Negotiable Instruments Digests

Atty. Gregorio’s Syllabus

Compiled by Gabriella S. Venturina

With latter contributions from Josie
Mariano and Arvin Alverde.

*Strictly for academic purposes only. Not all were made by us for some were found online. We do not take credit or claim ownership for those found online.*
Bognot vs. RRI Lending Corporation, GR No. 180144, 24 September 2014
SUMMARY:
Leonardo & Rolando Bognot applied for a 500K loan from RRI evidenced by a PN
and secured by a PDC dated Nov. 30, 1996. Leonardo renewed the loan several
times monthly and paid the renewal fee along with a PDC as security. RRI cancelled
and returned the PDCs prior to renewal. Days before maturity of loan, Julieta
applied for renewal and issued a PN and check dated July 30, 1997 in the amount
of the renewal fee. She made an excuse about needing to bring home the
documents for signatures, however, she didn’t return the documents nor the PDC.
Despite follow-up letters demanding payment, these were unheeded. Leonardo
claimed that there is no cause of action because he had already paid and that he
and his wife paid for the renewals, therefore obligation is extinguished.
It was held that it is not extinguished yet since he failed to satisfactorily prove
that his obligation had already been extinguished by payment. He also failed to
present any evidence that RRI Lending had in fact encashed his check and applied
the proceeds to the payment of the loan nor did he present official receipts to
evidence payment of the loan.
DOCTRINE:
 One who pleads payment has the burden of proving it; the burden rests
on the defendant to prove payment, rather than on the plaintiff to prove
non-payment.
 Article 1249, paragraph 2 of the Civil Code provides:
o 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
 Payment must be made in legal tender. A check is not legal tender and,
therefore, cannot constitute a valid tender of payment. Since a
negotiable instrument is only a substitute for money and not money, the
delivery of such an instrument does not, by itself, operate as payment.
Mere delivery of checks does not discharge the obligation under a
judgment. The obligation is not extinguished and remains suspended
until the payment by commercial document is actually realized
Facts:
1. In September 1996, Leonardo Bognot and his younger brother, Rolando
Bognot applied for and obtained a loan of P500,000.00 from RRI Lending,
payable on November 30, 1996.
2. The loan was evidenced by a promissory note and was secured by a post-
dated check dated November 30, 1996.
3. Evidence on record shows that Leonardo renewed the loan several times on
a monthly basis. He paid a renewal fee of P54,600.00 for each renewal,
issued a new post-dated check as security, and executed and/or renewed
the promissory note previously issued. RRI Lending on the other hand,
cancelled and returned to Leonardo the post-dated checks issued prior to
their renewal.
4. Leonardo purportedly paid the renewal fees and issued a post-dated check
dated June 30, 1997 as security. As had been done in the past, RRI Lending
superimposed the date "June 30, 1997" on the promissory note to make it
appear that it would mature on the said date.
5. Several days before the loan’s maturity, Rolando’s wife, Julieta, went to the
respondent’s office and applied for another renewal of the loan. She issued
in favor of RRI Lending a promissory note and a check dated July 30, 1997,
in the amount of P54,600.00 as renewal fee.
6. On the excuse that she needs to bring home the loan documents for the
Bognot siblings’ signatures and replacement, Julieta asked the RRI Lending
clerk to release to her the promissory note, the disclosure statement, and
the check dated July 30, 1997. Julieta, however, never returned these
documents nor issued a new post-dated check. Consequently, RRI Lending
sent Leonardo follow-up letters demanding payment of the loan, plus
interest and penalty charges. These demands went unheeded.
7. In his Answer, Leonardo, claimed, among other things, that the complaint
states no cause of action because RRI Lending’s claim had been paid, waived,
abandoned or otherwise extinguished, and that the one (1) month loan
contracted by Rolando and his wife in November 1996 which was lastly
renewed in March 1997 had already been fully paid and extinguished in April
1997.
Issue: Whether the parties’ obligation was extinguished by payment
Held:
1. Jurisprudence tells us that one who pleads payment has the burden of
proving it; the burden rests on the defendant to prove payment, rather
than on the plaintiff to prove non-payment. Indeed, once the existence of
an indebtedness is duly established by evidence, the burden of showing with
legal certainty that the obligation has been discharged by payment rests on
the debtor.
2. In the present case, Leonardo failed to satisfactorily prove that his
obligation had already been extinguished by payment. As the CA correctly
noted, the petitioner failed to present any evidence that RRI Lending had
in fact encashed his check and applied the proceeds to the payment of the
loan.
3. Neither did he present official receipts evidencing payment, nor any proof
that the check had been dishonored.
4. We note that the petitioner merely relied on the respondent’s cancellation
and return to him of the check dated April 1, 1997. The evidence shows that
this check was issued to secure the indebtedness. The acts imputed on the
respondent, standing alone, do not constitute sufficient evidence of
payment.
5. Article 1249, paragraph 2 of the Civil Code provides:
a. 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. (Emphasis supplied)
6. Also, we held in Bank of the Philippine Islands v. Spouses Royeca:
a. Settled is the rule that payment must be made in legal tender. A
check is not legal tender and, therefore, cannot constitute a valid
tender of payment. Since a negotiable instrument is only a
substitute for money and not money, the delivery of such an
instrument does not, by itself, operate as payment. Mere delivery
of checks does not discharge the obligation under a judgment. The
obligation is not extinguished and remains suspended until the
payment by commercial document is actually realized.(Emphasis
supplied)
7. Although Article 1271 of the Civil Code provides for a legal presumption of
renunciation of action (in cases where a private document evidencing a
credit was voluntarily returned by the creditor to the debtor), this
presumption is merely prima facie and is not conclusive; the presumption
loses efficacy when faced with evidence to the contrary.
8. Moreover, the cited provision merely raises a presumption, not of payment,
but of the renunciation of the credit where more convincing evidence would
be required than what normally would be called for to prove payment. Thus,
reliance by the petitioner on the legal presumption to prove payment is
misplaced.
9. To reiterate, no cash payment was proven by the petitioner. The
cancellation and return of the check dated April 1, 1997, simply established
his renewal of the loan – not the fact of payment. Furthermore, it has been
established during trial, through repeated acts, that the respondent
cancelled and surrendered the post-dated check previously issued
whenever the loan is renewed.

Traders Royal Bank v. Court of Appeals, 269 SCRA 15

 SUMMARY:
FGAC owns several CBCIs which are proof that FGAC has the required investment
with Central Bank to operate as insurer and to protect third persons from
liabilities. FGAC assigned CBCI to PUFC, then PUFC sold the CBCI to TRB, which
included the right to repurchase. However, when the date of repurchase came,
PUFC failed to do it so TRB requested to register the CBCI in its name. Central bank
refused since it is not negotiable and that the transfer from FGAC to PUFC is
invalid, therefore PUFC really had no valid title over it, also affecting the validity of
transfer between PUFC and TRB. TRB filed mandamus and averred that PUFC is an
alter ego of FGAC owning 90% of FGAC, that they have the same directors, and
that they used their identity to defraud TRB.
It was held that TRB is wrong because it failed to show that the corporate fiction
is used to defraud it. CBCI was also not a negotiable instrument because it lacked
the words of negotiability. TRB was also not entitled to registration since it was
not a valid assignment since FUPC acquired the CBCI fictitiously.
DOCTRINE:
Without the words of negotiability, an instrument is not negotiable.
If acquired fictitiously and lack of actual consideration, any assignment made as
such is of complete nullity.
FACTS:
 Filriters Guaranty Assurance Corporation (FGAC) is the owner of several
Central Bank Certificates of Indebtedness (CBCI).
 These certificates are actually proof that FGAC has the required reserve
investment with the Central Bank to operate as an insurer and to protect
third persons from whatever liabilities FGAC may incur.
 In 1979, FGAC agreed to assign said CBCI to Philippine Underwriters Finance
Corporation (PUFC). Later, PUFC sold said CBCI to Traders Royal Bank (TRB).
Said sale with TRB comes with a right to repurchase on a date certain.
 However, when the day to repurchase arrived, PUFC failed to repurchase
said CBCI hence TRB requested the Central Bank to have said CBCI be
registered in TRB’s name.
 Central Bank refused as it alleged that the CBCI are not negotiable; that as
such, the transfer from FGAC to PUFC is not valid; that since it was invalid,
PUFC acquired no valid title over the CBCI; that the subsequent transfer from
PUFC to TRB is likewise invalid.
 TRB then filed a petition for mandamus to compel the Central Bank to
register said CBCI in TRB’s name.
a. TRB averred that PUFC is the alter ego of FGAC; that PUFC owns
90% of FGAC;
b. that the two corporations have identical sets of directors; that
payment of said CBCI to PUFC is like a payment to FGAC hence the
sale between PUFC and TRB is valid.
c. In short, TRB avers that that the veil of corporate fiction, between
PUFC and FGAC, should be pierced because the two corporations
allegedly used their separate identity to defraud TRD into buying
said CBCI.
ISSUE:
1. WN CBCI is a negotiable instrument.
2. WN TRB was entitled to register CBCI under its name
3. Whether or not Traders Royal Bank is correct.
HELD:
1. It is not, because it provides for a promise to pay the registered owner,
Filriters. It was payable only to Filriters and lacked the words of negotiability
that should have served as an expression of consent.
2. NO. Since the transfer of the CBCI from PUFC to TRB was merely an
assignment and not governed in NIL. PUFC’s title was also defective since
acquired fictitiously. Although stated “for value received”, there was no
actual consideration. It was mere borrowing from sister corporation, making
assignment completely null. There was no valid transfer or assignment to
petitioner.
3. No. Traders Royal Bank failed to show that the corporate fiction is used by
the two corporations to defeat public convenience, justify wrong, protect
fraud or defend crime or where a corporation is a mere alter ego or business
conduit of a person. TRB merely showed that PUFC owns 90% of FGAC and
that their directors are the same. The identity of PUFC can’t be maintained
as that of FGAC because of this mere fact; there is nothing else which could
lead the court under the circumstance to disregard their corporate
personalities. Further, TRB can’t argue that it was defrauded into buying
those certificates. In the first place, TRB as a banking institution is not
ignorant about these types of transactions. It should know for a fact that a
certificate of indebtedness is not negotiable because the payee therein is
inscribed specifically and that the Central Bank is obliged to pay the named
payee only and no one else.
Caltex Philippines v. Court of Appeals, 212 SCRA 448
 SUMMARY:
Security bank issued 280 CTDs in favor of Angel Dela Cruz for 1.12M. Angel
delivered them to Caltex for his fuel purchases. He later informed the bank that
he lost all of the CTDs so he executed an affidavit of loss. Caltex presented the
CTDs and wanted to pre-terminate them but the bank rejected the claim. Later on,
Angel’s loan matured and the bank set-off and applied the deposits as payment
for the loan. Caltex claimed that the CTDs are non-negotiable. But it was held that
the CTD’s were negotiable for meeting the requirements of Sec. 1 of NIL, such as
it is payable to bearer. Caltex also can’t recover the CTD’s since they require both
delivery and indorsement. In this case they were delivered NOT as payment but
only for security purposes.
DOCTRINE:
The accepted rule is that the negotiability or non-negotiability of an instrument is
determined from the writing, that is, from the face of the instrument itself. The
CTDs in question are negotiable instruments as they meet the requirements of the
law for negotiability as provided for in Section 1 of the Negotiable Instruments
Law. The documents provide that the amounts deposited shall be repayable to
the depositor. And according to the document, the depositor is the "bearer." The
documents do not say that the depositor is Angel de la Cruz and that the amounts
deposited are repayable specifically to him. Rather, the amounts are to be
repayable to the bearer of the documents or, for that matter, whosoever may be
the bearer at the time of presentment.
RULING:
1. The CTDs in question are negotiable instruments as they meet the
requirements of the law for negotiability as provided for in Section 1 of the
Negotiable Instruments Law.
2. The documents provide that the amounts deposited shall be repayable to
the depositor. And according to the document, the depositor is the "bearer."
3. The documents do not say that the depositor is Angel de la Cruz and that the
amounts deposited are repayable specifically to him. Rather, the amounts
are to be repayable to the bearer of the documents or, for that matter,
whosoever may be the bearer at the time of presentment.
4. However, petitioner cannot recover on the CTDs. Although the CTDs are
bearer instruments, a valid negotiation thereof for the true purpose and
agreement between it and dela Cruz, as ultimately ascertained, requires
both delivery and indorsement. In this case, there was no indorsement
as the CTDs were delivered not as payment but only as a security for dela
Cruz' fuel purchases.

Valid negotiation requires both delivery AND indorsement.

FACTS:
1. Security Bank and Trust Co. issued 280 certificates of time deposit (CTD) in
favor of one Mr. Angel dela Cruz who deposited with the bank P1.12 million.
2. Dela Cruz delivered the CTDs to Caltex in connection with his purchase of
fuel products from the latter.
3. Subsequently, dela Cruz informed the bank that he lost all the CTDs, and
thus executed an affidavit of loss to facilitate the issuance of the
replacement CTDs.
4. When Caltex presented said CTDs for verification with the bank and formally
informed the bank of its decision to pre-terminate the same, the bank
rejected Caltex’ claim and demand as Caltex failed to furnish copies of
certain requested documents.
5. In 1983, dela Cruz’ loan matured and the bank set-off and applied the time
deposits as payment for the loan. Caltex filed a complaint which was
dismissed on the ground that the subject certificates of deposit are non-
negotiable.

ISSUE: Whether the Certificates of Time Deposit (CTDs) are negotiable instruments. Metropolitan Bank & Trust Co. v. Court of Appeals, 194 SCRA 169
 DOCTRINE:
If payable from a particular fund, it becomes conditional, therefore, non-
negotiable. Mere indorsing is not applicable to non-negotiable instruments.

FACTS:
1. Gomez opened an account with Golden Savings bank and deposited 38
treasury warrants.
2. All these warrants were indorsed by the cashier of
Golden Savings, and deposited it to the savings account in a Metroba
nk branch.
3. They were sent later on for clearing by the branch office to the
principal office of Metrobank, which forwarded them to the Bureau of
Treasury for special clearing.
4. On persistent inquiries on whether the warrants have been cleared, the
branch manager allowed withdrawal of the
warrants, only to find out later on that the treasury warrants have b
een
dishonored.

ISSUE: WN the treasury warrants are negotiable

HELD:
1. The treasury warrants were not negotiable instruments. Clearly, it is
indicated that it was non-negotiable and of equal significance is the
indication that they are payable from a particular fund, Fund 501. This
indication as the source of payment to be made on the treasury
warrant makes the promise to pay conditional and the warrants
themselves non-negotiable.

2. Metrobank then cannot contend that by indorsing the warrants in general,

GS assumed that they were genuine and in all respects what they purport it
to be, in accordance to Section 66 of the NIL. The simple reason is that the
law isn’t applicable to the non-negotiable treasury warrants. The
indorsement was made for the purpose of merely depositing them with
Metrobank for clearing. It was in fact Metrobank which stamped on the
back of the warrants: “All prior indorsements and/or lack of endorsements
guaranteed…”

Philippine Education Co. v. Soriano, 39 SCRA 587

 DOCTRINE: 3. Moreover, some of the restrictions imposed upon money orders by postal
It is not disputed that the Philippine postal statutes were patterned after similar laws and regulations are inconsistent with the character of negotiable
statutes in force in United States. instruments. For instance, such laws and regulations usually provide for not
The Weight of authority in the United States is that postal money orders are not more than one endorsement; payment of money orders may be withheld
negotiable instruments, the reason being that in establishing and operating a under a variety of circumstances.
postal money order system, the government is not engaged in commercial
transactions but merely exercises a governmental power for the public benefit.
Moreover, some of the restrictions imposed upon money orders by postal laws
and regulations are inconsistent with the character of negotiable instruments.
For instance, such laws and regulations usually provide for not more than one
endorsement; payment of money orders may be withheld under a variety of
circumstances.

Facts:
1. Enrique Montinola sought to purchase from Manila Post Office ten money
orders of 200php each payable to E. P. Montinola.
2. Montinola offered to pay with the money orders with a private check.
3. Private check was not generally accepted in payment of money orders, the
teller advised him to see the Chief of the Money Order Division, but instead
of doing so, Montinola managed to leave the building without the
knowledge of the teller.
4. Upon the disappearance of the unpaid money order, a message was sent to
instruct all banks that it must not pay for the money order stolen upon
presentment.
5. The Bank of America received a copy of said notice. However, The Bank of
America received the money order and deposited it to the appellant’s
account upon clearance.
6. Mauricio Soriano, Chief of the Money Order Division notified the Bank of
America that the money order deposited had been found to have been
irregularly issued and that, the amount it represented had been deducted
from the bank’s clearing account. The Bank of America debited appellant’s
account with the same account and give notice by mean of debit memo.

Issue: Whether or not the postal money order in question is a negotiable instrument

Held:
1. No. It is not disputed that the Philippine postal statutes were patterned after
similar statutes in force in United States.
2. The Weight of authority in the United States is that postal money orders are
not negotiable instruments, the reason being that in establishing and
operating a postal money order system, the government is not engaged in
commercial transactions but merely exercises a governmental power for
the public benefit. Sesbreno v. Court of Appeals, GR No. 89252, 24 May 1993
SUMMARY:
 Sesbreno made a money market placement of 300K with PhilFinance. PF issued a
COS of a Delta Motor Corp. PN. The Certificate of Securities Delivery receipt was
with Pilipinas Bank, and PDCs drawn against Insular Bank for 304.5K. The checks
were dishonored. Sescreno approached de Villa of PB and demanded that his
placement had remaind unpaid and outstanding and for the PN to be delivered.
He examined the PN and found it stamped as non-negotiable. He made a demand
to Delta for partial satisfaction of the PN explaining that this has been assigned to
him, however, this was denied.
The PN, though, non-negotiable may be assigned. DMC PN No. 2731, 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, in whole or in part, that Note.
DOCTRINE:
Non-negotiability does not affect assignability. the sole effect was to exempt the
bill from the statutory provisions relative thereto, and a bill, though not
negotiable, may be transferred by assignment; the assignee taking subject to the
equities between the original parties. 12
FACTS:
1. Raul Sesbreno made a money market placement in the amount of P300,000
with PhilFinance, with a term of 32 days. PhilFinance issued to Sesbreno the
Certificate of Confirmation of Sale of a Delta Motor Corporation Promissory
Note (DMC PN No. 2731), 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. The
checks were dishonored for having been drawn against insufficient
funds. Philfinance delivered to petitioner Denominated Custodian Receipt
(DCR)
2. Petitioner approached Ms. Elizabeth de Villa of private respondent Pilipinas,
and handed her a demand letter informing the bank that his placement with
Philfinance in the amount reflected in the DCR had remained unpaid and
outstanding, and that he in effect was asking for the physical delivery of the
underlying promissory note.
3. Petitioner then examined the original of the DMC PN No. 2731 and found:
that the security had been issued on 10 April 1980; that it would mature on
6 April 1981; that it had a face value of P2,300,833.33, with the Philfinance
as “payee” and private respondent Delta Motors Corporation (“Delta”) as
“maker;” and that on face of the promissory note was stamped “NON
NEGOTIABLE.” Pilipinas did not deliver the Note, nor any certificate of
participation in respect thereof, to petitioner.
4. Petitioner later made similar demand letters again asking private
respondent Pilipinas for physical delivery of the original of DMC PN No.
2731.
5. Petitioner also made a written demand upon private respondent Delta for
the partial satisfaction of DMC PN No. 2731, explaining that Philfinance, as
payee thereof, had assigned to him said Note to the extent of P307,933.33.
Delta, however, denied any liability to petitioner on the promissory note.
6. As petitioner had failed to collect his investment and interest thereon, he
filed an action for damages against private respondents Delta and Pilipinas.
ISSUE: WON DMC PN No. 2731 marked as non-negotiable may be assigned?
HELD:
1. YES. 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:
2. The words “not negotiable,” stamped on the face of the bill of lading, did not
destroy its assignability, but the sole effect was to exempt the bill from the
statutory provisions relative thereto, and a bill, though not negotiable, may
be transferred by assignment; the assignee taking subject to the equities
between the original parties. 12 (Emphasis added)
3. DMC PN No. 2731, 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, in
whole or in part, that Note.
Firestone Tire & Rubber Co. v. Court of Appeals, 353 SCRA 601
DOCTRINE:
 DOCTRINE:
Withdrawal slips in question were non-negotiable instrument. Hence, the rules
Under the Negotiable Instruments Law (sec. 9 [d]), a check drawn payable to the
governing the giving immediate notice of dishonor of negotiable instrument do
order of “cash” is a check payable to bearer hence a bearer instrument, and the
not apply. The essence of negotiability which characterizes a negotiable paper as
bank may pay it to the person presenting it for payment without the drawer’s
a credit instrument lies in its freedom to circulate freely as a substitute for money.
indorsement. Where a check is made payable to the order of ‘cash’, the word
The withdrawal slips in question lacked this character.
“cash” does not purport to be the name of any person, and hence the instrument
Facts:
is payable to bearer. The drawee bank need not obtain any indorsement of the
1. Forjas-Arca Enterprise Company is maintaining a special savings account
check, but may pay it to the person presenting it without any indorsement
with Luzon Development Bank, the latter authorized and allowed
withdrawals of funds though the medium of special withdrawal slips. These FACTS:
are supplied by Fojas-Arca.
1. In 1946, Ang Tek Lian approached Lee Hua and asked him if he could give
2. Fojas-Arca purchased on credit with Firestone Tire & Rubber Company, in
him P4,000.00. He said that he meant to withdraw from the bank but the
payment Fojas-Arca delivered a 6 special withdrawal slips.
bank was already closed.
3. In turn, these were deposited by the Firestone to its bank account in
Citibank. 2. In exchange, he gave Lee Hua a check which is “payable to the order of
4. With this, relying on such confidence and belief Firestone extended to Fojas- ‘cash’”.
Arca other purchase on credit of its products but several withdrawal slips
3. The next day, Lee Hua presented the check for payment but it was
were dishonored and not paid.
dishonored due to insufficiency of funds.
5. As a consequence, Citibank debited the plaintiff’s account representing the
aggregate amount of the two dishonored special withdrawal slips. 4. Lee Hua eventually sued Ang Tek Lian. In his defense, Ang Tek Lian argued
6. Fojas-Arca averred that the pecuniary losses it suffered are a caused by and that he did not indorse the check to Lee Hua and that when the latter
directly attributes to defendant’s gross negligence as a result Fojas-Arca accepted the check without Ang tek Lian’s indorsement, he had done so
filed a complaint. fully aware of the risk he was running thereby.
ISSUE: Whether or not Ang Tek Lian is correct.
Issue: WN the acceptance and payment of the special withdrawal slips without the
presentation of the depositor’s passbook thereby giving the impression that it is a HELD: No. Under the Negotiable Instruments Law (sec. 9 [d]), a check drawn payable
negotiable instrument like a check. to the order of “cash” is a check payable to bearer hence a bearer instrument, and
the bank may pay it to the person presenting it for payment without the drawer’s
Held: indorsement. Where a check is made payable to the order of ‘cash’, the word “cash”
1. No. Withdrawal slips in question were non-negotiable instrument. Hence, does not purport to be the name of any person, and hence the instrument is payable
the rules governing the giving immediate notice of dishonor of negotiable to bearer. The drawee bank need not obtain any indorsement of the check, but may
instrument do not apply. The essence of negotiability which characterizes a pay it to the person presenting it without any indorsement.
negotiable paper as a credit instrument lies in its freedom to circulate freely
as a substitute for money. The withdrawal slips in question lacked this
character.

Ang Tek Lian v. Court of Appeals, 87 Phil. 383

Philippine National Bank v. Manila Oil Refining & By-Products Company, 43 Phil 445
 SUMMARY:
The manager and treasurer of MORBC executed an instrument to PNB that
authorizes confession of judgment if not paid within maturity the amount of 61K.
true enough, they failed to pay and so PNB brought the action in CFI Manila to
recover the 61K. Atty. Recto represented MORBC and filed a motion confessing
judgment which was strongly objected by MORBC. Atty. Gonzales represented
MORBC, filed a demurrer, but was overruled.
It was later held that such a provision is illegal and is part of Section 5 of NIL
exceptions to negotiability of the instrument. The provision of confession of
judgment doesn’t affect the instrument’s negotiability.
DOCTRINE:
The Negotiable Instruments Law, in section 5, provides that "The negotiable
character of an instrument otherwise negotiable is not affected by a provision
which (b) Authorizes confession of judgment if the instrument be not paid at
maturity"; but this provision of law cannot be taken to sanction judgments by
confession, because it is a portion of a uniform law which merely provides that, in
jurisdictions where judgments notes are recognized, such clauses shall not affect
the negotiable character of the instrument. Moreover, the same section of the
Negotiable Instruments Law concludes with these words: "But nothing in this
section shall validate any provision or stipulation otherwise illegal."
It may only become valid upon express legislative sanction.
Facts:
1. On 8 May 1920, the manager and the treasurer of the Manila Oil Refining &
By-Products Company, Inc,. executed and delivered to the Philippine
National Bank (PNB), a written instrument reading as follows:
a. "RENEWAL. P61,000.00 MANILA, P.I., May 8, 1920. On demand
after date we promise to pay to the order of the Philippine National
Bank sixty-one thousand only pesos at Philippine National Bank,
Manila, P.I. Without defalcation, value received; and do hereby
authorize any attorney in the Philippine Islands, in case this note
be not paid at maturity, to appear in my name and confess
judgment for the above sum with interest, cost of suit and
attorney's fees of ten (10) per cent for collection, a release of all
errors and waiver of all rights to inquisition and appeal, and to the
benefit of all laws exempting property, real or personal, from levy
or sale. Value received. No. —— Due —— MANILA OIL REFINING &
BY-PRODUCTS CO., INC., (Sgd.) VICENTE SOTELO, Manager.
MANILA OIL REFINING & BY-PRODUCTS CO., INC., (Sgd.) RAFAEL
LOPEZ. Treasurer."
2. The Manila Oil Refining & By-Products Company, Inc. failed to pay the
promissory note on demand. PNB brought action in the Court of First
Instance of Manila, to recover P61,000, the amount of the note, together
with interest and costs.
3. Mr. Elias N. Recto, an attorney associated with PNB, entered his appearance
in representation of Manila Oil, and filed a motion confessing judgment.
Manila Oil, however, in a sworn declaration, objected strongly to the
unsolicited representation of attorney Recto.
4. Later, attorney Antonio Gonzalez appeared for Manila Oil and filed a
demurrer, and when this was overruled, presented an answer. The trial
judge rendered judgment on the motion of attorney Recto in the terms of
the complaint. <The disposition of the trial court and the process as to how
the case reached the Supreme Court is not in the facts.>
5. In the Supreme Court, the question of first impression raised in the case
concerns the validity in this jurisdiction of a provision in a promissory note
whereby in case the same is not paid at maturity, the maker authorizes
any attorney to appear and confess judgment thereon for the principal
amount, with interest, costs, and attorney's fees, and waives all errors,
rights to inquisition, and appeal, and all property exemptions.
Issue [1]: Whether the Negotiable Instruments Law (Act No. 2031) expressly
recognized judgment notes, enforceable under the regular procedure.
Held [1]:
1. The Negotiable Instruments Law, in section 5, provides that
a. "The negotiable character of an instrument otherwise negotiable is
not affected by a provision which (b) Authorizes confession of
judgment if the instrument be not paid at maturity"; but this
provision of law cannot be taken to sanction judgments by
confession, because it is a portion of a uniform law which merely
provides that, in jurisdictions where judgments notes are
recognized, such clauses shall not affect the negotiable character
of the instrument.
b. Moreover, the same section of the Negotiable Instruments Law
concludes with these words: "But nothing in this section shall
validate any provision or stipulation otherwise illegal."
Issue [2]: Whether provisions in notes authorizing attorneys to appear and confess
judgments against makers should not be recognized in Philippine jurisdiction by
implication.

Held [2]:
1. Judgments by confession as appeared at common law were considered an
amicable, easy, and cheap way to settle and secure debts. They are quick
remedy serve to save the court's time.
2. Time also save time and money of the litigants and the government the
expenses that a long litigation entails. In one sense, instruments of this
character may be considered as special agreements, with power to enter up
judgments on them, binding the parties to the result as they themselves
viewed it.
3. On the other hand, are disadvantages to the commercial world which
outweigh the considerations just mentioned. Such warrants of attorney are
void as against public policy, because they enlarge the field for fraud,
because under these instruments the promissor bargains away his right to
a day in court, and because the effect of the instrument is to strike down
the right of appeal accorded by statute.
4. The recognition of such form of obligation would bring about a complete
reorganization of commercial customs and practices, with reference to
short-term obligations. It can readily be seen that judgment notes, instead
of resulting to the advantage of commercial life the Philippines might be the
source of abuse and oppression, and make the courts involuntary parties
thereto. If the bank has a meritorious case, the judgment is ultimately
certain in the courts.
5. The Court is of the opinion thus that warrants of attorney to confess
judgment are not authorized nor contemplated by Philippine law; and that
provisions in notes authorizing attorneys to appear and confess judgments
against makers should not be recognized in this jurisdiction by implication
and should only be considered as valid when given express legislative
sanction.

