Compiled Case Digest-NEGO

Negotiable Instruments Law Case Digests
SBCA-SOL 14-15
Agapay.Albarillo.Ambito.Arevalo.Baguilat.Bunag.Cabrera.Claveria.Escalona.Fernando.Ferrer.Flores.Hernando.Hipolito.Lara.Melgar .Mella.Nasam.Nunez.Retardo.Rodriguez.Soriano.Tamayao.Ubaldo
Negotiability
Philippine Education v. Soriano
GR L-22405, 30 June 1971 || Negotiability
FACTS:
Enrique Montinola sought to purchase from the Manila Post Office 10
money orders (P200 each), offering to pay for them with a private check.
Montinola was able to leave the building with his check and the 10 money
orders without the knowledge of the teller. Upon discovery, message was
sent to all postmasters and banks involving the unpaid money orders. One
of the money orders was received by the Philippine Education Co. as part
of its sales receipt. It was deposited by the company with the Bank of
America, which cleared it with the Bureau of Post. The Postmaster,
through the Chief of the Money Order Division of the Manila Post Office
informed the bank of the irregular issuance of the money order. The bank
debited the account of the company. The company moved for
reconsideration.
ISSUE:
Whether postal money orders are negotiable instruments
HELD:
Philippine postal statutes are patterned from those of the United States,
and the weight of authority in said country is that Postal money orders are
not negotiable instruments inasmuch as the establishment of a postal
money order is an exercise of governmental power for the publics benefit.
Furthermore, some of the restrictions imposed upon money order by
postal laws and regulations are inconsistent with the character of
negotiable instruments. For instance, postal money orders may be
withheld under a variety of circumstances, and which are restricted to not
more than one indorsement.
Caltex Philippines vs. Court of Appeals
212 SCRA 448 G.R. No. 97753 || Negotiability
FACTS:
280 Certificates of Time Deposit (CTDs) were issued by the
Security Bank and Trust Company in favor of Angel Dela Cruz, who
deposited a collective amount of Php 1,120,000. Such CTDs were
then delivered by Dela Cruz to Caltex Phils. for the purchase of fuel
products.
Dela Cruz lost all the CTDs in March 1982 and informed the
manager of Security Bank. The manager arranged for the
replacement of the lost CTDs upon compliance of Dela Cruz to
their bank procedure which entails execution of a notarized
Affidavit of Loss.
Upon replacement of the allegedly lost CTDs, Dela Cruz obtained a
loan of P875,000 from same bank. He then executed a notarized
Deed of Assignment of Time Deposit, surrendering to the bank full
control of the time deposit account, allowing the latter to apply the
said time deposits to the payment of whatever amounts may be
due on the loan upon maturity.
On the other hand, in November 1982, Mr. Aranas, the credit
manager of Caltex, presented to Security Bank for verification the
CTDs declared lost by Dela Cruz. Aranas claimed that the same
were delivered to Caltex as security for purchases made.
Accordingly, Security Bank rejected Caltexs demand for the
payment of the value of the CTDs.
In April 1983, the loan of Dela Cruz with the Security Bank
matured and the latter applied the time deposits in question as
payment of the matured loan.
Caltex then filed a complaint demanding payment of the value of
the CTDs plus accrued interest and compounded interest.
The Regional Trial Court dismissed the case. The Court of Appeals
also dismissed the case.
ISSUE(S):
1. Whether or not the subject Certificates of Time Deposit are
negotiable instruments
2. Whether or not Caltex can recover the value of the CTDs
HELD:
1. YES. A sample text of the CTD states: This is to Certify that B E A
R E R has deposited in this Bank the sum of PESOS: FOUR
THOUSAND ONLY, SECURITY BANK SUCAT OFFICE P4,000 & 00
CTS Pesos, Philippine Currency, repayable to said depositor 731
days. After date, upon presentation and surrender of this
certificate, with interest at the rate of 16% per cent per annum.
Section 1 of the NIL requires among others, that for an instrument
to be negotiable, it must be payable to the order or to bearer (par.
1 |C a b u c h a n . N e g o C a s e D i g e s t s
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D). The accepted rule is that the negotiability or non-negotiability

of an instrument is determined from the writing, that is, from the
face of the instrument itself. The documents provide that the
amounts deposited shall be repayable to the depositor. The court
ruled that the depositor indicated is actually the bearer. The
documents do not say that the depositor is Angel Dela Cruz and
that the amounts deposited are payable only to him. If it was really
the intention of the bank to pay the amount to Dela Cruz only, then
it could have so expressed in clear and categorical terms instead of
having the word bearer stamped on the space provided for the
name of the depositor in each CTD.
The Security Bank, through its manager, testified that the
depositor referred to is Angel Dela Cruz. However, the court ruled
that the manager merely declared that Dela Cruz is the depositor,
insofar as the bank is concerned, but obviously other parties not
privy to the transaction between them would not know that the
depositor is not the bearer stated in the CTDs. Hence, the situation
would require any party dealing with the CTDs to go behind the
plain import of what is written thereon. This need for resort to
extrinsic evidence is what is sought to be avoided by the NIL and
calls for application of the elementary rule that the interpretation
of obscure words or stipulations in a contract shall not favor the
party who caused the obscurity.
2. NO. Unfortunately for Caltex, although the CTDs are bearer
instruments, a valid negotiation thereof for the purpose and
agreement between it and Dela Cruz, requires both delivery and
indorsement.
As stated by Mr. Aranas in a letter addressed to the bank, these
certificates of deposit were negotiated to us by Mr. Dela Cruz to
guarantee his purchases of fuel products. This admission is
conclusive upon Caltex. Under the doctrine of Estoppel, an
admission is rendered conclusive upon the person making it and
cannot be denied against the person relying thereon. If it were
true that the CTDs were delivered as payment and not as security,
Aranas could have easily said so, instead of using the words to
guarantee.
Under the NIL, an instrument is negotiated when it is transferred

from one person to another in such a manner as to constitute the
transferee the holder thereof, and a holder may be the payee or
indorsee of a bill or note, who is in possession of it, or the bearer
thereof. In the present case, however, there was no negotiation in
the sense of a transfer of a legal title, in which case delivery would
have sufficed. Here, the delivery of the CTDs was only as security
for the purchases of Dela Cruz. Therefore, Caltex could only have
been a holder for value by reason of lien. Accordingly, a negotiation
for such purpose cannot be effected by mere delivery of the
instrument because the terms thereof and the subsequent
disposition of such security, in the event of non-payment of the
principal obligation, must be contractually provided for.
Metropolitan Bank vs Court of Appeals
194 SCRA 169 || Negotiability
FACTS:
Eduardo Gomez opened an account with Golden Savings and deposited 38
treasury warrants over a period of two months. These warrants were all
drawn by the Philippine Fish Marketing Authority and purportedly signed
by its General Manager and counter-signed by its Auditor. Six of these
were directly payable to Gomez while the others appeared to have been
indorsed by their respective payees, followed by Gomez as second
indorser.
All these warrants were subsequently indorsed by Gloria Castillo as
Cashier of Golden Savings and deposited to its Savings Account in
Metrobank, Calapan branch. The warrants were then sent to the main
office of Metrobank and then to the Bureau of Treasury for special
clearing.
More than two weeks after the deposits, Gloria Castillo went to Metrobank
several times to ask whether the warrants had been cleared. Later,
however, "exasperated" over Gloria's repeated inquiries and also as an
accommodation for a "valued client," the Metrobank allowed Golden
Savings to withdraw from the proceeds of the warrants.
Three withdrawal were made by Golden Savings with a total amount of
P968,000.00 and in turn, Golden Savings allowed Gomez to make
withdrawals from his own account, eventually collecting the total amount
of P1,167,500.00 from the proceeds of the apparently cleared warrants.
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After the withdrawal of Gomez, Metrobank informed Golden Savings that

32 of the warrants had been dishonored by the Bureau of Treasury
because of the forgery of the signatures of the drawers and demanded the
refund of the amount it had previously withdrawn but the demand was
rejected.
The Regional Trial Court rendered judgment in favor of Golden Savings
and on appeal, the decision of the lower court was affirmed.
ISSUES:
(1) Whether or not the instruments are negotiable
(2) Whether or not Golden Savings should be held liable for its warranty
as general indorser
HELD:
(1) No. Clearly stamped on their face is the word, non-negotiable and
that they are payable from a particular fund, Fund 501. According to
Section 1 and Section 3 of the Negotiable Instruments Law, the indication
of Fund 501 as the source of payment to me be made on the treasury
warrants makes the order or promise to pay not unconditional and the
warrants themselves non-negotiable.
(2) No. Metrobank cannot also contend that the act of Golden Savings of
indorsing the warrants assumed that they were genuine in all respects
what they purport to be since according to Section 66 of the Negotiable
Instruments Law, it is only applicable to negotiable treasury warrants.
The indorsement was made by Gloria Castillo not for the purpose of
guaranteeing the genuineness of the warrants but to deposit them with
Metrobank for clearing. It was Metrobank that made the guarantee by
stamping in the back of the warrants: All prior indorsement and/or lack
of endorsements guaranteed, Metropolitan Bank & Trust Co., Calapan
Branch
Further, Metrobank was negligent of giving the clearance and assurance to
Golden Savings that it was already safe for Gomez to withdraw the
proceeds of the treasury warrants due to it being exasperated with the
continuous inquiry of Gloria Castillo. It is important to note that without
such assurance given by Metrobank, Golden Savings would not have
allowed such transaction.
Sesbreno vs. CA
GR 89252, 24 May 1993
FACTS:
On 9 February 1981, Raul Sesbreno made a money market
placement in the amount of P300,000 with the Philippine Underwriters
Finance Corporation (PhilFinance), with a term of 32 days. PhilFinance
issued to Sesbreno the Certificate of Confirmation of Sale of a Delta Motor
Corporation Promissory Note (2731), the Certificate of Securities Delivery
Receipt indicating the sale of the note with notation that said security was
in the custody of Pilipinas Bank, and postdated checks drawn against the
Insular Bank of Asia and America for P304,533.33 payable on 13 March
1981. The checks were dishonored for having been drawn against
insufficient funds.
Pilipinas Bank never released the note, nor any instrument related
thereto, to Sesbreno; but Sesbreno learned that the security was issued 10
April 1980, maturing on 6 April 1981, has a face value of P2,300,833.33
with PhilFinance as payee and Delta Motors as maker; and was stamped
non-negotiable on its face. As Sesbreno was unable to collect his
investment and interest thereon, he filed an action for damages against
Delta Motors and Pilipinas Bank.
ISSUE:
Whether non-negotiability of a promissory note prevents its assignment.
HELD:
Only an instrument qualifying as a negotiable instrument under
the relevant statute may be negotiated either by indorsement thereof
coupled with delivery, or by delivery alone if it is in bearer form. A
negotiable instrument, instead of being negotiated, may also be assigned
or transferred. The legal consequences of negotiation and assignment of
the instrument are different. A negotiable instrument may not be
negotiated but may be assigned or transferred, absent an express
prohibition against assignment or transfer written in the face of the
instrument. herein, there was no prohibition stipulated.
FIRESTONE TIRE VS CA
GR No. 113236 || Negotiability
FACTS:
Fojas-Arca purchased tires from petitioner with special withdrawal slips
drawn upon Fojas-Arca's special savings account with respondent bank.
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Petitioner in turn deposited these withdrawal slips with Citibank. The

latter credited the same to petitioner's current account, then presented
the slips for payment to respondent bank. This singular circumstance
made plaintiff believe and rely on the fact that the succeeding special
withdrawal slips drawn upon the defendant would be sufficiently funded.
Thereafter, Fojas-Arca, again, purchased Firestone products on credit
using withdrawal slips. On December 14, 1978, Citibank informed
petitioner that special withdrawal slips Nos. 42127 and 42129 dated June
15, 1978 and August 15, 1978, respectively, were refused payment by
respondent bank due to insufficiency of Fojas-Arca's funds on deposit.
That information came about six months from the time Fojas-Arca
purchased tires from petitioner using the subject withdrawal slips.
Citibank then debited the amount of these withdrawal slips from
petitioner's account, causing the alleged pecuniary damage subject of
petitioner's cause of action.
ISSUE:
Whether or not respondent bank should be held liable for damages
suffered by petitioner, due to its allegedly belated notice of non-payment
of the subject withdrawal slips
HELD:
No, respondent bank should not be held liable. Petitioner admitted that
the withdrawal slips in question were non-negotiable. Hence, the rules
governing the giving of immediate notice of dishonor of negotiable
instruments do not apply in this case. Thus, respondent bank was under
no obligation to give immediate notice that it would not make payment on
the subject withdrawal slips. The essence of negotiability which
characterizes a negotiable paper as a credit instrument lies in its freedom
to circulate freely as a substitute for money. The withdrawal slips in
question lacked this character.
Citibank should have known that withdrawal slips were not negotiable
instruments. Citibank was not bound to accept the withdrawal slips as a
valid mode of deposit. But having erroneously accepted them as such,
Citibank and petitioner as account-holder must bear the risks
attendant to the acceptance of these instruments. Petitioner and Citibank
could not now shift the risk and hold private respondent liable for their
admitted mistake.
Payable to Bearer
ANG TEK LIAN v. CA

