Digested Cases for NEGOTIABLE INSTRUMENTS:

Case
ASSOCIATED BANK
(Now
WESTMONT
BANK), petiti
oner,
vs. VICENTE
HENRY
TAN, respond
ent.

[G.R. No.
156940. December
14, 2004]

PANGANIBAN, J.:

Facts
1. Vicente Henry Tan is a
businessman and a regular
depositor-creditor of the
Associated Bank.
2. Sometime in September 1990, he
deposited a postdated UCPB check
with the said BANK in the amount
of P101,000.00 issued to him by a
certain Willy Cheng from Tarlac.
3. The check was duly entered in his
bank record thereby making his
balance in the amount
of P297,000.00, as of October 1,
1990, from his original deposit
of P196,000.00.
4. Allegedly, upon advice and
instruction of the BANK that
the P101,000.00 check was
already cleared and backed up by
sufficient funds, TAN, on the same
date, withdrew the sum
of P240,000.00, leaving a balance
of P57,793.45.
5. A day after, TAN deposited the
amount of P50,000.00 making his
existing balance in the amount
of P107,793.45, because he has
issued several checks to his
business partners.
6. However, hisSUPPLIERS and

Issues
whether or not the
petitioner, which is
acting as a
collecting bank,
has the right to
debit the account
of its client for a
check deposit
which was
dishonored by the
drawee bank.

Held
The Petition has no merit.
Doctrine : right to setof
A bank generally has a right of setof
over the deposits therein for the
payment of any withdrawals on the
part of a depositor.
The right of a collecting bank to debit
a clients account for the value of a
dishonored check that has previously
been credited has fairly been
established by jurisprudence.
Article 1980 of the Civil Code:
[f]ixed, savings, and current deposits
of money in banks and similar
institutions shall be governed by the
provisions concerning simple loan.
Hence, the relationship between
banks and depositors has been held
to be that of creditor and debtor.
The liability of petitioner in this case
ultimately revolves around the issue of
whether it properly exercised its right of
setof. The determination thereof hinges, in
turn,
on
the
banks
role
and

business partners went back to

him alleging that the checks he
issued bounced for insufficiency of
funds.
7. Thereafter, TAN, thru his lawyer,
informed the BANK to take positive
steps regarding the matter for he
has adequate and sufficient funds
to pay the amount of the subject
checks. Nonetheless, the BANK did
not bother nor ofer any apology
regarding the incident.
8. Consequently, TAN, as plaintif,
filed a Complaint for Damages on
December 19, 1990, with the
Regional Trial Court, against the
BANK, as defendant.
RTC: rendred decision in favour of the
respondents.
Rationale:
a. it was shown that [respondent] was
not officially informed about the
debiting of the P101,000.00 [from] his
existing balance and that the BANK
merely allowed the [respondent] to
use the fund prior to clearing merely
for accommodation because the BANK
considered him as one of its valued
clients.
b. The trial court ruled that the bank

obligations, first,
as
respondents
depositary bank; and second, as collecting
agent for the check in question.
Obligation as
Depositary Bank
In BPI v. Casa Montessori, a bank is
under obligation to treat the
accounts of its depositors with
meticulous care.
Philippine Bank of Commerce v.
Court of Appeals[16] has held that the
degree of diligence required of banks
is more than that of a good father of
a family where the fiduciary nature of
their relationship with their
depositors is concerned.
SOLE QUESTION: Did petitioner treat
respondents account with the highest
degree of care? From all indications, it did
not.
that purportedly as an act of
accommodation to a valued client,
petitioner allowed the withdrawal of
the face value of the deposited check
prior to its clearing.
That act certainly disregarded the
clearance requirement of the banking

manager was negligent in handling

the particular checking account of the
[respondent] stating that such lapses
caused all the inconveniences to the
[respondent].
CA RULING: Affirmed the decision of
the RTC
Rationale:
a. the bank should not have
authorized the withdrawal of the
value of the deposited check prior to
its clearing.
b. Having done so, contrary to its
obligation to treat respondents
account with meticulous care, the
bank violated its own policy. It
thereby took upon itself the obligation
to officially inform respondent of the
status of his account before
unilaterally debiting the amount
of P101,000. Without such notice, it is
estopped from blaming him for failing
to fund his account.

system. Such a practice is unusual,

because a check is not legal tender
or money;[21] and its value can
properly
be
transferred
to
a
depositors account only after the
check has been cleared by the
drawee bank.
Obligation as
Collecting Agent
by the express terms of the
stipulation, petitioner took upon itself
certain obligations as respondents
agent, consonant with the wellsettled rule that the relationship
between the payee or holder of a
commercial paper and the collecting
bank is that of principal and agent.[28]
Under Article 1909[29] of the Civil
Code, such bank could be held liable
not only for fraud, but also for
negligence.
IN CONCLUSION:
It is undeniable that the banks
premature authorization
of the
withdrawal by respondent on October
1, 1990, triggered -- in rapid
succession and in a natural sequence

-- the debiting of his account, the fall

of his account balance to insufficient
levels, and the subsequent dishonor
of his own checks for lack of funds.
petitioner failed to show that it had
immediately and duly informed
respondent of the debiting of his
account.
WHAT THE BANK FAILED TO DO:
First, notice was proper and ought to be
expected. By the bank managers account,
respondent was considered a valued client
whose checks had always been sufficiently
funded from 1987 to 1990,[36] until the
October imbroglio. Thus, he deserved
nothing less than an official notice of the
precarious condition of his account.
Second, under the provisions of the
Negotiable Instruments Law regarding the
liability of a general indorser[37] and the
procedure for a notice of dishonor,[38] it was
incumbent on the bank to give proper
notice to respondent.
Petition is DENIED and the assailed
Decision AFFIRMED

LUIS

S.