Republic Planters Bank v. Court of Appeals, 216 SCRA 738

 SUMMARY:
Yamaguchi and Canlas are officers of the Worldwide Garment Manufacturing,
which later changed its name to Pinch Manufacturing. They were authorized to
apply for credit facilities with the petitioner bank. The two officers signed the
promissory notes issued to secure the payment of the obligations. Later, the bank
instituted an action for collection of money, impleading also the two officers. The
trial court held the two officers personally liable also.
Canlas is solidarily liable on each of the promissory notes to which his signature
appears. The promissory notes in question are negotiable instruments and thus,
governed by the NIL.
Under the NIL, persons who write their names in the instrument are makers are
liable as such. By signing the note, the maker promises to pay to the order of the
payee or any holder the tenor of the obligation. Based on the above provisions of
the law, there is no denying that Canlas is one of the co-makers of the promissory
note.
DOCTRINE:
Where an instrument containing the words "I promise to pay" is signed by two or
more persons, they are deemed to be jointly and severally liable thereon. An
instrument which begins" with "I", We", or "Either of us" promise to, pay, when
signed by two or more persons, makes them solidarily liable.
The liability of a person signing as an agent is specifically provided for in Section
20 thereof, which provides that "Liability of a person signing as agent and so
forth. 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 filling a representative
character, without disclosing his principal, does not exempt him from personal
liability.
Facts:
1. Shozo Yamaguchi and Fermin Canlas were President/Chief Operating Officer
and Treasurer respectively, of Worldwide Garment Manufacturing, Inc.
2. By virtue of Board Resolution 1 dated 1 August 1979, Shozo Yamaguchi and
Fermin Canlas were authorized to apply for credit facilities with the
petitioner Republic Planters Bank (RPB) in the forms of export advances and
letters of credit/trust receipts accommodations.
3. Republic Planters Bank issued 9 promissory notes, each of which were
uniformly worded in the following manner:
a. "___________, after date, for value received, I/we, jointly and
severaIly promise to pay to the ORDER of the REPUBLIC PLANTERS
BANK, at its office in Manila, Philippines, the sum of ___________
PESOS (....) Philippine Currency..."
b. On the right bottom margin of the promissory notes appeared the
signatures of Shozo Yamaguchi and Fermin Canlas above their
printed names with the phrase "and (in) his personal capacity"
typewritten below. At the bottom of the promissory notes
appeared: "Please credit proceeds of this note to: "________
Savings Account ______XX Current", "Account No. 1372-00257- 6",
and "of WORLDWIDE GARMENT MFG. CORP."
4. These entries were separated from the text of the notes with a bold line
which ran horizontally across the pages.
5. In three promissory notes, the name Worldwide Garment Manufacturing,
Inc. was apparently rubber stamped above the signatures of Yamaguchi
and Canlas.
6. On 20 December 1982, Worldwide Garment Manufacturing, Inc. (WGMI)
noted to change its corporate name to Pinch Manufacturing Corporation
(PMC).
7. On 5 February 1982, RPB filed a complaint for the recovery of sums of money
covered among others, by the nine promissory notes with interest thereon,
plus attorney's fees and penalty charges.
8. The complainant was originally brought against WGMI inter alia, but it was
later amended to drop WGMI as defendant and substitute PMC it its place.
9. PMC and Shozo Yamaguchi did not file an Amended Answer and failed to
appear at the scheduled pre-trial conference despite due notice.
10. Only Canlas filed an Amended Answer wherein he, denied having issued the
promissory notes in question since according to him, he was not an officer
of PMC, but instead of WGMI, and that when he issued said promissory
notes in behalf of WGMI, the same were in blank, the typewritten entries
not appearing therein prior to the time he affixed his signature.
11. On 20 June 1985, The Regional Trial Court rendered a decision in favor of
RPB, ordering PMC (formerly WGMI), Yamaguchi and Canlas to pay, jointly
and severally, RPB the following sums with interest thereon at 16% per
annum under 7 promissory notes:
a. the sum of P300,000.00 with interest from 29 January 1981 until
fully paid;
b. P40,000.00 with interest from 27 November 1980;
c. P166,466.00 which interest from 29 January 1981;
d. P86,130.31 with interest from 29 January 1981;
e. P12,703.70 with interest from 27 November 1980;
f. P281,875.91 with interest from 29 January 1981; and
 g. P200,000.00 with interest from 29 January 1981. PMC
12. Yamaguchi were also ordered to pay jointly and severally, RPB the sum of:
a. P367,000.00 with interest of 16% per annum from 29 January 1980
under another promissory note.
13. PMC was ordered to pay PRB the sum of:
a. P140,000.00 with interest at 16% per annum from 27 November
1980 until fully paid, under another promissory note;
b. to pay the sum of P231,120.81 with interest at 12% per annum
from 1 July 1981, until fully paid and
c. the sum of P331,870.97 with interest from 28 March 1981, until
fully paid.
14. The court also ordered PMC, Yamaguchi, and Canlas to pay, jointly and
severally, RPB the sum of:
a. P100,000.00 as and for reasonable attorney's fee and the
b. further sum equivalent to 3% per annum of the respective principal
sums from the dates above stated as penalty charge until fully paid
c. plus 1% of the principal sums as service charge; with costs against
PMC, et al.
15. From the above decision only Canlas appealed to the then Intermediate
Court (now the Court Appeals).
16. His contention was that inasmuch as he signed the promissory notes in his
capacity as officer of the defunct WGMI, he should not be held personally
liable for such authorized corporate acts that he performed. The appellate
court affirmed the decision of trial court except that it completely absolved
Canlas from liability under the promissory notes and reduced the award for
damages and attorney's fees.
17. RPB appealed by a way of a petition for review on certiorari. It is the
contention of RPB that having unconditionally signed the 9 promissory notes
with Yamaguchi, jointly and severally, Canlas is solidarity liable with
Yamaguchi on each of the nine notes.
Issue [1]: Whether Fermin Canlas is solidarily liable on each of the promissory notes
bearing his signature.
Held [1]:
1. Fermin Canlas is solidarily liable on each of the promissory notes bearing his
signature.
2. The promissory notes are negotiable instruments and must be governed
by the Negotiable Instruments Law. Under the Negotiable lnstruments Law,
persons who write their names on the face of promissory notes are makers
and are liable as such. By signing the notes, the maker promises to pay to
the order of the payee or any holder according to the tenor thereof.
3. Based on the above provisions of law, there is no denying that Canlas is one
of the co-makers of the promissory notes. As such, he cannot escape
liability arising therefrom.
4. Where an instrument containing the words "I promise to pay" is signed by
two or more persons, they are deemed to be jointly and severally liable
thereon. An instrument which begins" with "I" ,We" , or "Either of us"
promise to, pay, when signed by two or more persons, makes them
solidarily liable.
5. The fact that the singular pronoun is used indicates that the promise is
individual as to each other; meaning that each of the co- signers is deemed
to have made an independent singular promise to pay the notes in full.
Herein, the solidary liability of Canlas is made clearer and certain, without
reason for ambiguity, by the presence of the phrase "joint and several" as
describing the unconditional promise to pay to the order of RPB. A joint and
several note is one in which the makers bind themselves both jointly and
individually to the payee so that all may be sued together for its
enforcement, or the creditor may select one or more as the object of the
suit.
6. A joint and several obligation in common law corresponds to a civil law
solidary obligation; that is, one of several debtors bound in such wise that
each is liable for the entire amount, and not merely for his proportionate
share.
7. By making a joint and several promise to pay to the order of RPB, Canlas
assumed the solidary liability of a debtor and the payee may choose to
enforce the notes against him alone or jointly with Yamaguchi and PMC as
solidary debtors.
8. As to whether the interpolation of the phrase "and (in) his personal
capacity" below the signatures of the makers in the notes will affect the
liability of the makers, it is immaterial and will not affect to the liability of
Canlas as a joint and several debtor of the notes. With or without the
presence of said phrase, Canlas is primarily liable as a co-maker of each of
the notes and his liability is that of a solidary debtor.
Issue [2]: Whether Canlas can avoid liability on the promissory notes by claiming to
be a mere agent of the corporation.
Held [2]:
1. As a general rule, officers or directors under the old corporate name bear
no personal liability for acts done or contracts entered into by officers of the
corporation, if duly authorized.
2. Inasmuch as such officers acted in their capacity as agent of the old
corporation and the change of name meant only the continuation of the
old juridical entity, the corporation bearing the same name is still bound by
the acts of its agents if authorized by the Board.
 3. Under the Negotiable Instruments Law, the liability of a person signing as signature, the notes were complete in the sense that the spaces for the
an agent is specifically provided for in Section 20 thereof, which provides material particular had been filled up by the bank as per agreement.
that "Liability of a person signing as agent and so forth. Where the 6. The notes were not incomplete instruments; neither were they given to
instrument contains or a person adds to his signature words indicating that Canlas in blank as he claims. Thus, Section 14 of the NegotiabIe
he signs for or on behalf of a principal, or in a representative capacity, he Instruments Law is not applicable.
is not liable on the instrument if he was duly authorized; but the mere
addition of words describing him as an agent, or as filling a representative
character, without disclosing his principal, does not exempt him from
personal liability. Where the agent signs his name but nowhere in the
instrument has he disclosed the fact that he is acting in a representative
capacity or the name of the third party for whom he might have acted as
agent, the agent is personally liable to take holder of the instrument and
cannot be permitted to prove that he was merely acting as agent of another
and parol or extrinsic evidence is not admissible to avoid the agent's
personal liability."

Issue [3]: Whether the promissory notes were delivered to Canlas in blank for his
signature, or were incomplete instruments, to allow the application of Section 14 of
the Negotiable Instruments Law.

Held [3]:
1. A careful examination of the notes in question shows that they are the
stereotype printed form of promissory notes generally used by commercial
banking institutions to be signed by their clients in obtaining loans. Such
printed notes are incomplete because there are blank spaces to be filled
up on material particulars such as payee's name, amount of the loan, rate
of interest, date of issue and the maturity date.
2. The terms and conditions of the loan are printed on the note for the
borrower-debtor's perusal. An incomplete instrument which has been
delivered to the borrower for his signature is governed by Section 14 of
the Negotiable Instruments Law.
3. Proof that the notes were signed in blank was only the self-serving
testimony of Canlas.
4. The Court chose to believe the bank's testimony that the notes were filled
up before they were given to Canlas and Yamaguchi for their signatures as
joint and several promissors.
5. For signing the notes above their typewritten names, they bound
themselves as unconditional makers. The court took judicial notice of the
customary procedure of commercial banks of requiring their clientele to sign
promissory notes prepared by the banks in printed form with blank spaces
already filled up as per agreed terms of the loan, leaving the borrowers-
debtors to do nothing but read the terms and conditions therein printed and
to sign as makers or co-makers. When the notes were given to Canlas for his
Sps. Evangelista v. Mercator Finance Corp., 21 August 2003
SUMMARY:
Sps. Evangelista filed for annulment of titles against Mercator et al. They claim to
be owners of the 5 parcels of land and alleged that they executed REM in favor of
Mercator as officers of Embassy Farms. They did NOT receive proceeds. They
contended that the REM should not affect them since they didn’t personally obtain
the loans. There came a foreclosure proceeding and subsequent sale of the land.
Mercator admitted that Evangelistas were owners however said that they
executed the REM amounting to 844K to secure the payment. It contended that
since Evangelistas and EF signed PN as co-makers, aside from the CSA and the PNs,
they are jointly and severally liable.
The promissory in question is worded as follows:
“For value received, I/we jointly and severally promise to pay to
the order of Mercator Financing Company……..”
The promissory note and the Continuing Suretyship Agreement prove that the
spouses are solidary obligors with Embassy Farms.
The promissory notes subsequently executed by the spouses and Embassy Farms,
restructuring their loan, likewise prove that the spouses are solidarily liable with
Embassy Farms.
The SC held that under Section 17 (g) of the NIL and Article 1216 of the Civil Code,
where the promissory note was executed jointly and severally by two or more
persons, the payee of the promissory note had the right to hold any one of the
two (2) signers of the promissory note responsible for the payment of the whole
amount of the note.
It was ruled also that there was no ambiguity, and suggesting that there was, it can
be resolved through Sec. 17 of NIL.
DOCTRINE:
“I/we, jointly and severally” indicate solidarity.
A surety is one who is solidarily liable with the principal. The spouses cannot claim
that they did not personally receive any consideration for the contract for well-
entrenched is the rule that the consideration necessary to support a surety
obligation need not pass directly to the surety, a consideration moving to the
principal alone being sufficient. A surety is bound by the same consideration that
makes the contract effective between the principal parties thereto. Having
executed the suretyship agreement, there can be no dispute on the personal
liability of the spouses.
Facts:
1. Spouses Eduardo B. Evangelista and Epifania C. Evangelista filed a complaint
for annulment of titles against Mercator Finance Corp. Lydia P. Salazar,
Lamecs Realty and Development Corporation, and the Register of Deeds of
Bulacan. The spouses Evangelista claimed being the registered owners of 5
parcels of land contained in the Real Estate Mortgage executed by them and
Embassy Farms, Inc.
2. They alleged that they executed the Real Estate Mortgage in favor of
Mercator only as officers of Embassy Farms. They did not receive the
proceeds of the loan evidenced by a promissory note, as all of it went to
Embassy Farms.
3. Thus, they contended that the mortgage was without any consideration as
to them since they did not personally obtain any loan or credit
accommodations.
4. There being no principal obligation on which the mortgage rests, the real
estate mortgage is void. With the void mortgage, they assailed the validity
of the foreclosure proceedings conducted by Mercator, the sale to it as the
highest bidder in the public auction, the issuance of the transfer certificates
of title to it, the subsequent sale of the same parcels of land to Lydia P.
Salazar, and the transfer of the titles to her name, and lastly, the sale and
transfer of the properties to respondent Lamecs Realty & Development
Corporation.
5. Mercator admitted that the spouses Evangelista were the owners of the
subject parcels of land. It, however, contended that on 16 February 1982,
the spouses executed a Mortgage in favor of Mercator for and in
consideration of certain loans, and/or other forms of credit
accommodations obtained from the Mortgagee (Mercator) amounting to
P844,625.78 and to secure the payment of the same and those others that
the Mortgagee may extend to the mortgagor.
6. It contended that since the spouses and Embassy Farms signed the
promissory note as co-makers, aside from the Continuing Suretyship
Agreement subsequently executed to guarantee the indebtedness of
Embassy Farms, and the succeeding promissory notes[8] restructuring the
loan, then the spouses are jointly and severally liable with Embassy Farms.
Due to their failure to pay the obligation, the foreclosure and subsequent
sale of the mortgaged properties are valid. Salazar and Lamecs asserted that
they are innocent purchasers for value and in good faith, relying on the
validity of the title of Mercator.
7. Lamecs admitted the prior ownership of the spouses of the subject parcels
of land, but alleged that they are the present registered owner. Salazar and
Lamecs likewise assailed the long silence and inaction by the spouses as it
was only after a lapse of almost 10 years from the foreclosure of the
property and the subsequent sales that they made their claim.
 8. Thus, Salazar and Lamecs averred that petitioners are in estoppel and guilty 'I promise to pay' is signed by two or more persons, they are deemed to be
of laches. After pre-trial, Mercator moved for summary judgment on the jointly and severally liable thereon."
ground that except as to the amount of damages, there is no factual issue 6. Further, even if the spouses intended to sign the note merely as officers of
to be litigated. Embassy Farms, still this does not erase the fact that they subsequently
9. Mercator argued that petitioners had admitted in their pre-trial brief the executed a continuing suretyship agreement.
existence of the promissory note, the continuing suretyship agreement and 7. A surety is one who is solidarily liable with the principal. The spouses cannot
the subsequent promissory notes restructuring the loan, hence, there is no claim that they did not personally receive any consideration for the contract
genuine issue regarding their liability. The mortgage, foreclosure for well-entrenched is the rule that the consideration necessary to support
proceedings and the subsequent sales are valid and the complaint must be a surety obligation need not pass directly to the surety, a consideration
dismissed. moving to the principal alone being sufficient. A surety is bound by the same
10. The spouses opposed the motion for summary judgment claiming that consideration that makes the contract effective between the principal
because their personal liability to Mercator is at issue, there is a need for a parties thereto. Having executed the suretyship agreement, there can be no
full-blown trial. dispute on the personal liability of the spouses.
11. The RTC granted the motion for summary judgment and dismissed the
complaint. The spouses’ motion for reconsideration was denied for lack of
merit.
12. Thus, the spouses went up to the Court of Appeals, but again were
unsuccessful.
13. A motion for reconsideration by the spouses was likewise denied for lack of
merit.
14. The spouses filed the Petition for Review on Certiorari. The spouses allege,
inter alia, that there is an ambiguity in the wording of the promissory note
and claim that since it was Mercator who provided the form, then the
ambiguity should be resolved against it.

Issue: Whether the spouses are solidarily liable with Embassy Farms, in light of the
promissory note signed by them.

Held:
1. The promissory note and the Continuing Suretyship Agreement prove that
the spouses are solidary obligors with Embassy Farms.
2. The promissory notes subsequently executed by the spouses and Embassy
Farms, restructuring their loan, likewise prove that the spouses are solidarily
liable with Embassy Farms.
3. The spouses allege that there is an ambiguity in the wording of the
promissory note and claim that since it was Mercator who provided the
form, then the ambiguity should be resolved against it.
4. Courts can interpret a contract only if there is doubt in its letter. But, an
examination of the promissory note shows no such ambiguity.
5. Besides, assuming arguendo that there is an ambiguity, Section 17 of the
Negotiable Instruments Law states that "Where the language of the
instrument is ambiguous or there are omissions therein, the following
rules of construction apply: (g) Where an instrument containing the word
PNB v. Rodriguez, GR No. 170325, 26 September 2008
SUMMARY:
Spouses Rodriguez maintained a savings and demand/checking accounts with
petitioners Philippines National Bank (PNB). They were engaged in the informal
lending business and had a discounting arrangement with the Philnabank
Employees Savings and Loan Association (PEMSLA), an association of PNB
employees, which likewise maintained current and savings accounts with
petitioner bank. PEMSLA regularly granted loans to its members. Spouses
Rodriguez would rediscount the postdated checks issued to members whenever
the association was short of funds. As was customary, the spouses would replace
the postdated checks with their own checks issued in the name of the members.
It was PEMSLA’s policy not to approve applications for loans of members with
outstanding debts. To subvert this policy, some PEMSLA officers devised a scheme
to obtain additional loans despite their outstanding loan accounts. They took out
loans in the names of unknowing members, without the knowledge or consent
of the latter. The PEMSLA checks issued for these loans were then given to the
spouses for rediscounting. The officers carried this out by forging the indorsement
of the named payees in the checks. In return, the spouses issued their personal
checks (Rodriguez checks) in the name of the members and delivered the checks
to an officer of PEMSLA. The PEMSLA checks, on the other hand, were deposited
by the spouses to their account. Meanwhile, the Rodriguez checks were deposited
directly by PEMSLA to its savings account without any indorsement from the
named payees. This usual irregular procedure is made possible through the
facilitation of Edmundo Palermo, Jr., treasurer of PEMSLA and bank teller in the
PNB Branch.
The spouses issued 69 checks, in the total amount of P2,345,804.00, payable to 47
members of PEMSLA. After finding out such fraudulent act, PNB closed the current
account of PEMSLA. As a result, the PEMSLA checks deposited by the spouses were
returned or dishonored for the reason “Account Closed.” The corresponding
Rodriguez checks, however, were deposited as usual to the PEMSLA savings
account. The amounts were duly debited from the Rodriguez account. Thus,
because the PEMSLA checks given as payment were returned, spouses Rodriguez
incurred losses from the rediscounting transactions. Spouses Rodriguez sued
PEMSLA and PNB. They contended that because PNB credited the checks to the
PEMSLA account even without indorsements, PNB violated its contractual
obligation to them as depositors. PNB paid the wrong payees, hence, it should bear
the loss. Trial court ruled in favor of spouses and ordered PNB to pay. CA affirmed
the decision.
DOCTRINE:
Fictitious-payee Rule:
GR: when the payee is fictitious or not intended to be the true recipient of the
proceeds, the check is considered as a bearer instrument (Sections 8 and 9 of the
NIL)
EX: However, there is a commercial bad faith exception to the fictitious-payee
rule. A showing of commercial bad faith on the part of the drawee bank, or any
transferee of the check for that matter, will work to strip it of this defense. The
exception will cause it to bear the loss.
The distinction between bearer and order instruments lies in their manner of
negotiation:
 order instrument - requires an indorsement from the payee or holder
before it may be validly negotiated
 bearer instrument - mere delivery
US jurisprudence: “fictitious” if the maker of the check did not intend for the payee
to in fact receive the proceeds of the check
In a fictitious-payee situation, the drawee bank is absolved from liability and the
drawer bears the loss
When faced with a check payable to a fictitious payee, it is treated as a bearer
instrument that can be negotiated by delivery.
FACTS:
 Spouses Erlando and Norma Rodriguez were engaged in the informal lending
business and had a discounting arrangement with the Philnabank Employees
Savings and Loan Association (PEMSLA), an association of PNB employees
 The association maintained current and savings accounts with Philippine
National Bank (PNB)
 PEMSLA regularly granted loans to its members. Spouses Rodriguez would
rediscount the postdated checks issued to members whenever the association
was short of funds.
 As was customary, the spouses would replace the postdated checks with their
own checks issued in the name of the members.
 It was PEMSLA’s policy not to approve applications for loans of members with
outstanding debts.

 To subvert this policy, some PEMSLA officers devised a scheme to obtain
additional loans despite their outstanding loan accounts.
 They took out loans in the names of unknowing members, without the
knowledge or consent of the latter.
 The officers carried this out by forging the indorsement of the named payees in
the checks
 Rodriguez checks were deposited directly by PEMSLA to its savings
account without any indorsement from the named payees.
 This was an irregular procedure made possible through the facilitation of
Edmundo Palermo, Jr., treasurer of PEMSLA and bank teller in the PNB Branch.
 this became the usual practice for the parties.
 November 1998-February 1999: spouses issued 69 checks totalling to
P2,345,804. These were payable to 47 individual payees who were all members
of PEMSLA
 PNB eventually found out about these fraudulent acts
 To put a stop to this scheme, PNB closed the current account of PEMSLA.
 As a result, the PEMSLA checks deposited by the spouses were returned or
dishonored for the reason “Account Closed.”
 The amounts were duly debited from the Rodriguez account
 Spouses filed a civil complaint for damages against PEMSLA, the Multi-Purpose
Cooperative of Philnabankers (MCP), and PNB.
 PNB credited the checks to the PEMSLA account even without indorsements
= PNB violated its contractual obligation to them as depositors - so PNB should
bear the losses
 RTC: favored Rodriguez
 makers, actually did not intend for the named payees to receive the proceeds of
the checks = fictitious payees (under the Negotiable Instruments Law)
= negotiable by mere delivery
 CA: Affirmed - checks were obviously meant by the spouses to be really paid to
PEMSLA = payable to order
ISSUE: W/N the 69 checks are payable to order for not being issued to fictitious
persons thereby dismissing PNB from liability
HELD: NO. CA Affirmed
 GR: when the payee is fictitious or not intended to be the true recipient of the
proceeds, the check is considered as a bearer instrument (Sections 8 and 9 of
the NIL)
 EX: However, there is a commercial bad faith exception to the fictitious-payee
rule. A showing of commercial bad faith on the part of the drawee bank, or any
transferee of the check for that matter, will work to strip it of this defense. The
exception will cause it to bear the loss.
 The distinction between bearer and order instruments lies in their manner of
negotiation
 order instrument - requires an indorsement from the payee or holder before it
may be validly negotiated
 bearer instrument - mere delivery
 US jurisprudence: “fictitious” if the maker of the check did not intend for the
payee to in fact receive the proceeds of the check
 In a fictitious-payee situation, the drawee bank is absolved from liability and the
drawer bears the loss
 When faced with a check payable to a fictitious payee, it is treated as a bearer
instrument that can be negotiated by delivery
 underlying theory: one cannot expect a fictitious payee to negotiate the check
by placing his indorsement thereon
 lack of knowledge on the part of the payees, however, was not tantamount to a
lack of intention on the part of respondents-spouses that the payees would not
receive the checks’ proceeds
PNB did not obey the instructions of the drawers when it accepted
absent indorsement, forged or otherwise. It was negligent in the selection and
supervision of its employees
Consolidated Plywood Industries Inc. v. IFC Leasing and Acceptance Corp., 149 SCRA
459 (1987).
SUMMARY:
Petitioner bought from Atlantic Gulf and Pacific Company, through its sister
company Industrial Products Marketing, two used tractors. Petitioner was issued
a sales invoice for the two used tractors. At the same time, the deed of sale with
chattel mortgage with promissory note was issued. Simultaneously, the seller
assigned the deed of sale with chattel mortgage and promissory note to
respondent. The used tractors were then delivered but barely 14 days after, the
tractors broke down. The seller sent mechanics but the tractors were not repaired
accordingly as they were no longer serviceable. Petitioner would delay the
payments on the promissory notes until the seller completes its obligation under
the warranty.
Thereafter, a collection suit was filed against petitioner for the payment of the
promissory note.
It is patent that the seller is liable for the breach in warranty against the petitioner.
This liability as a general rule extends to the corporation to whom it assigned its
rights and interests unless the assignee is a holder in due course of the promissory
note in question, assuming the note is negotiable, in which case, the latter’s rights
are based on a negotiable instrument and assuming further that the petitioner’s
defense may not prevail against it.
DOCTRINE:
The instrument in order to be considered negotiable must contain the so called
"words of negotiability" — i.e., 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. 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.
Facts:
1. Consolidated Plywood Industries Inc. (CPII) is a corporation engaged in the
logging business. It had for its program of logging activities for the year 1978
the opening of additional roads, and simultaneous logging operations along
the route of said roads, in its logging concession area at Baganga, Manay,
and Caraga, Davao Oriental.
2. For this purpose, it needed 2 additional units of tractors. Cognizant of CPII's
need and purpose, Atlantic Gulf & Pacific Company of Manila, through its
sister company and marketing arm, Industrial Products Marketing (IPM), a
corporation dealing in tractors and other heavy equipment business, offered
to sell to CPII 2 "Used" Allis Crawler Tractors, 1 an HD-21-B and the other an
HD-16-B.
3. In order to ascertain the extent of work to which the tractors were to be
exposed, and to determine the capability of the "Used" tractors being
offered, CPII requested the seller-assignor to inspect the jobsite.
4. After conducting said inspection, IPM assured CPII that the "Used" Allis
Crawler Tractors which were being offered were fit for the job, and gave the
corresponding warranty of 90 days performance of the machines and
availability of parts.
5. With said assurance and warranty, and relying on the IPM's skill and
judgment, CPII through Henry Wee and Rodolfo T. Vergara, president and
vice-president, respectively, agreed to purchase on installment said 2 units
of "Used" Allis Crawler Tractors. It also paid the down payment of
P210,000.00. On 5 April 1978, IPM issued the sales invoice for the 2 units of
tractors.
6. At the same time, the deed of sale with chattel mortgage with promissory
note was executed.
7. Simultaneously with the execution of the deed of sale with chattel mortgage
with promissory note, IPM, by means of a deed of assignment, assigned its
rights and interest in the chattel mortgage in favor of IFC Leasing and
Acceptance Corporation. Immediately thereafter, IPM delivered said 2 units
of "Used" tractors to CPII's jobsite and as agreed, IPM stationed its own
mechanics to supervise the operations of the machines.
8. Barely 14 days had elapsed after their delivery when one of the tractors
broke down and after another 9 days, the other tractor likewise broke down.
On 25 April 1978, Vergara formally advised IPM of the fact that the tractors
broke down and requested for IPM's usual prompt attention under the
warranty.
9. In response to the formal advice by Vergara, IPM sent to the jobsite its
mechanics to conduct the necessary repairs, but the tractors did not come
out to be what they should be after the repairs were undertaken because
the units were no longer serviceable. Because of the breaking down of the
tractors, the road building and simultaneous logging operations of CPII were
delayed and Vergara advised IPM that the payments of the installments as
listed in the promissory note would likewise be delayed until IPM completely
fulfills its obligation under its warranty.
10. Since the tractors were no longer serviceable, on 7 April 1979, Wee asked
IPM to pull out the units and have them reconditioned, and thereafter to
offer them for sale.
 11. The proceeds were to be given to IFC Leasing and the excess, if any, to be "order" or "bearer." These words serve as an expression of consent that the
divided between IPM and CPII which offered to bear 1/2 of the instrument may be transferred. This consent is indispensable since a maker
reconditioning cost. No response to this letter was received by CPII and assumes greater risk under a negotiable instrument than under a non-
despite several follow-up calls, IPM did nothing with regard to the request, negotiable one. Without the words "or order" or "to the order of," the
until the complaint in the case was filed by IFC Leasing against CPII, Wee, instrument is payable only to the person designated therein and is therefore
and Vergara. non-negotiable. Any subsequent purchaser thereof will not enjoy the
12. The complaint was filed by IFC Leasing against CPII, et al. for the recovery of advantages of being a holder of a negotiable instrument, but will merely
the principal sum of P1,093,789.71, accrued interest of P151,618.86 as of 15 "step into the shoes" of the person designated in the instrument and will
August 1979, accruing interest thereafter at the rate of 12% per annum, thus be open to all defenses available against the latter. Therefore,
attorney's fees of P249,081.71 and costs of suit. CPII, et al. filed their considering that the subject promissory note is not a negotiable instrument,
amended answer praying for the dismissal of the complaint and asking the it follows that IFC Leasing can never be a holder in due course but remains a
trial court to order IFC leasing to pay them damages in an amount at the mere assignee of the note in question. Thus, CPII may raise against IFC
sound discretion of the court, P20,000.00 as and for attorney's fees, and Leasing all defenses available to it as against IPM. This being so, there was
P5,000.00 for expenses of litigation, among others. no need for CPII to implead IPM when it was sued by IFC Leasing because
13. In a decision dated 20 April 1981, the trial court rendered judgment, CPII's defenses apply to both or either of them.
ordering CPII, et al. to pay jointly and severally in their official and personal
capacities the principal sum of P1,093,798.71 with accrued interest of
P151,618.86 as of 15 August 1979 and accruing interest thereafter at the
rate of 12% per annum; and attorney's fees equivalent to 10% of the
principal and to pay the costs of the suit.
14. On 8 June 1981, the trial court issued an order denying the motion for
reconsideration filed by CPII, et al. CPII, et al.appealed to the Intermediate
Appellate Court. On 17 July 1985, the Intermediate Appellate Court issued
the decision affirming in toto the decision of the trial court. CPII et al.'s
motion for reconsideration was denied by the Intermediate Appellate Court
in its resolution dated 17 October 1985, a copy of which was received by
CPII, et al. on 21 October 1985. CPII, et al. filed the petition for certiorari
under rule 45 of the Rules of Court.

Issue: Whether the promissory note in question is a negotiable instrument.

Held:
1. The pertinent portion of the note provides that
a. ""FOR VALUE RECEIVED, I/we jointly and severally promise to pay
to the INDUSTRIAL PRODUCTS MARKETING, the sum of ONE
MILLION NINETY THREE THOUSAND SEVEN HUNDRED EIGHTY NINE
PESOS & 71/100 only (P1,093,789.71), Philippine Currency, the said
principal sum, to be payable in 24 monthly installments starting July
15, 1978 and every 15th of the month thereafter until fully paid."
2. 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 negotiable must
contain the so called "words of negotiability" — i.e., must be payable to
Pay v. Vda. De Palanca  What is undeniable is that on August 26, 1967, more than fifteen years after
the execution of the PN on January 30, 1952, this petition was filed.
DOCTRINE:
 Art. 1179 of the Civil Code provides: “Every obligation whose performance
“Every obligation whose performance does not depend upon a future of uncertain does not depend upon a future of uncertain event, or upon a past event
event, or upon a past event unknown to the parties, is demandable at once. Every unknown to the parties, is demandable at once. Every obligation which
obligation which contains a resolutory condition shall also be demandable, contains a resolutory condition shall also be demandable, without prejudice
without prejudice to the effects of the happening of the event.” to the effects of the happening of the event.”

FACTS:
 George Pay is a creditor of the Late Justo Palanca who died in Manila on July
3, 1963
 Pay’s claim is based on a PN dated Jan. 30, 1952 whereby the late Justo
Palanca and Rosa Gonzales Vda. De Carlos Palanca promised to pay George
Pay the amount P26,900 with 12% interest per annum upon receipt by either
of the undersigned of cash payment from the Estate of the late Don Carlos
Palanca of upon demand.
o “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…”
 Since the note was dated on Jan. 30, 1952, it is clear that more than 10 years
has already transpired from that time until this date.
 Thus, the action of creditor has definitely prescribed.
 Even if the petitioner is assailing the validity of the refusal of the surviving
spouse the question of prescription need only to be answered.
 The obligation being due and demandable, it would appear that the filing
of the suit after fifteen (15) years was much too late considering that under
the Civil Code the prescriptive period for a written contract is that of ten
(10) years.

 Pay is now seeking his claim to Segundina Chua de Palanca – the surviving
spouse of the late Justo Palanca who he appointed as admnistratirix of a
certain piece of property
 The surviving spouse refused to be appointed as the administratrix; that the
property sought to be administered no longer belonged to the debtor and
that the right of petitioner has already prescribed

ISSUES: WN a creditor is barred by prescription to collect on a PN executed more

than 15 years earlier this petition.

