Sesbreno vs.

CA
222 SCRA 466
FACTS: Petitioner made a placement with Philfinance. The latter delivered to him
documents, some of which was a promissory note from Delta Motors and a postdated check. The post-dated checks were dishonored. This prompted petitioner to
ask for the promissory note from DMC and it was discovered that the note issued by
DMC was marked as non-negotiable. As Sesbreno failed to recover his money, he
filed case against DMC and Philfinance.
HELD: The non-negotiability of the instrument doesnt mean that it is nonassignable or transferable. It may still be assigned or transferred in whole or in
part, even without the consent of the promissory note, since consent is not
necessary for the validity of the assignment.
In assignment, the assignee is merely placed in the position of the assignors
and acquires the instrument subject to all the defenses that might have been
set up against the original payee.
Associated Bank vs. CA
GR 107382, 31 January 1996
Second Division, Romero (J)
Facts: The Province of Tarlac maintains a current account with the Philippine
National Bank (PNB Tarlac Branch) where the provincial funds are deposited.
Portions of the funds were allocated to the Concepcion Emergency Hospital. Checks
were issued to it and were received by the hospitals administrative officer and
cashier (Fausto Pangilinan). Pangilinan, through the help of Associated Bank but
after forging the signature of the hospitals chief (Adena Canlas), was able to deposit
the checks in his personal account. All the checks bore the stamp All prior
endorsement guaranteed Associated Bank. Through post-audit, the province
discovered that the hospital did not receive several allotted checks, and sought the
restoration of the debited amounts from PNB. In turn, PNB demanded
reimbursement from Associated Bank. Both banks resisted payment. Hence, the
present action.
Issue: Who shall bear the loss resulting from the forged checks.
Held: PNB is not negligent as it is not required to return the check to the collecting
bank within 24 hours as the banks involved are covered by Central Bank Circular
580 and not the rules of the Philippine Clearing House. Associated Bank, and not
PNB, is the one duty-bound to warrant the instrument as genuine, valid and
subsisting at the time of indorsement pursuant to Section 66 of the Negotiable
Instruments Law. The stamp guaranteeing prior indorsement is not an empty rubric;
the collecting bank is held accountable for checks deposited by its customers.
However, due to the fact that the Province of Tarlac is equally negligent in permitting
Pangilinan to collect the checks when he was no longer connected with the hospital,

it shares the burden of loss from the checks bearing a forged indorsement.
Therefore, the Province can only recover 50% of the amount from the drawee bank
(PNB), and the collecting bank (Associated Bank) is liable to PNB for 50% of the
same amount.
Caltex (Philippines) Inc. vs. CA
GR 97753, 10 August 1992
Second Division, Regalado (J)
Facts: On various dates, Security Bank and Trust Co. (SEBTC), through its Sucat
branch, issued 280 certificates of time deposit (CTD) in favor of one Angel dela Cruz
who deposited with the bank the aggregate amount of P1.12 million. Anger de la
Cruz delivered the CTDs to Caltex in connection with his purchase of fuel products
from the latter. Subsequently, dela Cruz informed the bank that he lost all the
CTDs, and thus executed an affidavit of loss to facilitate the issuance of the
replacement CTDs. De la Cruz was able to obtain a loan of P875,000 from the bank,
and in turn, he executed a notarized Deed of Assignment of Time Deposit in favor of
the bank. Thereafter, Caltex presented for verification the CTDs (which were
declared lost by de la Cruz) with the bank. Caltex formally informed the bank of its
possession of the CTDs and its decision to preterminate the same. The bank rejected
Caltex claim and demand, after Caltex failed to furnish copy of the requested
documents evidencing the guarantee agreement, etc. In 1983, de la Cruz loan
matured and the bank set-off and applied the time deposits as payment for the loan.
Caltex filed the complaint, but which was dismissed.
Issues:
[1]: Whether the Certificates of Time Deposit (CTDs) are negotiable
instruments.
[2]: Whether the CTDs negotiation require delivery only.
Held: [1] The CTDs in question meet the requirements of the law for negotiability.
Contrary to the lower courts findings, the CTDs are negotiable instruments
(Section 1). Negotiability or non-negotiability of an instrument is determined from
the writing, i.e. from the face of the instrument itself. The documents provided that
the amounts deposited shall be repayable to the depositor. The amounts are to be
repayable to the bearer of the documents, i.e. whosoever may be the bearer at the
time of presentment.
[2] Although the CTDs are bearer instruments, a valid negotiation thereof for
the true purpose and agreement between it (Caltex) and de la Cruz requires both
delivery and indorsement; as the CTDs were delivered to it as security for dela Cruz
purchases of its fuel products, and not for payment. Herein, there was no
negotiation in the sense of a transfer of title, or legal title, to the CTDs in which
situation mere delivery of the bearer CTDs would have sufficed. The delivery thereof
as security for the fuel purchases at most constitutes Caltex as a holder for value by
reason of his lien. Accordingly, a negotiation for such purpose cannot be effected by
mere delivery of the instrument since the terms thereof and the subsequent
disposition of such security, in the event of non-payment of the principal obligation,
must be contractually provided for.

