1 Philippine Education Co., Inc. vs Mauricio Soriano, et. al.

Facts: In April 1958, a certain Enrique Montinola was purchasing ten money orders from the Manila Post Office. Each money order was worth P200.00. Montinola offered to pay the money orders via a private check but the cashier told him he cannot pay via a private check. But still somehow, Montinola was able to leave the post office with the money orders without him paying for them. Days later, the missing money orders were discovered. Meanwhile, the Philippine Education Co., Inc. (PECI) presented one of the missing postal money orders before the Bank of America. The money order was initially credited and so P200.00 was deposited in PECIs account with the bank. But then later the post office, through Mauricio Soriano (Chief of the Money Order Division of the Post Office), advised the bank that the money order was irregularly issued hence the P200.00 was debited back from PECIs account. PECI argued that the money order was duly negotiated to them and thus they are entitled to the amount it represents. Issue: Whether or not postal money orders are negotiable instruments. Held: No. Postal money orders are not negotiable instruments. The rationale behind this rule is the fact that in establishing and operating a postal money order system, the government is not engaging in commercial transactions but merely exercises a governmental power for the public benefit. In fact, postal money orders are subject to a lot of restrictions limiting their negotiability. Particularly in this case, as far back as 1948, there was already an agreement between Bank of America and the Manila Post Office, that in case the post office would have an adverse claim against any Bank of America depositor involving postal money orders issued by the post office, all amounts cleared in relation thereto shall be refunded back to the post offices account with the bank this in itself is already a limitation in the negotiability and nature of the postal money orders issued by the post office because of the special conditions attached. Philippine Airlines, Inc. vs Court of Appeals Facts: Amelia Tan commenced a complaint for damages before the Court of First Instance against Philippine Airlines, Inc. (PAL). The Court rendered a judgment in favor of the former and against the latter. PAL filed its appeal with the Court of Appeals and the appellate court affirmed the judgment of the lower court with the modification condemning PAL to pay the latter the sum of P25,000.00 as damages and P5,000.00 as attorneys fees. Judgment became final and executor yand was correspondingly entered in the case, which was remanded to the trial court for execution. The trial court upon the motion of Amelia Tan issued an order of execution with the corresponding writ in favor of the respondent. Said writ was duly referred to Deputy Sheriff Reyes for enforcement. Four months later, Amelia Tan moved for the issuance of an alias writ of execution, stating that the judgment rendered by the lower court and affirmed with modification by the CA remained unsatisfied. PAL opposed the motion stating that it had already fully paid its obligation to plaintiff through the issuance of checks payable to the deputy sheriff who later did not appear with his return and instead absconded.

2 The CA denied the issuance of the alias writ for being premature. After two months, the CA granted her an alias writ of execution for the full satisfaction of the judgment rendered, when she filed another motion. Deputy Sheriff del Rosario was appointed special sheriff for enforcement thereof. PAL filed and urgent motion to quash the alias writ of execution stating that no return of the writ has as yet been made by Deputy Sheriff Reyes and that judgment had already been fully satisfied by the former as evidenced by the cash vouchers signed and received by the executing sheriff. Deputy Sheriff del Rosario served a notice of garnishment on the depository bank of PAL, through its manager and garnished the latters deposit. Hence, PAL brought the case to the SC and filed a petition for certiorari. Issue: Whether or not payment made in checks to the Sheriff and under his name was a valid payment to extinguish judgment of debt Held: No. Article 125 of the Civil provides: The payments of debt in money shall be made in the currency stipulated and if it is not possible to deliver such currency, then in the currency which is legal tender in the Philippines. Unless authorized to do so by law or by consent of the obligee, a public officer has no authority to accept anything other than money in payment of an obligation under a judgment being executed. Strictly speaking, the acceptance by the sheriff of the petitioners check does not, per se, operate as a discharge of the judgment of debt. A check, whether managers check or an ordinary check, is not legal tender and an offer of a check in payment of a debt is not a valid tender or payment and may be refused receipt by the obligee or creditor. Hence, the obligation was not extinguished in this case. Metropolitan Bank & Trust Company vs Court of Appeals Facts: Eduardo Gomez opened an account with Golden Savings and deposited 38 treasury warrants. All warrants were subsequently indorsed by Gloria Castillo as Cashier of Golden Savings and deposited to its Savings account in Metrobank branch in Calapan, Mindoro. They were sent for clearance. Meanwhile, Gomez was not allowed to withdraw from his account. Later, however, exasperated over Glorias repeated inquiries and also as an accommodation for a valued client Metrobank decided to allow Golden Savings to withdraw from proceeds of the warrants. In turn, Golden Savings subsequently allowed Gomez to make withdrawals from his own account. Metrobank informed Golden Savings that 32 of the warrants had been dishonored by the Bureau of Treasury and demanded the refund by Golden Savings of the amount it had previously withdrawn, to make up the deficit in its account. The demand was rejected. Metrobank then sued Golden Savings. Issues: 1. Whether or not Metrobank could demand refund against Golden Savings with regard to the amount withdrawn to make up with the deficit as a result of the dishonored treasury warrants. 2. Whether or not treasury warrants are negotiable instruments Held: 1. No. Metrobank was negligent in giving Golden Savings the impression that the treasury warrants had been cleared and that, consequently, it was safe to allow Gomez to withdraw. Without such assurance, Golden Savings would not have allowed the withdrawals. Indeed, Golden Savings might even have incurred liability

3 for its refusal to return the money that all appearances belonged to the depositor, who could therefore withdraw it anytime and for any reason he saw fit. It was, in fact, to secure the clearance of the treasury warrants that Golden Savings deposited them to its account with Metrobank. Golden Savings had no clearing facilities of its own. It relied on Metrobank to determine the validity of the warrants through its own services. The proceeds of the warrants were withheld from Gomez until Metrobank allowed Golden Savings itself to withdraw them from its own deposit. Metrobank could not contend that by indorsing the warrants in general, Golden Savings assumed that they were genuine and in all respects what they purported to be in accordance with Sec. 66 of NIL. It is for the reason that the NIL is not applicable to non negotiable instruments like treasury warrants. 2. No. The treasury warrants are not negotiable instruments. Clearly stamped on their face is the word: non negotiable. Moreover, and this is equal significance, it is indicated that they are payable from a particular fund, to wit, Fund 501. An instrument to be negotiable instrument must contain an unconditional promise or order to pay a sum certain in money. As provided by Sec 3 of NIL, an unqualified order or promise to pay is unconditional though coupled with: 1st, an indication of a particular fund out of which reimbursement is to be made or a particular account to be debited with the amount; or 2nd, a statement of the transaction which give rise to the instrument. But an order to promise to pay out of particular fund is not unconditional. The indication of Fund 501 as the source of the payment to be made on the treasury warrants makes the order or promise to pay not conditional and the warrants themselves non-negotiable. There should be no question that the exception on Section 3 of NIL was applicable in the case at bar. Caltex Philippines vs Court of Appeals Facts: On various dates, Security Bank and Trust Co. (SEBTC), through its Sucat branch, issued 280 certificates of time deposit (CTD) in favor of one Angel dela Cruz who deposited with the bank the aggregate amount of P1.12 million. Angel de la Cruz delivered the CTDs to Caltex in connection with his purchase of fuel products from the latter. 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. De la Cruz was able to obtain a loan of P875, 000 from the bank, and in turn, he executed a notarized Deed of Assignment of Time Deposit in favor of the bank. Thereafter, Caltex presented for verification the CTDs (which were declared lost by de la Cruz) with the bank. Caltex formally informed the bank of its possession of the CTDs and its decision to preterminate the same. The bank rejected Caltex claim and demand, after Caltex failed to furnish copy of the requested documents evidencing the guarantee agreement. In 1983, de la Cruz loan matured and the bank set-off and applied the time deposits as payment for the loan. Caltex filed the complaint, but which was dismissed. Issues: 1.Whether the Certificates of Time Deposit (CTDs) were negotiable instruments. 2. Whether the CTDs negotiation required delivery only. Held: 1.Yes. The CTDs in question met the requirements of the law for negotiability. Contrary to the lower courts findings, the CTDs were negotiable instruments (Section 1). Negotiability or non-negotiability of an instrument is determined from

