
governmental power for the public’s benefit.
Furthermore, some of the restrictions imposed upon money order by postal laws and regulations
are inconsistent with the character of negotiable instruments. For instance, postal money orders
may be withheld under a variety of circumstances, and which are restricted to not more than
one indorsement.
Metropolitan Bank & Trust Company vs. Court of Appeals

FACTS: In January 1979, a certain Eduardo Gomez opened an account with Golden Savings and
deposited over a period of two months 38 treasury warrants with a total value of P1,755,228.37. They
were all drawn by the Philippine Fish Marketing Authority and purportedly signed by its General
Manager and countersigned by its Auditor. Six of these were directly payable to Gomez while the others
appeared to have been indorsed by their respective payees, followed by Gomez as second indorser.

On various dates between June 25 and July 16, 1979, all these warrants were subsequently
indorsed by Gloria Castillo as Cashier of Golden Savings and deposited to its Savings Account in the
Metrobank branch in Calapan, Mindoro. They were then sent for clearing by the branch office to the
principal office of Metrobank, which forwarded them to the Bureau of Treasury for special clearing.

More than two weeks after the deposits, Gloria Castillo went to the Calapan branch several
times to ask whether the warrants had been cleared. She was told to wait.

Gomez was meanwhile not allowed to withdraw from his account in Golden Savings.

Later, however, "exasperated" over Gloria's repeated inquiries and also as an accommodation
for a "valued client," Metrobank finally decided to allow Golden Savings to withdraw from the proceeds
of the warrants.

In turn, Golden Savings subsequently allowed Gomez to make withdrawals from his own
account, eventually collecting the total amount of P1,167,500.00 from the proceeds of the apparently
cleared warrants.

On July 21, 1979, Metrobank informed Golden Savings that 32 of the warrants had been
dishonored by the Bureau of Treasury on July 19, 1979, and demanded the refund by Golden Savings of
the amount it had previously withdrawn, to make up the deficit in its account.
 Golden Savings obviously rejected the demand, which prompted Metrobank to sue. RTC
dismissed the case, which CA affirmed. Hence, this petition for review.

ISSUES:

1. WON Treasury warrants are negotiable. NO

2. WON Metrobank can recover from Golden Savings. No

RULING:

1. The treasury warrants in question are not negotiable instruments. Clearly stamped on their face
is the word "non-negotiable." Moreover, and this is of equal significance, it is indicated that they
are payable from a particular fund, to wit, Fund 501.

The following sections of the Negotiable Instruments Law, especially the underscored parts, are
pertinent:

Sec. 1. — Form of negotiable instruments. — An instrument to be negotiable must conform to

the following requirements:

(b) Must contain an unconditional promise or order to pay a sum certain in money;

Sec. 3. When promise is unconditional. — An unqualified order or promise to pay is

unconditional within the meaning of this Act though coupled with —

(a) An indication of a particular fund out of which reimbursement is to be made or a

particular account to be debited with the amount; or

(b) A statement of the transaction which gives rise to the instrument judgment.

But an order or promise to pay out of a particular fund is not unconditional.

The indication of Fund 501 as the source of the payment to be made on the treasury
warrants makes the order or promise to pay "not unconditional" and the warrants
themselves non-negotiable.
 Moreover, Metrobank cannot contend that by indorsing the warrants in general, Golden
Savings assumed that they were "genuine and in all respects what they purport to be," in
accordance with Section 66 of the Negotiable Instruments Law. The simple reason is that
this law is not applicable to the non-negotiable treasury warrants.

2. Metrobank was indeed negligent in giving Golden Savings the impression that the treasury
warrants had been cleared and that, consequently, it was safe to allow Gomez to withdraw the
proceeds thereof from his account with it. Without such assurance, Golden Savings would not
have allowed the withdrawals; with such assurance, there was no reason not to allow the
withdrawal. Indeed, Golden Savings might even have incurred liability for its refusal to return
the money that to all appearances belonged to the depositor, who could therefore withdraw it
any time and for any reason he saw fit.

It was, in fact, to secure the clearance of the treasury warrants that Golden Savings deposited
them to its account with Metrobank. Golden Savings had no clearing facilities of its own. It relied
on Metrobank to determine the validity of the warrants through its own services. The proceeds
of the warrants were withheld from Gomez until Metrobank allowed Golden Savings itself to
withdraw them from its own deposit.

By contrast, Metrobank exhibited extraordinary carelessness. The amount involved was not
trifling — more than one and a half million pesos (and this was 1979). There was no reason why
it should not have waited until the treasury warrants had been cleared; it would not have lost a
single centavo by waiting. Yet, despite the lack of such clearance — and notwithstanding that it
had not received a single centavo from the proceeds of the treasury warrants, as it now
repeatedly stresses — it allowed Golden Savings to withdraw — not once, not twice, but thrice.

Its reason? It was "exasperated" over the persistent inquiries of Gloria Castillo about the
clearance and it also wanted to "accommodate" a valued client. It "presumed" that the warrants
had been cleared simply because of "the lapse of one week." For a bank with its long
experience, this explanation is unbelievably naive.

CALTEX VS. COURT OF APPEALS

(GR No. 97753, Aug. 10, 1992) -
Facts: Respondent bank issued 280 certificates of time deposit (CTDs) in favor ofAngel dela Cruz who
delivered the same to herein petitioner in connectionwith his purchased fuel products. Eventually, dela
Cruz executed anddelivered an Affidavit of Loss for the reissuance of the CTDs. Dela Cruzlater on
obtained a loan from respondent bank and negotiated the saidCTDs, executing a Deed of Assignment of
Time Deposit which stated,among others, that the bank has full control of the indicated time depositsfrom
and after date of the assignment and may set-off such and apply thesame to the payment of amount or
amounts that may be due on the loanupon maturity.Petitioner then went to the Sucat branch for
verification of the CTDsdeclared lost, alleging that the same were delivered to herein petitioner
as“security for purchases made with Caltex Philippines, Inc.” and requestedthat the CTDs be pre-
terminated, which was refused by the respondentbank due to the failure of petitioner to present requested
documents toprove such allegation. Petitioner then filed a complaint in the RTC, whichwas dismissed. On
appeal, the CA affirmed the decision of the RTC. Thus,the present petition.

ISSUE: Whether or not the CTDs are considered negotiable?

HELD: Yes. A sample text of the certificates of time deposit is reproducedbelow:

SECURITY BANK
AND TRUST COMPANY
6778 Ayala Ave., Makati No. 90101
Metro Manila, Philippines
SUCAT OFFICE P4,000.00
CERTIFICATE OF DEPOSIT
Rate 16%
Date of Maturity FEB. 23, 1984 FEB 22, 1982, 19____
This is to Certify that B E A R E R has deposited in this Bank the sum of
PESOS: FOUR THOUSAND ONLY, SECURITY BANK SUCAT OFFICE
P4,000 & 00 CTS Pesos, Philippine Currency, repayable to said depositor 731
days. after date, upon presentation and surrender of this certificate, with interest
at the rate of 16% per cent per annum.
(Sgd. Illegible) (Sgd. Illegible)
AUTHORIZED SIGNATURES

Section 1, of Act No. 2031, otherwise known as the NegotiableInstruments Law, enumerates the
requisites for an instrument to becomenegotiable. The CTDs in question undoubtedly meet the
requirements ofthe law for negotiability. The accepted rule is that the negotiability or non-negotiability
of an instrument is determined from the writing, that is, fromthe fact of the instrument itself. Contrary to
what respondent court held(that the CTDs are payable to the “depositor” which is Angel dela Cruz),the
documents provide that the amounts deposited shall be repayable tothe depositor. And who, according to
the document is the depositor? It isthe “bearer”. The documents do not say that the depositor is Angel
delaCruz and that the amounts deposited are repayable specifically to him.Rather, the amounts are to be
repayable to the bearer of the documentsor, for that matter, whosoever may be the bearer at the time
ofpresentment.

Effects of Estoppel

9. Banco De Oro Savings and Mortgage Bank vs Equitable Banking Corp

G.R. No. 74917. January 20, 1988

Facts: Equitable Bank drew six crossed manager’s check payable to certain member
establishments of Visa Card. Subsequently, the checks were deposited with Banco De Oro
(BDO) to the credit of its depositor. Following normal procedures and after stamping at the back
of the checks the usual endorsements, BDO sent the checks for clearing through the Philippine
Clearing House Corporation (PCHC). Accordingly, Equitable Banking paid the checks; its
clearing account was debited for the value of the checks and BDO’s clearing account was
credited for the same amount. Thereafter, Equitable Banking discovered that the endorsements
appearing at the back of the checks and purporting to be that of the payees were forged and/or
unauthorized or otherwise belong to persons other than the payees. Equitable Banking presented
the checks directly to BDO for the purpose of claiming reimbursement from the latter. However,
BDO refused to accept such direct presentation and to reimburse Equitable Banking for the value
of the checks.

In accordance with Section 38 of the Clearing House Rules and Regulations, the dispute was
presented for Arbitration; and Atty. Ceasar Querubin was designated as the Arbitrator. The
Arbiter rendered a decision in favor of the plaintiff and against the defendant ordering the PCHC
to debit the clearing account of the defendant, and to credit the clearing account of the plaintiff of
the amount of P45,982.23 with interest (12% per annum) from date of the complaint and
Attorney's fee in the amount of P5k. A petition for review was filed with the RTC of Quezon
City.

Petitioner argues that the term check should be interpreted as one that fits the articles of
incorporation of the PCHC, the Central Bank and the Clearing House Rules stating that it is a
negotiable instrument citing the definition of a "check" as basically a "bill of exchange" under
Section 185 of the NIL and that it should be payable to "order" or to "bearer" under Section 126
of game law. Petitioner alleges that with the cancellation of the printed words "or bearer from the
face of the check, it becomes non-negotiable so the PCHC has no jurisdiction over the case. RTC
ruled against petitioner.

Issue: Whether or not BDO is estopped from claiming that checks under consideration are non-
negotiable instruments.

Ruling: YES. BDO having stamped its guarantee of “all prior endorsements and/or lack of
endorsements” is now estopped from claiming that the checks under consideration are not
negotiable instruments. The checks were accepted for deposit by the petitioner stamping thereon
its guarantee, in order that it can clear the said checks with the respondent bank. By such
deliberate and positive attitude of the petitioner it has for all legal intents and purposes treated
the said cheeks as negotiable instruments and accordingly assumed the warranty of the endorser
when it stamped its guarantee of prior endorsements at the back of the checks. It led the said
respondent to believe that it was acting as endorser of the checks and on the strength of this
guarantee said respondent cleared the checks in question and credited the account of the
petitioner. Petitioner is now barred from taking an opposite posture by claiming that the disputed
checks are not negotiable instrument.

Petitioner is estopped from raising the defense of non-negotiability of the checks in question. It
stamped its guarantee on the back of the checks and subsequently presented these checks for
clearing and it was on the basis of these endorsements by the petitioner that the proceeds were
credited in its clearing account. The principle of estoppel effectively prevents the defendant
from denying liability for any damages sustained by the plaintiff which, relying upon an
action or declaration of the defendant, paid on the Checks. The same principle of estoppel
effectively prevents the defendant from denying the existence of the Checks. The petitioner by
its own acts and representation cannot now deny liability because it assumed the liabilities of an
endorser by stamping its guarantee at the back of the checks.

BDO cannot escape liability by reasons of forgery. A commercial bank cannot escape the
liability of an endorser of a check and which may turn out to be a forged endorsement. Whenever
any bank treats the signature at the back of the checks as endorsements and thus logically
guarantees the same as such there can be no doubt said bank has considered the checks as
negotiable. 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.

PCHC’s jurisdiction is not limited to negotiable checks only. The term check as used in the said
Articles of Incorporation of PCHC can only connote checks in general use in commercial and
business activities. Thus, no distinction. Ubi lex non distinguit, nec nos distinguere debemus.
Checks are used between banks and bankers and their customers, and are designed to facilitate
banking operations. It is of the essence to be payable on demand, because the contract between
the banker and the customer is that the money is needed on demand.

[Ruling of the PCHC Board of Directors and affirmed by the RTC and SC]:In presenting
the Checks for clearing and for payment, the defendant 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; ALL PRIOR ENDORSEMENTS AND/OR LACK OF ENDORSEMENTS
GUARANTEED. With. out such warranty, plaintiff would not have paid on the checks.

No amount of legal jargon can reverse the clear meaning of defendant's warranty. As the
warranty has proven to be false and inaccurate, the defendant is liable for any damage arising out
of the falsity of its representation. The principle of estoppel, effectively prevents the defendant
from denying liability for any damage sustained by the plaintiff which, relying upon an action or
declaration of the defendant, paid on the Checks. The same principle of estoppel effectively
prevents the defendant from denying the existence of the Checks.

10. PHILIPPINE BANK OF COMMERCE vs. ARUEGO

G.R. Nos. L-25836-37 January 31, 1981

Facts: The defendant Jose Aruego obtained a credit accommodation from the Philippine Bank of
Commerce to facilitate the payment of printing of “World Current Events”, the periodical he is
publishing. Thus, for every printing of the periodical, the printer, Encal Press and Photo
Engraving, collected the cost of printing by drawing a draft against the plaintiff, said draft being
sent later to the defendant for acceptance. As an added security for the payment of the amounts
advanced to Encal Press and Photo-Engraving, the plaintiff bank also required defendant Aruego
to execute a trust receipt in favor of said bank wherein said defendant undertook to hold in trust
for plaintiff the periodicals and to sell the same with the promise to turn over to the plaintiff the
proceeds of the sale of said publication to answer for the payment of all obligations arising from
the draft. The Philippine Bank of Commerce instituted an action against Aruego to recover the
cost of printing of the latter’s periodical. Aruego however argues that he signed the supposed
bills of exchange only as an agent of the Philippine Education Foundation Company where he is
president, and that a) When the various bills of exchange were presented to the defendant as
drawee for acceptance, the amounts thereof had already been paid by the plaintiff to the drawer
(Encal Press and Photo Engraving), without knowledge or consent of the defendant drawee. b) In
the case of a bill of exchange, like those involved in the case at bar, the defendant drawee is an
accommodating party only for the drawer (Encal Press and Photo-Engraving) and win be liable
in the event that the accommodating party (drawer) fails to pay its obligation to the plaintiff.

On March 15, 1960, the plaintiff filed an ex parte motion to declare the defendant in default on
the ground that the defendant should have filed his answer on March 11, 1960. He contends that
by filing his answer on March 12, 1960, defendant was one day late. On March 19, 1960 the trial
court declared the defendant in default. On June 1, 1960 Aruego filed a motion to set aside the
judgment rendered after he was declared in default reiterating the same ground previously
advanced by him in his motion for relief from the order of default.Aruego, appealed to the CA
from the order of the CFI of Manila, Branch XIII, in Civil Case No. 42066 denying his motion to
set aside the order declaring him in default, and from the order of said court in the same case
denying his motion to set aside the judgment rendered after he was declared in default. In a
resolution promulgated by the CA, First Division, certified the consolidated appeal to the
Supreme Court on the ground that only questions of law are involved.

Issue:
1. WON Aruego can be held liable by the petitioner although he signed the supposed bills
of exchange only as an agent of Philippine Education Foundation Company.
2. WON the drafts Aruego signed were bills of exchange?
Ruling:
1. Yes. Section 20 of the NIL provides that where the instrument contains or a person adds to his
signature words indicating that he signs for or on behalf of a principal or in a representative
capacity, he is not liable on the instrument if he was duly authorized; but the mere addition of
words describing him as an agent or as filing a representative character, without disclosing his
principal, does not exempt him from personal liability.

An inspection of the drafts accepted by the defendant shows he had accepted the drafts without
disclosing that he was signing as a representative of the Philippine Education Foundation
Company. He merely signed as follows: "JOSE ARUEGO (Acceptor) (SGD) JOSE ARGUEGO
For failure to disclose his principal, Aruego is personally liable for the drafts he accepted.Thus,
Aruego is personally liable for the drafts he accepted. Furthermore, in lending his name to the
accommodated party, the accommodation party is in effect a surety for the latter. He lends his
name to enable the accommodated party to obtain credit or to raise money. He receives no part of
the consideration for the instrument but assumes liability to the other parties thereto because he
wants to accommodate another. In the instant case, the defendant signed as a drawee/acceptor.
Under the Negotiable Instrument Law, a drawee is primarily liable. Thus, if the defendant who is
a lawyer, he should not have signed as an acceptor/drawee. In doing so, he became primarily and
personally liable for the drafts.

2. YES. Under the Negotiable Instruments Law, a bill of exchange is an unconditional order in
writing addressed by one person to another, signed by the person giving it, requiring the person
to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain
in money to order or to bearer. As long as a commercial paper conforms with the definition of a
bill of exchange, that paper is considered a bill of exchange. The nature of acceptance is
important only in the determination of the kind of liabilities of the parties involved, but not in the
determination of whether a commercial paper is a bill of exchange or not.

METROPOLITAN BANK & TRUST COMPANYvs.CA, GOLDEN SAVINGS & LOAN ASSOCIATION, INC., LUCIA
CASTILLO, MAGNO CASTILLO and GLORIA CASTILLO

FACTS
Gomez opened an account with Golden Savings (a principal officer of petitioner) and deposited treasury
warrants there. They were all drawn by the Philippine Fish Marketing Authority and purportedly signed by
its General Manager and countersigned by its Auditor. Six of these were directly payable to Gomez.

On various dates the warrants were subsequently indorsed by Gloria Castillo as Cashier of Golden Savings
and deposited to its Saving. They were then sent for clearing

Accordingly, Gomez was not allowed to withdraw from his account. Later, however, "exasperated" over
Gloria's repeated inquiries on whether the warrants have been cleared the petitioner says it finally
decided to allow Golden Savings to withdraw from the proceeds of the warrants.

Golden Savings subsequently allowed Gomez to make withdrawals from his own account from the
proceeds of the cleared warrants.
Thereafter, Metrobank informed Golden Savings that 32 of the warrants had been dishonored by the
Bureau of Treasury, and demanded the refund from them to make up the deficit in its account. The
demand was rejected. Metrobank then sued Golden Savings in the Regional Trial Court of Mindoro.

ISSUE: Whether or not the treasury warrants are negotiable instruments.

RULING: NO
A no less important consideration is the circumstance that the treasury warrants in question are not
negotiable instruments. Clearly stamped on their face is the word "non-negotiable." Moreover, and this is
of equal significance, it is indicated that they are payable from a particular fund, to wit, Fund 501.
The following sections of the Negotiable Instruments Law, especially the underscored parts, are
pertinent:
Sec. 1. — Form of negotiable instruments. — 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.
xxx xxx xxx
Sec. 3. When promise is unconditional. — An unqualified order or promise to pay is unconditional
within the meaning of this Act though coupled with —
(a) An indication of a particular fund out of which reimbursement is to be made or a particular
account to be debited with the amount; or
(b) A statement of the transaction which gives rise to the instrument judgment.
But an order or promise to pay out of a particular fund is not unconditional.
The indication of Fund 501 as the source of the payment to be made on the treasury warrants makes the
order or promise to pay "conditional" and the warrants themselves non-negotiable. There should be no
question that the exception on Section 3 of the Negotiable Instruments Law is applicable in the case at
bar.

Metrobank cannot contend that by indorsing the warrants, Golden Savings assumed that they were
"genuine and in all respects what they purport to be," in accordance with the Negotiable Instruments
Law. The simple reason is that this law is not applicable to the non-negotiable treasury warrants. The
indorsement was made by Gloria Castillo merely to deposit them with Metrobank for clearing. It was in
fact Metrobank that made the guarantee when it stamped on the back of the warrants: "All prior
indorsement and/or lack of endorsements guaranteed, Metropolitan Bank & Trust Co., Calapan Branch."

Pay vs. Vda. de Palanca, 57 SCRA 618, No. L-29900 June 28, 1974

FACTS: Petitioner George Pay is a creditor of the Late Justo Palanca who died in Manila on
July 3, 1963. The claim of the petitioner is based on a promissory note dated January 30,
1952, whereby the late Justo Palanca and Rosa Gonzales Vda. de Carlos Palanca promised
to pay George Pay the amount of P26,900.00, with interest thereon at the rate of 12% per
annum.

George Pay is now before this Court, asking that Segundina Chua vda. de Palanca, surviving
spouse of the late Justo Palanca, be appointed as administratrix of a certain piece of
property in the name of Justo Palanca,. The idea is that once said property is brought under
administration, George Pay, as creditor, can file his claim against the administratrix."

However, there was a refusal on the part of Segundina Chua Vda. de Palanca to be
appointed as administratrix; that the property sought to be administered no longer
belonged to the debtor, the late Justo Palanca; and that the rights of petitioner-creditor had
already prescribed.
The promissory note, dated January 30, 1962, is worded thus: “For value received from
time to time since 1947, we [jointly and severally promise to] pay to Mr. [George Pay] at his
office at the China Banking Corporation the sum of [Twenty Six Thousand Nine Hundred
Pesos] (P26,900.00), with interest thereon at the rate of 12% per annum upon receipt by
either of the undersigned of cash payment from the Estate of the late Don Carlos Palanca or
upon demand. . . . As stated, this promissory note is signed by Rosa Gonzales Vda. de Carlos
Palanca and Justo Palanca."

The wording of the promissory note being "upon demand," the obligation was immediately
due. Since it was dated January 30, 1952, it was clear that more "than ten (10) years has
already transpired from that time until to date. The action, therefore, of the creditor has
definitely prescribed."The result, as above noted, was the dismissal of the petition.

ISSUE: Whether or not a promissory note to be paid “upon demand” is immediately due
and demandable

HELD: YES. From the manner in which the promissory note was executed, it would appear
that petitioner was hopeful that the satisfaction of his credit could be realized either
through the debtor sued receiving cash payment from the estate of the late Carlos Palanca
presumptively as one of the heirs, or, as expressed therein, "upon demand." There is
nothing in the record that would indicate whether or not the first alternative was fulfilled.
What is undeniable is that on August 26, 1967, more than fifteen years after the execution
of the promissory note on January 30, 1952, this petition was filed. The defense interposed
was prescription. Its merit is rather obvious. Article 1179 of the Civil Code provides:
"Every obligation whose performance does not depend upon a future or uncertain
event, or upon a past event unknown to the parties, is demandable at once."

The obligation being due and demandable, it would appear that the filing of the suit after
fifteen years was much too late. For again, according to the Civil Code, which is based on
Section 43 of Act No. 190, the prescriptive period for a written contract is that of ten years.

13. ANG TEK LIAN VS. CA (GR No. L-2516; Sept. 25, 1950)

FACTS:Petitioner AngTek Lian approached Lee Hua and asked him if he could give
himP4,000.00. He said that he is supposed to withdraw from the bank but hisbank was already
closed. In exchange, he gave respondent Lee Hua acheck which is “payable to the order of
‘cash”. When Lee Hua presentedthe check for payment the next day, he discovered that it has
aninsufficient funds, hence, was dishonored by the bank. In his defense, AngTek Lian argued
that he did not indorse the check to Lee Hua when thelatter accepted the check without his
indorsement.

ISSUE: WON Ang TekLian’s indorsement of the said check is necessary to hold him liable for
thedishonored check?
HELD: No. Under Section 9 of the NegotiableInstruments Law, a check drawn payable to the
order of “cash” is acheck payable to bearer and the bank may pay it to the personpresenting
it for payment without drawer’s indorsement.Consequently, the form of the check was totally
unconnected with itsdishonor. The check was returned unsatisfied because the drawer
hadinsufficient funds and not because the drawer’s indorsement was lacking.Hence, Ang Tek
Lian may be held liable for estafa because under article315, paragraph d, subsection 2 of the
Revised Penal Code, one who issuesa check payable to cash to accomplish deceit and knows
that at the timehe had no sufficient deposit with the bank to cover the amount of thecheck and
without informing the payee of such circumstances is guilty ofestafa.
De La Victoria vs. Burgos
G.R. No. 111190. June 27, 1995
Bellosillo, J.

FACTS: Assistant City Fiscal Bienvenido N. Mabanto was ordered to pay herein private
respondent Raul Sesbreño P11,000.00 as damages. A notice of garnishment was served on herein
petitioner Loreto D. de la Victoria as City Fiscal of Mandaue City where Mabanto was detailed.
V was directed not to disburse, transfer, release or convey to any other person except to the
deputy sheriff concerned the salary checks or other checks, monies, or cash due or belonging to
Mabanto, Jr., under penalty of law. Later, V was directed to submit his report showing the
amount of the garnished salaries. V moved to quash the notice of garnishment claiming that he
was not in possession of any money, funds, credit, property or anything of value belonging to
Mabanto, Jr., except his salary and RATA checks, but that said checks were not yet properties of
Mabanto, Jr., until delivered to him. He further claimed that, as such, they were still public funds
which could not be subject to garnishment.

ISSUE: W/N a check still in the hands of the maker or its duly authorized representative is
owned by the payee before physical delivery to the latter.

RULING:

No.vAs Assistant City Fiscal, the source of the salary of Mabanto, Jr., is public funds. He
receives his compensation in the form of checks from the DOJ through V as City Fiscal of
Mandaue City and head of office. Under Sec. 16 of the Negotiable Instruments Law, every
contract on a negotiable instrument is incomplete and revocable until delivery of the instrument
for the purpose of giving effect thereto. As ordinarily understood, delivery means the transfer of
the possession of the instrument by the maker or drawer with intent to transfer title to the payee
and recognize him as the holder thereof.
Inasmuch as said checks had not yet been delivered to Mabanto, Jr., they did not belong to
him and still had the character of public funds. The salary check of a government officer or
employee does not belong to him before it is physically delivered to him. Until that time the
check belongs to the government. Accordingly, before there is actual delivery of the check, the
payee has no power over it; he cannot assign it without the consent of the Government. Being
public fund, the checks may not be garnished to satisfy the judgment in consideration of public
policy.

15. CASABUENA VS. COURT OF APPEALS (GR No. 115410; Feb. 27, 1998)

Facts: Ciriaco Urdaneta was a grantee of a parcel of land purchased by the Cityof Manila and
conveyed to its less privileged inhabitants, through its landreform program. Subsequently, he
assigned his rights and interests in ½ of the lot to Arsenia Benin covering full payment of his
indebtedness in theamount of P500. A deed of sale with mortgage was executed, withUrdaneta
undertaking to pay the City the amount figured for a period offorty years in 480 equal
installments. Another deed ofassignment involving the whole lot, with assignee Benin agreeing
toshoulder all obligations including the payment of amortization to the City,in accordance with
the contract between it and Urdaneta. As stated intheir verbal agreement, Urdaneta could
redeem the property upon payment of the loan within 3yrs. from the date of assignment;
failure topay would transfer physical possession of the lot to Benin for a period of15 years,
without actual transfer of title and ownership thereto.

Meanwhile, the administration of the property was assigned to brothersCandido and Juan
Casabuena, to whom Benin had transferred her right,title and interest for a consideration of
P7,500. Notwithstanding thisassignment, Benin constructed a duplex (apartment) on the lot
separatelyoccupied by Jose Abejero and Juan Casabuena, who collected rentals fromthe
former. After the lot was fully paid for by the Urdanetas, a Release ofMortgage was executed
and period of non-alienation of the land wasextended from 5 to 20 years. Casabuena was
Benin's rental collector buttheir relationship soured resulting in a litigation involving issue
onownership, of which the cause was the latter’s failure to pay rentals. Uponlearning of the
litigation between petitioner and Benin, Urdaneta askedthem to vacate the property and
surrender to him possession thereofwithin 15 days from notice. Petitioner's adamant refusal to
comply withsuch demand resulted in a complaint for ejectment and recovery ofpossession of
property filed by Urdaneta against Casabuena and Benin.Amid the sprouting controversies
involving the lot, the Urdaneta spousessucceeded in having the Court declare them as its true
and lawful ownerswith the deed of assignment to Benin merely serving as evidence ofCiriaco's
indebtedness to her in view of the prohibition against the sale ofthe land imposed by the City
government.

