1. Pio Barretto Realty Dev. Corp. v.

Court of Appeals 360 SCRA 217 (2001)

Honor Moslares and Pio Barretto Realty Development Corporation are disputing over the
estate of Nicolai Drepin, represented by Atty. Tomas Trinidad. To settle the dispute, and while the case
was in court, they entered into a Compromise Agreement by which they agreed to have the estate in
dispute be sold; that in case Moslares was able to buy the property first, he should pay P3,000,000.00
to Barretto Realty (representing the amount of investments by Barretto Realty in the estate); that
should Barretto Realty buy the property first, it should pay P1,000,000.00 to Moslares (representing
interest). The compromise agreement was approved by the judge (Judge Perfecto Laguio).
Barretto Realty was able to buy the property first hence it delivered a managers check worth
P1,000,000.00 to Moslares but the latter refused to accept the same. Barretto Realty filed a petition
before the trial court to direct Moslares to comply with the Compromise Agreement. Barretto Realty
also consigned the check payment with the court. The judge issued a writ of execution against
Moslares and the sheriff also delivered the check to Moslares which the latter accepted. However,
three years later, Moslares filed a motion for reconsideration alleging that the check payment did not
amount to legal tender and that he never even encashed the check. The judge agreed with Moslares.

compelling him to accept the amount, to pay the expenses of consignation, etc. Ocampo accepted the
judgment as to the second loan but appealed as to the first loan.
Issue: Whether there is a tender of payment by means of a cashiers check representing war notes.
Held: Japanese military notes were legal tender during the Japanese occupation; and Ocampo
impliedly accepted the consignation of the cashiers check when he asked the court that he be paid the
amount of the second loan (P15,000). It is a rule that a cashiers check may constitute a sufficient
tender where no objection is made on this ground.
Although a negotiable instrument takes the place of money, it is not legal tender and the creditor
may not be compelled to accept a negotiable instrument as payment of a money obligation no
matter how good such an instrument is. It is the right of creditor to demand payment in cash.
Thus, consignation in court must be in cash; it cannot be made through a certified check.
But if creditor, knowing what was delivered in court was a certified check, fails to object to such
an irregularity, then there is a waiver, and the consignation produces its effect.

ISSUE: Whether or not the judge was correct.

HELD: No. There was already a final and executory order issued by the same judge three years prior.
The same may no longer be amended regardless of any claim or error or incorrectness (save for clerical
errors only). It is true that a check is not a legal tender and while delivery of a check produces the
effect of payment only when it is encashed, the rule is otherwise if the debtor (Barretto Realty) was
prejudiced by the creditors (Moslares) unreasonable delay in presentment. Acceptance of a check
implies an undertaking of due diligence in presenting it for payment. If no such presentment was
made, the drawer cannot be held liable irrespective of loss or injury sustained by the payee.
Payment will be deemed effected and the obligation for which the check was given as conditional
payment will be discharged.

3. New Pacific Timber v. SEeris 101 SCRA 686 (1980)

2. Eduque v. Ocampo 86 Phil 216 (1950)

P63,130.00. Private respondent refused to accept the check and the cash and requested for the auction
sale to proceed. The properties were sold for P50,000.00 to the highest bidder with a deficiency of
P13,130.00. Petitioner subsequently filed an ex-parte motion for issuance of certificate of satisfaction
of judgment which was denied by the respondent Judge. Hence this present petition, alleging that the
respondent Judge capriciously and whimsically abused his discretion in not granting the requested
motion for the reason that the judgment obligation was fully satisfied before the auction sale with the
deposit made by the petitioner to the Ex-Officio Sheriff. In upholding the refusal of the private
respondent

Facts: On 16 February 1935, Dr. Jose Eduque secured two loans from Mariano Ocampo de Leon, Dona
Escolastica delos Reyes and Don Jose M. Ocampo, with amount s of P40,000 and P15,000, both
payable within 20 years with interest of 5% per annum. Payment of the loans was guaranteed by
mortgage on real property. On 6 December 1943, Salvacion F. Vda de Eduque, as administratrix of the
estate of Dr. Jose Eduque, tendered payment by means of a cashiers check representing Japanese War
notes to Jose M. Ocampo, who refused payment. By reason of such refusal, an action was brought and
the cashiers check was deposited in court. After trial, judgment was rendered against Ocampo

FACTS: Petitioner, New Pacific Timber & Supply Co. Inc. was the defendant in a complaint for
collection of money filed by private respondent, Ricardo A. Tong. In this complaint, respondent Judge
rendered a compromise judgment based on the amicable settlement entered by the parties wherein
petitioner will pay to private respondent P54,500.00 at 6% interest per annum and P6,000.00 as
attorneys fee of which P5,000.00 has been paid. Upon failure of the petitioner to pay the judgment
obligation, a writ of execution worth P63,130.00 was issued levied on the personal properties of the
petitioner. Before the date of the auction sale, petitioner deposited with the Clerk of Court in his
capacity as the Ex-Officio Sheriff P50,000.00 in Cashiers Check of the Equitable Banking
Corporation and P13,130.00 in cash for a total of

to accept the check, the respondent Judge cited Article 1249 of the New Civil Code which provides
that payments of debts shall be made in the currency which is the legal tender of the Philippines and
Section 63 of the Central Bank Act which provides that checks representing deposit money do not have
legal tender power. In sustaining the contention of the private respondent to refuse the acceptance of
the cash, the respondent Judge cited Article 1248 of the New Civil Code which provides that creditor
cannot be compelled to accept partial payment unless there is an express stipulation to the contrary.
ISSUE: Can the check be considered a valid payment of the judgment obligation?
RULING: Yes. It is to be emphasized that it is a well-known and accepted practice in the business
sector that a Cashiers Check is deemed cash. Moreover, since the check has been certified by the
drawee bank, this certification implies that the check is sufficiently funded in the drawee bank and the
funds will be applied whenever the check is presented for payment. The object of certifying a check is
to enable the holder to use it as money. When the holder procures the check to be certified, it operates
as an assignment of a part of the funds to the creditors. Hence, the exception provided in Section 63 of
the Central Bank Act which states that checks which have been cleared and credited to the account of
the creditor shall be equivalent to a delivery to the creditor in cash the amount equal to that which is
credited to his account. The Cashiers Check and the cash are valid payment of the obligation of the
petitioner. The private respondent has no valid reason to refuse the acceptance of the check and cash as
full payment of the obligation.

4. Roman Catholic of Malolos v. IAC 191 SCRA 411 (1990)

The property subject matter of the contract consists of a parcel of land in the Province of Bulacan,
issued and registered in the name of the petitioner which it sold to the private respondent.
On July 7, 1971, the subject contract over the land in question was executed between the petitioner as
vendor and the private respondent through its then president, Mr. Carlos F. Robes, as vendee,
stipulating for a downpayment of P23,930.00 and the balance of P100,000.00 plus 12% interest per
annum to be paid within four (4) years from execution of the contract. The contract likewise provides
for cancellation, forfeiture of previous payments, and reconveyance of the land in question in case the
private respondent would fail to complete payment within the said period.
After the expiration of the stipulated period for payment, Atty. Adalia Francisco (president of the
company who bought land) wrote the petitioner a formal request that her company be allowed to pay
the principal amount of P100,000.00 in three (3) equal installments of six (6) months each with the
first installment and the accrued interest of P24,000.00 to be paid immediately upon approval of the
said request.

The petitioner formally denied the said request of the private respondent, but granted the latter a grace
period of five (5) days from the receipt of the denial to pay the total balance of P124,000.00. The
private respondent wrote the petitioner requesting an extension of 30 days from said date to fully settle
its account but this was still denied.
Consequently, Atty. Francisco wrote a letter directly addressed to the petitioner, protesting the alleged
refusal of the latter to accept tender of payment made by the former on the last day of the grace period.
But the private respondent demanded the execution of a deed of absolute sale over the land in question
Atty. Fernandez, wrote a reply to the private respondent stating the refusal of his client to execute the
deed of absolute sale so the petitioner cancelled the contract and considered all previous payments
forfeited and the land as ipso facto reconveyed.
From a perusal of the foregoing facts, we find that both the contending parties have conflicting
versions on the main question of tender of payment.
According to the trial court:
. . . What made Atty. Francisco suddenly decide to pay plaintiffs obligation on tender her payment,
when her request to extend the grace period has not yet been acted upon? Atty. Franciscos claim that
she made a tender of payment is not worthy of credence.
The trial court considered as fatal the failure of Atty. Francisco to present in court the certified personal
check allegedly tendered as payment or, at least, its xerox copy, or even bank records thereof.
Not satisfied with the said decision, the private respondent appealed to the IAC. The IAC reversed the
decision of the trial court. The IAC, in finding that the private respondent had sufficient available
funds, ipso facto concluded that the latter had tendered payment.
ISSUE:
Whether or not the finding of the IAC that Atty. Francisco had sufficient available funds did
tender payment for the said obligation.
Whether or not an offer of a check is a valid tender of payment of an obligation under a contract
which stipulates that the consideration of the sale is in Philippine Currency.

HELD:
1. No. Tender of payment involves a positive and unconditional act by the obligor of offering legal
tender currency as payment to the obligee for the formers obligation and demanding that the latter
accept the same. Thus, tender of payment cannot be presumed by a mere inference from surrounding

circumstances. At most, sufficiency of available funds is only affirmative of the capacity or ability of
the obligor to fulfill his part of the bargain. The respondent court was therefore in error.

be assigned or transferred . The legal consequences of negotiation as distinguished from assignment of

a negotiable instrument are, of course, different. A non-negotiable instrument, may, obviously, not be
negotiated; but it may be assigned or transferred, absent an express prohibition against assignment or
transfer written in the face of the instrument.

2. No. In the case of Philippine Airlines v. Court of Appeals:

Since a negotiable instrument is only a substitute for money and not money, the delivery of such an
instrument does not, by itself, operate as payment. A check, whether a managers check or ordinary
check, is not legal tender, and an offer of a check in payment of a debt is not a valid tender of payment
and may be refused receipt by the obligee or creditor. The tender of payment by the private respondent
was not valid for failure to comply with the requisite payment in legal tender or currency stipulated
within the grace period.
The Supreme Court abandoned the New Pacific Timber ruling and went back to the Eduque
ruling that a check, whether a manager's check or a certified personal check is not a legal tender
and therefore cannot constitute valid legal tender of payment and may be refused receipt by the
obligee or creditor.