HELD:
 Yes, he is barred by prescription.
 From the manner in which the PN 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”.
HSBC v. CIR
DOCTRINE:
Electronic messages "cannot be considered negotiable instruments as they lack
the feature of negotiability, which, is the ability to be transferred" and that the
said electronic messages are "mere memoranda" of the transaction consisting of
the "actual debiting of the [investor-client-payor’s] local or foreign currency
account in the Philippines" and "entered as such in the books of account of the
local bank.
They do not comply with the requisites of negotiability under Section 1 of the
Negotiable Instruments Law. The electronic messages are not signed by the
investor-clients as supposed drawers of a bill of exchange; they do not contain
an unconditional order to pay a sum certain in money as the payment is
supposed to come from a specific fund or account of the investor-clients; and,
they are not payable to order or bearer but to a specifically designated third
party. Thus, the electronic messages are not bills of exchange. As there was no
bill of exchange or order for the payment drawn abroad and made payable here
in the Philippines, there could have been no acceptance or payment that will
trigger the imposition of the DST under Section 181 of the Tax Code.
FACTS:
 HSBC performs custodial services on behalf of its investor-clients with
respect to their passive investments in the Philippines, particularly
investments in shares of stocks in domestic corporations. As a custodian
bank, HSBC serves as the collection/payment agent.
 HSBC’s investor-clients maintain Philippine peso and/or foreign currency
accounts, which are managed by HSBC through instructions given through
electronic messages. The said instructions are standard forms known in the
banking industry as SWIFT, or "Society for Worldwide Interbank Financial
Telecommunication." In purchasing shares of stock and other investment in
securities, the investor-clients would send electronic messages from abroad
instructing HSBC to debit their local or foreign currency accounts and to pay
the purchase price therefor upon receipt of the securities.
 Pursuant to the electronic messages of its investor-clients, HSBC purchased
and paid Documentary Stamp Tax (DST) from September to December 1997
and also from January to December 1998 amounting to P19,572,992.10 and
P32,904,437.30, respectively.
 BIR, thru its then Commissioner, issued BIR Ruling to the effect that
instructions or advises from abroad on the management of funds located in
the Philippines which do not involve transfer of funds from abroad are not
subject to DST. A documentary stamp tax shall be imposed on any bill of
exchange or order for payment purporting to be drawn in a foreign country
but payable in the Philippines.
o While the payor is residing outside the Philippines, he maintains
a local and foreign currency account in the Philippines from where
he will draw the money intended to pay a named recipient. The
instruction or order to pay shall be made through an electronic
message. Consequently, there is no negotiable instrument to be
made, signed or issued by the payee.
o Such electronic instructions by the non-resident payor cannot be
considered as a transaction per se considering that the same do not
involve any transfer of funds from abroad or from the place where
the instruction originates. Insofar as the local bank is concerned,
such instruction could be considered only as a memorandum and
shall be entered as such in its books of accounts. The actual
debiting of the payor’s account, local or foreign currency account
in the Philippines, is the actual transaction that should be properly
entered as such. Under the Documentary Stamp Tax Law, the mere
withdrawal of money from a bank deposit, local or foreign currency
account, is not subject to DST, unless the account so maintained is
a current or checking account, in which case, the issuance of the
check or bank drafts is subject to the documentary stamp tax.
o Likewise, the receipt of funds from another bank in the Philippines
for deposit to the payee’s account and thereafter upon instruction
of the non-resident depositor-payor, through an electronic
message, the depository bank to debit his account and pay a named
recipient shall not be subject to documentary stamp tax. It should
be noted that the receipt of funds from another local bank in the
Philippines by a local depository bank for the account of its client
residing abroad is part of its regular banking transaction which is
not subject to documentary stamp tax.
 With the above BIR Ruling as its basis, HSBC filed on an administrative claim
for the refund of allegedly representing erroneously paid DST to the BIR
 As its claims for refund were not acted upon by the BIR, HSBC subsequently
brought the matter to the CTA, which favored HSBC and ordered payment
of refund or issuance of tax credit.
 However, the CA reversed decisions of the CTA and ruled that the electronic
 messages of HSBC’s investor-clients are subject to DST. was no bill of exchange or order for the payment drawn abroad and made
o DST is levied on the exercise by persons of certain privileges payable here in the Philippines, there could have been no acceptance or
conferred by law for the creation, revision, or termination of payment that will trigger the imposition of the DST under Section 181 of the
specific legal relationships through the execution of specific Tax Code.
instruments, independently of the legal status of the transactions
giving rise thereto.  In these cases, the electronic messages received by HSBC from its investor-
clients abroad instructing the former to debit the latter's local and foreign
ISSUES: Whether or not the electronic messages are considered transactions currency accounts and to pay the purchase price of shares of stock or
pertaining to negotiable instruments that warrant the payment of DST. investment in securities do not properly qualify as either presentment for
acceptance or presentment for payment. There being neither presentment
HELD: NO. for acceptance nor presentment for payment, then there was no acceptance

Petitions are hereby GRANTED. or payment that could have been subjected to DST to speak of.

The Court agrees with the CTA that the DST under Section 181 of the Tax
Code is levied on the acceptance or payment of "a bill of exchange
purporting to be drawn in a foreign country but payable in the Philippines"
and that "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."

 The Court further agrees with the CTA that the electronic messages of
HSBC’s investor-clients containing instructions to debit their respective local
or foreign currency accounts in the Philippines and pay a certain named
recipient also residing in the Philippines is not the transaction contemplated
under Section 181 of the Tax Code as such instructions are "parallel to an
automatic bank transfer of local funds from a savings account to a checking
account maintained by a depositor in one bank." The Court favorably adopts
the finding of the CTA that the electronic messages "cannot be considered
negotiable instruments as they lack the feature of negotiability, which, is
the ability to be transferred" and that the said electronic messages are
"mere memoranda" of the transaction consisting of the "actual debiting of
the [investor-client-payor’s] local or foreign currency account in the
Philippines" and "entered as such in the books of account of the local
bank," HSBC.

 The instructions given through electronic messages that are subjected to

DST in these cases are not negotiable instruments as they do not comply
with the requisites of negotiability under Section 1 of the Negotiable
Instruments Law. The electronic messages are not signed by the investor-
clients as supposed drawers of a bill of exchange; they do not contain an
unconditional order to pay a sum certain in money as the payment is
supposed to come from a specific fund or account of the investor-clients;
and, they are not payable to order or bearer but to a specifically designated
third party. Thus, the electronic messages are not bills of exchange. As there
Ang Tek Lian v. CA (Supra)
ISSUES: Whether petitioner Bank has a cause of action against Sima Wei for the
Development Bank of the Philippines v. Sima Wei undelivered checks.
SUMMARY:
HELD:
Sima Wei executed a promissory note in consideration of a loan secured from
petitioner bank. She was able to pay partially for the loan but failed to pay for  No. A negotiable instrument must be delivered to the payee in order to
the balance. She then issued two checks to pay the unpaid balance but for some evidence its existence as a binding contract.
unexplainable reason, the checks were not received by the bank but ended up  Section 16 of the NIL provides that every contract on a negotiable
in the hands of someone else. The bank instituted actions against Sima Wei and instrument is incomplete and revocable until delivery of the instrument for
other people. The trial court dismissed the case and the CA affirmed this decision the purpose of giving effect thereto.
 Thus, the payee of a negotiable instrument acquires no interest with respect
DOCTRINE: thereto until its delivery to him.
 Without the initial delivery of the instrument from the drawer to the payee,
A negotiable instrument, of which a check is, is not only a written evidence of a there can be no liability on the instrument.
contract right but is also species of property. Just as a deed to a piece of land must  Petitioner however has a right of action against Sima Wei for the balance
be delivered in order to convey title to the grantee, so due on the promissory note.
must a negotiable instrument be delivered to the payee in order to evidence its
existence as a binding contract. Section 16 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 the negotiable
instrument acquires no interest with respect thereto until its delivery to
him. Delivery of an instrument from the drawer to the payee, there can be no
liability on the instrument. Moreover, such delivery must be intended to give
effect to the instrument.

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.
 In spite 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.
De la Victoria v. Hon. Burgos  Under Section 16 of the Negotiable Instruments Law, every contract on a
SUMMARY: negotiable instrument is incomplete and revocable until delivery of the
instrument for the purpose of giving effect thereto. As ordinarily
Sesbreno filed a case against Mabanto Jr. among other people wherein the understood, delivery means the transfer of the possession of the instrument
court decided in favor of the plaintiff, ordering the defendants to pay by the maker or drawer with intent to transfer title to the payee and
former a definite amount of cash. The decision had become final and executory recognize him as the holder thereof.
and a writ of execution was issued. This was questioned in the
 The petitioner is the custodian of the checks. Inasmuch as said checks
CA by the defendants. In the meanwhile, a notice of garnishment was
were in the custody of the petitioner and not yet delivered to Mabanto,
issued to petitioner who was then the City Fiscal. She was asked to
they didn't belong to him and still had the character of public funds. The
withhold any check or whatnot in Favor of Mabanto Jr. The CA then
salary check of a government officer or employee doesn't belong to him
dismissed the defendant’s petition and the garnishment was commenced only to
before it has been physically delivered to him. Until that time the check
find out that petitioner didn't follow instructions of sheriff. She is now being held
belongs to the government. Accordingly, before there is actual delivery of
liable.
the check, the payee has no power over it, he cannot assign it without the
consent of the government.
DOCTRINE:
 If public funds would be allowed to be garnished, then basic services of the
government may be hampered.
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.

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 order 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: Whether or not De La Victoria is correct.

HELD: Yes.
 Garnishment is considered as the species of attachment for reaching
credits belonging to the judgment debtor owing to him from a stranger in
litigation. Emphasis is laid on the phrase belonging to the judgment debtor
since it is the focal point of resolving the issues raised.
Metropol (Bacolod) Financing v. Sambok Motors Co.
SUMMARY:
Sambok Motors Company negotiated and indorsed the note in favor of plaintiff
Metropol Financing & Investment Corporation with the following indorsement:
“Pay to the order of Metropol Bacolod Financing & Investment Corporation with
recourse. Notice of Demand; Dishonor; Protest; and Presentment are hereby
waived. SAMBOK MOTORS CO. (BACOLOD) By: RODOLFO G. NONILLO Asst.
General Manager”. The maker, Dr. Villaruel defaulted in the payment. Plaintiff
notified Sambok as indorsee of said note of the fact that the same has been
dishonored and demanded payment. Sambok failed to pay. Trial court rendered
its decision in favour of Plaintiff. Appellant Sambok argues that by adding the
words “with recourse” in the indorsement of the note, it becomes a qualified
indorser; that being a qualified indorser, it does not warrant that if said note is
dishonored by the maker on presentment, it will pay the amount to the holder.
It was held that appellant, by indorsing the note “with recourse” does not make
itself a qualified indorser but a general indorser who is secondarily liable, because
by such indorsement, it agreed that if Dr. Villaruel fails to pay the note, plaintiff-
appellee can go after said appellant. The effect of such indorsement is that the
note was indorsed without qualification.
DOCTRINE:
A qualified indorsement constitutes the indorser a mere assignor of the title to the
instrument. 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.
A person who indorses without qualification engages that on due presentment,
the note shall be accepted or paid, or both as the case may be, and that if it be
dishonored, he will pay the amount thereof to the holder.
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 indorsement constitutes the indorser a mere assignor of the
title to the instrument.
 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.
 Appellant, 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 even waived the notice of demand, dishonor,
protest and presentment by agreeing that if Dr. Villaruel fails to pay the
note, plaintiff-appellee can go after said appellant.
 The effect of such indorsement is that the note was indorsed without
qualification.
 A person who indorses without qualification engages that on due
presentment, the note shall be accepted or paid, or both as the case may
be, and that if it be dishonored, he will pay the amount thereof to the holder.
 Appellant Sambok’s intention of indorsing the note without qualification is
made even more apparent by the fact that the notice of’ demand, dishonor,
protest and presentment were all waived. The words added by said
appellant do not limit his liability, but rather confirm his obligations as a
general indorser.
Gempesaw v. CA
SUMMARY:
Gempensaw was the owner of many grocery stores. She paid her suppliers through
the issuance of checks drawn against her checking account with respondent bank.
The checks were prepared by her bookkeeper Galang. In the signing of the checks
prepared by Galang, Gempensaw didn't bother herself in verifying to whom the
checks were being paid and if the issuances were necessary. She didn't even verify
the returned checks of the bank when the latter notifies her of the same. During
her two years in business, there were incidents shown that the amounts paid for
were in excess of what should have been paid. It was also shown that even if the
checks were crossed, the intended payees didn't receive the amount of the checks.
This prompted Gempensaw to demand the bank to credit her account for the
amount of the forged checks. The bank refused to do so and this prompted her to
file the case against the bank.
DOCTRINE:
 Forgery is a real defense by the party whose signature was forged.
 A party whose signature was forged was never a party and never gave his
consent to the instrument. Since his signature doesn’t appear in the
instrument, the same cannot be enforced against him even by a holder in
due course. The drawee bank cannot charge the account of the drawer
whose signature was forged because he never gave the bank the order to
pay.
 As a rule, a drawee bank (in this case the Philippine Bank of
Communications) who has paid a check on which an indorsement has
been forged cannot charge the drawer’s (Gempesaw’s) account for the
amount of said check.
 An exception to this rule is when the drawer is guilty of negligence which
causes the bank to honor such checks. If a check is stolen from the payee,
it is quite obvious that the drawer cannot possibly discover the forged
indorsement by mere examination of his cancelled check. A different
situation arises where the indorsement was forged by an employee or
agent of the drawer, or done with the active participation of the latter.
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.
ISSUES: 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
 Forgery is a real defense by the party whose signature was forged.
 A party whose signature was forged was never a party and never gave his
consent to the instrument. Since his signature doesn’t appear in the
instrument, the same cannot be enforced against him even by a holder in
due course. The drawee bank cannot charge the account of the drawer
whose signature was forged because he never gave the bank the order to
pay.
 In the case at bar the checks were filled up by petitioner’s employee Galang
and were later given to her for signature. Her signing the checks made the
negotiable instruments complete. Prior to signing of the checks, there was
no valid contract yet. Petitioner completed the checks by signing them and
thereafter authorized Galang to deliver the same to their respective payees.
The checks were then indorsed, forged indorsements thereon.
 As a rule, a drawee bank (in this case the Philippine Bank of
Communications) who has paid a check on which an indorsement has been
forged cannot charge the drawer’s (Gempesaw’s) account for the amount of
said check.
 An exception to this rule is when the drawer is guilty of negligence which
causes the bank to honor such checks. If a check is stolen from the payee, it
is quite obvious that the drawer cannot possibly discover the forged
indorsement by mere examination of his cancelled check. A different
situation arises where the indorsement was forged by an employee or agent
of the drawer, or done with the active participation of the latter.
 The negligence of a depositor which will prevent recovery of an
unauthorized payment is based on failure of the depositor to act as a
prudent businessman would under the circumstances.
 Petitioner in this case has relied solely on the honesty and loyalty of her
bookkeeper and never bothered to verify the accuracy of the amounts of
the checks she signed the invoices attached thereto.

 And though she received her bank statements, she didn't carefully examine
the same nor the check stubs and the returned checks, and did not compare
them with the same invoices. Otherwise, she could have easily discovered
the discrepancies between the checks and the documents serving as bases
for the checks. With such discovery, the subsequent forgeries would not
have been accomplished.

 It was not until two years after Galang commenced her fraudulent scheme
that Gempesaw discovered that eighty-two (82) checks were wrongfully
charged to her account, at which she notified the Philippine Bank of
Communications.
 Petitioner didn't exercise reasonable diligence which eventually led to the
fruition of her bookkeeper’s fraudulent schemes.
Jai Alai Corp. v. BPI
SUMMARY:
Checks were deposited by petitioner in its current account with the
bank. These checks were from a certain Ramirez, a consistent better in its
games, who was a sales agent from Inter-Island Gas. Inter-Island later found
out that of the forgeries committed in the checks and thus, it informed all the
parties concerned. Upon the demands on the bank as the collecting bank, it
debited the account of petitioner. Thereafter, petitioner tried to issue a check for
payment of shares of stock but such was dishonored for insufficient funds. It filed
a complaint against the bank.
DOCTRINE:
Following Section 23, a forged signature is wholly inoperative and no right to
discharge it or enforce its payment can be acquired through or under the
forged signature except against a party who cannot invoke its forgery or want of
authority.
It stands to reason that as a collecting bank which
indorsed the checks to the drawee-banks for clearing, should be liable to the
latter for reimbursement for the indorsements on the checks had been forged
prior to their delivery to the petitioner. The payments made by the
drawee banks to respondent were ineffective—the creditor-debtor
relationship hadn’t been validly effected.
**The depositor of a check as indorser warrants that it is genuine and in all
respects what it purports to be as prescribed in Section 66 of NIL.
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.
HELD:
 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.
 When the petitioner deposited the checks to its account, the relationship
created was one of agency still and not of creditor-debtor. The bank was to
collect from the drawees of the checks with the corresponding
proceeds
 The Bank may have the proceeds already when it debited the account of
petitioner. Nonetheless, there is still no creditor-debtor relationship.
 Following Section 23, a forged signature is wholly inoperative and no right
to discharge it or enforce its payment can be acquired through or under the
forged signature except against a party who cannot invoke its forgery or
want of authority.
 It stands to reason that as a collecting bank which
indorsed the checks to the drawee-banks for clearing, should be liable to
the latter for reimbursement for the indorsements on the checks had been
forged prior to their delivery to the petitioner. The payments made by the
drawee banks to respondent were ineffective—the creditor-debtor
relationship hadn’t been validly effected.
 **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."
MWSS v. CA  Further, the signatures in the forged checks appear to be genuine as
SUMMARY: reported by the National Bureau of Investigation so much so that the MWSS
MWSS had an account from PNB. Its treasurer, auditor, and General Manager are itself cannot tell the difference between the forged signature and the
the ones authorized to sign checks. During a period of time, 23 checks were drawn genuine one.
and debited against the account of petitioner. Bearing the same check numbers,
 The records likewise show that MWSS failed to provide appropriate security
the amounts stated therein were again debited from the account of petitioner.
measures over its own records thereby laying confidential records open to
The amounts drawn were deposited in the accounts of the payees in PCIB. It was
unauthorized persons. Even if the twenty-three (23) checks in question are
found out though that the names stated in the drawn checks were all fictitious.
considered forgeries, considering the MWSS’s gross negligence, it is barred
Petitioner demanded the return of the amounts debited but the bank refused to
from setting up the defense of forgery under Section 23 of the Negotiable
do so. Thus, it filed a complaint.
Instruments Law.
DOCTRINE:  There was no categorical finding that the 23 checks were signed by persons
Forgery cannot be presumed. It should be proven by clear, convincing and positive other than those authorized to sign. On the contrary, the NBI reports shows
evidence. Cannot invoke Section 23 if guilty of negligence that the fraud was an “inside job” and that the delay in the reconciliation of
FACTS: the bank statements and the laxity and loss of records control in the printing
 Metropolitan Waterworks and Sewerage System (MWSS) had an account of the personalized checks facilitated the fraud. It further doesn’t provide
with PNB. that the signatures were forgeries.
 When it was still called NAWASA, MWSS made a special arrangement with
 The Supreme Court further emphasized that forgery cannot be presumed. It
PNB so that it may have personalized checks to be printed by Mesina
must be established by clear, positive, and convincing evidence. This was not
Enterprises. These personalized checks were the ones being used by MWSS
done in the present case.
in its business transactions.
 The petitioner cannot invoke Section 23 because it was guilty of negligence
 From March to May 1969, MWSS issued 23 checks to various payees in the
not only before the questioned checks but even after the same had already
aggregate amount of P320,636.26. During the same months, another set of
been negotiated.
23 checks containing the same check numbers earlier issued were forged.
 The aggregate amount of the forged checks amounted to P3,457,903.00.
This amount was distributed to the bank accounts of three persons: Arturo
Sison, Antonio Mendoza, and Raul Dizon.
 MWSS then demanded PNB to restore the amount of P3,457,903.00. PNB
refused. The trial court ruled in favor of MWSS but the Court of Appeals
reversed the trial court’s decision.

ISSUES: Whether or not PNB should restore the said amount.

HELD:
 No. MWSS is precluded from setting up the defense of forgery. It has been
proven that MWSS has been negligent in supervising the printing of its
personalized checks.
 It failed to provide security measures and coordinate the same with PNB.
 Republic Bank v. CA  On August 15, 1966, FNCB demanded Republic Bank to refund the amount
SUMMARY: of the check.

SMC issued a dividend check in favor of Delgado and the check was drawn against
ISSUES: Whether or not Republic Bank should refund the amount to FNCB/ Whether
FBTC. Delgado was able to alter the check, increased the amount of the same and
Republic, as the collecting bank, is protected, by 24-hour clearing house rule, found
deposited it with his account in Republic Bank. RB indorsed it with FBTC. The SMC
in CB circular No. 9, as amended, from liability to refund the amount paid by FNCB,
notified FBTC of the alterations made and demanded for reimbursement. Republic
as drawee of the SMC dividend check.
Bank then didn't want to reimburse. The trial court held it liable.
HELD:
DOCTRINE:
 No. The 24-hour clearing house rule embodied in Section 4(c) of Central
Bank Circular No. 9, as amended, applies to this case. This rule mandates
The 24-hour clearing rule is a valid rule applicable to commercial banks. It is true
banks that after a clearing, all cleared items must be returned not later than
that when an indorsement is forged, the collecting bank or last indorser, as a
3:00 PM of the following business day.
general rule, bears the loss. But the unqualified endorsement of the collecting
bank of the checks should be read together with the 24-hour regulation on clearing  It is true that when an endorsement is forged, the collecting bank or last
house operation. Thus, when a drawee bank fails to return the forged check to the endorser, as a general rule, bears the loss. But the unqualified endorsement
collecting bank within the 24-hour clearing rule, the collecting bank is absolved of the collecting bank on the check should be read together with the 24-
from liability. hour regulation on clearing house operation. Thus, when the drawee bank
(FNCB) fails to return a forged or altered check to the collecting bank
Unless an alteration is attributable to the fault or negligence of the drawer himself, (Republic Bank) within the 24-hour clearing period, the collecting bank is
such as when he leaves spaces on the check which would allow the fraudulent absolved from liability.
insertion of additional numerals in the amount appearing thereon, the remedy of
the drawee bank that negligently clears a forged and/or honor altered check for  Unless an alteration is attributable to the fault or negligence of the drawer
payment is against the party responsible for the forgery or alteration, otherwise, himself, such as when he leaves spaces on the check which would allow the
it bears the loss. It may not charge the amount so paid to the account of the fraudulent insertion of additional numerals in the amount appearing
drawer, if the latter was free from blame, nor recover it from the collecting bank thereon, the remedy of the drawee bank that negligently clears a forged
is the latter made payment after proper clearance from the drawee. and/or honor altered check for payment is against the party responsible for
the forgery or alteration, otherwise, it bears the loss. It may not charge the
amount so paid to the account of the drawer, if the latter was free from
FACTS:
blame, nor recover it from the collecting bank is the latter made payment
 On January 25, 1966, San Miguel Corporation (SMC) issued a P240.00 check
after proper clearance from the drawee.
in favor of Roberto Delgado against SMC’s account with the First National
City Bank (FNCB).
 Delgado fraudulently changed the amount written on the check to
P9,240.00. Delgado made a check deposit with Republic Bank.
 Republic Bank accepted the check and endorsed it to FNCB by stamping on
the back of the check “all prior and/or lack of indorsement guaranteed“.
 The check cleared and FNCB paid Republic Bank P9,240.00.
 On April 19, 1966, SMC notified FNCB that the check involved was forged.
FNCB refunded SMC the amount of the check.
 On May 19, 1966, FNCB informed Republic bank about the forgery, by then
Delgado withdrew his account from Republic Bank.
 RCBC Savings Bank v. Odrada
SUMMARY:
In April 2002, respondent Noel M. Odrada (Odrada) sold a secondhand Mitsubishi
Montero (Montero) to Teodoro L. Lim (Lim) for P 1,510,000. Of the total
consideration P610,000 was initially paid by Lim and the balance ofP900,000 was
paid in manager’s check issued by RCBC dated April 12, 2002.
After the issuance of the manager's checks and their turnover to Odrada but prior
to the checks’s presentation, Lim notified Odrada in a letter dated 15 April 2002
that there was an issue regarding the roadworthiness of the Montero. Among the
issues with the Montero are hidden defects such as misalignment of engine and
signs of head on collision despite Odrada’s claim that the car never had any
collision. A meeting was requested with regard to the matter. However, Odrada
did not go to the slated meeting and instead deposited the manager's checks with
International Exchange Bank (Ibank) on April 16, 2002 and redeposited them on
April 19, 2002 but the checks were dishonored both times apparently upon Lim's
instruction to RCBC.
Consequently, Odrada filed a collection suit against Lim and RCBC in the Regional
Trial Court of Makati. In his Answer, Lim alleged that the cancellation of the
manager’s check was at his instance, upon discovery of the misrepresentations by
Odrada about the Montero 's roadworthiness. Lim claimed that the cancellation
was not done ex parte but through a letter dated 15 April 2002. He further alleged
that the letter was delivered to Odrada prior to the presentation of the manager's
checks to RCBC. On the other hand, RCBC contended that the manager's checks
were dishonored because Lim had cancelled the loan. RCBC claimed that the
cancellation of the check was prior to the presentation of the manager's checks.
Moreover, RCBC alleged that despite notice of the defective condition of the
Montero, which constituted a failure of consideration, Odrada still proceeded with
presenting the manager's checks. RTC and CA ruled in favor of Odrada
DOCTRINE:
Sec. 52. What constitutes a holder in due course. - A holder in due course is a
holder who has taken the instrument under the following conditions:
 That it is complete and regular upon its face;
 That he became the holder of it before it was overdue, and without notice
that it has been previously dishonored, if such was the fact;
 That he took it in good faith and for value;
 That at the time it was negotiated to him, he had no notice of any
infirmity in the instrument or defect in the title of the person negotiating
it.
Section 58 of the Negotiable Instruments Law provides: "In the hands of any holder
other than a holder in due course, a negotiable instrument is subject to the same
defenses as if it were non-negotiable. x x x."
FACTS:
 Respondent Noel M. Odrada (Odrada) sold a secondhand Mitsubishi
Montero (Montero) to Teodoro L. Lim (Lim) for One Million Five Hundred
Ten Thousand Pesos (P1,510,000)
 (P610,000) was initially paid by Lim and the balance of Nine Hundred
Thousand Pesos (P900,000) was financed by petitioner RCBC Savings Bank
(RCBC) through a car loan
 RCBC required Lim to submit the original copies of the Certificate of
Registration (CR) and Official Receipt (OR) in his name. Unable to produce
the Montero's OR and CR, Lim requested RCBC to execute a letter addressed
to Odrada informing the latter that his application for a car loan had been
approved.
 Odrada executed a Deed of Absolute Sale on 9 April 2002 in favor of Lim and
the latter took possession of the Montero.
 When RCBC received the documents, RCBC issued two manager's checks...
for Nine Hundred Thousand Pesos (P900,000) and Thirteen Thousand Five
Hundred Pesos (P13,500).
 After the issuance of the manager's checks and their turnover to Odrada but
prior to the checks' presentation, Lim notified Odrada in a letter dated 15
April 2002 that there was an issue regarding the roadworthiness of the
Montero.
o when you open its engine cover there is a trace of a head-on
collision
o The 4-wheel drive shift is not functioning.
o the odometer has still an original mileage data but found
tampered.
o represented the vehicle as model 1998 however; it is indicated in
the front left A-pillar inscribed at the identification plate [as] model
1997.
 Please show your sincerity by personally inspecting the said vehicle at RCBC,
Pacific Bldg. Pearl Drive, Ortigas Center, Pasig City.
 Odrada did not go to the slated meeting and instead deposited the
manager's checks which were dishonored both times apparently upon Lim's
instruction to RCBC.
 Odrada filed a collection suit against Lim and RCBC
 Lim claimed that the cancellation was not done ex parte but through a letter
which was delivered to Odrada prior to the presentation of the manager's
checks to RCBC.
 RCBC contended that the manager's checks were dishonored because Lim
had cancelled the loan prior to the presentation of the manager's checks.
 RCBC also sent a formal notice of cancellation of the loan on 18 April 2002
to both Odrada and Lim.
 Trial court ruled in favor of Odrada. Odrada was the proper party to ask for
rescission.
 The right of rescission is implied in reciprocal obligations where one party
fails to perform what is incumbent upon him when the other is willing and
ready to comply.
 It was not proper for Lim to exercise the right of rescission since Odrada had
already complied with the contract of sale by delivering the Montero while
Lim remained delinquent in payment.
 The defective condition of the Montero was not a supervening event that
would justify the dishonor of the manager's checks.
 A manager's check is equivalent to cash and is really the bank's own check.
It may be treated as a promissory note with the bank as maker.
o constitutes a written promise to pay on demand.
 Being the party primarily liable, the trial court ruled that RCBC was liable to
Odrada for the value of the manager's checks.
 Court of Appeals dismissed the appeal
 when RCBC issued the manager's checks in favor of Odrada, RCBC admitted
the existence of the payee and his then capacity to endorse, and undertook
that on due presentment the checks which were negotiable instruments
would be accepted or paid, or both according to its tenor.
 RCBC alone filed this petition before the Court. Thus, the decision of the
Court of Appeals became final and executory as to Lim
ISSUES: WN drawee bank can still deny payment of a manager’s check due to the
Personal Defense of Lim that a defective Montero was sold to Lim.
HELD: YES!
 As a general rule, the drawee bank is not liable until it accepts. Acceptance,
therefore, creates a privity of contract between the holder and the drawee
so much so that the latter, once it accepts, becomes the party primarily
liable on the instrument. Thus, once he accepts, the drawee admits the
following:
o (a) existence of the drawer;
o (b) genuineness of the drawer's signature;
o (c) capacity and authority of the drawer to draw the instrument;
and
o (d) existence of the payee and his then capacity to endorse. A
manager’s check makes the bank primarily liable as there is already
acceptance upon issuance of a manager’s check.
 HOWEVER, the SC ruled that the issuing bank could validly refuse payment
when the holder is NOT a holder in due course.
 In this case, the Court of Appeals gravely erred when it considered Odrada
as a holder in due course.
 Section 52 of the Negotiable Instruments Law defines a holder in due
course as one who has taken the instrument under the following
conditions:
o That it is complete and regular upon its face;
o That he became the holder of it before it was overdue, and
without notice that it has been previously dishonored, if such was
the fact
o That he took it in good faith and for value
o That at the time it was negotiated to him, he had no notice of any
infirmity in the instrument or defect in the title of the person
negotiating it.
 To be a holder in due course, the law requires that a party must have
acquired the instrument in good faith and/or value. Odrada did not acquire
the instrument in good faith as he sold a defective Montero.
 He immediately presented the check for payment upon notice of the
Montero’s defect.
 RCBC acted in good faith in following the instructions of Lim. The records
show that Lim notified RCBC of the defective condition of the Montero
before Odrada presented the manager's checks. Lim informed RCBC of the
hidden defects of the Montero including a misaligned engine, smashed
condenser, crippled bumper support, and defective transmission. RCBC
acted in good faith in stopping the payment of the manager's checks
 Section 58 of the Negotiable Instruments Law provides: "In the hands of
any holder other than a holder in due course, a negotiable instrument is
subject to the same defenses as if it were non-negotiable. x x x."
o Since Odrada was not a holder in due course, the instrument
becomes subject to personal defenses under the Negotiable
Instruments Law. Hence, RCBC may legally act on a countermand
by Lim, the purchaser of the manager's checks.
 Crisologo-Jose v. CA
SUMMARY:
The president of Movers Enterprises, to accommodate its clients Spouses
Ong, issued a check in favor of petitioner Crisologo-Jose. This was in consideration
of a quitclaim by petitioner over a parcel of land, which the GSIS agreed to
sell to spouses Ong, with the understanding that upon approval of the
compromise agreement, the check will be encashed
accordingly. As the compromise agreement wasn't approved during the
expected period of time, the aforesaid check was replaced with another one
for the same value. Upon deposit, though of the checks by petitioner, it was
dishonored. This prompted the petitioner to file a case against Atty. Bernares
and Santos for violation of BP22. Meanwhile, during the
preliminary investigation, Santos tried to tender a cashier’s check for the value of
the dishonored check but petitioner refused to accept such. This was consigned
by Santos with the clerk of court and he instituted charges against petitioner. The
trial court held that consignation wasn't applicable to the case at bar but was
reversed by the CA.
DOCTRINE:
A corporation cannot be an accommodation party. The law on accommodation
parties does not include corporation because it is ultra vires on their part.
Thus, if one knows and takes an instrument that was accommodated by a
corporation cannot recover against the corporation.
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.
ISSUES: WN 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.
 Corollarily, 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.
 Salas v. CA
SUMMARY:
February 6, 1980: Juanita Salas bought a motor vehicle from the Violago Motor
Sales Corp. (VMS) for P58,138.20 as evidence by a promissory note. This note was
subsequently endorsed to Filinvest Finance &Leasing Corp. (FFLC). May 21, 1980:
Salas defaulted in her installments allegedly due to discrepancies in the engine and
chassis number of the vehicle delivered and discovery of certificate of reg. and
deed of mortgage, VMS initiated for a sum of money at the RTC. RTC: favored VMS.
CA: Affirmed
DOCTRINE:
The instrument to be negotiable must contain the so-called words of negotiability.
There are only 2 ways for an instrument to be payable to order. There must always
be a specified person named in the instrument and 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 thus non-
negotiable. Any subsequent purchaser thereof will not enjoy the advantages of
being a holder in due course but will merely step into the shoes of the person
designated in the instrument and will thus be open to the defenses available
against the latter.
 It is the contention of petitioner that since the agreement between her and
the motor company was inexistent, none had been assigned in favor of
private respondent.
ISSUES:
1. WN the instrument is negotiable
2. WN private respondent is a holder in due course
HELD:
1. Petitioner’s liability on the promissory note, the due execution and
genuineness of which she never denied under oath, is under the foregoing
factual milieu, as inevitable as it is clearly established.
 Requisites under the law (Sec. 1 of Negotiable Instruments Law)
o it is in writing and signed by the maker (Salas)
o it contains an unconditional promise to pay the amount P58,138.20
o it is payable at a fixed or determinable future time which is
P1,614.95 monthly for 36 months due and payable on the 21st day
of each month starting March 21, 1980 thru and inclusive of Feb 21
1983
o It is payable to VMS or order and as such
o drawee is named or indicated with certainty