G.R. No. L-2516 || Payable to Bearer
FACTS:
For having issued a rubber check, AngTekLian was convicted of estafa in
the Court of First Instance of Manila. The Court of Appeals affirmed the
verdict.
Knowing he had no funds therefor, AngTekLian drew the check upon the
China Banking Corporation for the sum of P4,000, payable to the order of
"cash". He delivered it to Lee Hua Hong in exchange for money which the
latter handed in act. On November 18, 1946, the next business day, the
check was presented by Lee Hua Hong to the drawee bank for payment,
but it was dishonored for insufficiency of funds, the balance of the deposit
of AngTekLian on both dates being P335 only.
ISSUE:
WoN the check in question need endorsement considering that it is made
payable to the order of cash
HELD:
It depends upon the circumstances of each transaction.Under the
Negotiable Instruments Law (sec. 9 [d], a check drawn payable to the
order of "cash" is a check payable to bearer, and the bank may pay it to the
person presenting it for payment without the drawer's indorsement.
A check payable to the order of cash is a bearer instrument. 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.
Of course, if the bank is not sure of the bearer's identity or financial
solvency, it has the right to demand identification and /or assurance
against possible complications, for instance, (a) forgery of drawer's
signature, (b) loss of the check by the rightful owner, (c) raising of the
amount payable, etc. The bank may therefore require, for its protection,
that the indorsement of the drawer or of some other person known to
it be obtained. But where the Bank is satisfied of the identity and /or
the economic standing of the bearer who tenders the check for collection,
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it will pay the instrument without further question; and it would incur no
liability to the drawer in thus acting.
Petition dismissed. CAs decision affirmed.
Complete but Undelivered
Development Bank of Rizal vs. Sima Wei
GR 85419 || Complete but undelivered. (Section 16 of Negotiable
Instruments Law)
Facts:
Sima We executed and delivered to the Development Bank of Rizal(DBR) a
promissory note, engaging to pay DBR or order the amount of
P1,820,000.00 with interest at 32% per annum. Sima Wei made partial
payments on the note, leaving a balance of P1,032,450.02. Sima Wei
issued two crossed checks payable to DBR drawn against China Banking
Corporation, bearing respectively the serial numbers 384934, for the
amount of P550,000.00 and 384935, for the amount of P500,000.00. The
said checks were allegedly issued in full settlement of the drawer's
account evidenced by the promissory note. These two checks were not
delivered to DBR or to any of its authorized representatives. For reasons
not shown, these checks came into the possession of Lee Kian Huat, who
deposited the checks without DBR's indorsement (forged or otherwise) to
the account of the Asian Industrial Plastic Corporation, at the Balintawak
branch, Caloocan City, of the Producers Bank. Cheng Uy, Branch Manager
of the Balintawak Branch of Producers Bank, relying on the assurance of
Samson Tung, President of Plastic Corporation, that the transaction was
legal and regular, instructed the cashier of Producers Bank to accept the
checks for deposit and to credit them to the account of said Plastic
Corporation, inspite of the fact that the checks were crossed and payable
to DBR and bore no indorsement of the latter.
Issue:
Whether DBR, as the intended payee of the instrument, has a cause of
action against any or all of the defendants, in the alternative or otherwise
Held:
No. A negotiable instrument, of which a check is, is not only a written
evidence of a contract right but is also a species of property. Just as a deed
to a piece of land must be delivered in order to convey title to the grantee,
so must a negotiable instrument be delivered to the payee in order to
evidence its existence as a binding contract. Section 16 of the Negotiable

Instruments Law, which governs checks, provides in part that "Every
contract on a negotiable instrument is incomplete and revocable until
delivery of the instrument for the purpose of giving effect thereto."
Therefore, the payee of a negotiable instrument acquires no interest with
respect thereto until its delivery to him. Delivery of an instrument means
transfer of possession, actual or constructive, from one person to another.
Without the initial delivery of the instrument from the drawer to the
payee, there can be no liability on the instrument. Moreover, such delivery
must be intended to give effect to the instrument. The two (2) China Bank
checks were not delivered to the payee, DBR. Without the delivery of said
checks to DBR, the former did not acquire any right or interest therein and
cannot therefore assert any cause of action, founded on said checks,
whether against the drawer Sima Wei or against the Producers Bank or
any of the other respondents. Since DBR never received the checks on
which it based its action against said respondents, it never owned them
(the checks) nor did it acquire any interest therein. Thus, anything which
the respondents may have done with respect to said checks could not
have prejudiced DBR. It had no right or interest in the checks which could
have been violated by said respondents. DBR has therefore no cause of
action against said respondents, in the alternative or otherwise. If at all, it
is Sima Wei, the drawer, who would have a cause of action against her corespondents, if the allegations in the complaint are found to be true.
*A cause of action is defined as an act or omission of one party in violation
of the legal right or rights of another. The essential elements are: (1) legal
right of the plaintiff; (2) correlative obligation of the defendant; and (3) an
act or omission of the defendant in violation of said legal right.
Liability of Persons Signing
Philippine Bank of Commerce vs. Aruego
GR L-25836-37 || Liability of persons signing as agent. (Section 20)
FACTS;
On December 1, 1959, the Philippine Bank of Commerce instituted against
Jose M. Aruego Civil Case No. 42066 for the recovery of the total sum of
about P35,000.00 with daily interest thereon from November 17, 1959
until fully paid and commission equivalent to 3/8% for every thirty (30)
days or fraction thereof plus attorney's fees equivalent to 10% of the total
amount due and costs. The complaint filed by the Philippine Bank of
Commerce contains twenty-two (22) causes of action referring to twenty5 |C a b u c h a n . N e g o C a s e D i g e s t s
SBCA-SOL 14-15
two (22) transactions entered into by the said Bank and Aruego on
different dates covering the period from August 28, 1950 to March 14,
1951. The sum sought to be recovered represents the cost of the printing
of "World Current Events," a periodical published by the defendant. To
facilitate the payment of the printing the defendant obtained a credit
accommodation from the plaintiff. Thus, for every printing of the "World
Current Events," the printer, Encal Press and Photo Engraving, collected
the cost of printing by drawing a draft against the plaintiff, said draft being
sent later to the defendant for acceptance. As an added security for the
payment of the amounts advanced to Encal Press and Photo-Engraving,
the plaintiff bank also required defendant Aruego to execute a trust
receipt in favor of said bank wherein said defendant undertook to hold in
trust for plaintiff the periodicals and to sell the same with the promise to
turn over to the plaintiff the proceeds of the sale of said publication to
answer for the payment of all obligations arising from the draft.
Defendant filed an answer interposing for his defense that he signed the
drafts in a representative capacity, that he signed only as accommodation
party and that the drafts signed by him were not really bills of exchange
but mere pieces of evidence of indebtedness because payments were
made before acceptance.
ISSUE:
1. WHether the drafts Aruego signed were bills of exchange?
2. Whether Aruego can be held liable by the petitioner although he signed
the supposed bills of exchange only as an agent of Philippine Education
Foundation Company.
RULING:
1. YES. Under the Negotiable Instruments Law, a bill of exchange is an
unconditional order in writting addressed by one person to another,
signed by the person giving it, requiring the person to whom it is
addressed to pay on demand or at a fixed or determinable future time a
sum certain in money to order or to bearer. As long as a commercial paper
conforms with the definition of a bill of exchange, that paper is considered
a bill of exchange. The nature of acceptance is important only in the
determination of the kind of liabilities of the parties involved, but not in
the determination of whether a commercial paper is a bill of exchange or
not.
2. Yes. Section 20 of the Negotiable Instruments Law provides that "Where
the instrument contains or a person adds to his signature words

indicating that he signs for or on behalf of a principal or in a
representative capacity, he is not liable on the instrument if he was duly
authorized; but the mere addition of words describing him as an agent or
as filing a representative character, without disclosing his principal, does
not exempt him from personal liability."An inspection of the drafts
accepted by the defendant shows that nowhere has he disclosed that he
was signing as a representative of the Philippine Education Foundation
Company. He merely signed as follows: JOSE ARUEGO (Acceptor) (SGD)
JOSE ARGUEGO For failure to disclose his principal, Aruego is personally
liable for the drafts he accepted.
FRANSISCO V. COURT OF APPEALS
319 SCRA 354 || Section 20
FACTS:
A. Fransisco Realty and Development and Herby Commercial and
Construction Corporation entered into a Land Development and
Construction Contract. Fransisco was the president of AFRDC while
Ong was the president of HCCC. It was agreed upon that HCCC
would undertake the construction of housing units and the development
of a large parcel of land. The payment would be on a turnkey basis. To
facilitate the payment, AFDRC executed a Deed of Assignment to
enable the HCCC to collect payments from the GSIS. Further, they
opened an account with a bank from which checks would be issued by
Fransisco and the GSIS president.
HCCC later on filed a complaint for the unpaid balance in pursuance to its
agreement with AFRDC. However, an amicable settlement ensued, which
was embodied in a Memorandum of Agreement. It was embodied in said
agreement that GSIS recognizes its indebtedness to HCCC and that HCCC
would also pay its obligations to AFRDC. A year later, it was found out
that Diaz and Fransisco had drawn checks payable to Ong. Ong denied
accepting said checks and it was further found out that Diaz entrusted
the checks to Fransisco who later forged the signature of Ong, showing
that he indorsed the checks to her and then she deposited the checks to
her personal savings account. This incident prompted Ong to file a
complaint against Fransisco.
HELD:
Ongs signature was found to be forged by Fransisco. Fransiscos
contention that he was authorized to sign Ongs name in her favor
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giving her authority to collect all the receivables of HCCC from GSIS. This
contention is bereft of any merit. The Negotiable Instruments Law
provides that when a person is under obligation to indorse in a
representative capacity, he may indorse in such terms as to negative
personal liability. An agent, when so signing, should indicate that he is
merely signing as an agent in behalf of the principal and must disclose
the name of his principal.
Otherwise, he will be held liable
personally. And assuming she was indeed authorized, she didn't
comply with the requirements of the law. Instead of signing Ongs
name, she should have signed in her own name as agent of HCCC. Thus,
her contentions cannot support or validate her acts of forgery.
Forgery
Jai-Alai Corp. of the Phil. vs. Bank of the Phil. Islands

G.R. No. L-29432 || Forgery
FACTS:
Petitioner deposited 10 checks in its current account with BPI. The checks
which were acquired by petitioner from Ramirez, a sales agent of the
Inter-Island Gas were all payable to Inter-Island Gas Service, Inc. or
order. After the checks had been submitted to Inter-bank clearing, InterIsland Gas discovered that all the indorsements made on the checks
purportedly by its cashiers were forgeries. BPI thus debited the value of
the checks against petitioner's current account and forwarded to the latter
the checks containing the forged indorsements which petitioner refused
to accept.
ISSUE:
Whether BPI had the right to debit from petitioner's current account the
value of the checks with the forged indorsements
RULING:
BPI acted within legal bounds when it debited the petitioner's
account. Having indorsed the checks to respondent bank, petitioner is
deemed to have given the warranty prescribed in Section 66 of the NIL
that every single one of those checks "is genuine and in all respects what it
purports to be." Respondent which relied upon the petitioner's warranty
should not be held liable for the resulting loss.
respondent bank, petitioner is deemed to have given the warranty

prescribed in Section 66 of the NIL that every single one of those checks "
is genuine and in all respects what it purports to be."
FACTS:
Republic Bank v. Ebrada

65 SCRA 680 || Forgery
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 the bank can recover from the last indorser.
HELD:
According to Section 23 of the Negotiable Instruments Law, where

the signature on a negotiable instrument is forged, the negotiation of the
check is without force or effect. However, following the ruling in Beam vs.
Farrel (US case), where a check has several indorsements on it, only the
negotiation based on the forged or unauthorized signature which is
inoperative. The last indorser, Ebrada, was duty-bound to ascertain
whether the check was genuine before presenting it to the bank for
payment. Her failure to do so makes her liable for the loss and the Bank
may recover from her the money she received for the check. Had she
performed her duty, the forgery would have been detected and fraud
defeated. Even if she turned over the amount to Dominguez immediately
after receiving the cash proceeds of the check, she is liable as an
accommodation party under Section 29 of the Negotiable Instruments
Law.
The depositor of a check as indorser warrants that it is genuine and in all

respects what it purports to be. Having indorsed the checks to
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MWSS vs. Court of Appeals