4 the writing, i.e. from the face of the instrument itself. The documents provided that the amounts deposited shall be repayable to the depositor. The amounts were to be repayable to the bearer of the documents, i.e. whosoever may be the bearer at the time of presentment. 2. No. Although the CTDs were bearer instruments, a valid negotiation thereof for the true purpose and agreement between Caltex and de la Cruz required both delivery and indorsement; as the CTDs were delivered to it as security for dela Cruz purchases of its fuel products, and not for payment. Herein, there was no negotiation in the sense of a transfer of title, or legal title, to the CTDs in which situation mere delivery of the bearer CTDs would have sufficed. The delivery thereof as security for the fuel purchases at most constituted Caltex as a holder for value by reason of his lien. Accordingly, a negotiation for such purpose could not be effected by mere delivery of the instrument since the terms thereof and the subsequent disposition of such security, in the event of non-payment of the principal obligation, should have been contractually provided for. Ang Tek Lian vs Court of Appeals Facts: In 1946, Ang Tek Lian approached Lee Hua and asked him if he could give him P4,000.00. He said that he meant to withdraw from the bank but the banks already closed. In exchange, he gave Lee Hua a check which is payable to the order of cash. The next day, Lee Hua presented the check for payment but it was dishonored due to insufficiency of funds. Lee Hua eventually sued Ang Tek Lian. In his defense, Ang Tek Lian argued that he did not indorse the check to Lee Hua and that when the latter accepted the check without Ang Tek Lians indorsement, he had done so fully aware of the risk he was running thereby. Issue: Whether or not Ang Tek Lian was correct. Held: No. Under the Negotiable Instruments Law (sec. 9 [d]), a check drawn payable 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 drawers indorsement. Where a check is made payable to the order of cash, the word cash does not purport to be the name of any person, and hence the instrument is payable to bearer. The drawee bank need not obtain any indorsement of the check, but may pay it to the person presenting it without any indorsement. Republic Planters Bank vs Court of Appeals Facts: Yamaguchi and Canlas were 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. Issue: Whether or not Canlas should be held liable for the promissory notes. Held: Yes. The solidary liability of private respondent Fermin Canlas was 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 Republic

5 Planters Bank. 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. Canlas was solidarily liable on each of the promissory notes bearing his signature. 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 promised to pay to the order of the payee or any holder according to the tenor thereof. Spouses Evangelista vs Mercator Finance Corp., et. al. Facts: The spouses Evangelista filed a complaint for annulment of titles against the respondents, claiming to be the registered owners of five parcels of land contained in the real estate mortgage executed by them and Embassy Farms Inc. in favor of Mercator Financing Corporation (Mercator). The mortgage was in consideration of certain loans and credit accommodations amounting to P844, 625.78. The spouses alleged the following: (1) that they executed the said real estate mortgage merely as officers of Embassy Farms; (2) that they did not receive the proceeds of the loan evidenced by the promissory note, as all went to Embassy Farms; (3) that the real estate mortgage was void due to absence of a principal obligation on which it rests; (4) that since the real estate mortgage was void, the foreclosure proceedings, the subsequent sale as well as the issuance of transfer certificates of title were likewise void. Petitioners further alleged ambiguity in the wording of the promissory note, which should be resolved against Mercator who provided the form thereof. Mercator admitted that petitioners were the owners of the subject parcels of land. It, however, contended that the spouses executed a Mortgage in favor of Mercator Finance Corporation for and in consideration of certain loans, and/or other forms of credit accommodations obtained from the Mortgagee (defendant Mercator Finance Corporation) amounting to P844,625.78 and to secure the payment of the same and those others that the MORTGAGEE may extend to the MORTGAGOR. It contended that since petitioners and Embassy Farms signed the promissory note as co-makers (the note being worded as For value received, I/We jointly and severally promise to pay to the order of Mercator), aside from the Continuing Suretyship Agreement subsequently executed to guarantee the indebtedness, the petitioners were jointly and severally liable with Embassy Farms. Due to their failure to pay the obligation, the foreclosure and subsequent sale of the mortgaged properties were thus valid. Respondents Salazar and Lamecs asserted that they were innocent purchasers for value and in good faith. Issue: Whether or not the spouses should be held solidarily liable with Embassy Farms Held: Yes. Courts can interpret a contract only if there is doubt in its letter. But, an examination of the promissory note shows no such ambiguity. Besides, assuming arguendo that there is an ambiguity, Section 17 of the Negotiable Instruments Law states,viz: SECTION 17. Construction where instrument is ambiguous. 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 I promise to pay is signed by two or more persons, they are deemed to be jointly and severally liable thereon. Petitioners also insist that the promissory note does not convey their true