ISSUE: WON a deed ofassignment can transfer ownership of the property to the assignee?
HELD: At the bottom of this controversy is the undisputed fact thatCiriaco Urdaneta was
indebted to Benin, to secure which debt the spousesceded their rights over the land through a
deed of assignment. Anassignment of credit is an agreement by virtue of which theowner of a
credit, known as the assignor, by a legal cause,transfers his credit and its accessory rights to
another, known asthe assignee, who acquires the power to enforce it to the sameextent as
the assignor could have enforced it against thedebtor. Stated simply, it is the process of
transferring the right ofthe assignor to the assignee, who would then be allowed toproceed
against the debtor. The assignment involves no transferof ownership but merely effects the
transfer rights which theassignor has at the time, to the assignee. Benin having been deemed
subrogated to the rights and obligations of the spouses, she was bound byexactly the same
conditions to which the latter were bound. This being so,she and the Casabuenas were bound
to respect the prohibition againstselling the property within the five-year period imposed by
the Citygovernment. The act of assignment could not have operated to effaceliens or
restrictions burdening the right assigned, because an assigneecannot acquire a greater right
than that pertaining to the assignor. Atmost, an assignee can only acquire rights duplicating
those which hisassignor is entitled by law to exercise. In the case at bar, the Casabuenasmerely
stepped into Benin's shoes, who was not so much an owner as amere assignee of the rights of
her debtors. Not having acquired any rightover the land in question, it follows that Benin
conveyed nothing todefendants with respect to the property.
Sesbreno vs. Court of Appeals
GR 89252, 24 May 1993

FACTS:

Petitioner Sesbreno made a money market placement in the amount of P300,000 with the
Philippine Underwriters Finance Corporation (PhilFinance), with a term of 32 days. PhilFinance
issued to Sesbreno the Certificate of Confirmation of Sale of a Delta Motor Corporation
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 drawn
against the Insular Bank of Asia and America for P304,533.33 payable on March 13, 1981. The
checks were dishonored for having been drawn against insufficient funds. Pilipinas Bank never
released the note, nor any instrument related thereto, to Sesbreno; but Sesbreno learned that the
security which was issued on April 10, 1980, maturing on 6 April 1981, has a face value of
P2,300,833.33 with PhilFinance as payee and Delta Motors as maker; and was stamped “non-
negotiable” on its face. As Sesbreno was unable to collect his investment and interest thereon,
he filed an action for damages against Delta Motors and Pilipinas Bank. Delta Motors contents
that said promissory note was not intended to be negotiated or otherwise transferred by
Philfinance as manifested by the word "non-negotiable" stamped across the face of the Note.

ISSUE:Whether the non-negotiability of a promissory note prevents its assignment.

RULING: NO
 A negotiable instrument, instead of being negotiated, may also be assigned or transferred.
The legal consequences of negotiation and assignment of the instrument are different. A non-
negotiable instrument may not be negotiated but may be assigned or transferred, absent an
express prohibition against assignment or transfer written in the face of the instrument. The
subject promissory note, while marked "non-negotiable," was not at the same time stamped
"non-transferable" or "non-assignable." It contained no stipulation which prohibited Philfinance
from assigning or transferring such note, in whole or in part.

**A non-negotiable instrument may not be negotiated but may be assigned or transferred, absent
an express prohibition against assignment or transfer written on the face of the instrument.

Consolidated Plywood Leasing vs. IFC

Facts:

The petitioner is a corporation engaged in the logging business. For this purpose, it needed two (2)
additional units of tractors.

Atlantic Gulf & Pacific Company of Manila, through its sister company and marketing arm, Industrial
Products Marketing (the "seller-assignor"), a corporation dealing in tractors and other heavy equipment
business, offered to sell to petitioner-corporation two tractors/

With said assurance and warranty, and relying on the seller-assignor's skill and judgment, petitioner-
corporation agreed to purchase on installment said two (2) units of "Used" Allis Crawler Tractors.

The seller-assignor issued the sales invoice for the two 2) units of tractors (Exh. "3-A"). At the same time,
the deed of sale with chattel mortgage with promissory note was executed (Exh. "2").

Petitioner Rodolfo T. Vergara formally advised the seller-assignor of the fact that the tractors broke
down and requested for the seller-assignor's usual prompt attention under the warranty. Since the
tractors were no longer serviceable, on , petitioner asked the seller-assignor to pull out the units and
have them reconditioned, and thereafter to offer them for sale.

No response was received by the petitioner-corporation and despite several follow-up calls, the seller-
assignor did nothing with regard to the request, until the complaint in this case was filed by the
respondent against the petitioners

The complaint was filed by the respondent against the petitioners for the recovery of the principal sum.
The IAC ruled in favor of the respondents stating that the promissory note is a negotiable instrument
thus the petitioner could not raise any defense available to it against Industrial Products Marketing as
seller assignors.

Issue: WON the promissory note is a negotiable instrument?

Ruling:
No. Considering that paragraph (d), Section 1 of the Negotiable Instruments Law requires that a
promissory note "must be payable to order or bearer, " it cannot be denied that the promissory note in
question is not a negotiable instrument.

The instrument in order to be considered negotiablility-i.e. must contain the so-called 'words of
negotiable, must be payable to 'order' or 'bearer'. These words serve as an expression of consent that
the instrument may be transferred. This consent is indispensable since a maker assumes greater risk
under a negotiable instrument than under a non-negotiable one. ...

SEC. 8. WHEN PAYABLE TO ORDER. — The instrument is payable to order where it is drawn payable to
the order of a specified person or to him or his order. . . .

These are the only two ways by which an instrument may be made payable to order. There must always
be a specified person named in the instrument. It means that the bill or note is to be paid to the person
designated in the instrument or to any person to whom he has indorsed and delivered the same.
Without the words "or order" or"to the order of, "the instrument is payable only to the person
designated therein and is therefore non-negotiable. Any subsequent purchaser thereof will not enjoy
the advantages of being a holder of a negotiable instrument but will merely "step into the shoes" of the
person designated in the instrument and will thus be open to all defenses available against the latter.

Therefore, considering that the subject promissory note is not a negotiable instrument, it follows that
the respondent can never be a holder in due course but remains a mere assignee of the note in
question. Thus, the petitioner may raise against the respondent all defenses available to it as against the
seller-assignor Industrial Products Marketing.

This being so, there was no need for the petitioner to implead the seller-assignor when it was sued by
the respondent-assignee because the petitioner's defenses apply to both or either of either of them.

18. TRADERS ROYAL BANK VS. COURT OF APPEALS

(GR No. 93397; Mar. 3, 1997)

FACTS: Assailed in this Petition is the Decision of the Court of Appeals affirming the nullity of
the transfer of Central Bank Certificate of Indebtedness (CBCI), with a face value of P500,000
from the Philippine Underwriters Finance Corporation (Philfinance) - without authorization
from the Board of the Filfiters Guaranty Assurance Corporation, who is the registered owner of
the CBCI No. 891 to transfer the CBCI from Filfiters to Philfinance– that later assigned the CBCI
to petitioner Traders Royal Bank. “The records reveal that defendant Filriters is the registered
owner of CBCI No. D891. Under a deed of assignment dated November 27, 1971, Filriters
transferred CBCI No. D891 to Philippine Underwriters Finance Corporation (Philfinance).
Subsequently, Philfinance transferred CBCI No. D891, which was still registered in the name of
Filriters, to appellant Traders Royal Bank (TRB). The transfer was made under a repurchase
agreement dated February 4, 1981, granting Philfinance the right to repurchase the instrument
on or before April 27, 1981. When Philfinance failed to buy back the note on maturity date, it
executed a deed of assignment, dated April 27, 1981, conveying to appellant TRB all its rights
and title to CBCI No. D891.
 Armed with the deed of assignment, TRB then sought the transfer and registration of CBCI No. D891
in its name before the Security and Servicing Department of the Central Bank (CB). Central Bank,
however, refused to effect the transfer and registration in view of an adverse claim filed by defendant
Filriters.

Left with no other recourse, TRB filed a special civil action for mandamus against the Central Bank in
the Regional Trial Court of Manila. The suit, however, was subsequently treated by the lower court as a
case of interpleader when CB prayed in its amended answer that Filriters be impleaded as a respondent
and the court adjudge which of them is entitled to the ownership of CBCI No. D891. Failing to get a
favorable judgment, TRB now comes to this Court on appeal.”

ISSUE: Whether or not Central Bank Certificate of Indebtedness (CBCI) is a negotiable instrument?

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

Properly understood, a certificate of indebtedness pertains to certificates for the creation and
maintenance of a permanent improvement revolving fund, and is similar to a “bond,” (82 Minn. 202).
Being equivalent to a bond, it is properly understood as an acknowledgment of an obligation to pay a
fixed sum of money. It is usually used for the purpose of long term loans.
19. LIM VS. CA (GR No. 107898; Dec. 19, 1995)

Manuel Lim and Rosita Lim are the officers of the Rigi Bilt Industries, Inc. (RIGI) which had been
transacting business with Linton Commercial Company, Inc. The Lims ordered several steel plates and
purlins from Linton and were delivered to the Lim’s place of business which was in Caloocan. To pay
Linton, the petitioners issued seven checks. When the checks were presented to the drawee bank
(Solidbank), they were dishonored because payment for the checks had been stopped and/or
insufficiency of funds. As a result, petitioners were found guilty with Estafa and 7 counts of violation of
BP 22 by the Malabon RTC. On appeal, the CA reversed the trial court’s decision on Estafa but upheld
the decision on violation of BP 22, hence, this petition.

ISSUE: WON the issue was within the jurisdiction of the Malabon RTC?

HELD: The venue of jurisdiction lies either in the RTC Caloocan or Malabon Trial Court. BP 22 is a
continuing crime. A person charged with a transitory crime may be validly tried in any municipality or
territory where the offense was partly committed. In determining the proper venue, the ff. must be
considered. 1) 7 checks were issued to Linton in its place of business in Navotas. 2) The checks were
delivered Linton in the same place. 3) The checks were dishonored in Caloocan 4) The Lims had
knowledge of their insufficiency of funds. Under Section 191 of the Negotiable Instruments Law, issue
means the first delivery of the instrument complete in its form to a person who takes it as holder. The
term holder on the other hand refers to the payee or endorsee of a bill or note who is in possession of it
or the bearer thereof. The place where the bills were written, signed or dated does not necessarily fix or
determine the place where they were executed. It is the delivery that is important. It is the final act
essential to its consummation of an obligation. An undelivered bill is unoperative. The issuance and
delivery of the check must be to a person who takes it as a holder. In the case at bar, although Linton
sent a collector who received the checks from the petitioners’ place of business, the checks were
actually issued and delivered to Linton in Navotas. The collector is not a holder or an agent, he was just
an employee.

De la Victoria vs Burgos
Facts:
Raul Sebreño filed a complaint for damages against Fiscal Bienvenido Mabanto Jr. of Cebu City.
Sebreño won and he was awarded the payment of damages. Judge Burgos ordered De La
Victoria, custodian of the paychecks of Mabanto, to hold the checks and convey them to
Sebreño instead. De La Victoria assailed the decision as he said that the paychecks and the
amount thereon are not yet the property of Mabanto because they are not yet delivered to
him; that since there is no delivery of the checks to Mabanto, the checks are still part of the
public funds; and the checks due to the foregoing cannot be the proper subject of garnishment.
Issue: WON De La Victoria is correct?
Held: Yes. Under Section 16 of the Negotiable Instruments Law, every contract on a negotiable
instrument is incomplete and revocable until delivery of the instrument for the purpose of
giving effect thereto. As ordinarily understood, delivery means the transfer of the possession of
the instrument by the maker or drawer with intent to transfer title to the payee and recognize
him as the holder thereof.
DEVELOPMENT BANK OF RIZAL vs. SIMA WEI, ET AL.

G.R. No. 85419 March 9, 1993

FACTS:

Respondent Sima Wei executed and delivered to petitioner Bank a promissory

note engaging to pay the petitioner Bank or order the amount of P1,820,000.00. Sima Wei
subsequently issued two crossed checks payable to petitioner Bank drawn against China
Banking Corporation in full settlement of the drawer's account evidenced by the
promissory note. These two checks however were not delivered to the petitioner-payee or
to any of its authorized representatives but instead came into the possession of respondent
Lee Kian Huat, who deposited the checks without the petitioner-payee's indorsement to the
account of respondent Plastic Corporation with Producers Bank. Inspite of the fact that the
checks were crossed and payable to petitioner Bank and bore no indorsement of the latter,
the Branch Manager of Producers Bank authorized the acceptance of the checks for deposit
and credited them to the account of said Plastic Corporation.

ISSUE:

Whether petitioner Bank has a cause of action against Sima Wei for the undelivered checks.

RULING:

No. A negotiable instrument must be delivered to the payee in order to evidence its
existence as a binding contract. Section 16 of the NIL provides that every contract on a
negotiable instrument is incomplete and revocable until delivery of the instrument for the
purpose of giving effect thereto. Thus, the payee of a negotiable instrument acquires no
interest with respect thereto until its delivery to him. Without the initial delivery of the
instrument from the drawer to the payee, there can be no liability on the
instrument. Petitioner however has a right of action against Sima Wei for the balance due
on the promissory note.

BIBIANO BANAS VS. CA

325 SCRA 259
GR No. 102967; Feb. 10, 2000
FACTS:
Petitioner Bibiano V. Bañas Jr. sold to Ayala Investment Corporation (Ayala) a lot located at
Bayanan, Muntinlupa for P2,308,770 to be paid P461,754 upon signing of the contract and the
balance covered by a promissory note to be paid in four equal annual installments. On the same
day, petitioner discounted the promissory note with Ayala.
On the year of sale, petitioner reported the P461,754 as sales proceeds and the balance as
unrealized, and consistently reported in the succeeding years the installment that fell due. On
1978, Revenue Director of Manila authorized herein respondents Tuazon and Talon to examine
the books and records of petitioner to which they assessed him for deficiency taxes, arguing that
since the note evidencing the installment nature of the sale was discounted the same year it was
issued, the sale should be treated as a cash transaction and not installment and accordingly the
whole amount of gain on disposition should have been reported in 1976, the year of sale.
ISSUE:
Whether or not the proceeds of the discounted note should have been reported as taxable income
during 1976 and not deferred on installments?
RULING:
Yes. As a general rule, the whole profit accruing from a sale of property is taxable as income in
the year the sale is made. But, if not all of the sale price is received during such year, and a
statute provides that income shall be taxable in the year in which it is “received”, the profit from
an installment sale is to be apportioned between or among the years in which the installments are
paid and received. However, the proceeds from the disposition or discounting of receivable,
though not considered in computing for “initial payments” under Sec. 43 and Sec. 175 of the Tax
Code, it is still taxable in the year it was converted to cash. Non-dealer sales of property may be
reported as income under the installment method provided that the obligation is still outstanding
at the close of the year. Where an installment obligation is discounted at a bank or finance
company, a taxable disposition results. Clearly, the indebtedness of the buyer is discharged,
while the seller acquires money for the settlement of his receivables. Logically then, the income
should be reported at the time of the actual gain.
Enrique Montinola vs Philippine National Bank
FACTS: In May 1942, Ubaldo Laya, as provincial treasurer of Misamis Oriental issued a P100,000.00
Philippine National Bank (PNB) check to Mariano Ramos. The said check was to be used by Ramos, as
disbursing officer of the US forces at that time, for military purposes. Before Ramos can encash the
check, he was made a prisoner of war by the invading Japanese forces. When he got free in December
1944, he needed some cash for himself and so he went to a certain Enrique Montinola and made
arrangements.
On the back of the check, Ramos wrote:
Pay to the order of Enrique P. Montinola P30,000 only. The balance to be deposited in the Philippine
National Bank to the credit of M. V. Ramos.
In consideration thereof, Montinola promised to pay 85,000 in Japanese notes (that time peso notes are
valued higher). However, he was only able to pay 45k in Japanese notes to Ramos.
Later, Montinola sought to have the check encashed but PNB dishonored the check. It appears that
there was an insertion made. Under the signature of Laya, the words “Agent, Philippine National Bank”
was inserted, thus making it appear that Laya disbursed the check as an agent of PNB and not as
provincial treasurer of Misamis Oriental (NOTE: at that time, a provincial treasurer is an ex officio agent
of the government’s bank).

ISSUE: Whether or not the subject check is a negotiable instrument.

HELD: No. It was not negotiated according to the Negotiable Instruments Law (NIL) hence it is not a
negotiable instrument. There was only a partial indorsement and not a negotiation contemplated under
the NIL. Only P30k of the P100k amount of the check was indorsed. This merely make Montinola a mere
assignee – and this is the clear intent of Ramos. Ramos was merely assigning P30k to Montinola.
Montinola may therefore not be regarded as an indorsee and PNB has all the right to dishonor the
check. As mere assignee, he is subject to all defenses available to the drawer Provincial Treasurer of
Misamis Oriental and against Ramos.
Anent the issue of alteration, the apparent purpose of which is to make the drawee (PNB) the drawer
against which Montinola can recover from directly. Such material alteration which was done by
Montinola without the consent of the parties liable thereon discharges the instrument, pursuant to Sec.
124 of the NIL.
Montinola cannot be said to be a holder. He is an assignee. And even if he is a holder, he is not in good
faith because he did not pay the full amount of the consideration for which the P30k was issued to him
– he only paid 45k Japanese notes out of the 90k Japanese notes consideration.
At any rate, even assuming that there is proper negotiation, Montinola can no longer encash said check
because when he sought to have it encashed in January 1945, it is already stale there being two and half
years passing since its time of issuance.

23. ANG TEK LIAN vs. CA

Ang Tek Lian went to Lee Hua Hong’s office and asked him to exchange a check with
cash alleging that he needed badly the sum of P4,000 represented by the check, but could not
withdraw it from the bank, it being then already closed. In view of this request and relying upon
appellant's assurance that he had sufficient funds in the blank, and because they used to
borrow money from each other, and appellant owns a hotel and restaurant known as the North
Bay Hotel, said complainant delivered to him the sum of P4,000 in cash. Despite repeated
efforts to notify him that the check had been dishonored by the bank, appellant could not be
located any-where, until he was summoned in the City Fiscal's Office in view of the complaint
for estafa filed in connection therewith.

Inasmuch as the findings of fact of the Court of Appeals are final, the only question of law for
decision is whether under the facts found, estafa had been accomplished.
It is argued, however, that as the check had been made payable to "cash" and had not
been endorsed by Ang Tek Lian, the defendant is not guilty of the offense charged. Based on
the proposition that ". . . When the offended party accepted the check, he did so with full
knowledge that it would be dishonored upon presentment (because payable to “cash”and not
“Lee Hua Hong”). In that sense, the appellant could not be said to have acted fraudulently
because the complainant, must be considered, by every rational consideration, to have done so
fully aware of the risk he was running thereby.”

Issue: W/N defendant is guilty of estafa.

Ruling: Yes.

Under the Negotiable Instruments Law sec. 9 [d], a check drawn payable to the order of
"cash" is a check payable to bearer, and the bank may pay it to the person presenting it
for payment without the drawer's indorsement.

Where a check is made payable to the order of "cash", the word cash "does not purport to be
the name of any person", and hence the instrument is payable to bearer. The drawee bank need
not obtain any indorsement of the check, but may pay it to the person presenting it without any
indorsement.

. . . Consequently, a drawee bank to which a bearer check is presented for payment need not
necessarily have the holder identified and ordinarily may not be charged with negligence in
failing to do so. Although a bank is entitled to pay the amount of a bearer check without further
inquiry, it is entirely reasonable for the bank to insist that holder give satisfactory proof of his
identity.
Metropol vs. SambokL-39641February 28, 1983De Castro, J.:
FACTS:
Dr. Javier Villaruel executed a promissory note in favor of Ng Sambok Sons Motors Co., Ltd.
Payable in 12 equal monthly installments with interest. It is further provided that in case on non-
payment of any of the installments, the total principal sum then remaining unpaid shall become due
and payable with an additional interest. Sambok Motors co., a sister company of Ng Sambok Sons
negotiated and indorsed the note in favor of Metropol Financing & investment Corporation. Villaruel
defaulted in the payment, upon presentment of the promissory note he failed to pay the promissory
note as demanded, hence Ng Sambok Sons Motors Co., Ltd. notified Sambok as indorsee that the
promissory note has been dishonored and demanded payment. Sambok failed to pay. Ng Sambok
Sons filed a complaint for the collection of sum of money. During the pendency of the case Villaruel
died. Sambok argues that by adding the words “with recourse” in the indorsement of the note, it
becomes a qualified indorser, thus, it does not warrant that in case that the maker failed to pay upon
presentment it will pay the amount to the holder.

ISSUE: Whether or not Sambok Motors Co is a qualified indorser, thus it is not liable upon the failure
of payment of the maker.

HELD:
No. A qualified indorserment constitutes the indorser a mere assignor of the title to the
instrument. It may be made by adding to the indorser’s signature the words “without recourse” or any
words of similar import. Such indorsement relieves the indorser of the general obligation to pay if the
instrument is dishonored but not of the liability arising from warranties on the instrument as provided
by section 65 of NIL. However, Sambok indorsed the note “with recourse” and even waived the
notice of demand, dishonor, protest and presentment.
 Recourse means resort to a person who is secondarily liable after the default of the person
who is primarily liable. Sambok by indorsing the note “with recourse” does not make itself a qualified
indorser but a general indorser who is secondarily liable, because by such indorsement, it agreed
that if Villaruel fails to pay the not the holder can go after it. The effect of such indorsement is that
the note was indorsed witout qualification. A person who indorses without qualification engages that
on due presentment, the note shall be accepted or paid, or both as the case maybe, and that if it be
dishonored, he will pay the amount thereof to the holder. The words added by Sambok do not limit
his liability, but rather confirm his obligation as general indorser.

NATIVIDAD GEMPESAW VS. CA (GR No. 92244; Feb. 9, 1993)

FACTS: Natividad Gempesaw issued checks, prepared by her bookkeeper, a total of 82 checks in
favor of several supplies. Most of the checks for amounts in excess of actual obligations as
shown in their corresponding invoices. It was only after the lapse of more than 2 years did she
discovered the fraudulent manipulations of her bookkeeper. It was also learned that the
indorsements of the payee were forged, and the checks were brought to the chief accountant
of Philippine Bank of Commerce (the Drawee Bank, Buendia Branch) who deposited them in the
accounts of Alfredo Romero and Benito Lam. Gempesaw made demand upon the bank to credit
the amount charged due the checks. The bank refused. Hence, the present action.

ISSUE: Who shall bear the loss resulting from the forged indorsements?

HELD: As a rule, a drawee bank who has paid a check on which an indorsement has been forged
cannot charge the drawer’s account for the amount of said check. An exception to the rule is
where the drawer is guilty of such negligence which causes the bank to honor such checks.
Gempesaw did not exercise prudence in taking steps that a carefuland prudent businessman
would take in circumstances to discover discrepancies in her account. Her negligence was the
proximate cause of her loss, and under Section 23 of the Negotiable Instruments Law, is
precluded from using forgery as a defense. On the other hand, the banking rule banning
acceptance of checks for deposit or cash payment with more than one indorsement unless
cleared by some bank officials, does not invalidate the instrument; neither does it invalidate the
negotiation or transfer of said checks. The only kind of indorsement which stops the further
negotiation of an instrument is a restrictive indorsement which prohibits the further
negotiation thereof, pursuant to Section 36 of the Negotiable Instruments Law. In light of any
case not provided for in the Act that is to be governed by the provisions of existing legislation,
pursuant to Section 196 of the Negotiable Instruments Law, the bank may be held liable for
damages in accordance with Article 1170 of the Civil Code. The drawee bank, in its failure to
discover the fraud committed by its employee and in contravention banking rules in allowing a
chief accountant to deposit the checks bearing second indorsements, was adjudged liable to
share the loss with Gempesaw on a 50:50 ratio.
CHAN WAN VS. TAN KIM (G.R. No. L-15380; September 30, 1960)

FACTS:
Elevenchecks payable to "cash or bearer" and drawn by defendant Tan upon theEquitable
Banking Corporation, were all presented for payment by Chan Wan tothe drawee bank, but they
"were all dishonored and returned to him unpaiddue to insufficient funds and/or causes
attributable to the drawer." The drawerin drawing the check engaged that "on due presentment,
the check would bepaid, and that if it be dishonored . . . he will pay the amount thereof to
theholder".

On the backs of the checks, endorsements which apparently show theyhad been deposited with
the China Banking Corporation and were, by thelatter, presented to the drawee bank for
collection. The court declined to orderpayment for two principal reasons: (a) plaintiff failed to
prove he was a holderin due course, and (b) the checks being crossed checks should not have
beendeposited instead with the bank mentioned in the crossing.

ISSUE:
Whether or not aholder who is not a holder in due course may recover on the checks

HELD:
YES. The Negotiable Instruments Law does not provide that a holder,who is not a holder in due
course, may not in any case, recover on theinstrument. If B purchases an overdue negotiable
promissory note signed byA, he is not a holder in due course; but he may recover from A, if the
latter hasno valid excuse for refusing payment. The only disadvantage of holder who isnot a
holder in due course is that the negotiable instrument is subject todefense as if it were non-
negotiable.

ATRIUM MANAGEMENT CORPORATION VS. CA

Facts:

Hi-Cement Corp. issued checks in favor of E.T. Henry and Co. Inc., as payee. The latter, in turn, endorsed
the checks to Atrium for valuable consideration. But upon presentment for payment, the drawee bank
dishonored the checks for the common reason "payment stopped" which prompted petitioner to
institute this action. The trial court rendered a decision ordering E.T. Henry and Co., Inc. and Hi-Cement
to pay petitioner Atrium, jointly and severally, the amount corresponding to the value of the checks. CA,
however, absolved & ruled, inter alia, that Lourdes de Leon of Hi-Cement was not authorized to issue
the subject checks in favor of E.T. Henry, Inc.

ISSUE:

WON petitioner Atrium cannot recover on the instrument being not a holder in due course.

HELD:

NO.

To emphasize, the checks were crossed checks and specifically indorsed for deposit to payee's (E.T.
Henry) account only. Atrium was aware of the fact that the checks were all for deposit only to payee's
account. Clearly, then, Atrium could not be considered a holder in due course. The SC, however, held
that it does not follow as a legal proposition that simply because petitioner Atrium was not a holder in
due course for having taken the instruments in question with notice that the same was for deposit
only to the account of payee E.T. Henry that it was altogether precluded from recovering on the
instrument. The Negotiable Instruments Law does not provide that a holder not in due course cannot
recover on the instrument. The disadvantage of Atrium in not being a holder in due course is that the
negotiable instrument is subject to defenses as if it were non-negotiable. One such defense is absence
or failure of consideration.