Sec. 52. What constitutes a holder in due course. - A holder in due course is a
holder who has taken the instrument under the following conditions:
 That it is complete and regular upon its face;
 That he became the holder of it before it was overdue, and without notice
that it has been previously dishonored, if such was the fact;
 That he took it in good faith and for value;
 That at the time it was negotiated to him, he had no notice of any
infirmity in the instrument or defect in the title of the person negotiating
it.
FACTS:
2.
 Petitioner bought a car from Viologo Motor Sales Company, which was
secured by a promissory note, which was later on indorsed to Filinvest
Finance, which financed the transaction.
 Petitioner later on defaulted in her installment payments, allegedly due to
the fraud imputed by VMS in selling her a different vehicle from what was
agreed upon.
 This default in payment prompted Filinvest Finance to initiate a case against
petitioner. The trial court decided in favor of Filinvest, to which the appellate
court upheld by increasing the amount to be paid.
The records reveal that involved herein is not a simple case of assignment
of credit as petitioner would have it appear, where the assignee merely
steps into the shoes of, is open to all defenses available against and can
enforce payment only to the same extent as, the assignor-vendor.
In the case at bar, the promissory notes are earmarked with negotiability
and Filinvest is a holder in due course.
YES. The PN 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.
 PNB v. CA 256 SCRA 491
SUMMARY:
The Ministry of Education issued a check drawn against petitioner bank. The
payee deposited the questioned check in its savings account with Capitol
City Development Bank (Capitol) which in turn deposited the same in its account
with respondent bank. After petitioner cleared the check, respondent
bank credited Capitol for the amount. However, petitioner returned the check to
PBCom and debited the latter’s account for the amount covered by the check
because the check number was materially altered.
DOCTRINE:
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. Thus, the bank cannot refuse to accept the check in
question on the ground that the serial number was altered, the same being an
immaterial or innocent one.
FACTS:
 A check with serial number 7-3666-223-3, dated 7 August 1981 in the
amount of P97,650.00 was issued by the Ministry of Education Culture (now
Department of Education, Culture and Sports [DECS]) payable to F. Abante
Marketing. This check was drawn against Philippine National Bank (PNB).
 On 11 August 1981, 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 PNB for
clearing. PNB cleared the check as good and thereafter, PBCom credited
Capitol's account for the amount stated in the check.
 However, on 19 October 1981, 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, and subsequently, sent the check back to
petitioner. PNB, however, returned the check to PBCom.
 On the other hand, Capitol could not in turn, debit Abante Marketing's
account since the latter had already withdrawn the amount of the check as
of 15 October 1981. Capitol sought clarification from PBCom and demanded
the re- crediting of the amount.
 PBCom followed suit by requesting an explanation and re-crediting from
PNB. Since the demands of Capitol were not heeded, it filed a civil suit with
the Regional trial Court of Manila against PBCom which in turn, filed a third-
party complaint against PNB for reimbursement/indemnity with respect to
the claims of Capitol.
 PNB, on its part, filed a fourth-party complaint against Abante Marketing.
 On 3 October 1989; the Regional Trial Court rendered its decision
 Ordering PBCom to re-credit or reimburse Capitol the amount of
P97,650.00, plus interest of 12% thereto from 19 October 1981
until the amount is fully paid;
 PNB to reimburse and indemnify PBCom for whatever amount
PBCom pays to Capitol;
 F. Abante Marketing to reimburse and indemnify PNB for whatever
amount PNB pays to PBCom.
 On attorney's fees, the trial court ordered PBCom to pay Capitol
attorney's fees in the amount of P10,000.00;
 but that PBCom is entitled to reimburse/indemnify from PNB;
 and PNB to be, in turn, reimbursed or indemnified by F. Abante
Marketing for the same amount.
 The court dismissed the counterclaims of PBCom and PNB; without
pronouncement as to costs.
 An appeal was interposed before the Court of Appeals which rendered its
decision on 29 April 1992, which modified the appealed judgment by
exempting PBCom from liability to Capitol for attorney's fees and ordering
PNB to honor the check for P97,650.00, with interest as declared by the trial
court, and pay Capitol attorney's fees of P10,000.00.
 After the check shall have been honored by PNB, the court ordered PBCom
to re-credit Capitol's account with it the amount; without pronouncement
as to costs.
 A motion for reconsideration of the decision was denied by the appellate
Court in its resolution dated 16 September 1992 for lack of merit. PNB filed
the petition for review on certiorari.
ISSUES: Whether the change in the serial number of the check may be considered a
change that alters the effect of the instrument, and thus is a material alteration.

HELD:
 The present case 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 genuineness of the amount and the signatures therein of then Deputy
Minister of Education Hermenegildo C. Dumlao and of the resident Auditor,
Penomio C. Alvarez are not challenged.
 Neither is the authenticity of the different codes appearing therein
questioned.

 The aforementioned alteration did not change the relations between the  PNB, thus cannot refuse to accept the check in question on the ground that
parties. the serial number was altered, the same being an immaterial or innocent
 The name of the drawer and the drawee were not altered. The one.
intended payee was the same.
 The sum of money due to the payee remained the same.
 The check's serial number is not the sole indication of its origin.
 The name of the government agency which issued the subject
check was prominently printed therein.
 The check's issuer was therefore insufficiently identified, rendering
the referral to the serial number redundant and inconsequential.

 If the purpose of the serial number is merely to identify the issuing

government office or agency, its alteration 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.

 The owner issuer of the check is boldly and clearly printed on its face, second
line from the top: "MINISTRY OF EDUCATION AND CULTURE," and below the
name of the payee are the rubber-stamped words: "Ministry of Educ. &
Culture."
 These words are not alleged to have been falsely or fraudulently
intercalated into the check.
 The ownership of the check is established without the necessity of
recourse to the serial number.

 Neither is there any proof that the amount of the check was erroneously
charged against the account of a government office or agency other than
the Ministry of Education and Culture.

 Hence, the alteration in the number of the check did not affect or change
the liability of the Ministry of Education and Culture under the check and,
therefore, is immaterial.
 Associate Bank v. CA signifies negligence on the part of the drawee bank and will preclude it
from claiming reimbursement. In this case, PNB wasn't guilty of any
SUMMARY:
negligent delay. Its delay hasn't prejudiced Associated Bank in any way
The province of Tarlac maintains an account with PNB-Tarlac. Part of its funds is because even if there wasn't delay, the fact that there was nothing left of
appropriated for the benefit of Concepcion Emergency Hospital. During a post- the account of Pangilinan, there couldn't be anymore reimbursement.
audit done by the province, it was found out that 30 of its checks weren’t received
by the hospital. Upon further investigation, it was found out that the checks were
encashed by Pangilinan who was a former cashier and administrative officer of the
hospital through forged indorsements. This prompted the provincial treasurer to
FACTS:
ask for reimbursement from PNB and thereafter, PNB from Associated Bank. As
the two banks didn't want to reimburse, an action was filed against them.  The Province of Tarlac was disbursing funds to Concepcion Emergency
Hospital via checks drawn against its account with the Philippine National
DOCTRINE: Bank (PNB).
There is a distinction on forged indorsements with regard bearer instruments and  These checks were drawn payable to the order of Concepcion Emergency
instruments payable to order. Hospital.
 With instruments payable to bearer, the signature of the payee or  Fausto Pangilinan was the cashier of Concepcion Emergency Hospital in
holder is unnecessary to pass title to the instrument. Hence, when the Tarlac until his retirement in 1978.
indorsement is a forgery, only the person whose signature is forged can
 He used to handle checks issued by the provincial government of Tarlac to
raise the defense of forgery against holder in due course.
the said hospital.
 In instruments payable to order, the signature of the rightful holder is
 However, after his retirement, the provincial government still delivered
essential to transfer title to the same instrument. When the holder’s
checks to him until its discovery of this irregularity in 1981. By forging the
signature is forged, all parties prior to the forgery may raise the real
signature of the chief payee of the hospital (Dr. Adena Canlas), Pangilinan
defense of forgery against all parties subsequent thereto. In connection
was able to deposit 30 checks amounting to P203k to his account with the
to this, an indorser warrants that the instrument is genuine. A collecting
Associated Bank.
bank is such an indorser. So even if the indorsement is forged, the
collecting bank is bound by his warranties as an indorser and cannot set  When the province of Tarlac discovered this irregularity, it demanded PNB
up the defense of forgery as against the drawee bank. to reimburse the said amount. PNB in turn demanded Associated Bank to
reimburse said amount. PNB averred that Associated Bank is liable to
 Furthermore, in cases involving checks with forged indorsements, such
reimburse because of its indorsement borne on the face of the checks:
as the case at bar, the chain of liability doesn't end with the drawee
bank. The drawee bank may not debit the account of the drawer but may ISSUES: What are the liabilities of each party?
generally pass liability back through the collection chain to the party who HELD:
took from the forger and of course, the forger himself, if available. In
The checks involved in this case are order instruments.
other words, the drawee bank can seek reimbursement or a return of
the amount it paid from the collecting bank or person. The collecting Liability of Associated Bank
bank generally suffers the loss because it has the duty to ascertain the
 Where the instrument is payable to order at the time of the forgery, such as
genuineness of all prior endorsements considering that the act of
the checks in this case, the signature of its rightful holder (here, the payee
presenting the check for payment to the drawee is an assertion that the
hospital) is essential to transfer title to the same instrument. When the
party making the presentment has done its duty to ascertain the
holder’s indorsement is forged, all parties prior to the forgery may raise the
genuineness of the indorsements.
real defense of forgery against all parties subsequent thereto.
 With regard the issue of delay, a delay in informing the bank of the
 A collecting bank (in this case Associated Bank) where a check is deposited
forgery, which deprives it of the opportunity to go after the forger,
and which indorses the check upon presentment with the drawee bank
 (PNB), is such an indorser. So even if the indorsement on the check
deposited by the banks’s client is forged, Associated Bank is bound by its
warranties as an indorser and cannot set up the defense of forgery as against
the PNB.
 EXCEPTION: If it can be shown that the drawee bank (PNB) unreasonably
delayed in notifying the collecting bank (Associated Bank) of the fact of the
forgery so much so that the latter can no longer collect reimbursement from
the depositor-forger.
Liability of PNB
 The bank on which a check is drawn, known as the drawee bank (PNB), is
under strict liability to pay the check to the order of the payee (Provincial
Government of Tarlac).
 Payment under a forged indorsement is not to the drawer’s order. When the
drawee bank pays a person other than the payee, it does not comply with
the terms of the check and violates its duty to charge its customer’s (the
drawer) account only for properly payable items.
 Since the drawee bank did not pay a holder or other person entitled to
receive payment, it has no right to reimbursement from the drawer.
 The general rule then is that the drawee bank may not debit the drawer’s
account and is not entitled to indemnification from the drawer. The risk of
loss must perforce fall on the drawee bank.
 EXCEPTION: If the drawee bank (PNB) can prove a failure by the
customer/drawer (Tarlac Province) to exercise ordinary care that
substantially contributed to the making of the forged signature, the drawer
is precluded from asserting the forgery.
 In sum, by reason of Associated Bank’s indorsement and warranties of prior
indorsements as a party after the forgery, it is liable to refund the amount
to PNB. The Province of Tarlac can ask reimbursement from PNB because
the Province is a party prior to the forgery.
 Hence, the instrument is inoperative. HOWEVER, it has been proven that the
Provincial Government of Tarlac has been negligent in issuing the checks
especially when it continued to deliver the checks to Pangilinan even when
he already retired. Due to this contributory negligence, PNB is only ordered
to pay 50% of the amount or half of P203 K.
 BUT THEN AGAIN, since PNB can pass its loss to Associated Bank (by reason
of Associated Bank’s warranties), PNB can ask the 50% reimbursement from
Associated Bank. Associated Bank can ask reimbursement from Pangilinan
but unfortunately in this case, the court did not acquire jurisdiction over
him.
 Great Eastern Life Insurance Co. v. HSBC
SUMMARY:
The plaintiff is an insurance corporation, which drew a check in favor of Melicor.
This was stolen by Maasim, forged the signature of Melicor and deposited the
check to his account in PNB. Thereafter, PNB endorsed the check to HSBC who
later debited the account of plaintiff. Plaintiff believed all along that Melicor
received the payment. Upon knowledge of the debit HSBC did on its account, it
demanded that the same amount be credited. It was held that the banks are liable.
The money was in deposit with the bank and it had no legal right to pay it out to
anyone except the plaintiff or its order. The only remedy of the bank paying a
check to a person who has forged the name of the payee is against the forger.
DOCTRINE:
Section 23 of Negotiable Instruments Law:
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.
The only remedy of the bank paying a check to a person who has forged the name
of the payee is against the forger.
FACTS:
 May 3, 1920: Great Eastern Life Ins. Co. (Eastern) drew its check for P2,000 on
the Hongkong and Shanghai Banking Corporation (HSBC) 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 the
Philippine National Bank (PNB) and it was placed to his credit.
 Next day: PNB endorsed the check to the HSBC who paid it
 HSBC sent a bank statement to the Eastern showing the amount of the check
was charged to its account, and no objection was made
 4 months after the check was charged, 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,
 Eastern promptly made a demand upon the HSBC to credit the amount of the
forged check
 Eastern filed against HSBC and PNB
 RTC: dismissed the case
ISSUES: W/N Eastern has the right to recover the amount of the forged check
HELD:
 YES. lower court is reversed. Eastern against HSBC who can claim against
PNB
 forgery was that of Melicor (payees and NOT the maker)
 Eastern received it 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
 Section 23 of Negotiable Instruments Law:
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.
 The Philippine National Bank had no license or authority to pay the money to
Maasim or anyone else upon a forge signature.
 Its remedy is against Maasim to whom it paid the money.
 Republic v. Ebrada
Martin Lorenzo The deceased person, original “payee”,
SUMMARY:
where the forgery happened
Ebrada encashed a “Back Pay Check” issued by the Bureau of Treasury at the
Republic Bank in Escolta Manila. The Bureau of Treasury advised the Republic Bank Ramon Lorenzo
that the instrument was forged. It informed the bank that the original payee of the
check died 11 years before the check was issued. Therefore, there was a forgery Delia Dominguez
of his signature.
Mauricia Ebrada Defendant-appelant
Ebrada refuses to return the proceeds of the check claiming that she already gave
it to Delia Dominguez. She also claims that she is a HDC (holder in due course) and
that the bank is already estopped.
ISSUES: Whether or not Republic Bank may recover from Ebrada.
It was held that Ebrada, being the last indorser, warranted the genuineness of the
signatures of the payee and the previous indorsers. HELD: YES!
DOCTRINE: The drawee bank is not duty bound to ascertain whether or not the  Ebrada should return the proceeds of the check to Republic Bank. As an
signatures of the payee and the indorsers are genuine. One who purchases a check indorser of the check, she was supposed to have warranted that she has
or draft is bound to satisfy himself that the paper is genuine and that by indorsing good title to said check. See Section 65.
it or presenting it for payment or putting it into circulation before presentation he  Section 23: When the signature is forged or made without the authority of
impliedly asserts that he has performed his duty and the drawee who has paid the the person whose signature it purports to be, it is wholly inoperative, and
forged check, without actual negligence on his part, may recover the money paid no right to retain the instruments, or to give a discharge thereof against any
from such negligent purchasers. 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.
 It is only the negotiation based on the forged or unauthorized signature
FACTS: which is inoperative. Therefore:
 On January 15, 1963, the Bureau of Treasury issued a back paycheck to
Martin Lorenzo in the amount of P1,246.08. The drawee named therein was Martin Lorenzo Signature inoperative
Republic Bank.
Ramon Lorenzo To Dominguez: operative
 The check was subsequently indorsed to Ramon Lorenzo, then to Delia
Dominguez and then to Mauricia Ebrada. Ebrada encashed the check with
Delia Dominguez To Ebrada: operative
the Republic Bank.
 Republic Bank paid the amount of the check to Ebrada. Ebrada, upon Mauricia Ebrada
receiving the cash, gave it to Dominguez; Dominguez in turn gave the cash
to Ramon Lorenzo.
 Later, the Bureau of Treasury notified that the check was a forgery because
the payee named therein (Martin Lorenzo) was actually dead 11 years ago  Drawee bank can collect from the one who encashed the check. If Ebrada
before the check was issued. Republic Bank refunded the amount to the performed the duty of ascertaining the genuineness of the check, in all
Bureau of Treasury. The bank then demanded Ebrada to refund them. probability, the forgery would have been detected and the fraud defeated.
 In addition, whether or not she profited from it, she is still liable because she
is considered as an accommodation party – pursuant to Section 29 of the
Negotiable Instruments Law.
 An accommodation party is 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 him to be only an accommodation party.
 PNB v. Quimpo  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
SUMMARY: While Gozon was in the bank with Santos left in the car, the latter
funds, and cannot ordinarily change the amount so paid to the account of
stole a check and forged the signature of the former. He was able to encash the
the depositor whose name was forged.
check. He was later apprehended by the police authorities and he admitted to
stealing the check. The court decided in favor of Gozon. The bank now posed the
 PNB failed to meet its obligation to know the signature of its correspondent
issue on whether Gozon’s act of leaving his checkbook in the car the proximate
(Gozon).
cause of the loss. It was held that where the private respondent’s check was
 Further, it was found by the court that there are glaring differences between
removed and stolen without his knowledge and consent, he cannot be considered
Gozon’s authentic specimen signatures and that of the forged check.
negligent in this case.

DOCTRINE: 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.

FACTS:
 In June 1973, Francisco Gozon II went to the Philippine National Bank
(Caloocan City) accompanied by his friend Ernesto Santos.
 Gozon left Santos in his car and while Gozon was at the bank, Santos took a
check from Gozon’s checkbook.
 Santos forged Gozon’s signature and filled out the check with the amount of
P5,000.00. Santos was able to encash the check that day with PNB.
 Gozon learned of this when his statement arrived. Santos eventually
admitted to forging Gozon’s signature.
 Gozon then demanded the PNB to refund him the amount.
 PNB refused. Judge Romulo Quimpo ruled in favor of Gozon.

ISSUES: Whether or not PNB is liable

HELD: YES!
 Gozon’s act in leaving his checkbook in the car while he went out for a short
while cannot be considered negligence sufficient to excuse the defendant
bank from its own negligence. His trustee, a long-time classmate and friend,
remained in the same. Gozon could not have been expected to know that
the said trustee would remove a check from his checkbook. Gozon had trust
in his classmate and friend. He is therefore not precluded from setting up
forgery as a defense.
 Philippine Commercial International Bank v. CA
Citibank), G.R. No. 121479 (Ford vs CA and Citibank and PCIB), and G.R. No. 128604
SUMMARY:
(Ford vs Citibank and PCIB and CA).
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 which were embezzled allegedly by an organized syndicate.
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 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 petitioner 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 the syndicate and deposited in their
own account. In this case, there was no evidence presented confirming the
conscious participation of PCIBank in the embezzlement.
DOCTRINE:
As a general rule, however, a banking corporation is liable for the wrongful or
tortuous acts and declarations of its officers or agents within the course and scope
of their employment. A bank will be held liable for the negligence of its officers or
agents when acting within the course and scope of their employment. It may be
liable for the tortuous acts of its officers even as regards that species of tort of
which malice is an essential element.
A bank holding out its officers and agents as worthy of confidence will not be
permitted to profit by the frauds these officers or agents were enabled to
perpetrate in the apparent course of their employment; nor will it be permitted to
shirk its responsibility for such frauds, even though no benefit may accrue to the
bank therefrom. For the general rule is that a bank is liable for the fraudulent acts
or representations of an officer or agent acting within the course and apparent
scope of his employment or authority. And if an officer or employee of a bank, in
his official capacity, receives money to satisfy an evidence of indebtedness lodged
with his bank for collection, the bank is liable for his misappropriation of such sum.
The mere fact that the forgery was committed by a drawer-payor’s confidential
employee or agent, who by virtue of his position had unusual facilities for
perpetrating the fraud and imposing the forged paper upon the bank, doesn’t
entitle the bank to shift the loss to the drawer-payor, in the absence of some
circumstance raising estoppel against the drawer. This rule likewise applies to the
checks fraudulently negotiated or diverted by the confidential employees who
hold them in their possession.
FACTS:
ISSUES: WN Ford has the right to recover the value of the checks intended as
There are three cases consolidated here: G.R. No. 121413 (PCIB vs CA and Ford and
1) G.R. No. 121413 &
2) G.R. No. 121479
 In October 1977, Ford Philippines drew a Citibank check in the amount of
P4,746,114.41 in favor of the Commissioner of the Internal Revenue (CIR).
 The check represents Ford’s tax payment for the third quarter of 1977.
 On the face of the check was written “Payee’s account only” which means
that the check cannot be encashed and can only be deposited with the CIR’s
savings account (which is with Metrobank).
 The said check was however presented to PCIB and PCIB accepted the same.
PCIB then indorsed the check for clearing to Citibank. Citibank cleared the
check and paid PCIB P4,746,114.41. CIR later informed Ford that it never
received the tax payment.
 An investigation ensued and it was discovered that Ford’s accountant
Godofredo Rivera, when the check was deposited with PCIB, recalled the
check since there was allegedly an error in the computation of the tax to
be paid. PCIB, as instructed by Rivera, replaced the check with two of its
manager’s checks.
 It was further discovered that Rivera was actually a member of a syndicate
and the manager’s checks were subsequently deposited with the Pacific
Banking Corporation by other members of the syndicate. Thereafter, Rivera
and the other members became fugitives of justice.
3) G.R. No. 128604
 In July 1978 and in April 1979, Ford drew two checks in the amounts of
P5,851,706.37 and P6,311,591.73 respectively. Both checks are again for tax
payments. Both checks are for “Payee’s account only” or for the CIR’s bank
savings account only with Metrobank. Again, these checks never reached
the CIR.
 In an investigation, it was found that these checks were embezzled by the
same syndicate to which Rivera was a member. It was established that an
employee of PCIB, also a member of the syndicate, created a PCIB account
under a fictitious name upon which the two checks, through high end
manipulation, were deposited. PCIB unwittingly endorsed the checks to
Citibank which the latter cleared. Upon clearing, the amount was withdrawn
from the fictitious account by syndicate members.
payment to CIR?
HELD: YES!
 The checks were drawn against the drawee bank but the title of the person
negotiating the same was allegedly defective because the instrument was
obtained by fraud and unlawful means, and the proceeds of the checks were
not remitted to the payee. It was established that instead paying the
Commissioner, the checks were diverted and encashed for the eventual
distribution among members of the syndicate.
 Pursuant to this, it is vital to show that the negotiation is made by the
perpetrator in breach of faith amounting to fraud. The person negotiating
the checks must have gone beyond the authority given by his principal. If
the principal could prove that there was no negligence in the performance
of his duties, he may set up the personal defense to escape liability and
recover from other parties who, through their own negligence, allowed the
commission of the crime.
 Citibank is likewise liable because it was negligent in the performance of its
obligations with respect to its agreement with Ford. The checks which were
drawn against Ford’s account with Citibank clearly states that they are
payable to the CIR only yet Citibank delivered said payments to PCIB.
Citibank however argues that the checks were indorsed by PCIB to Citibank
and that the latter has nothing to do but to pay it. The Supreme Court cited
Section 62 of the Negotiable Instruments Law which mandates the Citibank,
as an acceptor of the checks, to engage in paying the checks according to
the tenor of the acceptance which is to deliver the payment to the “payee’s
account only”.
 But the Supreme Court ruled that in the consolidated cases, that PCIB and
Citibank are not the only negligent parties. Ford is also negligent for failing
to examine its passbook in a timely manner which could have avoided
further loss. But this negligence is not the proximate cause of the loss but is
merely contributory. Nevertheless, this mitigates the liability of PCIB and
Citibank hence the rate of interest, with which PCIB and Citibank is to pay
Ford, is lowered from 12% to 6% per annum.

 It should be resolved if Ford is guilty of the imputed contributory

negligence that would defeat its claim for reimbursement, bearing in mind
that its employees were among the members of the syndicate. It appears
although the employees of Ford initiated the transactions attributable to the
organized syndicate, their actions were not the proximate cause of
encashing the checks payable to CIR. The degree of Ford’s negligence
couldn’t be characterized as the proximate cause of the injury to parties.
 The mere fact that the forgery was committed by a drawer-payor’s
confidential employee or agent, who by virtue of his position had unusual
facilities for perpetrating the fraud and imposing the forged paper upon
the bank, doesn’t entitle the bank to shift the loss to the drawer-payor, in
the absence of some circumstance raising estoppel against the drawer.
This rule likewise applies to the checks fraudulently negotiated or diverted
by the confidential employees who hold them in their possession.

Note: not only PCIB but also Citibank is responsible for negligence. Citibank was
negligent in the performance of its duties as a drawee bank. It failed to establish its
payments of Ford’s checks were made in due course and legally in order.

 As a general rule, a bank is liable for the negligent or tortuous act of its
employees within the course and apparent scope of their employment or
authority. Hence, PCIB is liable for the fraudulent act of its employee who
set up the savings account under a fictitious name.
 Papa v. A.U. Valencia
SUMMARY:
Myron Papa is the administrator of the estate of Angela Butte. In 1973, he sold a
portion of said estate to Felix Peñarroyo through A.U. Valencia and Co., Inc.
Peñarroyo gave Papa P5,000.00 plus a check worth P40,000.00. However, Papa
was not able to deliver the certificate of title to Peñarroyo. A litigation ensued and
ten years after, Papa argued that the sale between him and Peñarroyo was never
consummated because he did not encash the P40,000.00 check and that the
P5,000.00 cash was merely earnest money.
DOCTRINE:
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.
While it is true that the delivery of check produces payment only when encashed
(pursuant to Art. 1249, Civil Code), the rule is otherwise if the debtor is prejudiced
by the delay in presentment. (Here in this case, the petitioner now alleges that he
did not present the check, ten years after the same was paid to him as part of the
purchase price of the property.)
Check acceptance implied an undertaking of due diligence in presenting it for
payment. If the person who receives it sustains loss by want of this diligence, this
will operated as actual payment of the debt or obligation for which the check was
given. The debtor cannot now be held liable if non-presentment of the check was
through the fault of the creditor.
The petitioner appealed the lower court's decision alleging that the sale was not
consummated as he never encashed the check given as part of the purchase
price.
 The Court of Appeals affirmed with modifications the lower court's decision. It
held that there was a consummated sale of the subject property despite.
ISSUES:
1) Whether or not Papa is correct.
2) Whether or not the check is a valid tender of payment/Whether or not
there was a valid sale of the subject property
HELD:
1. No. 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 Papa had never encashed the check, his failure to do so for
more than ten (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 Article 1249 of the Civil Code, the rule is otherwise if the
debtor (Peñarroyo) is prejudiced by the creditor’s (Papa’s) 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.

2.
FACTS:
 The case arose from a sale of a parcel of land allegedly made to private
respondent Penarroyo by petitioner acting as attorney-in-fact of Anne Butte. The
purchaser, through Valencia, made a check payment in the amount of P40,000
and in cash, P5,000. Both were accepted by petitioner as evidenced by various
receipts. It appeared that the said property has already been mortgaged to the
bank previously together with other properties of Butte.
 When Butte passed away, the private respondent Penarroyo now demanded
that the title to the property be conveyed to him, however the bank refused.
Hence, the filing of a suit for specific performance by private respondents against
the petitioner. The lower court ruled in favor of the private respondents and
ordered herein petitioner the conveyance or the property or if not, its payment.
Yes. While it is true that the delivery of check produces payment only when
encashed (pursuant to Art. 1249, Civil Code), the rule is otherwise if the
debtor is prejudiced by the delay in presentment. (Here in this case, the
petitioner now alleges that he did not present the check, ten years after the
same was paid to him as part of the purchase price of the property.)
Check acceptance implied an undertaking of due diligence in presenting it
for payment. If the person who receives it sustains loss by want of this
diligence, this will operated as actual payment of the debt or obligation for
which the check was given. The debtor cannot now be held liable if non-
presentment of the check was through the fault of the creditor.
 Areza v. Express Savings Bank
SUMMARY: ISSUES: Whether or not Express Savings Bank had the right to debit ₱1,800,000.00
from petitioners’ accounts.
DOCTRINE: A depositary/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 HELD:
the instrument is genuine and in all respects what it purports to be; that he has
 No, Express Savings Bank cannot debit the savings account of petitioners. A
good title to it; that all prior parties had capacity to contract; and that the
depositary/collecting bank where a check is deposited, and which endorses
instrument is at the time of his endorsement valid and subsisting.”
the check upon presentment with the drawee bank, is an endorser.
It is well-settled that the relationship of the depositors and the Bank or similar
 Under Section 66 of the Negotiable Instruments Law, an endorser warrants
institution is that of creditor-debtor. Article 1980 of the New Civil Code provides
“that the instrument is genuine and in all respects what it purports to be;
that fixed, savings and current deposits of money in banks and similar institutions
that he has good title to it; that all prior parties had capacity to contract; and
shall be governed by the provisions concerning simple loans. The bank is the
that the instrument is at the time of his endorsement valid and subsisting.”
debtor and the depositor is the creditor. The depositor lends the bank money and
As collecting bank, Express Savings Bank is liable for the amount of the
the bank agrees to pay the depositor on demand. The savings deposit agreement
materially altered checks. It cannot further pass the liability back to the
between the bank and the depositor is the contract that determines the rights and
petitioners absent any showing in the negligence on the part of the
obligations of the parties.
petitioners which substantially contributed to the loss from alteration.

FACTS:
 Petitioners received an order for the purchase of a motor vehicle from Gerry
Mambuay where the latter paid petitioners with nine (9) Philippine Veterans
Affairs Office (PVAO) checks payable to different payees and drawn against
the Philippine Veterans Bank (drawee), each valued at Two Hundred
Thousand Pesos (₱200,000.00).

 Petitioners deposited the said checks in their savings account with the
Express Savings Bank which, in turn, deposited the checks with its depositary
bank, Equitable-PCI Bank and the latter presented the checks to the drawee,
the Philippine Veterans Bank, which honored the checks.

 However, the subject checks were returned by PVAO to the drawee on the
ground that the amount on the face of the checks was altered from the
original amount of ₱4,000.00 to ₱200,000.00.

 After informing Express Savings Bank that the drawee dishonored the
checks, Equitable-PCI Bank debited the deposit account of ESB in the
amount of P1.8M.