5. Sebreo v. Court of Appeals 222 SCRA 466 (1993)

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 post-dated 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 Sebreno failed to recover
his money, he filed case against DMC and Philfinance.
ISSUE: Whether the non-negotiability of a promissory note prevents its assignment.
HELD: The non-negotiability of the instrument doesnt mean that it is non-assignable 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.
Negotiation Distinguished from Assignment
: Only an instrument qualifying as a negotiable instrument under the relevant statute may be negotiated
either by endorsement thereof coupled with delivery, or by delivery alone where the negotiable
instrument is in bearer form. A negotiable instrument may, however, instead of being negotiated, also

6. Traders Royal Bank v. Court of Appeals 269 SCRA 15(1997)

Filriters Guaranty Assurance Corporation (FGAC) is the owner of several Central Bank Certificates of
Indebtedness (CBCI). These certificates are actually proof that FGAC has the required reserve
investment with the Central Bank to operate as an insurer and to protect third persons from whatever
liabilities FGAC may incur. In 1979, FGAC agreed to assign said CBCI to Philippine Underwriters
Finance Corporation (PUFC). Later, PUFC sold said CBCI to Traders Royal Bank (TRB). Said sale
with TRB comes with a right to repurchase on a date certain. However, when the day to repurchase
arrived, PUFC failed to repurchase said CBCI hence TRB requested the Central Bank to have said
CBCI be registered in TRBs name. Central Bank refused as it alleged that the CBCI are not
negotiable; that as such, the transfer from FGAC to PUFC is not valid; that since it was invalid, PUFC
acquired no valid title over the CBCI; that the subsequent transfer from PUFC to TRB is likewise
invalid.
The pertinent portions of the subject CBCI read:
xxx xxx xxx
The Central Bank of the Philippines (the Bank) for value received, hereby promises to pay bearer, of if
this Certificate of indebtedness be registered, to FILRITERS GUARANTY ASSURANCE
CORPORATION, the registered owner hereof, the principal sum of FIVE HUNDRED THOUSAND
PESOS.
xxx xxx xxx
TRB then filed a petition for mandamus to compel the Central Bank to register said CBCI in TRBs
name.
Petitioner argued that the subject CBCI was a negotiable instrument , and having acquired the said
certificate from Philfinance as a holder in due course , its possession of the same is thus free from
any defect of title of prior parties and from any defense available to prior parties among themselves ,
and it may thus , enforce payment of the instrument for the full amount thereof against all parties
liable thereon

Central bank in one of their answer stated that: Plaintiff had acted in bad faith and with knowledge of
the illegality and invalidity of the assignment as The CBCI No . 891 is not a negotiable instrument
and as a certificate of indebtedness is not payable to bearer but is registered in the name of Filriters

ISSUE: Whether or not the certificates are negotiable.

HELD: No. Properly understood, a certificate of indebtedness pertains to certificates for the creation
and maintenance of a permanent improvement revolving fund, is similar to a bond, (82 Minn. 202).
Being equivalent to a bond, it is properly understood as acknowledgment of an obligation to pay a
fixed sum of money. It is usually used for the purpose of long term loans.
The appellate court ruled that the subject CBCI is not a negotiable instrument, stating that:
As worded, the instrument provides a promise to pay Filriters Guaranty Assurance Corporation, the
registered owner hereof. Very clearly, the instrument is payable only to Filriters, the registered owner,
whose name is inscribed thereon. It lacks the words of negotiability which should have served as an
expression of consent that the instrument may be transferred by negotiation. 15
A reading of the subject CBCI indicates that the same is payable to FILRITERS GUARANTY
ASSURANCE CORPORATION, and to no one else, thus, discounting the petitioners submission that
the same is a negotiable instrument, and that it is a holder in due course of the certificate.
The language of negotiability which characterize a negotiable paper as a credit instrument is its
freedom to circulate as a substitute for money. Hence, freedom of negotiability is the touchtone relating
to the protection of holders in due course, and the freedom of negotiability is the foundation for the
protection which the law throws around a holder in due course (11 Am. Jur. 2d, 32). This freedom in
negotiability is totally absent in a certificate indebtedness as it merely to pay a sum of money to a
specified person or entity for a period of time.
Thus, the transfer of the instrument from Philfinance to TRB was merely an assignment, and is not
governed by the negotiable instruments law.
The pertinent question then iswas the transfer of the CBCI from Filriters to Philfinance and
subsequently from Philfinance to TRB, in accord with existing law, so as to entitle TRB to have the
CBCI registered in its name with the Central Bank? Clearly shown in the record is the fact that
Philfinances title over CBCI is defective since it acquired the instrument from Filriters
fictitiously. Although the deed of assignment stated that the transfer was for value received, there
was really no consideration involved. What happened was Philfinance merely borrowed CBCI

from Filriters, a sister corporation. Thus, for lack of any consideration, the assignment made is a
complete nullity. Furthermore, the transfer wasn't in conformity with the regulations set by the
CB. Giving more credence to rule that there was no valid transfer or assignment to petitioner.
The language of negotiability ("to order" or "to bearer") which characterizes a negotiable paper
as a credit instrument is its freedom to circulate as a substitute for money. Hence, freedom of
negotiability is the touchstone relating to the protection of holders in due course, and is the
foundation for the protection which the law throws around a holder in due course. This freedom
in negotiability is totally absent in a certificate of indebtedness that merely acknowledges to pay
a sum of money to a specified person or entity for a period of time.

7. Inciong v. Court of Appeals 257 SCRA 578 (1996)

A promissory note was issued by petitioner together with 2 others jointly and severally, to make
them liable to PBC.
In February 1983, Rene Naybe took out a loan from Philippine Bank of Communications (PBC) in the
amount of P50k. For that he executed a promissory note in the same amount. Naybe was able to
convince Baldomero Inciong, Jr. and Gregorio Pantanosas to co-sign with him as co-makers. The
promissory note went due and it was left unpaid. PBC demanded payment from the three but still no
payment was made. PBC then sue the three but PBC later released Pantanosas from its obligations.
Naybe left for Saudi Arabia hence cant be issued summons and the complaint against him was
subsequently dropped. Inciong was left to face the suit. He argued that that since the complaint against
Naybe was dropped, and that Pantanosas was released from his obligations, he too should have been
released.
ISSUE: Whether or not Inciong should be held liable.
HELD: Yes. Inciong is considering himself as a guarantor in the promissory note. And he was basing
his argument based on Article 2080 of the Civil Code which provides that guarantors are released from
their obligations if the creditors shall release their debtors. It is to be noted however that Inciong did
not sign the promissory note as a guarantor. He signed it as a solidary co-maker.
A guarantor who binds himself in solidum with the principal debtor does not become a solidary codebtor to all intents and purposes. There is a difference between a solidary co-debtor and a fiador in
solidum (surety). The latter, outside of the liability he assumes to pay the debt before the property of
the principal debtor has been exhausted, retains all the other rights, actions and benefits which pertain
to him by reason of the fiansa; while a solidary co-debtor has no other rights than those bestowed upon
him.

Because the promissory note involved in this case expressly states that the three signatories therein are
jointly and severally liable, any one, some or all of them may be proceeded against for the entire
obligation. The choice is left to the solidary creditor (PBC) to determine against whom he will enforce
collection. Consequently, the dismissal of the case against Pontanosas may not be deemed as having
discharged Inciong from liability as well. As regards Naybe, suffice it to say that the court never
acquired jurisdiction over him. Inciong, therefore, may only have recourse against his co-makers, as
provided by law.
8. Philippine National Bank v. Rodriguez 566 SCRA 513 (2008)
FACTS:
Spouses Erlando and Norma Rodriguez were engaged in the informal lending business and had a
discounting arrangement with the Philnabank Employees Savings and Loan Association (PEMSLA),
an association of PNB employees. The association maintained current and savings accounts with
Philippine National Bank (PNB).
PEMSLA regularly granted loans to its members. Spouses Rodriguez would rediscount the postdated
checks issued to members whenever the association was short of funds.

PNB credited the checks to the PEMSLA account even without indorsements = PNB violated its
contractual obligation to them as depositors - so PNB should bear the losses
RTC: favored Rodriguez. Makers, actually did not intend for the named payees to receive the proceeds
of the checks = fictitious payees (under the Negotiable Instruments Law) = negotiable by mere
delivery
CA: Affirmed - checks were obviously meant by the spouses to be really paid to PEMSLA = payable to
order
ISSUE: W/N the 69 checks are payable to order for not being issued to fictitious persons thereby
dismissing PNB from liability
HELD: NO. CA Affirmed
GR: when the payee is fictitious or not intended to be the true recipient of the proceeds, the check is
considered as a bearer instrument (Sections 8 and 9 of the NIL)
EX: However, there is a commercial bad faith exception to the fictitious-payee rule. A showing of
commercial bad faith on the part of the drawee bank, or any transferee of the check for that matter, will
work to strip it of this defense. The exception will cause it to bear the loss.

As was customary, the spouses would replace the postdated checks with their own checks issued in the
name of the members. It was PEMSLAs policy not to approve applications for loans of members with
outstanding debts. To subvert this policy, some PEMSLA officers devised a scheme to obtain
additional loans despite their outstanding loan accounts. They took out loans in the names of
unknowing members, without the knowledge or consent of the latter. The officers carried this out by
forging the indorsement of the named payees in the checks. Rodriguez checks were deposited directly
by PEMSLA to its savings account without any indorsement from the named payees. This was an
irregular procedure made possible through the facilitation of Edmundo Palermo, Jr., treasurer of
PEMSLA and bank teller in the PNB Branch.

The distinction between bearer and order instruments lies in their manner of negotiation.Order
instrument - requires an indorsement from the payee or holder before it may be validly negotiated.
Bearer instrument - mere delivery.

This became the usual practice for the parties.

Underlying theory: one cannot expect a fictitious payee to negotiate the check by placing his
indorsement thereon

November 1998-February 1999: spouses issued 69 checks totalling to P2,345,804. These were payable
to 47 individual payees who were all members of PEMSLA. PNB eventually found out about these
fraudulent acts. To put a stop to this scheme, PNB closed the current account of PEMSLA. As a result,
the PEMSLA checks deposited by the spouses were returned or dishonored for the reason Account
Closed. The amounts were duly debited from the Rodriguez account.
Spouses filed a civil complaint for damages against PEMSLA, the Multi-Purpose Cooperative of
Philnabankers (MCP), and PNB.

US jurisprudence: fictitious if the maker of the check did not intend for the payee to in fact receive
the proceeds of the check.
In a fictitious-payee situation, the drawee bank is absolved from liability and the drawer bears the loss.
When faced with a check payable to a fictitious payee, it is treated as a bearer instrument that can be
negotiated by delivery.