MARCELO MESINA VS. CA (G.R. No. 70145 November 13, 1986)

FACTS: Go purchased from Associated Bank a cashier's check for P800,000.00. Unfortunately,
he left said check on the top of the desk of the bank manager when he left the bank. The bank
manager entrusted the check for safekeeping to a bank official, a certain Albert Uy. While Uy
went to the men's room, the check was stolen by his visitor in the person of Alexander Lim.
Upon discovering that the check was lost, Jose Go accomplished a "STOP PAYMENT" order. Two
days later, Associated Bank received the lost check for clearing from Prudential Bank. After
dishonoring the same check twice, Associated Bank received summons and copy of a complaint
for damages of Marcelo Mesina who was in possession of the lost check and is demanding
payment. Petitioner claims that a cashier's check cannot be countermanded in the hands of a
holder in due course.

ISSUE: WON petitioner can collect on the stolen check on the ground that he is a holder in due
course?

HELD: No. Petitioner failed to substantiate his claim that he is a holder in due course and for
consideration or value as shown by the established facts of the case. Admittedly, petitioner
became the holder of the cashier's check as endorsed by Alexander Lim who stole the check. He
refused to say how and why it was passed to him. He had therefore notice of the defect of his
title over the check from the start. The holder of a cashier's check who is not a holder in due
course cannot enforce such check against the issuing bank which dishonors the same. A person
who became the holder of a cashier's check as endorsed by the person who stole it and who
refused to say how and why it was passed to him is not a holder in due course
Equitable Banking vs Special Steel
Facts:
Respondent Special Steel Products, Inc. (SSPI) is a private domestic corporation selling steel
products. Its co-respondent Augusto L. Pardo (Pardo) is SSPIs President and majority
stockholder.International Copra Export Corporation (Interco) is its regular customer. Jose
IsidoroUy, alias Jolly Uy (Uy), is an Interco employee, in charge of the purchasing department, and the
son-in-law of its majority stockholder.
Petitioner Equitable Banking Corporation (Equitable or bank) is a private domestic corporation engaged
in bankingand is the depository bank of Interco and of Uy.In 1991, SSPI sold welding electrodes to
Interco, as evidenced by the sales invoices.The invoices provided that Interco would pay interest at the
rate of 36% per annum in case of delay.
In payment for the above welding electrodes, Interco issued three checks payable to the order
of SSPI. Each check was crossed with the notation account payee only and was drawn against
Equitable. Uy presented each crossed check to Equitable, equitable accepted the checks for deposit in
Uys personal accountt and stamped ALL PRIOR ENDORSEMENT AND/OR LACK OF ENDORSEMENT
GUARANTEED on their dorsal portion. Uy promptly withdrew the proceeds of the checks.
In October 1991, SSPI reminded Interco of the unpaid welding electrodes, amounting
to P985,234.98.Interco replied that it had already issued three checks payable to SSPI and drawn against
Equitable. SSPI denied receipt of these checks.Interco finally paid the value of the three checks to SSPI,
plus a portion of the accrued interests. Interco refused to pay the entire accrued interest of P767,345.64
on the ground that it was not responsible for the delay, it was UY. Thus, SSPI was unable to
collect P437,040.35 (at the contracted rate of 36% per annum) in interest income.
SSPI and its president, Pardo, filed a complaint for damagesagainst Uy and Equitable Bank. The
complaint alleged that the three crossed checks, all payable to the order of SSPI and with the notation
account payee only, could be deposited and encashed by SSPI only. However, due to Uys fraudulent
representations, and Equitables indispensable connivance or gross negligence, the restrictive nature of
the checks was ignored and the checks were deposited in Uys account.Equitable further argued that it is
not liable to SSPI because it accepted the three crossed checks in good faith. RTC ruled in favour of
plaintiff and CA affirmed.

Issue:
Whether or not Equitable acted in good faith

Ruling:
No. The fact that a person, other than the named payee of the crossed check, was presenting it
for deposit should have put the bank on guard. It should have verified if the payee (SSPI) authorized the
holder (Uy) to present the same in its behalf, or indorsed it to him. Considering however, that the
named payee does not have an account with Equitable (hence, the latter has no specimen signature of
SSPI by which to judge the genuineness of its indorsement to Uy), the bank knowingly assumed the risk
of relying solely on Uy’s word that he had a good title to the three checks. Such misplaced reliance on
empty words is tantamount to gross negligence, which is the “absence of or failure to exercise even
slight care or diligence, or the entire absence of care, evincing a thoughtless disregard of consequences
without exerting any effort to avoid them.”

Additional
Equitable’s argument is misplaced and beside the point. SSPI’s cause of action is not
based on the three checks. SSPI does not ask Equitable or Uy to deliver to it the proceeds of the
checks as the rightful payee. SSPI does not assert a right based on the undelivered checks or for
breach of contract. Instead, it asserts a cause of action based on quasi-delict. A quasi-delict is
an act or omission, there being fault or negligence, which causes damage to another. Quasi-
delicts exist even without a contractual relation between the parties.
VICENTE DE OCAMPO & CO. VS. ANITA GATCHALIAN (GR No. L15126 ;Nov. 30,
1961) –
Facts: Herein defendants issued a check amounting to P600 to one Manuel Gonzales,
who represented himself as authorized by the owner of the car, Ocampo, which will be
shown to the owner as evidence of defendants’ good faith in the intention to purchase
the said car.

Without knowledge of this transaction, plaintiff received from Gonzales the subject
check for the payment of the hospitalization of his wife. On the failure of Gonzales to
appear the day following, to bring the car and its certificate of registration and to return
the check on the following day as previously agreed upon, defendant Gatchalian issued
a "Stop Payment Order" on the check, with the drawee bank. The CFI of Manila then
ordered defendants to pay the plaintiff the sum of P600 with legal interest until paid. In
this action, defendants seek to recover the value of the check, contending that plaintiff is
not a holder in due course.

ISSUE: WON plaintiff is a holder in due course?

HELD:
No. Under the Negotiable Instruments Law, Section 52 (c) provides that a holder in due
course is one who takes the instrument "in good faith and for value;”

In the case at bar the rule that a possessor of the instrument is prima facie a holder in
due course does not apply because there was a defect in the title of the holder
(Manuel Gonzales), because the instrument is not payable to him or to bearer. On
the other hand, the stipulation of facts indicated by the appellants in their brief, like the
fact that the drawer had no account with the payee; that the holder did not show
or tell the payee why he had the check in his possession and why he was using it
for the payment of his own personal account — show that holder's title was
defective or suspicious, to say the least.

As holder's title was defective or suspicious, it cannot be stated that the payee
acquired the check without knowledge of said defect in holder's title, and for this
reason the presumption that it is a holder in due course or that it acquired the
instrument in good faith does not exist. And having presented no evidence that it
acquired the check in good faith, it (payee) cannot be considered as a holder in
due course.

plaintiff payee has not proved that it acquired the check in good faith and may not be
deemed a holder in due course thereof. It was payee's duty to ascertain from the holder
Manuel Gonzales what the nature of the latter's title to the check was or the nature of
his possession. Having failed in this respect, we must declare that plaintiff-appellee was
guilty of gross neglect in not finding out the nature of the title and possession of Manuel
Gonzales, amounting to legal absence of good faith, and it may not be considered as a
holder of the check in good faith.
Holder in Due Course: e. Good Faith
GR. 138074 Aug. 15, 2003
Cely Yang v. CA
FACTS: Yang and private respondent(PR) Prem Chandiramani entered into an agreement
whereby the latter was to give yang a Philippine Commercial International Bank (PCIB)
manager’s check acc. [P4.2 million] in exchange for 2 of Yang’s manager’s checks [P2.087
million ea.] payable to the order of PR. They agreed that difference of P26k in exchange would
be their profit to be divided equally between them.
They further agreed to secure a dollar draft from Far East Bank & Trust Company (FEBTC)
[P200k]. PR would exchange for another dollar draft in the same amount to be issued by Hang
Seng Bank Ltd. of Hong Kong. Yang and PR agreed to exchange dollar drafts and checks at a
designated place. PR did not appear, and Danilo Ranigo, Yang’s representative, allegedly lost
the two cashier checks. Yang was informed of the loss.
It wasn’t lost. PR received it without delivering the exchange consideration consisting of the
PCIB managers check and the Hang Seng Bank dollar draft.Yang requested FEBTC and
Equitable to stop payment on the instruments she believed to be lost. Both banks complied with
her request, but upon the representation of PCIB, FEBTC subsequently lifted the stop payment
order on FEBTC Dollar Draft No. 4771.
Yang filed a complaint for injunction and damages against Equitable Banking Corporation
(Equitable), PR, and Fernando David (payee). Court ruled in favor of David and entitled him to
the proceeds of the 2 checks.
Reason: Checks were not overdue when he became the holder thereof, he had no notice that the
checks were previously dishonored, he took the cashier’s checks in good faith and for value.
CA: Affirmed. “In this case, defendant-appellee had taken the necessary precautions to verify,
through his bank, China Banking Corporation, the genuineness of whether (sic) the cashier’s
checks he received from Chandiramani. As no stop payment order was made yet (at) the time of
the inquiry, David had no notice of what had transpired earlier between the Yang and PR. All he
knew was that the checks were issued to PR with whom he was he had (sic) a transaction.”
ISSUE: WON Fernando David is a holder in due course.
HELD: Yes. Yang failed to point any circumstance which should have put David on inquiry as
to the why and wherefore of the possession of the checks by PR David was not privy to the
transaction between petitioner and PR. Instead, PR and David had a separate dealing in which it
was precisely PR duty to deliver the checks to David as payee. The evidence shows that PR
performed said task to the letter. Yang admits that David took the step of asking the manager of
his bank to verify from FEBTC and Equitable as to the genuineness of the checks and only
accepted the same after being assured that there was nothing wrong with said checks. At that
time, David was not aware of any stop payment order. Under these circumstances, David thus
had no obligation to ascertain from PR what the nature of the latter’s title to the checks was, if
any, or the nature of his possession.Thus, the Court cannot hold him guilty of gross neglect
amounting to legal absence of good faith, absent any showing that there was something amiss
about PR acquisition or possession of the checks.It is apparent from the factual findings that
David had no dealings with the petitioner and was not privy to the agreement of the latter with
PR Moreover, any loss which the petitioner incurred was apparently due to the acts or omissions
of PR, and hence, her recourse should have been against him and not David.

BATAAN CIGAR AND CIGARETTE FACTORY, INC. v. THE COURT OF APPEALS. G.R. No. 93048. March 3,
1994.

FACTS: Bataan Cigar & Cigarette Factory, Inc. (BCCFI), engaged with King Tim Pua George, to
deliver 2,000 bales of tobacco leaf. BCCFI issued post dated crossed checks in exchange. Trusting King's
words, BCCFI issued another post-dated cross check for another purchase of tobacco leaves.

During these time, King was dealing with State Investment House Inc.. On two separate occasions King
sold the post-dated cross checks to SIHI, that was drawn by BCCFI in favor of King.

Because King failed to deliver the leaves, BCFI issued a stop payment to all the checks, including those
sold to SIHI.

The RTC held that SIHI had a valid claim of being a holder in due course and to collect the

checks issued by BCCFI. CA affirmed the RTC.

ISSUE: Whether SIHI is a holder in due course.

RULING: No. As preliminary, a check is defined by law as a bill of exchange drawn on a bank
payable on demand. There are a variety of checks, the more popular of which are the memorandum
check, cashier's check, traveler's check and crossed check. Crossed check is one where two parallel lines
are drawn across its face or across a corner thereof. It may be crossed generally or specially.

A check is crossed specially when the name of a particular banker or a company is written between the
parallel lines drawn. It is crossed generally when only the words "and company" are written or nothing is
written at all between the parallel lines. It may be issued so that the presentment can be made only by a
bank. Veritably the Negotiable Instruments Law (NIL) does not mention "crossed checks," although
Article 541 of the Code of Commerce refers to such instruments.

In the Philippine business setting, however, we used to be beset with bouncing checks, forging of
checks, and so forth that banks have become quite guarded in encashing checks, particularly those
which name a specific payee. Unless one is a valued client, a bank will not even accept second
indorsements on checks.

In order to preserve the credit worthiness of checks, jurisprudence has pronounced that crossing of a
check should have 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 one who has an account with a bank; (c) and the
act of crossing the check serves as warning to the holder that the check has been issued for a definite
purpose so that he must inquire if he has received the check pursuant to that purpose, otherwise, he is
not a holder in due course.

It is then settled that crossing of checks should put the holder on inquiry and upon him devolves the
duty to ascertain the indorser's title to the check or the nature of his possession. Failing in this respect,
the holder is declared guilty of gross negligence amounting to legal absence of good faith, contrary to
Sec. 52(c) of the Negotiable Instruments Law, 13 and as such the consensus of authority is to the effect
that the holder of the check is not a holder in due course.

In the present case, BCCFI's defense in stopping payment is as good to SIHI as it is to George King.

The foregoing does not mean, however, that respondent could not recover from the checks. The only
disadvantage of a holder who is not a holder in due course is that the instrument is subject to defenses
as if it were non-negotiable.

STELCO MARKETING CORPORATION VS. CA

GR No. 96160; June 17, 1992

Facts: Stelco Marketing Corporation is engaged in the distributionand sale to the public of structural steel
bars. On 7 different occasions inSeptember and October 1980, it sold to RYL Construction, Inc.
quantitiesof steel bars of various sizes and rolls of G.I. wire. These bars and wirewere delivered at
different places at the indication of RYL Construction,Inc. The aggregate price for the purchases was
P126,859.61. Although thecorresponding invoices issued by STELCO stipulated that RYL would pay
"COD" (cash on delivery), the latter made no payments for theconstruction materials thus ordered and
delivered despite insistentdemands for payment by the former. On April 4, 1981, RYL gave toArmstrong
Industries — described by STELCO as its "sister corporation"and "manufacturing arm" — a check drawn
against Metrobank in theamount of P126,129.86, numbered 765380 and dated 4 April 1981. Thatcheck
was a company check of another corporation, Steelweld Corporationof the Philippines, signed by its
President, Peter Rafael Limson, and itsVice-President, Artemio Torres. The check was issued by Limson
at thebehest of his friend, Romeo Y. Lim, President of RYL. Romeo Lim hadasked Limson for financial
assistance, and the latter had agreed to giveLim a check only by way of accommodation, "only as
guaranty but not topay for anything." Why the check was made out in the amount ofP126,129.86 is not
explained. The check was actually issued in saidamount of P126,129.86, and as already stated, was given
by R.Y. Lim toArmstrong, Industries, in payment of an obligation. When the latterdeposited the check at
its bank, it was dishonored because "drawn againstinsufficient funds." When so deposited, the check bore
two (2)indorsements, that of "RYL Construction," followed by that of "ArmstrongIndustries." On account
of the dishonor of Metrobank Check 765380, andon complaint of Armstrong Industries (through a Mr.
Young), RafaelLimson and Artemio Torres were charged in the Regional Trial Court ofManila with a
violation of Batas Pambansa Bilang 22. They were acquittedin a decision rendered on 28 June 1984 "on
the ground that the check inquestion was not issued by the drawer 'to apply on account for value,' itbeing
merely for accommodation purposes." That judgment howeverconditioned the acquittal with the
pronouncement that "this is nothowever to release Steelweld Corporation from its liability under Sec. 29
ofthe Negotiable Instruments Law for having issued it for theaccommodation of Romeo Lim." Eleven
months later — and some 4 yearsafter issuance of the check — in May, 1985, STELCO filed with
theRegional Trial Court of Caloocan City a civil complaint against both RYLand STEELWELD for the
recovery of the value of the steel bars and wiresold to and delivered to RYL in the amount of
P126,129.86, plus 18%interest from 20 August 1980 and 25% of the total amount sought to be
recovered as and by way of attorney's fees. A preliminary attachment wasissued by the trial court on the
basis of the averments of the complaintbut was shortly dissolved upon the filing of a counter-bond by
STEELWELD. RYL could no longer be located and could not be served withsummons. It never appeared.
Only STEELWELD filed an answer, underdate of 16 July 1985. Judgment was rendered on 26 June 1986.
Thejudgment sentenced Steelweld to pay to Stelco the amount ofP126,129.86 with legal rate of interest
from 9 May 1985, when the casewas instituted until fully paid, plus another sum equivalent to 25% of
thetotal amount due as and for attorney's fees. STELCO's motion forreconsideration was denied by the
Appellate Tribunal's resolution dated 13November 1990. STELCO appealed.

ISSUE NO. 1 WON the fourthcondition, i.e. as to notice, for a holder in due course is applicable to
anaccommodation party?

HELD: No."A holder in due course," says the law, "is aholder who has taken the instrument under the
following conditions: (a)That it is complete and regular upon its face; (b) That he became theholder of it
before it was overdue, and without notice that it had beenpreviously dishonored, if such was the fact; (c)
That he took it in goodfaith and for value; (d) That at the time it was negotiated to him, he hadno notice of
any infirmity in the instrument or defect in the title of thepersons negotiating it." As regards an
accommodation party (such asSTEELWELD), the fourth condition, i.e., lack of notice of any infirmity in
the instrument or defect in title of the persons negotiating it, has noapplication. This is because Section 29
of the law above quoted preservesthe right of recourse of a "holder for value" against the
accommodationparty notwithstanding that "such holder, at the time of taking theinstrument, knew him to
be only an accommodation party."

ISSUE NO.2:WON STELCO ever became a holder in due course of Check 765380, abearer instrument
within the contemplation of the Negotiable InstrumentsLaw?

HELD: NO. It never did. There is no evidence whatever thatSTELCO's possession of Check 765380 ever
dated back to any time beforethe instrument's presentment and dishonor. There is no evidencewhatsoever
that the check was ever given to it, or indorsed to it in anymanner or form in payment of an obligation or
as security for anobligation, or for any other purpose before it was presented for payment.
On the contrary, STELCO never became a holder for value and that"(n)owhere in the check itself does the
name of Stelco Marketing appearas payee, indorsee or depositor thereof." What the record shows is
that:(1) the STEELWELD company check in question was given by its presidentto R.Y. Lim; (2) it was
given only by way of accommodation, to be "usedas collateral for another obligation;" (3) in breach of the
agreement,however, R.Y. Lim indorsed the check to Armstrong in payment of anobligation; (4)
Armstrong deposited the check to its account, afterindorsing it; (5) the check was dishonored. The record
does not show anyintervention or participation by STELCO in any manner or form whatsoeverin these
transactions, or any communication of any sort betweenSTEELWELD and STELCO, or between either of
them and ArmstrongIndustries, at any time before the dishonor of the check. The record doesshow that
after the check had been deposited and dishonored, STELCOcame into possession of it in some way, and
was able, several years afterthe dishonor of the check, to give it in evidence at the trial of the civil caseit
had instituted against the drawers of the check (Limson and Torres) andRYL. Possession of a negotiable
instrument after presentment anddishonor, or payment, is utterly inconsequential; it does not make
thepossessor a holder for value within the meaning of the law; it gives rise tono liability on the part of the
maker or drawer and indorsers. It is clearfrom the relevant circumstances that STELCO cannot be deemed
a holderof the check for value. It does not meet two of the essential requisitesprescribed by the statute. It
did not become "the holder of it before it wasoverdue, and without notice that it had been previously
dishonored," andit did not take the check "in good faith and for value." Neither is there anyevidence
whatever that Armstrong Industries, to whom R.Y. Limnegotiated the check, accepted the instrument and
attempted to encash itin behalf, and as agent of STELCO. On the contrary, the indications arethat
Armstrong was really the intended payee of the check and was theparty actually injured by its dishonor; it
was after all its representative (aMr. Young) who instituted the criminal prosecution of the drawers,
Limsonand Torres, albeit unsuccessfully.

35. Go vs metropolitan bank

August 11, 2010

Facts: Petitioner filed 2 separate cases before RTC Cebu, 1. Civil Case CEB 9713- against Ma. Teresa
Chua (Chua) and Glydah Tabaag (Tabaag) for a sum of money, 2. Civil Case CEB 9866- against
Metropolitan Bank and Trust Company and Chua for a sum of money with damages. Petitioner is doing
business under the name Hope Pharmacy which sells medicine in the City of Cebu. He had in his employ
the following persons: Chua- pharmacist and trustee or caretaker of the business, and Tabaag- took care
of the receipts and invoices and assisted Chua in making deposits for petitioner’s accounts in business
operations of Hope Pharmacy.

CEB-9713: There were unauthorized deposits and encashments made by Chua and Tabaag in the
total amount of P109,433.30. FEBTC Check was issued by petitioner’s customer Loy Liboron in
the payment of the stocks purchased was deposited to a MetroBank Savings Account belonging
to the defendant Chua. RCBC Checks, which were in blank but pre-signed by petitioner for
convenience intended for payment to his suppliers, were filled up and dated September 22, 1990
and September 7, 1990 in the amount of P30,000 and P50,000 respectively and were deposited
with defendant Chuas aforestated account with Metrobank. PBC Check was drawn by Elizabeth
Enriquez payable to the Hope Pharmacy in the amount of P6,789.30 was encashed by the
defendant Glyndah Tabaag. There were unauthorized deposits and encashments.
CEB 9866: There were 32 checks with Hope Pharmacy as payee, for varying sums, amounting to
P1,492,595.06 that were not endorsed by him but were deposited under the personal account of
Chua with Metrobank. The said checks were crossed checks payable to Hope Pharmacy only
Petitioner avers 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.
RTC dismissed complaint against Chua and Tabaag in CEB 9713 as wells as complaint against Chua in
CEB 9866. Metrobank in CEB 9866 was ordered to pay Go the amount of P50,000 as moral damages and
attorney’s fees of P25,000. The RTC Absolved Chua because the subject checks in CEB No. 9866 were
payments of petitioner for his loans from the parents of Chua, through Chua, who was given the total
discretion by petitioner to transfer money from the offices of Hope Pharmacy to pay the advances and
other obligations of the drugstore; she was also given the full discretion where to source the funds to
cover the daily overdrafts, even to the extent of borrowing money with interest from other persons. It
Declared Metrobank liable for being negligent in allowing the deposit of crossed checks without the
proper indorsement. CA affirmed.

Issue: WON Metrobank is liable for allowing the deposit of crossed checks which were issued in
favor and payable to petitioner and without being indorsed by the petitioner to the account of
Chua.
Ruling: Yes. 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.
Respondent bank was negligent in permitting the deposit and encashment of the crossed checks
without the proper indorsement; Bank liable for moral damages. 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 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. The law
imposes a duty of extraordinary diligence on the collecting banks to scrutinize checks
deposited with it, for the purpose of determining their genuineness and regularity. As a business
affected with public interest and because of the nature of its functions, the banks are under
obligation to treat the accounts of its depositors with meticulous case, always having in mind the
fiduciary nature of the relationship.
A check is a bill of exchange drawn on a bank payable on demand. A crossed check is one where two
parallel lines are drawn across its face or across the corner thereof. It may crossed generally or specially.
A check is crossed specially when the name of a particular banker or company is written between the
parallel lines drawn. It is crossed generally when only the words “and company” are written or nothing is
written at all between the parallel lines. It may be issued so that presentment can be made only by a bank.
The Court has taken judicial cognizance of the practice that a check with 2 parallel lines in the upper left
hand corner means that it could only be deposited and not converted into cash. The effect of crossing a
check, thus, 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.

There is no dispute that the subject 32 checks were crossed checks with petitioner names as payee. Bank
has liability. It was negligent in permitting the deposit and encashment of the crossed checks without
proper indorsement. However, the petitioner is not entitled to the reimbursement of the total sum of
P1.49M from either Chua or the Bank since petitioner was not damaged thereby. Bank should not be
liable for the entire amount. The checks were actually given to Chua was payments by petitioners for
loans obtained from the parents of Chua. Petitioner’s non-inclusion of Chua and Tabaag in the petition
before the Court is an admission by petitioner that Chua, in representation of her parents, had rightful
claim to the proceeds of the checks. Petitioner suffered no pecuniary loss in the deposit of the checks to
the account of Chua.

SUMMARY: Go, owner of Hope Pharmacy, filed complaints for sums of money against his
employees, Chua and Tabaag and Metrobank for unauthorized deposits and encashments of 32
crossed checks payable to Hope Pharmacy, in the sum of P1.49M. In the RTC and CA, it was
held that Chua and Tabaag were not liable for the encashments, since the proceeds of the checks
were used as payments for loans of Go from the parents of Chua. The only issue left for
resolution in the SC was whether Metrobank was liable for negligence for encashing the subject
crossed checks. The Court held that Metrobank was negligent for allowing the deposit of crossed
checks which were issued in favor and payable to petitioner and without being indorsed by the
petitioner to the account of Chua.

SALAS VS CA

FACTS
Juanita Salas bought a motor vehicle from the Violago Motor Sales Corporation (VMS for brevity) as
evidenced by a promissory note. This note was subsequently endorsed to Filinvest Finance & Leasing
Corporation (private respondent) which financed the purchase.

Petitioner defaulted in her installments allegedly due to a discrepancy in the engine and chassis numbers
of the vehicle delivered to her and those indicated in the sales invoice, certificate of registration and deed
of chattel mortgage, which fact she discovered when the vehicle figured in an accident.

This failure to pay prompted private respondent to initiate Civil Case against petitioner before the.

ISSUE: Whether or not Filinvest is a holder in due course

RULING: YES
A careful study of the questioned promissory note shows that it is a negotiable instrument, having
complied with the requisites under the law as follows: [a] it is in writing and signed by the maker Juanita
Salas; [b] it contains an unconditional promise to pay the amount of P58,138.20; [c] it is payable at a fixed
or determinable future time which is "P1,614.95 monthly for 36 months due and payable on the 21 st day
of each month starting March 21, 1980 thru and inclusive of Feb. 21, 1983;" [d] it is payable to Violago
Motor Sales Corporation, or order and as such, [e] the drawee is named or indicated with certainty.

It was negotiated by indorsement in writing on the instrument itself payable to the Order of Filinvest
Finance and Leasing Corporation and it is an indorsement of the entire instrument.

Filinvest is a holder in due course, having taken the instrument under the following conditions: [a] it is
complete and regular upon its face; [b] it became the holder thereof before it was overdue, and without
notice that it had previously been dishonored; [c] it took the same in good faith and for value; and [d]
when it was negotiated to Filinvest, the latter had no notice of any infirmity in the instrument or defect in
the title of VMS Corporation.
Accordingly, respondent corporation holds the instrument free from any defect of title of prior parties,
and free from defenses available to prior parties among themselves, and may enforce payment of the
instrument for the full amount thereof. This being so, petitioner cannot set up against respondent the
defense of nullity of the contract of sale between her and VMS.

STATE INVESTMENT HOUSE VS. CA (175 SCRA 311, July 13, 1989)

FACTS: New Sikatuna Wood Industries, Inc. requested for a loan from Chua. The latter
agreed to grant the same subject to the condition that the former should wait until
December 1980 when he would have the money.

In view of this agreement, private respondent Chua issued three (3) "crossed checks"
payable to New Sikatuna Wood Industries, Inc. all postdated December 22, 1980.
Subsequently, New Sikatuna entered into an agreement with herein petitioner State
Investment House, Inc. whereby New Sikatuna assigned and discounted with petitioner
eleven (11) postdated checks including the aforementioned three (3) postdated checks
issued by Chua.