143 SCRA 20||Forgery
FACTS:
Metropolitan Waterworks and Sewerage System (hereinafter referred to
as MWSS) is a government owned and controlled corporation created
under Republic Act No. 6234 as the successor-in- interest of the defunct
NWSA. The Philippine National Bank (PNB for short), on the other hand, is
the depository bank of MWSS and its predecessor-in-interest NWSA.
When it was still called NAWASA, MWSS made a special arrangement with
PNB so that it may have personalized checks to be printed Mesina
Enterprises. These personalized checks are the ones being used by MWSS
in its business transactions.
From March to May 1969, MWSS issued 23 checks to various payees in the
aggregate amount of P320,636.26. During the same months, another set of
23 checks containing the same check numbers earlier issued were forged.
The aggregate amount of the forged checks amounted to P3,457,903.00.
This amount was distributed to the bank accounts of three persons:
Arturo Sison, Antonio Mendoza, and Raul Dizon.
MWSS then demanded PNB to restore the amount of P3,457,903.00. PNB
refused. The trial court ruled in favor of MWSS but the Court of Appeals
reversed the trial courts decision.
ISSUE:
Whether or not PNB should restore the said amount
HELD:
No. MWSS is precluded from setting up the defense of forgery. It has been
proven that MWSS has been negligent in supervising the printing of its
personalized checks. It failed to provide security measures and coordinate
the same with PNB. Further, the signatures in the forged checks appear to
be genuine as reported by the National Bureau of Investigation so much so
that the MWSS itself cannot tell the difference between the forged
signature and the genuine one. The records likewise show that MWSS
failed to provide appropriate security measures over its own records
thereby laying confidential records open to unauthorized persons. Even if
the twenty-three (23) checks in question are considered forgeries,
considering the MWSSs gross negligence, it is barred from setting up the
defense of forgery under Section 23 of the Negotiable Instruments Law.
We cannot fault the respondent drawee Bank for not having detected the
fraudulent encashment of the checks because the printing of the
petitioners personalized checks was not done under the supervision and
control of the Bank. There is no evidence on record indicating that
because of this private printing the petitioner furnished the respondent
Bank with samples of checks, pens, and inks or took other precautionary
measures with the PNB to safeguard its interests.
Under the circumstances, therefore, the petitioner was in a better position
to detect and prevent the fraudulent encashment of its checks.
The Supreme Court further emphasized that forgery cannot be presumed.
It must be established by clear, positive, and convincing evidence. This
was not done in the present case.
Banco De Oro vs Equitable Banking Corporation
FACTS:
Banco de Oro (BDO), through its Visa Card Department, drew six
crossed Managers check with the total amount of P45,982.23 payable to
certain member establishments of Visa Card. The checks were deposited
with Equitable Bank to the credit of its depositor, Aida Trencio.
After stamping at the back of the checks the usual endorsements,
All prior and/or lack of endorsement guarantee, the defendant sent the
checks for clearing to Philippine Clearing House Corporation (PCHC).
BDO paid the checks and its clearing account was debited for the
value of the checks and Equitable Banks clearing account was debited for
the same amount.
Thereafter, BDO discovered that the endorsements at the back of
the checks and purporting to be that of the payees were forged and/or
unauthorized or otherwise, belonging to persons other than the payees.
BDO then presented the checks directly to Equitable Bank for the
purpose of claiming reimbursement from the latter. However, Equitable
Bank refused to accept such direct presentation and to reimburse BDO for
the value of the checks.
In accordance with the rules of the Clearing House, the dispute
was presented for Arbitration. The Arbiter rendered decision in favor of
SBCA-SOL 14-15
plaintiff. Upon motion for reconsideration, the Board of Directors of the

PCHC affirmed the decision of the Arbiter. A petition for review was filed
in the Regional Trial Court of Quezon city which also affirmed in toto the
decision.
ISSUE:
Whether or not Banco De Oro could collect reimbursement from Equitable
Bank
HELD
Yes. The petitioner is estopped from raising the non-negotiability
of the checks in question since it stamped its guarantee on the back of the
checks and subsequently presented the checks for clearing. On the basis of
these indorsements by the petitioner, the proceeds were credited in its
clearing account.
A commercial bank cannot escape the liability of an endorser of a
check and which may turn out to be forged documents. Whenever any
bank treats the signature at the back of the checks as endorsements and
guarantees the same, there can be no doubt said bank has considered the
checks as negotiable.
The Court also emphasizes that the collecting bank or last
endorser generally suffers the loss because it has the duty to ascertain the
genuineness of all prior endorsements.
Section 66 of the Negotiable Instruments Law says that every
indorser who indorses without qualification, warrants to all subsequent
holders in due course: a) that the instrument is genuine and in all respects
what it purports to be; b) that he has good title to it; c) that all prior
parties have capacity to contract; d) that the instrument is at the time of
his indorsement valid and subsisting.
Thus, the drawer also owes no duty of diligence to the collecting bank,
since the law imposes a duty of diligence on the collecting bank to
scrutinize checks deposited with it for the purpose of determining the
genuineness and regularity. The collecting bank, being primarily engaged
in banking holds itself out to the public as the expert and the law holds it
to a high standard of conduct.
Gempesaw vs CA
GR. 92244 || Forgery
FACTS:
NatividadGempesaw owns and operates four grocery stores in Caloocan
City. She maintains a checking account with respondent drawee Phil. Bank
of Communications to issue checks to her suppliers. Alicia Galang, her
bookkeeper, makes the checks and petitioner signs them, without
verifying the accuracy of each, since she trusted Galang. Petitioner never
bothered to verify the correctness of the returned checks. In 2 years, a
total of 82 checks were issued, most of them in excess of her actual
obligations to the various payees, all crossed checks with forged
indorsement signatures. Petitioner completed the checks by signing them
as drawer and thereafter authorized her employee Alicia Galang to deliver
the eighty-two (82) checks to their respective payees. Instead of issuing
the checks to the payees as named in the checks, Alicia Galang delivered
them to the Ernest Boon, Chief Accountant of PBCOM Buendia branch.
Signatures of the first payees as first indorsers were forged. The checks
were then indorsed a 2nd time with the names of Alfredo Romero and
Benito Lam and donated to their respective accounts. It was only after 2
years that petitioner found out about the fraudulent transactions.
Petitioner then demanded respondent drawee Bank to credit her account
with the money value of the 82 checks for having been wrongfully charged
against her account. Respondent drawee Bank refused to grant
petitioner's demand.
ISSUE:
WON Petitioner can claim the value of the 82 checks debited against her
account since there was forgery
HELD:
No. While forgery is a real or absolute defense by the party whose
signature is forged, it is not applicable to the case at bar. A party whose
signature to an instrument was forged was never a party and never gave
his consent to the contract which gave rise to the instrument. In the case
at bar, petitioner admitted that the checks were filled up and completed
by her trusted employee, Alicia Galang, and were given to her for her
signature. Her signing the checks made the negotiable instrument
complete. Prior to signing the checks, there was no valid contract yet. As a
rule, a drawee bank who has paid a check on which an indorsement has
been forged cannot charge the drawer's account for the amount of said
check. An exception to this rule is where the drawer is guilty of such
SBCA-SOL 14-15
negligence which causes the bank to honor such a check or checks. In the
case at bar, the petitioner relied implicitly upon the honesty and loyalty of
her bookkeeper, 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. Petitioners
negligence was the proximate cause of her loss. And since it was her
negligence which caused the respondent drawee Bank to honor the forged
checks or prevented it from recovering the amount it had already paid on
the checks, petitioner cannot now complain should the bank refuse to
recredit her account with the amount of such checks. Under Section 23 of
the NIL, she is now precluded from using the forgery to prevent the bank's
debiting of her account. But petitioner can claim for damages under
Article 1170 of NCC since the respondent drawee Bank did not discover
the irregularity with respect to the acceptance of checks with second
indorsement for deposit even without the approval of the branch manager
despite periodic inspection conducted by a team of auditors from the main
office constitutes negligence on the part of the bank in carrying out its
obligations to its depositors.
Associated Bank v. Court of Appeals
FACTS:
The Province of Tarlac was disbursing funds to Concepcion Emergency
Hospital through 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.
ISSUE:
What are the liabilities of each party?
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.
Exception: If it can be shown that the drawee bank, PNB, unreasonably
delayed in notifying the collecting bank which is the Associated Bank, of
the fact of the forgery so much so that the latter can no longer collect
reimbursement from the depositor-forger.
Liability of PNB. The bank on which a check is drawn, known as the
drawee bank (PNB), is under strict liability to pay the check to the order of
the payee, Provincial Government of Tarlac. Payment under a forged
indorsement is not to the 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, the drawer, account
only for properly payable items. Since the drawee bank did not pay a
holder or other person entitled to receive payment, it has no right to
reimbursement from the drawer. The general rule then is that the drawee
bank may not debit the drawers account and is not entitled to
indemnification from the drawer. The risk of loss must perforce fall on the
drawee bank.
Exception: If the drawee bank, PNB, can prove a failure by the
customer/drawer (Tarlac Province) to exercise ordinary care that
substantially contributed to the making of the forged signature, the
drawer is precluded from asserting the forgery.
In sum, by reason of Associated 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
SBCA-SOL 14-15
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.
But 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.
METRO BANK VS FIRST NATIONAL CITY BANK
118 scra 537|| FORGERY
Cunanan & Company, together with the monthly statement of the

company's account with FNCB.
notified FNCB that the check had been altered
actual amount of P50.00 was raised to P50,000.00
name of the payee, Manila Polo Club, was superimposed the word CASH.
September 10, 1964: FNCB wrote Metro Bank asking for reimbursement
June 29, 1965: FNCB filed for recovery
FACTS:
August 25, 1964: Check dated July 8, 1964 for P50,000.00, payable to
CASH, drawn by Joaquin Cunanan & Company on First National City Bank
(FNCB) was deposited with Metropolitan Bank and Trust Company (Metro
Bank) by Salvador Sales.
CA affirmed Trial Court: Metro Bank to reimburse FNCB
Earlier that day, Sales had opened a current account with Metro Bank
depositing P500.00 in cash
HELD:
NO. FNCB liable. Under the procedure prescribed, the drawee bank
receiving the check for clearing from the Central Bank Clearing House
must return the check to the collecting bank within the 24-hour period if
the check is defective for any reason. - FNCB failed to do so
indorsement must be read together with the 24-hour regulation on
clearing House Operations of the Central Bank
Metro Bank immediately sent the cash check to the Clearing House of the
Central Bank with the following words stamped at the back of the check:
Metropolitan Bank and Trust Company Cleared (illegible) office All prior
endorsements and/or Lack of endorsements Guaranteed.
The check was cleared the same day. Private respondent paid petitioner
through clearing the amount of P50,000.00, and Sales was credited with
the said amount in his deposit with Metro Bank.
August 26, 1964: Sales made his 1st withdrawal of P480.00 from his
current account
ISSUE:
Whether or not Metrobank should reimsburse FNCB for the altered
amount as indorser
Metro Bank can not be held liable for the payment of the altered check.
Moreover, FNCB did not deny the allegation of Metro Bank that before it
allowed the withdrawal of the balance of P17,920.00 by Salvador Sales,
Metro Bank withheld payment and first verified, through its Assistant
Cashier Federico Uy, the regularity and genuineness of the check deposit
from Marcelo Mirasol, Department Officer of FNCB, because its (Metro
Bank) attention was called by the fast movement of the account.
August 28, 1964: he withdrew P32,100.00

August 31, 1964: he withdrew the balance of P17,920 and closed his
account with Metro Bank
September 3, 1964: FNCB returned cancelled Check to drawer Joaquin
SBCA-SOL 14-15
FACTS:
GR
Republic Bank vs. Court of Appeals

No.
42725 April 22, 1991 || Forgery
On January 25, 1966, drawer San Miguel Corporation (SMC), drew

a dividend Check No. 108854 for Php240 on its account in the respondent
First National City Bank (FNCB) in favor of J. Roberto C. Delgado, a
stockholder. After the check had been delivered to Delgado, the amount on
its face was fraudulently and without authority of SMC, altered by
increasing it from P240 to P9,240. On March 14, 1966, the check was
indorsed and deposited by Delgado in his account with the petitioner
Republic Bank, who accepted the said check without ascertaining its
genuineness and regularity. Republic endorsed it to FNCB by stamping on
the back of the check "all prior and/or lack of indorsement guaranteed"
and presented it to FNCB for. Believing the check was genuine, and relying
on the guaranty and endorsement, FNCB paid P9,240 to Republic March
15, 1966. SMC then notified FNCB on on April 19, 1966 of the material
alteration in the amount of the check in question. Thereafter, FNCB
informed Republic in writing of the alteration and the forgery of the
endorsement of Delgado, who by then had already withdrawn his account
from Republic.
FNCB demanded that Republic refund the P9,240 on August 15,
1966 on the basis of the latters endorsement and guaranty. Republic
refused, claiming there was delay in giving it notice of the alteration and
that it was not negligent and SMCs faulted in drawing the check in such a
way as to permit the insertion of numerals increasing the amount.
ISSUE:
Whether or not Republic, as the collecting bank, is protected, by the 24hour clearing house rule, found in CB Circular No. 9, as amended, from
liability to refund the amount paid by FNCB, as drawee of the SMC
dividend check
HELD:
Yes. Under the 24-hour clearing house rule embodied in Section
4(c) of Central Bank Circular No. 9, as amended, such rule is a valid rule
applicable to commercial banks. It is true that when an endorsement is
forged, the collecting bank or last endorser, as a general rule, bears the
loss. But the unqualified endorsement of the collecting bank on the check
should be read together with the 24-hour regulation on clearing house
operation. Thus, when the drawee bank fails to return a forged or altered
check to the collecting bank within the 24-hour clearing period, the
collecting bank is absolved from liability.
Every bank that issues checks for the use of its customers should
know whether or not the drawers signature thereon is genuine, whether
there are sufficient funds in the drawers account to cover checks issued,
and it should be able to detect alterations, erasures, superimpositions or
intercalations thereon, for these instruments are prepared, printed and
issued by itself, it has control of the drawers account, and it is supposed
to be familiar with the drawers signature. Unless an alteration is
attributable to the fault or negligence of the drawer himself, such as when
he leaves spaces on the check which would allow the fraudulent insertion
of additional numerals in the amount appearing thereon, the remedy of
the drawee bank that negligently clears a forged and/or altered check for
payment is against the party responsible for the forgery or alteration,
otherwise, it bears the loss.
Philippine Commercial International Bank v. CA
G.R. No. 121413 || FORGERY
FACTS:
These consolidated petitions involve several fraudulently negotiated
checks
In October 1977, Ford Philippines drew a Citibank check in the amount of
P4,746,114.41 in favor of the Commissioner of the Internal Revenue (CIR).
The check represents Fords tax payment for the third quarter of 1977. On
the face of the check was written Payees account only which means that
the check cannot be encashed and can only be deposited with the CIR's
savings account with Metrobank. The said check was however presented
to PCIB and PCIB accepted the same. PCIB then indorsed the check for
clearing to Citibank. Citibank cleared the check and paid PCIB
P4,746,114.41.CIR later informed Ford that it never received the tax
payment. It was later discovered that Fords accountant Godofredo Rivera,
when the check was deposited with PCIB, recalled the check since there
was allegedly an error in the computation of the tax to be paid. PCIB, as
instructed by Rivera, replaced the check with two of its managers checks.
It was further discovered that Rivera was actually a member of a
syndicate and the managers checks were subsequently deposited with the
Pacific Banking Corporation by other members of the syndicate.
Thereafter, Rivera and the other members became fugitives of justice.
In July 1978 and in April 1979, Ford drew two checks in the amounts of
P5,851,706.37 and P6,311,591.73 respectively. Both checks are again for
tax payments. Both checks are for Payees account only or for the CIRs
SBCA-SOL 14-15
bank savings account only with Metrobank. Again, these checks never
reached the CIR. In an investigation, it was found that these checks were
embezzled by the same syndicate to which Rivera was a member.
ISSUE:
Whether Ford has the right to recover from the collecting bank (PCI Bank)
and/or the drawee bank (Citibank) the value of the checks
HELD:
Yes, both are liable for the loss of the proceeds of said checks issued by
Ford in favor of the CIR. The mere fact that forgery was committed by a
drawer-payors confidential employee or agent, who by virtue of his
position had unusual facilities to perpetrate the fraud and imposing the
forged paper upon the bank, does not entitle the bank to shift the loss to
the drawer-payor, in the absence of some circumstance raising estoppel
against the drawer. The rule applies to checks fraudulently negotiated or
diverted by the confidential employees who hold them in their possession.
In GRs 121413 and 121479, PCIBank failed to verify the authority of Mr.
Rivera to negotiate the checks. Furthermore, PCIBanks clearing stamp
which guarantees prior or lack of indorsements render PCIB liable as it
allowed Citibank without any other option but to pay the checks. PCIB,
being a depository / collecting bank of the BIR, had the responsibility to
make sure that the crossed checks were deposited in Payees account
only as found in the instrument.
In GR 128604, on the other hand, the switching operation involving the
checks, while in transit for clearing, were the clandestine or hidden
actuations performed by the members of the syndicate in their own
personal, covert and private capacity; without the knowledge nor official
or conscious participation of PCIB in the process of embezzlement. Central
Bank Circular 580 (1977), however, provides that any theft affecting items
in transit for clearing are for the account of the sending bank (herein
PCIBank). Still, Citibank was likewise negligent in the performance of its
duties as it failed to establish its payment of Fords checks were made in
due course and legally in order. The fact that drawee bank did not
discover the irregularity seasonably constitutes negligence in carrying out
the banks duty to its depositors.
Ramon Ilusorio vs CA
GR no. 139130 II FORGERY
FACTS:
Ramon Ilusorio (petitioner) is a prominent businessman who, at