Lack of knowledge on the part of the payees, however, was not tantamount to a lack of intention on the
part of respondents-spouses that the payees would not receive the checks proceeds
PNB did not obey the instructions of the drawers when it accepted absent indorsement, forged or
otherwise. It was negligent in the selection and supervision of its employees
9. Caltex (Phil.) v. Court of Appeals 212 SCRA 448 (1992)

In 1982, Angel de la Cruz obtained certificates of time deposit (CTDs) from Security Bank and Trust
Company for the formers deposit with the said bank amounting to P1,120,000.00. The said CTDs are
couched in the following manner:
This is to Certify that B E A R E R has deposited in this Bank the sum of _______ Pesos,
Philippine Currency, repayable to said depositor _____ days. after date, upon presentation and
surrender of this certificate, with interest at the rate of ___ % per cent per annum.
Angel de la Cruz subsequently delivered the CTDs to Caltex in connection with the purchase of fuel
products from Caltex.
In March 1982, Angel de la Cruz advised Security Bank that he lost the CTDs. He executed an
affidavit of loss and submitted it to the bank. The bank then issued another set of CTDs. In the same
month, Angel de la Cruz acquired a loan of P875,000.00 and he used his time deposits as collateral.
In November 1982, a representative from Caltex went to Security Bank to present the CTDs (delivered
by de la Cruz) for verification. Caltex advised Security Bank that de la Cruz delivered Caltex the CTDs
as security for purchases he made with the latter. Security Bank refused to accept the CTDs and instead
required Caltex to present documents proving the agreement made by de la Cruz with Caltex. Caltex
however failed to produce said documents.
In April 1983, de la Cruz loan with Security bank matured and no payment was made by de la Cruz.
Security Bank eventually set-off the time deposit to pay off the loan.
Caltex sued Security Bank to compel the bank to pay off the CTDs. Security Bank argued that the
CTDs are not negotiable instruments even though the word bearer is written on their face because
the word bearer contained therein refer to depositor and only the depositor can encash the CTDs and
no one else.
ISSUE: Whether or not the certificates of time deposit are negotiable.
HELD: Yes. The CTDs indicate that they are payable to the bearer; that there is an implication that the
depositor is the bearer but as to who the depositor is, no one knows. It does not say on its face that the
depositor is Angel de la Cruz. If it was really the intention of respondent bank to pay the amount
to Angel de la Cruz only, it could have with facility so expressed that fact in clear and categorical
terms in the documents, instead of having the word BEARER stamped on the space provided
for the name of the depositor in each CTD. On the wordings of the documents, therefore, the
amounts deposited are repayable to whoever may be the bearer thereof.
Thus, de la Cruz is the depositor insofar as the bank is concerned, but obviously other parties not
privy to the transaction between them would not be in a position to know that the depositor is not the
bearer stated in the CTDs.

However, Caltex may not encash the CTDs because although the CTDs are bearer instruments, a
valid negotiation thereof for the true purpose and agreement between Caltex and De la Cruz,
requires both delivery and indorsement. As discerned from the testimony of Caltex
representative, the CTDs were delivered to them by de la Cruz merely for guarantee or security
and not as payment.
10. San Miguel Corp. v. Puzon Jr. 631 SCRA 48 (2010)
FACTS: Respondent Bartolome V. Puzon, Jr., (Puzon) owner of Bartenmyk Enterprises, was a dealer
of beer products of petitioner San Miguel Corporation. Puzon purchased SMC products on credit. To
ensure payment and as a business practice, SMC required him to issue postdated checks equivalent to
the value of the products purchased on credit before the same were released to him. Said checks were
returned to Puzon when the transactions covered by these checks were paid or settled in full. Puzon
purchased products on credit amounting to P11,820,327 for which he issued, and gave to SMC, Bank
of the Philippine Islands (BPI) Check Nos. 27904 (for P309,500.00) and 27903 (forP11,510,827.00) to
cover the said transaction. Puzon, together with his accountant, visited the SMC Sales Office to
reconcile his account with SMC. During that visit Puzon allegedly requested to see BPI Check No.
17657. However, when he got hold of BPI Check No. 27903 which was attached to a bond paper
together with BPI Check No. 17657 he allegedly immediately left the office with his accountant,
bringing the checks with them. SMC sent a letter to Puzon demanding the return of the said checks.
Puzon ignored the demand hence SMC filed a complaint against him for theft with the City
Prosecutors Office.
The investigating prosecutor, Elizabeth Yu Guray found that the "relationship between [SMC] and
[Puzon] appears to be one of credit or creditor-debtor relationship. The problem lies in the
reconciliation of accounts and the non-payment of beer empties which cannot give rise to a criminal
prosecution for theft." She recommended the dismissal of the case for lack of evidence. SMC appealed.
The DOJ issued its resolution5 affirming the prosecutors Resolution dismissing the case.
The CA found that the postdated checks were issued by Puzon merely as a security for the payment of
his purchases and that these were not intended to be encashed. It thus concluded that SMC did not
acquire ownership of the checks as it was duty bound to return the same checks to Puzon after the
transactions covering them were settled. The CA agreed with the prosecutor that there was no theft,
considering that a person cannot be charged with theft for taking personal property that belongs to
himself.
ISSUE: Whether the checks issued by Puzon were payments for his purchases or were intended merely
as security to ensure payment.
HELD: "[T]he essential elements of the crime of theft are the following: (1) that there be a taking of
personal property; (2) that said property belongs to another; (3) that the taking be done with intent to
gain; (4) that the taking be done without the consent of the owner; and (5) that the taking be

accomplished without the use of violence or intimidation against persons or force upon things."
Considering that the second element is that the thing taken belongs to another, it is relevant to
determine whether ownership of the subject check was transferred to petitioner.

Roxas signed twice the promissory notes as President of Astro in his personal capacity. Roxas also
signed a Continuing Surety ship Agreement in favor of Philtrust Bank, as President of Astro and as
surety.

On this point the Negotiable Instruments Law provides: Sec. 12. Antedated and postdated The
instrument is not invalid for the reason only that it is antedated or postdated, provided this is not done
for an illegal or fraudulent purpose. The person to whom an instrument so dated is delivered acquires
the title thereto as of the date of delivery. (Underscoring supplied.)

Philguarantee, with the consent of Astro, guaranteed in favor of Philtrust the payment of 70% of Astros
loan, subject to the condition that upon payment by Philguanrantee, it shall be proportionally
subrogated to the rights of Philtrust against Astro. Upon Astros failure to pay, Philguarantee paid 70%
of the guaranteed loan to Philtrust. Subsequently, Philguarantee filed against Astro and Roxas a
complaint for sum of money with the RTC.

Note however that delivery as the term is used in the aforementioned provision means that the party
delivering did so for the purpose of giving effect thereto. Otherwise, it cannot be said that there has
been delivery of the negotiable instrument. Once there is delivery, the person to whom the instrument
is delivered gets the title to the instrument completely and irrevocably. If the subject check was given
by Puzon to SMC in payment of the obligation, the purpose of giving effect to the instrument is evident
thus title to or ownership of the check was transferred upon delivery. However, if the check was not
given as payment, there being no intent to give effect to the instrument, then ownership of the check
was not transferred to SMC.
The evidence of SMC failed to establish that the check was given in payment of the obligation of
Puzon. There was no provisional receipt or official receipt issued for the amount of the check. What
was issued was a receipt for thedocument, a "POSTDATED CHECK SLIP."
Furthermore, the petitioner's demand letter sent to respondent states "As per company policies on
receivables, all issuances are to be covered by postdated checks. However, you have deviated from this
policy by forcibly taking away the check you have issued to us to cover the December issuance.
Notably, the term "payment" was not used instead the terms "covered" and "cover" were used. The
evidence proves that the check was accepted, not as payment, but in accordance with the long-standing
policy of SMC to require its dealers to issue postdated checks to cover its receivables. The check was
only meant to cover the transaction and in the meantime Puzon was to pay for the transaction by some
other means other than the check. This being so, title to the check did not transfer to SMC; it remained
with Puzon.

Roxas: alleged that he merely signed the same in blank and the phrases in his personal capacity and in
his official capacity were fraudulently inserted without his knowledge
RTC: favored Philguarantee holding Astro and Roxas jointly and severally liable stating that if Roxas
really intended to sign the instruments merely in his capacity as President of Astro, then he should have
signed only once
CA affirmed RTC
ISSUE: W/N Roxas should be jointly and severally liable with Astro
HELD: YES. CA affirmed
Under the Negotiable Instruments Law, persons who write their names on the face of promissory notes
are makers, promising that they will pay to the order of the payee or any holder according to its tenor.
Even without the phrase personal capacity, Roxas will still be primarily liable as a joint and
several debtor under the notes considering that his intention to be liable as such is manifested by
the fact that he affixed his signature on each of the promissory notes twice which necessarily
would imply that he is undertaking the obligation in 2 different capacities, official and personal.
3 promissory notes uniformly provide: FOR VALUE RECEIVED, I/We jointly, severally and
solidarily, promise to pay to PHILTRUST BANK or order...begins with I, We, or Either of us
promise to pay, when signed by two or more persons = solidarily liable

11. Astro-Electronics Corp. v. PHILGUARANTEE 411 SCRA 462(2003)

Subrogation is the transfer of all the rights of the creditor to a third person, who substitutes him in all
his rights

FACTS: Astro was granted several loans by the Philippine Trust Company (Philtrust) amounting P3M
w/ interest and secured by 3 promissory notes:
December 14, 1981: P600,000.00
December 14, 1981: P400,000.00
August 27, 1981: P2,000,000.00

Philguarantee has all the right to proceed against petitioner, it is subrogated to the rights of Philtrust to
demand for and collect payment from both Roxas and Astro since it already paid the value of 70% of
roxas and Astro Electronics Corp.s loan obligation. Roxas acquiescence is not necessary for
subrogation to take place because the instant case is one of the legal subrogation that occurs by
operation of law, and without need of the debtors knowledge. Philguarantee, as guarantor, became the

transferee of all the rights of Philtrust as against Roxas and Astro because the guarantor who pays is
subrogated by virtue thereof to all the rights which the creditor had against the debtor

Sgd. Shozo Yamaguchi

Sgd. Fermin Canlas

12. Development Bank of Rizal v. Sima Wei 219 SCRA 736 (1993)

The note became due and no payment was made. RPB eventually sued Yamaguchi and Canlas. Canlas,
in his defense, averred that he should not be held personally liable for such authorized corporate acts
that he performed inasmuch as he signed the promissory notes in his capacity as officer of the defunct
Worldwide Garment Manufacturing.

FACTS: Respondent Sima Wei executed and delivered to petitioner Bank a promissory note engaging
to pay the petitioner Bank or order the amount of P1,820,000.00. Sima Wei subsequently issued two
crossed checks payable to petitioner Bank drawn against China Banking Corporation in full settlement
of the drawer's account evidenced by the promissory note. These two checks however were not
delivered to the petitioner-payee or to any of its authorized representatives but instead came into the
possession of respondent Lee Kian Huat, who deposited the checks without the petitioner-payee's
indorsement to the account of respondent Plastic Corporation with Producers Bank. Inspite of the fact
that the checks were crossed and payable to petitioner Bank and bore no indorsement of the latter, the
Branch Manager of Producers Bank authorized the acceptance of the checks for deposit and credited
them to the account of said Plastic Corporation.
ISSUE: Whether petitioner Bank has a cause of action against Sima Wei for the undelivered checks.
RULING: No. A negotiable instrument must be delivered to the payee in order to evidence its
existence as a binding contract. Section 16 of the NIL provides that every contract on a negotiable
instrument is incomplete and revocable until delivery of the instrument for the purpose of giving effect
thereto. Thus, the payee of a negotiable instrument acquires no interest with respect thereto until its
delivery to him. Without the initial delivery of the instrument from the drawer to the payee, there can
be no liability on the instrument. Petitioner however has a right of action against Sima Wei for the
balance due on the promissory note.