The checks, however, were dishonored by reason of "insufficient funds", "stop payment"
and "account closed", respectively. Petitioner claims that despite demands on Chua to make
good the said checks, the latter failed to pay the same thus, necessitating the former to file
an action for collection. When the CA reversed the trial court ruling favoring State
Investment House, the latter elevated the issue before the SC.

ISSUE: WON petitioner is a holder in due course as to entitle it to proceed against private
respondents Chua for the amount stated in the dishonored checks?

HELD:NO. The Intermediate Appellate Court (now Court of Appeals), correctly elucidated
that the effects of crossing a check are: the check may not be encashed but only deposited
in the bank; the check may be negotiated only once to one who has an account with a bank;
and 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.

It results therefore that when State Investment House rediscounted the check knowing that
it was a crossed check he was knowingly violating the avowed intention of crossing the
check. Furthermore, his failure to inquire from the holder, party defendant New Sikatuna
Wood Industries, Inc., the purpose for which the three checks were cross despite the
warning of the crossing, prevents him from being considered in good faith and thus he is
not a holder in due course. Being not a holder in due course, plaintiff is subject to
personal defenses, such as lack of consideration between appellants and New
Sikatuna Wood Industries. Note that under the facts the checks were postdated and
issued only as a loan to New Sikatuna Wood Industries, Inc. if and when deposits were
made to back up the checks. Such deposits were not made, hence no loan was made, hence,
the three checks are without consideration (Sec. 28, Negotiable Instruments Law).

PRUDENCIO VS. CA (GR No.; July 14, 1986)

FACTS: In 1955, Concepcion and Tamayo Construction Enterprise had a contract with the
Bureau of Public Works. The firm needed fund to push through with the contract so it
convinced spouses Eulalio and Elisa Prudencio to mortgage their parcel of land with the
Philippine National Bank for P10,000.00. Prudencio, without consideration, agreed and so he
mortgaged the land and executed a promissory note for P10k in favor of PNB. Prudencio also
authorized PNB to issue the P10k check to the construction firm. In December 1955, the firm
executed a Deed of Assignment in favor of PNB which provides that any payment from the
Bureau of Public Works in consideration of work done (by the firm) so far shall be paid directly
to PNB – this will also ensure that the loan gets to be paid off before maturity. Notwithstanding
the provision in the Deed of Assignment, the Bureau of Public Works asked PNB if it can make
the payments instead to the firm because the firm needs the money to buy construction
materials to complete the project. Notwithstanding the provision of the Deed of Assignment,
PNB agreed. And so the loan matured without PNB actually receiving any payment from the
Bureau of Public Works. Prudencio, upon learning that no payment was made on the loan,
petitioned to have the mortgage cancelled (to save his property from foreclosure). The trial
court ruled against Prudencio; the Court of Appeals affirmed the trial court.

ISSUE: WON Prudencio should pay the promissory note to PNB?

HELD: No. PNBis not a holder in due course. Prudencio is an accommodation party for
hesigned the promissory note as maker but he did not receive value or consideration
therefor. He expected the firm (accommodated party) to pay the loan – this obligation
was shifted to the Bureau of Public Works by way of the Deed of Assignment). As a
general rule, an accommodation party is liable on the instrument to a holder for
value/in due course, notwithstanding such holder at the time of taking the instrument
knew him to be only an accommodation party. The exception is that if the holder, in
this case PNB, is not a holder in due course. The court findsthat PNB is not a
holder in due course because it has not acted ingood faith when it waived the
supposed payments from the Bureau of Public Works contrary to the Deed of
Assignment. Hadthe Deed been followed, the loan would have been paid off
atmaturity.

Stelco Marketing Corporation vs. CA

G.R. No. 96160

June 17, 1992

FACTS: Stelco Marketing Corporation sold and delivered bars and wires on seven occasions to RYL
Construction, Inc. The aggregate price for the purchases was P126,859.61. They agreed that RYL would
pay Cash on Delivery but the latter made no payments for the construction materials.

RYL gave to Armstrong Industries, a sister company and manufacturing arm of Stelco, a check in the
amount of P126,859.61. That check was a company check of another corporation, Steelweld
Corporation of the Philippines, signed by its President, Limson, and its Vice- President, Torres. The check
was issued by Limson at the behest of his friend, Lim, President of RYL. Romeo Lim had asked Limson for
financial assistance, and the latter had agreed to give Lim a check only by way of accommodation, “only
as guaranty but not to pay for anything.” When Armstrong deposited the check at its bank, it was
dishonored because “drawn against insufficient funds.” When so deposited, the check bore 2
indorsements, that of “RYL Construction,” followed by that of “Armstrong Industries.”

On account of the dishonored check, Armstrong filed a case against Limson and Torres for violation of
BP 22. They were acquitted on the ground that the check in question was not issued by the drawer ‘to
apply on account for value,’ it being merely for accommodation purposes. That judgment however
conditioned the acquittal with the following pronouncement: “This is not however to release Steelweld
Corporation from its liability under Sec. 29 of the Negotiable Instruments Law for having issued it for the
accommodation of Romeo Lim.”

STELCO filed with the RTC a civil complaint against both RYL and STEELWELD for the recovery of the
value of the steel bars.

ISSUE: WON STELCO ever became a holder in due course because it had actual possession of the
dishonored check

HELD: No. Trial Court’s did not specify to whom STEELWELD, as accommodation party, is supposed to be
liable; and certain it is that neither said pronouncement nor any other part of the judgment of acquittal
declared it liable to STELCO.

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 persons negotiating it.

The record does show that after the check had been deposited and dishonored, STELCO came into
possession of it in some way, and was able, several years after the dishonor of the check, to give it in
evidence at the trial of the civil case it had instituted against the drawers of the check (Limson and
Torres) and RYL. But possession of a negotiable instrument after presentment and dishonor, or
payment, is utterly inconsequential; it does not make the possessor a holder for value within the
meaning of the law; it gives rise to no liability on the part of the maker or drawer and indorsers.
STELCO cannot be deemed a holder of the check for value. It does not meet two of the essential
requisites prescribed by the statute. It did not become “the holder of it before it was overdue, and
without notice that it had been previously dishonored” and it did not take the check “in good faith and
for value.”

Neither is there any evidence whatever that Armstrong Industries, to whom R.Y. Lim negotiated the
check, accepted the instrument and attempted to encash it in behalf, and as agent of STELCO.

40. CHARLES FOSSUM VS. FERNANDEZ HERMANOS (GR No. L-19461) -

FACTS: Herein petitioner was the resident agent in Manila of the American Iron Products Company, Inc.
(AIPCI), engaged in business in New York City, while Fernandez Hermanos is a general commercial
partnership engaged
in business in the Philippines. Fossum, acting as agent of AIPCI, procured an order from respondent to
deliver a tail shaft, to be installed on the ship Romulus. It was stipulated that the tail shaft would be in
accordance with
the specifications contained in a blueprint given to Fossum and that the shaft should be shipped from
New York in March or April 1920. The manufacture and shipment of the shaft was delayed considerably.

Meanwhile AIPCI had drawn a time draft for $2250, at 60 days, upon Fernandez Hermanos, for the price
of the shaft, and payable to Philippine National Bank (PNB). It was presented to Fernandez Hermanos for
acceptance, and was accepted by the firm according to its tenor. Subsequently, the shaft was found not
to be in conformity with the specifications and was incapable of use for its intended purpose. Upon
discovering this, Fernandez Hermanos refused to pay the draft, and it remained for a time dishonored in
PNB Manila. Later the bank indorsed the draft in blank, without consideration, and delivered it to
Fossum, who then instituted this action against Fernandez Hermanos. The trial court held that the
consideration for the draft and for its acceptance by
Fernandez Hermanos has completely failed and no action whatever can be maintained on the
instrument by AIPCI, or by any other person against whom the defense of failure of consideration is
available.

ISSUE: WON Fossum is a holder in due course, such that an action can be maintained on the instrument?

HELD: NO. Fossum is far from being a holder in due course. He was himself a party to the contract which
supplied the consideration for the draft, albeit acting in a representative capacity. Also,he procured the
instrument to be indorsed by the bank and delivered to himself without the payment of value, after it
was overdue, and with full notice that, as between the original parties, the consideration had
completely failed. Under these circumstances, recovery on the draft is out of the question. He calls
attention, however, to the familiar rule that a person who is not himself a holder in due course may yet
recover against the person primarily liable where it appears that such holder derives his title through a
holder in due course. There is not a line of proof tending to show that the bank itself was ever a holder
in due course. It wasincumbent on Fossum to show that the bank was a holder in due course, and can
have no assistance from the presumption expressed in sec 59 of NIL, to the effect that every holder is
deemed prima facie to be a holder in due course.

This presumption arises only in favor of a person who is a holder in the sense defined in sec 191 of NIL,
that is, a payee or indorsee who is in possession of the draft, or the bearer thereof. Under this
definition, in order to be a holder, one must be in possession of the note or the bearer thereof. (Night &
Day Bank vs. Rosenbaum) If this actionhad been instituted by the bank itself, the presumption that the
bank was a holder in due course would have arisen from the tenor of the draft and the fact that it was in
the bank's possession; but when the instrument
passed out of the possession of the bank and into the possession of Fossum, no presumption arises as to
the character in which the bank held the paper. The bank's relation to the instrument became past
history when it delivered the document to Fossum; and it was incumbent upon him to show that the
bank had in fact acquired the instrument for value and under such conditions as would constitute it a
holder in due course.

Moreover, Fossum personally made the contract which constituted the consideration for the draft. He
was therefore a party in fact, if not in law, to the transaction giving origin to the instrument; and it is
difficult to see
how he could strip himself of the character to agent with respect to the origin of the contract and
maintain this action in his own name where his principal could not. An agent who actually makes a
contract, and who has notice of all equities emanating therefrom, can stand on no better footing than
his principal with respect to commercial paper growing out of the transaction. To place him on any
higher plane would be incompatible with
the fundamental conception underlying the relation of principal and agent. If the original payee of a
note unenforceable for lack of consideration repurchases the instrument after transferring it to a
holder in due course, the paper again becomes subject in the payee's hands to the same defenses to
which it would have been subject if the paper had never passed through the hands of a holder in due
course. The same is true where the instrument is retransferred to an agent of the payee.
Jai-Alai Corp. of the Phil. vs. Bank of the Phil. Islands
G.R. No. L-29432 August 6, 1975 66 SCRA 29

FACTS:
Petitioner deposited 10 checks in its current account with BPI. The checks which were
acquired by petitioner from Ramirez, a sales agent of the Inter-Island Gas were all payable to
Inter-Island Gas Service, Inc. or order. After the checks had been submitted to Inter-bank
clearing, Inter-Island Gas discovered that all the indorsements made on the checks purportedly
by its cashiers were forgeries. BPI thus debited the value of the checks against petitioner's
current account and forwarded to the latter the checks containing the forged indorsements which
petitioner refused to accept.

ISSUE:
Whether BPI had the right to debit from petitioner's current account the value of the
checks with the forged indorsements.

RULING: YES
BPI acted within legal bounds when it debited the petitioner's account. Having indorsed
the checks to respondent bank, petitioner is deemed to have given the warranty prescribed in
Section 66 of the NIL that every single one of those checks "is genuine and in all respects what it
purports to be." Respondent which relied upon the petitioner's warranty should not be held liable
for the resulting loss.

**The depositor of a check as indorser warrants that it is genuine and in all respects what it
purports to be. Having indorsed the checks to respondent bank, petitioner is deemed to have
given the warranty prescribed in Section 66 of the NIL that every single one of those checks " is
genuine and in all respects what it purports to be."

PNB vs. Picornell

Facts:

Bartolome Picornell, following instruction of Hyndman, Tavera & Ventura, bought in Cebu 1,735 bales of
tobacco; that Picornell obtained from the branch of the National Bank in Cebu the sum of P39,529.83,
the value of the tobacco, together with his commission of 1 real per quintal (according to stipulation
Exhibit 4), having, in turn, drawn the a bill of exchange

This instrument was delivered to the branch of the National Bank in Cebu, together with the invoice and
bill of lading of the tobacco, which was shipped in the boat Don Ildefonso, on February 27, 1920,
consigned to Hyndman, Tavera & Ventura at Manila. The invoice and bill of lading were delivered to the
National Bank with the understanding that the bank should not delivered them to Hyndman, Tavera &
Ventura except upon payment of the bill; which condition was expressed by the well-known formula
"D/P" (documents for [against] payment).

The central office of the National Bank in Manila received the bill and the aforesaid documents annexed
thereto; and on March 3, 1920, presented the bill to Hyndman, Tavera & Ventura, who accepted it.

The tobacco having arrived at Manila, the firm of Tambunting, owner of the ship Don Ildefonso, that
brought the shipment, requested Hyndman, Tavera & Ventura to send for the goods, which was done by
the company without the knowledge of the National Bank which retained and always had in its
possession the invoice and bill of lading of the tobacco, until it presented them as evidence at the trial.
Picornell learned that Hyndman, Tavera & Ventura had in their possession the tobacco aforementioned.

Picornell asked for an extenstion for the time for payment of the bill for P39,529.83 against Messrs.
Hyndman, Tavera & Ventura of Manila.

The bank granted this request of the defendants; wherefore Hyndman, Tavera & Ventura reaccepted
the bill in the following terms:

Hyndman, Tavera & Ventura sent a letter to the plaintiff bank stating it’s refusal to pay draft No. 2
owing to noncompliance of the contract by the drawer.

The bank brought this action, and about September, 1921, sold the tobacco, obtaining from the sale
P6,708.82.

Issue: Whether or not Picornell and Joaquin Tavera as successor of Hyndman, Tavera & Ventura are
liable to the bank?

Ruling:

Yes. The Hyndman, Tavera & Ventura company cannot escape liability in view of section 28 of the
Negotiable Instruments Law.
. . . The drawee by acceptance becomes liable to the payee or his indorsee, and also to the drawer
himself. But the drawer and acceptor are the immediate parties to the consideration, and if the
acceptance be without consideration, the drawer cannot recover of the acceptor. The payee holds a
different relation; he is a stranger to the transaction between the drawer and the acceptor, and is,
therefore, in a legal sense a remote party. In a suit by him against the acceptor, the question as to the
consideration between the drawer and the acceptor cannot be inquired into. The payee or holder gives
value to the drawer, and if he is ignorant of the equities between the drawer and the acceptor, he is in
the position on a bona fide indorsee. Hence, it is no defense to a suit against the acceptor of a draft
which has been discounted, and upon which money has been advance by the plaintiff, that the draft was
accepted or the accommodation of the drawer. . .

As to Bartolome Picornell, he warranted, as drawer of the bill, that it would be accepted upon proper
presentment and paid in due course, and as it was not paid, he became liable to the payment of its value
to the holder thereof, which is the plaintiff bank. (Sec. 61, Negotiable Instruments Law.)

The fact that Picornell was a commission agent of Hyndman, Tavera & Ventura, in the purchase of the
tobacco, does not necessarily make him an agent of the company in its obligations arising from the
drawing of the bill by him. His acts in negotiating the bill constitute a different contract from that made
by his having purchased the tobacco on behalf of Hyndman, Tavera & Ventura. Furthermore, he cannot
exempt himself from responsibility by the fact of his having been a mere agent of this company, because
nothing to this effect was indicated or added to his signature on signing the bill. (Sec. 20, Negotiable
Instruments Law.)

Upon the non-payment of the bill by the drawee-acceptor, the bank had the right of recourse, which it
exercised, against the drawer. (Sec. 84, Negotiable Instruments Law.)

The drawee, the Hyndman, Tavera & Ventura company, or its successors, J. Pardo de Tavera, accepted
the bill and is primarily liable for the value of the negotiable instrument, while the drawer, Bartolome
Picornell, is secondarily liable. (3. R. C. L., pp. 1144, 1145.) However, no question has been raised about
this aspect of the responsibility of the defendants.

43. PNB VS. CA

(GR No. L-26001; Oct. 29, 1968)

FACTS: A partial stipulation of facts entered into by the parties and the decision of the Court of Appeals
show that, on or about January 15, 1962, one Augusto Lim deposited in his current account with the
PCIB branch at Padre Faura, Manila, GSIS Check No. 645915-B, in the sum of P57,415.00, drawn against
the PNB; that, following an established banking practice in the Philippines, the check was, on the same
date, forwarded, for clearing, through the Central Bank, to the PNB, which did not return said check the
next day, or at any other time, but retained it and paid its amount to the PCIB, as well as debited it
against the account of the GSIS in the PNB; that, subsequently, or on January 31, 1962, upon demand
from the GSIS, said sum of P57,415.00 was re-credited to the latter's account, for the reason that the
signatures of its officers on the check were forged; and that, thereupon, or on February 2, 1962, the PNB
demanded from the PCIB the refund of said sum, which the PCIB refused to do.In its brief, the PNB
maintains that the lower court erred: (1) in not finding the PCIB guilty of negligence; (2) in
not finding that the indorsements at the back of the check are forged; (3) in not finding the
PCIB liable to the PNB by virtue of the former's warranty on the back of the check; (4) in
not holding that "clearing" is not "acceptance", in contemplation of the Negotiable
Instruments Law; (5) in not finding that, since the check had not been accepted by the
PNB, the latter is entitled to reimbursement therefor; and (6) in denying the PNB's right to
recover from the PCIB. Hence this petition for certiorari of the decision of CA affirming the
dismissal of the Plaintiff’s complaint by the CFI.

ISSUE: Whether or not prior acceptance before payment is required in the case of checks?

HELD: No. In general, "acceptance", in the sense in which this term is used in the Negotiable Instruments
Law is not required for checks, for the same are payable on demand. Indeed, "acceptance" and
"payment" are, within the purview of said Law, essentially different things, for the former is "a promise
to perform an act," whereas the latter is the "actual performance" thereof. In the words of the Law, "the
acceptance of a bill is the signification by the drawee of his assent to the order of the drawer," which, in
the case of checks, is the payment, on demand, of a given sum of money. Upon the other hand, actual
payment of the amount of a check implies not only an assent to said order of the drawer and a
recognition of the drawer's obligation to pay the aforementioned sum, but, also, a compliance with such
obligation. Sec. 62 of the Negotiable Instrument Law is applicable to a drawee who pays a bill without
having previously accepted it.
ANG TIONG vs. LORENZO TING (G.R. No. L-26767, February 22, 1968)
FACTS:
Lorenzo Ting issued a check payable to “cash or bearer.” With Felipe Ang’s signature
(indorsement in blank) at the back thereof, the instrument was received by Ang Tiong who thereafter
presented it to the bank for payment. The drawee bank dishonored it. Ang Tiong made written
demands on both Ting and Ang to make good the amount represented by the check. These
demands unheeded, Ang Tiong then filed a suit for collection. The trial court adjudged for herein
petitioner. Only Felipe Ang appealed, maintaining that he is only an accommodation party.

ISSUE: WON Felipe Ang is an accommodation party? What is the liability of an accommodation
indorser?

HELD:
NO. Felipe Ang is a general indorser (Section 63, NIL), in the absence of any indication by
appropriate words his intention to be bound in some other capacity. Even on the assumption that
Ang is a mere accommodation party as he professes to be, he is nevertheless by the clear mandate
of section 29 of the Negotiable Instruments Law. That the appellant, again assuming him to be an
accommodation indorser, may obtain security from the maker to protect himself against the danger
of insolvency of the latter, cannot in any manner affect his liability to the appellee, as the said
remedy is a matter of concern exclusively between accommodation indorser and accommodated
party. So that the fact that the appellant stands only as a surety in relation to the maker, granting this
to be true for the sake of argument, is immaterial to the claim of the appellee, and does not a whit
diminish nor defeat the rights of the latter who is a holder for value. The liability of the appellant
remains primary and unconditional. To sanction the appellant's theory is to give unwarranted legal
recognition to the patent absurdity of a situation where an indorser, when sued on an instrument by
a holder in due course and for value, can escape liability on his indorsement by the convenient
expedient of interposing the defense that he is a mere accommodation indorser.
45. PEOPLE VS. MANIEGO (G.R. No. L-30910 February 27, 1987)

Accused Julia T. Maniego was indicted, together with Rizalino Ubay and Milagros Pamintuan, for
Malversation, by drawing checks. Maniego was acquitted in the absence of evidence against her but
ordered to pay jointly and severally the amount of P57,434.50 to the government. Maniego sought
reconsideration of the judgment, praying that she be absolved from civil liability or, at the very least,
that her liability be reduced. The Court declined to negate her civil liability, but did reduce the amount.
She appealed.

ISSUE: WON Maniego could properly be held civilly liable after her acquittal?

HELD: Yes. Appellant's contention that as mere indorser, she may not be made liable on account of the
dishonor of the checks indorsed by her, is untenable. Under the law, the holder or last indorsee of a
negotiable instrument has the right to "enforce payment of the instrument for the full amount thereof
against all parties liable thereon." Among the "parties liable thereon" is an indorser of the instrument
i.e., "a person placing his signature upon an instrument otherwise than as maker, drawer, or acceptor **
unless he clearly indicates by appropriate words his intention to be bound in some other capacity.” Such
an indorser "who indorses without qualification," inter alia "engages that on due presentment, ** (the
instrument) shall be accepted or paid, or both, as the case may be, according to its tenor, and that if it
be dishonored, and the necessary proceedings on dishonor be duly taken, he will pay the amount
thereof to the holder, or to any subsequent indorser who may be compelled to pay it."

Clark vs Sellner
Facts:
Herein defendant, together with two other persons, signed a note in favor of the plaintiff which
stipulates that six months after date of the same, the former shall pay the latter the sum of
P12,000 with interest at rate of 10% per annum from date until paid, payable quarterly. The
note matured, but its amount was not paid. Counsel for the defendant allege that the latter did
not receive in that transaction either the whole or any part of the amount of the debt; that the
instrument was not presented to the defendant for payment; and that the defendant, being an
accommodation party, is not liable unless the note is negotiated, which was not done, as shown
by the evidence.
ISSUE: WON defendant is liable given the defenses raised by him?
HELD:
The liability of the defendant, as one of the signers of the note, is not dependent on
whether he has, or has not, received any part of the amount of the debt. The defendant is really
and expressly one of the joint and several debtors on the note, and as such he is liable under
the provisions of Sec. 70 of NIL. As provided in Sec. 70 of the said law, as to presentment for
payment, such action is not necessary in order to charge the person primarily liable, as is the
defendant. And as to whether or not the defendant is an accommodation party, it should be
taken into account that by putting his signature to the note, he lent his name, not to the
creditor, but to those who signed with him placing 25 Cesar Nickolai F. Soriano Jr. Arellano
University School of Law 2011-0303 NEGOTIABLE INSTRUMENTS LAW (Act No. 2031) based on
the book of Aquino and De Leon and Audio Lecture of Dean Sundiang himself with respect to
the creditor in the same position and with the same liability as the said signers. It should be
noted that the phrase "without receiving value therefor," as used in section 29 of the aforesaid
Act, means "without receiving value by virtue of the instrument" and not, as it apparently is
supposed to mean, "without receiving payment for lending his name." If, as in the instant case,
a sum of money was received by virtue of the note, it is immaterial, so far as the creditor is
concerned, whether one of the singers has, or has not, received anything in payment of the use
of his name. In reality the legal situation of the defendant in this case may properly be regarded
as that of a joint surety rather than that of an accommodation party. The defendant, as a joint
surety, may, upon the maturity of the note, pay the debt, demand the collateral security and
dispose of it to his benefit; but there is no proof whatever that this was done. As to the plaintiff,
he is the "holder for value," under the phrase of said section 29, for he had paid the money to
the signers at the time the note was executed and delivered to him.
Crisologo vs CA

Facts:

Plaintiff Ricardo S. Santos, Jr. was the vice-president of Mover Enterprises, Inc. in-
charge of marketing and sales; and the president of the said corporation was Atty. Oscar Z.
Benares. Atty. Benares, in accommodation of his clients, the spouses Jaime and Clarita Ong,
issued check against Traders Royal Bank, payable to defendant Ernestina Crisologo-Jose.
Since the check was under the account of Mover Enterprises, Inc., the same was to be
signed by its president, Atty. Oscar Z. Benares, and the treasurer of the said corporation.
However, since at that time, the treasurer of Mover Enterprises was not available, Atty.
Benares prevailed upon the plaintiff, Ricardo S. Santos, Jr., to sign the aforesaid check.

The check was issued to defendant Ernestina Crisologo-Jose in consideration of the

waiver or quitclaim by said defendant over a certain property which the Government
Service Insurance System (GSIS) agreed to sell to the spouses Jaime and Clarita Ong, with
the understanding that upon approval by the GSIS of the compromise agreement with the
spouses Ong, the check will be encashed accordingly. Since the compromise agreement was
not approved within the expected period of time, the aforesaid check was replaced by Atty.
Benares. This replacement check was also signed by Atty. Oscar Z. Benares and by the
plaintiff Ricardo S. Santos, Jr. When defendant deposited this replacement check with her
account at Family Savings Bank, Mayon Branch, it was dishonored for insufficiency of
funds. The petitioner filed an action against the corporation for accommodation party.
Issue: WON the corporation can be held liable as accommodation party?

Held: No. Accommodation party liable on the instrument to a holder for value, although
such holder at the time of taking the instrument knew him to be only an accommodation
party, does not include nor apply to corporations which are accommodation parties. This
is because the issue or indorsement of negotiable paper by a corporation without
consideration and for the accommodation of another is ultra vires. Hence, one who has
taken the instrument with knowledge of the accommodation nature thereof cannot recover
against a corporation where it is only an accommodation party. If the form of the
instrument, or the nature of the transaction, is such as to charge the indorsee with
knowledge that the issue or indorsement of the instrument by the corporation is for the
accommodation of another, he cannot recover against the corporation thereon. By way of
exception, an officer or agent of a corporation shall have the power to execute or indorse a
negotiable paper in the name of the corporation for the accommodation of a third person
only if specifically authorized to do so.

Corollary, corporate officers, such as the president and vice-president, have no

power to execute for mere accommodation a negotiable instrument of the corporation for
their individual debts or transactions arising from or in relation to matters in which the
corporation has no legitimate concern. Since such accommodation paper cannot thus be
enforced against the corporation, especially since it is not involved in any aspect of the
corporate business or operations, the inescapable conclusion in law and in logic is that the
signatories thereof shall be personally liable therefor, as well as the consequences arising
from their acts in connection therewith.

PNB V. MAZA AND MECENAS

48 PHIL 207

FACTS: Maza and Macenas executed a total of five promissory notes. These were not paid at maturity.
And to recover the amounts stated on the face of the promissory notes, PNB initiated an action
against the two. The special defense posed by the two is that the promissory notes were
delivered to them in blank by a certain Enchaus and were made to sign the notes so that the
latter could secure a loan from the bank. They also alleged that they never negotiated the notes with
the bank nor have they received any value thereof. They also prayed that Enchaus be impleaded
in the complaint but such was denied. The trial court then held in favor of the bank.

ISSUE: Whether or not appellants are liable as accommodation parties.

HELD: YES. The defendants attested to the genuineness of the instruments sued on. Neither did
they point out any mistake in regard to the amount and interest that the lower court sentenced
them to pay. Given such, the defendants are liable. They appear as the makers of the promissory
notes and as such, they must keep their engagement and pay as promised.