 Express Savings Bank then withdrew the amount of P1.8M representing the
returned checks from petitioners saving account.
 De Ocampo v. Gatchalian
SUMMARY:
Anita Gatchalian was interested in buying a car. Manuel Gonzales offered to her a
car owned by plaintiff. Gonzales claimed that he was authorized by the plaintiff to
sell the car. Gonzales order defendant to issue a cross-check to comply on showing
interest in buying the car. Gonzales promised to return the check the next day.
When Gonzales never appeared after, defendant issue a stop payment order on
the check. She found out that Gonzales used the check as payment to plaintiff's
clinic for his wife's fees. Plaintiff now demands defendant for payment of the
check, in which defendant refused citing that plaintiff is a not a holder in due
course.
The SC held that plaintiff is a not a holder in due course. There were obvious
instances to show that the check was negligently acquired like plaintiff having no
ISSUES: Whether or not De Ocampo is a holder in due course.
liability with defendant and that the check was crossed. Plaintiff failed to exercise
HELD:
prudence and caution. Plaintiff should have asked questions to further inquire
upon suspicion.
The presumption of good faith did not apply to plaintiff because the defect was
apparent on the instruments face – it was not payable to defendant or bearer.
DOCTRINE:
Section 52 of the Negotiable Instruments Law, defines holder in due course, thus:
A holder in due course is a holder who has taken the instrument under the
following conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and without
notice that it had been previously dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him he had no notice of any
infirmity in the instrument or defect in the title of the person negotiating it.
FACTS:
 Matilde Gonzales was a patient of the De Ocampo Clinic owned by Vicente
De Ocampo. She incurred a debt amounting to P441.75. Her husband,
Manuel Gonzales designed a scheme in order to pay off this debt: In 1953,
Manuel went to a certain Anita Gatchalian.
 Manuel purported himself to be selling the car of Vicente De Ocampo.
Gatchalian was interested in buying said car but Manuel told her that De
Ocampo will only sell the car if Gatchalian shows her willingness to pay for
it. Manuel advised Gatchalian to draw a check of P600.00 payable to De
Ocampo so that Manuel may show it to De Ocampo and that Manuel in the
meantime will hold it for safekeeping. Gatchalian agreed and gave Manuel
the check. After that, Manuel never showed himself to Gatchalian.
 Meanwhile, Manuel gave the check to his wife who in turn gave the check
to De Ocampo as payment of her bills with the clinic. De Ocampo received
the check and even gave Matilde her change (sukli). On the other hand, since
Gatchalian never saw Manuel again, she placed a stop-payment on the
P600.00 check so De Ocampo was not able to cash on the check. Eventually,
the issue reached the courts and the trial court ordered Gatchalian to pay
De Ocampo the amount of the check.
 Gatchalian argued that De Ocampo is not entitled to payment because there
was no valid indorsement. De Ocampo argued tha he is a holder in due
course because he is the named payee.
 No. Section 52 of the Negotiable Instruments Law, defines holder in due
course, thus:
A holder in due course is a holder who has taken the instrument under the
following conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and without notice
that it had been previously dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him he had no notice of any infirmity
in the instrument or defect in the title of the person negotiating it.
 The Supreme Court emphasized that if one is such a holder in due course, it
is immaterial that he was the payee and an immediate party to the
instrument.
 The Supreme Court however ruled that De Ocampo is not a holder in due
course for his lack of good faith. De Ocampo should have inquired as to the
legal title of Manuel to the said check.
 The fact that Gatchalian has no obligation to De Ocampo and yet he’s named
as the payee in the check hould have apprised De Ocampo; that the check
did not correspond to Matilde Gonzales’ obligation with the clinic because
of the fact that it was for P600.00 – more than the indebtedness; that why
was Manuel in possession of the check – all these gave De Ocampo the duty
to ascertain from the holder Manuel Gonzales what the nature of the latter’s
title to the check was or the nature of his possession.
 Mesina v. IAC  The check in question suffers from the infirmity of not having been properly
DOCTRINE: negotiated and for value by Jose Go who is the real owner of said
The holder of a cashier’s check who is not a holder in due course instrument.
cannot enforce payment against the issuing bank which dishonors the same. If a
payee of a cashier’s check obtained it from the issuing bank by fraud, or if there is
some other reason why the payee is not entitled to
collect the check, the bank would of course have the right to refuse payment of
the check when presented by payee, since the bank was aware of the facts
surrounding the loss of the check in question.

FACTS:
 Jose Go maintains an account with Associated Bank. He needed to transfer
P800,000.00 from Associated Bank to another bank but he realized that he
does not want to be carrying that cash so he bought a cashier’s check from
Associated Bank worth P800,000.00.
 Associated Bank then issued the check but Jose Go forgot to get the check
so it was left on top of the desk of the bank manager. The bank manager,
when he found the check, entrusted it to Albert Uy for safekeeping. The
check was however stolen from Uy by a certain Alexander Lim.
 Jose Go learned that the check was stolen son he made a stop payment
order against the check. Meanwhile, Associated Bank received the subject
check from Prudential Bank for clearing. Apparently, the check was
presented by a certain Marcelo Mesina for payment. Associated Bank
dishonored the check.
 When asked how Mesina got hold of the check, he merely stated that
Alfredo Lim, who’s already at large, paid the check to him for “a certain
transaction”.

ISSUES: Whether or not Mesina is a holder in due course.

HELD:
 No. Admittedly, Mesina became the holder of the cashier’s check as
endorsed by Alexander Lim who stole the check. Mesina however refused
to say how and why it was passed to him.

 Mesina 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.
 Sadaya v. Sevilla  Victor Sevilla died Francisco Sevilla was named administrator.
SUMMARY:  Sadaya filed a creditor's claim for the above sum of P5,746.12, plus attorneys
Sadaya, Sevilla and Varona signed solidarily a promissory note in favor of the bank. fees in the sum of P1,500.00
Varona was the only one who received the proceeds of the note. Sadaya  The administrator resisted the claim upon the averment that the deceased
and Sevilla both signed as co-makers to accommodate Varona. Thereafter, the Victor Sevilla "did not receive any amount as consideration for the promissory
bank collected from Sadaya. Varona failed to reimburse. note," but signed it only "as surety for Oscar Varona
 June 5, 1957: Trial court order the administrator to pay
Consequently, Sevilla died and intestate estate proceedings were  CA reversed.
established. Sadaya filed a creditor’s claim on his estate for the payment he made
on the note. The administrator resisted the claim on the ground that Sevilla did ISSUES: W/N Sadaya can claim against the estate of Sevilla as co-accomodation party
not receive any proceeds of the loan. The trial court admitted the claim of Sadaya when Varona as principal debtor is not yet insolvent
though tis was reversed by the CA.
It was held that Varona is bound by the obligation to reimburse Sadaya but Sadaya HELD:
may not claim against the estate of Sevilla. NO. Affirmed
 Varona is bound by the obligation to reimburse Sadaya
DOCTRINE:  Solidary accommodation maker — who made payment — has the right to
The following are the rules: contribution, from his co-accommodation maker, in the absence of agreement
to the contrary between them, and subject to conditions imposed by law
1. A joint and several accommodation maker of a negotiable requisites before one accommodation maker can seek reimbursement from a
promissory note may demand from the principal debtor
co-accommodation maker.
reimbursement for the amount that he paid to the payee
2. A joint and several accommodation maker, who pays on the said  ART. 2073. When there are two or more guarantors of the same debtor and for
promissory note may directly demand reimbursement from his co- the same debt, the one among them who has paid may demand of each of the
accommodation maker without first directing his action against the others the share which is proportionally owing from him.
principal debtor provided that
 If any of the guarantors should be insolvent, his share shall be borne by the
a. He made the payment by virtue of a judicial demand others, including the payer, in the same proportion.
b. A principal debtor is insolvent.
1. A joint and several accommodation maker of a negotiable promissory note
It was never shown that there was a judicial demand on Sadaya to pay the may demand from the principal debtor reimbursement for the amount that
obligation and also, it was never proven that Varona was insolvent. Thus, Sadaya he paid to the payee;
cannot proceed against Sevilla for reimbursement. 2. A joint and several accommodation maker who pays on the said promissory
note may directly demand reimbursement from his co-accommodation
FACTS: maker without first directing his action against the principal debtor provided
 March 28, 1949: Victor Sevilla, Oscar Varona and Simeon Sadaya executed, that
jointly and severally, in favor of the BPI, or its order, a promissory note for a. he made the payment by virtue of a judicial demand, or -no judicial
P15,000.00 with interest at 8% per annum, payable on demand. demand just voluntarily
 The P15,000.00 proceeds was received by Oscar Varona alone. b. a principal debtor is insolvent. - Varona is not insolvent
 Victor Sevilla and Simeon Sadaya signed the promissory note as co-makers only
as a favor to Oscar Varona.
 June 15, 1950: outstanding balance is P4,850.00. No payment thereafter made.
 Oct 16 1952: bank collected from Sadaya total of P5,416.12(w/interest)
 Varona failed to reimburse Sadaya despite repeated demands. V
 Travel-On v. CA
SUMMARY:
Travel-On Inc. is a travel agency from which Arturo Miranda procured tickets on
behalf of airline passengers and derived commissions therefrom. Miranda was
sued by petitioner to collect on the six postdated checks he issued which were all
dishonored by the drawee banks. Miranda, however, claimed that he had already
fully paid and even overpaid his obligations and that refunds were in fact due to
him. He argued that he had issued the postdated checks not for the purpose of
encashment to pay his indebtedness but for purposes of accommodation, as he
had in the past accorded similar favors to petitioner. Petitioner however urges
that the postdated checks are per se evidence of liability on the part of private
respondent and further argues that even assuming that the checks were for
accommodation, private respondent is still liable thereunder considering that
petitioner is a holder for value.
DOCTRINE: In accommodation transactions recognized by the Negotiable
Instruments Law, an accommodating party lends his credit to the accommodated
party, by issuing or indorsing a check which is held by a payee or indorsee as a
holder in due course, who gave full value therefor to the accommodated party. In
the case at bar, Travel-On was the payee of all six (6) checks, it presented these
checks for payment at the drawee bank but the checks bounced. Travel-On
obviously was not an accommodated party; it realized no value on the checks
which bounced.
FACTS:
 Arturo S. Miranda had a revolving credit line with Travel-On. Inc. (Travel-On), a
travel agency selling airline tickets on commission basis for and in behalf of
different airline companies procured tickets from Travel-On on behalf of airline
passengers and derived commissions therefrom.
 June 14 1972: Travel-On filed bef. the CFI to collect 6 checks issued by
Miranda totaling P115,000.00
 August 5 1969 - January 16 1970: Travel-On sold and delivered airline tickets to
Miranda w/ total price of P278,201.57paid in cash and 6 checks = P115,000 - all
dishonored by the drawee banks
 March 1972: paid P10,000.00 reducing his debts to P105,000
 Miranda: checks were issued for to "accommodate" Travel-On's General
Manager to show the BOD of Travel-On that their receivables were still good
 Travel-On's witness, Elita Montilla: related to situations where its passengers
needed money in Hongkong, and upon request of Travel-On, Miranda would
contact his friends in Hongkong to advance Hongkong money to the passenger
 CA affirmed CFI: ordered Travel-On to pay Miranda P8,894.91 representing net
overpayments by private respondent, moral damages of P10,000.00 (later
increased to P50,000 by CFI and reduced by CA to P20,000) for the wrongful
issuance of the writ of attachment and for the filing of this case, P5,000.00 for
attorney's fees and the costs of the suit - decision was because Travel-On did not
show that Miranda had an outstanding balance of P115,000.00
ISSUES: W/N Miranda is liable for the 6 dishonored checks because there was no
accommodation
HELD:
YES. GRANT due course to the Petition for Review on Certiorari and to REVERSE and
SET ASIDE the Decision of the CA and trial court
 failed to give due importance the checks themselves as evidence of the debt
check which is regular on its face is deemed prima facie to have been issued for
a valuable consideration and every person whose signature appears thereon is
deemed to have become a party thereto for value.
 Negotiable instrument is presumed to have been given or indorsed for a
sufficient consideration unless otherwise contradicted and overcome by other
competent evidence
 Those checks in themselves constituted evidence of indebtedness of Miranda,
evidence not successfully overturned or rebutted by private respondent.
 There was no accommodation transaction in the case at bar. In accommodation
transactions recognized by the Negotiable Instruments Law, an accommodating
party lends his credit to the accommodated party, by issuing or indorsing a check
which is held by a payee or indorsee as a holder in due course, who gave full
value therefor to the accommodated party.
 The latter, in other words, receives or realizes full value which the
accommodated party then must repay to the accommodating party. But the
accommodating party is bound on the check to the holder in due course who is
necessarily a third party and is not the accommodated party.
 In the case at bar, Travel-On was payee of all six (6) checks, it presented these
checks for payment at the drawee bank but the checks bounced. Travel-On
obviously was not an accommodated party; it realized no value on the checks
which bounced. Miranda must be held liable on the checks involved as
petitioner is entitled to the benefit of the statutory presumption that it was a
holder in due course and that the checks were supported by valuable
consideration.
 BPI v. CA – G.R. 136202 January 25, 2007
DOCTRINE: Section 49 of the Negotiable Instruments Law contemplates a
situation whereby the payee or indorsee delivers a negotiable instrument for
value without indorsing it, thus:
Transfer without indorsement; effect of– Where the holder of an instrument
payable to his order transfers it for value without indorsing it, the transfer vests in
the transferee such title as the transferor had therein, and the transferee acquires
in addition, the right to have the indorsement of the transferor. But for the
purpose of determining whether the transferee is a holder in due course, the
negotiation takes effect as of the time when the indorsement is actually made.
If instruments payable to named payees or to their order have not been indorsed
in blank, only such payees or their indorsees can be holders and entitled to receive
payment in their own right.
The presumption under Section 131(s) of the Rules of Court stating that a
negotiable instrument was given for a sufficient consideration will not inure to the
benefit of Salazar because the term “given” does not pertain merely to a transfer
of physical possession of the instrument. The phrase “given or indorsed” in the
context of a negotiable instrument refers to the manner in which such instrument
may be negotiated. Negotiable instruments are negotiated by “transfer to one
person or another in such a manner as to constitute the transferee the holder
thereof. If payable to bearer it is negotiated by delivery. If payable to order it is
negotiated by the indorsement completed by delivery.” The present case involves
checks payable to order. Not being a payee or indorsee of the checks, private
respondent Salazar could not be a holder thereof.
It is an exception to the general rule for a payee of an order instrument to transfer
the instrument without indorsement. Precisely because the situation is abnormal,
it is but fair to the maker and to prior holders to require possessors to prove
without the aid of an initial presumption in their favor, that they came into
possession by virtue of a legitimate transaction with the last holder.
FACTS:
 A.A. Salazar Construction and Engineering Services filed an action for a sum
of money with damages against herein petitioner Bank of the Philippine
Islands (BPI) on December 5, 1991 before Branch 156 of the Regional Trial
Court (RTC) of Pasig City.
 The complaint was later amended by substituting the name of Annabelle A.
Salazar as the real party in interest in place of A.A. Salazar Construction and
Engineering Services.
 Private respondent Salazar prayed for the recovery of the amount of Two
Hundred Sixty-Seven Thousand, Seven Hundred Seven Pesos and Seventy
Centavos (P267,707.70) debited by petitioner BPI from her account.
 She likewise prayed for damages and attorney’s fees.
 Petitioner BPI, in its answer, alleged that on August 31, 1991, Julio R.
Templonuevo, third-party defendant and herein also a private respondent,
demanded from the former payment of the amount of Two Hundred Sixty-
Seven Thousand, Six Hundred Ninety-Two Pesos and Fifty Centavos (P
267,692.50) representing the aggregate value of three (3) checks, which
were allegedly payable to him, but which were deposited with the petitioner
bank to private respondent Salazar’s account (Account No. 0203-1187-67)
without his knowledge and corresponding endorsement.
 Accepting that Templonuevo’s claim was a valid one, petitioner BPI froze
Account No. 0201-0588-48 of A.A. Salazar and Construction and Engineering
Services, instead of Account No. 0203-1187-67 where the checks were
deposited, since this account was already closed by private respondent
Salazar or had an insufficient balance.
ISSUES: Whether or not respondent is entitled to the proceeds of the checks even
without prior indorsement.
HELD: No. Section 49 of the Negotiable Instruments Law contemplates a situation
whereby the payee or indorsee delivers a negotiable instrument for value without
indorsing it, thus:
 Transfer without indorsement; effect of– Where the holder of an
instrument payable to his order transfers it for value without indorsing it,
the transfer vests in the transferee such title as the transferor had therein,
and the transferee acquires in addition, the right to have the indorsement
of the transferor. But for the purpose of determining whether the transferee
is a holder in due course, the negotiation takes effect as of the time when
the indorsement is actually made.
If instruments payable to named payees or to their order have not been indorsed in
blank, only such payees or their indorsees can be holders and entitled to receive
payment in their own right.
The presumption under Section 131(s) of the Rules of Court stating that a negotiable
instrument was given for a sufficient consideration will not inure to the benefit of
Salazar because the term “given” does not pertain merely to a transfer of physical
possession of the instrument. The phrase “given or indorsed” in the context of a
negotiable instrument refers to the manner in which such instrument may be
negotiated. Negotiable instruments are negotiated by “transfer to one person or
another in such a manner as to constitute the transferee the holder thereof. If
payable to bearer it is negotiated by delivery. If payable to order it is negotiated by
the indorsement completed by delivery.” The present case involves checks payable
to order. Not being a payee or indorsee of the checks, private respondent Salazar
could not be a holder thereof.

It is an exception to the general rule for a payee of an order instrument to transfer

the instrument without indorsement. Precisely because the situation is abnormal, it
is but fair to the maker and to prior holders to require possessors to prove without
the aid of an initial presumption in their favor, that they came into possession by
virtue of a legitimate transaction with the last holder.

 Salazar failed to discharge this burden, and the return of the check proceeds
to Templonuevo was therefore warranted under the circumstances despite
the fact that Templonuevo may not have clearly demonstrated that he never
authorized Salazar to deposit the checks or to encash the same. Noteworthy
also is the fact that petitioner stamped on the back of the checks the words:
“All prior endorsements and/or lack of endorsements guaranteed,” thereby
making the assurance that it had ascertained the genuineness of all prior
endorsements. Having assumed the liability of a general indorser,
petitioner’s liability to the designated payee cannot be denied.
 Stelco Marketing Corporation v. CA
SUMMARY: Petitioner was engaged in the distribution and sale of structural steel
bars. RYL bought on several occasion large quantities of steel bars but the same
were never paid for despite several demands by petitioner.
On a relevant date, RYL gave to Armstrong Industries a check in payment
of its obligations. The check was drawn by Steelweld Corporation—allegedly the
owner of RYL persuaded the president of Steelweld to accommodate the former
in its obligation. The check, when deposited was thereafter dishonored due to
insufficient funds. A case ensued for violations of BP22 but the case was
dismissed as the check was held to be for accommodation purposes only.
Thereafter, a complaint was filed by petitioner against RYL and Steelweld
for the recovery of sum of money in payment of the steel bars ordered. RYL was
nowhere to be found that is why the proceedings commenced as
against Steelweld only.
The trial court decided in favor of petitioner but this was reversed by the CA.
DOCTRINE:
An accommodation party is one who has signed the instrument as maker, drawer,
acceptor, or indorser, without receiving valued 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 him to be only an
accommodation party.
ISSUES: Whether Steelweld as an accommodating party can be held liable by Stelco
for the dishonored check.
HELD:
 Steelweld may be held liable but not by Stelco.
 Under Section 29 of the NIL, Steelweld Corp. can be held liable for having
issued the subject check for the accommodation of Romeo Lim.
 An accommodation party is one who has singed the instrument as maker,
drawer, acceptor, or indorser, without receiving valued 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
him to be only an accommodation party.
 Stelco however, cannot be deemed a holder of the check for value as it
does not meet two essential requisites prescribed by statute, i.e. that it did
not become “the holder of it before it was overdue, and without notice
that it had been previously dishonored,” and that it did not take the check
“in good faith and for value.”

FACTS:
 Stelco Marketing Corporation sold structural steel bars to RYL Construction
Inc.
 RYL gave Stelco’s “sister corporation,” Armstrong Industries, a MetroBank
check from Steelweld Corporation.
 The check was issued by Steelweld’s President to Romeo Lim, President of
RYL, by way of accommodation, as a guaranty and not in payment of an
obligation.
 When Armstrong deposited the check at its bank, it was dishonored because
it was drawn against insufficient funds.
 When so deposited, the check bore two indorsements, i.e. RYL and
Armstrong.
 Subsequently, Stelco filed a civil case against RYL and Steelweld to recover
the value of the steel products.
 Bataan Cigar & Cigarette Factory Inc. v. CA
SUMMARY:
Bataan Cigar & Cigarette Factory, Inc. (BCCFI), engaged with King Tim Pua George,
to deliver 2,000 bales of tobacco leaf. BCCFI issued postdated 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.
DOCTRINE:
 Sec. 52
1. That it is complete and regular upon its face
2. 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
3. That he took it in good faith and for value
4. That at the time it was negotiated to him he had no notice of any infirmity
in the instrument or defect in the title of the person negotiating it
Sec. 59
 every holder is deemed prima facie a holder in due course
 However, when it is shown that the title of any person who has
negotiated the instrument was defective, the burden is on the holder to
prove that he or some person under whom he claims, acquired the title
as holder in due course.
Effects of crossing of a check are the ff:
1. check may not be encashed but only deposited in the bank
2. check may be negotiated only once — to one who has an account with a
bank
3. act of crossing the check serves as warning to the holder that the check has
been issued for a definite purpose - he must inquire if he has received the
check pursuant to that purpose, otherwise, he is not a holder in due course
 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 - failure = guilty of gross negligence amounting to legal absence of
good faith, contrary to Sec. 52(c) of the Negotiable Instruments Law
FACTS:
 Bataan Cigar & Cigarette Factory, Inc. (BCCFI), a corporation involved in the
manufacturing of cigarettes purchased from King Tim Pua George (George King)
2,000 bales of tobacco leaf to be delivered starting October 1978.
 July 13, 1978: it issued crossed checks post dated sometime in March 1979 in
the total amount of P820K
 George represented that he would complete delivery w/in 3 months from Dec 5
1978 so BCCFI agreed to purchase additional 2,500 bales of tobacco leaves,
despite the previous failure in delivery
 It issued post dated crossed checks in the total amount of P1.1M payable
sometime in September 1979.
 July 19, 1978: George sold to SIHI at a discount check amounting to P164K, post
dated March 31, 1979, drawn by BCCFI w/ George as payee.
 December 19 and 26, 1978: George sold 2 checks both in the amount of P100K,
post dated September 15 & 30, 1979 respectively, drawn by BCCFI w/ George as
payee
 Upon failure to deliver, BCCFI issued on March 30, 1979 and September 14 & 28,
1979 a stop payment order for all checks
 SIHI failing to claim, filed a claim against BCCFI
 RTC: SIHI = holder in due course. Non-inclusion of Gearoge as party is immaterial
to the case
ISSUES: Whether SIHI is a holder in due course beign a second indorser and a holder
of crossed checks
HELD:
 The SC held that SIHI is not a holder in due course thus granting the petition
of BCCFI. The purpose of cross checks is to avoid those bouncing or
encashing of forged checks. Cross checks have the following effects: it
cannot be encashed but only deposited in a bank; it can only be negotiated
on its respective bank once; it serves as a warning to the hiolder that it has
been issued for a defienite purpose thus making SIHI not a holder in due
course.
 Consequently, BCCFI cannot be obliged to pay the checks. However,
that SIHI 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.
 Still, SIHI can collect from the immediate indorser, in this case, George King.
 Consolidated Plywood Industries Inc. v. IFC Leasing and Acceptance Corp.
DOCTRINE:
Therefore, considering that the subject promissory note is not a negotiable
instrument, it follows that IFC Leasing can never be a holder in due course but
remains a mere assignee of the note in question. Therefore, considering that the
subject promissory note is not a negotiable instrument, it follows that IFC Leasing
can never be a holder in due course but remains a mere assignee of the note in
question.
FACTS:
 Consolidated Plywood Industries Inc. (CPII) is a corporation engaged in the
logging business. It had for its program of logging activities for the year 1978
the opening of additional roads, and simultaneous logging operations along
the route of said roads, in its logging concession area at Baganga, Manay,
and Caraga, Davao Oriental.
 For this purpose, it needed 2 additional units of tractors. Cognizant of CPII’s
need and purpose, Atlantic Gulf & Pacific Company of Manila, through its
sister company and marketing arm, Industrial Products Marketing (IPM), a
corporation dealing in tractors and other heavy equipment business, offered
to sell to CPII 2 “Used” Allis Crawler Tractors, 1 an HD-21-B and the other an
HD-16-B. After conducting said inspection, IPM assured CPII that the “Used”
Allis Crawler Tractors which were being offered were fit for the job, and gave
the corresponding warranty of 90 days performance of the machines and
availability of parts.
 With said assurance and warranty, and relying on the IPM’s skill and
judgment, CPII through Henry Wee and Rodolfo T. Vergara, president and
vice-president, respectively, agreed to purchase on installment said 2 units
of “Used” Allis Crawler Tractors. It also paid the down payment of
P210,000.00. On 5 April 1978, IPM issued the sales invoice for the 2 units of
tractors. At the same time, the deed of sale with chattel mortgage with
promissory note was executed.
 Barely 14 days had elapsed after their delivery when one of the tractors
broke down and after another 9 days, the other tractor likewise broke down.
 IPM sent to the jobsite its mechanics to conduct the necessary repairs, but
the tractors did not come out to be what they should be after the repairs
were undertaken because the units were no longer serviceable. Because of
the breaking down of the tractors, the road building and simultaneous
logging operations of CPII were delayed and Vergara advised IPM that the
payments of the installments as listed in the promissory note would likewise
be delayed until IPM completely fulfills its obligation under its warranty.
 Since the tractors were no longer serviceable, on 7 April 1979, Wee asked
IPM to pull out the units and have them reconditioned, and thereafter to
offer them for sale. The proceeds were to be given to IFC Leasing and the
excess, if any, to be divided between IPM and CPII which offered to bear 1/2
of the reconditioning cost.
 No response to this letter was received by CPII and despite several follow-
up calls, IPM did nothing with regard to the request, until the complaint in
the case was filed by IFC Leasing against CPII, Wee, and Vergara.
 The complaint was filed by IFC Leasing against CPII, et al. for the recovery of
the principal sum of P1,093,789.71, accrued interest of P151,618.86 as of 15
August 1979, accruing interest thereafter at the rate of 12% per annum,
attorney’s fees of P249,081.71 and costs of suit.
 CPII, et al. filed their amended answer praying for the dismissal of the
complaint. In a decision dated 20 April 1981, the trial court rendered
judgment, ordering CPII, et al. to pay jointly and severally in their official and
personal capacities
 On 17 July 1985, the Intermediate Appellate Court issued the decision
affirming in toto the decision of the trial court.
ISSUES: WN the PN is a negotiable instrument making IFC a holder in due course.
HELD:
 No. The pertinent portion of the note provides that “FOR VALUE RECEIVED,
I/we jointly and severally promise to pay to the INDUSTRIAL PRODUCTS
MARKETING, the sum of P1,093,789.71, Philippine Currency, the said
principal sum, to be payable in 24 monthly installments starting July 15,
1978 and every 15th of the month thereafter until fully paid.” 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 negotiable must contain the so
called “words of negotiability” — i.e., 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. 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 IFC Leasing can never be a holder in due course but
remains a mere assignee of the note in question. Thus, CPII may raise against IFC
Leasing all defenses available to it as against IPM. This being so, there was no need
for CPII to implead IPM when it was sued by IFC Leasing because CPII’s defenses apply
to both or either of them
 State Investment House v. CA b. (b) State Investment bought these checks from Victoriano,
SUMMARY: before their due dates;
Moulic issued checks as security to Victoriano, for pieces of jewelry to be
c. (c) State Investment took these checks in good faith and
sold on commission. Moulic failed to sell the pieces of jewelry, so she returned
for value,
them to Victoriano. The checks however could not be recovered
by Moulic as these have been discounted d. (d) State Investment was never informed nor made aware
already in favor of petitioner. Consequently, before the maturity dates, Moulic that these checks were merely issued to Victoriano as
withdrew her funds from her account. Thereafter, petitioner presented the security and not for value.
checks for payment but these were dishonored. This prompted the petitioner to
 Moulic cannot set up the defense that there was failure or want of
initiate an action against Moulic.
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
DOCTRINE:
course.
Cannot set up the defense that there was failure or want of consideration against
HDC. The mere fact that the checks were issued as security is not
 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.
sufficient ground to discharge the instrument as against a holder in due
course.
FACTS:
 Corazon Victoriano provided pieces of jewelry to Nora Moulic so that the  Further, there is no need to issue a notice of dishonor to Moulic. After
latter may sell the same. As security for the jewelries, Moulic issued to Moulic withdrew her funds, she could not have expected her checks to be
Victoriano two post-dated checks in the aggregate amount of P100,000.00. honored. It would only be futile for State Investment to be sending her
Moulic was not able to sell the jewelries so she returned the same to notices of dishonor for the two checks
Victoriano. Victoriano was however unable to return the checks hence
Moulic withdrew all her funds from the bank.
 Apparently, the checks were negotiated by Victoriano to State Investment
House, Inc. So, when the checks were dishonored, State Investment
demanded Moulic to pay. Moulic refused to pay because she said the checks
were merely used as security for the jewelry. Moulic further averred that
she received no notice of dishonor.

ISSUES: Whether or not State Investment House is entitled to be paid.

HELD:
 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.

 Yes. State Investment is a holder in due course as it met all the requirements
to be one pursuant to Section 52 of the Negotiable Instruments Law. In
particular, it is clearly shown that:
a. (a) on their faces, the post-dated checks were complete
and regular:
 Yang v. CA
SUMMARY:
Cely Yang and Prem Chandiramani agreed to exchange the latter's manager's
check to two of Yang's checks both payable to the order of Fernando David. They
also agreed that Yang would secure a dollar draft in exchange for Chandiramani's
dollar draft.
At the time of exchange, Yang gave the checks to Danilo Ranigo. Ranigo said that
Chandaramani did not appear the rendezvous and that he lost the checks and
draft, but in fact, the exchange transpired.
Yang requested the respective banks to stop payment on the instruments but was
subsequently denied. Yang filed a complaint for the return of the checks and for
damages against Chandaramani and David.
The lower court sided with David and was held as holder in due course. The checks
were complete in their face when they were negotiated and that he had no notice
that the checks were dishonored and took the checks in good faith. The lower
courts also said that David had taken the necessary precautions to verify the
genuineness of the checks.
DOCTRINE:
Every holder of a negotiable instrument is presumed to be a holder in due
course. This is especially true if one is a holder because he is the payee or
indorsee of the instrument.
FACTS:
 December 22, 1987: Cely Yang and Prem Chandiramani entered into an
agreement whereby Yang was to give 2 P2.087M PCIB managers check in the
amount of P4.2 million both payable to the order of Fernando David. Yang and
Chandiramani agreed that the difference of P26K in the exchange would be their
profit to be divided equally between them.
 Yang and Chandiramani also further agreed that the Yang would secure from
FEBTC a dollar draft in the amount of US$200K, payable to PCIB FCDU Account
No. 4195-01165-2, which Chandiramani would exchange for another dollar draft
in the same amount to be issued by Hang Seng Bank Ltd. of Hong Kong.
 December 22, 1987, Yang procured the ff:
a) Equitable Cashiers Check No. CCPS 14-009467 in the sum of P2,087,000.00,
dated December 22, 1987, payable to the order of Fernando David;
b) FEBTC Cashiers Check No. 287078, in the amount of P2,087,000.00, dated
December 22, 1987, likewise payable to the order of Fernando David; and
c) FEBTC Dollar Draft No. 4771, drawn on Chemical Bank, New York, in the
amount of US$200,000.00, dated December 22, 1987, payable to PCIB FCDU
Account No. 4195-01165-2.
 December 22, 1987 1 p.m.: Yang gave the cashiers checks and dollar drafts to
her business associate, Albert Liong, to be delivered to Chandiramani by Liongs
messenger, Danilo Ranigo
 Ranigo was to meet Chandiramani at 2 p.m. at Philippine Trust Bank, Ayala
Avenue, Makati where he would turn over Yangs cashiers checks and dollar draft
to Chandiramani who, in turn, would deliver to Ranigo a PCIB managers check in
the sum of P4.2 million and a Hang Seng Bank dollar draft for US$200K in
exchange but Chandiramani did not appear
 December 22, 1987 4 p.m.: Ranigo reported the alleged loss of the checks and
the dollar draft to Liong. Liong, in turn, informed Yang, and the loss was then
reported to the police.
 Chandiramani was able to get hold of the instruments
 Chandiramani delivered the 2 cashiers checks to Fernando David at China
Banking Corporation branch in San Fernando City, Pampanga
 In exchange, he got US$360K from David, which he deposited in the savings
account of his wife, Pushpa; and his mother, Rani Reynandas, who held FCDU
Account No. 124 with the United Coconut Planters Bank branch in Greenhills
 He also deposited FEBTC Dollar Draft No. 4771, dated December 22, 1987, drawn
upon the Chemical Bank, New York for US$200K in PCIB FCDU Account No. 4195-
01165-2 on the same date.
 Yang requested FEBTC and Equitable to stop payment on the instruments she
believed to be lost
 Both banks complied with her request
 Yang filed against David and Chandiramani
 CA affirms RTC: in favor of David
ISSUES: W/N David is a holder in due course
HELD:
 Every holder of a negotiable instrument is presumed to be a holder in due
course. This is especially true if one is a holder because he is the payee or
indorsee of the instrument.
 In the case at bar, it is evident that David was the payee of the checks.
 The prima facie presumption of him being a holder in due course is
in his favor.
 Nonetheless, this presumption is disputable. On whether he took the check
under the conditions set forth in Section 52 must be proven.
 Petitioner relies on two arguments on why
David isn’t a holder in due course—
 first, because he took the checks
without valuable consideration; and
 second, he failed to inquire on Chandimari’s title to the checks
given to him.