13. Republic Planters Bank v. Court of Appeals 216 SCRA 738 (1992)
In 1979, World Garment Manufacturing, through its board authorized Shozo Yamaguchi (president)
and Fermin Canlas (treasurer) to obtain credit facilities from Republic Planters Bank (RPB). For this, 9
promissory notes were executed. Each promissory note was uniformly written in the following manner:
___________, after date, for value received, I/we, jointly and severally promise to pay to the ORDER
of the REPUBLIC PLANTERS BANK, at its office in Manila, Philippines, the sum of ___________
PESOS(.) Philippine Currency
Please credit proceeds of this note to:
________ Savings Account ______XX Current Account
No. 1372-00257-6 of WORLDWIDE GARMENT MFG. CORP.

ISSUE: Whether or not Canlas should be held liable for the promissory notes.
HELD: Yes. The solidary liability of private respondent Fermin Canlas is made clearer and certain,
without reason for ambiguity, by the presence of the phrase joint and several as describing the
unconditional promise to pay to the order of Republic Planters Bank. Where an instrument containing
the words I promise to pay is signed by two or more persons, they are deemed to be jointly and
severally liable thereon.
Canlas is solidarily liable on each of the promissory notes bearing his signature for the following
reasons: The promissory notes are negotiable instruments and must be governed by the Negotiable
Instruments Law.
Under the Negotiable lnstruments Law, persons who write their names on the face of promissory notes
are makers and are liable as such. By signing the notes, the maker promises to pay to the order of the
payee or any holder according to the tenor thereof.

14. Samsung Construction Co. v. Far East Bank 436 SCRA 402 (2004)
Facts: Samsung Construction held an account with Far East Bank. One day a check worth 900,000,
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, 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 Samsung's account. 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.

15. Associated Bank v. Court of Appeals 252 SCRA 620 (1996)

The Province of Tarlac was disbursing funds to Concepcion Emergency Hospital via
checks drawn against its account with the Philippine National Bank (PNB). These checks
were drawn payable to the order of Concepcion Emergency Hospital. Fausto Pangilinan was
the cashier of Concepcion Emergency Hospital in Tarlac until his retirement in 1978. He used
to handle checks issued by the provincial government of Tarlac to the said hospital. However,
after his retirement, the provincial government still delivered checks to him until its discovery
of this irregularity in 1981. By forging the signature of the chief payee of the hospital (Dr.
Adena Canlas), Pangilinan was able to deposit 30 checks amounting to P203k to his account
with the Associated Bank.
When the province of Tarlac discovered this irregularity, it demanded PNB to reimburse the
said amount. PNB in turn demanded Associated Bank to reimburse said amount. PNB averred
that Associated Bank is liable to reimburse because of its indorsement borne on the face of
the checks:
All prior endorsements guaranteed ASSOCIATED BANK.
ISSUE: 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 (here, 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 (in this case 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 (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 Government of Tarlac has been negligent in issuing the checks especially when it
continued to deliver the checks to Pangilinan even when he already retired. Due to this
contributory negligence, PNB is only ordered to pay 50% of the amount or half of P203
K.
BUT THEN AGAIN, since PNB can pass its loss to Associated Bank (by reason of
Associated 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.

16. Westmont Bank v. Ong 375 SCRA 212 (2002)

FACTS: Ong was supposed to be the payee of the checks issued by Island Securities. Ong has
a current account with petitioner bank. He opted to sell his shares of stock through Island
Securities. The company in turn issued checks in favor of Ong but unfortunately, the latter wasn't
able to receive any. His signatures were forged by Tamlinco and the checks were deposited in his
own account with petitioner. Ong then sought to collect the money from the family of Tamlinco
first before filing a complaint with the Central Bank. As his efforts were futile to recover his money,
he filed an action against the petitioner. The trial and appellate court decided in favor of Ong.
ISSUE: Whether or not respondent Ong may still recover from petitioner.
HELD: Since the signature of the payee was forged, such signature should be deemed
inoperative and ineffectual. Petitioner, as the collecting bank, grossly erred in making payment
by virtue of said forged signature. The payee, herein respondent, should therefore be allowed to
collect from the collecting bank.
It should be liable for the loss because it is its legal duty to ascertain that the payees endorsement
was genuine before cashing the check. As a general rule, a bank or corporation who has obtained
possession of a check with an unauthorized or forged indorsement of the payees signature and who
collects the amount of the check other from the drawee, is liable for the proceeds thereof to the payee
or the other owner, notwithstanding that the amount has been paid to the person from whom the
check was obtained.
DOCTRINE OF DESIRABLE SHORT CUTplaintiff uses one action to reach, by desirable short
cut, the person who ought to be ultimately liable as among the innocent persons involved in the
transaction. In other words, the payee ought to be allowed to recover directly from the collecting bank,
regardless of whether the check was delivered to the payee or not.
On the issue of laches, Ong didn't sit on his rights. He immediately sought the intervention of
Tamlincos family to collect the sum of money, and later the Central Bank. Only after exhausting
all the measures to settle the issue amicably did he file the action.

CA: reversed Mauricia T. Ebrada claim against Adelaida Dominguez and Domiguez against Justina
Tinio
W/N: Ebrada should be held liable.
HELD: YES. Affirmed in toto.
under Section 65 of the Negotiable Instruments Law:
Every person negotiating an instrument by delivery or by qualified indorsement, warrants:
(a) That the instrument is genuine and in all respects what it purports to be.
(b) That she has good title to it.
xxx xxx xxx
Every indorser who indorses without qualification warrants to all subsequent holders in due course:
(a) The matters and things mentioned in subdivisions (a), (b), and (c) of the next preceding sections;
(b) That the instrument is at the time of his indorsement valid and subsisting.
Under action 23 of the Negotiable Instruments Law (Act 2031): When a signature is forged or made
without the authority of the person whose signature it purports to be, it is wholly inoperative, and no
right to retain the 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.
Martin Lorenzo (forged as original payee) > Ramon R. Lorenzo (2nd indorser) = NO EFFECT
Ramon R. Lorenzo(2nd indorser)> Adelaida Dominguez (third indorser)>Adelaida Dominguez to
Ebrada who did not know of the forgery = valid and enforceable barring any claim of forgery

17. Republic Bank v. Ebrada 65 SCRA 680 (1975)

Drawee of a check can recover from the holder the money paid to him on a forged instrument. Not its
duty to ascertain whether the signatures of the payee or indorsers are genuine or not. Indorser is
supposed to warrant to the drawee that the signatures of the payee and previous indorsers (NOT only
holders in due course) are genuine

FACTS: February 27, 1963: Mauricia T. Ebrada, encashed Back Pay Check dated January 15, 1963 for
P1,246.08 at Republic Bank. Check was issued by the Bureau of Treasury. Bureau advised Republic
Bank that the indorsement on the reverse side of the check by the payee, "Martin Lorenzo"(the payee)
was a forgery because he died as of July 14, 1952 and requested a refund.

RATIONALE: Indorsers own credulity or recklessness, or misplaced confidence was the sole cause of
the loss. Why should he be permitted to shift the loss due to his own fault in assuming the risk, upon
the drawee, simply because of the accidental circumstance that the drawee afterwards failed to detect
the forgery when the check was presented.

July 11, 1966: Ebrada filed a Third-Party complaint against Adelaida Dominguez who, in turn, filed on
September 14, 1966 a Fourth-Party complaint against Justina Tinio.

Ebrada , upon receiving the check in question from Adelaida Dominguez, was duty-bound to ascertain
whether the check in question was genuine before presenting it to plaintiff Bank for payment

March 21, 1967: City Court of Manila favored Republic against Ebrada, for Third-Party plaintiff
against Adelaida Dominguez, and for Fourth-Party plaintiff against Justina Tinio

Based on the doctrine from Great Eastern Life Ins. Co. v. Hongkong Shanghai Bank (1922) , bank
should suffer the loss when it paid the amount of the check in question to Ebrada, but it has the remedy
to recover from the Ebrada the amount it paid
Ebrada immediately turning over to Adelaida Dominguez (Third-Party defendant and the Fourth-Party
plaintiff) who in turn handed the amount to Justina Tinio on the same date would not exempt her from
liability because by doing so, she acted as an accommodation party in the check for which she is also
liable under Section 29 of the Negotiable Instruments Law (Act 2031):
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.

18. Bank of P,I v. Casa Montessori Internationale 430 SCRA 261 (2004)
FACTS: Plaintiff Casa Montessori Internationale (CASA) opened Current Account with defendant BPI
with CASAs President Ms. Ma.Carina C. Lebron as one its authorized signatories. After conducting
an investigation, plaintiff discovered that nine (9) of its checks had been encashed by a certain Sonny
D. Santos since 1990 in the total amount of P782, 000.00. It turned out that Sonny D. Santos with
account at BPIs Greenbelt Branch was a fictitious name used by third party defendant Leonardo T.
Yabut who worked as an external auditor of CASA. Third party defendant voluntarily admitted that he
forged the signature of Ms. Lebron and encashed the checks. The PNP Crime Laboratory conducted an
examination of the nine (9) checks and concluded that the handwritings thereon compared to the
standard signature of Ms.Lebron were not written by the latter. Consequently, plaintiff filed the herein
Complaint for Collection with Damages against defendant bank praying that the latter be ordered to
reinstate the amount of P782, 500.00 in the current and savings account of the plaintiff with interest at
6% per annum.
ISSUE 1: Was there forgery under the Negotiable Instruments Law (NIL)?
HELD: YES, there was forgery. The rule is : Forgery cannot be presumed. It must be established by
clear, positive and convincing evidence. CASA proved the loss or destruction of the original checks
through the Affidavit of the one person who knew of that fact- Yabut. He clearly admitted to discarding
the paid checks to cover up his misdeed. Also, PNP Crime Laboratory, after its examination of the said
checks, had concluded that the handwritings thereon compared to the standard signature of the drawer
were not hers.