And assuming that they are accommodation parties, the defendants having signed the instruments
without receiving value thereof, for the purpose of lending their names to some other person, are still
liable for the promissory notes. The law now is such that an accommodation party cannot claim no
benefit as such, but he is liable according to the face of his undertaking, the same as he himself
financially interest in the transaction. It is also no defense to say that they didn't receive the value of
the notes. To fasten liability however to an accommodation maker, it is not necessary that any
consideration should move to him. The accommodation which supports the promise of the
accommodation maker is that parted with by the person taking the note and received by the person
accommodated.

49. MAULINI vs. SERRANO

The action was brought by the plaintiff upon the contract of indorsement alleged to have been
made in his favor by the defendant upon the following promissory note:

3,000. Due 5th of September, 1912.

We jointly and severally agree to pay to the order of Don Antonio G. Serrano on or before the 5th day of September, 1912, the sum
of three thousand pesos (P3,000) for value received for commercial operations. Notice and protest renounced. If the sum herein
mentioned is not completely paid on the 5th day of September, 1912, this instrument will draw interest at the rate of 1½ per cent per
month from the date when due until the date of its complete payment. The makers hereof agree to pay the additional sum of P500
as attorney's fees in case of failure to pay the note.

Manila, June 5, 1912.

(Sgd.) For Padern, Moreno & Co., by F. Moreno, member of the firm. For Jose Padern, by F. Moreno. Angel Gimenez.

The note was indorsed on the back as follows:

Pay note to the order of Don Fernando Maulini, value received. Manila, June 5, 1912. (Sgd.)
A.G. Serrano.

Issue: Whether or not appellant is an accommodation indorser with regard to plaintiff-appellee

Maulini.
Ruling: No.

The learned trial court quoted that provision of the Negotiable Instruments Law which defines an
accommodation party as "one who has signed the instrument as maker, drawer, acceptor, or
indorser, without receiving value therefor, and for the purpose of lending his name to some
other person. Such a person is liable on the instrument to a holder for value, notwithstanding
such holder at the time of taking the instrument knew the same to be only an accommodation
party." (Act No. 2031, sec. 29.)

We are of the opinion that the trial court misunderstood this definition. The accommodation to
which reference is made in the section quoted is not one to the person who takes the
note —that is, the payee or indorsee, but one to the maker or indorser of the note. It is
true that in the case at bar it was an accommodation to the plaintiff, in a popular sense, to have
the defendant indorse the note; but it was not the accommodation described in the law, but,
rather, a mere favor to him and one which in no way bound Serrano.
In cases of accommodation indorsement the indorser makes the indorsement for the
accommodation of the maker. Such an indorsement is generally for the purpose of better
securing the payment of the note —that is, he lend his name to the maker, not to the holder.
Putting it in another way: An accommodation note is one to which the accommodation party has
put his name, without consideration, for the purpose of accommodating some other party who is
to use it and is expected to pay it. The credit given to the accommodation part is sufficient
consideration to bind the accommodation maker. Where, however, an indorsement is made as a
favor to the indorsee, who requests it, not the better to secure payment, but to relieve himself
from a distasteful situation, and where the only consideration for such indorsement passes from
the indorser to the indorsee, the situation does not present one creating an accommodation
indorsement, nor one where there is a consideration sufficient to sustain an action on the
indorsement.

PEOPLE VS. MANIEGO

G.R. No. L-30910
February 27, 1987

FACTS:
Accused Julia T. Maniego was indicted, together with Lt. Rizalino Ubay (a duly appointed
officer of AFP) and Milagros Pamintuan, for Malversation of public funds, by drawing checks.
Maniego was acquitted in the absence of evidence against her but ordered to pay jointly and
severally the amount of P57,434.50 to the government. Maniego sought reconsideration of the
judgment, praying that she be absolved from civil liability or, at the very least, that her liability
be reduced. The Court declined to negate her civil liability, but did reduce the amount. She
appealed.

ISSUE:
Whether or not Maniego could properly be held civilly liable after her acquittal?

RULING:
Yes. Appellant's contention that as mere indorser, she may not be made liable on account of the
dishonor of the checks indorsed by her, is untenable. Under the law, the holder or last indorsee of
a negotiable instrument has the right to "enforce payment of the instrument for the full amount
thereof against all parties liable thereon." Among the "parties liable thereon" is an indorser of the
instrument i.e., "a person placing his signature upon an instrument otherwise than as maker,
drawer, or acceptor ** unless he clearly indicates by appropriate words his intention to be bound
in some other capacity.” Such an indorser "who indorses without qualification," inter alia
"engages that on due presentment, ** (the instrument) shall be accepted or paid, or both, as the
case may be, according to its tenor, and that if it be dishonored, and the necessary proceedings on
dishonor be duly taken, he will pay the amount thereof to the holder, or to any subsequent
indorser who may be compelled to pay it."
ATRIUM MANAGEMENT VS. CA

Facts:

Hi-Cement Corp. issued checks in favor of E.T. Henry and Co. Inc., as payee. The latter, in turn, endorsed
the checks to Atrium for valuable consideration. But upon presentment for payment, the drawee bank
dishonored the checks for the common reason "payment stopped" which prompted petitioner to
institute this action. The trial court rendered a decision ordering E.T. Henry and Co., Inc. and Hi-Cement
to pay petitioner Atrium, jointly and severally, the amount corresponding to the value of the checks. CA,
however, absolved & ruled, inter alia, that Lourdes de Leon of Hi-Cement was not authorized to issue
the subject checks in favor of E.T. Henry, Inc.

ISSUE:

WON the issuance of the checks were ultra vires.

HELD:

No. the act of issuing the checks was well within the ambit of a valid corporate act, for it was for
securing a loan to finance the activities of the corporation, hence, not an ultra vires act. An ultra vires
act is one committed outside the object for which a corporation is created as defined by the law of its
organization and therefore beyond the power conferred upon it by law" The term "ultra vires" is
"distinguished from an illegal act for the former is merely voidable which may be enforced by
performance, ratification, or estoppel, while the latter is void and cannot be validated.

CRISOLOGO-JOSE VS. CA

Facts:

The Vice-president of Mover Enterprises, Inc. issued a check drawn against Traders Royal Bank, payable
to petitioner Ernestina Crisologo-Jose, for the accommodation of his client. Petitioner-payee was
charged with the knowledge that the check was issued at the instance and for the personal account of
the President who merely prevailed upon respondent vice-president to act as co-signatory in accordance
with the arrangement of the corporation with its depository bank. While it was the corporation's check
which was issued to petitioner for the amount involved, petitioner actually had no transaction directly
with said corporation.

ISSUE:

WON private respondent, one of the signatories of the check issued under the account of Mover
Enterprises, Inc., is an accommodation party under NIL and a debtor of petitioner to the extent of the
amount of said check.

HELD:

Yes.
The liability of an accommodation party to a holder for value, although such holder does not include nor
apply to corporations which are accommodation parties. This is because the issue or indorsement of
negotiable paper by a corporation without consideration and for the accommodation of another is ultra
vires.

SALAS VS. CA (G.R. No. 76788 January 22, 1990)

FACTS: Juanita Salas (Petitioner) bought a motor vehicle from the Violago Motor Sales
Corporation (VMS) as evidenced by a promissory note. This note was subsequently endorsed to
Filinvest Finance & Leasing Corporation (private respondent) which financed the purchase.
Petitioner defaulted in her installments allegedly due to a discrepancy in the engine and chassis
numbers of the vehicle delivered to her and those indicated in the sales invoice, certificate of
registration and deed of chattel mortgage, which fact she discovered when the vehicle figured
in an accident. This failure to pay prompted private respondent to initiate an action for a sum of
money against petitioner before the Regional Trial Court.

ISSUE: WON private respondent is a holder in due course?

HELD: YES. The Promissory Note was negotiated by indorsement in writing on the instrument
itself payable to the Order of Filinvest Finance and Leasing Corporation and it is an indorsement
of the entire instrument. Under the circumstances, there appears to be no question that
Filinvest is a holder in due course, having taken the instrument under the following conditions:
[a] it is complete and regular upon its face; [b] it became the holder thereof before it was
overdue, and without notice that it had previously been dishonored; [c] it took the same in
good faith and for value; and [d] when it was negotiated to Filinvest, the latter had no notice of
any infirmity in the instrument or defect in the title of VMS Corporation. Accordingly,
respondent corporation holds the instrument free from any defect of title of prior parties, and
free from defenses available to prior parties among themselves, and may enforce payment of
the instrument for the full amount thereof. This being so, petitioner cannot set up against
respondent the defense of nullity of the contract of sale between her and VMS.
ASSOCIATED BANK VS. CA

Facts:

The Province of Tarlac maintains a current account with the Philippine National Bank where the
provincial funds are deposited. A portion of the funds of the province is allocated to the Concepcion
Emergency Hospital. The allotment checks for said government hospital are drawn to the order of
"Concepcion Emergency Hospital, Concepcion, Tarlac" or "The Chief, Concepcion Emergency Hospital,
Concepcion, Tarlac”. It was later discovered that the hospital did not receive several allotment checks
drawn by the Province. After the checks were examined, it was learned that 30 checks were encashed by
one Fausto Pangilinan, with the Associated Bank acting as collecting bank. It turned out that Fausto
Pangilinan, who was the administrative officer and cashier of payee hospital, collected the questioned
checks from the office of the Provincial Treasurer claiming to be assisting or helping the hospital on the
release of the checks. To encash the checks, he forged the signature of Dr. Adena Canlas chief of the
payee hospital. All the checks bore the stamp of Associated Bank which reads "All prior endorsements
guaranteed ASSOCIATED BANK." The Provincial Treasurer sought to recover from PNB various amounts
debited from the current account of the Province. In turn, PNB demanded reimbursement from the
Associated Bank who refused to pay interposing the defense of forgery.

ISSUE:

Whether or Not Associated Bank (collecting bank) may interpose the real defense of forgery
against PNB (drawee bank) as to bar recovery by the latter

HELD:

NO. Where the instrument is payable to order at the time of the forgery, such as the checks in
this case, the signature of its rightful holder (here, the payee hospital) is essential to transfer title to the
same instrument. When the holder's indorsement is forged, all parties prior to the forgery may raise the
real defense of forgery against all parties subsequent thereto. An indorser of an order instrument
warrants "that the instrument is genuine and in all respects what it purports to be; that he has a good
title to it; that all prior parties had capacity to contract; and that the instrument is at the time of his
indorsement valid and subsisting." He cannot interpose the defense that signatures prior to him are
forged. A collecting bank where a check is deposited and which indorses the check upon presentment
with the drawee bank, is such an indorser. So even if the indorsement on the check deposited by the
bank's client is forged, the collecting bank is bound by his warranties as an indorser and cannot set up
the defense of forgery as against the drawee bank.

The rule is “Parties who warrant or admit the genuineness of the signature in question and
those who, by their acts, silence or negligence are estopped from setting up the defense of forgery, are
precluded from using this defense. Indorsers, persons negotiating by delivery and acceptors are
warrantors of the genuineness of the signatures on the instrument.” When the indorsement is a forgery,
only the person whose signature is forged can raise the defense of forgery against a holder in due
course.

The loss incurred by drawee bank-PNB can be passed on to the collecting bank-Associated Bank
which presented and indorsed the checks to it. Associated Bank can, in turn, hold the forger, Fausto
Pangilinan, liable. The drawee bank is not similarly situated as the collecting bank because the former
makes no warranty as to the genuineness of any indorsement. The drawee bank's duty is but to verify
the genuineness of the drawer's signature and not of the indorsement because the drawer is its client.

GEMPESAW VS. CA

Facts: Natividad Gempesaw issued checks, prepared by her bookkeeper, a total of 82 checks in favor of
several supplies. Most of the checks for amounts in excess of actual obligations as shown in their
corresponding invoices. It was only after the lapse of more than 2 years did she discovered the
fraudulent manipulations of her bookkeeper. It was also learned that the indorsements of the payee
were forged, and the checks were brought to the chief accountant of Philippine Bank of Commerce (the
Drawee Bank, Buendia Branch) who deposited them in the accounts of Alfredo Romero and Benito Lam.
Gempesaw made demand upon the bank to credit the amount charged due the checks. The bank
refused. Hence, the present action.
ISSUE: W/N the bank shall bear the loss resulting from the forged indorsements?

No. Under Sec. 23 of the Negotiable Instruments Law, a forged signature is “wholly inoperative, no one
can gain title to the instrument through such forged indorsement. Such an indorsement prevents any
subsequent party from acquiring any right as against any party whose name appears prior to the
forgery. Such forged indorsement cuts-off the rights of all subsequent parties as against parties prior to
the forgery. As a rule, a drawee bank who has paid a check on which an indorsement has been forged
cannot charge the drawer’s account for the amount of said check. An exception to the rule is where the
drawer is guilty of such negligence which causes the bank to honor such checks. Gempesaw did not
exercise prudence in taking steps that a careful and prudent businessman would take in circumstances
to discover discrepancies in her account. Her negligence was the proximate cause of her loss, and under
Section 23 of the Negotiable Instruments Law, is precluded from using forgery as a defense.

Forgery of Bearer Instrument

GR. L-40796 July 31, 1975
Republic Bank v. Mauricia T. Ebrada
FACTS: Ebrada encashed a back pay check dated Jan. 15, 1963for P1,246.08 at the main office
of the Republic Bank. The check was issued by the Bureau of Treasury. The Bureau advised the
bank that the alleged indorsement by Martin Lorenzo at the dorsal portion of the check was a
forgery because Lorenzo has already died as of July 14, 1952. The Bureau requested the bank to
refund the aforesaid amount.
To recover what it refunded to the Bureau, the bank made verbal and formal demands upon
Ebrada for the same amount. Ebrada refused. The bank sued Ebrada before the City Court of
Manila. Ebrada alleged that she was a holder in due course, or at least acquired her rights from a
holder in due course and was therefore entitled to the proceeds thereof. She also alleged that the
bank was estopped or was so negligent as not to be entitled to recover anything from her.
Ebrada later filed a 3rd party complaint against Adelaida Dominguez, who in turn filed a 4th party
complaint against Justin Tino. The dorsal portion bears the following signatures in this order:
Martin Lorenzo; Ramon R. Lorenzo; Delia Dominguez; and Mauricia Ebrada. Adelaida
delivered the cash to Ebrada for encashment. The Court ordered Ebrada to pay the bank the
above amount, however any actions Ebrada may have against Dominguez is reserved.
ISSUE: WON Ebrada is liable to return the money paid to her by Republic Bank subject of a
forged check and may the petitioner recover the proceeds given?
HELD: Yes. It is clear from the provision of Section 23 of the NIL that where the signature on a
negotiable instrument if forged, the negotiation of the check is without force or effect. But does
this mean that the existence of one forged signature therein will render void all the other
negotiations of the check with respect to the other parties whose signature are genuine? No.
Applying the principle of Beam vs. Farrel, 135 Iowa 670, 113 N.W. 590, it can be safely
concluded that it is only the negotiation predicated on the forged indorsement that should be
declared inoperative. [
This means that the negotiation of the check in question from Martin Lorenzo, the original
payee, to Ramon R. Lorenzo, the 2nd indorser, should be declared of no effect, but the
negotiation of the aforesaid check from Ramon R. Lorenzo to Adelaida Dominguez, the 3rd
indorser, and from Adelaida Dominguez to Ebrada who did not know of the forgery, should be
considered valid and enforceable, barring any claim of forgery. Being the last indorser, however,
Ebrada warrants that she has good title to the check subject of this action.
The bank can recover from the holder [Ebrada] the money paid to the latter on a forged
instrument. It is not supposed to be its duty to ascertain whether the signatures of the payee
or indorsers are genuine or not. This is because the indorser is supposed to warrant to the
drawee that the signatures of the payee and previous indorsers are genuine, warranty not
extending only to holders in due course. Ebrada, upon receiving the check in question from
Dominguez, was duty-bound to ascertain whether the check in question was genuine before
presenting it to plaintiff Bank for payment. Indorsers own credulity or recklessness or
misplaced confidence was the sole cause of the loss. Why should he be permitted to shift the
loss due to his own fault in assuming the risk, upon the drawee, simply because of the
accidental circumstance that the drawee afterwards failed to detect the forgery when the
check was presented for payment.
MWSS V. CA
143 SCRA 20

FACTS:

MWSS had an account from PNB. Its treasurer, auditor, and General Manager are the
ones authorized to sign checks. During a period of time, 23 checks were drawn and debited
against the account of petitioner. Bearing the same check numbers, the amounts stated
therein were again
debited from the account of petitioner. The amounts drawn were deposited in the accounts of
the payees in PCIB. It was found out though that the names stated in the drawn checks were all
fictitious. Petitioner demanded the return of the amounts debited but the bank refused to do
so. Thus, it filed a complaint.

Issue: Whether or not Forgery was committed

Held: No. There was no categorical finding that the 23 checks were signed by persons
other than those authorized to sign. On the contrary, the NBI reports shows that the
fraud was an “inside job” and that the delay in the reconciliation of the bank statements and
the laxity and loss of records
control in the printing of the personalized checks facilitated the fraud. It further doesn’t
provide that the signatures were forgeries.

Every negotiable instrument is deemed prima facie to have been issued for valuable
consideration and every person whose signature appears thereon to have become a party
thereto for value
A bank is bound to know the signatures of its customers; and if it pays a forged check it must be
considered as making the payment out of its obligation funds, and cannot ordinarily charge the
amount so paid to the account of the depositor whose name was forged.

Forgery cannot be presumed. It should be proven by clear, convincing and positive evidence.
This wasn’t done in the present case.

The petitioner cannot invoke Section 23 because it was guilty of negligence not only before the
questioned checks but even after the same had already been negotiated.
MWSS VS. CA
GR No. L-62943; July 14, 1986

Facts: 23 checks were deposited by the payees Dizon, Sison and Mendoza in their respective current
accounts with the PCIB and PBC. Thru the Central Bank Clearing, these checks were presented for
payment by PBC and PCIB to the defendant PNB, and were paid. At the time of their presentation to
PNB, these checks bear the standard indorsement which reads 'all prior indorsement and/or lack of
endorsement guaranteed.' Subsequent investigation however, conducted by the NBI showed that Raul
Dizon, Arturo Sison and Antonio Mendoza were all fictitious persons. NWSA addressed a letter to PNB
requesting the immediate restoration to its Account No. 6, of the total sum of P3,457,903.00
corresponding to the total amount of these twenty-three (23) checks claimed by NWSA to be forged
and/or spurious checks.

ISSUE: WON THE DRAWEE BANK WAS LIABLE FOR THE LOSS UNDER SECTION 23 OF THE
NEGOTIABLE INSTRUMENTS LAW?

HELD: The NBI does not declare or prove that the signatures appearing on the questioned checks are
forgeries. These reports did not touch on the inherent qualities of the signatures which are indispensable
in the determination of the existence of forgery. There must be conclusive findings that there is a variance
in the inherent characteristics of the signatures and that they were written by two or more different
persons. Forgery cannot be presumed. It must be established by clear, positive, and convincing evidence.
This was not done in the present case. Even if the twenty-three (23) checks in question are considered
forgeries, considering the petitioner's gross negligence, it is barred from setting up the defense of forgery
under Section 23 of the Negotiable Instruments Law. One factor which facilitates this fraud was the delay
in the reconciliation of bank (PNB) statements with the NAWASA bank accounts. The records likewise
show that the petitioner failed to provide appropriate security measures over its own records thereby
laying confidential records open to unauthorized persons. We cannot fault the respondent drawee Bank
for not having detected the fraudulent encashment of the checks because the printing of the petitioner's
personalized checks was not done under the supervision and control of the Bank. Under the
circumstances, therefore, the petitioner was in a better position to detect and prevent the fraudulent
encashment of its checks.
SAMSUNG CONSTRUCTION VS FAR EAST BANK

FACTS:
Petitionerwhile based in Bian, Laguna, maintained a current account with respondent. The sole signatory
to Samsung Constructions account was Jong Kyu Lee (Jong), its Project Manager, while the checks
remained in the custody of the companys accountant, Kyu Yong Lee (Kyu).

Roberto Gonzaga presented for payment a check to the bank’s Makati Branch. The authenticity of the
signature appearing on the check was ascertained.

At the same time, Justiani forwarded the check to the branch Senior Assistant Cashier. Sempio was the
assistant accountant of Petitioner. The check was shown to Sempio, who vouched for the genuineness of
Jong’s signature. Confirming the identity of Gonzaga, Sempio said that the check was for the purchase of
equipment for Samsung Construction. Satisfied with the genuineness of the signature of Jong, Syfu
authorized the banks encashment of the check to Gonzaga.

The following day, the accountant of Samsung Construction, Kyu, examined the balance of the bank
account and discovered that a check was encashed. Aware that he had not prepared such a check for
Jongs signature, Kyu perused the checkbook and found that the last blank check was missing. He reported
the matter to Jong, who then proceeded to the bank. Jong learned of the encashment of the check, and
realized that his signature had been forged.

During the trial, both sides presented their respective expert witnesses to testify on the claim that Jongs
signature was forged. The PNP during trial says there is no forgery.

ISSUE : Whether or not petitioner is precluded from setting up forgery as a defense?

RULING: NO
Section 23 of the Negotiable Instruments Law states:
When a signature is forged or made without the authority of the person whose signature it purports to
be, it is wholly inoperative, and no right to retain the instrument, or to give a discharge therefor, or to
enforce payment thereof against any party thereto, can be acquired through or under such signature,
unless the party against whom it is sought to enforce such right is precluded from setting up the forgery
or want of authority.

We recognize that Section 23 of the Negotiable Instruments Law bars a party from setting up the defense
of forgery if it is guilty of negligence. Yet, we are unable to conclude that Samsung Construction was guilty
of negligence in this case. The appellate court failed to explain precisely how the accountant was
negligent or how more care and prudence on his part would have prevented the forgery.

The bare fact that the forgery was committed by an employee of the party whose signature was forged
cannot necessarily imply that such party’s negligence was the cause for the forgery. Employers do not
possess the preternatural gift of cognition as to the evil that may lurk within the hearts and minds of their
employees.

In the absence of evidence to the contrary, we can conclude that there was no negligence on Samsung
Constructions part. The presumption remains that every person takes ordinary care of his concerns, and
that the ordinary course of business has been followed. Negligence is not presumed, but must be proven
by him who alleges it. While the complaint was lodged at the instance of Samsung Construction, the
matter it had to prove was the claim it had alleged - whether the check was forged. It cannot be required
as well to prove that it was not negligent, because the legal presumption remains that ordinary care was
employed.
Thus, it was incumbent upon FEBTC, in defense, to prove the negative fact that Samsung Construction
was negligent.

62. METROPOLITAN BANK V. CA

194 SCRA 169

Facts:Eduardo Gomez opened an account with Golden Savings and deposited 38 treasury
warrants. All warrants were subsequently indorsed by Gloria Castillo as Cashier of Golden
Savings and deposited to its Savings account in Metrobank branch in Calapan, Mindoro. They
were sent for clearance. Meanwhile, Gomez is not allowed to withdraw from his account, later,
however, “exasperated” over Floria repeated inquiries and also as an accommodation for a
“valued” client Metrobank decided to allow Golden Savings to withdraw from proceeds of the
warrants. In turn, Golden Savings subsequently allowed Gomez to make withdrawals from his
own account. Metrobank informed Golden Savings that 32 of the warrants had been dishonored
by the Bureau of Treasury and demanded the refund by Golden Savings of the amount it had
previously withdrawn, to make up the deficit in its account. The demand was rejected.
Metrobank then sued Golden Savings.Metrobank argues that Golden Savings should have
exercised more care in checking the personal circumstances of Gomez before accepting his
deposit

Issue:
1. WON Metropolitan Bank can use forgery of the warrants as defense, hence, making
Golden Savings liable.
2. Whether or not treasury warrants are negotiable instruments

Ruling: No. There was no question of Gomez's identity or of the genuineness of his signature as
checked by Golden Savings. In fact, the treasury warrants were dishonored allegedly because of
the forgery of the signatures of the drawers, not of Gomez as payee or indorser. Under the
circumstances, it is clear that Golden Savings acted with due care and diligence and cannot be
faulted for the withdrawals it allowed Gomez to make. By contrast, Metrobank exhibited
extraordinary carelessness. The amount involved was not trifling — more than one and a half
million pesos (and this was 1979). There was no reason why it should not have waited until the
treasury warrants had been cleared; it would not have lost a single centavo by waiting. Yet,
despite the lack of such clearance — and notwithstanding that it had not received a single
centavo from the proceeds of the treasury warrants, as it now repeatedly stresses — it allowed
Golden Savings to withdraw — not once, not twice, but thrice — from the uncleared treasury
warrants in the total amount of P968,000.00.
Despite the lack of such clearance, it allowed Golden Savings to withdraw from the uncleared
treasury warrants. The supposed reason for the dishonor, to wit, the forgery of the signatures of
the general manager and the auditor of the drawer corporation, has not been established. This
was the finding of the lower courts which must not be disturbed. As held in MWSS v. Court of
Appeals, forgery cannot be presumed. It must be established by clear, positive and
convincing evidence. This was not done in the present case. Hence, petition was denied.

2. No. The treasury warrants are not negotiable instruments. Clearly stamped on their
face is the word: non negotiable.” Moreover, and this is equal significance, it is indicated that
they are payable from a particular fund, to wit, Fund 501. An instrument to be negotiable
instrument must contain an unconditional promise or orders to pay a sum certain in money. As
provided by Sec 3 of NIL an unqualified order or promise to pay is unconditional though coupled
with: 1st, an indication of a particular fund out of which reimbursement is to be made or a
particular account to be debited with the amount; or 2nd, a statement of the transaction which
give rise to the instrument. But an order to promise to pay out of particular fund is not
unconditional. The indication of Fund 501 as the source of the payment to be made on the
treasury warrants makes the order or promise to pay “not conditional” and the warrants
themselves non-negotiable. There should be no question that the exception on Section 3 of NIL
is applicable in the case at bar.

PNB VS. HON. ROMULO QUIMPO, Presiding Judge (GR No. L-53194, March 14, 1988)

FACTS: Private Respondent Francisco Gozon II went to the Caloocan City Branch of PNB
with his friend Ernesto Santos, who he left in the car while he transacted business in the
bank. Santos saw that Gozon left his checkbook, he took a check therefrom, filled it up for
P5,000 and forged the signature of Gozon. Santos was later on apprehended and admitted
that he stole the check and encashed the same with the bank. Gozon filed an action to
recover the amount from the Bank which the court granted. Hence the petition.

Not satisfied therewith, the bank now filed this petition for review on certiorari in this
Court raising the sole legal issue that —

THE ACT OF RESPONDENT FRANCISCO GOZON II IN PUTTING HIS CHECK BOOK

CONTAINING THE CHECK IN QUESTION INTO THE HANDS OF ERNESTO SANTOS
WAS INDEED THE PROXIMATE CAUSE OF THE LOSS, THEREBY PRECLUDING HIM
FROM SETTING UP THE DEFENSE OF FORGERY OR WANT 0F AUTHORITY UNDER
SECTION 23 OF THE NEGOTIABLE INSTRUMENTS LAW
ISSUE: WON Gozon who left his checkbook into hands of Santos was indeed the proximate
cause of the loss and thus precluded from setting up the defense of forgery?

HELD: NO. A bank is bound to know the signatures of its customers; and if it pays a forged
check, it must be considered as making the payment out of its own funds, and cannot
ordinarily change the amount so paid to the account of the depositor whose name was
forged. This rule is absolutely necessary to the circulation of drafts and checks, and is based
upon the presumed negligence of the drawee in failing to meet its obligation to know the
signature of its correspondent.