Dela Victoria vs. Burgos

GR 111190, 27 June 1995
First Division, Bellosillo (J)
Facts: Raul Sesbreno filed a complaint for damages against Assistant City Fiscal
Bienvenido Mabanto before the RTC of Cebu City. After trial, judgment was rendered
ordering Mabanto to pay Sesbreno P11,000. The decision having become final and
executory, the trial court ordered its execution upon Sesbrenos motion. The writ of
execution was issued despite Mabantos objection. A notice of garnishment was
served upon Loreto de la Victoria as City Fiscal of Mandaue City where Mabanto was
then detailed. De la Victoria moved to quash the notice of garnishment claiming that
he was not in possession of any money, funds, etc. belonging to Mabanto until
delivered to him, and as such are still public funds which could not be subject of
garnishment.
Issue: Whether the checks subject of garnishment belong to Mabanto or whether
they still belong to the government.
Held: Under Section 16 of the Negotiable Instruments Law, every contract on a
negotiable instrument is incomplete and revocable until delivery of the instrument
for the purpose of giving effect thereto. As ordinarily understood, delivery means the
transfer of the possession of the instrument by the maker or drawer with the intent
to transfer title to the payee and recognize him as the holder thereof. Herein, the
salary check of a government officer or employee does not belong to him before it is
physically delivered to him. Inasmuch as said checks had not yet been delivered to
Mabanto, they did not belong to him and still had the character of public funds. As
a necessary consequence of being public fund, the checks may not be garnished to
satisfy the judgment.
Gempesaw vs. CA
GR 92244, 9 February 1993
Second Division, Campos Jr. (J)
Facts: Natividad Gempesaw issued checks, prepared by her bookkeeper, a total of
82 checks in favor of several supplies. Most of the checks for amounts in excess of
actual obligations as shown in their corresponding invoices. It was only after the
lapse of more than 2 years did she discovered the fraudulent manipulations of her
bookkeeper. It was also learned that the indorsements of the payee were forged, and
the checks were brought to the chief accountant of Philippine Bank of Commerce
(the Drawee Bank, Buendia Branch) who deposited them in the accounts of Alfredo
Romero and Benito Lam. Gempesaw made demand upon the bank to credit the
amount charged due the checks. The bank refused. Hence, the present action.
Issue: Who shall bear the loss resulting from the forged indorsements.
Held: As a rule, a drawee bank who has paid a check on which an indorsement has
been forged cannot charge the drawers account for the amount of said check. An
exception to the rule is where the drawer is guilty of

such negligence which causes the bank to honor such checks. Gempesaw did not
exercise prudence in taking steps that a careful and prudent businessman would
take in circumstances to discover discrepancies in her account. Her negligence was
the proximate cause of her loss, and under Section 23 of the Negotiable Instruments
Law, is precluded from using forgery as a defense. On the other hand, the banking
rule banning acceptance of checks for deposit or cash payment with more than one
indorsement unless cleared by some bank officials does not invalidate the
instrument; neither does it invalidate the negotiation or transfer of said checks. The
only kind of indorsement which stops the further negotiation of an instrument is a
restrictive indorsement which prohibits the further negotiation thereof, pursuant to
Section 36 of the Negotiable Instruments Law. In light of any case not provided for in
the Act that is to be governed by the provisions of existing legislation, pursuant to
Section 196 of the Negotiable Instruments Law, the bank may be held liable for
damages in accordance with Article 1170 of the Civil Code. The drawee bank, in its
failure to discover the fraud committed by its employee and in contravention
banking rules in allowing a chief accountant to deposit the checks bearing second
indorsements, was adjudged liable to share the loss with Gempesaw on a 50:50
ratio.
Kalalo vs. Luz
GR L-27782, 31 July 1970
En Banc, Zaldivar (J)
Facts: On 17 November 1959, Octavio Kalalo entered into an agreement with Alfredo
Luz where he was to render engineering design services for a fee. On 11 December
1961, Kalalo sent Luz a statement of account where the balance due for services
rendered was P59,505. On 18 May 1962, Luz sent Kalalo a resume of fees due to the
latter, and a check for P10,861.08. Kalalo refused to accept the check as full
payment of the balance
of the fees due him. On 10 August 1962, Kalalo filed a complaint containing 4
causes of action, i.e. $28,000 (representing 20% of the amount paid to Luz in the
International Research Institute project) and the balance of P30,881.25 as fees;
P17,0000 as consequential and moral damages; P55,000 as moral damages,
attorneys fees and litigation expenses; and P25,000 as actual damages, attorneys
fees and litigation expenses). The trial court ruled in favor of Kalalo. Luz filed an
appeal directly with the Supreme Court raising only questions of law.
Issue: Whether the rate of exchange of dollar to peso are those at the time of the
payment of the judgment or at the time when the research institute project became
due and demandable.
Held: Luz obligation to pay Kalalo the sum of US$28,000 accrued on 25 August
1961, or after the enactment of RA 529 (16 June 1950). Thus, the provision of the
statute which requires payment at the prevailing rate of exchange when the
obligation was incurred cannot be applied. RA 529 does not provide for the rate of
exchange for the payment of obligation incurred after the enactment of the Act, and
thus the rate of exchange should be that prevailing at the time of payment. The view
finds support in the ruling of the Court in Engel vs. Velasco & Co. The trial court did