Effect of the Forged Signature: When a signature is forged or made without the authority of the person
whose signature it purports to be, it is wholly inoperative, and no right x x x to enforce payment
thereof against any party thereto, can be acquired through or under such signature, unless the party
against whom it is sought to enforce such right is precluded from setting up the forgery or want of
authority.
A forged signature is a real or absolute defense, and a person whose signature on a negotiable
instrument is forged is deemed to have never become a party thereto and to have never consented to
the contract that allegedly gave rise to it.
ISSUE 2: Is BPI liable as the drawee bank for allowing payment on the checks to a wrongful and
fictitious payee?
HELD: YES. BPI -- the drawee bank -- becomes liable to its depositor-drawer for allowing payment
on the checks to a wrongful and fictitious payee. In both law and equity, when one of two innocent
persons must suffer by the wrongful act of a third person, the loss must be borne by the one whose
negligence was the proximate cause of the loss or who put it into the power of the third person to
perpetrate the wrong.
A bank is bound to know the signatures of its customers; and if it pays a forged check, it must
be considered as making the payment out of its own funds, and cannot ordinarily charge the amount so
paid to the account of the depositor whose name was forged.
19. Metropolitan Bank v. Philippine Bank of Communications 536 SCRA 556 (2007)
FACTS: On April 9, 1980, under the check discounting agreement between Pipe Master and Filipinas
Orient, Yu Kio (president of Pipe Master), sold to Filipinas Orient four Metro Bank checks amounting
to P1M. In exchange for the four Metro Bank checks, Filipinas Orient issued to Yu Kio four PBCom
crossed checks totaling P964,303.62, payable to Pipe Master with the statement "for payees account
only."
Upon his receipt of the four PBCom checks, Yu Kio indorsed and deposited in the Metro Bank, in his
personal account, three of the checks and the other check to Solid Bank Corporation (Solid Bank), also
in his personal account. Eventually, PBCom paid Metro Bank and Solid Bank the amounts of the
checks. In turn, Metro Bank and Solid Bank credited the value of the checks to the personal accounts
of Yu Kio. Subsequently, when Filipinas Orient presented the four Metro Bank checks equivalent to
P1M it received from Yu Kio, they were dishonored by the drawee bank. Pipe Master, the drawer,
refused to pay the amounts of the checks, claiming that it never received the proceeds of the PBCom
checks as they were delivered and paid to the wrong party, Yu Kio, who was not the named payee.
Filipinas Orient then demanded that PBCom restore to its (Filipinas Orients) account the value of the
PBCom checks. In turn, PBCom sought reimbursement from Metro Bank and Solid Bank, being the

collecting banks, but they refused. Thus, Filipinas Orient filed with the RTC a complaint for a sum of
money against Pipe Master, Tan Juan Lian and/or PBCom. In their answer to the complaint, Pipe
Master and Tan Juan Lian averred that they did not authorize Yu Kio to negotiate and enter into
discounting transaction with Filipinas Orient, and even if Yu Kio was so authorized, Pipe Master never
received the proceeds of the checks. Consequently, they filed a cross-claim against PBCom for gross
negligence for having paid the wrong party. In turn, PBCom, Pipe Master and Tan Juan Lian filed
third-party complaints against Metro Bank and Solid Bank.

In Associated Bank v. Court of Appeals, we held that the collecting bank or last endorser generally
suffers the loss because it has the duty to ascertain the genuineness of all prior indorsements and
is privy to the depositor who negotiated the check. PBCom, as the drawee bank, cannot be held
liable since it mainly relied on the express guarantee made by petitioners, the collecting banks, of
all prior indorsements.

RTC rendered a Decision against Metro Bank and Solid Bank.

FACTS: In November 1961, GSIS advised PNB that a check bearing check number 645915- B has
been lost.

On appeal, the appellate court affirmed in toto the Decision of the trial court. Metro Bank and Solid
Bank filed their respective motions for reconsideration but the same were denied. Hence, the instant
consolidated petitions for review on certiorari filed by Metro Bank and Solid Bank.
Issue: WON Metro Bank and Solid Bank, petitioners, are liable to respondent Filipinas Orient for
accepting the PBCom crossed checks payable to Pipe Master.
Ruling: Yes. Petitioner banks negligence was the direct cause of the misappropriation of the checks,
they should bear and answer for respondent Filipinas Orients loss, without prejudice to their filing of
an appropriate action against Yu Kio.
The Negotiable Instruments Law is silent with respect to crossed checks. Nonetheless, this Court has
taken judicial cognizance of the practice that a check with two parallel lines on the upper left hand
corner means that it could only be deposited and not converted into cash. The crossing of a check with
the phrase "Payees Account Only" is a warning that the check should be deposited in the account of
the payee. It is the collecting bank which is bound to scrutinize the check and to know its
depositors before it can make the clearing indorsement, "all prior indorsements and/or lack of
indorsement guaranteed."
Here, petitioner banks have the obligation to ensure that the PBCom checks were deposited in
accordance with the instructions stated in the checks. The four PBCom checks in question had been
crossed and issued "for payees account only." This could only mean that the drawer, Filipinas Orient,
intended the same for deposit only by the payee, Pipe Master. The effect of crossing a check means
that the drawer had intended the check for deposit only by the rightful person, i.e., the payee named
therein Pipe Master. As what transpired in this case, petitioner banks accommodated Yu Kio, being a
valued client and the president of Pipe Master, and accepted the crossed checks. They stamped at the
back thereof that "all prior indorsements and/or lack of indorsements are guaranteed." In so doing, they
became general endorsers. Under Section 66 of the Negotiable Instruments Law, an endorser warrants
"that the instrument is genuine and in all respects what it purports to be; that he has a good title to it;
that all prior parties had capacity to contract; and that the instrument is at the time of his indorsement
valid and subsisting." Clearly, petitioner banks, being endorsers, cannot deny liability.

20. PNB v. Court of Appeals 25 SCRA 693 (1968)

On January 15, 1962, Augusto Lim, holding GSIS Check No. 645915- B which was in the amount of
P57,415.00, went to PCIB to have the check deposited in his PCIB account. Apparently, the check was
indorsed to him by Manuel Go, which was previously indorsed by Mariano Pulido to Go. Pulido was
the named payee in the check.
PCIB did not encash the check in favor of Augusto Lim but rather it deposited the amount to Lims
PCIB account. Lim cannot withdraw the amount yet as it needs clearing. PCIB stamped the check with
All prior indorsements and/or Lack of Endorsement Guaranteed, Philippine Commercial and
Industrial Bank. PCIB then sent the check to PNB for clearing. PNB did not act on the check but it
paid PCIB the amount of the check. PCIB considered this as a manifestation that the check was good
hence it cleared Lim to withdraw the amount.
On January 31, 1962, GSIS demanded PNB to restore the amount and PNB complied. PNB then
demanded PCIB to refund the amount of the check. PCIB refused. The lower court ruled in favor of
PCIB. This was affirmed by the Court of Appeals. PNB argued that the indorsements are forged hence
it has no liability.
ISSUE: Whether or not PCIB should refund the amount to PNB.
HELD: No. The question whether or not the indorsements have been falsified is immaterial to PNBs
liability as a drawee or to its right to recover from the PCIB for, as against the drawee, the indorsement
of an intermediate bank does not guarantee the signature of the drawer, since the forgery of the
indorsement is not the cause of the loss.
With respect to the warranty on the back of the check, it should be noted that the PCIB thereby
guaranteed all prior indorsements, not the authenticity of the signatures of the officers of the GSIS
who signed on its behalf, because the GSIS is not an indorser of the check, but its drawer. Further,
PNB has been negligent. It has been notified months before about the lost check.

21. International Corporate Bank v. Court of Appeals 501 SCRA 20

FACTS: The Ministry of Education and Culture issued 15 checks drawn against PNB which
International Corp. Bank (ICB) accepted for deposit on various dates. After 24 hours from submission
of the checks to Int'l for clearing, it paid the value of the checks and allowed the withdrawals of the
deposits.
October 14, 1981, PNB returned all the checks to Int'l without clearing them on the ground that they
were materially altered. Alteratins of the serial numbers of the checks. ICB instituted an action for
collection of sums of money against respondent to recover the value of the checks.

Likewise, in the present case the alterations of the serial numbers do not constitute material alterations
on the checks.
The Court will not rule on the proper application of Central Bank Circular No. 580 in this case since
there were no material alterations on the checks, PNB as drawee bank has no right to dishonor them
and return them to petitioner, the collecting bank.

RTC: dismissed

22. Travel-On Inc, v.Court of Appeals 210 SCRA 351 (1992)

CA: Reversed. Materially altered shall be returned within 24 hours after discovery of the alteration.

FACTS: Petitioner was a travel agency involved in ticket sales on a commission basis for and
on behalf of different airline companies.
Miranda has a revolving credit line with the
company. He procured tickets on behalf of others and derived commissions from it.

C.B. Circular does not provide the drawee bank the license to be grossly negligent on the one hand nor
does it preclude the collecting bank from raising available defenses even if the check is properly
returned within the 24-hour period after discovery of the material alteration.
ISSUES: W/N PNB should be liable for not returning the check with material alteration w/in the 24hour period
HELD: NO. CA set aside
Alteration of Serial Number Not Material.
The case at the bench is unique in the sense that what was altered is the serial number of the check in
question, an item which, it can readily be observed, is not an essential requisite for negotiability under
Section 1 of the Negotiable Instruments Law. The aforementioned alteration did not change the
relations between the parties. The name of the drawer and the drawee were not altered. The intended
payee was the same. The sum of money due to the payee remained the same. x x x
xxxx
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. x x x
xxxx
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.

June 14 1972: Travel-On filed bef. the CFI to collect 6 checks issued by Miranda totaling
P115,000.00
August 5 1969 - January 16 1970: Travel-On sold and delivered airline tickets to Miranda w/
total price of P278,201.57
paid in cash and 6 checks = P115,000 - all dishonored by the drawee banks
March 1972: paid P10,000.00 reducing his debts to P105,000

Petitioner filed a collection suit against Miranda for the unpaid amount of six checks.
Petitioner alleged that Miranda procured tickets from them which he paid with cash and checks but
the checks were dishonored upon presentment to the bank. This was being refuted by Miranda
by saying that he actually paid for his obligations, even in the excess. He argued that the
checks were for accommodation purposes only. The company needed to show to its Board of
Directors that its accounts receivable was in good standing. The RTC and CA held Miranda not to be
liable.
ISSUE: W/N Miranda is liable for the 6 dishonored checks because there was no accomodation
HELD: Yes.
Reliance by the lower and appellate court on the companys financial statements were wrong, to
see if Miranda was liable or not. This financial statements were actually not updated to show that there
was indebtedness on the part of Miranda. The best evidence that the courts should have looked
at were the checks itself. There is a prima facie presumption that a check was issued for valuable
consideration and the provision puts the burden upon the drawer to disprove this presumption.
Miranda was unable to relieve himself of this burden.
Only clear and convincing evidence and not mere self-serving evidence of drawer can rebut this
presumption. The company was entitled to the benefit conferred by the statutory provision.