the time material to this case, was the Managing Director of Multinational
Investment Bancorporation and the Chairman and/or President of several
other corporations. He was a depositor in good standing of respondent
bank, the Manila Banking Corporation. As he was then running about 20
corporations, and was going out of the country a number of times,
petitioner entrusted to his secretary, Katherine E. Eugenio, his credit
cards and his checkbook with blank checks. It was also Eugenio who
verified and reconciled the statements of said checking account.
Eugenio was able to encash and deposit to her personal account
about seventeen (17) checks drawn against the account of the petitioner
at the respondent bank, with an aggregate amount of P119,634.34.
Petitioner did not bother to check his statement of account until a
business partner apprised him that he saw Eugenio use his credit cards.
Petitioner fired Eugenio immediately, and instituted a criminal action
against her for estafa thru falsification before the Office of the Provincial
Fiscal of Rizal. Private respondent, through an affidavit executed by its
employee, Mr. Dante Razon, also lodged a complaint for estafa thru
falsification of commercial documents against Eugenio on the basis of
petitioners statement that his signatures in the checks were forged.
ISSUES:
(1) whether or not petitioner has a cause of action against private
respondent; and
(2) whether or not private respondent, in filing an estafa case against
petitioners secretary, is barred from raising the defense that the fact of
forgery was not established.
HELD:
1.
Petitioner has no cause of action against Manila Bank. To be

entitled to damages, petitioner has the burden of proving
negligence on the part of the bank for failure to detect the
discrepancy in the signatures on the checks. It is incumbent
upon petitioner to establish the fact of forgery, i.e., by
submitting his specimen signatures and comparing them with
those on the questioned checks. Curiously though, petitioner
failed to submit additional specimen signatures as requested
by the National Bureau of Investigation from which to draw a
SBCA-SOL 14-15
conclusive finding regarding forgery. The Court of Appeals

found that petitioner, by his own inaction, was precluded from
setting up forgery.
Petitioners failure to examine his bank statements appears as
the proximate cause of his own damage. The bank was not
shown to be remiss in its duty of sending monthly bank
statements to petitioner so that any error or discrepancy in
the entries therein could be brought to the banks attention at
the earliest opportunity. But, petitioner failed to examine these
bank statements not because he was prevented by some cause
in not doing so, but because he did not pay sufficient attention
to the matter. Had he done so, he could have been alerted to
any anomaly committed against him. In view of Article 2179 of
the New Civil Code, when the plaintiffs own negligence was
the immediate and proximate cause of his injury, no recovery
could be had for damages.
Petitioner further contends that under Section 23 of the
Negotiable Instruments Law a forged check is inoperative,
and that Manila Bank had no authority to pay the forged
checks. True, it is a rule that when a signature is forged or
made without the authority of the person whose signature
it purports to be, the check is wholly inoperative. No right
to retain the instrument, or to give a discharge therefore,
or to enforce payment thereof against any party, can be
acquired through or under such signature. However, the
rule does provide for an exception, namely: "unless the
party against whom it is sought to enforce such right is
precluded from setting up the forgery or want of
authority." In the instant case, it is the exception that
applies. Petitioner is precluded from setting up the forgery,
assuming there is forgery, due to his own negligence in
entrusting to his secretary his credit cards and checkbook
including the verification of his statements of account.
The fact that Manila Bank had filed a case for estafa against Eugenio would
not estop it from asserting the fact that forgery has not been clearly
established. Petitioner cannot hold private respondent in estoppel for the
latter is not the actual party to the criminal action.
Samsung Construction v. Far East Bank

G.R. No. 129015, August 13, 2004ll Forgery
FACTS:
Samsung Construction held an account with Far East Bank. One day a
check worth (P999,500.00), payable to cash, was presented by
one Roberto Gonzaga in the Makati Branch of Far East Bank. The
check was certified to be true by Jose Sempio III, the assistant
accountant of Samsung, who was also present during the time the
check was cashed. Later however it was discovered that no such check
was ever approved by the Samsungs head accountant, the president of the
company also never signed any such check.
ISSUE:
Whether or not Far East Bank is liable to reimburse Samsung for cashing
out the forged check, which was drawn from the account of Samsung
HELD:
Far East Bank is liable for reimbursement. Sec. 23 of the Negotiable
Instrument Law states that a forged signature makes the instrument
wholly inoperative. If payment is made the drawee (Far East) cannot
charge it to the drawers account (Samsung). The fact that the forgery is
clever is immaterial. The forged signature may so closely resemble the
genuine as to defy detection by the depositor himself. And yet, if the bank
pays the check, it is paying out with its own money and not of the
depositors. This rule of liability can be stated briefly in these words: A
bank is bound to know its depositors signature. The accusation of
negligence on the part of Samsung was not clearly proven. Absence of
proof to the contrary, the presumption is that the ordinary course of
business was followed.
Material Alteration
Philippine National Bank v. CA
256 SCRA 491 || Sections 124 &125
FACTS:
A check with a specific serial number (7-3666-223-3)was issued
Department of Education Culture and Sports (DECS) in the amount of
P97,650.00 payable to F. Abante Marketing. This check was drawn against
petitioner PNB.
F. AbanteMarketing, deposited the questioned check in its savings account
with Capitol City Development Bank (Capitol). In turn, Capitol deposited
SBCA-SOL 14-15
the same in its account with the Philippine Bank of Communications

(PBCom) which, in turn, sent the check to petitioner for clearing.
Petitioner cleared the check as good and, thereafter, PBCom credited
Capitols account for the amount stated in the check. Petitioner returned
the check to PBCom and debited PBComs account for the amount covered
by the check, the reason being that there was a material alteration of the
check number.
PBCom, as collecting agent of Capitol, then proceeded to debit the latters
account for the same amount, and subsequently, sent the check back to
petitioner. Petitioner, however, returned the check to PBCom.
On the other hand, Capitol could not, debit F. Abante Marketings account
since the latter had already withdrawn the amount of the check. Capitol
sought clarification from PBCom and demanded the re-crediting of the
amount. PBCom followed suit by requesting an explanation and recrediting from petitioner.
Since the demands of Capitol were not heeded, it filed a civil suit with the
Regional Trial Court of Manila against PBCom which, in turn, filed a thirdparty complaint against petitioner for reimbursement/indemnity with
respect to the claims of Capitol
Petitioner claims that an change in the serial number of the check is a
material alteration under Section 125(f) of the NIL.
ISSUE:
WHETHER OR NOT AN ALTERATION OF THE SERIAL NUMBER OF A
CHECK IS A MATERIAL ALTERATION UNDER THE NEGOTIABLE
INSTRUMENTS LAW
HELD:
No. An alteration is said to be material if it alters the effect of the
instrument. It means an unauthorized change in an instrument that
purports to modify in any respect the obligation of a party or an
unauthorized addition of words or numbers or other change to an
incomplete instrument relating to the obligation of a party. In other
words, a material alteration is one which changes the items which are
required to be stated under Section 1 of the Negotiable Instrument Law.
The case at bench is unique in the sense that what was altered is the serial
number of the check in question, it can is not an essential requisite for
negotiability under Section 1 of the Negotiable Instrument Law. The
aforementioned alteration did not change the relations between the
parties. The name of the drawer and the drawee were not altered. The
intended payee was the same. The sum of money due to the payee
remained the same. The checks serial number is not the sole indication of
its origin. As succinctly found by the Court of Appeals, the name of the
government agency which issued the subject check was prominently
printed therein. The checks issuer was therefore sufficiently identified,
rendering the referral to the serial number redundant and
inconsequential. Petitioner, thus cannot refuse to accept the check in
question on the ground that the serial number was altered, the same being
an immaterial or innocent one.
ENRIQUE P MONTINOLA VS THE PHILIPPINE NATIONAL BANK
G.R. NO L-2861 || SECTION 124 & 125
FACTS:
On April 30, 1942, M. V.Ramos, as a disbursing officer of an army
division of the USAFE, went to the neighboring Province Lanao to procure
a cash advance in the amount of P800,000 for the use of the USAFFE in
Cagayan de Misamis. Pedro Encarnacion, Provincial Treasurer of Lanao
did not have that amount in cash. So, he gave Ramos P300,000 in
emergency notes and a check for P500,000. On May 2, 1942 Ramos went
to the office of Provincial Treasurer Laya at Misamis Oriental to encash
the check for P500,000 which he had received from the Provincial
Treasurer of Lanao. Laya did not have enough cash to cover the check so
he gave Ramos P400,000.00 in emergency notes and a check No. 1382 for
P100,000.00 drawn on the Philippine National Bank. According to Laya he
had previously deposited P500,000.00 emergency notes in the Philippine
National Bank branch in Cebu and he expected to have the check issued by
him
cashed
in
Cebu
against
said
deposit.
Ramos was unable to encash the said check for he was captured by
the Japanese. But after his release, he sold P30,000.00 of the check to
Enrique P. Montinola for P850,000.00 Japanese Military notes, of which
only P45000 was paid by the latter. The writing made by Ramos at the
back of the check was to the effect that he was assigning only
P30,000.00 of the value of the document with an instruction to the bank to
pay P30,000.00 to Montinola and to deposit the balance to Ramos's
credit. This writing was, however, mysteriously obliterated and in its
SBCA-SOL 14-15
place, a supposed endorsement appearing on the back of the check was