6 intent in executing the document. The defense is unavailing. Even if petitioners intended to sign the note merely as officers of Embassy Farms, still this does not erase the fact that they subsequently executed a continuing suretyship agreement. A surety is one who is solidarily liable with the principal. Petitioners cannot claim that they did not personally receive any consideration for the contract for wellentrenched 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 petitioners. Ilano vs Hon. Espanol Facts: Defendant Amelia Alonzo was a trusted employee of petitioner. She has been with them for several years already, and through the years, defendant was able to gain the trust and confidence of petitioner and her family. Due to this trust and confidence reposed upon defendant Alonzo, there were occasions when defendant was entrusted with petitioners Metrobank Check Book containing either signed or unsigned blank checks, especially in those times when petitioner left for the United States for medical check-up Defendant Alonzo was able to succeed in inducing the petitioner to sign a promissory note through fraud and deceit. In addition, defendant ALONZO in collusion with her co-defendants, Estela Camaclang and two others was able to induce plaintiff to sign several undated blank checks. The named defendants-herein respondents filed their respective Answers invoking, among other grounds for dismissal, lack of cause of action, for while the checks subject of the complaint had been issued on account and for value, some had been dishonored due to ACCOUNT CLOSED and the allegations in the complaint were bare and general. The trial court dismissed petitioners complaint for failure to allege the ultimate facts. The Court of Appeals affirmed the trial courts decision and held that the elements of a cause of action were absent in the case and petitioner did not deny the genuineness or authenticity of her signature on the subject promissory notes and the allegedly signed blank check. Issue: Whether or not petitioners complaint failed to state a cause of action. Ruling: No. As reflected in the allegations in petitioners complaint, petitioner sought twin reliefs: one for revocation/cancellation of promissory notes and checks and the other for damages. While some of the allegations may have lacked particulars, and were in the form of conclusions of law, the elements of a cause of action were present. For even if some were not stated with particularity, petitioner alleged 1) her legal right not to be bound by the instruments which were bereft of consideration and to which her consent was vitiated; 2) the correlative obligation on the part of the defendantsrespondents to respect said right; and 3) the act of the defendants-respondents in procuring her signature on the instruments through deceit and abuse of confidence. With respect to above-said Check No. 0084078, however, which was drawn against another account of petitioner, albeit the date of issue bears only the year 1999, its validity and negotiable character at the time the complaint was filed on March 28, 2000 was not affected. For Section 6 of the Negotiable Instruments Law provides:

7 Section 6. Omission; seal; particular money. The validity and negotiable character of an instrument are not affected by the fact that (a) It is not dated However, even if the holder of Check No. 0084078 would have filled up the month and day of issue thereon to be December and 31, respectively, it would have, as it did, become stale six (6) months or 180 days thereafter, following current banking practice. It was, however, with respect to the questioned promissory notes that the present petition assumed merit. For, petitioners allegations in the complaint relative thereto, even if lacking particularity, does not as priorly stated call for the dismissal of the complaint. De la Victoria vs. Hon. Burgos Facts: Raul Sebreo filed a complaint for damages against Fiscal Bienvenido Mabanto Jr. of Cebu City. Sebreo 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 Sebreo instead. De la Victoria assailed the order as he said that the paychecks and the amount thereon were not yet the property of Mabanto because they were not yet delivered to him. De la Victoria further averred that since there was no delivery of the checks to Mabanto, the checks were still part of the public funds; and the checks due to the foregoing could not be the proper subject of garnishment. Issue: Whether or not De La Victoria was correct. Held: Yes. Under Section 16 of the Negotiable Instruments Law, every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto. As ordinarily understood, delivery means the transfer of the possession of the instrument by the maker or drawer with intent to transfer title to the payee and recognize him as the holder thereof. Development Bank of Rizal vs Sima Wei Facts: Respondent Sima Wei executed and delivered to petitioner Bank a promissory note engaging to pay the petitioner Bank or order the amount of P1,820,000.00. Sima Wei subsequently issued two crossed checks payable to petitioner Bank drawn against China Banking Corporation in full settlement of the drawer's account evidenced by the promissory note. These two checks however were not delivered to the petitioner-payee or to any of its authorized representatives but instead came into the possession of respondent Lee Kian Huat, who deposited the checks without the petitioner-payee's indorsement to the account of respondent Plastic Corporation with Producers Bank. Inspite of the fact that the checks were crossed and payable to petitioner Bank and bore no indorsement of the latter, the Branch Manager of Producers Bank authorized the acceptance of the checks for deposit and credited them to the account of said Plastic Corporation. Issue: Whether or not petitioner Bank had a cause of action against Sima Wei for the undelivered checks Ruling No. A negotiable instrument must be delivered to the payee in order to evidence its existence as a binding contract. Section 16 of the NIL provides that every contract

8 on a negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto. Thus, the payee of a negotiable instrument acquires no interest with respect thereto until its delivery to him. Without the initial delivery of the instrument from the drawer to the payee, there can be no liability on the instrument. Petitioner however has a right of action against Sima Wei for the balance due on the promissory note. Metropol (Bacolod) Financing and Investment Co. vs Sambok Motors Company Facts: 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 had been dishonored and demanded payment. Sambok failed to pay. Trial court rendered its decision in favor of plaintiff. Appellant Sambok argued that by having added the words with recourse in the indorsement of the note, it became a qualified indorser. It claimed that being a qualified indorser, it did not warrant that if said note was dishonored by the maker on presentment, it would pay the amount to the holder. Issue: Whether or not Sambok was a qualified indorser. Held: No. Appellant, by indorsing the note with recourse did not make itself a qualified indorser but a general indorser who was secondarily liable. By such indorsement, it agreed that if Dr. Villaruel failed to pay the note, plaintiff-appellee could go after said appellant. The note thus 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 Samboks 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 did not limit his liability, but rather confirmed his obligations as a general indorser. De Ocampo vs Gatchalian Facts: Matilde Gonzales was a patient of the De Ocampo Clinic. 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 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. On the other hand, since Gatchalian never saw Manuel again, she placed a stop-payment on the P600.00 check so De Ocampo was

9 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 was not entitled to payment because there was no valid indorsement. De Ocampo argued that he is a holder in due course because he is the named payee. Issue: Whether or not De Ocampo is a holder in due course. Held: 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 has been previously dishonored, if such was the fact; (c) That he took it in good faith and for value; (d) That at the time it was negotiated to him, he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it. The Supreme Court emphasized that if one is a holder in due course, it is immaterial that he was the payee and an immediate party to the instrument. The Supreme Court ruled that De Ocampo was 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 had no obligation to De Ocampo and yet he was named as the payee in the check should have apprised De Ocampo. Also, 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. All these circumstances should have given De Ocampo the duty to ascertain from the holder Manuel Gonzales what the nature of the latters title to the check was or the nature of his possession. Cely Yang vs Court of Appeals Facts: Petitioner Cely Yang agreed with private respondent Prem Chandiramani to procure from Equitable Banking Corp. and Far East Bank and Trust Company (FEBTC) two cashiers checks in the amount of P2.087 million each, payable to Fernando David and FEBTC dollar draft in the amount of US$200,000.00 payable to PCIB FCDU account No. 4195-01165-2. Yang gave the checks and the draft to Danilo Ranigo to be delivered to Chandiramani. Ranigo was to meet Chandiramani to turn over the checks and the dollar draft, and the latter would in turn deliver to the former Phil. Commercial International Bank (PCIB) managers check in the sum of P4.2 million and the dollar draft in the same amount to be issued by Hang Seng Bank Ltd. of HongKong. But Chandiramani did not appear at the rendezvous and Ranigo allegedly lost the two cashiers checks and the dollar draft. The loss was then reported to the police. It transpired, however that the checks and the dollar draft were never lost, for Chandiramani was able to get hold of them without delivering the exchange consideration consisting of PCIB Managers checks. Two hours after Chandiramani was able to meet Ranigo, the former delivered to David the two cashiers checks of Yang and, in exchange, got US $360,000 from David, who in turn deposited them. Chandiramani also deposited the dollar draft in PCIG FCDU No. 4194-0165-2. Meanwhile, Yang requested FEBTC and Equitable to stop payment on the instruments she believed to be lost. Both Banks complied with her request, but upon the representation of PCIB, FEBTC subsequently lifted the stop payment order on FEBTC Dollar Draft No. 4771, thus, enabling the holder PCIB FCDU Account No. 4194-0165-2 to received the amount of US $ 200, 000.