Miranda failed to show that the checks werent issued for any valuable consideration. The checks
were
clear by stating that the company was the payee and not a mere accommodated party. And
also, notice was given to the fact that the checks were issued after a written demand by the
company regarding Mirandas unpaid liabilities.
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.
23. Ang v. Associated Bank 532 SCRA 244 (2007)
FACTS: August 28, 1990: Associated Bank (formerly Associated Banking Corporation and now known
as United Overseas Bank Philippines) filed a collection suit against Antonio Ang Eng Liong (principal
debtor) and petitioner Tomas Ang (co-maker) for the 2 promissory notes.
October 3 and 9, 1978: obtained a loan of P50,000 and P30,000 evidenced by promissory note payable,
jointly and severally, on January 31, 1979 and December 8, 1978. Despite repeated demands for
payment, the latest on September 13, 1988 and September 9, 1986, they failed to settle their
obligations totalling to P539,638.96 as of July 31, 1990. Antonio Ang Eng Liong only admitted to have
secured a loan amounting to P80,000
Tomas Ang: bank is not the real party in interest as it is not the holder of the promissory notes, much
less a holder for value or a holder in due course; the bank knew that he did not receive any valuable
consideration for affixing his signatures on the notes but merely lent his name as an accommodation
party. Bank granted his co-defendant successive extensions of time within which to pay, without his
knowledge and consent. The bank also imposed new and additional stipulations on interest, penalties,
services charges and attorney's fees more onerous than the terms of the notes, without his knowledge
and consent. He should be reimbursed by his co-defendant any and all sums that he may be adjudged
liable to pay, plus P30,000, P20,000 and P50,000 for moral and exemplary damages, and attorney's
fees, respectively.
October 19, 1990: RTC held Antonio Ang Eng Liong was ordered to pay the principal amount of
P80,000 plus 14% interest per annum and 2% service charge per annum
Lower Court: Granted against the bank, dismissing the complaint for lack of cause of action.

CA: ordered Ang to pay the bank - bank is a holder

CA observed that the bank, as the payee, did not indorse the notes to the Asset Privatization Trust
despite the execution of the Deeds of Transfer and Trust Agreement and that the notes continued to
remain with the bank until the institution of the collection suit.
With the bank as the "holder" of the promissory notes, the Court of Appeals held that Tomas Ang is
accountable therefor in his capacity as an accommodation party.
Tomas Ang cannot validly set up the defense that he did not receive any consideration therefor as the
fact that the loan was granted to the principal debtor already constitutes a sufficient consideration.
ISSUE: W/N Ang is liable as accomodation party even without consideration and his co-accomodation
party was granted accomodation w/o his knowledge
HELD: CA AFFIRMED
At the time the complaint was filed in the trial court, it was the Asset Privatization Trust which had the
authority to enforce its claims against both debtors
accommodation party as a person "who has signed the instrument as maker, drawer, acceptor, or
indorser, without receiving value therefor, and for the purpose of lending his name to some other
person." As gleaned from the text, an accommodation party is one who meets all the three requisites,
viz: (1) he must be a party to the instrument, signing as maker, drawer, acceptor, or indorser; (2) he
must not receive value therefor; and (3) he must sign for the purpose of lending his name or credit to
some other person
petitioner signed the promissory note as a solidary co-maker and not as a guarantor. This is patent even
from the first sentence of the promissory note which states as follows:
"Ninety one (91) days after date, for value received, I/we, JOINTLY and SEVERALLY promise to pay
to the PHILIPPINE BANK OF COMMUNICATIONS at its office in the City of Cagayan de Oro,
Philippines the sum of FIFTY THOUSAND ONLY (P50,000.00) Pesos, Philippine Currency, together
with interest x x x at the rate of SIXTEEN (16) per cent per annum until fully paid."
immaterial so far as the bank is concerned whether one of the signers, particularly petitioner, has or has
not received anything in payment of the use of his name.
since the liability of an accommodation party remains not only primary but also unconditional to
a holder for value, even if the accommodated party receives an extension of the period for
payment without the consent of the accommodation party, the latter is still liable for the whole
obligation and such extension does not release him because as far as a holder for value is
concerned, he is a solidary co-debtor.

24. Gonzales v. RCBC 508 SCRA 459 (2006)

FACTS: Zapanta drew a check against the drawee bank Wilshire Center Bank payable to Alvias, his
mother.
Alvias then endorsed the check to RCBC.
Since RCBC gives special accommodations to its employees to receive the checks value
without awaiting the clearing period, Gonzales presented the foreign check to Olivia Gomez, the
RCBCs Head of Retail Banking. After examining this, Olivia Gomez requested Gonzales to endorse it
which she did. Olivia Gomez then acquiesced to the early encashment of the check and signed the
check but indicated thereon her authority of "up to P17,500.00 only". Afterwards, Olivia Gomez
directed Gonzales to present the check to RCBC employee Carlos Ramos and procure his signature.
After inspecting the check, Carlos Ramos also signed it with an "ok" annotation. After getting the said
signatures Gonzales presented the check to Rolando Zornosa, Supervisor of the Remittance section of
the Foreign Department of the RCBC Head Office, who after scrutinizing the entries and signatures
therein authorized its encashment. Gonzales then received its peso equivalent of P155,270.85.
When RCBC tried to collect, drawee bank dishonored the check twice due to irregular
indorsement and was later return due to "account closed".
Unable to collect, RCBC demanded from Gonzales the payment of the peso equivalent of the
check that she received. Gonzales settled the matter by agreeing that payment be made thru salary
deduction.
RCBC filed a complaint for the recovery of sum of money against alviar and gonzales.
RTC: In favor of RCBC.
Alvias liable with Gonzales as guarator.
CA: Affirmed RTC's decission.
ISSUE: WON alviar and gonzales are liable as general endorsers.
SC: NO. CA REVERSED. RCBC reimburse Gonzales
Sec. 66. Liability of general indorser. - Every indorser who indorses without qualification, warrants to
all subsequent holders in due course
The matters and things mentioned in subdivisions (a), (b), and (c) of the next preceding section;
(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
2. That the instrument is, at the time of his indorsement, valid and subsisting
In addition, he engages that, on due presentment, it shall be accepted or paid, or both, as the
case may
be, according to its tenor, and that if it be dishonored and the necessary proceedings on
dishonor be duly taken, he will pay the amount thereof to the holder, or to any subsequent indorser
who may be compelled to pay it.

Under Section 66, the warranties for which Alviar and Gonzales are liable as general endorsers in favor
of subsequent endorsers extend only to the state of the instrument at the time of their endorsements,
specifically, that the instrument is genuine and in all respects what it purports to be; that they have
good title thereto; that all prior parties had capacity to contract; and that the instrument, at the time of
their endorsements, is valid and subsisting.
This provision, however, cannot be used by the party which introduced a defect on the
instrument, such as respondent RCBC in this case, which qualifiedly endorsed the same, to hold prior
endorsers liable on the instrument because it results in the absurd situation whereby a subsequent party
may render an instrument useless and inutile and let innocent parties bear the loss while he himself
gets away scot-free. It cannot be over-stressed that had it not been for the qualified endorsement ("up
to P17,500.00 only") of Olivia Gomez, who is the employee of RCBC, there would have been no
reason for the dishonor of the check, and full payment by drawee bank therefor would have taken place
as a matter of course.
Otherwise, a clear injustice results when any subsequent party to the instrument may simply make the
instrument defective and later claim from prior endorsers who have no knowledge or participation in
causing or introducing said defect to the instrument, which thereby caused its dishonor.
It is a well-established principle in law that as between two parties, he who, by his acts,
caused the loss shall bear the same.5 RCBC, in this instance, should therefore bear the loss.
25. Metropolitan Bank and Trust Co. v. BA Finance Corp. 607 SCRA 620 (2009)
FACTS: Lamberto Bitanga (Bitanga) obtained from respondent BA Finance Corporation (BA Finance)
a loan to secure which, he mortgaged his car to respondent BA Finance. Bitanga thus had the
mortgaged car insured by respondent Malayan Insurance Co., Inc. (Malayan Insurance). The car was
stolen. On Bitangas claim, Malayan Insurance issued a check payable to the order of B.A. Finance
Corporation and Lamberto Bitanga for P224,500, drawn against China Banking Corporation (China
Bank). The check was crossed with the notation For Deposit Payees Account Only.
Without the indorsement or authority of his co-payee BA Finance, Bitanga deposited the check
to his account with the Asianbank Corporation (Asianbank), now merged with petitioner Metropolitan
Bank and Trust Company (Metrobank). Bitanga subsequently withdrew the entire proceeds of the
check.
In the meantime, Bitangas loan became past due, but despite demands, he failed to settle it. BA
Finance thereupon demanded the payment of the value of the check from Asianbank but to no avail,
prompting it to file a complaint for sum of money and damages against Asianbank and Bitanga
alleging that, inter alia, it is entitled to the entire proceeds of the check.
On the issue of whether or not BA Finance has a cause of action, Metrobank contends that
Bitanga is authorized to indorse the check as the drawer names him as one of the payees. Moreover, his
signature is not a forgery nor has he or anyone forged the signature of the representative of BA Finance

Corporation. No unauthorized indorsement appears on the check. Absent the indispensable fact of
forgery or unauthorized indorsement, the payee may not recover from the collecting bank.
ISSUE 1: Whether BA Finance has a cause of action against Metrobank even if the subject check
had not been delivered to BA Finance by the issuer itself?
HELD: YES. Section 41 of the Negotiable Instruments Law provides:
Where an instrument is payable to the order of two or more payees or indorsees who are not
partners, all must indorse unless the one indorsing has authority to indorse for the others.
Bitanga alone endorsed the crossed check, and petitioner allowed the deposit and release of the
proceeds thereof, despite the absence of authority of Bitangas co-payee BA Finance to endorse it on its
behalf. Petitioners argument that since there was neither forgery, nor unauthorized indorsement
because Bitanga was a co-payee in the subject check, the dictum in Associated Bank v. CA does not
apply in the present case fails. The payment of an instrument over a missing indorsement is the
equivalent of payment on a forged indorsement or an unauthorized indorsement in itself in the case of
joint payees.

FACTS: Petitioner Cely Yang agreed with private respondent Prem Chandiramani to procure from
Equitable Banking Corp. and Far east Bank and Trust Company (FEBTC) two cashiers checks in the
amount of P2.087 million each, payable to Fernando david and FEBTC dollar draft in the amount of
US$200,000.00 payable to PCIB FCDU account No. 4195-01165-2. Yang gave the checks and the
draft to Danilo Ranigo to be delivered to Chandiramani. Ranigo was to meet Chandiramani to turn
over the checks and the dollar draft, and the latter would in turn deliver to the former Phil.
Commercial International Bank (PCIB) managers check in the sum of P4.2 million and the dollar draft
in the same amount to be issued by Hang Seng Bank Ltd. of HongKong. But Chandiramani did not
appear at the rendezvous and Ranigo allegedly lost the two cashiers checks and the dollar draft.

The loss was then reported to the police. It transpired, however that the checks and the dollar draft
were never lost, for Chandiramani was able to get hold of them without delivering the exchange
consideration consisting of PCIB Managers checks. Two hours after Chandiramani was able to meet
Ranigo, the former delivered to David the two cashiers checks of Yang and, in exchange, got US
$360,000 from David, who in turn deposited them. Chandiramani also deposited the dollar draft in

Accordingly, one who credits the proceeds of a check to the account of the indorsing payee is
liable in conversion to the non-indorsing payee for the entire amount of the check.

PCIG FCDU No. 4194-0165-2.

ISSUE 2: Is Metrobank liable to BA Finance for the full value of the check, under the Negotiable
Instruments Law?

Meanwhile, Yang requested FEBTC and Equitable to stop payment on the instruments she believed to
be lost. Both Banks complied with her request, but upon the representation of PCIB, FEBTC
subsequently lifted the stop payment order on FEBTC Dollar Draft No. 4771, thus, enabling the holder
PCIB FCDU Account No. 4194-0165-2 to received the amount of US $ 200, 000.