not err in holding the rate of exchange is that at the time of payment.
PNB V. BENITO SEETO, 91 SCRA 757
FACTS:
Benito Seeto called at a branch of bank and presented a check payable to cash or
bearer, and drawn by Kiao against Philippine National Bank of Communications
(PBCom). After consultation with the employees, Seeto made a general and
qualified indorsement of the check. He was then paid the amount of the check
by bank.
The check was consequently dishonored, a letter was sent to
Seeto and was asked to refund the money given to him. A second letter was sent
to him and he averred that case against him be deferred while he inquired about
why the check was dishonored. Thereafter, he refused to pay, alleging that the
account against the check was drawn had sufficient funds when the check was
drawn and if the bank did not delay in clearing the check, there would have been
sufficient funds.
The appellate court reversed the lower court in its decision. It ruled that the bank
was guilty of unreasonably retaining and withholding the check, and that the delay
in the presentment was inexcusable, so that respondent thereby was discharged
from liability.
HELD:
Section 84 of Negotiable Instruments Law is applicable. Nonetheless, it should be
read in correlation with Section 186, which says that presentment should be within
reasonable time.
Sec. 83. When instrument dishonored by non-payment. - The instrument is
dishonored by non-payment when:
(a) It is duly presented for payment and payment is refused or cannot be obtained;
or
(b) Presentment is excused and the instrument is overdue and unpaid.
REPUBLIC V. EBRADA
65 SCRA 680
FACTS:
Mauricia Ebrada encashed a Back Pay Check issued by the Bureau of Treasury at
the Republic Bank in Escolta Manila. The Bureau of Treasury advised the
Republic Bank that the instrument was forged. It informed the bank that the
original payee of the check died 11 years before the check was issued. Therefore,
there was a forgery of his signature.
This is the sequence:
Martin Lorenzo
The deceased person, original
payee,
where
the
forgery happened
Ramon Lorenzo

Delia Dominguez
Mauricia Ebrada
Defendant-appelant
Ebrada refuses to return the proceeds of the check claiming that she already
gave it to Delia Dominguez. She also claims that she is a HDC (holder in
due course) and that the bank is already estopped.
HELD:
Ebrada should return the proceeds of the check to Republic Bank. As an
indorser of the check, she was supposed to have warranted that she has good title
to said check.
Section 65 of the Negotiable Instruments Law says: Warranty where negotiation by
delivery and so forth. Every person negotiating an instrument by delivery or by a
qualified indorsement warrants:
(a) That the instrument is genuine and in all respects what it purports to
be;
(b) That he has a good title to it;
(c) That all prior parties had capacity to contract;
(d) That he has no knowledge of any fact which would impair the validity
of the instrument or render it valueless.
But when the negotiation is by delivery only, the warranty extends in favor of No
holder other than the immediate transferee.
The provisions of subdivision (c) of this section do not apply to a
person negotiating public or corporation securities other than bills and
notes.
and
Section 23 of the Negotiable Instruments Law: When the signature is forged or made
without the authority of the person whose signature it purports to be, it is wholly
inoperative, and no right to retain the instruments, or to give a discharge thereof
against any party thereto, can be acquired through or under such signature unless
the party against whom it is sought to enforce such right is PRECLUDED from
setting up the forgery or want of authority.
It is only the negotiation based on the forged or unauthorized signature
which is inoperative. Therefore:
Martin Lorenzo
Signature inoperative
Ramon Lorenzo
To Dominguez: operative