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Issues: 1. Whether or not David may be considered a holder in due course. 2. Whether or not the presumption that every party to an instrument acquired the same for a consideration is applicable in this case. Held: 1. Every holder of a negotiable instrument is deemed prima facie a holder in due course. However, this presumption arises only in favor of a person who is a holder as defined in Section 191 of the Negotiable Instruments Law, meaning a payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof. In the present case, it is not disputed that David was the payee of the checks in question. The weight of authority sustains the view that a payee may be a holder in due course. Hence, the presumption that he is a prima facie holder in due course applies in his favor. 2. The presumption is that every party to an instrument acquired the same for a consideration. However, said presumption may be rebutted. Hence, what is vital to the resolution of this issue is whether David took possession of the checks under the conditions provided for in Section 52 of the Negotiable Instruments Law. All the requisites provided for in Section 52 must concur in Davids case, otherwise he cannot be deemed a holder in due course. Section 24 of the Negotiable Instruments Law creates a presumption that every party to an instrument acquired the same for a consideration or for value. Thus, the law itself creates a presumption in Davids favor that he gave valuable consideration for the checks in question. In alleging otherwise, the petitioner has the onus to prove that David got hold of the checks absent said consideration. However, petitioner failed to discharge her burden of proof. The petitioners averment that David did not give valuable consideration when he took possession of the checks is unsupported, devoid of any concrete proof to sustain it. Note that both the trial court and the appellate court found that David did not receive the checks gratis, but instead gave Chandiramani US$ 360,000 as consideration for the said instruments. Mesina vs Intermediate Appellate Court Facts: Jose Go then maintained an account with Associated Bank. He needed to transfer P800,000.00 from Associated Bank to another bank but he realized that he did not want to be carrying that cash so he bought a cashiers 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 the latter to safe keep it. The check was however stolen from Uy by a certain Alexander Lim. Jose Go learned that the check was stolen so 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, whos already at large, paid the check to him for a certain transaction. Issue: Whether or not Mesina was a holder in due course. Held: No. Admittedly, Mesina became the holder of the cashiers 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

11 check from the start. The holder of a cashiers check who was not a holder in due course could not enforce such check against the issuing bank which dishonored the same. The check in question suffered from the infirmity of not having been properly negotiated and for value by Jose Go who was the real owner of said instrument. Crisologo-Jose vs Court of Appeals Facts: Plaintiff Ricardo S. Santos, Jr. was the vice-president of Mover Enterprises, Inc. incharge of marketing and sales and the president of the said corporation was Atty. Oscar Z. Benares. Atty. Benares, in accommodation of his clients, the spouses Jaime and Clarita Ong, issued check against Traders Royal Bank, payable to defendant Ernestina Crisologo-Jose. Since the check was under the account of Mover Enterprises, Inc., the same was to be signed by its president, Atty. Oscar Z. Benares, and the treasurer of the said corporation. However, since at that time, the treasurer of Mover Enterprises was not available, Atty. Benares prevailed upon the plaintiff, Ricardo S. Santos, Jr., to sign the aforesaid check. The check was issued to defendant Ernestina Crisologo-Jose in consideration of the waiver or quitclaim by said defendant over a certain property which the Government Service Insurance System (GSIS) agreed to sell to the spouses Jaime and Clarita Ong, with the understanding that upon approval by the GSIS of the compromise agreement with the spouses Ong, the check will be encashed accordingly. Since the compromise agreement was not approved within the expected period of time, the aforesaid check was replaced by Atty. Benares. This replacement check was also signed by Atty. Oscar Z. Benares and by the plaintiff Ricardo S. Santos, Jr. When defendant deposited this replacement check with her account at Family Savings Bank, Mayon Branch, it was dishonored for insufficiency of funds. The petitioner filed an action against the corporation for accommodation party. Issue: Whether or not 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.

12

Sadaya vs Sevilla Facts: Sadaya, Sevilla and Varona signed solidarily a promissory note in favor of the bank. Varona was the only one who received the proceeds of the note. Sadaya and Sevilla both signed as co-makers to accommodate Varona. Thereafter, the bank collected from Sadaya. Varona failed to reimburse. Consequently, Sevilla died and intestate estate proceedings were established. Sadaya filed a creditors claim on his estate for the payment he made on the note. The administrator resisted the claim on the ground that Sevilla did not receive any proceeds of the loan. The trial court admitted the claim of Sadaya though it was reversed by the Court of Appeals. Issue: Whether or not Sadaya could claim against the estate of Sevilla as coaccomodation party when Verona as principal debtor was not yet insolvent Held: No. Sadaya could have sought reimbursement from Varona, which is right and just as the latter was the only one who received value for the note executed. There is an implied contract of indemnity between Sadaya and Varona upon the formers payment of the obligation to the bank. Surely enough, the obligations of Varona and Sevilla to Sadaya could not be joint and several. For indeed, had payment been made by Varona, Varona couldn't had reason to seek reimbursement from either Sadaya or Sevilla. After all, the proceeds of the loan went to Varona alone. In principle, a solidary accommodation makerwho made paymenthas the right to contribution, from his co-accomodation maker, in the absence of agreement to the contrary between them, subject to conditions imposed by law. This right springs from an implied promise to share equally the burdens they may ensue from their having consented to stamp their signatures on the promissory note. The following are the rules: 1. A joint and several accommodation maker of a negotiable promissory note may demand from the principal debtor reimbursement for the amount that he paid to the payee 2. A joint and several accommodation maker who pays on the said promissory note may directly demand reimbursement from his co-accommodation maker without first directing his action against the principal debtor provided that a) he made the payment by virtue of a judicial demand or b) a principal debtor is insolvent. It was never shown that there was a judicial demand on Sadaya to pay the obligation and also, it was never proven that Varona was insolvent. Thus, Sadaya could not proceed against Sevilla for reimbursement. Travel-On vs Court of Appeals Facts: Petitioner 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.