HELD:YES. Section 68 of the Negotiable Instruments Law instructs that joint payees who indorse are
deemed to indorse jointly and severally. When the maker dishonors the instrument, the holder thereof
can turn to those secondarily liable the indorser for recovery.
A collecting bank, Asianbank in this case, where a check is deposited and which indorses the
check upon presentment with the drawee bank, is an indorser. he is because in indorsing a check to the
drawee bank, a collecting bank stamps the back of the check with the phrase all prior endorsements
and/or lack of endorsement guaranteed and, for all intents and purposes, treats the check as a
negotiable instrument, hence, assumes the warranty of an indorser.
Petitioner, as the collecting bank or last indorser, generally suffers the loss because it has
the duty to ascertain the genuineness of all prior indorsements considering that the act of
presenting the check for payment to the drawee is an assertion that the party making the
presentment has done its duty to ascertain the genuineness of prior indorsements.
26. Yang v. Court of Appeals 409 SCRA 159 (2003)

ISSUES: (1) Whether or not David may be considered a holder in due course.
(2) Whether or not the presumption that every party to an instrument acquired the same for a
consideration is applicable in this case.
HELD: (1) Every holder of a negotiable instrument is deemed prima facie a holder in due course.
However, this presumption arises only in favor of a person who is a holder as defined in Section 191 of
the Negotiable Instruments Law, meaning a payee or indorsee of a bill or note, who is in possession of
it, or the bearer thereof.
In the present case, it is not disputed that David was the payee of the checks in question. The weight of
authority sustains the view that a payee may be a holder in due course. Hence, the presumption that he
is a prima facie holder in due course applies in his favor.
(2) The presumption is that every party to an instrument acquired the same for a consideration
27. Dino v. Judal-Loot 618 SCRA 393 (2010)

Facts:

(b) maybe negotiated only once to one who has an account with a bank; and

Petitioner was induced to lend a syndicate P3,000,000.00 to be secured by a real estate mortgage on
several parcels of land situated in Canjulao, Lapu-lapu City. Upon scrutinizing the documents
involving the properties, petitioner discovered that the documents covered rights over government
properties. Realizing he had been deceived, petitioner advised Metrobank to stop payment of his
checks. However, only the payment of Check No. C-MA- 142119406-CA was ordered stopped. The
other two checks were already encashed by the payees. Meanwhile, Check No. C-MA- 142119406-CA
(a cross-check) was negotiated and indorsed to respondents by petitioner in exchange for cash in the
sum of P948,000.00, which respondents borrowed from Metrobank and charged against their credit
line. Drawee bank, Metrobank,Cebu-Mabolo Branch, which is also their depositary bank, answered
that the checks were sufficiently funded. However, the same was dishonored by the drawee bank when
they tried to deposit it for reasonPAYMENT STOPPED. Respondents filed a collection suit against
petitioner and Lobitana before the trial court. The trial court ruled in favor of respondents and declared
them due course holders of the subject check, since there was no privity between respondents and
defendants. CA affirmed but modified the trial courts decision by deleting the award of interest, moral
damages, attorneys fees and litigation expenses. The Court of Appeals opined that petitioner was
only exercising(although incorrectly), what he perceived to be his right to stop the payment of the
check which he rediscounted. The Court of Appeals ruled that petitioner acted in good faith in
ordering the stoppage of payment of the subject check and thus, he must not be made liable for those
amounts.

(c) warns the holder that it has been issued for a definite purpose so that the holder thereof must
inquire if he has received the check pursuant to that purpose; otherwise, he is not a holder in due
course.

Issue: WON The respondents were holders in due course?

28. De Ocampo v. Gatchalian 3 SCRA 596 (1961)

Held: No, they are not. Section 52 of the Negotiable Instruments Law defines a holder indue course,
thus:
A holder in due course is a holder who has taken the instrument under the following
conditions:

The action is for the recovery of the value of a check for P600 payable to the plaintiff and drawn by
defendant Anita C. Gatchalian. The complaint sets forth the check and alleges that plaintiff received it
in payment of the indebtedness of one Matilde Gonzales; that upon receipt of said check, plaintiff gave
Matilde Gonzales P158.25, the difference between the face value of the check and Matilde Gonzales'
indebtedness. The defendants admit the execution of the check but they allege in their answer, as
affirmative defense, that it was issued subject to a condition, which was not fulfilled, and that plaintiff
was guilty of gross negligence in not taking steps to protect itself.

(a) That it is complete and regular upon its face;

(b) That he became the holder of it before it was overdue, and without notice that it has been
previously dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him, he had no notice of any infirmity in the instrument
or defect in the title of the person negotiating it.
In the case of a crossed check, as in this case, the following principles must additionally be considered:
A crossed check
(a) may not be encashed but only deposited in the bank;

Based on the foregoing, respondents had the duty to ascertain the indorsers, in this case Lobitanas,
title to the check or the nature of her possession. This respondents failed to do. Respondents
verification from Metrobank on the funding of the check does not amount to determination of
Lobitanas title to the check. Failing in this respect, respondents are guilty of gross negligence
amounting to legal absence of good faith, contrary to Section 52(c) of the Negotiable Instruments Law.
Hence, respondents are not deemed holders in due course of the subject check. However, the fact that
respondents are not holders in due course does not automatically mean that they cannot recover on the
check. The Negotiable Instruments Law does not provide that a holder who is not a holder in due
course may not in any case recover on the instrument. The only disadvantage of a holder who is not in
due course is that the negotiable instrument is subject to defenses as if it were non-negotiable. Among
such defenses is the absence or failure of consideration, which petitioner sufficiently established in this
case. Petitioner issued the subject check supposedly for a loan in favor of Consings group, who turned
out to be asyndicate defrauding gullible individuals. Since there is in fact no valid loan to speak of,
there is no consideration for the issuance of the check. Consequently, petitioner cannot be obliged to
pay the face value of the check.

On September 1953, defendant Anita Gatchalian (Anita) who was then interested in looking for a car,
was shown and offered a car by Manuel Gonzales who was accompanied by Emil Fajardo, the latter
being personally known to defendant Anita. Gonzales represented himself as duly authorized by the
owner of the car, Ocampo Clinic, to look for a buyer of said car and to negotiate for and accomplish
said sale. Finding the price of the car quoted by Gonzales to her satisfaction, requested the latter to
bring the car together with the certificate of registration of the car, whereby Gonzales requested Anita
to give him a check which will be shown to the owner as evidence of buyer's good faith in the intention
to purchase the said car, the said check to be for safekeeping only of Manuel Gonzales and to be
returned to Anita the following day when Gonzales brings the car and the certificate of registration.
Relying on Gonzales representations and assurance Anita drew and issued a check executed and
Gonzales issued a receipt for said check.

In the case at bar the rule that a possessor of the instrument is prima facie a holder in due course does
not apply because there was a defect in the title of the holder (Manuel Gonzales), because the
instrument is not payable to him or to bearer. On the other hand, the stipulation of facts indicated by
the appellants in their brief, like the fact that the drawer had no account with the payee; that the holder
did not show or tell the payee why he had the check in his possession and why he was using it for the
payment of his own personal account show that holder's title was defective or suspicious, to say the
least. As holder's title was defective or suspicious, it cannot be stated that the payee acquired the check
without knowledge of said defect in holder's 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. And having presented no
evidence that it acquired the check in good faith, it (payee) cannot be considered as a holder in due
course.

Gonzales failed to appear the day following and failed to bring the car and its certificate of registration
and to return the check, thus Anita issued a "Stop Payment Order" on the check with the drawee bank
without previous notice on plaintiff not being know to defendant, Anita and who furthermore had no
reason to know check was given to plaintiff.

In other words, under the circumstances of the case, instead of the presumption that payee was a
holder in good faith, the fact is that it acquired possession of the instrument under circumstances that
should have put it to inquiry as to the title of the holder who negotiated the check to it. The burden
was, therefore, placed upon it to show that notwithstanding the suspicious circumstances, it acquired
the check in actual good faith.

The defendants had no obligation or liability whatsoever, directly or indirectly with the Ocampo Clinic
and with hospitalization of the wife of Gonzales, but Gonzales delivered the check to the former in
payment of the fees and expenses arising from the hospitalization of his wife
That plaintiff De Campo for and in consideration of fees and expenses of hospitalization and the
release of the wife of Manuel Gonzales from its hospital, accepted said check, applying P441.75
thereof to payment of said fees and expenses and delivering to Manuel Gonzales the amount of
P158.25 representing the balance on the amount of the said check. Moreover, the acts of acceptance of
the check and application of its proceeds in the manner specified above were made without previous
inquiry by plaintiff from defendants.
Issue:
WON the plaintiff-appellee may be considered as a holder in due course.
Ruling:
No. In order to show that the defendant had "knowledge of such facts that his action in taking the
instrument amounted to bad faith," it is not necessary to prove that the defendant knew the exact fraud
that was practiced upon the plaintiff by the defendant's assignor, it being sufficient to show that the
defendant had notice that there was something wrong about his assignor's acquisition of title, although
he did not have notice of the particular wrong that was committed (Paika v. Perry, 225 Mass. 563, 114
N.E. 830).

29. Bank of America, NT & SA v. Associated Citizens Bank 588 SCRA 51 (2009)
The Bank is under strict liability, based on the contract between the bank and its customer (drawer),
to pay the check only to the payee or the payees order. The drawers instructions are reflected on
the face and by the terms of the check. When the drawee bank pays a person other than the payee
named on the check, it does not comply with the terms of the check and violates its duty to charge
the drawers account only for properly payable items.
Facts: BA-Finance Corporation (BA Finance) and Miller Offset Press, Inc. (Miller) entered into a
credit line facility agreement whereby Miller can discount and assign its trade receivables with the BA
Finance. At the same time, Uy Kiat Chung, Ching Uy Seng, and Uy Chung Guan Seng, acting for
Miller, executed a Continuing Suretyship Agreement with BA-Finance. Under the agreement, they
jointly and severally guaranteed the full and prompt payment of any and all indebtedness which Miller
may incur with BA-Finance.
Miller discounted and assigned several trade receivables to BA-Finance by executing Deeds of
Assignment in favor of the latter. In consideration thereof, BA-Finance issued four checks payable to
the order of Miller with the notation For Payees Account Only. These checks were drawn against
Bank of America. The four checks were deposited by Ching Uy Seng in Associated Citizens Bank with
his joint account with Uy Chung Seng. Associated Bank stamped the checks and guaranteed all prior
endorsements and/or lack of endorsements and sent them through clearing. Later, Bank of America as
drawee bank honored the checks and paid the proceeds to Associated Bank as the collecting bank.
When Miller failed to deliver to BA-Finance the proceeds of the assigned trade receivables, BAFinance filed a collection suit against Miller and impleaded the three representative of the latter.