 The law gives rise to the presumption of valuable consideration. Petitioner

has the burden of debunking such presumption, which it failed to do so.
Her allegation that David received the checks without consideration is
unsupported and devoid of any evidence.

 Furthermore, petitioner wasn't able to show any circumstance which should

have placed David in inquiry as to why and wherefore of the possession of
the checks by Chandimari.

 David wasn't a privy to the transactions between Yang and Chandimari.

Instead, Chandimari and David had the agreement between themselves of
the delivery of the checks. David even inquired with the banks on the
genuineness of the checks in issue.

 At that time, he wasn't aware of any request for the stoppage of payment.

 Under these circumstances, David had no obligation to ascertain from

Chandimari what the nature of the latter’s title to the checks was, if any, or
the nature of his possession.
 Patrimonio v. Gutierrez
SUMMARY:
The petitioner and the respondent Napoleon Gutierrez (Gutierrez) entered into a
business venture under the name of Slam Dunk Corporation (Slum Dunk), a
production outfit that produced mini-concerts and shows related to basketball. In
the course of their business, the petitioner pre-signed several checks to answer
for the expenses of Slam Dunk; however, these checks had no payee’s name, date
or amount. The blank checks were entrusted to Gutierrez with the specific
instruction not to fill them out without previous notification to and approval by
the petitioner. Without the petitioner’s knowledge and consent, Gutierrez went
to Marasigan to secure a loan in the amount of ₱200,000.00 and Gutierrez
simultaneously delivered to Marasigan one of the blank checks the petitioner pre-
signed with Pilipinas Bank in the amount of "₱200,000.00. When Marasigan
deposited the check, it was dishonored for the reason "ACCOUNT CLOSED" and so
Marasigan sought recovery from Gutierrez and petitioner asking for the payment
of ₱200,000.00.
It was held that Marasigan was not a HDC. In the present case, Gutierrez was only
authorized to use the check for business expenses; thus, he exceeded the
authority when he used the check to pay the loan he supposedly contracted for
the construction of petitioner's house. Marasigan’s knowledge that the petitioner
is not a party or a privy to the contract of loan, and correspondingly had no
obligation or liability to him, renders him dishonest, hence, in bad faith.
Considering that Marasigan is not a holder in due course, the petitioner can validly
set up the personal defense that the blanks were not filled up in accordance with
the authority he gave; hence, Marasigan has no right to enforce payment against
the petitioner and the latter cannot be obliged to pay the face value of the check
DOCTRINE:
In order for one who is not a holder in due course can enforce the instrument
against a party prior to the instrument’s completion, two requisites must exist:
1) that the blank must be filled strictly in accordance with the authority
given; and
2) it must be filled up within a reasonable time. If it was proven that the
instrument had not been filled up strictly in accordance with the authority
given and within a reasonable time, the maker can set this up as a
personal defense and avoid liability.
However, if the holder is a holder in due course, there is a conclusive presumption
that authority to fill it up had been given and that the same was not in excess of
authority.
FACTS:
 The petitioner and the respondent Gutierrez entered into a business
venture under the name of Slam Dunk Corporation, a production outfit that
produced mini-concerts and shows related to basketball.
 Patrimonio pre-signed several checks to answer for the expenses of Slam
Dunk. Although signed, these checks had no payee’s name, date or amount.
The blank checks were entrusted to Gutierrez with the specific instruction
not to fill them out without previous notification to and approval by the
petitioner.
 Without the petitioner’s knowledge and consent, Gutierrez went to
Marasigan to secure a loan in the amount of P200,000.00 on the excuse that
the petitioner needed the money for the construction of his house. In
addition to the payment of the principal, Gutierrez assured Marasigan that
he would be paid an interest of 5% per month.
 Marasigan acceded to Gutierrez’ request and gave him P200,000.00.
Gutierrez simultaneously delivered to Marasigan one of the blank checks the
petitioner pre-signed with Pilipinas Bank with the blank portions filled out
with the words “Cash” “Two Hundred Thousand Pesos Only”, and the
amount of “P200,000.00.”
 Marasigan deposited the check but it was dishonored for the reason
“ACCOUNT CLOSED.” It was later revealed that petitioner’s account with the
bank had been closed.
 Marasigan sought recovery from Gutierrez, to no avail. He thereafter sent
several demand letters to the petitioner asking for the payment of
P200,000.00, but his demands likewise went unheeded. Consequently, he
filed a criminal case for violation of B.P. 22 against the petitioner.
 RTC— in favor of Marasigan. It found that the petitioner, in issuing the pre-
signed blank checks, had the intention of issuing a negotiable instrument,
albeit with specific instructions to Gutierrez not to negotiate or issue the
check without his approval. RTC declared Marasigan as a holder in due
course and accordingly dismissed the petitioner’s complaint for declaration
of nullity of the loan. It ordered the petitioner to pay Marasigan the face
value of the check with a right to claim reimbursement from Gutierrez. CA—
affirmed the RTC ruling.
ISSUES: Whether or not Marasigan is a holder in due course thus may hold Patrimonio
liable
HELD:
 No. Section 14 of the Negotiable Instruments Law provides for when blanks
may be filled. This provision applies to an incomplete but delivered
instrument. Under this rule, if the maker or drawer delivers a pre-signed
blank paper to another person for the purpose of converting it into a
negotiable instrument, that person is deemed to have prima facie authority
to fill it up. It merely requires that the instrument be in the possession of a
person other than the drawer or maker and from such possession, together
with the fact that the instrument is wanting in a material particular, the law
presumes agency to fill up the blanks.
 Yet, it does not follow that simply because he is not a holder in due course,
Marasigan is already totally barred from recovery.
 Notably, Gutierrez was only authorized to use the check for business
expenses; thus, he exceeded the authority when he used the check to pay
the loan he supposedly contracted for the construction of petitioner’s
house. This is a clear violation of the petitioner’s instruction to use the
checks for the expenses of Slam Dunk. It cannot therefore be validly
concluded that the check was completed strictly in accordance with the
authority given by the petitioner.

 In order, however, that one who is not a holder in due course can enforce
the instrument against a party prior to the instrument’s completion, two
requisites must exist: (1) that the blank must be filled strictly in accordance
with the authority given; and (2) it must be filled up within a reasonable
time. If it was proven that the instrument had not been filled up strictly in
accordance with the authority given and within a reasonable time, the
maker can set this up as a personal defense and avoid liability.

 Section 52(c) of the NIL states that a holder in due course is one who takes
the instrument “in good faith and for value.” It also provides in Section 52(d)
that in order that one may be a holder in due course, it is necessary that at
the time it was negotiated to him he had no notice of any infirmity in the
instrument or defect in the title of the person negotiating it.

 Acquisition in good faith means taking without knowledge or notice of

equities of any sort which could be set up against a prior holder of the
instrument. It means that he does not have any knowledge of fact which
would render it dishonest for him to take a negotiable paper. The absence
of the defense, when the instrument was taken, is the essential element of
good faith.

 In order to show that the defendant had “knowledge of such facts that his
action in taking the instrument amounted to bad faith,” it is not necessary
to prove that the defendant knew the exact fraud that was practiced upon
the plaintiff by the defendant’s assignor, it being sufficient to show that the
defendant had notice that there was something wrong about his assignor’s
acquisition of title, although he did not have notice of the particular wrong
that was committed. In the present case, Marasigan’s knowledge that the
petitioner is not a party or a privy to the contract of loan, and
correspondingly had no obligation or liability to him, renders him dishonest,
hence, in bad faith.
 People v. Wagas
SUMMARY:
Gilbert Wagas ordered from Alberto Ligaray 200 bags of rice over the telephone.
As payment, Wagas issued a post-dated check in favor of Ligaray. When the check
was deposited it was dishonored due to insufficiency of funds. Ligaray notified
Wagas and demanded payment from the latter but Wagas refused and failed to
pay the amount, Ligaray filed a complaint for estafa before the RTC. RTC convicted
Wagas of estafa because the RTC believed that the prosecution had proved that it
was Wagas who issued the dishonored check, despite the fact that Ligaray had
never met Wagas in person. Hence, this direct appeal.
DOCTRINE:
Under the Negotiable Instruments Law, this type of check was payable to the
bearer and could be negotiated by mere delivery without the need of an
indorsement.
What the law punishes is the fraud or deceit, not the mere issuance of the
worthless check.
The proof of guilt must still clearly show that it had been the drawer who had
defrauded by means of the check.
FACTS:
 1997: Mystery man (allegedly Wagas) told Ligaray on the phone that he
wanted to buy 200 bags of rice to be paid by postdated check
 Ligaray was hesitant but MM said he had means to pay because he had a
lending business and money in the bank.
 A BPI check payable to cash (bearer instrument) was given to Ligaray.
 On the same day, the person who gave the BPI check and received the stocks
was Canada (Wagas’ brother-in-law).
 Ligaray deposited the check to his Solidbank Account but it bounced due to
insufficient funds.
 He made a demand through the phone. Wagas said he will pay after he
returns from Cebu. But after more demands, he still did not pay.
 Wagas’ Defense: Admitted that he signed the check but he issued it to
Canada (not Ligaray) for the purpose of paying for a portion of Canada’s
property that he wanted to buy, but the sale did not push through so he no
longer funded the check.
 Wagas admitted that he signed a letter addressed to the counsel of Ligaray
admitting that he owed him P200,000.
 He said that he signed the letter only because his sister and her husband had
pleaded with him to assume the obligation and to avoid jeopardizing
Canada’s application for overseas employement.
 RTC: Wagas guilty of estafa.
ISSUES: WN Wagas could be held guilty of estafa simply because he had issued a
check used to defraud Ligaray
HELD:
 NO!
 In order to constitute estafa, the act of postdating or issuing a check in
payment of an obligation must be the efficient cause of the defraudation.
 This means that the offended must be able to obtain money or property
from the offended party by reason of the issuance of the check, whether
dated or postdated.
 The prosecution established that Ligaray had released the goods to Canada
because of the PDC given to him and that the check was dishonored when
presented for payment because of insufficiency of funds.
 The check delivered to Ligaray was made payable to cash. Under the
Negotiable Instruments Law, this type of check was payable to the bearer
and could be negotiated by mere delivery without the need of an
indorsement. This rendered it highly probable that Wagas had issued the
check not to Ligaray, but to somebody else like Cañada, his brother-in-law,
who then negotiated it to Ligaray. Relevantly, Ligaray confirmed that he did
not himself see or meet Wagas at the time of the transaction and thereafter,
and expressly stated that the person who signed for and received the stocks
of rice was Cañada.
 What the law punishes is the fraud or deceit, not the mere issuance of the
worthless check. Wagas could not be held guilty of estafa simply because he
had issued the check used to defraud Ligaray. The proof of guilt must still
clearly show that it had been Wagas as the drawer who had defrauded
Ligaray by means of the check.
 PNB v. Picornell
SUMMARY:
Picornell followed the instructions of Hyndman, Tavera and Ventura by buying
bales of tobacco. He was able to obtain in National Bank a sum of money together
with his commission. He drafted a bill of exchange against the firm and in favor of
the bank. It was received by National Bank and was accepted thereafter by the
firm. However, on alleged conditions of the tobacco, the bill of exchange was not
paid.
This action for recovery is for the value of the bill of exchange. The firm accepted
the bill unconditionally but did not pay it at maturity, wherefore its responsibility
to pay the same is clear. The question whether or not the tobacco was worth the
value of the bill doesn’t concern the bank. Such partial want of consideration if it
was, doesn’t exist with respect to the bank which paid Picornell the full value of
the said bill of exchange. The bank was a holder in due course, and was such for
value full and complete. The firm cannot escape liability.
DOCTRINE:
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.
Hence, the drawee, by accepting the instrument, cannot escape liability.
FACTS:
1. Bartolome Picornell, following instruction Hyndman, Tavera & Ventura,
bought in Cebu 1,735 bales of tobacco. 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, having, in turn,
drawn the bill of exchange.
2. This instrument was delivered to the branch of the Philippine National Bank
(PNB) in Cebu, together with the invoice and bill of lading of the tobacco,
which was shipped in the boat Don Ildefonso, on 27 February 1920,
consigned to Hyndman, Tavera & Ventura at Manila.
3. The invoice and bill of lading were delivered to PNB with the understanding
that the bank should not deliver 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).
4. The central office of PNB in Manila received the bill and the aforesaid
documents annexed thereto. On 3 March 1920, PNB presented the bill to
Hyndman, Tavera & Ventura, who accepted it, stating on the bill face thereof
that "Accepted, 3d March, 1920. Due, 2d April, 1920, Hyndman, Tavera &
Ventura, by (Sgd.) J. Pardo de Tavera, member of the firm."
5. 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 PNB 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.
6. Hyndman, Tavera & Ventura proceeded to the examination of the tobacco,
which was deposited in their warehouses, and wrote and cabled to Picornell,
notifying him that of the tobacco received, there was a certain portion which
was of no use and was damaged.
7. Through these communications, Picornell learned that Hyndman, Tavera &
Ventura had in their possession the tobacco.
8. In view of the question raised by the said company as to the quality of the
aforesaid tobacco, more correspondence was exchanged between the
company and Picornell.
9. Picornell requested PNB to extend the time for payment of the bill for
P39,529,83 against Messrs.Hyndman, Tavera & Ventura of Manila for 30
days.
10. PNB granted the request of Picornell; wherefore Hyndman, Tavera &
Ventura reaccepted the bill in the terms:
"Accepted for thirty days. Due May 2d, 1920. Hyndman, Tavera &
Ventura, by (Sgd.) J. Pardo de Tavera, member of the firm." 2 May
1920, arrived and the bill was not paid.
11. On the 4th of the same month, Hyndman, Tavera & Ventura sent a letter to
PNB informing the latter that it absolutely refused to pay draft 2 for
P39,529.83, referring to 1,871,235 quintals of Leaf Tobacco Barili, owing to
noncompliance of the contract by the drawer.
12. PNB protested the bill, took possession of the tobacco, and had it appraised
on the 12th of the same month, its value having been fixed at P28,790.72.
The bank brought the action for the recovery of the value of the bill of
exchange, and about September 1921, sold the tobacco, obtaining from the
sale P6,708.82.
13. In a decision rendered 9 January 1922, and amended by an order of February
 18th next, the Court of First Instance of Manila sentenced Bartolome
Picornell et al. to pay solidarily to the Philippine National Bank (PNB) the
sum of P28, 790.72 with interest at the rate of 9% per annum from 3 May
1921, and costs; and Picornell, specifically, to pay PNB the sum of
P10,739.11 with interest at 9% per annum, all as aforesaid, deducting the
sum of P6, 708.82 from such amounts to be paid by Picornell et al.
14. This total sum which Picornell et al are required to pay represents the value
of a bill of exchange drawn by Picornell in favor of PNB, against the firm of
Hyndman, Tavera & Ventura, now dissolved, its only successor being Joaquin
Pardo de Tavera. From this judgment Picornell et al. appealed.
ISSUES:
1. Whether Hyndman, Tavera & Ventura company can escape liability due to
want of full consideration.
2. Whether Bartolome Picornell, even as a commissioned agent of Hyndman,
Tavera & Ventuta in the purchase of the tobacco, is liable for the bill.
HELD:
1.
 Whether the tobacco was worth the value of the bill, does not concern PNB.
Such partial want of consideration, if it was, does not exist with respect to
the bank which paid to Picornell the full value of said bill of exchange.
 The bank was a holder in due course, and was such for value full and
complete.
 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 of 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 advanced by the plaintiff,
that the draft was accepted for the accommodation of the drawer.
2.
 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.)
 The fact that the tobacco was or was not of inferior quality does not affect
the responsibility of Picornell, because while it may have an effect upon the
contract between him and the firm of Hyndman, Tavera, Ventura, yet it
cannot have upon the responsibility of both to the bank, upon the bill drawn
and accepted as above stated.
(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.)
 People v. Maniego
SUMMARY:
The accused were charged and later on found guilty of committing malversation.
Ubay was the disbursing officer in the Office of the Chief of Finance in a military
camp and together with his co-accused, were able to take personal checks drawn
against the PNB and BPI, of which Pamintuan was the drawer and Maniego was
the indorser. The checks were encashed and used, to the prejudice of the
government.
Maniego averred that the trial court erred in adjudging her as liable as an indorser
to the government. The contention of Maniego that as a mere indorser, she may
not be liable on account of the dishonor of the checks indorsed by her is untenable.
The holder or last indorsee of a negotiable instrument has the right to enforce
payment of the instrument for the full amount thereof and against all parties liable
thereon. Among the parties liable thereon is the indorser unless he clearly
indicates that his intention to be bound in some other capacity. Maniego may also
be considered as an accommodation party and as such, is liable to a holder for
value notwithstanding if the holder knew that she was only an accommodation
party.
DOCTRINE:
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.”
FACTS:
1. The information which initiated the criminal proceedings in the Court of First
Instance of Rizal indicted 3 persons — Lt. Rizalino M. Ubay, Mrs. Milagros
Pamintuan, and Mrs. Julia T. Maniego — for the crime of MALVERSATION,
committed as follows:
"That on or about the period covering the month of May, 1957 up to and including
the month of August, 1957, in Quezon City, Philippines, the above-named accused,
conspiring together, confederating with and helping one another, with intent of gain
and without authority of law, did, then and there, wilfully, unlawfully and feloniously
malverse, misappropriate and misapply public funds in the amount of P66,434.50
belonging to the Republic of the Philippines, in the following manner, to wit:
the accused, Lt. RIZALINO M. Ubay, a duly appointed officer in the Armed Forces
of the Philippines in active duty, who, during the period specified above, was
designated as Disbursing Officer in the Officer of the Chief of Finance, GHQ,
Camp Murphy, Quezon City, and as such was entrusted with and had under his
custody and control public funds, conspiring and confederating with his co-
accused, MILAGROS T. PAMINTUAN and JULIA T. MANIEGO, did then and there,
unlawfully, willfully and feloniously, with intent of gain and without authority of
law, and in pursuance of their conspiracy, take, receive, and accept from his said
co-accused several personal checks drawn against the Philippine National Bank
and the Bank of the Philippine Islands, of which the accused, MILAGROS T.
PAMINTUAN is the drawer and the accused, JULIA T. MANIEGO, is the indorser,
in the total amount of P66,434.50, cashing said checks and using for this purpose
the public funds entrusted to and placed under the custody and control of the
said Lt. Rizalino M. Ubay, all the said accused knowing fully well that the said
checks are worthless and are not covered by funds in the aforementioned banks,
for which reason the same were dishonored and rejected by the said banks when
presented for encashment, to the damage and prejudice of the Republic of the
Philippines, in the amount of P66,434.50, Philippine currency."
2. Only Lt. Ubay and Mrs. Maniego were arraigned, Mrs. Pamintuan having
apparently fled to the United States in August, 1962. Both Ubay and
Maniego entered a plea of not guilty.
3. After trial judgment was rendered by the Court of First Instance, convicting
Ubay of the crime of malversation and sentenced him to suffer the penalty
of reclusion temporal of 12 years, 1 day to 14 years, 8 months, and a fine of
P57,434.50 which is the amount malversed, and to suffer perpetual special
disqualification; while acquitting Maniego but ordering her to pay solidarily
with Ubay the amount of P57,434.50 to the government.
4. Maniego sought reconsideration of the judgment, praying that she be
absolved from civil liability or, at the very least, that her liability be reduced
to P46,934.50.
5. The Court declined to negate her civil liability, but did reduce the amount
thereof to P46,934.50.
6. She appealed to the Court of Appeals as Ubay had earlier done. Ubay's
appeal was subsequently dismissed by the Appellate Court because of his
failure to file brief.
7. On the other hand, Maniego submitted her brief in due course. Because, in
the Appellate Court's view, Maniego's brief raised only questions of law, her
appeal was later certified to the Supreme Court.
ISSUES: Whether a mere indorser may be made liable on account of the dishonor of
the checks indorsed by her.
HELD:
1. 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."

2. 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."

3. 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."

4. Maniego may also be deemed an "accommodation party" in the light of the

facts, i.e., a person "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."

5. As such, she is under the law "liable on the instrument to a holder for value,
notwithstanding such holder at the time of taking the instrument knew her
to be only an accommodation party," although she has the right, after
paying the holder, to obtain reimbursement from the party accommodated,
"since the relation between them is in effect that of principal and surety, the
accommodation party being the surety."
 Astro Electronics v. Roxas
SUMMARY:
Astro obtained loans from Philtrust Bank, secured by promissory notes that were
signed by Roxas, both as President of Astro Electronics and in his personal capacity.
Thereafter, PhilGuarantee bound itself as a guarantor. At default of Astro,
PhilGuarantee paid the obligation. It then filed an action for collection of money
from Astro and Roxas.
Under the NIL, persons who write their names on the face of promissory notes are
makers, promising that they will pay to the order of the payee or any holder
according to its tenor.
At the study of the instrument, the allegations of Roxas are bereft of any merit—
that is, the words “in his personal capacity” were added after he signed the
instrument.
DOCTRINE:
Persons who write their names on the face of promissory notes are makers. Thus,
even without the phrase “personal capacity,” a person who signs on the
instrument twice will still be primarily liable as a joint and several debtors.
FACTS:
1. Astro was granted several loans by the Philippine Trust Company (Philtrust)
amounting to P3,000,000.00 with interest and secured by three promissory
notes.
2. In each of these promissory notes, it appears that petitioner Roxas signed
twice, as President of Astro and in his personal capacity. Roxas also signed a
Continuing Suretyship Agreement in favor of Philtrust Bank, as President of
Astro and as surety.
3. Thereafter, Philguarantee, with the consent of Astro, guaranteed in favor of
Philtrust the payment of 70% of Astro’s loan, subject to the condition that
upon payment by Philguanrantee of said amount, it shall be proportionally
subrogated to the rights of Philtrust against Astro.
4. As a result of Astro’s failure to pay its loan obligations, despite demands,
Philguarantee paid 70% of the guaranteed loan to Philtrust. Subsequently,
Philguarantee filed against Astro and Roxas a complaint for sum of money
with the RTC of Makati.
5. Roxas disclaims any liability on the instruments, alleging, inter alia, that he
merely signed the same in blank and the phrases “in his personal capacity”
and “in his official capacity” were fraudulently inserted without his
knowledge.
6. The trial court ruled in favor of Philguarantee, stating that if Roxas really
intended to sign the instruments merely in his capacity as President of Astro,
then he should have signed only once in the promissory note. On appeal,
the Court of Appeals affirmed the RTC decision.
ISSUES: Whether or not Roxas should be solidarily liable with Astro for the sum
awarded by the RTC
HELD:
1. Yes. In signing his name aside from being the President of Astro, Roxas
became a co-maker of the promissory notes and cannot escape any liability
arising from it. Under the Negotiable Instruments Law, persons who write
their names on the face of promissory notes are makers. Thus, even without
the phrase “personal capacity,” Roxas will still be primarily liable as a joint
and several debtors under the notes considering that his intention to be
liable as such is manifested by the fact that he affixed his signature on each
of the promissory notes twice which necessarily would imply that he is
undertaking the obligation in two different capacities, official and personal.
2. Moreover, an instrument which begins with “I”, “We”, or “Either of us”
promise to pay, when signed by two or more persons, makes them solidary
liable (Republic Planters Bank vs. Court of Appeals, G.R. No. 93073,
December 21, 1992). Having signed under such terms, Roxas assumed the
solidary liability of a debtor and Philtrust Bank may choose to enforce the
notes against him alone or jointly with Astro.
3. It devolves upon one to overcome the presumptions that private
transactions are presumed to be fair and regular and that a person takes
ordinary care of his concerns (Mendoza vs. Court of Appeals, G.R. No.
116710). Bare allegations, when unsubstantiated by evidence, documentary
or otherwise, are not equivalent to proof under our Rules of Court (Coronel
vs. Constantino, G.R. No. 121069, February 7, 2003). Since Roxas failed to
prove the truth of his allegations that the phrases “in his personal capacity”
and “in his official capacity” were inserted on the notes without his
knowledge, said presumptions shall prevail over his claims.
 Garcia v. Llamas
SUMMARY:
Petitioner and Eduardo De Jesus borrowed P400,000.00 from respondent. Both
executed a promissory note wherein they bound themselves jointly and severally
to pay the loan on or before 23 January 1997 with a 5% interest per month. The
loan has long been overdue and, despite repeated demands, both have failed and
refused to pay it. Hence, a complaint was filed against both.
Resisting the complaint, Garcia averred that he assumed no liability because he
signed merely as an accommodation party for De Jesus; and that he is relieved
from any liability arising from the note inasmuch as the loan had been paid by De
Jesus by means of a check dated 17 April 1997; and that, in any event, the issuance
of the check and respondent’s acceptance thereof novated or superseded the
note.
Respondent answered that there was no novation to speak of because the check
bounced.
DOCTRINE:
The note was made payable to a specific person rather than to bearer or to order
— a requisite for negotiability under the Negotiable Instruments Law (NIL). Hence,
petitioner cannot avail himself of the NIL’s provisions on the liabilities and
defenses of an accommodation party.
Even granting arguendo that the NIL was applicable, still, petitioner would be liable
for the promissory note. Under Article 29 of the NIL, an accommodation party is
liable for the instrument to a holder for value even if, at the time of its taking, the
latter knew the former to be only an accommodation party. The relation between
an accommodation party and the party accommodated is, in effect, one of
principal and surety — the accommodation party being the surety. It is a settled
rule that a surety is bound equally and absolutely with the principal and is deemed
an original promisor and debtor from the beginning.
FACTS:
1. The case started out as a complaint for sum of money and damages by
Dionisio Llamas against Romeo Garcia and Eduardo de Jesus (Civil Case Q97-
32-873), the complaint alleged that on 23 December 1996, Garcia and de
Jesus borrowed P400,000.00 from Llamas;
a. that, on the same day, they executed a promissory note wherein
they bound themselves jointly and severally to pay the loan on or
before 23 January 1997 with a 5% interest per month;
b. that the loan has long been overdue and, despite repeated
demands, Garcia and de Jesus have failed and refused to pay it;
c. and that, by reason of their unjustified refusal, Llamas was
compelled to engage the services of counsel to whom he agreed to
pay 25% of the sum to be recovered from Garcia and de Jesus, plus
P2,000.00 for every appearance in court.
2. Annexed to the complaint were the promissory note and a demand letter,
dated 2 May 1997, by Llamas addressed to Garcia and de Jesus. Resisting the
complaint, Garcia, in his answer, averred that he assumed no liability under
the promissory note because he signed it merely as an accommodation
party for de Jesus; among others.
3. During the pre-trial conference, de Jesus and his lawyer did not appear, nor
did they file any pre-trial brief. Neither did Garcia file a pre-trial brief, and
his counsel even manifested that he would no longer present evidence.
4. Given this development, the trial court gave Llamas permission to present
his evidence ex parte against de Jesus; and, as regards Garcia, the trial court
directed Llamas to file a motion for judgment on the pleadings, and for
Garcia to file his comment or opposition thereto.
5. Instead, Llamas filed a Motion to declare Garcia in default and to allow him
to present his evidence ex parte.
6. Meanwhile, Garcia filed a Manifestation submitting his defense to a
judgment on the pleadings.
7. Subsequently, Llamas filed a Manifestation/Motion to submit the case for
judgment on the pleadings, withdrawing in the process his previous motion.
8. Thereunder, he asserted that Garcia's and de Jesus' solidary liability under
the promissory note cannot be any clearer, and that the check issued by de
Jesus did not discharge the loan since the check bounced.
9. On 7 July 1998, the Regional Trial Court (RTC) of Quezon City (Branch 222)
disposed of the case, rendering the decision in favor of Llamas and ordering
Garcia and De Jesus] to pay, jointly and severally Llamas:
a. the sums of P400,000.00 representing the principal amount plus
5% interest thereon per month from 23 January 1997 until the
same shall have been fully paid, less the amount of P120,000.00
representing interests already paid by de Jesus;
b. P100,000.00 as attorney's fees plus appearance fee of P2,000.00
for each day of court appearance, and;
c. Cost of this suit.
10. On appeal and on 26 November 2001, the Court of Appeals, insofar as it
pertains to Garcia, affirmed the decision of the trial court subject to the
modification that the award for attorney's fees and cost of suit was deleted.
 11. As to portion pertaining to de Jesus, the Court set said portion aside and
ordered the case against de Jesus remanded to the court of origin for
purposes of receiving ex parte Llamas' evidence against de Jesus.

12. On 26 June 2002, the appellate court denied Garcia's motion for
reconsideration. Garcia filed the petition for review.

ISSUES: Whether a person, who signed the promissory note merely as an

accommodation party, was released as obligor when the maker agreed to extend the
term of the obligation.

HELD:
1. The note in question is not a negotiable instrument. By its terms, the note
was made payable to a specific person rather than to bearer or to order —
a requisite for negotiability under Act 2031, the Negotiable Instruments Law
(NIL). Hence, Garcia cannot avail himself of the NIL's provisions on the
liabilities and defenses of an accommodation party.

2. Besides, a non-negotiable note is merely a simple contract in writing and is

evidence of such intangible rights as may have been created by the assent
of the parties.

3. The promissory note is thus covered by the general provisions of the Civil
Code, not by the NIL.

4. Even granting arguendo that the NIL was applicable, still, Garcia would be
liable for the promissory note. Under Article 29 of Act 2031, an
accommodation party is liable for the instrument to a holder for value even
if, at the time of its taking, the latter knew the former to be only an
accommodation party.

5. The relation between an accommodation party and the party

accommodated is, in effect, one of principal and surety — the
accommodation party being the surety. It is a settled rule that a surety is
bound equally and absolutely with the principal and is deemed an original
promisor and debtor from the beginning. The liability is immediate and
direct.
 Philippine Bank of Commerce v. Aruego ISSUES:
SUMMARY: Whether Aruego can be held liable by the petitioner although he signed the supposed
Aruego, on behalf of World Current Events, entered into a Credit Agreement with bills of exchange only as an agent of Philippine Education Foundation Company.
PBCom, for the publication of the company’s periodicals. At every printing
endeavor by the printing press, a bill of exchange is drawn against PBCom. The HELD:
instruments are signed by Aruego, without any indication that he is an agent of 1. Yes. Aruego did not disclose in any of the drafts that he accepted that he
World Current Events. When he was being held liable by PBCom, he averred that was signing as representative of the Philippine Education Foundation
he only signed the instrument in the capacity of agent of the company. Company.
2. Aruego contends that he signed the supposed bills of exchange as an agent
An inspection of the drafts accepted by the defendant would show nowhere that of the Philippine Education Foundation Company where he is president.
he has disclosed that he was signing in representation of the Philippine Education 3. Section 20 of the Negotiable Instruments Law provides that "Where the
Foundation Company. He merely signed his name. For failure to disclose his instrument contains or a person adds to his signature words indicating that
principal, Aruego was personally liable for the drafts he accepted. 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
DOCTRINE: of words describing him as an agent or as filing a representative character,
Section 20 of the Negotiable Instruments Law provides that “Where the without disclosing his principal, does not exempt him from personal
instrument contains or a person adds to his signature words indicating that he liability."
signs for or on behalf of a principal or in a representative capacity, he is not liable 4. An inspection of the drafts accepted by the defendant shows that nowhere
on the instrument if he was duly authorized; but the mere addition of words has he disclosed that he was signing as a representative of the Philippine
describing him as an agent or as filing a representative character, without Education Foundation Company.
disclosing his principal, does not exempt him from personal liability.” 5. He merely signed as follows: "JOSE ARUEGO (Acceptor) (SGD) JOSE
ARGUEGO
6. For failure to disclose his principal, Aruego is personally liable for the drafts
FACTS: he accepted.
1. 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.
2. 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.
3. 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.
4. The Philippine Bank of Commerce instituted an action against Aruego to
recover the cost of printing of the latter’s periodical.
5. 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.
 Francisco v. CA
DOCTRINE:
The negotiable Instruments Law provides that when a person is under obligation
to indorse in a representative capacity, he may indorse in such terms as to negative
personal liability. An agent, when so signing, should indicate that he is merely
signing as an agent in behalf of the principal and must disclose
the name of his principal. Otherwise, he will be held liable personally.
3. The NIL provides that when a person is under obligation to indorse in a
representative capacity, he may indorse in such terms as to negative
personal liability.
4. An agent, when so signing, should indicate that he is merely signing as an
agent in behalf of the principal and must disclose the name of his principal.
Otherwise, he will be held liable personally.