13 Meanwhile, petitioner urged that the postdated checks were per se evidence of liability on the part of private respondent and further argued that even assuming that the checks were for accommodation, private respondent was still liable thereunder considering that petitioner was a holder for value. Issue: Whether or not Miranda was liable on the postdated checks he issued even assuming that said checks were issued for accommodation only. Ruling: Yes. In the first place, 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 because 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. Philippine National Bank vs Court of Appeals Facts: DECS issued a check in favor of Abante Marketing containing a specific serial number drawn against PNB. The check was deposited by Abante in its account with Capitol and the latter consequently deposited the same with its account with PBCOM which later deposited it with petitioner for clearing. The check was thereafter cleared. On a relevant date, petitioner PNB returned the check on account that there had been a material alteration on it. Subsequent debits were made but Capitol could not debit the account of Abante any longer for the latter had withdrawn all the money already from the account. This prompted Capitol to seek reclarification from PBCOM and demanded the recrediting of its account. PBCOM followed suit by doing the same against PNB. Demands unheeded, it filed an action against PBCOM and the latter filed a third-paty complaint against petitioner. Issue: Whether or not there had been a material alteration in the check Held: No. An alteration is said to be material if it alters the effect of the instrument. It means an unauthorized change in the 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 the party. In other words, a material alteration is one which changes the itmes which are required to be stated under Section 1 of the NIL. In this case, the alleged material alteration was the alteration of the serial number of the check in issue which is not an essential elemnt of a negotiable instrument under Section 1 of the NIL. PNB alleges that the alteration was material since it was an accepted concept that a TCAA check by its very nature is the medium of exchange of governments, instrumentalities and agencies. As a safety measure,

14 every government office or agency is assigned checks bearing different serial numbers. This contention however has to fail. The checks serial number is not the sole indicia of its origin. The name of the government agency issuing the check is clearly stated therein. Thus, the checks drawer is sufficiently identified, rendering redundant the referral to its serial number. There being no material alteration in the check, PNB could not return the check. It should pay the same. Associated Bank vs Court of Appeals Facts: The Province of Tarlac was disbursing funds to Concepcion Emergency Hospital via checks drawn against its account with the Philippine National Bank (PNB). These checks were drawn payable to the order of Concepcion Emergency Hospital. Fausto Pangilinan was the cashier of Concepcion Emergency Hospital in Tarlac until his retirement in 1978. He used to handle checks issued by the provincial government of Tarlac to the said hospital. However, after his retirement, the provincial government still delivered checks to him until its discovery of this irregularity in 1981. By forging the signature of the chief payee of the hospital (Dr. Adena Canlas), Pangilinan was able to deposit 30 checks amounting to P203,000.00 to his account with the Associated Bank. When the province of Tarlac discovered this irregularity, it demanded PNB to reimburse the said amount. PNB in turn demanded Associated Bank to reimburse said amount. PNB averred that Associated Bank is liable to reimburse because of its indorsement borne on the face of the checks: All prior endorsements guaranteed Associated Bank. Issue: Whether or not Associated Bank should reimburse the fund to PNB by reason its indorsement and warranties of prior indorsements Held: The checks involved in this case are order instruments. Liability of Associated Bank Where the instrument is payable to order at the time of the forgery, such as the checks in this case, the signature of its rightful holder (the payee hospital) is essential to transfer title to the same instrument. When the holders indorsement is forged, all parties prior to the forgery may raise the real defense of forgery against all parties subsequent thereto. A collecting bank (Associated Bank) where a check is deposited 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 bankss 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. However, 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 depositorforger, the collecting bank would not be liable. 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 drawers 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 customers

15 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 drawers account and is not entitled to indemnification from the drawe r. The risk of loss must perforce fall on the drawee bank. By way of 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 Banks 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 P203,000.00. Then again, since PNB can pass its loss to Associated Bank (by reason of Associated Banks 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. Republic Bank vs Mauricia Ebrada Facts: On January 15, 1963, the Bureau of Treasury issued a back pay check to Martin Lorenzo in the amount of P1,246.08. The drawee named therein is Republic Bank. The check was subsequently indorsed to Ramon Lorenzo, then to Delia Dominguez and then to Mauricia Ebrada. Ebrada encashed the check with the Republic Bank. Republic Bank paid the amount of the check to Ebrada. Ebrada, upon 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 before the check was issued. Republic Bank refunded the amount to the Bureau of Treasury. The bank then demanded Ebrada to refund them. Issue: Whether or not Republic Bank may recover from Ebrada. Held: Yes. Ebrada, being the last indorser, warranted the genuineness of the signatures of the payee and the previous indorsers. The drawee bank is not duty bound to ascertain whether or not the signatures of the payee and the indorsers are genuine. One who purchases a check or draft is bound to satisfy himself that the paper is genuine and that by indorsing it or presenting it for payment or putting it into circulation before presentation he impliedly asserts that he has performed his duty and the drawee (in this case Republic Bank) who has paid the forged check, without actual negligence on his part, may recover the money paid from such negligent purchasers. Gempesaw vs Court of Appeals Facts: Natividad Gempesaw was a businesswoman who entrusted to her bookkeeper, Alicia Galang, the preparation of checks about to be issued in the

16 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 Gempesaws clients as payees named thereon. However, through Galang, these checks were never delivered to the supposed payees. Instead, the checks were fraudulently indorsed to Alfredo Romero and Benito Lam. Issue: Whether or not the bank should refund the money lost by reason of the forged indorsements. Held: No. Gempesaw could not set up the defense of forgery by reason of her negligence. As a rule, a drawee bank (the Philippine Bank of Communications) who has paid a check on which an indorsement has been forged could not charge the drawers (Gempesaws) account for the amount of said check. An exception to this rule is where the drawer is guilty of such negligence which causes the bank to honor such a check or checks. If a check is stolen from the payee, 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. In the case at bar, Gempesaw relied implicitly upon the honesty and loyalty of Galang, and did not even verify the accuracy of amounts of the checks she signed against the invoices attached thereto. Furthermore, although she regularly received her bank statements, she apparently did not 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. Ilusorio vs Court of Appeals Facts: Ilusorio was a businessman who was in charge of 20 or so corporations. He was a depositor in good standing of Manila Banking Corporation. As he was in charge of a big number of corporations, he was usually out of the country for business. He then entrusted his credit cards, checkbook, blank checks, passbooks, etc to his secretary, Katherine Eugenio. Eugenio was also in charge of verifying and reconciling the statements of Ilusorios checking account. Eugenio was able to encash and deposit to her personal account checks drawn against Ilusorios account with an aggregate amount of P119,000.00. Ilusorio did not bother to check his statement of account until a business partner informed him that he saw Eugenio using his credit cards. Ilusorio then fired her and instituted criminal case of Estafa thru falsification against Eugenio. Manila Banking Corp. also instituted a complaint of estafa against Eugenio based on the affidavit of Dante Razon, an employee. Razon stated that he personally examined and scrutinized the encashed checks in accordance with their verification procedures. Manila Bank sought the expertise of NBI in determining the genuineness of the checks but Ilusorio failed to submit specimen signatures and thus, NBI could not conduct the examination.