Bank of America filed a third party complaint against Associated Bank. In its answer to the third party
complaint, Associated Bank admitted having received the four checks for deposit in the joint account
of Ching Uy Seng and Uy Chung Guan Seng, but alleged that Ching Uy Seng, being one of the
corporate officers of Miller, was duly authorized to act for and on behalf of Miller.
Issues: Whether or not Bank of America is liable to pay BA-Finance and whether or not Associated
Bank should reimburse Bank of America the amount of the four checks.
Held: The bank on which a check is drawn, known as the drawee bank, is under strict liability, based
on the contract between the bank and its customer (drawer), to pay the check only to the payee or the
payees order. The drawers instructions are reflected on the face and by the terms of the check. When
the drawee bank pays a person other than the payee named on the check, it does not comply with the
terms of the check and violates its duty to charge the drawers account only for properly payable items.
On the part of Associated Bank, the law imposes a duty of diligence on the collecting bank to
scrutinize checks deposited with it for the purpose of determining their 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. In presenting the checks for clearing and for payment, the
defendant [collecting bank] made an express guarantee on the validity of all prior endorsements.
Thus, stamped at the back of the checks are the defendants clear warranty. As the warranty has proven
to be false and inaccurate, Associated Bank is liable for any damage arising out of the falsity of its
representation.

30. Far East Bank and Trust Co. v. Gold Palace Jewellery Co. 562 SCRA 604 (2008)
FACTS: A foreigner Samuel Tagoe (ST) purchased from R(Yang) several pieces of jewelry in the
amount of 258K as payment ST payed in Foreign Draft (FD) issued by United Overseas Bank of
Malaysia (UOB) addressed to Land Bank Phils. (LBP) and payable to RCo worth 380K. 2. P Bank was
also a tenant on the mall (SM North Edsa), R went to P to ask about the Foreign Draft, P informed R
that it is as good as a Managers Check (MC), though, P advised R not to release the jewelry until the
draft had been cleared, following the advice, R (Yang) issued a Cash Invoice to the foreigner, asked
him to come back, and informed him that said jewelry would be released after clearance of the FD. 3.
R Yang consequently deposited the Foreign Draft in the companys account w/ P on June.2.98. P then
presented the Foreign Draft to LBP, w/c cleared the Foreign Draft and credited said amount to Rs
account. 4. ST then claimed the jewelry and because the Foreign Drafts value was larger than the
price, she issued as change a Check from P worth 122K, w/c was later cashed by P. 5. On 6.26.98, LBP
informed P that the amount in the Foreign Draft was forged from 300 to 380K, and that it was
returning the same, this after United Overseas Bank informed LBP when it tried to credit back the
amount. 6. R meanwhile, have already used up the amount in their account w/ P. on 7.20.98, w/ Rs
account having a standing balance of 168K P debited the same w/o prior written notice, and only
informed thru phone R. On 8.12.98, P demanded the additional amount required to debit the Foreign
Drafts value at 211.9K. R didnt heed to the demand, resulting to P suing R in RTC Makati.
In their answer R denied all allegations claiming innocence in the forgery.
RTC ruled in favor of P.

Held:
A bank that regularly processes checks that are neither payable to the customer nor duly
indorsed by the payee is apparently grossly negligent in its operations. This Court has recognized the
unique public interest possessed by the banking industry and the need for the people to have full trust
and confidence in their banks. For this reason, banks are minded to treat their customers accounts with
utmost care, confidence, and honesty. In a checking transaction, the drawee bank has the duty to verify
the genuineness of the signature of the drawer and to pay the check strictly in accordance with the
drawers instructions, i.e., to the named payee in the check. It should charge to the drawers accounts
only the payables authorized by the latter. Otherwise, the drawee will be violating the instructions of
the drawer and it shall be liable for the amount charged to the drawers account. Rodriguez checks are
payable to order since the bank failed to prove that the named payees therein are fictitious.

Hence, the fictitious-payee rule which will make the instrument payable to bearer does not apply. PNB
accepted the 69 checks for deposit to the PEMSLA account even without any indorsement from the
named payees. It bears stressing that order instruments can only be negotiated with a valid
indorsement.

CA reversed and awarded Rs counterclaim. It ruled in the main that Far East failed to undergo the
proceedings on the protest of the foreign draft or to notify Gold Palace of the drafts dishonor; thus, Far
East could not charge Gold Palace on its secondary liability as an endorser. The appellate court further
ruled that the drawee bank had cleared the check, and its remedy should be against the party
responsible for the alteration. Hence this. 8.

SC: Petition denied. Act No. 2031, or NIL explicitly provides that the acceptor, by accepting the
instrument, engages that he will pay it according to the tenor of his acceptance. This provision applies
with equal force in case the drawee pays a bill without having previously accepted it. His actual
payment of the amount in the check implies not only his assent to the order of the drawer and a
recognition of his corresponding obligation to pay the aforementioned sum, but also, his clear
compliance with that obligation. Actual payment by the drawee is greater than his acceptance, which is
merely a promise in writing to pay. The payment of a check includes its acceptance. 9. Following the
plain language of the law, the drawee, by the said payment, recognized and complied with its
obligation to pay in accordance with the tenor of his acceptance. The tenor of the acceptance is
determined by the terms of the bill as it is when the drawee accepts. Stated simply, LBP was liable on

its payment of the check according to the tenor of the check at the time of payment, which was the
raised amount. LBP, having the most convenient means to correspond with UOB, did not first verify
the amount of the draft before it cleared and paid the same 10. Gold Palace had no facility to ascertain
with the drawer, UOB Malaysia, the true amount in the draft. It was left with no option but to rely on
the representations of LBP that the draft was good. Gold Palace is protected by Section 62 of the NIL,
its collecting agent, Far East, should not have debited the money paid by the drawee bank from
respondent company's account. When Gold Palace deposited the check with Far East, it, under the
terms of the deposit and the provisions of the NIL, became an agent of the Gold Palace for the
collection of the amount in the draft. 11. Gold Palace is protected by Section 62 of the NIL, its
collecting agent, Far East, should not have debited the money paid by the drawee bank from
respondent company's account. When Gold Palace deposited the check with Far East, it, under the
terms of the deposit and the provisions of the NIL, became an agent of the Gold Palace for the
collection of the amount in the draft
31. Villanueva v. Nite 496 SCRA 549 (2006)
FACTS: Nite loaned from Villanueva P409,000 . As a sceurity he issued an Asian Bank Corporation
(ABC) check of P325,500 dated February 8, 1994. It was consented to be changed to June 8, 1994.
Check was dishonored due to a material alteration.
August 24, 1994: Nite while abroad partially paid P235K through her representative Emily P. Abojada.
The balance of P174K was due on or before December 8, 1994.
August 24, 1994: Villanueva filed an action for a sum of money and damages against ABC for the full
amount of the dishonored check (despite the loan not being due and Nite away)
RTC: favored Villanueva
June 30, 1997: Nite went to ABC to withdraw but she was not able to because of the RTC order
August 25, 1997: ABC remitted to the sheriff a managers check amounting to P325,500 drawn on
Nite's account
CA: favored Nite's appeal
ISSUE: W/N ABC should be liable to Villanueva
HELD: NO. DENIED
Negotiable Instruments Law

SEC. 185. Check, defined. A check is a bill of exchange drawn on a bank payable on demand.
Except as herein otherwise provided, the provisions of this Act applicable to a bill of exchange payable
on demand apply to a check
SEC. 189. When check operates as an assignment. A check of itself does not operate as an
assignment of any part of the funds to the credit of the drawer with the bank, and the bank is not liable
to the holder, unless and until it accepts or certifies the check
Rule 3, Sec. 7 of the Rules of Court states:
Sec. 7. Compulsory joinder of indispensable parties. Parties in interest without whom no final
determination can be had of an action shall be joined either as plaintiffs or defendants.
The contract of loan was between Villanueva and Nite. No collection suit could prosper without Nite
who was an indispensable party.
32. Bank of P.I v. Royeca 559 SCRA 207 (2008)
FACTS: On August 23, 1993, spouses Reynaldo and Victoria Royeca (respondents) executed and
delivered to Toyota Shaw, Inc. a Promissory Note3 for P577,008.00 payable in 48 equal monthly
installments of P12,021.00, with a maturity date of August 18, 1997. The Promissory Note provides for
a penalty of 3% for every month or fraction of a month that an installment remains unpaid.
To secure the payment of said Promissory Note, respondents executed a Chattel Mortgage4 in favor of
Toyota over a certain motor vehicle.
Toyota, with notice to respondents, executed a Deed of Assignment5 transferring all its rights, title, and
interest in the Chattel Mortgage to Far East Bank and Trust Company (FEBTC).
Claiming that the respondents failed to pay four (4) monthly amortizations covering the period from
May 18, 1997 to August 18, 1997, FEBTC sent a formal demand to respondents on March 14, 2000
asking for the payment thereof, plus penalty.6 The respondents refused to pay on the ground that they
had already paid their obligation to FEBTC.
On April 19, 2000, FEBTC filed a Complaint for Replevin and Damages against the
respondents with the Metropolitan Trial Court (MeTC).
In their Answer, respondents alleged that on May 20, 1997, they delivered to the Auto
Financing Department of FEBTC eight (8) postdated checks in different amounts totaling P97,281.78.
The Acknowledgment Receipt, which they attached to the Answer.
The respondents further averred that they did not receive any notice from the drawee banks or
from FEBTC that these checks were dishonored. They explained that, considering this and the fact that

the checks were issued three years ago, they believed in good faith that their obligation had already
been fully paid. They alleged that the complaint is frivolous and plainly vexatious. They then prayed
that they be awarded moral and exemplary damages, attorneys fees and costs of suit
ISSUE: WON the acknowledgement receipt was sufficient proof of payment.
RULING: No, the acknowledgement receipt was not sufficient proof of payment. As correctly
observed by the RTC, this is only proof that respondents delivered 8 checks in payment of the amount
due. Apparently, this will not suffice to establish actual payment.
Settled is the rule that PAYMENT MUST BE MADE IN LEGAL TENDER. A check is not legal
tender and therefore, cannot constitute a valid tender of payment. Since a negotiable instrument is only
a substitute for money and not money, the delivery of such an instrument does not, by itself, operate as
payment. Mere delivery of checks does not discharge the obligation under a judgment. The obligation

is not extinguished and remains suspended until the payment by commercial document is actually
realized.
To stress, the obligation to prove that the checks were not dishonored, but were in fact
encashed, fell upon the respondents who would benefit from such fact. That payment was effected
through the eight checks was the respondents affirmative allegation that they had to establish with
legal certainty. If the petitioner were seeking to enforce liability upon the check, the burden to prove
that a notice of dishonor was properly given would have devolved upon it.26 The fact is that the
petitioners cause of action was based on the original obligation as evidenced by the Promissory Note
and the Chattel Mortgage, and not on the checks issued in payment thereof.
Further, it should be noted that the petitioner, as payee, did not have a legal obligation to inform the
respondents of the dishonor of the checks. A notice of dishonor is required only to preserve the right of
the payee to recover on the check.