made for the whole amount of the check. At the time of the transfer of
this check to Montinola, the check was long overdue by about 2-1/2
years.
Montinola instituted an action against the PNB and the Provincial
Treasurer of Misamis Oriental to collect the sum of P100,000, the
amount of the aforesaid check. There now appears on the face of said
check the words in parenthesis "Agent, Phil. National Bank" under
the signature of Laya purportedly showing that Laya issued the check as
agent of the Philippine National Bank.
ISSUE:
Whether or not the subject check is a negotiable instrument.
HELD:
No. It was not negotiated according to the Negotiable Instruments
Law (NIL) hence it is not a negotiable instrument. There was only a partial
indorsement and not a negotiation contemplated under the NIL. Only
P30k of the P100k amount of the check was indorsed. This merely
makeMontinola a mere assignee and this is the clear intent of Ramos.
Ramos was merely assigning P30k to Montinola. Montinola may therefore
not be regarded as an indorsee and PNB has all the right to dishonor the
check. As mere assignee, he is subject to all defenses available to the
drawer Provincial Treasurer of Misamis Oriental and against Ramos.
Anent the issue of alteration, the apparent purpose of which is to make the
drawee (PNB) the drawer against which Montinola can recover from
directly. Such material alteration which was done by Montinola without
the consent of the parties liable thereon discharges the instrument,
pursuant to Sec. 124 of the NIL.
Montinola cannot be said to be a holder. He is an assignee. And even if he
is a holder, he is not in good faith because he did not pay the full amount
of the consideration for which the P30k was issued to him he only paid
45k Japanese notes out of the 90k Japanese notes consideration.
At any rate, even assuming that there is proper negotiation, Montinola can
no longer encash said check because when he sought to have it encashed
in January 1945, it is already stale there being two and half years pass
since its time of issuance.
Accomodation Party
Intestate Estate of Victor Sevilla v. Francisco Sevilla
G.R. No. L-17845 April 27, 1967 || Accommodation Party
FACTS:
Sevilla, Varona and Sadaya executed, jointly and severally, in favor
of the Bank of the Philippine Islands (BPI), or its order, a promissory note
for P15,000 with interest at 8% per annum, payable on demand. Varona
was the only one who received the proceeds of the note. Sevilla and
Sadaya signed the note as co-makers to accommodate Varona. Payments
were made on account but with an outstanding balance of P4,850.
BPI then collected from Sadaya the balance with interest.
However, Varona failed to reimburse Sadaya despite repeated demands.
Sevilla died which led to naming Francisco Sevilla (Administrator)
as administrator. Sadaya then filed a creditor's claim on his estate for the
payment made on the note. Administrator resisted the claim on the
ground that the deceased Sevilla "did not receive any amount as
consideration for the promissory note," but signed it only "as surety for
Varona".
RTC ruled in favour of Sadaya and directed Administrator to pay
the same from the estate of the deceased Sevilla. CA reversed the decision
and disallowed Sadayas claim against the intestate estate.
ISSUE:
Whether or not Sadaya can claim against estate of Sevilla as coaccommodation party when Verona as principal debtor is not yet
insolvent
HELD:
NO, CA decision affirmed. The SC held that since Varona received

full value of the promissory note while Sadaya received nothing
therefrom, the former is bound by the obligation to reimburse the latter.
A solidary accommodation maker who made payment has
the right to contribution, from his co-accommodation maker, in the
absence of agreement to the contrary between them, and subject to
conditions imposed by law.
Consequently, according to Art. 2073, the requisites before one
accommodation maker can seek reimbursement from a coaccommodation maker shall not be applicable, unless the payment has
been made in virtue of a judicial demand or unless the principal debtor is
insolvent.
The following are the rules:
SBCA-SOL 14-15
(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; and
(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.
In this case, Sadaya's payment to BPI "was made voluntarily and
without any judicial demand," and that "there is an absolute absence of
evidence showing that Varona is insolvent". Hence, Sadaya cannot claim
from Sevillas estate.
ErnesitaCrisologo - Jose (petitioner) vs CA and Ricardo Santos, VP for
Salses of Mover Enterprises(respondents)
Ponente: Regalado. J
payable to the defendant Jose. 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.
This prompted the petitioner to file a case against Atty. Bernares and
Santos for violation of BP22. Meanwhile, during the preliminary
investigation, Santos tried to tender a cashiers check for the value of
the dishonored check but petitioner refused to accept such. This was
consigned by Santos with the clerk of court and he instituted charges
against petitioner.
RTC Ruling:The Trial Court held that the consignation was not applicable
in the case at bar.
CA Ruling:Reversed and set aside the RTC's judgment of dismissal
ISSUE:
Whether or not Mover Enterprises may be held liable on the
accommodation instrument, that is, the check issued in favor of herein
petitioner.
FACTS:
Ricardo S. Santos, Jr. was the vice-president of Mover Enterprises,
Inc. in-charge of marketing and sales; and the president of the said
corporation was Atty. Oscar Z. Benares. Atty. Benares issued Check No.
093553 drawn against Traders Royal Bank, dated June 14, 1980, in the
amount of P45,000.00 (Exh. '1') payable to defendant Ernestina CrisologoJose. 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 as an
alternate signatory. Plaintiff Ricardo S. Santos, Jr. did sign the 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 clients(Ong Spouses) of Atty. Oscar Benares, with the
understanding that upon approval by the GSIS of the compromise
agreement with the spouses Ong, the check will be encashed accordingly.
However, since the compromise agreement was not approved within the
expected period of time, the aforesaid check for P45,000.00 was replaced
by Atty. Benares with another Traders Royal Bank check bearing No.
379299 dated August 10, 1980, in the same amount of P45,000.00 , also
HELD:
SC modified the decision of respondent court in CA by setting

aside and declaring without force and effect its pronouncements and
findings insofar as the merits of Criminal Case and the liability of the
accused therein are concerned.
Affirmed the CA decision.
Section 29 of the Negotiable Instruments Law which holds an
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.
SBCA-SOL 14-15
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. The fact that for lack of capacity
the corporation is not bound by an accommodation paper does not
thereby absolve, but should render personally liable, the signatories of
said instrument where the facts show that the accommodation involved
was for their personal account, undertaking or purpose and the creditor
was aware thereof.
Stelco Marketing v. CA
210 SCRA 51 || Accomodation Party
FACTS:
Stelco Marketing Corporation is engaged in the distribution and sale to the
public of structural steel bars. On seven (7) different occasions it sold to
RYL Construction, Inc. quantities of steel bars of various sizes and rolls of
G.I. wire. These bars and wire were delivered at different places at the
indication of RYL Construction, Inc. The aggregate price for the purchases
was P126,859.61. Although the corresponding invoices issued by STELCO
stipulated that RYL would pay "COD" (cash on delivery), the latter made
no payments for the construction materials thus ordered and delivered
despite insistent demands for payment by the former.
On April 4, 1981, RYL gave to Armstrong Industries described by
STELCO as its "sister corporation" and "manufacturing arm" a check
drawn against Metrobank in the amount of P126,129.86, numbered
765380 and dated April 4, 1981. That check was a company check of
another corporation, Steelweld Corporation of the Philippines, signed by
its President, Peter Rafael Limson, and its Vice-President, Artemio Torres.
The check was issued by Limson at the behest of his friend, Romeo Y. Lim,
President of RYL. Romeo Lim had asked Limson for financial assistance,
and the latter had agreed to give Lim a check only by way of
accommodation, "only as guaranty but not to pay for anything." Why the
check was made out in the amount of P126,129.86 is not explained.
Anyway, the check was actually issued in said amount of P126,129.86, and
as already stated, was given by R.Y. Lim to Armstrong, Industries, in
payment of an obligation. When the latter deposited the check at its bank,
it was dishonored because "drawn against insufficient funds." When so
deposited, the check bore two (2) indorsements, that of "RYL
Construction," followed by that of "Armstrong Industries." On account of
the dishonor of Metrobank Check No. 765380, and on complaint of
Armstrong Industries (through a Mr. Young), Rafael Limson and Artemio
Torres were charged in the Regional Trial Court of Manila with a violation
of Batas Pambansa Bilang 22. They were acquitted in a decision "on the
ground that the check in question was not issued by the drawer 'to apply
on account for value,' it being merely for accommodation
purposes."|Thereafter a complaint was filed by petitioner against RYL and
Steelweld for the recovery of sum of money in payment of the steel bars
ordered. RYL was nowhere to be found that is why the proceedings
commenced as against Steelweld only. The trial court decided in favor of
petitioner but this was reversed by the CA.
ISSUE:
Whether Steelweld as an accommodating party can be held liable by
Stelco for the dishonored check
RULING:
Under the Negotiable Instruments Law an accommodation party is liable.
'SEC. 29.Liability of an accommodation party. An accommodation party
is one who has signed the instrument as maker, drawer, acceptor, or
indorser, without receiving value therefor, and for the purpose of lending
his name to some other person. Such a person is liable on the instrument
to a holder for value notwithstanding such holder at the time of taking the
instrument knew him to be only an accommodation party.' " It is
noteworthy that the Trial Court's pronouncement containing reference to
said Section 29 did not specify to whom STEELWELD, as accommodation
party, is supposed to be liable; and certain it is that neither said
pronouncement nor any other part of the judgment of acquittal declared it
liable to STELCO. To be sure, as regards an accommodation party (such as
STEELWELD), lack of notice of any infirmity in the instrument or defect in
title of the persons negotiating it, has no application. This is because
Section 29 of the law above quoted preserves the right of recourse of a
"holder for value" against the accommodation party notwithstanding that
SBCA-SOL 14-15
"such holder, at the time of taking the instrument, knew him to be only an
accommodation party. As far as Steelweld is concerned, there was no
commercial transaction between said appellant and appellee. Moreover,
there is no evidence that appellee Stelco Marketing became a holder for
value. Nowhere in the check itself does the name of Stelco Marketing
appear as payee, indorsee or depositor thereof. Finally, appellee's
complaint is for the collection of the unpaid accounts for delivery of steel
bars and construction materials. It having been established that appellee
had no commercial transaction with appellant Stelco, appellee had no
cause of action against said appellant.
evidence of indebtedness of private respondent. The appellate court

erred in considering only the statements of account in determining
whether private respondent was indebted to petitioner under the checks.
It failed to give due importance to the most telling piece of evidence of
private respondents indebtedness --- the checks. The Court stressed that
a check which is regular on its face is deemed prima facie to have
been issued for a valuable consideration and every person whose
signature appears thereon is deemed to have become a party thereto
for value -- Sec. 24 of NIL. And the mere introduction of the instrument
sued on in evidence prima facie entitles the plaintiff to recovery.
Travel-On v. CA
210 SCRA 352 || Accomodation Party
While the Negotiable Instruments Law does refer to accommodation

transactions, no such transaction was here shown.
FACTS:
Travel-On (petitioner) is an agency selling airline tickets on commission
basis and Arturo S. Miranda (respondent) procures tickets from Travel-on
on behalf of airline passengers also for a commission.
On June 1972, Travel-on files a suit against Miranda to collect for 6 checks
issued by the latter with a total face amount of P115,000. The said checks
were presented by Travel-on and all dishonoured by the drawee bank.
Miranda claimed that he had already paid all his dues to Travel-on and
that the checks were issued just to accommodate the manager of Travelon to show its Board of Directors that Travel-ons accounts receivables
were somehow still good. The manager denied this explanation of
Miranda.
Both the trial and appellate courts had rejected the checks as evidence of
indebtedness on the ground that the various statements of account
prepared by petitioner did not show that Private respondent had an
outstanding balance of P115,000.00 which is the total amount of the
checks he issued.
ISSUE:
WON the respondent is liable for the 6 checks he issued because there is
no accommodation transaction
HELD:
The Supreme Court held that the private respondent must be held liable
on the six checks he issued, as those checks in themselves constituted
Sec. 29. Liability of accommodation party. An accommodation party

is one who has signed the instrument as maker, drawer, acceptor, or
indorser, without receiving value therefor, and for the purpose of lending
his name to some other person. Such a person is liable on the instrument
to a holder for value, notwithstanding such holder, at the time of taking
the instrument, knew him to be only an accommodation party.
Having issued or indorsed the check, the accommodating party has
warranted to the holder in due course that he will pay the same according
to its tenor. Travel-On obviously was not an accommodated party; it
realized no value on the checks which bounced.
FACTS:
BPI vs. Court of Appeals

326 SCRA 641|| Accommodation Party
Henry Chan owned a Continental Bank Managers Check payable

to "cash" in the amount of Two Thousand Five Hundred Dollars
($2,500.00). In 1987, Chan went to the office of Benjamin Napiza and
requested him to deposit the check in his dollar account by way of
accommodation and for the purpose of clearing the same. Private
respondent Napiza acceded, and agreed to deliver to Chan a signed blank
withdrawal slip, with the understanding that as soon as the check is
cleared, both of them would go to the bank to withdraw the amount of the
check upon private respondents presentation to the bank of his
passbook. Napiza thus endorsed the check and deposited it in a Foreign
Currency Deposit Unit (FCDU) Savings Account he maintained with
BPI. Using the blank withdrawal slip given by private respondent to Chan,
SBCA-SOL 14-15
one Ruben Gayon, Jr. was able to withdraw the amount of $2,541.67 from
Napiza's FCDU account. It turned out that said check deposited by private
respondent was a counterfeit check. When petitioner BPI demanded the
return of $2,500.00, private respondent claimed that he deposited the
check "for clearing purposes" only to accommodate Chan. Petitioner
claims that private respondent, having affixed his signature at the dorsal
side of the check, should be liable for the amount stated therein in
accordance with the provision of the Negotiable Instruments Law on the
liability of a general indorser (Sec. 66).
ISSUE:
Whether private respondent is obliged to return the money paid
out by BPI on a counterfeit check even if he deposited the check "for
clearing purposes" only to accommodate Chan
give the certificate of registration unless there is a showing that a party is