There is nothing inequitable in such a rule. If the paper comes to the drawee in the regular
course of business, and he, having the opportunity ascertaining its character, pronounces it
to be valid and pays it, it is not only a question of payment under mistake, but payment in
neglect of duty which the commercial law places upon him, and the result of his negligence
must rest upon him. The prime duty of the bank is to ascertain the genuineness of the
signature of the drawer or the depositor on the check being encashed. It is expected to use
reasonable business prudence in accepting and cashing a check presented to it. Obviously,
petitioner was negligent in encashing said forged check without carefully examining the
signature which shows marked variation from the genuine signature of private respondent.
The act of the plaintiff in leaving his checkbook in the car cannot be considered negligence
sufficient to excuse the defendant bank from its own negligence. Santos could not have
been expected to know that Santos, a long time classmate and friend, would remove a
check from his checkbook.

64. BANCO DE ORO SAVINGS VS. EQUITABLE BANKING CORP. (GR No. 74917, Jan. 20, 1988)

Facts: Manager's checks (Checks) having an aggregateamount of P45,982.23 and payable to

certain member establishments ofVisa Card. Subsequently, the Checks were deposited with the
defendant(respondent Equitable) to the credit of its depositor (Aida Trencio’s account).
Following normal procedures, and after stamping at the back ofthe Checks the usual
endorsements (All prior and/or lack of endorsementguaranteed), Equitable sent the checks for
clearing through the PhilippineClearing House Corporation (PCHC). Accordingly, BDO paid the
Checks; itsclearing account was debited for the value of the Checks and defendant'sclearing
account was credited for the same amount. Thereafter, BDOdiscovered that the endorsements
appearing at the back of the Checks,purporting to be that of the payees, were forged and/or
unauthorized orotherwise belong to persons other than the payees. Pursuant to the
PCHCClearing Rules and Regulations, it presented the Checks directly to Equitable for the
purpose of claiming reimbursement from the latter.However, Equitable refused to do so. After
an exhaustive investigation andhearing, the Arbiter rendered a decision in favor of BDO and
againstEquitable ordering the PCHC to debit the clearing account of thedefendant (E), and to
credit the clearing account of the plaintiff (B) of theforegoing amount with interest at the rate
of 12% per annum from date ofthe complaint. The Board of Directors of the PCHC affirmed the
decision ofthe Arbiter. Hence this petition.
Issue:Whether or not the bank is in estoppel from setting up its defense of nonnegotiability
of the checks in question.

Ruling: A commercial bank cannot escape the liability of an endorser of a check and which may
turn out to be a forged endorsement. Whenever any bank treats the signature at the back of
the checks as endorsements and thus logically guarantees the same as such there can be no
doubt said bank has considered the checks as negotiable. Apropos the matter of forgery in
endorsements, this Court has succinctly emphasized that 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 (PNB vs. National City Bank) In another case, this court held
that if thedrawee-bank discovers that the signature of the payee was forged after ithas paid the
amount of the check to the holder thereof, it can recover theamount paid from the collecting
bank.

WESTMONT BANK V. ONG

373 SCRA 212

FACTS:

Ong was supposed to be the payee of the checks issued by Island Securities. Ong has a current
account with petitioner bank. He opted to sell his shares of stock through Island Securities. The
company in turn issued checks in favor of Ong but unfortunately, the latter wasn't able to receive any.
His signatures were forged by Tamlinco and the checks were deposited in his own account with
petitioner. Ong then sought to collect the money from the family of Tamlinco first before filing a
complaint with the Central Bank. As his efforts were futile to recover his money, he filed an action
against the petitioner. The trial and appellate court decided in favor of Ong.

Issue: Whether or not the respondent can collect from the bank

HELD:

Yes. Since the signature of the payee was forged, such signature should be deemed inoperative
and ineffectual. Petitioner, as the collecting bank, grossly erred in making payment by virtue of said
forged signature. The payee, herein respondent, should therefore be allowed to collect from the
collecting bank.

It should be liable for the loss because it is its legal duty to ascertain that the payee’s endorsement was
genuine before cashing the check. As a general rule, a bank or corporation who has obtained possession
of a check with an unauthorized or forged indorsement of the payee’s signature and who collects the
amount of the check other from the drawee, is liable for the proceeds thereof to the payee or the other
owner, notwithstanding that the amount has been paid to the person from whom the check was
obtained.

66. ILLUSORIO VS. CA (GR No. 139130; Nov. 27, 2002)

FACTS: Petitioner was adepositor in good standing of respondent bank, the Manila
BankingCorporation. As he was then running about 20 corporations, and was going outof the
country a number of times, petitioner entrusted to his secretary,Katherine E. Eugenio, his credit
cards and his checkbook with blank checks. Itwas also Eugenio who verified and reconciled the
statements of said checkingaccount. Between the dates September 5, 1980 and January 23,
1981, Eugeniowas able to encash and deposit to her personal account about seventeen
(17)checks drawn against the account of the petitioner at the respondent bank.Upon learning
that Eugenio has been using his credit cards, petitioner firedEugenio immediately, and
instituted a criminal action against her for estafa thrufalsification. Private respondent also
lodged a complaint for estafa thrufalsification of commercial documents against Eugenio on the
basis ofpetitioner’s statement that his signatures in the checks were forged. Petitionerthen
requested the respondent bank to credit back and restore to its accountthe value of the checks
which were wrongfully encashed but respondent bankrefused.

Hence, petitioner filed the instant case. Petitioner contends thatManila Bank is liable for
damages for its negligence in failing to detect thediscrepant checks. He adds that as a general
rule a bank which has obtained
possession of a check upon an unauthorized or forged endorsement of thepayee’s signature
and which collects the amount of the check from the draweeis liable for the proceeds thereof
to the payee. Petitioner further contends thatunder Section 23 of the Negotiable Instruments
Law a forged check isinoperative, and that Manila Bank had no authority to pay the forged
checks.

ISSUE: WON petitioner may put up the defense of forgery against Manilabank?

HELD: NO. True, it is a rule that when a signature is forged or madewithout the authority of the
person whose signature it purports to be, thecheck is wholly inoperative. No right to retain the
instrument, or to give adischarge therefor, or to enforce payment thereof against any party,
can beacquired through or under such signature. However, the rule does provide foran
exception, namely: “unless the party against whom it is sought to enforcesuch right is
precluded from setting up the forgery or want of authority.” In theinstant case, it is the
exception that applies. In our view, petitioner isprecluded from setting up the forgery,
assuming there is forgery, dueto his own negligence in entrusting to his secretary his credit
cardsand checkbook including the verification of his statements of account.

Petitioner’s reliance on Associated Bank vs. Court of Appeals and PhilippineBank of Commerce
vs. CA to buttress his contention that respondent Manila Bank as the collecting or last endorser
generally suffers the loss because it hasthe duty to ascertain the genuineness of all prior
endorsements is misplaced.In the cited cases, the fact of forgery was not in issue.

In the present case,the fact of forgery was not established with certainty. In those cited cases,
thecollecting banks were held to be negligent for failing to observe precautionarymeasures to
detect the forgery. In the case before us, both courts belowuniformly found that Manila Bank’s
personnel diligently performed their duties,
having compared the signature in the checks from the specimen signatures onrecord and
satisfied themselves that it was petitioner’s.
GEMPESAW VS. CA
Facts:
Natividad Gempesaw is a businesswoman who entrusted to her bookkeeper, Alicia Galang, the
preparation of checks about to be issued in the course of her business transactions. From 1984 to 1986,
82 checks amounting to P1,208,606.89, were prepared and were supposed to be delivered to
Gempesaw’s clients as payees named thereon. However, through Galang, these checks were never
delivered to the supposed payees. Instead, the checks were fraudulently indorsed to Alfredo Romero and
Benito Lam.

ISSUE: Whether or not the bank should refund the money lost by reason of the forged indorsements.

HELD: No. Gempesaw cannot set up the defense of forgery by reason of her negligence. Under Sec. 23
of the Negotiable Instruments Law, a forged signature is “wholly inoperative, no one can gain title to the
instrument through such forged indorsement. Such an indorsement prevents any subsequent party from
acquiring any right as against any party whose name appears prior to the forgery. Such forged
indorsement cuts-off the rights of all subsequent parties as against parties prior to the forgery. As a rule, a
drawee bank who has paid a check on which an indorsement has been forged cannot charge the
drawer’s account for the amount of said check. An exception to the rule is where the drawer is guilty of
such negligence which causes the bank to honor such checks.

However, Gempesaw did not exercise prudence in taking steps that a careful and prudent
businessman would take in circumstances to discover discrepancies in her account. Her
negligence was the proximate cause of her loss, and under Section 23 of the Negotiable
Instruments Law, is precluded from using forgery as a defense.
68. BPI vs CA
216 SCRA 51 (1992)

FACTS: A phone call to BPI's Money Market Department was made by a woman who identified herself as
Eligia G. Fernando, owner of a money market placement as evidenced by a promissory note with a
maturity date of November 11, 1981. The caller wanted to preterminate the placement, but Reginaldo
Eustaquio, the Dealer Trainee who received the call and who happened to be alone in the trading room
at the time, told her that trading time was over for the day. Eustaquio conveyed the request for
pretermination to the officer who before had handled Eligia G. Fernando's account but Eustaquio was
left to attend to the pretermination process.
The caller followed up with Eustaquio, by phone again, on the pretermination of the placement.
Although not familiar with the voice of the real Eligia G. Fernando, Eustaquio made certain that the
caller was the real Eligia G. Fernando by verifying that the details the caller gave about the placement
tallied with the details in the ledger/folder of the account. Neither Eustaquio nor Bulan who originally
handled Fernando's account, nor anybody else at BPI, bothered to call up Fernando to verify the request
for pretermination. Eustaquio, thus, proceeded to prepare the requested pretermination as required by
office procedure. From his desk, the papers, following the processing route, passed through the position
analyst, securities clerk, verifier clerk and documentation clerk, before the two cashier's checks, both
payable to Eligia G. Fernando, covering the preterminated placement, were prepared. The same caller
called again to give delivery instructions that instead of the delivering the checks to her office at
Philamlife, she would send her niece, Rosemarie Fernando, to pick them up. It was, in fact Rosemarie
Fernando who got the two checks from the dispatcher, as shown by the delivery receipt. Actually, as it
turned out, the same impersonated both Eligia G. Fernando and Rosemarie Fernando. Although the
checks represented the termination proceeds of Eligia G. Fernando's placement, the dispatcher failed to
get or to require the surrender of the promissory note evidencing the placement. There is also no
showing that Eligia G. Fernando's purported signature on the letter requesting the pretermination and
the latter authorizing Rosemarie Fernando to pick up the two checks, both of which letters were
presumably handed to the dispatcher by Rosemarie Fernando, was compared or verified with Eligia G.
Fernando's signature in BPI's file. The story's scene now shifted when a woman who represented herself
to be Eligia G. Fernando applied at China Banking Corporation(CBC) Head Office for the opening of a
current account. The application form shows the signature of "Eligia G. Fernando", "her" date of birth,
sex, civil status, nationality, occupation ("business woman"), tax account number, and initial deposit of
P10,000.00. This final approval of the new current account is indicated on the application form by the
initials of the CBC Cashier who did not interview the new client but affixed her initials on the application
form after reviewing it. The following day, the woman holding herself out as Eligia G. Fernando
deposited the two checks in controversy. The two checks were forthwith sent to clearing by CBC and BPI
cleared both on the same day. Two days after, withdrawals began. All withdrawals were allowed on the
basis of the verification of the drawer's signature with the specimen signature on file and the sufficiency
of the funds in the account. When the maturity date of Eligia G. Fernado's money market placement
with BPI came, the real Eligia G. Fernando went to BPI for the roll-over of her placement. She disclaimed
having preterminated her placement. She executed an affidavit stating that while she was the payee of
the two checks in controversy, she never received nor endorsed them and that her purported signature
on the back of the checks was not hers but forged. With her surrender of the original of the promissory
note evidencing the placement which matured that day, BPI issued her a new promissory note to
evidence a roll-over of the placement. Investigation of the fraud led to the filing of criminal actions for
"Estafa Thru Falsification of Commercial Documents" against four employees of BPI and the woman who
impersonated Eligia G. Fernando.

BPI returned the two checks in controversy to CBC for the reason "Payee's endorsement forged". CBC, in
turn, returned the checks for reason "Beyond Clearing Time". RTC ruled in favor of CBC and ordered BPI
to pay CBC. CA affirmed. Hence, this petition seeking to set aside the decision and resolution of the
Court of Appeals in CA-G.R. SP No. 24306which affirmed the earlier decision of the Regional Trial Court
of Makati

ISSUE: Whether or not BPI is solely liable to refund the amount of the check.

HELD: No. Petitioner BPI first returned to CBC the two (2) checks on the ground that “Payee’s
endorsement (was) forged” on November 12, 1981. At that time the clearing regulation then in force
under PCHC’s Clearing House Rules and Regulations as revised on September 19, 1980 provides:
“Items which have been the subject of material alteration or items bearing a forged
endorsement when such endorsement is necessary for negotiation shall be returned within
twenty four (24) hours after discovery of the alteration or the forgery, but in no event beyond the
period prescribed by law for the filing of a legal action by the returning bank/branch institution
or entity against the bank/branch, institution or entity sending the same.” (Section 23)
In the case of Banco de Oro Savings and Mortgage Bank v. Equitable Banking Corporation (157 SCRA
188 [1988]) the clearing regulation (this is the present clearing regulation) at the time the parties’
dispute occurred was as follows:
“Sec. 21. xxx xxx xxx
Items which have been the subject of material alteration or items bearing forged endorsement
when such endorsement is necessary for negotiation shall be returned by direct presentation or
demand to the Presenting Bank and not through the regular clearing house facilities within the
period prescribed by law for the filing of a legal action by the returning bank/branch, institution
or entity sending the same.”

It is to be noted that the above-cited clearing regulations are substantially the same in that it allows a
return of a check “bearing forged endorsement when such endorsement is necessary for negotiation”
even beyond the next regular clearing although not beyond the prescriptive period “for the filing of a
legal action by the returning bank.”

69. Bank of America vs. Associated Bank

Facts:

BA-Finance granted Miller a credit line facility through which the latter could assign or discount its trade
receivables with the former.

Miller discounted and assigned several trade receivables to BA-Finance by executing Deeds of
Assignment in favor of the latter. In consideration of the assignment, BA-Finance issued four checks
payable to the "Order of Miller Offset Press, Inc." 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 (a.k.a. Robert Ching), then the corporate
secretary of Miller, in Account No. 989 in Associated Citizens Bank (Associated Bank). Associated
Bank stamped the checks with the notation "all prior endorsements and/or lack of endorsements
guaranteed," and sent them through clearing. Later, the drawee bank, Bank of America, honored
the checks and paid the proceeds to Associated Bank as the collecting bank.

Miller failed to deliver to BA-Finance the proceeds of the assigned trade receivables. Consequently, BA-
Finance filed a Complaint against Miller for collection of the amount of ₱731,329.63 which BA-Finance
allegedly paid in consideration of the assignment and an Amended Complaint impleading Bank of
America as additional defendant for allegedly allowing encashment and collection of the checks by
person or persons other than the payee named thereon. Ching Uy Seng, on the other hand, did not
file his Answer to the complaint.

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 (a.k.a. Robert Ching) and Uy Chung Guan Seng, but alleged that Robert Ching, being one
of the corporate officers of Miller, was duly authorized to act for and on behalf of Miller.

The Court of Appeals ruled that (1) Defendant and third-party plaintiff-appellant, Bank of America, NT &
SA, is ordered to pay plaintiff-appellee BA-Finance Corporation the sum of ₱741,277.78, with legal
interest thereon from the time of the filing of the complaint until the whole amount is fully paid;(2) Third-
party defendant-appellant Associated Citizens Bank is likewise ordered to reimburse Bank of America the
aforestated amount;

Issue: Whether or not Associated Citizens Bank is liable to reimburse Bank of America for the
amount it paid to BA Finance

Ruling:

Yes. A collecting bank where a check is deposited, and which endorses the check upon presentment with
the drawee bank, is an endorser. Under Section 66 of the Negotiable Instruments Law, an endorser
warrants "that the instrument is genuine and in all respects what it purports to be; that he has good title to
it; that all prior parties had capacity to contract; and that the instrument is at the time of his endorsement
valid and subsisting." This 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 Associated 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. Being so, Associated Bank
cannot deny liability on the checks.

Associated Bank was also clearly negligent in disregarding established banking rules and regulations by
allowing the four checks to be presented by, and deposited in the personal bank account of, a person who
was not the payee named in the checks. The checks were issued to the "Order of Miller Offset Press,
Inc.," but were deposited, and paid by Associated Bank, to the personal joint account of Ching Uy Seng
(a.k.a. Robert Ching) and Uy Chung Guan Seng. It could not have escaped Associated Bank’s attention
that the payee of the checks is a corporation while the person who deposited the checks in his own
account is an individual. Verily, when the bank allowed its client to collect on crossed checks issued in
the name of another, the bank is guilty of negligence.

PNB VS. CA (GR No. 107508; April 25, 1996)

FACTS:
A check with serial number 7-3666-223-3, dated August 7, 1981 in the amount of P97,650.00
was issued by the Ministry of Education and Culture payable to F. Abante Marketing. This check was
drawn against Philippine National Bank (herein petitioner). F. Abante Marketing, a client of Capitol
City Development Bank (Capitol), deposited the questioned check in its savings account with said
bank. In turn, Capitol deposited the same in its account with the Philippine Bank of Communications
(PBCom) which, in turn, sent the check to petitioner for clearing. Petitioner cleared the check as
good and, thereafter, PBCom credited Capitol’s account for the amount stated in the check.
However, petitioner PNB returned the check to PBCom and debited PBCom’s account for the
amount covered by the check, the reason being that there was a “material alteration” of the check
number. PBCom, as collecting agent of Capitol, then proceeded to debit the latter’s account for the
same amount. On the other hand, Capitol could not, in turn, debit F. Abante Marketing’s account
since the latter had already withdrawn the amount of the check.
ISSUE: WON AN ALTERATION OF THE SERIAL NUMBER OF A CHECK IS A MATERIAL
ALTERATION UNDER THE NEGOTIABLE INSTRUMENTS LAW?

HELD:
No. An alteration is said to be material if it alters the effect of the instrument. It means an
unauthorized change in an instrument that purports to modify in any respect the obligation of a party
or an unauthorized addition of words or numbers or other change to an incomplete instrument
relating to the obligation of a party. In other words, a material alteration is one which changes the
items which are required to be stated under Section 1 of the Negotiable Instrument Law. The case at
the bench is unique in the sense that what was altered is the serial number of the check in question,
an item which, it can readily be observed, is not an essential requisite for negotiability under Section
1 of the Negotiable Instruments Law. The aforementioned alteration did not change the relations
between the parties. The name of the drawer and the drawee were not altered. The intended payee
was the same. The sum of money due to the payee remained the same. If the purpose of the serial
number is merely to identify the issuing government office or agency, its alteration in this case had
no material effect whatsoever on the integrity of the check. The identity of the issuing government
office or agency was not changed thereby and the amount of the check was not charged against the
account of another government office or agency which had no liability under the check.
71. ENRIQUE MONTINOLA VS. PNB (GR No. L-2861 ; Feb. 26, 1951) - In 1942, Mariano Ramos, as
disbursing officer of an army division of United States Armed Forces in the Far East (USAFFE) and based
in Misamis Oriental, procured cash advances in the amount of Php800,000 with the Provincial Treasurer
(PT) of Lanao for the use of USAFFE in Cagayan de Misamis. PT-Lanao did not have that amount in cash
so he gave Ramos P300,000 in emergency notes and a check for P500,000. Thereafter, Ramos presented
the check to their PT in their province for encashment. PT-Misamis did not have enough cash to cover
the check so he gave Ramos P400,000 in emergency notes and a check for P100,000 drawn on the PNB
as he had previously deposited P500,000 emergency notes in the PNB branch in Cebu and thus he
expected to have the check issued by him cashed in Cebu against said deposit. Ramos was unable to
encash said check for he was captured by the Japanese and later made a prisoner of war. After his
release, sometime in 1945, Ramos allegedly indorsed the check to herein plaintiff-appellant. According
to Montinola’s version of the circumstances that roused the present controversy, Ramos, who then was
no longer connected with the USAFFE but already a civilian who needed the money only for himself and
his family, offered to sell the check to him. But as stated by Ramos, he and Montinola agreed to the sale
of said check and the agreement regarding the transfer of the check was that he was selling only
P30,000 of it and for such reason, at the back of the document he wrote in longhand: Pay to the order of
Enrique P. Montinola P30,000 only. The balance to be deposited in the Philippine National Bank to the
credit of M. V. Ramos. Ramos further said that in exchange for this assignment of P30,000, Montinola
would pay him P90,000 in Japanese military notes but that the latter gave him only two checks of
P20,000 and P25,000, leaving a balance unpaid of P45,000. The writing made at the back of the check
was, however, mysteriously obliterated and in its place, a supposed indorsement appearing on the back
of the check was made for the whole amount of the check.

ISSUE: WON the check was legally negotiated within the meaning of the NIL in view of the fact that the
instrument was indorsed for a lesser amount?

HELD: NO. Section 32 of the NIL provides that "the indorsement must be an indorsement of the entire
instrument. An indorsement which purports to transfer to the indorsee a part only of the amount
payable (as in this case) does not operate as a negotiation of the instrument." As to what was really
written at the back of the check which Montinola claims to be a full indorsement of the check, the Court
agreed with trial court that the original writing of Ramos on the back of the check was to the effect that
he was assigning only P30,000 of the value of the document and that he was instructing the bank to
deposit to his credit the balance. Montinola may therefore not be regarded as an indorsee. At most he
may be regarded as a mere assignee of the P30,000 sold to him by Ramos, in which case, as such
assignee, he is subject to all defenses available to the drawer Provincial Treasurer of Misamis Oriental
and against Ramos.

PHILIPPINE COMMERCIAL INTERNATIONAL BANK VS. CA (GR No. 121413; Jan. 29, 2001)
Facts:
Ford Philippines filed actions to recover from the drawee bank Citibank and collecting bank
PCIB the value of several checks payable to the Commissioner of Internal Revenue as payment
of percentage or manufacturer's sales taxes. What prompted this action was the drawing of a
check by Ford, which it deposited to PCIB as payment and was debited from their Citibank
account. It was later on found out that the payment wasn’t received by the Commissioner.
Meanwhile, according to the NBI report, one of the checks issued by Ford was withdrawn from
PCIB for alleged mistake in the amount to be paid. This was replaced with manager’s check by
PCIB, which were allegedly stolen by a syndicate and deposited in their own account. The trial
court decided in favor of Ford. In this petition, PCIB claims that the action of Ford had
prescribed because of its inability to seek judicial relief seasonably, considering that the alleged
negligent act took place prior to December 19, 1977 but the relief was sought only in 1983, or
seven years thereafter.
ISSUE: WON Ford’s cause of action has prescribed, hence, cannot recover anymore from PCIB?
HELD: The statute of limitations begins to run when the bank gives the depositor notice of the
payment, which is ordinarily when the check is returned to the alleged drawer as a voucher
with a statement of his account. An action upon a check is ordinarily governed by the statutory
period applicable to instruments in writing. Our laws on the matter provide that the action
upon a written contract must be brought within ten years from the time the right of action
accrues. Hence, the reckoning time for the prescriptive period begins when the instrument was
issued and the corresponding check was returned by the bank to its depositor. Applying the
same rule, the cause of action for the recovery of the proceeds of Citibank would normally be a
month after December 19, 1977, when Citibank paid the face value of the check in the amount
of P4,746,114.41. Since the original complaint for the cause of action was filed on January 20,
1984, barely six years had lapsed. Thus, Ford's cause of action to recover the amount was
seasonably filed within the period provided by law. Hence, PCIB was declared solely responsible
for the loss of the proceeds of Citibank in the amount P4,746,114.41, which shall be paid
together with 6% interest thereon to Ford from the date when the original complaint was filed
until said amount is fully paid.
STATE INVESTMENT HOUSE V. CA

217 SCRA 32
FACTS: Moulic issued checks as security to Victoriano, for pieces of jewelry to be sold on commission.
Moulic failed to sell the pieces of jewelry, so she returned them to Victoriano. The checks however
could not be recovered by Moulic as these have been discounted already in favor of petitioner.
Consequently, before the maturity dates, Moulic withdrew her funds from her account. Thereafter,
petitioner presented the checks for payment but these were dishonored. This prompted the petitioner
to initiate an action against Moulic.

ISSUE: Can Moulic set up the defense that there was failure or want of consideration?

HELD: NO. A prima facie presumption exists that a holder of a negotiable instrument is a holder in due
course. The burden of proving that State is not a holder in due course is upon Moulic. In this regard,
she failed to do so.

The evidence shows that the dated checks were complete and regular; petitioner bought the
checks from Victoriano before their due dates; it took the checks in good faith and for value; and it was
never informed nor made aware that these checks were merely issued to payee as security.

Consequently, State is a holder in due course. Moulic cannot set up the defense that there was
failure or want of consideration. It can only invoke the defense if State was a privy to the purpose for
which they were issued and therefore is not a holder in due course.

Furthermore, the mere fact that the checks were issued as security is not sufficient ground to
discharge the instrument as against a holder in due course.

And also, Moulic was responsible for the dishonor of her checks. She withdrew her funds from
her account and could not have expected her checks to be honored by then.

QUIRINO GONZALEZ LOGGING VS. CA

GR No. 126568; April 20, 2003
FACTS:
In the expansion of its logging business, petitioner Quirino Gonzales Logging Concessionaire
(QGLC), through its proprietor, general manager - co-petitioner Quirino Gonzales, applied for
credit accommodations with respondent Republic Bank. The Bank approved QGLC’s
application.
In separate transactions, petitioners, to secure certain advances from the Bank in connection with
QGLC’s exportation of logs, executed a promissory note in 1964 in favor of the Bank. They
were to execute three more promissory notes in 1967. On January 27, 1977, alleging non-
payment of the balance of QGLC’s obligation, and nonpayment of the promissory notes despite
repeated demands, the Bank filed a complaint for “sum of money” against petitioners.
The complaint listed ten causes of action, the sixth to ninth of which were anchored on the
promissory notes issued by petitioners allegedly to secure certain advances from the Bank in
connection with the exportation of logs as reflected above. The notes were payable 30 days after
date and provided for the solidary liability of petitioners as well as attorney’s fees at ten percent
of the total amount due in the event of their non-payment at maturity. Petitioners seek to avoid
liability by claiming that Quirino and Eufemia Gonzales signed the promissory notes in blank;
that they had not received the value of said notes, and that the credit line thereon was
unnecessary in view of their money deposits, and unremitted proceeds on log exports from the
Bank.
ISSUE:
Whether or not petitioners may interpose the defense of lack of consideration and that the
Promissory Notes were signed in blank against the bank?
RULING:
NO. The genuineness and due execution of the notes had been deemed admitted by petitioners,
they having failed to deny the same under oath. Their claim that they signed the notes in blank
does not thus lie. Petitioners’ admission of the genuineness and due execution of the promissory
notes notwithstanding, they raise want of consideration thereof. The promissory notes, however,
appear to be negotiable as they meet the requirements of Section 1 of the Negotiable Instruments
Law. Such being the case, the notes are prima facie deemed to have been issued for
consideration. It bears noting that no sufficient evidence was adduced by petitioners to show
otherwise. In any case, it is no defense that the promissory notes were signed in blank as Section
14 of the Negotiable Instruments Law concedes the prima facie authority of the person in
possession of negotiable instruments, such as the notes herein, to fill in the blanks.
SALAS VS. CA

Facts:

Juanita Salas (Petitioner) bought a motor vehicle from the Violago Motor Sales Corporation (VMS) as
evidenced by a promissory note. This note was subsequently endorsed to Filinvest Finance & Leasing
Corporation (private respondent) which financed the purchase. Petitioner defaulted in her installments
allegedly due to a discrepancy in the engine and chassis numbers of the vehicle delivered to her and
those indicated in the sales invoice, certificate of registration and deed of chattel mortgage, which fact
she discovered when the vehicle figured in an accident. This failure to pay prompted private respondent
to initiate an action for a sum of money against petitioner before the Regional Trial Court.