FACTS: 5.
1. Francisco Realty and Development and Herby Commercial and Construction
Corporation entered into a Land Development and Construction Contract.
6.
2. Francisco was the president of AFRDC while Ong was the president of HCCC.
It was agreed upon that HCCC would undertake the construction of housing
units and the development of a large parcel of land.
And assuming she was indeed authorized, she didn't comply with the
requirements of the law.
Instead of signing Ong’s name, she should have signed in her own name as
agent of HCCC. Thus, her contentions cannot support or validate her acts of
forgery.

3. The payment would be on a turnkey basis.

To facilitate the payment, AFDRC executed a Deed of Assignment to enable
the HCCC to collect payments from the GSIS. Further, they opened an
account with a bank from which checks would be issued by Fransisco and
the GSIS president.

4. HCCC later on filed a complaint for the unpaid balance in pursuance to its
agreement with AFRDC. However, an amicable settlement ensued, which
was embodied in a Memorandum of Agreement. It was embodied in said
agreement that GSIS recognizes its indebtedness to HCCC and that HCCC
would also pay its obligations to AFRDC.

5. A year later, it was found out that Diaz and Fransisco had drawn checks
payable to Ong. Ong denied accepting said checks and it was further found
out that Diaz entrusted the checks to Fransisco who later forged the
signature of Ong, showing that he indorsed the checks to her and then she
deposited the checks to her personal savings account. This incident
prompted Ong to file a complaint against Fransisco.

ISSUES: WN Francisco can sign Ong’s name on the checks and it was not forgery

HELD:
1. Ong’s signature was found to be forged by Fransisco.

2. Fransisco’s contention that he was authorized to sign Ong’s name in her

favor giving her authority to collect all the receivables of HCCC from GSIS.
This contention is bereft of any merit.
 American Bank v. Macondray & Co.
DOCTRINE:
The liability of an indorser of a bill of exchange, after due protest and notice of
nonpayment and dishonor, is the same as that of the original obligors on such a
contract, and any material alteration in the terms of this contract by the holder of
the same, without the consent of the obligor, will relieve such obligor from all
liability thereon.
FACTS:
1.
MANILA, P. I., August 12, 1902.
$300.00
At sight pay to my order three hundred dollars, value received, and charge to my
account.
V. S. WOLFF.
To F. H. TAYLOR & Co., Louisville, Kentucky.
No ................................ [Indorsements.]
V. S. Wolff. The signature is O. K. payment guaranteed. Protest, demand, and
notice of nonpayment waived. Macondray & Company.
Pay to First National Bank of San Francisco, or order. American Bank, Manila, P. I.
H. B. Mulford, cashier.
Pay to 3rd National Bank or order. The First National Bank of San Francisco.
James K. Lynch, cashier.
2. American Bank claims the right to recover from Wolff the amount of the bill
of exchange upon the theory that Macondray guaranteed the payment of
the instrument. This was refuted by Macondray by saying that it didn't
guarantee the payment of the instrument. Instead, it only certified the
signature of Wolff and that the statement “payment guaranteed xxx” was
not written on said indorsement at the time it signed the firm name.
ISSUES: WN Macondray is liable  NO!
HELD:
1. An examination of the alleged indorsement of Macondray & Co. which
appeared upon the said bill of exchange at the time of the trial, and the
indorsement of said company at the time of the protest of said bill of
exchange, shows beyond peradventure of doubt that the contention of the
defendant is true, and that part of the indorsement which says "Payment
guaranteed. Protest, demand, and notice of nonpayment waived" was
added by some person after the signature of the defendant, Macondray &
Co., and after the protest of said bill. The indorsement made by Macondray
& Co. was changed, after said indorsement by said company, by adding
thereto the statement "Payment guaranteed. Protest, demand, and notice
of nonpayment waived," and that the indorsement actually made by
Macondray & Co. was in the following form:
i. V. S. Wolff. The signature is O. K. Macondray & Co.
2. The liability of an indorser of a bill of exchange, after due protest and notice
of nonpayment and dishonor, is the same as that of the original obligors on
such a contract, and any material alteration in the terms of this contract by
the holder of the same, without the consent of the obligor, will relieve such
obligor from all liability thereon.
3. The original indorsement then of the company was for the purpose only of
assuring the American Bank that the signature of Wolff was genuine—that
is to say, that the person whom he represented himself to be. It was an
indorsement for identification of the person only and not for the purpose of
incurring liability to the payment of such bill of exchange.
 PNB v. CA 122 SCRA 553
SUMMARY:
DOCTRINE:

FACTS:

ISSUES:
HELD:
  If the merchandise belonging to the debtor which was mortgaged to the creditor,
Asia Banking v. Lacson Company as in the U. de Poli case, cannot constitute novation, much less can chattel
DOCTRINE: mortgage of the merchandise belonging to the same creditor constitute a
Effect of mortgage executed by acceptor. Where being unable to pay certain bills of novation, because the chattel mortgage in question did not secure the payment
exchange which the drawee has accepted, the latter makes a mortgage in favor of the of a debt, but the payment of the value of the merchandise mortgaged in case
holder of said bills upon certain merchandise the value of which is sought to be collected of sale, and the integrity thereof which the sale was not effected.
through said bills, in order to secure the payment of said amount if the merchandise is sold
 For the foregoing reasons, and not finding any error in the judgment appealed
and the integrity thereof while the sale is not effected, the execution of said mortgage does
not constitute any novation of the obligation represented by said accepted bills unless it is
from, the same is hereby affirmed in all its parts with the costs against the
so expressly stated in said mortgage. appellant. So ordered.

FACTS:

 On November 16, 1920, De Poli executed and delivered to said a chattel

mortgage on the same property described in the receipts, in which chattel
mortgage no mention was made of the warehouse receipts.
 This mortgage was registered in the Office of the Register of Deeds of Manila on
November 18, 1920.
 The appellants argue that the obligations created by the warehouse receipts
were extinguished by the chattel mortgage and that the validity of the claim
must be determined by the provisions of the Chattel Mortgage Law and not by
those of the Warehouse Receipts Act, or, on other words, that the chattel
mortgage constituted a novation of the contract between the parties.
 Novations are never presumed and must be clearly proven.
 There is no evidence whatever in the record to show that a novation was
intended.
 The chattel mortgage was evidently taken as additional security for the funds
advanced by the bank and the transaction was probably brought about through
a misconception of the relative values of warehouse receipts transferred the title
to the goods to the bank, the chattel mortgage was both unnecessary and
inefficacious and may be properly disregarded.
 In that case all the warehouse receipts were endorsed to the bank.
 Later on, De Poli mortgaged the merchandise covered by said receipts to secure
the debt for which said receipts were endorsed, without making any mention of
the aforesaid receipts.

ISSUES: WN there is novation  No!

HELD:

 In the instant case the merchandise mortgaged is almost all the merchandise
covered by the eleven drafts, in the amount of which the defendant company is
indebted. So that the merchandise mortgaged to the plaintiff corporation
belongs to itself, and not to the defendant company.
 Jai Alai v. BPI collect from the drawees of the checks with the corresponding
SUMMARY: proceeds
Checks were deposited by petitioner in its current account with the
 The Bank may have the proceeds already when it debited the account of
bank. These checks were from a certain Ramirez, a consistent better in its
petitioner. Nonetheless, there is still no creditor-debtor relationship.
games, who was a sales agent from Inter-Island Gas. Inter-Island later found
out that of the forgeries committed in the checks and thus, it informed all the  Following Section 23, a forged signature is wholly inoperative and no right
parties concerned. Upon the demands on the bank as the collecting bank, it to discharge it or enforce its payment can be acquired through or under the
debited the account of petitioner. Thereafter, petitioner tried to issue a check for forged signature except against a party who cannot invoke its forgery or
payment of shares of stock but such was dishonored for insufficient funds. It filed want of authority.
a complaint against the bank.
 It stands to reason that as a collecting bank which
DOCTRINE: indorsed the checks to the drawee-banks for clearing, should be liable to
Holders of checks may obtain payment from the drawee bank by presenting it for the latter for reimbursement for the indorsements on the checks had been
payment directly with the bank or by depositing it in his account in another bank forged prior to their delivery to the petitioner. The payments made by the
known as the collecting bank or depositary bank. When the holder deposits his drawee banks to respondent were ineffective—the creditor-debtor
check with the collecting bank, the nature of the relationship created at that stage relationship hadn’t been validly effected.
is one of agency, that is the bank is to collect from the drawee of the check the  **The depositor of a check as indorser warrants that it is genuine and in all
corresponding proceeds. respects what it purports to be. Having indorsed the checks to respondent
bank, petitioner is deemed to have given the warranty prescribed in Section
FACTS: 66 of the NIL that every single one of those checks " is genuine and in all
 Petitioner deposited 10 checks in its current account with BPI. respects what it purports to be."
 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.

HELD:
 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.
 When the petitioner deposited the checks to its account, the relationship
created was one of agency still and not of creditor-debtor. The bank was to
 BPI v. CA
DOCTRINE:
Every negotiable instrument is deemed prima facie to have been issued for a
valuable consideration; every person whose signature appears thereon to have
become a party thereto for value. Therefore, it is up to the party who alleges that
there was absence of consideration to prove such fact.
The presumption will operate only if there was negotiation. Consideration is not
presumed if there was transfer without indorsement.
FACTS:
 A.A. Salazar Construction and Engineering Services filed an action for a sum
of money with damages against herein petitioner Bank of the Philippine
Islands (BPI) on December 5, 1991 before Branch 156 of the Regional Trial
Court (RTC) of Pasig City.
 The complaint was later amended by substituting the name of Annabelle A.
Salazar as the real party in interest in place of A.A. Salazar Construction and
Engineering Services.
 Private respondent Salazar prayed for the recovery of the amount of Two
Hundred Sixty-Seven Thousand, Seven Hundred Seven Pesos and Seventy
Centavos (P267,707.70) debited by petitioner BPI from her account.
 She likewise prayed for damages and attorney’s fees.
 Petitioner BPI, in its answer, alleged that on August 31, 1991, Julio R.
Templonuevo, third-party defendant and herein also a private respondent,
demanded from the former payment of the amount of Two Hundred Sixty-
Seven Thousand, Six Hundred Ninety-Two Pesos and Fifty Centavos (P
267,692.50) representing the aggregate value of three (3) checks, which
were allegedly payable to him, but which were deposited with the petitioner
bank to private respondent Salazar’s account (Account No. 0203-1187-67)
without his knowledge and corresponding endorsement.
 Accepting that Templonuevo’s claim was a valid one, petitioner BPI froze
Account No. 0201-0588-48 of A.A. Salazar and Construction and Engineering
Services, instead of Account No. 0203-1187-67 where the checks were
deposited, since this account was already closed by private respondent
Salazar or had an insufficient balance.
ISSUES: Whether or not respondent is entitled to the proceeds of the checks even
without prior indorsement.
HELD: No. Section 49 of the Negotiable Instruments Law contemplates a situation
whereby the payee or indorsee delivers a negotiable instrument for value without
indorsing it, thus:
 Transfer without indorsement; effect of– Where the holder of an
instrument payable to his order transfers it for value without indorsing it,
the transfer vests in the transferee such title as the transferor had therein,
and the transferee acquires in addition, the right to have the indorsement
of the transferor. But for the purpose of determining whether the transferee
is a holder in due course, the negotiation takes effect as of the time when
the indorsement is actually made.
If instruments payable to named payees or to their order have not been indorsed in
blank, only such payees or their indorsees can be holders and entitled to receive
payment in their own right.
The presumption under Section 131(s) of the Rules of Court stating that a negotiable
instrument was given for a sufficient consideration will not inure to the benefit of
Salazar because the term “given” does not pertain merely to a transfer of physical
possession of the instrument. The phrase “given or indorsed” in the context of a
negotiable instrument refers to the manner in which such instrument may be
negotiated. Negotiable instruments are negotiated by “transfer to one person or
another in such a manner as to constitute the transferee the holder thereof. If
payable to bearer it is negotiated by delivery. If payable to order it is negotiated by
the indorsement completed by delivery.” The present case involves checks payable
to order. Not being a payee or indorsee of the checks, private respondent Salazar
could not be a holder thereof.
It is an exception to the general rule for a payee of an order instrument to transfer
the instrument without indorsement. Precisely because the situation is abnormal, it
is but fair to the maker and to prior holders to require possessors to prove without
the aid of an initial presumption in their favor, that they came into possession by
virtue of a legitimate transaction with the last holder.
 Salazar failed to discharge this burden, and the return of the check proceeds
to Templonuevo was therefore warranted under the circumstances despite
the fact that Templonuevo may not have clearly demonstrated that he never
authorized Salazar to deposit the checks or to encash the same. Noteworthy
also is the fact that petitioner stamped on the back of the checks the words:
“All prior endorsements and/or lack of endorsements guaranteed,” thereby
making the assurance that it had ascertained the genuineness of all prior
endorsements. Having assumed the liability of a general indorser,
petitioner’s liability to the designated payee cannot be denied.
 BPI v. Napiza
DOCTRINE: The general rule is that an accommodation indorser is liable. The
exceptions, like in this case, are negligence and lack of diligence on the part of
the collecting bank. Shifting the loss to the collecting bank.

FACTS:
 Benjamin Napiza maintains an account with the Bank of the Philippine
Islands (BPI).
 In 1987, Napiza was approached by Henry Chan and the latter gave him a
$2,500 Continental Bank Manager’s check.
 Chan asked if Napiza can deposit the check to his (Napiza’s BPI account) by
way of accommodation and for the purpose of clearing the said check.
 Napiza agreed and so he deposited the check on September 3, 1987.
 Napiza then delivered a signed blank withdrawal slip to Chan with the
condition that the $2,500.00 may only be withdrawn if the check cleared.
 For some reason, the withdrawal slip ended up in the hands of one Ruben
Gayon who went to BPI and successfully withdrew the $2,500.00.
 At the time of the withdrawal, the check was not yet cleared. Then days
later, BPI was notified by the drawee bank named in the check that the check
is actually a counterfeit.

ISSUES: Whether or not Napiza may be held liable to refund the amount of the
check.

HELD:
 No. The Supreme Court ruled that ordinarily, Napiza would have been liable
because he is an accommodation indorser. But due to the attendant
circumstances, Napiza is discharged from liability.
 The withdrawal slip indicates as well as the rules promulgated by BPI that
withdrawal from the bank should be accompanied by the presentment of
the account holder’s (Napiza’s) savings bankbook. This was not done so in
the case at bar because Gayon was able to withdraw without it.
 Further, BPI allowed the withdrawal even before the check cleared. BPI
already credited the $2,500.00 to Napiza’s account even without the drawee
bank clearing the check.
 This is contrary to common banking practices and because of such
negligence and lack of diligence, BPI, as the collecting bank, shall suffer the
loss.
 Far East Realty Investment, Inc. v. Court of Appeals
DOCTRINE: There is no hard and fast demarcation line that can be drawn between what
may be considered as a reasonable or an unreasonable time, because reasonable time
depends upon the facts and circumstances in each case.
FACTS:
 Petitioner alleged that, on September 1960, private respondents approached its
office and asked the former to extend to the latter and accommodation loan in the
sum of P4, 500.00, which they promised to pay, jointly and severally, in a month’s
time.
 Private respondents proposed to pay at the rate of 14% per annum, and delivered to
the petitioner a China Banking Corporation Check, dated September 13, 1960, for P4,
500.00 drawn by Dy Hian Tat, and signed by them at the back of the check.
 Reasonable time – time 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.
 No hard and fast demarcation line can be drawn between what may be considered
as a reasonable or an unreasonable time, because reasonable time depends upon
the facts and circumstances in each case.
 In this case, the check 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, petitioner made a formal notice of dishonor on April 27, 1968.
 Petitioner failed to exercise prudence and diligence on what he is required to do by
law and likewise failed to show any justification for the unreasonable delay.

 The check comes with the assurance that after one month from September 13, 1960,
it would be redeemed by private respondents by paying cash in the sum of P4,
500.00, or the check can be presented for payment on or immediately after one
month and China Banking Corporation would honor the same.

 Petitioner agreed and extended to private respondents the accommodation loan.

 On March 15, 1964, the check was presented for payment to the China Banking
Corporation, but it bounced and was not cashed for the reason that the current
account of the drawer had already been closed.

 Petitioner then demanded from private respondents the payment of the loan, but
the latter refused to pay despite repeated demands.

 Respondent court ruled that the check was not presented within a reasonable time.

ISSUE: Whether or not presentment for payment and notice of dishonor of the check were
made within reasonable time.

HELD:
 No. Presentment and notice of dishonor were not made within a reasonable time.
 Section 71 of the NIL provides that: “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.”

 Moreover, Section 102 provides that: “Notice may be given as soon as the
instrument is dishonored and, unless delay is excused must be given within the time
fixed by the law.”
 Luis Wong vs. CA GR No. 117857 February 2, 2001
DOCTRINE:
There are two ways of violating BP 22:
 Making or drawing and issuing a check to apply on account or for vale knowing at
the time of issue that the check is not sufficiently funded; and
 By having sufficient funds in or credit with the drawee bank and the time of issue
but ailing to keep sufficient funds therein or credit with said bank to cover the fill
amount of the check when presented to the drawee bank within a period of
ninety days.
The first way of violating BP 22 is applicable in this case, and it has the following elements:
 The making, drawing and issuance of any check to apply for account or for value;
o In this case, it was established that the checks were in payment for
unremitted collections, and not as guarantee.
 The knowledge of the maker, drawer, or issuer that at the time of issue he does
not have sufficient funds in or credit with the drawee bank for the payment of
such check in full upon presentment; and
o This element creates a presumption that the maker is knowledgeable
of the dishonor of the check for insufficiency of funds.
 The subsequent dishonor of the check by the drawee bank for insufficiency of
funds or credit or dishonor for the same reason had not the drawer, without any
valid cause, ordered the bank to stop payment.”
FACTS
 Petitioner Wong was an agent of Limtong Press Inc (LMI), which was engaged in the
manufacturing of calendars. LPI would print sample calendars, then give them to
agents to present to customers. the agents would get the purchases orders of
customers and forward them to LPI. After printing the calendars, LPI would ship the
calendars directly to the customers. the agents would come around to collect the
payments.
 Petitioner, however, had a history of unremitted collections. Hence, the customers
of Wong were required to issue postdated checks before LPI would accept their
purchase orders.
 In 1985, Wong issued 6 postdated checks drawn payable to the order of LPI. The
checks were initially intended to guarantee the calendar orders of customers who
failed to issue post-dated checks. However, following the company policy, LPI
refused to accept the checks as guaranteed. Instead, the parties agreed to apply the
checks as payment of Wong’s unremitted collections.
 Before maturity of the checks, Wong prevailed upon LPI not to deposit the checks
and promised to replace them. Wong did not fulfill this promise, and LPI deposited
the checks with RCBC. The checks were returned for the reason of account closed,
and the dishonor was evidenced by the RCBC return slip.
 Petitioner was charged with 3 counts of violation of BP 22
ISSUE: WN the complainant prosecute a case under BP 22 if even before he deposits the checks
he has ceased to be a holder for value because the purchase orders guaranteed by the checks
were already paid?
HELD:
 Although the checks were initially intended to be used as guarantee for the
purchases orders of customers, both the trial and appellate court found that the
checks were eventually used to settle the remaining obligations of Wong with LPI.
 There are two ways of violating BP 22:
o Making or drawing and issuing a check to apply on account or for vale
knowing at the time of issue that the check is not sufficiently funded; and
o By having sufficient funds in or credit with the drawee bank and the time
of issue but ailing to keep sufficient funds therein or credit with said bank
to cover the fill amount of the check when presented to the drawee bank
within a period of ninety days.
 The first way of violating BP 22 is applicable in this case, and it has the following
elements:
o The making, drawing and issuance of any check to apply for account or for
value;
 In this case, it was established that the checks were in payment
for unremitted collections, and not as guarantee.
o The knowledge of the maker, drawer, or issuer that at the time of issue he
does not have sufficient funds in or credit with the drawee bank for the
payment of such check in full upon presentment; and
 This element creates a presumption that the maker is
knowledgeable of the dishonor of the check for insufficiency of
funds.
o The subsequent dishonor of the check by the drawee bank for insufficiency
of funds or credit or dishonor for the same reason had not the drawer,
without any valid cause, ordered the bank to stop payment.”
 International Corporate Bank v. Sps. Gueco
DOCTRINE: The serial number of a check, an item which, is not an essential requisite for
negotiability under Section 1 of the Negotiable Instruments Law, does not change the
relations between the parties.
FACTS:
 The Ministry of Education and Culture issued 15 checks drawn against respondent
which petitioner accepted for deposit on various dates.
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.

 After 24 hours from submission of the checks to respondent for clearing, petitioner
paid the value of the checks and allowed the withdrawals of the deposits.

 However, on 14 October 1981, respondent returned all the checks to petitioner

without clearing them on the ground that they were materially altered.

 Thus, petitioner instituted an action for collection of sums of money against

respondent to recover the value of the checks.

ISSUE: Whether the alterations in the serial numbers of the check is a material alteration.

HELD:
 No. Sections 124 and 125 of Act No. 2031, otherwise known as the Negotiable
Instruments Law, provide:

SEC. 124. Alteration of instrument; effect of. ― Where a negotiable instrument is materially
altered without the assent of all parties liable thereon, it is avoided, except as against a party
who has himself made, authorized, or assented to the alteration and subsequent indorsers.
But when an instrument has been materially altered and is in the hands of a holder in due
course, not a party to the alteration, he may enforce payment thereof according to its original
tenor.

SEC. 125. What constitutes a material alteration. ― Any alteration which changes: (a) The date;
(b) The sum payable, either for principal or interest; (c) The time or place of payment; (d) The
number or the relations of the parties; (e) The medium or currency in which payment is to be
made; or which adds a place of payment where no place of payment is specified, or any other
change or addition which alters the effect of the instrument in any respect, is a material
alteration.

 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 Instruments 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
 State Investment House v. CA
DOCTRINE:
Section 119 of the Negotiable Instrument Law outlined the grounds in which an instrument
is discharged.
The provision states that "A negotiable instrument is discharged:
(a) By payment in due course by or on behalf of the principal debtor.
a. Whether the post-dated checks, issued as security, is a ground for
the discharge of the instrument as against a holder in due course.
pal debtor;
(b) (By payment in due course by the party accommodated, where the
instrument is made or accepted for his accommodation;
(c) By the intentional cancellation thereof by the holder;
(d) By any other act which will discharge a simple contract for the payment of
money;
(e) When the principal debtor becomes the holder of the instrument at or after
maturity in his own right."
- But, the intentional cancellation contemplated under paragraph (c) is that
cancellation effected by destroying the instrument either by tearing it up, burning
it, or writing the word "cancelled" on the instrument. The act of destroying the
instrument must also be made by the holder of the instrument intentionally.
- Failure to get possession of the checks makes it impossible to cancel.
- On the other hand, the acts which will discharge a simple contract for the
payment of money under paragraph (d) are determined by other existing
legislations since Section 119 does not specify what these acts are, e.g., Art. 1231
of the Civil Code which enumerates the modes of extinguishing obligations.
The need for notice is not absolute; there are exceptions under Section 114 of the
Negotiable Instruments Law.
- Section 114 (When notice need not be given to drawer) provides that "Notice of
dishonor is not required to be given to the drawer in the following cases: (a)
Where the drawer and the drawee are the same person; (b) When the drawee is
a fictitious person or a person not having capacity to contract; (c) When the
drawer is the person to whom the instrument is presented for payment; (d)
Where the drawer has no right to expect or require that the drawee or acceptor
will honor the instrument; (e) Where the drawer had countermanded payment."
FACTS:
 Nora B. Moulic issued to Corazon Victoriano, as security for pieces of jewelry to be
sold on commission, 2 post-dated Equitable Banking Corporation checks in the
amount of P50,000 each, one dated 30 August 1979 and the other, 30 September
1979.
 Thereafter, the payee negotiated the checks to the State Investment House Inc.
(SIHI).
 Moulic failed to sell the pieces of jewelry, so she returned them to the payee before
maturity of the checks. The checks, however, could no longer be retrieved as they
had already been negotiated.
 Consequently, before their maturity dates, Moulic withdrew her funds from the
drawee bank.
 Upon presentment for payment, the checks were dishonored for insufficiency of
funds. On 20 December 1979, SIHI allegedly notified Moulic of the dishonor of the
checks and requested that it be paid in cash instead, although Moulic avers that no
such notice was given her.
 On 6 October 1983, SIHI sued to recover the value of the checks plus attorney's fees
and expenses of litigation.
 In her Answer, Moulic contends that she incurred no obligation on the checks
because the jewelry was never sold and the checks were negotiated without her
knowledge and consent.
 She also instituted a Third-Party Complaint against Corazon Victoriano, who later
assumed full responsibility for the checks.
 On 26 May 1988, the trial court dismissed the Complaint as well as the Third-Party
Complaint, and ordered SIHI to pay Moulic P3,000.00 for attorney's fees.
 SIHI elevated the order of dismissal to the Court of Appeals, but the appellate court
affirmed the trial court on the ground that the Notice of Dishonor to Moulic was
made beyond the period prescribed by the Negotiable Instruments Law and that
even if SIHI did serve such notice on Moulic within the reglementary period it would
be of no consequence as the checks should never have been presented for payment.
SIHI filed the petition for review.
ISSUE [1]: Whether the alleged issuance of the post-dated checks as security is a ground for
the discharge of the instrument as against a holder in due course.
HELD [1]:
 Section 119 of the Negotiable Instrument Law outlined the grounds in which an
instrument is discharged.
 The provision states that "A negotiable instrument is discharged:
a) By payment in due course by or on behalf of the principal debtor.
i. Whether the post-dated checks, issued as security, is a ground
for the discharge of the instrument as against a holder in due
course. pal debtor;
b) (By payment in due course by the party accommodated, where the instrument is
made or accepted for his accommodation;
c) By the intentional cancellation thereof by the holder;
d) By any other act which will discharge a simple contract for the payment of money;
e) When the principal debtor becomes the holder of the instrument at or after maturity
in his own right."
  Obviously, MOULIC may only invoke paragraphs (c) and (d) as possible grounds for
the discharge of the instrument.
 But, the intentional cancellation contemplated under paragraph (c) is that
cancellation effected by destroying the instrument either by tearing it up, burning it,
or writing the word "cancelled" on the instrument.
 The act of destroying the instrument must also be made by the holder of the
instrument intentionally.
 Since MOULIC failed to get back possession of the post-dated checks, the intentional
cancellation of the said checks is altogether impossible.
 On the other hand, the acts which will discharge a simple contract for the payment
of money under paragraph (d) are determined by other existing legislations since
Section 119 does not specify what these acts are, e.g., Art. 1231 of the Civil Code
which enumerates the modes of extinguishing obligations.
 Again, none of the modes outlined therein is applicable in the instant case as Section
119 contemplates of a situation where the holder of the instrument is the creditor
while its drawer is the debtor.
 Herein, the payee, Corazon Victoriano, was no longer Moulic's creditor at the time
the jewelry was returned.
 Correspondingly, Moulic may not unilaterally discharge herself from her liability by
the mere expediency of withdrawing her funds from the drawee bank.
 She is thus liable as she has no legal basis to excuse herself from liability on her
checks to a holder in due course.
ISSUE [2]: Whether the requirement that SIHI should give Notice of Dishonor to Moulic is
indispensable.
HELD [2]:
 The need for notice is not absolute; there are exceptions under Section 114 of the
Negotiable Instruments Law.
 Section 114 (When notice need not be given to drawer) provides that "Notice of
dishonor is not required to be given to the drawer in the following cases: (a) Where
the drawer and the drawee are the same person; (b) When the drawee is a fictitious
person or a person not having capacity to contract; (c) When the drawer is the person
to whom the instrument is presented for payment; (d) Where the drawer has no
right to expect or require that the drawee or acceptor will honor the instrument; (e)
Where the drawer had countermanded payment."
 Indeed, MOULIC'S actuations leave much to be desired. She did not retrieve the
checks when she returned the jewelry. She simply withdrew her funds from her
drawee bank and transferred them to another to protect herself.
 After withdrawing her funds, she could not have expected her checks to be honored.
 In other words, she was responsible for the dishonor of her checks, hence, there was
no need to serve her Notice of Dishonor, which is simply bringing to the knowledge
of the drawer or indorser of the instrument, either verbally or by writing, the fact
that a specified instrument, upon proper proceedings taken, has not been accepted
or has not been paid, and that the party notified is expected to pay it.
 In addition, the Negotiable Instruments Law was enacted for the purpose of
facilitating, not hindering or hampering transactions in commercial paper.
 Thus, the said statute should not be tampered with haphazardly or lightly. Nor
should it be brushed aside in order to meet the necessities in a single case.
 The holder who takes the negotiated paper makes a contract with the parties on the
face of the instrument.
 There is an implied representation that funds or credit are available for the payment
of the instrument in the bank upon which it is drawn.
 Consequently, the withdrawal of the money from the drawee bank to avoid liability
on the checks cannot prejudice the rights of holders in due course.
 Herein, such withdrawal renders the drawer, Moulic, liable to SIHI, a holder in due
course of the checks.
 SIHI could not expect payment as MOULIC left no funds with the drawee bank to
meet her obligation on the checks, so that Notice of Dishonor would be futile.
 Asia Banking Corporation v. Javier
DOCTRINE: If, after a negotiable instrument is dishonored for non-acceptance or non-
payment, the indorser is not notified of the fact in the time and manner prescribed by the
law, said indorser is released from all liability upon the instrument.

FACTS:
 On May 10, 1920, Salvador B. Chaves drew a check on the Philippine National Bank
for P11, 000.00 in favor of La Insular. The check was indorsed by the limited partners
of La Insular, and then deposited by Chaves in his current account with the plaintiff
on July 14, 1920.

 On June 25, 1920, Chaves drew another check for P18, 785.30 on the Philippine
National Bank in favor of La Insular. The check was also indorsed by the limited
partners of La Insular, and was likewise deposited by Chaves in his current account
with the plaintiff on July 6, 1920.

 Chaves used the amount represented by both checks after they were deposited in
the plaintiff bank, by drawing checks on the plaintiff.

 However, upon presentment by plaintiff bank to the Philippine National Bank for
payment, the latter refused to pay on the ground that Chaves had no funds therein.

 The lower court ordered the plaintiff to pay the defendant the value of the checks
with interest thereon.

ISSUE: Whether or not the petitioner’s contention that its liability as the indorser of the checks
was extinguished.

HELD:
 The liability of the respondent never arose in the first place. The judgment of the
lower court was reversed.

 Section 89 of the NIL provides that, when a negotiable instrument has been
dishonored by non-acceptance or non-payment, notice thereof must be given to the
drawer and each of the indorsers, and those who are not notified shall be discharged
from liability, except where the law provides otherwise.

 Indorsers are not liable unless they are notified that the document was dishonored.

 Under the general principle of the law, it will be incumbent upon the plaintiff, who
seeks to enforce the defendant’s liability upon the checks as indorser, to establish
said liability by proving that notice was given to the defendant within the time, and
in the manner required by the law that the checks had been dishonored.