interested in the purchase of the car. Gatchalian subsequently issued a
check together with the assurance that Gonzales will only be for
safekeepimg, and to be returned the following day, which the car and the
certificate of registration will be delivered. When Gonzales failed to
deliver the same, Gatchalian issued a Stop Payment Order, and the same
was issued without notice to any of the parties. Meanwhile spouses
Manuel and Matilde Gonzales used the check for payment of the
indebtedness of Matilde to De Ocampo Clinic. De Ocampo in turn failed to
encash the check due to the Stop Payment Order. Gatchalian claims that
De Ocampo is not entitled to payment because there was no valid
indorsement. De Ocampo argued that he is a holder in due course, and is
deemed entitled to such payment.
ISSUE:
Whether or not De Ocampo is a holder in due course
HELD:
No. The Supreme Court ruled that ordinarily, Napiza would have
been liable because he is an accommodation indorser. But due to the
attendant circumstances, Napiza is discharged from liability.
The withdrawal slip indicates as well as the rules promulgated by BPI that
withdrawal from the bank should be accompanied by the presentment of
the account holders (Napizas) savings bankbook. This was not done so in
the case at bar because Gayon was able to withdraw without it. Further,
BPI allowed the withdrawal even before the check cleared. BPI already
credited the $2,500.00 to Napizas account even without the drawee bank
clearing the check. This is contrary to common banking practices and
because of such negligence and lack of diligence, BPI, as the collecting
bank, shall suffer the loss.
Agro Conglomerates Inc. v. CA
GR No. 117660 || Accommodation Party
Holders in Due Course
De Ocampo v. Gatchalian
3 SCRA 596 || Holders in due course
FACTS:
Manuel Gonzales represented himself to Anita Gatchalian as the agent of
the owner of the car, De Ocampo Clinic. Upon finding the price of the car
quoted by Manuel Gonzales, Anita Gatchalian requested that the car be
brought the following day together with the certificate of registration.
However, Gonzales advised that the owner of the car will not be willing to
HELD:
No. The Supreme Court stated that the rule that a possessor of the
instrument is a prima facie holder in due course does not apply because
there was a defect in the title of Manuel Gonzales (holder), because the
instrument is not payable to him or to bearer. As holders title was
defective of suspicious, it cannot be stated that De Ocampo (payee)
acquired the check without knowledge of the defect of the holders title,
and for this reason the presumption that it is a holder in due course or
that it acquired the instrument in good faith does not exist. The Supreme
Court further stated that De Ocampo was not in good faith, and that he
should have inquired as to the legal title of the check. The fact that there
was no obligation between Gatchalian and De Ocampo yet the latter was
still named the payee should have been sufficient cause to inquire as to
the title of the check.
Mesina v. Intermediate Appellate Court
G.R. No. 70145 (1986) || Holder in Due Course
FACTS
Respondent Jose Go, on December 29, 1983, purchased from Associated
Bank Cashier's Check No. 011302 for P800,000.00. Unfortunately, Jose Go
left said check on the top of the desk of the bank manager when he left the
bank. The bank manager entrusted the check for safekeeping to a bank
official, a certain Albert Uy, who had then a visitor in the person of
Alexander Lim, Uy had to answer a phone call on a nearby telephone after
SBCA-SOL 14-15
which he proceeded to the men's room. When he returned to his desk, his
visitor Lim was already gone. When Jose Go inquired for his cashier's
check from Albert Uy, the check was not in his folder and nowhere to be
found. The latter advised Jose Go to go to the bank to accomplish a "STOP
PAYMENT" order, which suggestion Jose Go immediately followed. He also
executed an affidavit of loss. Albert Uy went to the police to report the loss
of the check, pointing to the person of Alexander Lim as the one who could
shed light on it.
The records of the police show that Associated Bank received the lost
check for clearing on December 31, 1983, coming from Prudential Bank,
Escolta Branch. The check was immediately dishonored by Associated
Bank by sending it back to Prudential Bank, with the words "Payment
Stopped" stamped on it. However, the same was again returned to
Associated Bank on January 4, 1984 and for the second time it was
dishonored. Several days later, respondent Associated Bank received a
letter, dated January 9, 1984, from a certain Atty. Lorenzo Navarro
demanding payment on the cashier's check in question, which was being
held by his client. He however refused to reveal the name of his client and
threatened to sue, if payment is not made. Respondent bank, in its letter,
dated January 20, 1984, replied saying the check belonged to Jose Go who
lost it in the bank and is laying claim to it.
Respondent Associated Bank on February 2, 1984 filed an action for
Interpleader naming as respondent, Jose Go and one John Doe, Atty.
Navarro's then unnamed client. On even date, respondent bank received
summons and copy of the complaint for damages of a certain Marcelo A.
Mesina. Simultaneously, respondent bank, thru representative Albert Uy,
informed Cpl. Gimao of the Western Police District that the lost check of
Jose Go is in the possession of Marcelo Mesina, herein petitioner. When
Cpl. Gimao went to Marcelo Mesina to ask how he came to possess the
check, he said it was paid to him by Alexander Lim in a "certain
transaction" but refused to elucidate further.
ISSUE
Whether Mesina is a holder in due course
without considering other things. Petitioner failed to substantiate his

claim that he is a holder in due course and for consideration or value as
shown by the established facts of the case. Admittedly, petitioner became
the holder of the cashier's check as endorsed by Alexander Lim who stole
the check. He refused to say how and why it was passed to him. He had
therefore notice of the defect of his title over the check from the start. The
holder of a cashier's check who is not a holder in due course cannot
enforce such check against the issuing bank which dishonors the same. If a
payee of a cashier's check obtained it from the issuing bank by fraud, or if
there is some other reason why the payee is not entitled to collect the
check, the respondent bank would, of course, have the right to refuse
payment of the check when presented by the payee, since respondent
bank was aware of the facts surrounding I he loss of the check in question.
Moreover, there is no similarity in the cases cited by petitioner since
respondent bank did not issue the cashier's check in payment of its
obligation. Jose Go bought it from respondent bank for purposes of
transferring his funds from respondent bank to another bank near his
establishment realizing that carrying money in this form is safer than if it
wherein cash. The check was Jose Go's property when it was misplaced or
stolen hence he stopped its payment. At the outset, respondent bank knew
it was Jose Go's check and no one else since Go had not paid or indorsed it
to anyone. The bank was therefore liable to nobody on the check but Jose
Go. The bank had no intention to issue it to petitioner but only to buyer
Jose Go. When payment on it was therefore stopped, respondent bank was
not the one who did it but Jose Go, the owner of the check. Respondent
bank could not be drawer and drawee for clearly, Jose Go owns the money
it represents and he is therefore the drawer and the drawee in the same
manner as if he has a current account and he issued a check against it; and
from the moment said cashier's check was lost and or stolen no one
outside of Jose Go can be termed a holder in due course because Jose Go
had not indorsed it in due course. The check in question suffers from the
infirmity of not having been properly negotiated and for value by
respondent Jose Go who as already been said is the real owner of said
instrument.
HELD
Petitioner's allegations hold no water. Theories and examples advanced
by petitioner on causes and effects of a cashier's check such as 1) it cannot
be countermanded in the hands of a holder in due course and 2) a
cashier's check is a bill of exchange drawn by the bank against itself are
general principles which cannot be aptly applied to the case at bar,
Liability of the General Indorser

METROPOL v. SAMBOK MOTORS COMPANY
G.R. No. L-39641 | LIABILITY OF THE GENERAL INDORSER
FACTS:
One Dr. Javier Villaruel executed a promissory note in the amount of P15,
939.00 in favor of Ng Sambok Sons Motors Co, LTD. It was agreed that it
SBCA-SOL 14-15
was payable in twelve (12) equal monthly installments with interest rate
at one percent per month. And in case on non-payment of any of the
installments, the total principal sum then remaining unpaid shall become
due and payable with an additional interest of 25 percent of the total
amount due. A sister of Ng Sambok Sons Motors Co., LTD., Sambok Motors
Company, negotiated and indorsed the promissory note in favor of
Metropol Financing & Investment Corporation. Dr. Villaruel defaulted in
the payment of the installements and thus, the promissory note was
presented to him. He failed to pay the promissory note as demanded, thus,
Ng Sambok Sons Motors Co., Ltd. notified Sambok as an indorsee that the
promissory note has been dishonored and demanded payment. Ng
Sambok Sons filed a complaint for the collection of sum of money due to
the failure of Sambok to pay. During the pendency of the case Villaruel
died and the lower court dismissed the case against said defendant
Villaruel. ApellantSambok dissatisfied with the decision, appealed and
contested that by adding the words with recourse in the indorsement, it
becomes a qualified indorser. Therefore, it does not warrant that in case
that the maker defaulted to pay upon presentment it will pay the amount
to the holder.
ISSUE:
Whether or not respondent Sambok Motors Company is a qualified
indorser and thus, is not liable upon the failure of payment of the maker
HELD:
The court held that respondent Sambok Motors Company is not a qualified
indorser. A qualified indorserment constitutes the indorser a mere
assignor of the title to the instrument. It may be made by adding to the
indorsers signature the words without recourse or any words of similar
import. Such indorsement relieves the indorser of the general obligation
to pay if the instrument is dishonored but not of the liability arising from
warranties on the instrument as provided by section 65 of NIL. However,
Sambok indorsed the note with recourse and even waived the notice of
demand, dishonor, protest and presentment.
Recourse means resort to a person who is secondarily liable after the
default of the person who is primarily liable. Sambok by indorsing the
note with recourse does not make itself a qualified indorser but a
general indorser who is secondarily liable, because by such indorsement,
it agreed that if Villaruel fails to pay the not the holder can go after it. The
effect of such indorsement is that the note was indorsed witout
qualification. A person who indorses without qualification engages that on

due presentment, the note shall be accepted or paid, or both as the case
maybe, and that if it be dishonored, he will pay the amount thereof to the
holder. The words added by Sambok do not limit his liability, but rather
confirm his obligation as general indorser.
Maralit v. Imperial
301 SCRA 605 (1999) || Liability of General Indorser
FACTS:
Petitioner Ester B. Maralit filed three complaints for estafa through
falsification of commercial documents through reckless imprudence
against respondent Jesusa Corazon L. Imperial. Maralit alleged that she
was assistant manager of the Naga City branch of the Philippine National
Bank (PNB); that on May 20, 1992, June 1, 1992, and July 1, 1992
Imperial separately deposited in her savings account at the PNB three
United States treasury warrants and on the same days respectively
withdrew their peso equivalent; and that the treasury warrants were
subsequently returned one after the other by the United States Treasury,
through the Makati branch of the Citibank, on the ground that the
amounts thereof had been altered. Maralit claimed that, as a consequence,
she was held personally liable by the PNB for the total amount
of P320,287.30.
Imperial claimed that she merely helped a relative encash the
treasury warrants; that she deposited the same in her savings account and
then withdrew their peso equivalent with the approval of Maralit; that she
gave the money to her relative; that she did not know that the amounts on
the treasury warrants had been altered nor did she represent to petitioner
that the treasury warrants were genuine; and that upon being informed of
the dishonor of the warrants she immediately contacted her relative and
signed an acknowledgment of debt promising to pay the total amount of
the treasury warrants.
After preliminary investigation, the City Prosecutor of Naga City filed
three informations against Imperial in the Trial Court who acquitted her
from criminal liability but found her civilly liable as indorser of the checks
which is the subject matter of the criminal action. Accordingly, the sheriff
served a notice of garnishment on the PNB. Later, she moved to quash the
writ of execution on the ground that the judgment did not order the
accused to pay a specific amount of money to a particular person as it
merely adjudicated the criminal aspect but not the civil aspect. Imperial
then filed a petition for certiorari and prohibition in the Regional Trial
Court who held that the MTC decision did not really find Imperial civilly
SBCA-SOL 14-15
liable because in fact it was Maralit who was found responsible for making
the defraudation possible.
aspect of Sapieras case. The Court of Appeals held Sapiera liable for the
civil aspect and was ordered to pay Sua.
ISSUE:
ISSUE:
Whether or not Sapiera is civilly liable although there was an acquittal on
the criminal aspect of the charges against her
Whether or not Imperial is civilly liable as indorser of the

checks subject matter of a criminal action
HELD:
Yes. The RTC was REVERSED. The decision of the MTC was an
adjudication of both the criminal and civil liability of Imperial inasmuch as
it does not appear that Maralit instituted a separate civil action or
reserved or waived the right to bring such action.
The Court symphatizes with the complainant that there was indeed
damage and loss, but said loss is chargeable to the Imperial who upon her
indorsements warrant that the instrument is genuine in all respect what it
purports to be and that she will pay the amount thereof in case of
dishonor. (Sec. 66 Negotiable Instrument Law)
In this case, to affirm the RTCs decision would be to hold
that Imperial was absolved from both criminal and civil liability by the
MTC. Such reading of the MTC decision will not, however, bear analysis.
For one, the dispositive portion of the decision of the MTC expressly
declares respondent to be civilly liable as indorser of the checks which is
[sic] the subject matter of the criminal action. To find therefore that there
is no declaration of civil liability of respondent would be to disregard the
judgment of the MTC. Worse, it would be to amend a final and executory
decision of a court.
Sapiera v. CA
301 SCRA 605 (1999) || Liability of General Indorser
FACTS:
On Several occasions, Remedios Sapiera, a sari-sari store owner
purchased from Monrico Mart certain grocery items, and paid for them
with checks issued by Arturo de Guzman. These checks were signed at the
back by the Sapiera. When presented for payment, the checks were
dishonored because the drawers account was already closed. Private
respondent Ramon Sua informed Arturo de Guzman and petitioner about
the dishonor. As a result, Remedios Sapiera and Arturo de Guzman were
charged with estafa. The RTC acquitted Sapiera of all charges of estafa but
did not rule on the civil aspect of the case. Arturo de Guzman was held
liable for the two BP 22 cases and was ordered to pay Sua for civil
indemnity and was sentenced for imprisonment. Sua appealed the civil
HELD:
Petitioner is liable for the value of the checks. Under the Negotiable
Instruments law, Sapiera is considered to be am indorser of check, and
under Section 66, she would be held liable to pay the holder who may be
compelled to pay the instrument. As provided for by law, every indorser
who indorses without qualification, engages that on due presentment, it
shall be accepted of paid or both, as the case may be, and that if it be
dishonored and the necessary proceedings on dishonor be duly taken, he
will pay the amount thereof to the holder or to any subsequent indorser
who may be compelled to pay it.
BPI v. CA and Napiza
GR No. 11239 || Liability of General Indorser
FACTS:
September 3, 1987: Bejanmin Napiza deposited in Foreign Currency
Deposit Unit (FCDU) Savings Account which he maintained in BPI a
Continental Bank Manager's Check dated August 17, 1984, payable to
"cash" $2,500.00
check belonged to Henry who went to the office of Napiza and requested
him to deposit the check in his dollar account by way of accommodation
and for the purpose of clearing the same.
Napiza acceded, and agreed to deliver to Chan a signed blank withdrawal
slip, with the understanding that as soon as the check is cleared, both of
them would go to the bank to withdraw
October 23, 1984: Using the blank withdrawal slip given by Napiza to
Chan, Ruben Gayon, Jr. was able to withdraw
the withdrawal slip shows that the amount was payable to Ramon A. de
Guzman and Agnes C. de Guzman and was duly initialed by the branch
assistant manager, Teresita Lindo
SBCA-SOL 14-15
Lower Court dismissed the complaint.