ISSUE:

WON VMS’ fraud in the conduct of its business, specifically in the delivery of a defective truck, would
release petitioner-maker from paying First Finance the amount stated in the note.

HELD:

No.

The note was a negotiable instrument and was validly negotiated to private respondent who is a holder
in due course and as such holds the instrument free from defenses available to prior parties among
themselves. This being so, petitioner cannot set up against respondent the defense of nullity of the
contract of sale between her and VMS.
PNB VS. CA (GR No. L-26001; Oct. 29, 1968)

FACTS: Agusto Lim deposited GSIS check no. 645915-B with respondent bank Philippine
Commercial and Industrial Bank, who in turn submitted said check to PNB, through Central
Bank, for clearing which the latter paid. Upon demand of GSIS that the signatures of its officers
on the check were forged, PNB re-credited the account of GSIS. PNB requested reimbursement
from PCIB, the latter refused. Hence, the present action.

ISSUE: WON prior acceptance before payment is required in the case of checks?

HELD: No. In general, "acceptance", in the sense in which this term is used in the Negotiable
Instruments Law is not required for checks, for the same are payable on demand. Indeed,
"acceptance" and "payment" are, within the purview of said Law, essentially different things,
for the former is "a promise to perform an act," whereas the latter is the "actual performance"
thereof. In the words of the Law, "the acceptance of a bill is the signification by the drawee of
his assent to the order of the drawer," which, in the case of checks, is the payment, on demand,
of a given sum of money. Upon the other hand, actual payment of the amount of a check
implies not only an assent to said order of the drawer and a recognition of the drawer's
obligation to pay the aforementioned sum, but, also, a compliance with such obligation. Sec. 62
of the NIL is applicable to a drawee who pays a bill without having previously accepted it.
ASSOCIATED BANK VS. CA

Facts:

The Province of Tarlac maintains a current account with the Philippine National Bank where the
provincial funds are deposited. A portion of the funds of the province is allocated to the Concepcion
Emergency Hospital. The allotment checks for said government hospital are drawn to the order of
"Concepcion Emergency Hospital, Concepcion, Tarlac" or "The Chief, Concepcion Emergency Hospital,
Concepcion, Tarlac”. It was later discovered that the hospital did not receive several allotment checks
drawn by the Province. After the checks were examined, it was learned that 30 checks were encashed by
one Fausto Pangilinan, with the Associated Bank acting as collecting bank. It turned out that Fausto
Pangilinan, who was the administrative officer and cashier of payee hospital, collected the questioned
checks from the office of the Provincial Treasurer claiming to be assisting or helping the hospital on the
release of the checks. To encash the checks, he forged the signature of Dr. Adena Canlas chief of the
payee hospital. All the checks bore the stamp of Associated Bank which reads "All prior endorsements
guaranteed ASSOCIATED BANK." The Provincial Treasurer sought to recover from PNB various amounts
debited from the current account of the Province. In turn, PNB demanded reimbursement from the
Associated Bank who refused to pay interposing the defense of forgery.

ISSUE:

Whether or Not Associated Bank (collecting bank) is secondarily liable apart from the forger

HELD:
 YES. The loss incurred by drawee bank-PNB can be passed on to the collecting bank-Associated
Bank which presented and indorsed the checks to it. Associated Bank can, in turn, hold the forger,
Fausto Pangilinan, liable. The drawee bank is not similarly situated as the collecting bank because the
former makes no warranty as to the genuineness of any indorsement. The drawee bank's duty is but to
verify the genuineness of the drawer's signature and not of the indorsement because the drawer is its
client. A collecting bank where a check is deposited and which indorses the check upon presentment
with the drawee bank, is such an indorser. So even if the indorsement on the check deposited by the
bank's client is forged, the collecting bank is bound by his warranties as an indorser and cannot set up
the defenseof forgery as against the drawee bank.

In cases involving checks with forged indorsements, such as the present petition, the chain of
liability does not end with the drawee bank. The drawee bank may not debit the account of the drawer
but may generally pass liability back through the collection chain to the party who took from the forger
and, of course, to the forger himself, if available. In other words, the drawee bank can seek
reimbursement or a return of the amount it paid from the presentor bank or person. Theoretically, the
latter can demand reimbursement from the person who indorsed the check to it and so on. The loss falls
on the party who took the check from the forger, or on the forger himself.

In this case, the checks were indorsed by the collecting bank (Associated Bank) to the drawee
bank (PNB). The former will necessarily be liable to the latter for the checks bearing forged
indorsements. If the forgery is that of the payee's or holder's indorsement, the collecting bank is held
liable, without prejudice to the latter proceeding against the forger.

GREAT EASTERN LIFE INSURANCE CO. (GELIC) VS. HONGKONG & SHANGHAI BANKING CORP (HSBC) and
PNB (GR No. 18657; Aug. 23, 1922)

Facts: In May 1920, petitioner GELIC drew its check for P2,000 on HSBC whom it had an account, payable
to the order of Lazaro Melicor. E. M. Maasim fraudulently obtained possession of the check, forged
Melicor's signature, as an endorser, and then personally endorsed and presented it to PNB where the
amount of the check was placed to his credit. After having paid the check, and on the next day, PNB
endorsed the check to HSBC which paid it and charged the amount of the check to the account of the
plaintiff. In the ordinary course of business, HSBC rendered a bank statement to GELIC showing that the
amount of the check was charged to its account, and no objection was then made to the statement.
About four (4) months after the check was charged to the account of the plaintiff, it developed that
Lazaro Melicor, to whom the check was made payable, had never received it, and that his signature, as
an endorser, was forged by Maasim, who presented and deposited it to his private account in PNB. With
this knowledge, the plaintiff promptly made a demand upon the HSBC that it should be given credit for
the amount of the forged check, which the bank refused to do, and GELIC commenced this action to
recover the P2,000 which was paid on the forged check. On the petition of HSBC, PNB was made
defendant. The former Bank denies any liability, but prays that, if a judgment should be rendered
against it, in turn, it should have like judgment against the latter Bank which denies all liability to either
party. Upon the issues being joined, a trial was had and judgment was rendered against

33 Cesar Nickolai F. Soriano Jr. Arellano University School of Law 2011-0303 NEGOTIABLE
INSTRUMENTS LAW (Act No. 2031) based on the book of Aquino and De Leon and Audio Lecture of Dean
Sundiang. GELIC and in favor HSBC and PNB from which GELIC appealed.

ISSUE: WON plaintiff GELIC can recover?

HELD: Yes. GELIC’s check was drawn on HSBC payable to the order of Melicor. In other words, GELIC
authorized and directed HSBC to pay Melicor, or his order, P2,000. It did not authorize or direct the bank
to pay the check to any other person than Melicor, or his order, and the testimony is undisputed that
Melicor never did part with his title or endorse the check, and never received any of its proceeds.
Neither is GELIC estopped or bound by the bank statement, which was made to it by the HSBC. This is
not a case where the GELIC's own signature was forged to one of it checks. In such a case, the plaintiff
would have known of the forgery, and it would have been its duty to have promptly notified the bank of
any forged signature, and any failure on its part would have released bank from any liability. That is not
this case. Here, the forgery was that of Melicor, who was the payee of the check, and the legal
presumption is that the bank would not honor the check without the genuine endorsement of Melicor.
In other words, when GELIC received its banks statement, it had a right to assume that Melicor had
personally endorsed the check, and that, otherwise, the bank would not have paid it. Sec. 23 of the NIL
is square in point. The money was on deposit in HSBC, and it had no legal right to pay it out to anyone
except GELIC or its order. Here, GELIC ordered HSBC to pay the P2,000 to Melicor, and the money was
actually paid to Maasim and was never paid to Melicor, and he never paid to Melicor, and he never
personally endorsed the check, or authorized any one to endorse it for him, and the alleged
endorsement was a forgery. Hence, upon the undisputed facts, it must follow that HSBC has no defense
to this action. It is admitted that the PNB cashed the check upon a forged signature, and placed the
money to the credit of Maasim, who was a forger. That the PNB then endorsed the check and forwarded
it to HSBC by whom it was paid. PNB had no license or authority to pay the money to Maasim or anyone
else upon a forge signature. It was its legal duty to know that Melicor's endorsement was genuine
before cashing the check. Its remedy is against Maasim to whom it paid the money. The Supreme Court
reversed the lower court's judgment, and entered another in favor of GELIC and against HSBC for
P2,000, with interest thereon from 8 November 1920, at the rate of 6% per annum, and the costs of the
action, and a corresponding judgment will be entered in favor of HSBC against PNB for the same
amount, together with the amount of its costs in the action.

Person Secondarily Liable When Instrument Dishonored

GR. L-40796 July 31, 1975
Republic Bank v. Mauricia T. Ebrada
FACTS: Ebrada encashed a back pay check dated Jan. 15, 1963for P1,246.08 at the main office
of the Republic Bank. The check was issued by the Bureau of Treasury. The Bureau advised the
bank that the alleged indorsement by Martin Lorenzo at the dorsal portion of the check was a
forgery because Lorenzo has already died as of July 14, 1952. The Bureau requested the bank to
refund the aforesaid amount.
To recover what it refunded to the Bureau, the bank made verbal and formal demands upon
Ebrada for the same amount. Ebrada refused. The bank sued Ebrada before the City Court of
Manila. Ebrada alleged that she was a holder in due course, or at least acquired her rights from a
holder in due course and was therefore entitled to the proceeds thereof. She also alleged that the
bank was estopped or was so negligent as not to be entitled to recover anything from her.
Ebrada later filed a 3rd party complaint against Adelaida Dominguez, who in turn filed a 4th party
complaint against Justin Tino. The dorsal portion bears the following signatures in this order:
Martin Lorenzo; Ramon R. Lorenzo; Delia Dominguez; and Mauricia Ebrada. Adelaida
delivered the cash to Ebrada for encashment. The Court ordered Ebrada to pay the bank the
above amount, however any actions Ebrada may have against Dominguez is reserved.
ISSUE: WON Ebrada is secondarily liable to pay the bank despite being a holder in due course.
HELD: Yes. Only the negotiation predicated on the forged indorsement that should be declared
inoperative. This means that the negotiation of the check in question from Martin Lorenzo, the
original payee, to Ramon R. Lorenzo, the 2nd indorser, should be declared of no effect, but the
negotiation of the aforesaid check from Ramon R. Lorenzo to Adelaida Dominguez, the 3rd
indorser, and from Adelaida Dominguez to Ebrada who did not know of the forgery, should be
considered valid and enforceable, barring any claim of forgery. Being the last indorser, however,
Ebrada warrants that she has good title to the check subject of this action.
The bank can recover from the holder [Ebrada] the money paid to the latter on a forged
instrument. It is not supposed to be its duty to ascertain whether the signatures of the payee
or indorsers are genuine or not. This is because the indorser is supposed to warrant to the
drawee that the signatures of the payee and previous indorsers are genuine, warranty not
extending only to holders in due course. Ebrada, upon receiving the check in question from
Dominguez, was duty-bound to ascertain whether the check in question was genuine before
presenting it to plaintiff Bank for payment.

PNB VS. QUIMPO (GR No. L-53194, March 14, 1988)

FACTS: Private Respondent Francisco Gozon went to the Caloocan City Branch of PNB with
his friend Ernesto Santos, who he left in the car while he transacted business in the bank. Santos
saw that Gozon left his checkbook, he took a check therefrom, filled it up for P5,000 and forged
the signature of Gozon. Santos was later on apprehended and admitted that he stole the check
and encashed the same with the bank. Gozon filed an action to recover the amount from the Bank
which the court granted. Hence the petition.
ISSUE: WON Gozon who left his checkbook into hands of Santos was indeed the proximate
cause of the loss and thus precluded from setting up the defense of forgery?
HELD: No. A bank is bound to know the signatures of its customers; and if it pays a forged
check, it must be considered as making the payment out of its own funds, and cannot ordinarily
change the amount so paid to the account of the depositor whose name was forged' (San Carlos
Milling Co. vs. Bank of the P.I). This rule is absolutely necessary to the circulation of drafts and
checks, and is based upon the presumed negligence of the drawee in failing to meet its obligation
to know the signature of its correspondent. ... There is nothing inequitable in such a rule. If the
paper comes to the drawee in the regular course of business, and he, having the opportunity
ascertaining its character, pronounces it to be valid and pays it, it is not only a question of
payment under mistake, but payment in neglect of duty which the commercial law places upon
him, and the result of his negligence must rest upon him. The prime duty of the bank is to
ascertain the genuineness of the signature of the drawer or the depositor on the check being
encashed. It is expected to use reasonable business prudence in accepting and cashing a check
presented to it. Obviously, petitioner was negligent in encashing said forged check without
carefully examining the signature which shows marked variation from the genuine signature of
private respondent. The act of the plaintiff in leaving his checkbook in the car cannot be
considered negligence sufficient to excuse the defendant bank from its own negligence. Santos
could not have been expected to know that Santos, a long time classmate and friend, would
remove a check from his checkbook.
NATIVIDAD GEMPESAW VS. CA
GR No. 92244; Feb. 9, 1993

Facts: Natividad Gempesaw issued checks, prepared by her bookkeeper, a totalof 82 checks in favor of
several supplies. Most of the checks are for amountsin excess of actual obligations as shown in
theircorresponding invoices. Itwas only after the lapse of more than 2 years did she discovered
thefraudulent manipulations of her bookkeeper. It was also learned that theindorsements of the payee
were forged, and the checks were brought tothe chief accountant of Philippine Bank of Commerce (the
Drawee Bank,Buendia Branch) who deposited them in the accounts of Alfredo Romeroand Benito Lam.
Gempesaw made demand upon the bank to credit theamount charged due the checks. The bank refused.
Hence, the presentaction.

ISSUE: Who shall bear the loss resulting from the forgedindorsements?

HELD: As a rule, a drawee bank who has paid a check onwhich an indorsement has been forged cannot
charge the drawer’saccount for the amount of said check. An exception to the rule is wherethe drawer is
guilty of such negligence which causes the bank to honorsuch checks. Gempesaw did not exercise
prudence in taking steps that acareful and prudent businessman would take in circumstances to
discoverdiscrepancies in her account. Her negligence was the proximate cause ofher loss, and under
Section 23 of the Negotiable Instruments Law, isprecluded from using forgery as a defense. On the other
hand, thebanking rule banning acceptance of checks for deposit or cash paymentwith more than one
indorsement unless cleared by some bank officials,does not invalidate the instrument; neither does it
invalidate thenegotiation or transfer of said checks. The only kind of indorsementwhich stops the
further negotiation of an instrument is arestrictive indorsement which prohibits the further
negotiationthereof, pursuant to Section 36 of the Negotiable InstrumentsLaw. In light of any case not
provided for in the Act that is to begoverned by the provisions of existing legislation, pursuant to Section
196of the Negotiable Instruments Law, the bank may be held liable fordamages in accordance with
Article 1170 of the Civil Code. The draweebank, in its failure to discover the fraud committed by its
employee and incontravention banking rules in allowing a chief accountant to deposit thechecks bearing
second indorsements, was adjudged liable to share theloss with Gempesaw on a 50:50 ratio.
PAPA vs AU VALENCIA
FACTS

A.U. Valencia and Co., Inc. filed for specific performance against herein petitioner Myron C. Papa, in
his capacity as administrator a Testate Estate.
The complaint alleged thatPapa, acting as attorney-in-fact of Angela M. Butte (dead), sold to
respondent Pearroyo, through respondent Valencia, a parcel of land, that prior to the alleged sale, the
said property had been mortgaged to Associated Citizens Bank and after the sale was made, the bank
refused to release it unless and until all the mortgaged properties were also redeemed.
The complaint further alleged that respondents Valencia and Pearroyo discovered that the mortgage
rights of the bank had been assigned to one Tomas L. Parpana (now deceased), as special administrator of
the Estate of Ramon Papa, Jr since then, herein petitioner had been collecting monthly rentals knowing
knowing of the sale, refused and failed to deliver the title to the property.
On petitioners claim that he cannot be held personally liable as he had acted merely as attorney-in-
fact of the owner, Angela M. Butte.
Petitioner alleges among others that the sale was never consummated as he did not encash the
check given by respondents Valencia and Pearroyo in payment of the full purchase price of the subject lot

ISSUE: Whether or not Papa should be liable

RULING: YES

It is an undisputed fact that respondents Valencia and Pearroyo had given petitioner Myron C. Papa
cash, in payment of the purchase price of the subject lot. Petitioner himself admits having received said
amounts, and having issued receipts therefor. Petitioners assertion that he never encashed the aforesaid
check is not subtantiated and is at odds with his statement in his answer that he can no longer recall the
transaction which is supposed to have happened 10 years ago. After more than ten (10) years from the
payment in part by cash and in part by check, the presumption is that the check had been encashed.
Granting that petitioner had never encashed the check, his failure to do so for more than 10 years
undoubtedly resulted in the impairment of the check through his unreasonable and unexplained delay.
While it is true that the delivery of a check produces the effect of payment only when it is cashed,
pursuant to Art. 1249 of the Civil Code, the rule is otherwise if the debtor is prejudiced by the creditors
unreasonable delay in presentment. The acceptance of a check implies an undertaking of due diligence in
presenting it for payment, and if he from whom it is received sustains loss by want of such diligence, it
will be held to operate as actual payment of the debt or obligation for which it was given. It has, likewise,
been held that if no presentment is made at all, the drawer cannot be held liable irrespective of loss or
injury unless presentment is otherwise excused. This is in harmony with Article 1249 of the Civil Code
under which payment by way of check or other negotiable instrument is conditioned on its being cashed,
except when through the fault of the creditor, the instrument is impaired. The payee of a check would be
a creditor under this provision and if its non-payment is caused by his negligence, payment will be
deemed effected and the obligation for which the check was given as conditional payment will be
discharged.
FAR EAST REALTY INVESTMENT INC., vs. COURT OF APPEALS, DY HIAN TAT, SIY CHEE
and GAW SUY AN [G.R. No. L36549, October 5, 1988]

FACTS: Respondent Dy Hian Tat, Siy Chee and Gaw Suy An sought the extension of an
accommodation loan from petitioner Far East Realty Investment which the former will use
to further their business. Respondents promised to pay, jointly and severally, in one month
time. To insure payment, respondents delivered to Far East Realty Investment a China
Bank Check drawn by Dy Hian Tat issued on September 13, 1960, and signed by them at the
back of said check, with the assurance that after one month from September 13, 1960, the
said check would be redeemed by respondents by paying cash or the said check can be
presented for payment on or immediately after one month. The loan was actually extended
but when the check was presented for payment on March 5, 1964, it was dishonored—the
account on which it is drawn has long been closed.

The trial court held in favor of petitioner but this was reversed by the CA by ruling that the
said check wasn’t presented within reasonable time and after its issuance. Petitioner
contends that presentment for payment and notice of dishonor are not necessary as when
funds are insufficient to meet a check, the drawer is liable, whether such presentment and
notice be totally omitted or merely delayed.

ISSUE: WON presentment for payment and notice of dishonor of the questioned check
were made within reasonable time?

HELD: NO. Where the instrument is not payable on demand, presentment must be made on
the day it falls due. Where it is payable on demand, presentment must be made within a
reasonable time after issue, except that in the case of a bill of exchange, presentment for
payment will be sufficient if made within a reasonable time after the last negotiation
thereof.

"Reasonable time" has been defined as so much time as is necessary under the
circumstances for a reasonable prudent and diligent man to do, conveniently, what the
contract or duty requires should be done, having a regard for the rights and possibility of
loss, if any, to the other party. In the instant case, the check in question was issued on
September 13, 1960, but was presented to the drawee bank only on March 5, 1964, and
dishonored on the same date. After dishonor by the drawee bank, a formal notice of
dishonor was made by the petitioner through a letter dated April 27, 1968. Under these
circumstances, the petitioner undoubtedly failed to exercise prudence and diligence on
what he ought to do as required by law. The petitioner likewise failed to show any
justification for the unreasonable delay. Notice may be given as soon as instrument has
been dishonored and unless delay is excused must be given within the time fixed by law

88. McGuire vs Province of Samar [G.R. No. L-8155. October 23, 1956.]
Facts: While the province of Samar was still occupied by Japanese military forces, a check was
issued by said province to Paulino M. Santos (then the postmaster of Borongan) for the sum of
P25,000, drawn against the Philippine National Bank Cebu Branch. The payee negotiated the
check with James McGuire, an American citizen and resident of the municipality of Borongan.
James McGuire presented the check to the municipal treasurer of Borongan for payment, but
the latter (who merely noted it) was not able or did not choose to pay the same.

James McGuire wrote letters to the Bureau of Posts seeking payment of the check, which were
in turn referred to the PNB. As of this date the province of Samar still had a deposit of
P84,287.47 in the PNB. PNB requested James McGuire to present the check to the provincial
treasurer and the provincial auditor for certification. Before the check could be certified by the
authorities concerned as being in order and entitled to priority of payment, the province of
Samar, withdraw the amount of P83,504.07, leaving a balance of only P743.43. In the
meantime, James McGuire transferred his rights to the check to the herein Plaintiffs who,
unable to cash it.

Issue: WON defendants herein are solidarily liable to pay the check.

Ruling: No.The obligation of the Appellant bank is merely subsidiary.An implied acceptance of
the check by the Appellant bank was thereby created. The request by the Appellant bank from
the Bureau of Posts for photostatic copies of the check and the subsequent requirement by it
for its presentation by James McGuire to the provincial treasurer and the provincial auditor for
certification, would be an empty gesture if the Appellant did not thereby mean to assume the
obligation of paying the check and holding sufficient deposit of the drawer for the purpose.
Even so, Appellant’s resulting obligation is merely subsidiary, the province of Samar being
primarily liable to pay the check.

90. GULLAS VS PNB (GR. NO. L-43191; NOV. 13, 1935)

FACTS: The Treasurer of theUnited States issued a warrant in the amount of $361 payable to
FranciscoBacos. Petitioner and Pedro Lopez signed as endorsers of this check.Thereupon it was
cashed by PNB. Subsequently the treasurer warrant wasdishonored by the Insular Treasurer. At
that time, Gullas has an outstandingbalance of P509 with PNB and had issued certain checks
before he left hisresidence for Manila. The bank on learning of the dishonor of the
treasurywarrant sent notices by mail to Gullas which could not delivered to himbecause he is
not in Manila.

In view of this, the bank applied the outstandingbalances of Gullas’ current account with the
PNB for the payment of thecheck. On the return of Gullas, notice of dishonor was received and
theunpaid balance of the US Treasury was paid by him. As a result of this, thechecks issued by
him before he left for Manila were not paid because of lackof funds standing to his credit in the
bank.
ISSUE: WON PNB has the rightto apply a deposit to the debt of the depositor to the bank?

HELD: No. TheNIL contains provisions establishing the liability of a general indorser andgiving
the procedure for a notice of dishonor. The general indorser engagesthat if he be dishonored
and the necessary proceedings of dishonor be dulytaken, he will pay the amount to the holder.
The notice of dishonor is inorder to charge all indorser and that the right of action against him
does notaccrue until the notice is given. As a general rule, a bank has a right to setoff the
deposits in its hands for the payment of any indebtedness to it on thepart of the depositor. In
the case at bar, though this right to set off exist, theremedy was not properly enforced because
prior to the mailing of the noticeof dishonor, and without waiting for any action by Gullas, the
bank made use
of the money standing in his account to make good for the treasury warrant.
92. Great Asian Sales vs. Court of Appeals

Facts:

Great Asian is engaged in the business of buying and selling general merchandise, in particular household
appliances. On March 17, 1981, the board of directors of Great Asian approved a resolution authorizing
its Treasurer and General Manager, Arsenio Lim Piat, Jr. ("Arsenio" for brevity) to secure a loan from
Bancasia in an amount not to exceed P1.0 million.

Tan Chong Lin signed a Surety Agreement in favor of Bancasia to guarantee, solidarily, the debts of
Great Asian to Bancasia. Great Asian, through its Treasurer and General Manager Arsenio, signed four
(4) Deeds of Assignment of Receivables ("Deeds of Assignment" for brevity), assigning to Bancasia
fifteen (15) postdated checks.

The drawee banks dishonored the fifteen checks on maturity when deposited for collection by Bancasia,
with any of the following as reason for the dishonor: "account closed", "payment stopped", "account
under garnishment", and "insufficiency of funds".

Bancasia sent by personal delivery a letter dated June 16, 1982 to Tan Chong Lin, notifying him of the
dishonor of the fifteen checks and demanding payment from him. Neither Great Asian nor Tan Chong Lin
paid Bancasia the dishonored checks.

On June 23, 1982, Bancasia filed a complaint for collection of a sum of money against Great Asian and
Tan Chong Lin. Bancasia impleaded Tan Chong Lin because of the Surety Agreements he signed in favor
of Bancasia.

Issue: Whether or not Tan Chong Lim is liable for the amount of the checks

Ruling:

Yes. Tan Chong Lin, the President of Great Asian, is being sued in his personal capacity based on the
Surety Agreements he signed wherein he solidarily held himself liable with Great Asian for the payment
of its debts to Bancasia. The Surety Agreements contain the following common condition:
"Upon failure of the Principal to pay at maturity, with or without demand, any of the obligations above
mentioned, or in case of the Principal’s failure promptly to respond to any other lawful demand made by
the Creditor, its successors, administrators or assigns, both the Principal and the Surety/ies shall be
considered in default and the Surety/ies agree/s to pay jointly and severally to the Creditor all outstanding
obligations of the Principal, whether due or not due, and whether held by the Creditor as Principal or
agent, and it is agreed that a certified statement by the Creditor as to the amount due from the Principal
shall be accepted by the Surety/ies as correct and final for all legal intents and purposes."

Indisputably, Tan Chong Lin explicitly and unconditionally bound himself to pay Bancasia, solidarily
with Great Asian, if the drawers of the checks fail to pay on due date. The condition on which Tan Chong
Lin’s obligation hinged had happened. As surety, Tan Chong Lin automatically became liable for the
entire obligation to the same extent as Great Asian.

Article 1207 of the Civil Code provides, "xxx There is a solidary liability only when the obligation
expressly so states, or when the law or nature of the obligation requires solidarity." The stipulations in the
Surety Agreements undeniably mandate the solidary liability of Tan Chong Lin with Great Asian.
Moreover, the stipulations in the Surety Agreements are sufficiently broad, expressly encompassing "all
the notes, drafts, bills of exchange, overdraft and other obligations of every kind which the PRINCIPAL
may now or may hereafter owe the Creditor". Consequently, Tan Chong Lin must be held solidarily liable
with Great Asian for the nonpayment of the fifteen dishonored checks, including penalty and attorney’s
fees in accordance with the Deeds of Assignment.