Delia Dominguez
To Ebrada: operative
Mauricia Ebrada
Drawee bank can collect from the one who encashed the check. If Ebrada
performed the duty of ascertaining the genuiness of the check, in all
probability, the forgery would have been detected and the fraud defeated.
MESINA V. IAC
145 SCRA 497
FACTS:
Jose Go purchased from Associate Bank a Cashiers Check, which he left on top of
the managers desk when left the bank.
The bank manager then had it
kept for safekeeping by one of its employees.
The employee was then in
conference with one Alexander Lim. He left the check in his desk and upon his
return, Lim and the check were gone. When Go inquired about his check, the
same couldn't be found and Go was advised to request for the stoppage of payment
which he did. He executed also an affidavit of loss as well as reported it to the
police.
The bank then received the check twice for clearing. For these two times, they
dishonored the payment by saying that payment has been stopped. After the
second time, a lawyer contacted it demanding payment. He refused to disclose
the name of his client and threatened to sue. Later, the name of Mesina was
revealed. When asked by the police on how he possessed the check, he said
it was paid to him Lim. An information for theft was then filed against Lim.
A case of interpleader was filed by the bank and Go moved to participate as
intervenor in the complaint for damages. Mesina moved for the dismissal of
the case but was denied.
The trial court ruled in the interpleader case
ordering the bank to replace the cashiers check in favor of Go.
HELD:
Petitioner cannot raise as arguments that a cashiers check cannot be
countermanded from the hands of a holder in due course and that a
cashiers check is a check drawn by the bank against itself. Petitioner failed
to substantiate that he was a holder in due course. Upon questioning, he
admitted that he got the check from Lim who stole the check. He refused to
disclose how and why it has passed to him. It simply means that he has notice of
the defect of his title over the check from the start. The holder of a cashiers
check who is not a holder in due course cannot enforce payment against the
issuing bank which dishonors the same. If a payee of a cashiers check obtained
it from the issuing bank by fraud, or if there is some other reason why the
payee is not entitled to collect the check, the bank would of course have the

right to refuse payment of the check when presented by payee, since the bank was
aware of the facts surrounding the loss of the check in question.
Philippine Commercial International Bank vs. CA,
350 SCRA 446
FACTS:
Ford Philippines filed actions to recover from the drawee bank Citibank and
collecting bank PCIB the value of several checks payable to the
Commissioner of Internal Revenue which were embezzled allegedly by an organized
syndicate. What prompted this action was the drawing of a check by Ford,
which it deposited to PCIB as payment and was debited from their Citibank
account. It later on found out that the payment wasnt received by the
Commissioner.
Meanwhile, according to the NBI report, one of the checks
issued by petitioner was withdrawn from PCIB for alleged mistake in the amount to
be paid. This was replaced with managers check by PCIB, which were allegedly
stolen by the syndicate and deposited in their own account.
The trial court decided in favor of Ford.
ISSUE:
Has Ford the right to recover the value of the checks intended as payment to CIR?
HELD:
The checks were drawn against the drawee bank but the title of the person
negotiating the same was allegedly defective because the instrument was obtained
by fraud and unlawful means, and the proceeds of the checks were not
remitted to the payee. It was established that instead paying the Commissioner,
the checks were diverted and encashed for the eventual distribution among
members of the syndicate.
Pursuant to this, it is vital to show that the negotiation is made by the
perpetrator in breach of faith amounting to fraud. The person negotiating the
checks must have gone beyond the authority given by his principal. If the principal
could prove that there was no negligence in the performance of his duties, he
may set up the personal defense to escape liability and recover from other
parties who, through their own negligence, allowed the commission of the crime.
It should be resolved if Ford is guilty of the imputed contributory negligence
that would defeat its claim for reimbursement, bearing in mind that its employees
were among the members of the syndicate. It appears although the employees of
Ford initiated the transactions attributable to the organized syndicate, their
actions were not the proximate cause of encashing the checks payable to
CIR.
The degree of Fords negligence couldnt be characterized as the
proximate cause of the injury to parties. The mere fact that the forgery
was committed by a drawer-payors confidential employee or agent, who by virtue
of his position had unusual facilities for perpetrating the fraud and imposing the
forged paper upon the bank, doesnt entitle the bank to shift the loss to the drawer-

payor, in the absence of some circumstance raising estoppel against the drawer.
Note: not only PCIB but also Citibank is responsible for negligence. Citibank
was negligent in the performance of its duties as a drawee bank. It failed to
establish its payments of Fords checks were made in due course and legally in
order.