November 20, 1984: BPI received communication from the Wells Fargo
Bank International of New York that check deposited by Napiza was a
counterfeit check because it was "not of the type or style of checks issued
by Continental Bank International."
Mr. Ariel Reyes, manager of BPI, instructed one of its employees, Benjamin
D. Napiza IV, who is Napiza's son, to inform his father that the check
bounced.
Reyes himself sent a telegram to Napiza regarding the dishonor of the
check
Napiza's son told Reyes that:
check been assigned "for encashment" to Ramon A. de Guzman and/or
Agnes C. de Guzman after it shall have been cleared upon instruction of
Chan
his father immediately tried to contact Chan but Chan was out of town
Napiza's son undertook to return the amount of $2,500.00 to BPI
August 12, 1986: BPI filed a complaint against Napiza for the return of
$2,500.00 or the prevailing peso equivalent plus legal interest, attorney's
fees, and litigation and/or costs of suit
Napiza:
admitting that he indeed signed a "blank" withdrawal slip with the
understanding that the amount deposited would be withdrawn only after
the check in question has been cleared.
However, without his knowledge, it was withdrawn through collusion
with one of BPI's employees.
BPI aslo filed a motion for admission of a third party complaint against
Chan. He alleged that "thru strategem and/or manipulation," Chan was
able to withdraw the amount of $2,500.00 even without Napiza's
passbook.
Having admitted that it committed a "mistake" in not waiting for the

clearance of the check before authorizing the withdrawal of its value or
proceeds, BPI should suffer the resultant loss.
CA: Affirmed the lower courts decision
BPI committed "clears gross negligence" in allowing Ruben Gayon, Jr. to
withdraw the money without presenting BPI's passbook and, before the
check was cleared and in crediting the amount indicated therein in
Napiza's account.
BPI claims that Napiza, having affixed his signature at the dorsal side of
the check, should be liable in accordance to Sec. 66 of the Negotiable
Instrument Law and sec 65.
ISSUE:
Whether or not Napiza can be held liable as an indorser or
accommodation party
HELD:
NO.
ordinarily Napiza may be held liable as an indorser of the check or even as
an accommodation party
However, to hold Napiza liable for the amount of the check he deposited
by the strict application of the law and without considering the attending
circumstances in the case would result in an injustice and in the erosion of
the public trust in the banking system.
The interest of justice thus demands looking into the events that led to the
encashment of the check.
under the Philippine foreign currency deposit system, two requisites must
be presented to petitioner bank by the person withdrawing an amount:
(a) a duly filled-up withdrawal slip, and
Napiza signed a blank deposit slip
SBCA-SOL 14-15
BUT withdrawal slip itself indicates a special instruction that the amount
is payable to "Ramon A. de Guzman &/or Agnes C. de Guzman."
(b) the depositor's passbook
In depositing the check in his name, Napiza did not become the outright
owner of the amount stated therein. By depositing the check with BPI, he
was, in a way, merely designating BPI as the collecting bank.
This is in consonance with the rule that a negotiable instrument, such as a
check, whether a manager's check or ordinary check, is not legal tender
Negligence is the omission to do something which a reasonable man,
guided by those considerations which ordinarily regulate the conduct of
human affairs, would do, or the doing of something which a prudent and
reasonable man would do
While it is true that Napiza's having signed a blank withdrawal slip set in
motion the events that resulted in the withdrawal and encashment of the
counterfeit check, the negligence of BPI's personnel was the proximate
cause of the loss that petitioner sustained.
Proximate cause, which is determined by a mixed consideration of logic,
common sense, policy and precedent, is "that cause, which, in natural and
continuous sequence, unbroken by any efficient intervening cause,
produces the injury, and without which the result would not have
occurred."
The proximate cause = disregard of its own rules and the clearing
requirement in the banking system
Presentment for Payment/Acceptance
PRUDENTIAL BANK vs. INTERMEDIATE APPELLATE COURT,
PHILIPPINE RAYON MILLS, INC. and ANACLETO R. CHI
G.R. No. 74886 December 8, 1992 || (Presentment for acceptance)
FACTS:
Philippine Rayon Mills, Inc. entered into a contract with Nissho Co.,
Ltd. of Japan for the importation of textile machineries under a five-year
deferred payment plan. To effect payment for said machineries, Philippine
Rayon Mills opened a commercial letter of credit with the Prudential Bank
and Trust Company in favor of Nissho. Against this letter of credit, drafts
were drawn and issued by Nissho, which were all paid by the Prudential
Bank through its correspondent in Japan. Two of these drafts were
accepted by Philippine Rayon Mills while the others were not. Petitioner
instituted an action for the recovery of the sum of money it paid to Nissho
as Philippine Rayon Mills was not able to pay its obligations arising from
the letter of credit. The lower court ordered PRMI to pay for the 2 drafts
which were accepted the 10 were not yet accepted and for Chi it was
dismissed. The Respondent court ruled that with regard to the ten drafts
which were not presented and accepted, no valid demand for payment can
be made. Petitioner however claims that the drafts were sight drafts which
did not require presentment for acceptance to Philippine Rayon.
ISSUE:
Whether presentment for acceptance of the drafts was indispensable to
make Philippine Rayon liable thereon
RULING:
NO. Petition GRANTED. Philippine Rayon Mills, Inc. liable on the
12 drafts. Anacleto R. Chi (as guarantor) secondarily liable on the trust
receipt. In the case at bar, the drawee was necessarily the herein
petitioner. It was to the latter that the drafts were presented for
payment. There was in fact no need for acceptance as the issued drafts
are sight drafts. Presentment for acceptance is necessary only in the
cases expressly provided for in Section 143 of the Negotiable Instruments
Law (NIL). The said section provides that presentment for acceptance
must be made:
(a) Where the bill is payable after sight, or in any other case, where
presentment for acceptance is necessary in order to fix the maturity of the
instrument; or
(b) Where the bill expressly stipulates that it shall be presented for
acceptance; or
(c) Where the bill is drawn payable elsewhere than at the residence
or place of business of the drawee.
In no other case is presentment for acceptance necessary in order
to render any party to the bill liable. Obviously then, sight drafts do not
require presentment for acceptance.
SBCA-SOL 14-15
Wong vs. CA
G.R. No. 117857 February 2, 2001 || PRESENTMENT FOR
PAYMENT/ACCEPTANCE
FACTS:
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. Hence, petitioners
customers were required to issue postdated 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 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. LPI waived the P52.07 difference. 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 the checks
with Rizal Commercial Banking Corporation (RCBC). The checks were
returned for the reason account closed. On June 20, 1986, complainant
through counsel notified the petitioner of the dishonor. Petitioner failed to
make arrangements for payment within five (5) banking days. On
November 6, 1987, petitioner was charged with three (3) counts of
violation of B.P. Blg. 224. The trial court found him guilty and the Court of
Appeals affirmed the decision. Hence, the present petition.
ISSUE:
Whether or not LPI deposited the checks within reasonable time.
HELD:
Yes. Petitioner avers that since the complainant deposited the checks on
June 5, 1986, or 157 days after the December 30, 1985 maturity date, the
presumption of knowledge of lack of funds under Section 2 of B.P. Blg. 22
should not apply to him. 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. Private
respondent herein deposited the checks 157 days after the date of the
check. Hence said checks cannot be considered stale. As found by the trial
court, private respondent did not deposit the checks because of the
reassurance of petitioner that he would issue new checks. Upon his failure
to do so, LPI was constrained to deposit the said checks. After the checks
were dishonored, petitioner was duly notified of such fact but failed to
make arrangements for full payment within five (5) banking days thereof.
There is, on record, sufficient evidence that petitioner had knowledge of
the insufficiency of his funds in or credit with the drawee bank at the time
of issuance of the checks.
The International Corporate Bank v. Sps. Gueco
GR No. 141968 || Presentment for Payment
Facts:
Spouses Francis S. Gueco and Ma. Luz E. Gueco obtained a loan from
petitioner InternationalCorporate Bank (now Union Bank of the
Philippines) to purchase a car a Nissan Sentra 1600 4DR,
1989Model. In consideration thereof, the Spouses executed
promissory notes which were payable in monthlyinstallments and
chattel mortgage over the car to serve as security for the notes. The
Spouses defaulted inpayment of installments.Consequently, the
Bank filed on 7 August 1995 a civil action (Civil Case 658-95)for
"Sum of Money with Prayer for a Writ of Replevin" before the
Metropolitan Trial Court of Pasay City. Desi Tomas, the Bank's
Assistant VicePresident demanded payment of the amount of
P184,000.00 which represents the unpaid balance for the carloan.
After some negotiations and computation, the amount was lowered
to P154,000.00, However, as a resultof the non-payment of the
reduced amount on that date, the car was detained inside the bank's
compound.
In the meeting of 29 August 1995, Dr. Gueco delivered a manager's
SBCA-SOL 14-15
check representing thereduced 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 effectthat he was withholding the
payment of the check. Subsequently, in a letter addressed to Ms.
Desi Tomas, vicepresident of the bank, dated 4 September 1995, 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 is controversy as to
whether the document evidencing the order to hold payment of the
check was formally offered as evidence by the bank, it appears from
the pleadings that said check has not been encashed.
Issue:
Whether 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 payableon
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. In a case, a check payable on
demand which was long overdue by about two and a half (2-1/2)
years was considered a stale check. Failure of a payee to encash