93. LUIS WONG VS. CA

(G.R. No. 117857; February 2, 2001)

FACTS: Petitioner Wong was an agent of Limtong Press. Inc. (LPI). LPI would print sample calendars, then
give them to agents to present to customers. The agents would get the purchase orders of customers
and forward them to LPI. After printing the calendars, LPI would ship the calendars directly to the
customers. Thereafter, the agents would come around to collect the payments. Petitioner, however, had
a history of unremitted collections, which he duly acknowledged in a confirmation receipt he co-signed
with his wife. Hence, petitioner’s customers were required to issue post-dated checks before LPI would
accept their purchase orders. Wong issued six (6) postdated checks initially intended to guarantee the
calendar orders of customers who failed to issue post-dated checks. However, following company policy,
LPI refused to accept the checks as guarantees. Instead, the parties agreed to apply the checks to the
payment of petitioner’s unremitted. Before the maturity of the checks, petitioner prevailed upon LPI not
to deposit the
checks and promised to replace them within 30 days. However, petitioner reneged on his promise. LPI
deposited the checks with Rizal Commercial Banking Corporation (RCBC) which were returned because
the account was closed. Despite receipt of the notice of dishonor, petitioner failed to make
arrangements for payment within five (5) banking days so he was charged with violation of BP 22.

ISSUE: What constitutes REASONABLE TIME for checks?

HELD:Contrary to petitioner’s assertions, nowhere in said provision does the law require a maker to
maintain funds in his bank account for only 90 days. Rather, the clear import of the law is to establish
a prima facie presumption of knowledge of such insufficiency of funds under the following conditions (1)
presentment within 90 days from date of the check, and (2) the dishonor of the check and failure of the
maker to make arrangements for payment in full within 5 banking days after the notice thereof. That the
check must be deposited within ninety (90) days is simply one of the conditions for the prima
facie presumption of knowledge of lack of funds to arise. It is not an element of the offense. Neither
does it discharge petitioner from his duty to maintain sufficient funds in the account within a reasonable
time thereof. Under Section 186 of the Negotiable Instruments Law, “a check must be presented for
payment within a reasonable time after its issue or the drawer will be discharged from liability thereon
to the extent of the loss caused by the delay.” By current banking practice, a check becomes stale after
more than six (6) months,23 or 180 days. Private respondent herein deposited the checks 157 days after
the date of the check. Hence, said checks cannot be considered stale. Only the presumption of
knowledge of insufficiency of funds was lost, but such knowledge could still be proven by direct or
circumstantial evidence. As found by the trial court, private respondent did not deposit the checks
because of the reassurance of petitioner that he would issue new checks. Upon his failure to do so, LPI
was constrained to deposit the said checks. After the checks were dishonored, petitioner was duly
notified of such fact but failed to make arrangements for full payment within five (5) banking days
thereof. There is, on record, sufficient evidence that petitioner had knowledge of the insufficiency of his
funds in or credit with the drawee bank at the time of issuance of the checks. And despite petitioner’s
insistent plea of innocence, we find no error in the respondent court’s affirmance of his conviction by
the trial court for violations of the Bouncing Checks Law.

BANCO DE ORO SAVINGS VS. EQUITABLE BANKING CORP. (GR No. 74917, Jan. 20, 1988)
Facts:
Manager's checks (Checks) having an aggregate amount of P45,982.23 and payable to certain member
establishments of Visa Card. Subsequently, the Checks were deposited with the defendant (respondent
Equitable) to the credit of its depositor (Aida Trencio’s account). Following normal procedures, and after
stamping at the back of the Checks the usual endorsements (All prior and/or lack of endorsement
guaranteed), Equitable sent the checks for clearing through the Philippine Clearing House Corporation
(PCHC). Accordingly, BDO paid the Checks; its clearing account was debited for the value of the Checks
and defendant's clearing account was credited for the same amount. Thereafter, BDO discovered that
the endorsements appearing at the back of the Checks, purporting to be that of the payees, were forged
and/or unauthorized or otherwise belong to persons other than the payees. Pursuant to the PCHC
Clearing Rules and Regulations, it presented the Checks directly to 4 Cesar Nickolai F. Soriano Jr.
Arellano University School of Law 2011-0303 NEGOTIABLE INSTRUMENTS LAW (Act No. 2031) based on
the book of Aquino and De Leon and Audio Lecture of Dean Sundiang Equitable for the purpose of
claiming reimbursement from the latter. However, Equitable refused to do so. After an exhaustive
investigation and hearing, the Arbiter rendered a decision in favor of BDO and against Equitable
ordering the PCHC to debit the clearing account of the defendant (E), and to credit the clearing account
of the plaintiff (B) of the foregoing amount with interest at the rate of 12% per annum from date of the
complaint. The Board of Directors of the PCHC affirmed the decision of the Arbiter. Hence this petition.
ISSUE 1: Were the subject checks nonnegotiable and if not, does it fall under the ambit of the power of
the PCHC? OR Does the PCHC has jurisdiction over the controversy involved in view of petitioner’s claim
that the subject matter of the case (the Checks) was not negotiable.
HELD: Yes. As provided in the articles of incorporation of PCHC, its operation extend to "clearing checks
and other clearing items." No doubt transactions on non-negotiable checks are within the ambit of its
jurisdiction. The term check as used in the said Articles of Incorporation of PCHC can only connote
checks in general use in commercial and business activities. It cannot be conceived to be limited to
negotiable checks only. Checks are used between banks and bankers and their customers, and are
designed to facilitate banking operations. It is of the essence to be payable on demand, because the
contract between the banker and the customer is that the money is needed on demand. Further, the
participation of the two banks, petitioner and private respondent, in the clearing operations of PCHC is a
manifestation of their submission to its jurisdiction.
ISSUE 2: How does principle of estoppel apply?
HELD:
Petitioner is estopped from raising the defense of nonnegotiability of the checks in question. It
stamped its guarantee on the back of the checks and subsequently presented these checks for clearing
and it was on the basis of these endorsements by the petitioner that the proceeds were credited in its
clearing account. The principle of estoppel effectively prevents the defendant from denying liability for
any damages sustained by the plaintiff which, relying upon an action or declaration of the defendant,
paid on the Checks. The same principle of estoppel effectively prevents the defendant from denying the
existence of the Checks. The petitioner by its own acts and representation cannot now deny liability
because it assumed the liabilities of an endorser by stamping its guarantee at the back of the checks.
The petitioner having stamped its guarantee of "all prior endorsements and/or lack of endorsements"
(Exh. A-2 to F-2) is now estopped from claiming that the checks under consideration are not negotiable
instruments. The checks were accepted for deposit by the petitioner stamping thereon its guarantee, in
order that it can clear the said checks with the respondent bank. By such deliberate and positive attitude
of the petitioner it has for all legal intents and purposes treated the said cheeks as negotiable
instruments and accordingly assumed the warranty of the endorser when it stamped its guarantee of
prior endorsements at the back of the checks. It led the said respondent to believe that it was acting as
endorser of the checks and on the strength of this guarantee said respondent cleared the checks in
question and credited the account of the petitioner. Petitioner is now barred from taking an opposite
posture by claiming that the disputed checks are not negotiable instrument.
NEW PACIFIC TIMBER & SUPPLY CO. INC. VS. SENERIS

10 SCRA 686

FACTS: Petitioner, New Pacific Timber & Supply Co. Inc. was the defendant in a complaint for collection
of money filed by private respondent, Ricardo A. Tong. In this complaint, respondent Judge rendered a
compromise judgment based on the amicable settlement entered by the parties wherein petitioner will
pay to private respondent P54,500.00 at 6% interest per annum and P6,000.00 as attorney’s fee of
which P5,000.00 has been paid. Upon failure of the petitioner to pay the judgment obligation, a writ of
execution worth P63,130.00 was issued levied on the personal properties of the petitioner. Before the
date of the auction sale, petitioner deposited with the Clerk of Court in his capacity as the Ex-Officio
Sheriff P50,000.00 in Cashier’s Check of the Equitable Banking Corporation and P13,130.00 in cash for a
total of

P63,130.00. Private respondent refused to accept the check and the cash and requested for the auction
sale to proceed. The properties were sold for P50,000.00 to the highest bidder with a deficiency of
P13,130.00. Petitioner subsequently filed an ex-parte motion for issuance of certificate of satisfaction of
judgment which was denied by the respondent Judge. Hence this present petition, alleging that the
respondent Judge capriciously and whimsically abused his discretion in not granting the requested
motion for the reason that the judgment obligation was fully satisfied before the auction sale with the
deposit made by the petitioner to the Ex-Officio Sheriff. In upholding the refusal of the private
respondent

to accept the check, the respondent Judge cited Article 1249 of the New Civil Code which provides that
payments of debts shall be made in the currency which is the legal tender of the Philippines and Section
63 of the Central Bank Act which provides that checks representing deposit money do not have legal
tender power. In sustaining the contention of the private respondent to refuse the acceptance of the
cash, the respondent Judge cited 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.

ISSUE: Can the check be considered a valid payment of the judgment obligation?

RULING: Yes. It is to be emphasized that it is a well-known and accepted practice in the business sector
that a Cashier’s Check is deemed cash. Moreover, since the check has been certified by the drawee
bank, this certification implies that the check is sufficiently funded in the drawee bank and the funds will
be applied whenever the check is presented for payment. The object of certifying a check is to enable
the holder to use it as money. When the holder procures the check to be certified, it operates as an
assignment of a part of the funds to the creditors. Hence, the exception provided in Section 63 of the
Central Bank Act which states that checks which have been cleared and credited to the account of the
creditor shall be equivalent to a delivery to the creditor in cash the amount equal to that which is
credited to his account. The Cashier’s Check and the cash are valid payment of the obligation of the
petitioner. The private respondent has no valid reason to refuse the acceptance of the check and cash as
full payment of the obligation

ASSOCIATED BANK VS CA
208 SCRA 465
GR No. 89802; May 7, 1992

FACTS:

MerleReyes was engaged in the RTW business and held transactions with different department
stores. She was about to collect payments from the department stores when she was informed
that the payments had already been made, through crossed checks issued in her business’ name
and the same were deposited with the bank. The bank consequently allowed its transfer to
Sayson who later encashed the checks. This prompted Reyes to sue the bank and its manager for
the return of money. The trial and appellate court ruled in her favor.

ISSUE:
Whether or not Private Respondent Reyes, doing business under the name and style Melissa’s
RWT, has a cause of action against petitioners Associated Bank for their encashment and
payment to another person of certain crossed checks issued in her favor?
RULING:
Yes. Under accepted banking practice, crossing a check is done by writing two parallel lines
diagonally on the left top portion of the checks. The crossing is special where the name of a bank
or a business institution is written between the two parallel lines, which means that the drawee
should pay only with the intervention of that company. The crossing is general where the words
written between the two parallel lines are "and Co." or "for payee's account only," as in the case
at bar. This means that the drawee bank should not encash the check but merely accept it for
deposit.

In State Investment House Inc vs. IAC (supra, p. 19), the Court declared the effects of crossing a
check. The effects therefore of crossing a check relate to the mode of its presentment for
payment. Under Sec. 72 of the Negotiable Instruments Law, presentment for payment, to be
sufficient, must be made by the holder or by some person authorized to receive payment on his
behalf. Who the holder or authorized person is depends on the instruction stated on the face of
the check. The six checks in the case at bar had been crossed and issued "for payee's account
only." This could only signify that the drawers had intended the same for deposit only by the
person indicated, to wit, Melissa's RTW. There being no evidence that the crossed checks were
actually received by the private respondent, she would have a right of action against the drawer
companies, which in turn could go against their respective drawee banks, which in turn could sue
the herein petitioner as collecting bank. In a similar situation, it was held that, to simplify
proceedings, the payee of the illegally encashed checks should be allowed to recover directly
from the bank responsible for such encashment regardless of whether or not the checks were
actually delivered to the payee.

BATAAN CIGAR AND CIGARETTE FACTORY (BCCFI) VS. CA

(GR No. 93048; March 3, 1994)

FACTS:
BCCF, a corporation involved in the manufacturing of cigarettes, issued to King Tim Pua
George (George King)post-dated crossed checks for the delivery tobacco leaves. George
Kinglater on sold at a discount the subject checks to State Investment House, Inc. ( SIHI). In as
much asGeorge King failed to deliver the bales of tobacco leaves as agreed,despite petitioner’s
demand, BCCFI issued a stop payment order on allchecks payable to George King. Efforts of
SIHI to collect from BCCFI having failed, it instituted the present case, naming only BCCFI as
party defendant. The trial court pronounced SIHI as having a valid claim being a holder in due
course. It further said that the non-inclusion of King Tim Pua George as party defendant is
immaterial in this case, since he, as payee, is not an indispensable party.Unable to collect, SIHI
instituted an actionto recover from herein petitioner and was granted relief by the trial courtand
later on upheld by the CA. Hence, the present petition.

ISSUE:
Whether or not SIHI, a second indorser, a holder of crossed checks, a holder in due course
HELD:
No. Sec. 52 of the Negotiable Instruments Law (NIL)states what constitutes a holder in due
course, thus:

Sec. 52 – A holder in due course is a holder who has taken theinstrument under the following
conditions:
a. That it is complete and regular upon its face;
b. That he became the holder of it before it wasoverdue, and without notice that it had
beenpreviously 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 nonotice of any infirmity in the instrument or
defect inthe title of the person negotiating it.

Jurisprudence has pronounced that crossing a check should have thefollowing effects: (a) the
check may not be encashed but only deposited inthe bank; (b) the check may be negotiated only
once – to one who has anaccount with a bank; (c) and the act of crossing the check serves as
warning to the holder that the check has been issued for a definite purpose so that he must
inquire if he has received the check pursuant tothat purpose, otherwise, he is not a holder in due
course. It is settled thatcrossing the checks should put the holder on inquiry and upon
himdevolves the duty to ascertain the indorser’s title to the check or thenature of his possession.
Failing in this respect, the holder is declaredguilty of gross negligence amounting to legal
absence of good faith,contrary to Sec. 52(c) of the NIL. In the present case, BCCFIs defense in
stopping payment is as good to SIHI as it is to George King. Because,really, the checks were
issued with the intention that George King wouldsupply BCCFI with the bales of tobacco leaf.
There being failure ofconsideration, SIHI is not a holder in due course. Consequently,
BCCFIcannot be obliged to pay the checks.
NATIVIDAD GEMPESAW VS. CA

Facts:

Natividad Gempesaw issued checks, prepared by her bookkeeper, a total of 82 checks in favor of several
supplies. Most of the checks for amounts in excess of actual obligations as shown in their corresponding
invoices. It was only after the lapse of more than 2 years did she discovered the fraudulent
manipulations of her bookkeeper. It was also learned that the indorsements of the payee were forged,
and the checks were brought to the chief accountant of Philippine Bank of Commerce (the Drawee Bank,
Buendia Branch) who deposited them in the accounts of Alfredo Romero and Benito Lam. Gempesaw
made demand upon the bank to credit the amount charged due the checks. The bank refused. Hence,
the present action.

ISSUE:

WON crossed check can be presented for payment.

Held:

NO.

Issuing a crossed check imposes no obligation on the drawee not honor such a check. It is more of a
warning to the holder that the check cannot be presented to the drawee bank for payment in cash.
Instead, the check can only be deposited with the payee’s bank which in turn must present it for
payment against the drawee bank in the course of normal banking transactions between banks. The
crossed check cannot be presented for payment but it can only be deposited and the drawee bank may
only pay to another bank in the payee’s or indorser’s account.

STATE INVESTMENT HOUSE VS. CA

FACTS: New Sikatuna Wood Industries, Inc. requested for a loan from Chua. The latter
agreed to grant the same subject to the condition that the former should wait until December
1980 when he would have the money. In view of this agreement, private respondent Chua
issued three (3) "crossed checks" payable to New Sikatuna Wood Industries, Inc. all postdated
December 22, 1980. Subsequently, New Sikatuna entered into an agreement with herein
petitioner State Investment House, Inc. whereby New Sikatuna assigned and discounted with
petitioner eleven (11) postdated checks including the aforementioned three (3) postdated
checks issued by Chua.The checks, however, were dishonored by reason of "insufficient funds",
"stop payment" and "account closed", respectively. Petitioner claims that despite demands on
Chua to make good said checks, the latter failed to pay the same necessitating the former to file
an action for collection. When the CA reversed the trial court ruling favoring State Investment
House, the latter elevated the issue before the SC.

ISSUE: WON petitioner is a holder in due course as to entitle it to proceed against private
respondents Chua for the amount stated in the dishonored checks?

HELD: The Intermediate Appellate Court (now Court of Appeals), correctly elucidated that the
effects of crossing a check are: the check may not be encashed but only deposited in the bank;
the check may be negotiated only once to one who has an account with a bank; and 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. It results therefore that when State Investment
House rediscounted the check knowing that it was a crossed check he was knowingly violating
the avowed intention of crossing the check. Furthermore, his failure to inquire from the holder,
party defendant New Sikatuna Wood Industries, Inc., the purpose for which the three checks
were cross despite the warning of the crossing, prevents him from being considered in good
faith and thus he is not a holder in due course. Being not a holder in due course, plaintiff is
subject to personal defenses, such as lack of consideration between appellants and New
Sikatuna Wood Industries. Note that under the facts the checks were postdated and issued only
as a loan to New Sikatuna Wood Industries, Inc. if and when deposits were made to back up the
checks. Such deposits were not made, hence no loan was made, hence, the three checks are
without consideration (Sec. 28, Negotiable Instruments Law).
SPOUSES MORAN AND LIBRADA MORAN VS. CA

Facts:

FACTS:
 Spouses George and Librada Moran are the owners of the Wack-Wack Petron gasoline station. They
regularly purchased bulk fuel and other related products from Petrophil Corporation on cash on
delivery (COD) basis. Petitioners maintained 3 joint accounts, namely 1 current account and 2 savings
accounts with the Shaw Boulevard branch of Citytrust Banking Corporation.
December 12, 1983: Librada Moran drew a check for P50,576.00 payable to Petrophil Corporation
December 13, 1983: Librada Moran, issued another check in the amount of P56,090.00 in favor of
the same corporation

December 15 or 16, 1983: George Moran was informed by his wife Librada, that Petrophil refused to
deliver their orders on a credit basis because the 2 checks they had previously issued were
dishonored upon presentment for payment due to "insufficiency of funds."
The non-delivery of gasoline forced them to temporarily stop business operations, allegedly causing
them to suffer loss of earnings.
George Moran, furious and upset, demanded an explanation from Raul Diaz, the branch manager.
Failing to get a sufficient explanation, he talked to a certain Villareal, a bank officer, who allegedly
told him that Amy Belen Ragodo, the customer service officer, had committed a "grave error".
May or June, 1984: George Moran learned from Constancio Magno, credit manager of Petrophil, that
the he received on January 4, 1984 from Citytrust, through Diaz, a letter dated December 16, 1983,
notifying them that the 2 checks were "inadvertently dishonored . . . due to operational error."
July 24, 1984: Moran, through counsel, wrote Citytrust claiming that the bank's dishonor of the
checks caused them besmirched business and personal reputation, shame and anxiety, hence they
were contemplating the filing of the necessary legal actions unless the bank issued a certification
clearing their name and paid them P1,000,000.00 as moral damages

W/N: Spouses Moran can sue Citytrust for damages for negligence

HELD: NO.
 Spouses Moran had no reason to complain, for they alone were at fault.
 A drawer must remember his responsibilities every time he issues a check. He must personally keep
track of his available balance in the bank and not rely on the bank to notify him of the necessity to
fund certain check she previously issued
 letter was sent by respondent bank to Petrophil explaining that the dishonor of the checks was due to
"operational error." - NOT an admission of guilt
 bank may not be held responsible for such damages in the absence of fraud, bad faith, malice, or
wanton attitude

Doctrine: The relationship between the bank and the depositor is that of a debtor and creditor. By virtue of
the contract of deposit between them, the banker agrees to pay checks drawn by the depositor provided
that said depositor has money in the hands of the bank. Hence, where the bank possesses funds of a
depositor, it is bound to honor his checks to the extent of the amount of his deposits. The failure of the
bank to pay the check when the deposit is sufficient, entitles the drawer to substantial damages without
any proof of actual damages. Conversely, a bank is not liable for its refusal to pay a check on account of
insufficient funds, notwithstanding the fact that a deposit may be made later in the day.
This relationship between the drawer and the drawee bank makes the drawee bank liable to the drawer in
case of wrongful dishonor of checks. A drawee bank who wrongfully dishonors a check is not liable to the
payee for lack of privity but it is liable to the drawer because of breach of contract.

Relationship between Payee, Drawer, Drawee

GR. 92244 Feb. 9, 1993
Natividad Gempesaw v. CA
FACTS: Petitioner filed a complaint against respondent drawee bank, PBC for recovery of the
money value of 82 checks charged against petitioner’s account w/ the PBC on the ground that
payees’ indorsements were forgeries. RTC Caloocan dismissed the complaint and PBC’s
counterclaim. CA affirmed RTC decision because Gempesaw’s negligence was the proximate
cause of the loss.
Petitioner owns 4 grocery stores in Caloocan City. To facilitate payment of debts to her
suppliers, petitioner draws checks against her checking account with the respondent Philippine
Bank of Communications (PBC) as drawee. A bookkeeper prepares the checks and she signs it.
Petitioner signed each and every check without bothering to verify the accuracy of the checks
against the corresponding invoices because she reposed full and implicit trust and confidence on
her bookkeeper [her employee for 8 years]. The issuance and delivery of the checks to the payees
named therein were left to the bookkeeper. Petitioner admitted that she did not make any
verification as to whether or not the checks were delivered to their respective payees. Although
the respondent drawee Bank notified her of all checks presented to and paid by the bank,
petitioner did not verify the correctness of the returned checks, much less check if the payees
actually received the checks in payment for the supplies she received. A total of 82 checks in
favor of several suppliers. These checks were all presented by the indorsees as holders thereof to,
and honored by, the respondent drawee Bank.
All the checks issued were crossed checks. Aside from the daily notice given to the petitioner by
the respondent drawee Bank, the latter also furnished her with a monthly statement of her
transactions, attaching thereto all the cancelled checks she had issued and which were debited
against her current account. Petitioner found out about the fraudulent manipulations of her
bookkeeper more than 2 years later.
ISSUE: WON PBC is liable to share the loss with Gempesaw.
HELD: Yes. There is no question that there is a contractual relation between petitioner as
depositor (obligee) and the respondent drawee bank as the obligor. In the performance of its
obligation, the drawee bank is bound by its internal banking rules and regulations which form
part of any contract it enters into with any of its depositors. When it violated its internal rules
that second endorsements are not to be accepted without the approval of its branch managers and
it did accept the same upon the mere approval of Boon, a chief accountant, it contravened the
tenor of its obligation at the very least, if it were not actually guilty of fraud or negligence.
Furthermore, the fact that the respondent drawee Bank did not discover the irregularity with
respect to the acceptance of checks with second indorsement for deposit even without the
approval of the branch manager despite periodic inspection conducted by a team of auditors from
the main office constitutes negligence on the part of the bank in carrying out its obligations to its
depositors.
SC holds that banking business is so impressed with public interest where the trust and
confidence of the public in general is of paramount importance such that the appropriate standard
of diligence must be a high degree of diligence, if not the utmost diligence. PBC cannot claim it
exercised such a degree of diligence that is required of it. Its liability as obligor is not merely
vicarious but primary wherein the defense of exercise of due diligence in the selection and
supervision of its employees is of no moment.
The fact that petitioner's negligence was found to be the proximate cause of her loss does not
preclude her from recovering damages.
HSBC INTERNATIONAL TRUSTEE LIMITED vs. CECILIA DIEZ CATALAN (G.R.
No. 159590 & 15959; October 18, 2004)
FACTS: Frederick Arthur Thomson drew 5 checks payable to Catalan in the total amount of
HK$3.2 million. Catalan presented these checks to HSBC. The checks were dishonored for
having insufficient funds. Thomson demanded that the checks be made good because he, in fact,
had sufficient funds. Catalan knowing that Thomson had communicated with the Bank, asked
HSBC Bank to clear the checks and pay her the said amount. HSBC did not heed her. Thomson
died but Catalan was not paid yet. The account was transferred to HSBC [Trustee]. Catalan then
requested Trustee to pay her. They still refused and even asked her to submit back to them the
original checks for verification. Catalan and her lawyer went to Hongkong on their own expense
to personally submit the checks. They still were not honored, leading Catalan to file a suit against
HSBC to collect her HK$3.2M.
ISSUE: Whether or not Catalan has a cause of action.
HELD: Yes. Although Catalan has no cause of action because under Section 189, they payee
may sue the drawee based on tort under Art. 19 of the Civil Code. HSBC is not being sued on the
value of the check itself but for how it acted in relation to Catalan’s claim for payment despite
the repeated directives of the drawer Thomson to recognize the check the latter issued. Catalan
may have prayed that she be paid the value of the checks but it is axiomatic that what determines
the nature of an action, as well as which court has jurisdiction over it, are the allegations of the
complaint, irrespective of whether or not the plaintiff is entitled to recover upon all or some of
the claims asserted therein.
MARCELO MESINA VS. CA
G.R. No. 70145 November 13, 1986

Facts: JoseGo purchased from Associated Bank a cashier's check for P800,000.00.Unfortunately, he left
said check on the top of the desk of the bankmanager when he left the bank. The bank manager entrusted
the checkfor safekeeping to a bank official, a certain Albert Uy. While Uy went tothe men's room, the
check was stolen by his visitor in the person ofAlexander Lim. Upon discovering that the check was lost,
Jose Goaccomplished a "STOP PAYMENT" order. Two days later, Associated Bankreceived the lost
check for clearing from Prudential Bank. Afterdishonoring the same check twice, Associated Bank
received summonsand copy of a complaint for damages of Marcelo Mesina who was inpossession of the
lost check and is demanding payment. Petitioner claimsthat a cashier's check cannot be countermanded in
the hands of a holderin due course.

ISSUE: WON petitioner can collect on the stolen check onthe ground that he is a holder in due course?

HELD: No. Petitioner failedto substantiate his claim that he is a holder in due course and
forconsideration or value as shown by the established facts of the case.Admittedly, petitioner became the
holder of the cashier's check asendorsed by Alexander Lim who stole the check. He refused to say
howand why it was passed to him. He had therefore notice of the defect of histitle over the check from the
start. The holder of a cashier's check who isnot a holder in due course cannot enforce such check against
the issuingbank which dishonors the same. A person who became the holder of acashier's check as
endorsed by the person who stole it and who refused tosay how and why it was passed to him is not a
holder in due course

RAMOS vs CA

FACTS

Ramos, as acting bank manager of Famly Savings Bank, was accused of estafa as she allowed
withdrawals of uncleared checks deposited into the accounts of her co-accused. Subsequently, they
were dishonored. Petitioner repeatedly granted accommodations and despite her knowledge that prior
checks deposited by her co-accused turned out to be unfunded.

ISSUE

Whether or not such acts are considered estafa

RULING: YES

Her acts constitute that she conspired and cooperated with the co-accused to defraud the bank and
allow the withdrawals. They are equivalent to unfaithfulness or abuse of confidence penalized under
the Revised Penal Code