17 Issue: Whether or not Manila Bank was liable for damages for failing to detect a forged check Held: No. To be entitled to damages, Ilusorio has the burden of proving that the bank was negligent in failing to detect the discrepancy in the signatures on the checks. Ilusorio had to establish the fact of forgery which he failed to do by failing to submit his specimen signatures for NBI to conclusively establish forgery. Furthermore, the Bank was not negligent in verifying the checks as they verified the drawers signatures against their specimen signatures and in doubt, referred to more experienced verifier for further verification. On the contrary, it was Ilusorio who was found to be negligent. He accorded his secretary with an unusual degree of trust and unrestricted access to his finances. Furthermore, despite the fact that the bank was regularly sending statements of account, he failed to check them until he found out that his secretary was using his credit cards. Sec. 23 of the Negotiable Instruments law provides that a forged check is inoperative, meaning there was no right to enforce payment against any party. But it also provides an exception: unless the party against whom it is sought enforce such right is precluded from setting up the forgery or want of authority. This case falls under the exception since Ilusorio is precluded from setting up forgery due to his own negligence considering that he allowed his secretary access to his credit cards, checkbook, and allowed his secretary to verify his statements of account. Samsung Construction vs Far East Bank and Trust Company Facts: Plaintiff Samsung Construction Company Philippines, Inc. maintained a current account with defendant Far East Bank and Trust Company at the latters BelAir, Makati branch. The sole signatory to Samsung Constructions account was Jong Kyu Lee (Jong), its Project Manager, while the checks remained in the custody of the companys accountant, Kyu Yong Lee (Kyu). On March 19, 1992, a certain Roberto Gonzaga presented for payment FEBTC Check No. 432100 to the banks branch in Bel-Air, Makati. The check, payable to cash and drawn against Samsung Constructions current account, was in the amount of P999,500.00. The bank teller, Cleofe, exercise the bank procedure in encashment using check. She then asked Gonzaga to submit proof of his identity, and the latter presented three (3) identification cards. The bank officer Syfu also noticed Jose Sempio III, the assistant accountant of Samsung Construction, who supported the claim of Gonzaga. Syfu showed the check to Sempio, who vouched for the genuineness of Jongs signature. Confirming the identity of Gonzaga, Sempio said that the check was for the purchase of equipment for Samsung Construction. Satisfied with the genuineness of the signature of Jong, Syfu authorized the banks encashment of the check to Gonzaga. The following day, Kyu discovered that a check in the amount of P999,500.00 had been encashed. Kyu perused the checkbook and found that the last blank check was missing. He reported the matter to Jong, who then proceeded to the bank. Jong learned of the encashment of the check, and realized that his signature had been forged. The Bank Manager reputedly told Jong that he would be reimbursed for the amount of the check. Jong proceeded to the police station and consulted with his lawyers. Subsequently, a criminal case for qualified theft was filed against Sempio before the Laguna court. FEBTC on the other hand, said that it was still conducting an investigation on the matter. Unsatisfied, Samsung Construction filed a complaint for violation of Section 23 of the Negotiable Instruments Law, before the Regional Trial Court of Manila. During the trial, both sides presented their respective expert witnesses to

18 testify on the claim that Jongs signature was forged. Samsung Corporation, which had referred the check for investigation to the NBI, presented Senior NBI Document Examiner Roda B. Flores. She testified that based on her examination, she concluded that Jongs signature had been forged on the check. On the other hand, FEBTC, which had sought the assistance of the Philippine National Police (PNP), presented Rosario C. Perez, a document examiner from the PNP Crime Laboratory. She testified that her findings showed that Jongs signature on the check was genuine. Issue: Whether or not the signature of Jong in the subject check was forged Ruling: Yes. There was forgery in this case. Section 23 of the Negotiable Instruments Law states: When a signature is forged or made without the authority of the person whose signature it purports to be, it is wholly inoperative, and no right to retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any party thereto, can be acquired through or under such signature, unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority. The crucial fact in question is whether or not the check was forged, not whether the bank could have detected the forgery. The latter issue becomes relevant only if there is need to weigh the comparative negligence between the bank and the party whose signature was forged. In this case, indeed there was forgery. A bank is liable, irrespective of its good faith, in paying a forged check. Metropolitan Bank a& Trust Company vs Cabilzo Facts: Renato Cabilzo was one of Metrobanks clients who maintained a current account with the banks Pasong Tamo branch. On November 12, 1994, he issued a check payable to cash and postdated on November 24, 1994 for the amount of P1,000. The check was presented to Westmont Bank for payment and the latter indorsed it to Metrobank. Metrobank cleared the check and debited Cabilzos account. It was found out later by Cabilzo that the checks amount was altered to P91,000 and the date changed to November 14. Cabilzo demanded that Metrobank re-credit the P90,000 to his account but Metrobank refused. Cabilzo filed a civil action for damages against Metrobank. In its defense, Metrobank said that it exercised due diligence in examining the genuiness of the signature and technical entries including the amount in figures and in words to see if there were alterations and found that there was none. It further stated that Cabilzo was partly responsible for leaving spaces on the checkwhich made the fraudulent insertion possible. The RTC and the CA ruled in favor of Cabilzon saying that Metrobank was liable. Issue: Whether or not Cabilzon could recover from Metrobank Held: Yes. The degree of diligence required of a reasonable man in the exercise of his tasks and the performance of his duties has been faithfully complied with by Cabilzon. In fact, he was wary enough that he filled with asterisks the space between and after the amounts not only those stated in words but also those in numerical figures in order to prevent any fraudulent insertion. Metrobank could not rely on the doctrine of equitable estoppel which states that when one of the two innocent persons, each guiltless of any intentional or moral wrong, must suffer a loss. It must be borne by the one whose erroneous conduct, either by omission or commission,

19 was the cause of the injury. Here, Metrobank did not prove that Cabilzo was negligent or that this negligence was the proximate cause of the loss. Negligence is not presumed but must be proven by the one who alleges it. Banking is a business affected with public interest and because of the nature of its functions, the bank is under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of the relationship. The appropriate degree of diligence required of a bank must be a high degree of diligence, if not the utmost diligence. In the instant case, the alterations on the check were visible to the naked eye but Metrobank failed to detect the alterations which could not escape the attention of even an ordinary person. This negligence was exacerbated by the fact that it was the cash custodian who examined the check when his functions did not involve the examining of the checks. Obviously, the custodian was not versed and competent in handling such duty. Banks are expected to exercise the highest degree of diligence in the selection and supervision of employees. Metropolitan Bank & Trust Company vs BA Finance Corp. Facts: Lamberto Bitanga obtained from respondent BA Finance Corporation a P329,280 loan to secure which, he mortgaged his car to respondent BA Finance. Bitanga thus had the mortgaged car insured by respondent Malayan Insurance Co., Inc. The car was stolen. On Bitangas claim, Malayan Insurance issued a check payable to the order of B.A. Finance Corporation and Lamberto Bitanga for P224,500, drawn against China Banking Corporation. The check was crossed with the notation For Deposit Payees Account Only. Without the indorsement or authority of his co-payee BA Finance, Bitanga deposited the check to his account with the Asianbank Corporation, now merged with herein petitioner Metrobank. Bitanga subsequently withdrew the entire proceeds of the check. In the meantime, Bitangas loan became past due, but despite demands, he failed to settle it. BA Finance eventually learned of the loss of the car and of Malayan Insurances issuance of a crossed check payable to it and Bitanga, and of Bitangas depositing it in his account at Asianbank and withdrawing the entire proceeds thereof. BA Finance thereupon demanded the payment of the value of the check from Asianbank but to no avail, prompting it to file a complaint before the Regional Trial Court of Makati for sum of money and damages against Asianbank and Bitanga, alleging that, inter alia, it is entitled to the entire proceeds of the check. The trial court, holding that Asianbank was negligent in allowing Bitanga to deposit the check to his account and to withdraw the proceeds thereof, without his co-payee BA Finance having either indorsed it or authorized him to indorse it in its behalf, found Asianbank and Bitanga jointly and severally liable to BA Finance following Section 41 of the Negotiable Instruments Law and Associated Bank v. Court of Appeals. Issue: Whether or not petitioner was liable for the full amount of the check Held : No. A collecting bank, Asianbank in this case, where a check is deposited and which indorses the check upon presentment with the drawee bank, is an indorser. This is because in indorsing a check to the drawee bank, a collecting bank stamps the back of the check with the phrase all prior endorsements and/or lack of endorsement guaranteed and, for all intents and purposes, treats the check as a negotiable instrument, hence, assumes the warranty of an indorser. Without Asianbanks warranty, the drawee bank (China Bank) would not have paid the value of the subject check.