1.

WONG, petitioner,
2.

vs.
COURT

OF

APPEALS
PEOPLE

and
OF

3.

THE

PHILIPPINES, respo
ndents.
4.

G.R.
117857

No.
Febru

ary 2, 2001
QUISUMBING, J.:

5.

6.

7.

8.

Petitioner Wong was an agent of

Limtong Press. Inc. (LPI), a
manufacturer of calendars.
LPI would print sample calendars,
then give them to agents to
present to customers.
The agents would get the purchase
orders of customers and forward
them to LPI. After printing the
calendars, LPI would ship the
calendars directly to the
customers.
Thereafter, the agents would come
around to collect the payments.
Petitioner, however, had a history
of unremitted collections, which he
duly acknowledged in a
confirmation receipt he co-signed
with his wife.2
Hence, petitioners customers were
required to issue post-dated
checks before LPI would accept
their purchase orders.
In early December 1985, Wong
issued six (6) postdated checks
totaling P18,025.00, all dated
December 30, 1985 and drawn
payable to the order of LPI.
These checks were initially
intended to guarantee the
calendar orders of customers who
failed to issue post-dated checks.
However, following company

Whether or not the

prosecution was able
to establish beyond
reasonable doubt all
the elements of the
ofense penalized
under B.P. Blg. 22.

There are two (2) ways of violating B.P. Blg.

22: (1) by making or drawing and issuing a
check to apply on account or for value
knowing at the time of issue that the check
is not sufficiently funded; and (2) by having
sufficient funds in or credit with the drawee
bank at the time of issue but failing to keep
sufficient funds therein or credit with said
bank to cover the full amount of the check
when presented to the drawee bank within
a period of ninety (90) days.17
The elements of B.P. Blg. 22 under the first
situation, pertinent to the present case,
are:18
(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

policy, LPI refused to accept the

checks as guarantees. Instead, the
parties agreed to apply the checks
to the payment of petitioners
unremitted collections for 1984
amounting to P18,077.07.3 LPI
waived the P52.07 diference.
Before the maturity of the checks,
petitioner prevailed upon LPI not to
deposit the checks and promised to
replace

them

within

30

days.

However, petitioner reneged on his

promise. Hence, on June 5, 1986, LPI
deposited
Commercial

the

checks

Banking

with

Rizal

Corporation

(RCBC). The checks were returned for

the reason account closed. The
dishonor of the checks was evidenced
by the RCBC return slip.
9.

complainant

through

counsel

notified the petitioner of the dishonor.

Petitioner

failed

to

make

arrangements for payment within five

(5) banking days.
10. petitioner was charged with three
(3) counts of violation of B.P. Blg.

funds or credit or dishonor for the same

reason had not the drawer, without any
valid cause, ordered the bank to stop
payment.
1ST ELEMENT : what B.P. Blg. 22 punishes is
the issuance of a bouncing check and not
the purpose for which it was issued nor the
terms and conditions relating to its
issuance.
2ND ELEMENT: B.P. Blg. 22 creates a
presumption juris tantum that the second
element prima facieexists when the first
and third elements of the ofense are
present.20 Thus, the makers knowledge is
presumed from the dishonor of the check
for insufficiency of funds.
An essential element of the ofense is
knowledge on the part of the
maker or drawer of the check of the
insufficiency of his funds in or credit
with the bank to cover the check
upon its presentment.
Contrary to petitioners assertions,
nowhere in said provision does the
law require a maker to maintain
funds in his bank account for only 90
days.
Rather, the clear import of the law is

224 under three separate Informations

for the three checks amounting to
P5,500.00, P3,375.00, and P6,410.00.
MTC: Luis S. Wong GUILTY beyond
reasonable doubt of the ofense of
Violations

of

Section

of

Batas

Pambansa Bilang 22 in THREE (3)

Counts and is hereby sentenced to
serve an imprisonment of FOUR (4)
MONTHS for each count;

to establish a prima
facie presumption of knowledge of
such insufficiency of funds under the
following conditions (1) presentment
within 90 days from date of the
check, and (2) the dishonor of the
check and failure of the maker to
make arrangements for payment in
full within 5 banking days after notice
thereof.
That the check must be deposited
within ninety (90) days is simply one
of the conditions for the prima
facie presumption of knowledge of
lack of funds to arise. It is not an
element of the ofense.

CA: Affirmed the trial courts decision

in toto

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.
a check becomes stale after more than
six (6) months,23 or 180 days. Private
respondent herein deposited the checks
157 days after the date of the check.
Hence said checks cannot be considered
stale. Only the presumption of knowledge
of insufficiency of funds was lost, but such
knowledge could still be proven by direct or

circumstantial evidence.
SUMMARY:
private respondent did not deposit the
checks because of the reassurance of
petitioner that he would issue new checks.
Upon his failure to do so, LPI was
constrained to deposit the said checks
After the checks were dishonored,
petitioner was duly notified of such fact but
failed to make arrangements for full
payment within five (5) banking days
thereof.
There is, on record, sufficient evidence
that petitioner had knowledge of the
insufficiency of his funds in or credit with
the drawee bank at the time of issuance of
the checks.
petition is DENIED. Petitioner Luis S. Wong
is found liable for violation of Batas
Pambansa Blg. 22 but the penalty imposed
on him is hereby MODIFIED so that the
sentence of imprisonment is deleted.