 There is no evidence showing that the petitioner gave any notice whatsoever to the
respondent that the checks in question had been dishonored. Therefore, it has not
established its cause of action.
 Nyco Sales Corporation vs. BA Finance Corporation GR No. 71694 August 16, 1991
Assignor of a check was not given notice by the assignee of the dishonor by the drawee-
bank
DOCTRINE:
An assignment of credit is the process of transferring the right of the assignor to the
assignee, who would then be allowed to proceed against the debtor. It may be done either
gratuitously or generously, in which case, the assignment has an effect similar to that of a
sale. Art. 1628 of the Civil Code provides that the assignor-vendor warrants both the credit
itself, and the person of the debtor. If there be any breach of the warranties, the assignor-
vendor should be answerable.
Failure to give notice of dishonor will not discharge from such liability when the cause of
action stems from the breach of warranties embodied in the deed of assignment and not
from the dishonoring of the check alone.
FACTS
 Petitioner Nyco, whose president and general manager is Rufino Yao, is engaged in
the business of selling construction materials. The brothers Fernandez’s, acting in
behalf of Sanchell Corporation, approached Yao for credit accommodation. They
requested Nyco, through Yao, to grant Sanshell discounting privileges which Nyco
had with BA Finance.
 An assignment of credit is the process of transferring the right of the assignor to the
assignee, who would then be allowed to proceed against the debtor. It may be done
either gratuitously or generously, in which case, the assignment has an effect similar
to that of a sale. Art. 1628 of the Civil Code provides that the assignor-vendor
warrants both the credit itself, and the person of the debtor. If there be any breach
of the warranties, the assignor-vendor should be answerable thereof.
 Nyco executed a deed of assignment in favor of BA Finance with Sanshell Corporation
as the debtor-obligor. BA Finance is enforcing said deed and the check covered is
merely an incidental or collateral matter. The check merely evidence the credit which
was assigned to BA Finance. Thus, the designation is immaterial. Nyco is being held
liable for what the checks presented.
 The dishonor of an assigned check simply stresses its liability and the failure to give
notice of dishonor will not discharge Nyco from such liability. This is because the
cause of action stems from the breach of warranties embodied in the deed of
assignment and not from the dishonoring of the check alone.

 Petitioner corporation became the assignor, and the Fernandez’s are the assignee.

 Sanshell Corporation issued a BPI post-dated check worth P60,000 payable to Nyco,
and following the discounting process, indorsed the check in favor of BA Finance.
Later, BA Finance issued a check payable to Nyco which then indorsed it in favor of
Sanshell Corporation.

 Accompanying the exchange of checks was a Deed of Assignment executed by Nyco

in favor of BA Finance with the conformity of Sanshell. The said deed provides that
subject of discounting was the BPI check, and at the back of the deed was the
continuing suretyship agreement where the Fernandez’s unconditionally guaranteed
to BA Finance the full, faithful and prompt payment and discharge of any and all
indebtedness of Nyco.

 The BPI check was dishonored upon presentment for payment, and BA Finance
immediately reported to the Fernandez’s. the Fernandez’s issued a Security Bank and
Trust Company check, which was again dishonored.

 Despite repeated demands, Nyco and Fernandez’s failed to settle the obligation with
BA Finance, prompting the latter to file an action. Despite being served with
summons Nyco and Fernandez failed to answer their complaint.

ISSUE: Whether or not the assignor is liable to its assignee for its dishonored checks.

HELD: Yes.
 Ansaldo v. CA
DOCTRINE:
GR: Section 74 of the Negotiable Instruments Law to the effect that "(t)he instrument
must be exhibited to the person from whom payment is demanded, and when it is paid
must be delivered up to the party paying it."
XPN:
 Omission to contest it
 Admission of the authenticity of the note
o averment that he made substantial payments thereon
o waiver of demand, presentment, etc.
FACTS:
 Transoceanic Factors Corporation (TFC) issued 6 promissory notes in
favor of PCIB. These were signed by Moreno, the firm’s president, over a span of 3
months and were made out in various amounts.
 (1) 50k, (2) 15k each, (2) 20k each, (1) 30k = 150k total exclusive of interest
 Interest was fixed rate of 10%/annum for all except the first which has 11%/annum
and all had same maturity date
 TFC extended 2 loans at 14%/annum interest to Jose Ansaldo for Php 28,967.39 and
Teofilo Reyes Jr. for P26,000.
 Each was evidenced by a PN where promisor:
o Waived demand, presentment, protest and notice of protest and
nonpayment
o Undertook, in case of default to:
 Pay holder 10% additional as liquidated damages; in case
extrajudicial collection is indorsed to an attorney, additional 5%
or 25% of the amount due in case of suit, and an additional sum
in case of appeal as attorney’s fees in addition to the legal costs
provided in the Rules of Court
 Waive “in case of judicial execution all rights under provisions of
Rule 39, Section 12 of Rules of Court.
 TFC paid to PCIB 150k, as above stated P78,504.43, leaving balance of P71,495.57.
 TFC endorse to PCIB for value the PN of Ansaldo and Reyes.
 Upon maturity and repeated demands, TFC, Ansaldo, and Reyes failed to pay.
 PCIB filed a suit in the CFI to enforce prestations in accordance to terms, rendering
judgment in favor of PCIB, ordering TFC to pay P71,495.57 with 10% interest, Ansaldo
P28,967.39 with 14% interest, and Reyes P26,000 with 12% interest.
 The Court declared, among other things, that:
1. in an assignment of credit, the consent of the debtor is not necessary to make him
liable to the assignee (adverting to Articles 1625, 1626 and 1627 of the Civil Code),
what the law requires being notice to the debtor and not consent of the latter;
2. the promissory note, being payable to order, may be negotiated by mere
indorsement (Sec. 184, Negotiable Instruments Law);
3. the evidence sufficiently established that Ansaldo had received notice of the
assignment of his promissory note; and
4. the requirement that the assignment be evidenced by a public instrument in Article
1625 of the Civil Code "is only necessary to produce effects against third persons,
and Reyes . . . (like Ansaldo) is not a third person, he being the debtor of the credit
which was assigned to the plaintiff.
 CA Affirmed.
ISSUE: WN failure of PCIB to exhibit the PN is indispensable?
HELD:
 No. The contention of Ansaldo that the instrument should have been first presented
to him is bereft of merit.
a) First, it couldn’t be first raised on appeal.
b) Second, it is a petty issue for if according to him, such an exhibition was
needed to give him opportunity to determine the genuineness of the
instrument, this was rendered unnecessary not only by his omission to contest it,
but also by his admission of the authenticity of the note implicit from his averment
that he made substantial payments thereon and second, he made a waiver of
demand, presentment, etc.
 Republic v. PNB
DOCTRINE:
Credit is a sum credited on the books of a company to a person who appears to be entitled
to it. it presupposes a creditor-debtor relationship and may be said to imply ability, by
reason of property or estates, to make a promised payment. It is correlative to
indebtedness, and that which is due to any person, as distinguished to that which he owes.
Demand drafts should be presented for acceptance or payment in order for the bank to
accept or receive them.
A demand draft is different from a cashier’s check for this is a primary obligation of the bank
which issues it and constitutes a written promise to pay upon demand. It is an order to a
third party purporting to be drawn upon a deposit of funds.
funds.
 If there is any consolation, the telegraphic orders can be escheated in favor of the
government. The agreement to remit creates a contractual obligation and has been
termed a purchase and sale transaction. The purchaser of a telegraphic transfer upon
making payment completes the transaction insofar as he is concerned, though
insofar as the remitting bank is concerned the contract is executory until the credit
is established.
 The drawer bank has already been paid the value of the telegraphic order. It appears
in the books of the bank that the amounts represented by the orders appear in the
names of respective payees. If the latter choose to demand payment, the bank had
the obligation to pay them.

FACTS:


 The government filed a complaint for escheat of certain unclaimed bank deposits
balances pursuant to a law, which provides that unclaimed balances—credits,
money, bullion, security or other evidence of indebtedness of any kind, and interest
with banks—shall be deposited with the government if it remains to be unclaimed
within a period of 10 years of more.

 One of the banks against the complaint has been filed is First National City Bank.
Although it concedes that the government had the right to claim the unclaimed
deposit balances, it seeks to exclude some which, according to it, are not within the
purview of credits and deposits as defined in law. the trial court held in favor of the
bank, excluding from the claim the manager’s checks and other demand drafts.

HELD:
 WN demand drafts and telegraphic orders come within the purview of credits or
deposits employed in the law.  NO!

 Credit is a sum credited on the books of a company to a person who appears to be

entitled to it. it presupposes a creditor-debtor relationship and may be said to imply
ability, by reason of property or estates, to make a promised payment. It is
correlative to indebtedness, and that which is due to any person, as distinguished to
that which he owes.

 Since the demand drafts herein involved have not been presented either for
acceptance or payment, the inevitable consequence is that the bank never had the
chance of accepting or receiving them. Verily, the bank never became a debtor of
the payee concerned and as such the aforesaid drafts cannot be considered as
credits subject to escheat within the meaning of the law.

 Further, a demand draft is different from a cashier’s check for this is a primary
obligation of the bank which issues it and constitutes a written promise to pay upon
demand. It is an order to a third party purporting to be drawn upon a deposit of
 Panlilio v. David  Therefore, though the original bid of the respondent was not made in the manner
DOCTRINE: The letters O.K. with the initials of the cashier of a bank written upon the face and form prescribed by the regulations, the acceptance of it together with the
of a check drawn on that bank is not, under modern banking practice, a sufficient payment of its amount cured the defect complained of and that, consequently, the
certification of the check. award to him is valid.

FACTS:
 Respondent Teodoro David filed an application in the Bureau of Lands for a lease of
a 229-hecatare tract of land situated in Bataan. He submitted a bid for a rent of
P720.00 per annum, and the only other bidder, petitioner Adriano Panlilio, offered
to pay a rent of P2, 600.00 per annum

 The bid of the respondent was accompanied by an uncertified check of P360.00

drawn on the Philippine National Bank to cover the rent for six months.

 Petitioner’s bid was accompanied by a check on the same Bank for the sum of P1,
300.00, bearing on its face the letters “O.K.—S.M.”

 Respondent raised his bid to equal that of the petitioner’s and immediately tendered
P940.00 in cash, which, with his check for P360.00, made a total of P1, 300.00

 Two days after the opening of the bids and the award to the respondent, petitioner
filed a written protest contesting the validity of the bid of the respondent on the
ground that the check enclosed with the bid was not certified or accepted by the
bank against whom it was drawn.

 The Attorney-General ruled that the bid of the respondent was invalid, it being
accompanied by an uncertified check. The lease was then awarded to the petitioner.

 On appeal to the Governor-General, who referred the matter back to the Secretary
of Agriculture and Natural Resources, it issued statement that the acceptance of the
respondent’s check, the act of cashing it in the bank and the deposit of its amount in
the Insular Treasury cured its defects.

ISSUE: Whether or not the bids were invalid inasmuch as none of the checks accompanying
them was certified or accepted in accordance with law.

HELD:
 YES. The contention of petitioner that the letters “O.K.,” with the initials of the
cashier of the bank written on the face of his check was a sufficient certification is
without merit.

 Certifications of checks are not made in that manner in modern banking practice.

 However, when the bid was accepted and the amount of the bid was paid and
covered into the Insular Treasury, the Government could hardly be heard to say that
the award was invalid because the amount paid was originally represented in part
by an uncertified check.
 New Pacific Timber v. Hon. Seneris
DOCTRINE:
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.
FACTS:
 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.
ISSUES: WN the private respondent can validly refuse acceptance of the payment of the
judgment obligation made by the petitioner consisting of P50,000.00 in Cashier's Check and
P13,130.00 in cash which it deposited with the Ex-Officio Sheriff before the date of the
scheduled auction sale.
HELD:
 It is to be emphasized in this connection that the check deposited by the petitioner
in the amount of P50.000.00 is not an ordinary check but a Cashier's Check of the
Equitable Banking Corporation, a bank of good standing and reputation.
 Where a check is certified by the bank on which it is drawn, the certification is
equivalent to acceptance.
 The object of certifying a check, as regards both parties, is to enable the holder to
use it as money.
 When the holder procures the check to be certified, "the check operates as an
assignment of a part of the funds to the creditors".
 The exception to the rule enunciated under Section 63 of the Central Bank Act to the
effect "that a check which has been cleared and credited to the account of the
creditor shall be equivalent to a delivery to the creditor in cash in an amount equal
to the amount credited to his account" shall apply in this case.
 Petition was granted ordering the private respondent to accept the sum of
P63,130.00 under deposit as payment of the judgment obligation in his favor.
“Considering that the whole amount deposited by the petitioner consisting of
Cashier's Check of P60;000.00 and P13,130.00 in cash covers the judgment obligation
of P63,000.00 as mentioned in the writ of execution, then. We see no valid reason
for the private respondent to have refused acceptance of the payment of the
obligation in his favor”.

Bataan Cigar v. CA
SUMMARY:
Bataan Cigar & Cigarette Factory, Inc. (BCCFI), engaged with King Tim Pua George, to deliver
2,000 bales of tobacco leaf. BCCFI issued postdated 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.
DOCTRINE:
 Sec. 52
5. That it is complete and regular upon its face
6. 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
7. That he took it in good faith and for value
That at the time it was negotiated to him he had no notice of any infirmity in the
instrument or defect in the title of the person negotiating it
Sec. 59
 every holder is deemed prima facie a holder in due course
 However, when it is shown that the title of any person who has negotiated the
instrument was defective, the burden is on the holder to prove that he or some
person under whom he claims, acquired the title as holder in due course.
Effects of crossing of a check are the ff:
4. check may not be encashed but only deposited in the bank
5. check may be negotiated only once — to one who has an account with a bank
6. act of crossing the check serves as warning to the holder that the check has been
issued for a definite purpose - he must inquire if he has received the check pursuant
to that purpose, otherwise, he is not a holder in due course
 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 - failure
= guilty of gross negligence amounting to legal absence of good faith, contrary to Sec.
52(c) of the Negotiable Instruments Law
FACTS:
 Bataan Cigar & Cigarette Factory, Inc. (BCCFI), a corporation involved in the
manufacturing of cigarettes purchased from King Tim Pua George (George King) 2,000
bales of tobacco leaf to be delivered starting October 1978.
 July 13, 1978: it issued crossed checks postdated sometime in March 1979 in the total
amount of P820K
 George represented that he would complete delivery w/in 3 months from Dec 5 1978
so BCCFI agreed to purchase additional 2,500 bales of tobacco leaves, despite the
previous failure in delivery
 It issued postdated crossed checks in the total amount of P1.1M payable sometime in
September 1979.
 July 19, 1978: George sold to SIHI at a discount check amounting to P164K, postdated
March 31, 1979, drawn by BCCFI w/ George as payee.
 December 19 and 26, 1978: George sold 2 checks both in the amount of P100K, postdated
September 15 & 30, 1979 respectively, drawn by BCCFI w/ George as payee
 Upon failure to deliver, BCCFI issued on March 30, 1979 and September 14 & 28, 1979 a
stop payment order for all checks
 SIHI failing to claim, filed a claim against BCCFI
 RTC: SIHI = holder in due course. Non-inclusion of George as party is immaterial to the
case
ISSUES: Whether SIHI is a holder in due course being a second indorser and a holder of crossed
checks.
HELD:
 The SC held that SIHI is not a holder in due course thus granting the petition of BCCFI.
The purpose of cross checks is to avoid those bouncing or encashing of forged checks.
Cross checks have the following effects: it cannot be encashed but only deposited in
a bank; it can only be negotiated on its respective bank once; it serves as a warning
to the holder that it has been issued for a definite purpose thus making SIHI 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.
 Consequently, BCCFI cannot be obliged to pay the checks. However, that SIHI 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.
 Still, SIHI can collect from the immediate indorser, in this case, George King.

Sps. Moran v. CA
DOCTRINES: The relationship between the bank and the depositor is that of a debtor and
creditor. By the virtue of the contract of deposit, the banker agrees to pay checks drawn by
the depositor provided that the latter has money in the hands of the bank.
Where the bank possesses funds of a depositor, it is bound to honor his checks to the extent
of the amount of his deposits. Conversely, a bank is not liable for its refusal to pay a check
on amount of insufficient funds, notwithstanding the fact that a deposit may be made later
in the day.
A check, as distinguished from an ordinary bill of exchange, is supposed to be drawn against
a previous deposit of funds for it is ordinarily intended for immediate payment.
FACTS:
 Petitioner spouses are the owners of the Wack-Wack Petron gasoline station located
in Mandaluyong. They regularly purchased bulk fuel and other related products from
Petrophil Corporation on cash on delivery basis.
 The orders were made by telephone and payments were effected by personal checks
upon delivery.
 Petitioners maintained three joint accounts (one current, two savings) with the Shaw
Boulevard branch of Citytrust Banking Corporation. As a special privilege to the
spouses, the bank allowed them to maintain a zero balance in their current account.
 Transfer from the one savings account to their current account could only be made
with prior authorization of the spouses, but they gave written authority to Citytrust
to automatically transfer funds from their other savings account to their current
account whenever the fund in the latter were insufficient to meet withdrawals from
said current account. This arrangement is called a pre-authorized transfer (PAT)
agreement.
 Petitioners drew a check for P50, 576.00 payable to Petrophil Corporation. The next
day, petitioners issued another check in the amount of P56, 090.00 also in favor of
the said corporation.
 On December 14, 1983, Petrophil deposited the two checks to its account with the
Pandacan branch of the Philippine National Bank (collecting bank), which in turn,
presented it for clearing on the same day. However, records show that the current
account of the spouses had a zero balance, while the savings accounts have
insufficient funds to cover the amount of the checks.
 The next day, George Moran deposited in their savings accounts the amounts of P10,
874.58 and P6, 754.25; P5, 900.00, P35, 100.00 and P30.00. He then transferred P40,
000.00 from their savings account to their current account by means of a debit
memorandum. At the same time, P66, 666.00 was transferred from their savings
account to the current account through the PAT agreement.
 The spouses then learned that Petrophil refused to deliver their orders on a credit
basis because the two checks were dishonored upon presentment for payment due
to insufficiency of funds. Petrophil cancelled their credit accommodation, forcing the
spouses to pay in cash.
ISSUE: Whether or not petitioners had sufficient funds in their accounts when the bank
dishonored the checks in question.
HELD:
 NO. The bank, in determining whether or not there was sufficient cash deposited to
fund the two checks, used the available balance on December 14, 1983.
 When petitioners’ checks were dishonored due to insufficiency of funds, the
available balance of the savings account, which was the subject of the PAT
agreement, was not enough to cover either of the two checks. Moreover, it was only
on December 15 at around 10 AM that the necessary funds were deposited, which
was too late to prevent the dishonor of the checks.
 Between the time of the issuance of the checks and the time of their presentment,
petitioners had, at the very least, 24 hours to replenish their balances in the bank.
 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 latter
to notify him of the necessity to fund certain checks he previously issued.
 The bank had all the right to dishonor the checks because there were no insufficient
funds to speak of in the first place. If the demand is by check, a drawer must have to
his credit enough to cover the demand. If his credit with the bank is less than the
amount on the face of the check, the bank may lawfully refuse payment.
 A bank is under no obligation to make part payment on a check, up only to the
amount of the drawer’s funds, where the check is drawn for an amount larger than
what the drawer has on deposit.
 A check is intended not only to transfer a right to the amount named in it, but also
to serve the further purpose of affording evidence for the bank of the payment of
such amount when the check is taken up.

People v. Wagas
SUMMARY:
Gilbert Wagas ordered from Alberto Ligaray 200 bags of rice over the telephone. As
payment, Wagas issued a post-dated check in favor of Ligaray. When the check was
deposited it was dishonored due to insufficiency of funds. Ligaray notified Wagas and
demanded payment from the latter but Wagas refused and failed to pay the amount,
Ligaray filed a complaint for estafa before the RTC. RTC convicted Wagas of estafa because
the RTC believed that the prosecution had proved that it was Wagas who issued the
dishonored check, despite the fact that Ligaray had never met Wagas in person. Hence, this
direct appeal.
DOCTRINE:
Under the Negotiable Instruments Law, this type of check was payable to the bearer and
could be negotiated by mere delivery without the need of an indorsement.
What the law punishes is the fraud or deceit, not the mere issuance of the worthless check.
The proof of guilt must still clearly show that it had been the drawer who had defrauded by
means of the check.
FACTS:
 1997: Mystery man (allegedly Wagas) told Ligaray on the phone that he wanted to
buy 200 bags of rice to be paid by postdated check
 Ligaray was hesitant but MM said he had means to pay because he had a lending
business and money in the bank.
 A BPI check payable to cash (bearer instrument) was given to Ligaray.
 On the same day, the person who gave the BPI check and received the stocks was
Canada (Wagas’ brother-in-law).
 Ligaray deposited the check to his Solidbank Account but it bounced due to
insufficient funds.
 He made a demand through the phone. Wagas said he will pay after he returns from
Cebu. But after more demands, he still did not pay.
 Wagas’ Defense: Admitted that he signed the check but he issued it to Canada (not
Ligaray) for the purpose of paying for a portion of Canada’s property that he wanted
to buy, but the sale did not push through so he no longer funded the check.
 Wagas admitted that he signed a letter addressed to the counsel of Ligaray admitting
that he owed him P200,000.
 He said that he signed the letter only because his sister and her husband had pleaded
with him to assume the obligation and to avoid jeopardizing Canada’s application for
overseas employment.
 RTC: Wagas guilty of estafa.
ISSUES: WN Wagas could be held guilty of estafa simply because he had issued a check used
to defraud Ligaray
HELD:
 NO! In order to constitute estafa, the act of postdating or issuing a check in
payment of an obligation must be the efficient cause of the defraudation.
 This means that the offended must be able to obtain money or property from the
offended party by reason of the issuance of the check, whether dated or postdated.
 The prosecution established that Ligaray had released the goods to Canada because
of the PDC given to him and that the check was dishonored when presented for
payment because of insufficiency of funds.
 The check delivered to Ligaray was made payable to cash. Under the Negotiable
Instruments Law, this type of check was payable to the bearer and could be
negotiated by mere delivery without the need of an indorsement. This rendered it
highly probable that Wagas had issued the check not to Ligaray, but to somebody
else like Cañada, his brother-in-law, who then negotiated it to Ligaray. Relevantly,
Ligaray confirmed that he did not himself see or meet Wagas at the time of the
transaction and thereafter, and expressly stated that the person who signed for and
received the stocks of rice was Cañada.
 What the law punishes is the fraud or deceit, not the mere issuance of the worthless
check. Wagas could not be held guilty of estafa simply because he had issued the
check used to defraud Ligaray. The proof of guilt must still clearly show that it had
been Wagas as the drawer who had defrauded Ligaray by means of the check.
  In this case, it was not shown that San Mateo received any notice of
dishonor, the presumption that he knew of the insufficiency cannot
arise.
Erlinda San Mateo v. People of the Philippines - GR No. 200090; March 6, 2013 o The subsequent dishonor of the check by the drawee bank for insufficiency of
The essential elements to be guilty of violating BP 22 are as follows: funds or credit or dishonor for the same reason had not the drawer, without
 The making, drawing, and issuance of any check to apply for account or for value; any valid cause, ordered the bank to stop payment.
 The knowledge of the maker, drawer, or issuer that at the time of issue he does not  This has been established.
have sufficient funds in or credit with the drawee bank for the payment of the check
in full upon its presentment; and
 The subsequent dishonor of the check by the drawee bank for insufficiency of funds or
credit or dishonor for the same reason had not the drawer, without any valid cause,
ordered the bank to stop payment.

FACTS:
 San Mateo ordered yarns from ITSP International, through its Vice President Ravin
A. Sehwani, and issued 11 postdated checks. When the checks matured, however,
San Mateo called and requested Sehwani not to deposit the checks. However,
Sehwani was able to deposit one of the checks, but it was dishonored due to
insufficiency of funds.

 San Mateo was informed of the dishonor, and he further asked Sehwani to defer
depositing the checks since petitioner is encountering some financial difficulties.

 Despite Sane Mateo’s request, Sehwani deposited another check, and this time it
was dishonored due to a stop payment order. This prompted Sehwani to deposit all
checks, which were subsequently dishonored because the account has been closed.
Sehwani tried contacting San Mateo, but petitioner never responded.

 The RTC and CA found Petitioner guilty of 10 counts of BP 22.

ISSUE: WN petitioner is guilty of violating BP 22.

HELD: NO!
 The essential elements to be guilty of violating BP 22 are as follows:
o The making, drawing, and issuance of any check to apply for account or for
value;
 This is established through Petitioners own admission that she drew
and issued the check as payment for the yands.

o The knowledge of the maker, drawer, or issuer that at the time of issue he does
not have sufficient funds in or credit with the drawee bank for the payment of
the check in full upon its presentment; and

 This is not established since BP 22 creates a presumption that the

issuer of the check was aware of the insufficiency. Presumption only
exists when it is proved that the issuer had received a written notice
of dishonor.
 ISSUE: Whether or not the respondent is civilly liable for the issuance of a worthless check
despite her acquittal from the criminal charge.

Nissan Gallery-Ortigas v. Felipe HELD:

DOCTRINE: In cases like violation of BP 22, a special law, the intent of issuing a check is
immaterial. In issuing the bounced check, regardless of her intent, the respondent
remains civilly liable because the act or omission, the among and issuing of the subject
check, from which her civil liability arises, evidently exists.
FACTS:
 Petitioner filed a criminal complaint for violation of BP 22 against the respondent for
the latter’s issuance of a postdated check in the amount of P1, 200,000.00, which
was subsequently dishonored upon presentment due to “STOP PAYMENT.”
 Respondent issued the check because her son, Frederick, attracted by a huge
discount of P220, 000.00, purchased a Nissan Terrano 4x4 SUV. The term of the
transaction was COD and no downpayment was required. Upon delivery, Frederick
failed to pay but nonetheless took possession of the vehicle.
 After more than 4 months, petitioner sent Frederick demand letters on different
dates, but the latter still refused to pay. Upon receipt of the final demand letter,
Frederick went to Nissan’s office and asked for a grace period.
 YES. The respondent was acquitted from criminal liability because of the failure of
the prosecution to prove the fact of notice of dishonor; therefore the second
element of the offense of violation of BP 22 is missing.
 Nevertheless, the act or omission from which her civil liability arose, which was the
making or the issuing of the subject worthless check, clearly existed. Her acquittal
from the criminal charge of BP 22 did not relieve her of the corresponding civil
liability.
 The liability of the respondent was limited to her act of issuing a worthless check.
The acquittal was based on reasonable doubt and it did not change the fact that she
issued the check, which was subsequently dishonored upon its presentment.
 The respondent is not an accommodation party. Granting that she is, it is with more
reason that she cannot escape any civil liability because of Section 29 of the NIL.

 Upon failure to pay, Frederick asked his mother to issue the subject check as
payment for his obligation. He then tended her postdated check in the amount of
P1, 020,000.00. The check, however, was dishonored upon presentment due to
“STOP PAYMENT.

 Upon demand to replace the check with cash or a manager’s check, respondent
refused to do so on the ground that she was not the one who purchased the vehicle.
Hence, the filing of the case.

 The MeTC acquitted the respondent of the charge, but held her civilly liable to
petitioner.

 The RTC ruled that the respondents was estopped from denying that she issued the
check as a “show check” to boost the credit standing of her son and that petitioner
agreed not to deposit the same.

 Moreover, the RTC considered her to be an accommodation party who was liable on
the instrument to a holder for value even though the holder at the time of taking the
instrument knew him or her to be merely an accommodation party.

 The CA ruled that respondent could not be an accommodation party because she
only came in after her son failed to pay the purchase price 6 months after the
execution of the contract between Nissan and her son.

People v. Nitafan
DOCTRINE:
BP 22 is constitutional as held in the case of Lozano v. Martinez, for it is a valid exercise of
police power, it does not impair freedom of contract, it does not deny equal protection of
laws, there is no undue delegation of power, and it does not violate the constitutional
prohibition against introduction of amendments.
BP 22 includes memorandum checks. A memorandum check is in the form of an ordinary
check, with the word "memorandum", "memo" or "mem" written across its face, signifying
that the maker or drawer engages to pay the bona fide holder absolutely, without any
condition concerning its presentment. Such a check is an evidence of debt against the
drawer, and although may not be intended to be presented, has the same effect as an
ordinary check, and if passed to the third person, will be valid in his hands like any other
check. The then Batasang Pambansa intended it to be comprehensive as to include all
checks drawn against banks.
FACTS:
 Nitafan drew a check against Philippine Trust Company worth Php 143,000 to Fatima
Sasaki despite knowing he had insufficient funds.
 The check was dishonored, a notice was given, but despite this, he failed to pay
Fatima within 5 days after notice.
 Nitafan moved to quash the information contending that facts charged were not a
felony since BP22 was unconstitutional and that the check was a memorandum
check in the nature of a promissory note, civil in nature.
 Judge ruled that BP 22 was unconstitutional and issued the quashal order.
 Sol.gen filed for certiorari.
ISSUES:
 WN BP 22 is unconstitutional  NO
 WN a memorandum check issued postdated in partial payment of a pre-existing
obligation is within the coverage of BP 22  YES
HELD:
 BP22’s constitutionality has been sustained by the SC in Lozano v. Martinez and
seven other cases.
 A memorandum check is in the form of an ordinary check, with the word
"memorandum", "memo" or "mem" written across its face, signifying that the maker
or drawer engages to pay the bona fide holder absolutely, without any condition
concerning its presentment. Such a check is an evidence of debt against the drawer,
and although may not be intended to be presented, has the same effect as an
ordinary check, and if passed to the third person, will be valid in his hands like any
other check
 It is still drawn on a bank and should therefore be distinguished from a promissory
note, which is but a mere promise to pay. If private respondent seeks to equate
memorandum check with promissory note, as he does to skirt the provisions of B.P.
22, he could very well have issued a promissory note, and this would be have
exempted him form the coverage of the law. In the business community a promissory
note, certainly, has less impact and persuadability than a check.
 A memorandum check comes within the meaning of Sec. 185 of the Negotiable
Instruments Law which defines a check as "a bill of exchange drawn on a bank
payable on demand."
 A check is also defined as " [a] written order or request to a bank or persons carrying
on the business of banking, by a party having money in their hands, desiring them to
pay, on presentment, to a person therein named or bearer, or to such person or
order, a named sum of money
 Another definition of check is that is "[a] draft drawn upon a bank and payable on
demand, signed by the maker or drawer, containing an unconditional promise to pay
a sum certain in money to the order of the payee
 A memorandum check must therefore fall within the ambit of B.P. 22 which does not
distinguish but merely provides that "[a]ny person who makes or draws and
issues any check knowing at the time of issue that he does not have sufficient funds
in or credit with the drawee bank . . . which check is subsequently dishonored . . .
shall be punished by imprisonment . . ." The then Batasang Pambansa intended it to
be comprehensive as to include all checks drawn against banks.
 A memorandum check, upon presentment, is generally accepted by the bank. Hence
it does not matter whether the check issued is in the nature of a memorandum as
evidence of indebtedness or whether it was issued is partial fulfillment of a pre-
existing obligation, for what the law punishes is the issuance itself of a bouncing
check and not the purpose for which it was issuance. The mere act of issuing a
worthless check, whether as a deposit, as a guarantee, or even as an evidence of a
pre-existing debt, is malum prohibitum.
 A memorandum check may carry with it the understanding that it is not be presented
at the bank but will be redeemed by the maker himself when the loan fall due. This
understanding may be manifested by writing across the check "Memorandum",
"Memo" or "Mem." However, with the promulgation of B.P. 22, such understanding
or private arrangement may no longer prevail to exempt it from penal sanction
imposed by the law. To require that the agreement surrounding the issuance of
check be first looked into and thereafter exempt such issuance from the punitive
provision of B.P. 22 on the basis of such agreement or understanding would frustrate
the very purpose for which the law was enacted — to stem the proliferation of
unfunded checks.
 After having effectively reduced the incidence of worthless checks changing hands,
the country will once again experience the limitless circulation of bouncing checks in
the guise of memorandum checks if such checks will be considered exempt from the
operation of B.P. 22. It is common practice in commercial transactions to require
debtors to issue checks on which creditors must rely as guarantee of payment. To
determine the reasons for which checks are issued, or the terms and conditions for
their issuance, will greatly erode the faith the public responses in the stability and
commercial value of checks as currency substitutes, and bring about havoc in trade
and in banking communities