20 Petitioner, as the collecting bank or last indorser, generally suffers the loss because it has the duty to ascertain the genuineness of all prior indorsements considering that the act of presenting the check for payment to the drawee is an assertion that the party making the presentment has done its duty to ascertain the genuineness of prior indorsements. Accordingly, one who credits the proceeds of a check to the account of the indorsing payee is liable in conversion to the non-indorsing payee for the entire amount of the check. To reiterate, petitioners liability is based not on contract or quasi-contract but on quasi-delict since there is no pre-existing contractual relation between the parties. Article 2231 of the Civil Code, which provides that in quasidelict, exemplary damages may be granted if the defendant acted with gross negligence, thus applies. For gross negligence implies a want or absence of or failure to exercise even slight care or diligence, or the entire absence of care, evincing a thoughtless disregard of consequences without exerting any effort to avoid them. Wong vs Court of Appeals Facts: Wong is a collector of Limtong Press, Inc., a company which prints calendars. Wong was assigned to collect check payments from LPI clients. One time, 6 of LPIs clients were not able to give the check payments to Wong. Wong then made arrangement with LPI so that for the meantime, Wong can use his personal checks to guarantee the calendar orders of the LPIs clients. LPI however has a policy of not accepting personal checks of its agents. LPI instead proposed that the personal checks should be used to cover Wongs debt with LPI which arose from unremitted checks by Wong in the past. Wong agreed. So he issued 6 checks dated December 30, 1985. Before the maturity of the checks, Wong persuaded LPI not to deposit the checks because he said he would be replacing them within 30 days. LPI complied however Wong reneged on the payment. On June 5, 1986 or 157 days from date of issue, LPI presented the check to RCBC but the checks were dishonored (account closed). On June 20, 1986, LPI sent Wong a notice of dishonor. Wong failed to make good the amount of the checks within 5 banking days from his receipt of the notice. LPI then sued Wong for violations of Batas Pambansa Blg. 22. Among others, Wong argued that he was not guilty of the crime of charged because one of the elements of the crime was missing, that is, prima facie presumption of knowledge of lack of funds against the drawer. According to Wong, this element is lost by reason of the belated deposit of the checks by LPI which was 157 days after the checks were issued; that he is not expected to keep his bank account active beyond the 90-day period 90 days being the period required for the prima facie presumption of knowledge of lack of fund to arise. Issue: Whether or not Wong is guilty of the crime charged. Held: Yes. Wong is guilty of violating BP 22. The elements of violation of BP 22 pertinent to this case are: 1. The making, drawing and issuance of any check to apply for account or for value; 2. 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 its presentment; and 3. 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.

21 Under the second element, the presumption of knowledge of the insufficiency arises if the check is presented within 90 days from the date of issue of the check. This presumption is lost, as in the case at bar, by failure of LPI to present it within 90 days. But this does not mean that the second element was not attendant with respect to Wong. The presumption is lost but lack of knowledge can still be proven. LPI did not deposit the checks because of the reassurance of Wong that he would issue new checks. Upon his failure to do so, LPI was constrained to deposit the said checks. After the checks were dishonored, Wong was duly notified of such fact but failed to make arrangements for full payment within five (5) banking days thereof. There is, on record, sufficient evidence that Wong had knowledge of the insufficiency of his funds in or credit with the drawee bank at the time of issuance of the checks. The Supreme Court also noted that under Section 186 of the Negotiable Instruments Law, a check must be presented for payment within a reasonable time after its issue or the drawer will be discharged from liability thereon to the extent of the loss caused by the delay. By current banking practice, a check becomes stale after more than six (6) months, or 180 days. LPI deposited the checks 157 days after the date of the check. Hence, said checks could not be considered stale. International Corporate Bank vs Spouses Gueco Facts: Respondent Gueco spouses obtained a loan from petitioner International Corporate Bank (now Union Bank of Philippines) to purchase a car Nissan Sentra 1989 model. In consideration, spouses executed promissory note which were payable in monthly installment & chattel mortgage over the car. The spouses defaulted payment. Dr. Gueco had a meeting & the unpaid installment of P184,000 was reduced to P150,000. However, the car was detained by the bank. When Dr. Gueco delivered the managers check of P150,000, the car was not released because of his refusal to sign the Joint Motion to Dismiss. The bank insisted that the JMD is a standard operating procedure to effect a compromise & to preclude future filing of claims or suits for damages. During the abovementioned meeting, Dr. Gueco delivered a manager's check representing the reduced amount of P150,000.00. Said check was given to Mr. Rivera, a representative of the bank. However, since Dr. Gueco refused to sign the joint motion to dismiss, he was made to execute a statement to the effect that he was withholding the payment of the check. Subsequently, in a letter addressed to Ms. Desi Tomas, vice president of the bank, Dr. Gueco instructed the bank to disregard the "hold order" letter and demanded the immediate release of his car, to which the former replied that the condition of signing the joint motion to dismiss must be satisfied and that they had kept the check which could be claimed by Dr. Gueco anytime. While there was controversy as to whether the document evidencing the order to hold payment of the check was formally offered as evidence by the bank, it appeared from the pleadings that said check has not been encashed. Gueco spouses filed an action against the bank for fraud, for having failed to inform them regarding the JMD during the meeting & for not releasing the car if they do not sign the said motion. Issue: Whether or not the bank was negligent in opting not to deposit or use the managers check Held: No. A stale check is one which has not been presented for payment within a reasonable time after its issue. It is valueless and, therefore, should not be paid. Under the negotiable instruments law, an instrument not payable on demand must be presented for payment on the day it falls due. When the instrument is payable on