acheck for more than 10 years undoubtedly resulted in the check
becoming stale. Thus, even a delay of 1 week or two (2) days, under
the specific circumstances of the certain cases constituted
unreasonable time as amatter of law. 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 checkboth as to effect and use. A cashier's
check is a check of the bank's cashier on his own or another check.
Ineffect, it is a bill of exchange drawn by the cashier of a bank upon
the bank itself, and accepted in advance bythe act of its issuance. It
is really the bank's own check and may be treated as a promissory
note with the bankas a maker. The check becomes the primary
obligation of the bank which issues it and constitutes its
writtenpromise to pay upon demand. The mere issuance of it is
considered an acceptance thereof. If treated aspromissory note, the
drawer would be the maker and in which case the holder need not
prove presentment forpayment or present the bill to the drawee for
acceptance. Even assuming that presentment is needed, failure
topresent for payment within a reasonable time will result to the
discharge of the drawer only to the extent ofthe loss caused by the
delay. Failure to present on time, thus, does not totally wipe out all
liability. In fact, thelegal situation amounts to an acknowledgment
of liability in the sum stated in the check. In this case, theGueco
spouses have not alleged, much less shown that they or the bank
which issued the manager's check hassuffered damage or loss
caused by the delay or non-presentment. Definitely, the original
obligation to paycertainly has not been erased. It has been held that,
if the check had become stale, it becomes imperative thatthe
circumstances that caused its non-presentment be determined.
Herein, the bank held on the check andrefused 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.
SBCA-SOL 14-15
Checks
State Investment House Inc., v. Court of Appeals
GR No. 101163 || Checks
FACTS:
Private respondent, Nora B. Moulic issued to Corazon Victoriano,
as security for pieces of jewelry to be sold on commission, two (2) postdated Equitable Banking Corporation checks in the amount P50,000.00
each, one dated 30 August 1979 and the other, 30 September 1979.
Thereafter, the payee negotiated the checks to petitioner State Investment
House. Inc.
Moulic failed to sell the pieces of jewelry so she returned them to
the payee before the maturity dates of the checks. However, the checks
could no longer be retrieved as they had already been negotiated.
Consequently, Moulic withdrew her funds from the drawee bank.
Upon presentment for payment, the checks were dishonored for
insufficiency of funds so State Investment notified Moulic of the dishonour
of the checks, which Moulic denied receiving notice thereof. State
Investment then sued to recover the value of the checks. However, Moulic
contends that she incurred no obligation on the checks because the
jewelry was never sold and the checks were negotiated without her
knowledge and consent.
ISSUE:
Whether or not petitioner is a holder in due course therefore
making Moulic liable for the value of the checks she issued.
HELD:
Sec. 52 of the Negotiable Instruments Law states: 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
was 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.
With that, evidence clearly shows that: (a) on their faces the postdated checks were complete and regular: (b) petitioner bought these
checks from the payee, Corazon Victoriano, before their due dates;(c)
petitioner took these checks in good faith and for value, albeit at a
discounted price; and, (d) petitioner was never informed nor made aware
that these checks were merely issued to payee as security and not for
value.
Consequently, petitioner is indeed a holder in due course. As such,
it holds the instruments free from any defect of title of prior parties, and
from defenses available to prior parties among themselves; it may,
therefore, enforce full payment of the checks.
Since she was responsible for the dishonor of her checks, there was no
need to serve her Notice of Dishonor, which is simply bringing to the
knowledge of the drawer or indorser of the instrument, either verbally or
by writing, the fact that a specified instrument, upon proper proceedings
taken, has not been accepted or has not been paid, and that the party
notified is expected to pay it.
Moulic, as drawer, is liable for the value of the checks she issued to
the holder in due course, State Investment, without prejudice to any
action for recompense she may pursue against Victoriano as Third-Party
Defendants who had already been declared as in default.
BATAAN CIGAR AND CIGARETTE FACTORY, INC. vs. THE COURT OF
APPEALS and STATE INVESTMENT HOUSE, INC.
G.R. No. 93048. March 3, 1994 || Section 185
NOCON, J p:
FACTS:
Petitioner, Bataan Cigar & Cigarette Factory, Inc. (BCCFI), a corporation
involved in the manufacturing of cigarettes, engaged one of its suppliers,
King Tim Pua George (herein after referred to as George King), to deliver
2,000 bales of tobacco leaf starting October 1978. In consideration
thereof, BCCFI, on July 13, 1978 issued crossed checks post dated
sometime in March 1979 in the total amount of P820,000.00. Relying on
the supplier's representation that he would complete delivery within
three months from December 5, 1978, petitioner agreed to purchase
additional 2,500 bales of tobacco leaves, despite the supplier's failure to
deliver in accordance with their earlier agreement. Again petitioner issued
postdated crossed checks in the total amount of P1,100,000.00, payable
sometime in September 1979.
During these times, George King was simultaneously dealing with private
respondent State Investment House, Inc (SIHI). On July 19, 1978, he sold
at a discount check TCBT 551826 5 bearing an amount of P164,000.00,
post dated March 31, 1979, drawn by petitioner, naming George King as
payee to SIHI. On December 19 and 26, 1978, he again sold to respondent
SBCA-SOL 14-15
checks TCBT Nos. 608967 & 608968, 6 both in the amount of P100,000.00,
post dated September 15 & 30, 1979 respectively, drawn by petitioner in
favor of George King. In as much as George King failed to deliver the bales
of tobacco leaf as agreed despite petitioner's demand, BCCFI issued on
March 30, 1979, a stop payment order on all checks payable to George
King, including check TCBT 551826. Subsequently, stop payment was also
ordered on checks TCBT Nos. 608967 & 608968 on September 14 & 28,
1979, respectively, due to George King's failure to deliver the tobacco
leaves. Efforts of SIHI to collect from BCCFI having failed, it instituted the
present case, naming only BCCFI as party defendant. The trial court
pronounced SIHI as having a valid claim being a holder in due course. It
further said that the non-inclusion of King Tim Pua George as party
defendant is immaterial in this case, since he, as payee, is not an
indispensable party.
RTC ruling: Ruled in favor of SIHI
CA Ruling: affirmed RTC Ruling.
ISSUE:
whether or not SIHI, a second indorser, a holder of crossed checks, is a
holder in due course, to be able to collect from the drawer, BCCFI
HELD:
No. The Supreme Court reversed the decision of Court of Appeals. SIHI
cannot collect from BCCFI, because SIHI cannot be considered as a holder
in due course. BCCFI's defense in stopping payment is as good to SIHI as it
is to George King. Because, really, the checks were issued with the
intention that George King would supply BCCFI with the bales of tobacco
leaf. There being failure of consideration, SIHI is not a holder in due
course.
Consequently, BCCFI cannot be obliged to pay the checks. The foregoing
does not mean, however, that respondent could not recover from the
checks. The only disadvantage of a holder who is not a holder in due
course is that the instrument is subject to defenses as if it were nonnegotiable. 14 Hence, respondent can collect from the immediate indorser,
in this case, George King.
(Section 185) A check is defined by law as a bill of exchange drawn on a
bank payable on demand. There are a variety of checks, the more popular
of which are the memorandum check, cashier's check, traveler's check and
crossed check. Crossed check is one where two parallel lines are drawn
across its face or across a corner thereof. It may be crossed generally or

specially.
A check is crossed specially when the name of a particular banker or a
company is written between the parallel lines drawn. It is crossed
generally when only the words "and company" are written or nothing is
written at all between the parallel lines. It may be issued so that
presentment can be made only by a bank. Veritably the Negotiable
Instruments Law (NIL) does not mention "crossed checks," although
Article 541 9 of the Code of Commerce refers to such instruments.
Sps. George and Librada Moran v. Court of Appeals and Citytrust
Banking Corporation
GR No. 105836 || Section 185
FACTS:
George and Librada Moran are the owners of the Wack-Wack Petron
Gasoline station in Mandaluyong. They regularly purchased for bulk fuel
and other related products from Petrophil Corporation on COD basis. The
orders for bulk fuel and other products were made by telephone and
payments were effected by personal checks upon delivery. They had
several accounts with Citytrust. Petitioners, through Librada Moran, drew
two checks payable to Petrophil Corporation. Petrophil deposited the
checks to its account with PNB, who in turn PNB presented them for
clearing on the same day. Records show that on that day, their current
account had a zero balance. The next day, George Librada transferred the
amount of the checks from their savings account with Citytrust to their
current account with the same bank. George was informed by Librada that
Petrophil refused to deliver their orders on a credit basis because the two
checks the had previously issued were dishonored due to insufficiency of
funds. The non-delivery of gasoline forced petitioners to temporarily stop
business operations. In addition, Petrophil cancelled their credit
accommodation, forcing them to pay for their purchases in cash. It turned
out that it was dishonored due to operational error to which the branch
manager acted on and personally present the checks in payment for the
two dishonored checks to Petrophil. Months after, George Moran learned
that Petrophil had received from Citytrust notifying them that the two
checks were inadvertently dishonored due to operational error.
Petitioners filed a complaint for damages against Citytrust claiming that
the banks dishonor of the checks caused them besmirched business and
personal reputation, shame and anxiety.
SBCA-SOL 14-15
RTC Ruling: dismissed the complaint; Citytrust cannot be liable

CA Ruling: affirmed the decision of the RTC; Citytrust not liable
ISSUE:
Whether or not Citytrust should be held liable for the dishonor of the
checks
HELD:
The court held that Citytrust should not be held liable. A check is a bill of
exchange drawn on a bank payable on demand. Thus, a check is a written
order addressed to a bank or persons carrying on the business of banking,
by a party having money in their hands, requesting them to pay on
presentment, to a person named therein or to bearer or order, a named
sum of money. Where the bank possesses funds of a depositor, it is bound
to honor his checks to the extent of the amount of his deposits. The failure
of a bank to pay the check of a merchant or a trader, when the deposit is
sufficient, entitles the drawer to substantial damages without any proof of
actual damages. Conversely, a bank is not liable for its refusal to pay a
check on account of insufficient funds, notwithstanding the fact that a
deposit may be made later in the day. Before a bank depositor may
maintain a suit to recover a specific amount from his bank, he must first
show that he had on deposit sufficient funds to meet his demand.
Petitioner had no reason to complain, for they alone were at fault. A
drawer must remember his responsibilities every time he issues a check.
He must personally keep track of his available balance in the bank and not
rely on the bank to notify him of the necessity to fund certain check she
previously issued. A check, as distinguished from an ordinary bill of
exchange, is supposed to be drawn against a previous deposit of funds for
it is ordinarily intended for immediately payment. Legally, the bank had
all the right to dishonor the checks because there were no sufficient funds
to speak of in the first place. If the demand is by check, a drawer must
have to his credit enough to cover the demand. If his credit with the bank
is less than the amount on the face of the check, the bank may lawfully
refuse payment.
Ramon Tan v. CA & Rizal Commercial Banking
GR No. 108555 (December 20, 1994) || Section 189
FACTS:
Petitioner Ramon Tan had maintained an account with respondent banks
Binondo branch. He secured a Cashiers Check from the Philippine
Commercial Industrial Bank payable to his order. He deposited the check
in his account with RCBC. On the same day, RCBC erroneously sent the
same cashiers check for clearing to the Central Bank which was returned
for having been misspent or misrouted. The next day, RCBC debited the
amount covered by the same cashiers check from the account of the
petitioner. Respondent bank did not inform the petitioner of its action to
which he only learned of the claims 42 days after. Relying on common
knowledge that a cashiers check was as good as cash, petitioner issued
two personal checks in the name of Go Lac, without awaiting any
notification if it was cleared, which was returned twice for insufficiency of
funds. Tan filed a complaint against RCBC for damages. Tan contends that
there was negligence on the part of RCBC, therefore they should be held
liable. RCBC contended that it was merely acting as petitioners collecting
agent and it assumed no responsibility beyond care in selecting
correspondents under the theory that where a check is deposited with a
collecting bank the relationship created is that of agency and not creditordebtor, thus it cannot be held liable.
Trial Court Ruling: Ruled against RCBC and made them liable for moral
damages and exemplary damages but not for actual damages because Tan
failed to prove by any receipt or writing to underpin it.
Court of Appeals: Reversed the decision of the Trial court in that it was
the fault of Tan which led to his loss. First, it was the Tan who filled up the
wrong deposit slip which led to the sending of the check to the Central
Bank when the clearing should have been made elsewhere. Second, the
bank actually tried to advise Tan that the check was misspent, but the
telephone number was no longer active. It was Tan who was under
obligation to inform RCBC of any changes in the telephone numbers to be
contacted. Third, the refusal of RCBC to credit the amount of P30,000.00 is
consistent with the accepted banking practice. It is clear that immediate
payment without awaiting clearance of a cashiers check is
discretionary with the bank to whom the check is presented and
such being the case, the refusal to allow it as in this case is not to be
equated with negligence in the basic perception that discretion is not
demandable as a right.
ISSUE:
Whether or not RCBC should bear the loss
HELD:
SBCA-SOL 14-15
The court held that RCBC should bear the loss. RCBC insists that
immediate payment without awaiting clearance of a cashier's check is
discretionary with the bank to whom the check is presented and such
being the case, its refusal to immediately pay the cashier's check in this
case is not to be equated with negligence on its part. We find this
disturbing and unfortunate.
An ordinary check is not a mere undertaking to pay an amount of money.
There is an element of certainty or assurance that it will be paid upon
presentation that is why it is perceived as a convenient substitute for
currency in commercial and financial transactions. The basis of the
perception being confidence. Any practice that destroys that confidence
will impair the usefulness of the check as a currency substitute and create
havoc in trade circles and the banking community.
Now, what was presented for deposit in the instant cases was not just an
ordinary check but a cashier's check payable to the account of the
depositor himself. A cashier's check is a primary obligation of the issuing
bank and accepted in advance by its mere issuance. By its very nature, a
cashier's check is the bank's order to pay drawn upon itself, committing in
effect its total resources, integrity and honor behind the check. A cashier's
check by its peculiar character and general use in the commercial world is
regarded substantially to be as good as the money which it represents. In
this case, therefore, PCIB by issuing the check created an unconditional
credit in favor of any collecting bank.
All these considered, petitioner's reliance on the layman's perception that
a cashier's check is as good as cash is not entirely misplaced, as it is rooted
in practice, tradition, and principle. We see no reason thus why this socalled discretion was not exercised in favor of petitioner, specially since
PCIB and RCBC are members of the same clearing house group relying on
each other's solvency. RCBC could surely rely on the solvency of PCIB
when the latter issued its cashier's check.
MC Papa vs AU Valencia and Penarroyo

FACTS:
Respondents A.U. Valencia and Penarroyo filed a complaint for
specific performance against Myron Papa, administrator of the
testate estate of Angela M. Butte.
On 15 June 1973, Papa, acting as attorney-in-fact of Angela Butte,
sold to Penarroyo, through Valencia, a parcel of land; that prior the
alleged sale, said property together with several other parcels of
land likewise owned by Butte, had been mortgaged by her to the
Associated Banking Corporation (now Associated Citizens Bank);
that after the alleged sale, but before the title had been released,
Angela Butte passed away. Despite the representations made by
respondents, the bank refused to release the title unless and until all
mortgaged properties were redeemed.
Sometime in April 1977, Respondents discovered that the mortgage
rights were assigned to Tomas Parpana, as special administrator;
and that he had been collecting monthly rentals of P800.00, despite
knowing that the property were sold to respondents. Papa refused
and failed to deliver the title even after repeated demands from
respondents.
RTC allowed Papa to redeem from the Reyes spouses, who bought
the land at a public auction because of tax delinquency and ordered
Papa to execute a Deed of Absolute Sale in favor of Penarroyo.
Petitioner appealed. He alleged that the sale was never
consummated as he did not encash the check, amounting to
P40,000.00, as payment for the subject lot. He maintained that what
said respondents had actually paid was only the amount of
P5,000.00 (in cash) as earnest money.
ISSUE:
SBCA-SOL 14-15
Whether or not there was valid payment even though Papa failed to
encash the check
HELD:
The Court ruled that there was valid payment. After more than 10
years from the payment in part by cash and in part by check, the
presumption is that the check had been encashed.
Granting that the petitioner had never encashed the check, his
failure to do so for more that 10 years undoubtedly resulted in the
impairment of the check through his unreasonable and unexplained
delay.
While it is true that the delivery of a check produces the effect of payment
only when it is encashed, pursuant to Art. 1249 NCC, the rule is otherwise
if the debtor is prejudiced by the creditors unreasonable delay in
presentment. THe acceptance of a check implies an undertaking of due
diligence in presenting it for payment, and if he from whom it is received
sustains loss by want of such diligence, it will be held to operate as actual
payment of the debt or obligation for which it was given.

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