22 demand, presentment must be made within a reasonable time after its issue. In the case of a bill of exchange, presentment is sufficient if made within a reasonable time after the last negotiation thereof. A check must be presented for payment within a reasonable time after its issue, and in determining what is a "reasonable time," regard is to be had to the nature of the instrument, the usage of trade or business with respect to such instruments, and the facts of the particular case. The test is whether the payee employed such diligence as a prudent man exercises in his own affairs. This is because the nature and theory behind the use of a check points to its immediate use and payability. Herein, the check involved is not an ordinary bill of exchange but a manager's check. A manager's check is one drawn by the bank's manager upon the bank itself. It is similar to a cashier's check both as to effect and use. A cashier's check is a check of the bank's cashier on his own or another check. In effect, it is a bill of exchange drawn by the cashier of a bank upon the bank itself and accepted in advance by the act of its issuance. It is really the bank's own check and may be treated as a promissory note with the bank as a maker. The check becomes the primary obligation of the bank which issues it and constitutes its written promise to pay upon demand. The mere issuance of it is considered an acceptance thereof. If treated as promissory note, the drawer would be the maker and in which case the holder need not prove presentment for payment or present the bill to the drawee for acceptance. Even assuming that presentment is needed, failure to present for payment within a reasonable time will result to the discharge of the drawer only to the extent of the loss caused by the delay. Failure to present on time, thus, does not totally wipe out all liability. In fact, the legal situation amounts to an acknowledgment of liability in the sum stated in the check. In this case, the Gueco spouses have not alleged, much less shown that they or the bank which issued the manager's check has suffered damage or loss caused by the delay or non-presentment. Definitely, the original obligation to pay certainly has not been erased. It has been held that, if the check had become stale, it becomes imperative that the circumstances that caused its non-presentment be determined. Herein, the bank held on the check and refused to encash the same because of the controversy surrounding the signing of the joint motion to dismiss. The Court saw no bad faith or negligence in this position taken by the Bank. State Investment House vs Court of Appeals Facts: Corazon Victoriano provided pieces of jewelry to Nora Moulic so that the latter may sell the same. As security for the jewelries, Moulic issued to Victoriano two post dated checks in the aggregate amount of P100,000.00. Moulic was not able to sell the jewelries so she returned the same to 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. 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: 1. Whether or not State Investment House inc. was a holder of the check in due course 2. Whether or not Moulic could set up against the petitioner the defense that there was failure or absence of consideration Held:

23 1. Yes, Section 52 of the NIL provides what constitutes a holder in due course. The evidence showed that: on the faces of the post dated checks were complete and regular; that State Investment House Inc. bought the checks from Victoriano before the due dates; that it was taken in good faith and for value; and there was no knowledge with regard that the checks were issued as security and not for value. A prima facie presumption exists that a holder of a negotiable instrument is a holder in due course. Moulic failed to prove the contrary. 2. No, Moulic could only invoke this defense against the petitioner if it was a privy to the purpose for which they were issued and therefore is not a holder in due course. Section 119 of NIL provides how an instruments be discharged. Moulic could only invoke paragraphs c and d as possible grounds for the discharge of the instruments. Since Moulic failed to get back the possession of the checks as provided by paragraph c, intentional cancellation of instrument is impossible. As provided by paragraph d, the acts which will discharge a simple contract of payment of money will discharge the instrument. Correlating Article 1231 of the Civil Code which enumerates the modes of extinguishing obligation, none of those modes outlined therein is applicable in the instant case. Thus, Moulic may not unilaterally discharge herself from her liability by mere expediency of withdrawing her funds from the drawee bank. She was thus liable as she had no legal basis to excuse herself from liability on her check to a holder in due course. Moreover, the fact that the petitioner failed to give notice of dishonor was of no moment. The need for such notice is not absolute; there are exceptions provided by Sec 114 of NIL. Pacifico Arceo, Jr. vs People of the Philippines Facts: On March 14, 1991, petitioner obtained a loan from private complainant Josefino Cenizal in the amount of P100,000.00. Several weeks thereafter, petitioner obtained an additional loan of P50,000.00. Petitioner then issued in favor of Cenizal, Bank of the Philippine Islands BPI Check No. 163255, postdated August 4, 1991, for P150,000.00, at Cenizals house. When August 4, 1991 came, Cenizal did not deposit the check immediately because petitioner promised that he would replace the check with cash. Such promise was made verbally seven times. When his patience ran out, Cenizal brought the check to the bank for encashment. The head office of the Bank of the Philippine Islands informed Cenizal that the check bounced because of insufficient funds. Thereafter, Cenizal went to the house of petitioner to inform him of the dishonor of the check but Cenizal found out that petitioner had left the place. So, Cenizal referred the matter to a lawyer who wrote a letter giving petitioner three days from receipt thereof to pay the amount of the check. Petitioner still failed to make good the amount of the check. As a consequence, Cenizal executed his affidavit and submitted documents in support of his complaint for estafa and violation of BP 22 against petitioner. After due investigation, this case for violation of BP 22 was filed against petitioner on March 27, 1992. The check in question and the return slip were lost by Cenizal as a result of a fire that occurred near his residence on September 16, 1992. Cenizal executed an Affidavit of Loss regarding the loss of the check in question and the return slip. The petitioner was found guilty as charged which the appellate court affirmed. Issue: Whether or not petitioner was liable for the dishonor of the check even if the check was presented beyond the 90-day period provided under the law. Held:

24 The Court ruled that the 90-day period provided in the law is not an element of the offense. Neither does it discharge petitioner from his duty to maintain sufficient funds in the account within a reasonable time from the date indicated in the check. According to current banking practice, the reasonable period within which to present a check to the drawee bank is six months. Thereafter, the check becomes stale and the drawer is discharged from liability thereon to the extent of the loss caused by the delay. Thus, Cenizals presentment of the check to the drawee bank 120 days (four months) after its issue was still within the allowable period. Petitioner was freed neither from the obligation to keep sufficient funds in his account nor from liability resulting from the dishonor of the check. The gravamen of the offense is the act of drawing and issuing a worthless check. Hence, the subject of the inquiry is the fact of issuance or execution of the check, not its content. Here, the due execution and existence of the check were sufficiently established. Cenizal testified that he presented the originals of the check, the return slip and other pertinent documents before the Office of the City Prosecutor of Quezon City when he executed his complaint-affidavit during the preliminary investigation. The City Prosecutor found a prima facie case against petitioner for violation of BP 22 and filed the corresponding information based on the documents. Although the check and the return slip were among the documents lost by Cenizal in a fire that occurred near his residence on September 16, 1992, he was nevertheless able to adequately establish the due execution, existence and loss of the check and the return slip in an affidavit of loss as well as in his testimony during the trial of the case. Moreover, petitioner himself admitted that he issued the check. He never denied that the check was presented for payment to the drawee bank and was dishonored for having been drawn against insufficient funds.