BANK OF AMERICA vs. PHILIPPINE RACING CLUB, INC.

(PRCI)
G.R. No. 150228, July 30, 2009, 590 SCRA 301

FACTS: On the second week of December 1988, the President and Vice President of PRCI were scheduled
to go out of the country in connection with the corporations business. They pre-signed several checks to
insure continuity of PRCIs operation to settle obligations that might become due. These checks were
entrusted to the accountant with instructions to make use of the same as the need arises.

On December 16, 1988, a John Doe presented to Bank of America for encashment a couple of PRCIs
checks with indicated value of P110,000 each. The two (2) checks had similar entries with similar
infirmities and irregularities. On the space where the name of the payee should be indicated (Pay To The
Order Of) the following 2-line entries were instead typewritten: on the upper line was the word CASH
while the lower line had the following typewritten words, viz: ONE HUNDRED TEN THOUSAND
PESOS ONLY. Despite the highly irregular entries on the face of the checks, Bank of America encashed
said checks.

ISSUE: Whether Bank of America is liable to PRCI for wrongful encashment of the checks.

HELD: YES. Although not in the strict sense material alterations, the misplacement of typewritten
entries for the payee and the amount on the same blank and the repetition of the amount using a check
writer were glaringly obvious irregularities on the face of the check. Clearly, someone made a mistake in
filling up the check and the repetition of the entries was possibly an attempt to rectify the mistake. All
these circumstances should have alerted the bank to the possibility that the holder or the person who is
attempting to encash the check did not have proper title to the checks or did not have authority to fill up
and encash the same.

PROBLEM - Amy borrowed P1,000.00 from Alice as evidenced by a promissory note. The note complied
with all the requisites of negotiability, except that Amy did not affix her usual signature thereon as she
was very ill at the time she prepared the instrument. Amy wrote X on the space intended for the
signature of the maker. Is the instrument negotiable?

ANSWER: YES, the letter X complies with the requirement that the promissory note must be signed by
the maker. In signing with X, Amy intended to authenticate the instrument and to be bound by the
obligation. The law does not require that the maker affix her usual or customary signature in the
promissory note.

Bank of America v. PRC Digest

Bank of America vs. Philippine Racing Club
G.R. 150228 July 30, 2009
Ponente: Leonardo-De Castro, J:

Facts:

1. Plaintiff PRCI is a domestic corporation which maintains a current account with petitioner Bank of
America. Its authorized signatories are the company President and Vice-President. By virtue of a travel
abroad for these officers, they pre-signed checks to accommodate any expenses that may come up while
they were abroad for a business trip. The said pre-signed checks were left for safekeeping by PRCs
accounting officer. Unfortunately, the two (2) of said checks came into the hands of one of its employees
who managed to encash it with petitioner bank. The said check was filled in with the use of a check-
writer, wherein in the blank for the 'Payee', the amount in words was written, with the word 'Cash'
written above it.

2. Clearly there was an irregularity with the filling up of the blank checks as both showed similar
infirmities and irregularities and yet, the petitioner bank did not try to verify with the corporation and
proceeded to encash the checks.

3. PRC filed an action for damages against the bank. The lower court awarded actual and exemplary
damages. On appeal, the CA affirmed the lower court's decision and held that the bank was negligent.
Hence this appeal. Petitioner contends that it was merely doing its obligation under the law and contract
in encashing the checks, since the signatures in the checks are genuine.

Issue: Whether or not the petitioner can be held liable for negligence and thus should pay damages to
PRC

Both parties are held to be at fault but the bank has the last clear chance to prevent the fraudulent
encashment hence it is the one foremost liable .

1. There was no dispute that the signatures in the checks are genuine but the presence of irregularities on
the face of the check should have alerted the bank to exercise caution before encashing them. It is well-
settled that banks are in the business impressed with public interest that they are duty bound to protect
their clients and their deposits at all times. They must treat the accounts of these clients with
meticulousness and a highest degree of care considering the fiduciary nature of their relationship. The
diligence required of banks are more than that of a good father of a family.

2. The PRC officers' practice of pre-signing checks is a seriously negligent and highly risky behavior
which makes them also contributor to the loss. It's own negligence must therefore mitigate the petitioner's
liability. Moreover, the person who stole the checks is also an employee of the plaintiff, a cleck in its
accounting department at that. As the employer, PRC supposedly should have control and supervision
over its own employees.

3. The court held that the petitioner is liable for 60% of the total amount of damages while PRC should
shoulder 40% of the said amount.

PCIB V. CA

350 SCRA 446

FACTS:

Ford Philippines filed actions to recover from the drawee bank Citibank and collecting bank PCIB
the value of several checks payable to the Commissioner of Internal Revenue which were
embezzled allegedly by an organized syndicate. What prompted this action was the drawing of a
check by Ford, which it deposited to PCIB as payment and was debited from their Citibank
account. It later on found out that the payment wasnt received by the Commissioner. Meanwhile,
according to the NBI report, one of the checks issued by petitioner was withdrawn from PCIB for
alleged mistake in the amount to be paid. This was replaced with managers check by PCIB, which
were allegedly stolen by the syndicate and deposited in their own account.

The trial court decided in favor of Ford.

ISSUE:

Has Ford the right to recover the value of the checks intended as payment to CIR?

HELD:

The checks were drawn against the drawee bank but the title of the person negotiating the same was
allegedly defective because the instrument was obtained by fraud and unlawful means, and the
proceeds of the checks were not remitted to the payee. It was established that instead paying the
Commissioner, the checks were diverted and encashed for the eventual distribution among
members of the syndicate.

Pursuant to this, it is vital to show that the negotiation is made by the perpetrator in breach of
faith amounting to fraud. The person negotiating the checks must have gone beyond the authority given
by his principal. If the principal could prove that there was no negligence in the performance of his
duties, he may set up the personal defense to escape liability and recover from other parties who,
through their own negligence, allowed the commission of the crime.

It should be resolved if Ford is guilty of the imputed contributory negligence that would defeat its
claim for reimbursement, bearing in mind that its employees were among the members of the syndicate.
It appears although the employees of Ford initiated the transactions attributable to the organized
syndicate, their actions were not the proximate cause of encashing the checks payable to CIR.
The degree of Fords negligence couldnt be characterized as the proximate cause of the injury to
parties. The mere fact that the forgery was committed by a drawer-payors confidential employee
or agent, who by virtue of his position had unusual facilities for perpetrating the fraud and imposing the
forged paper upon the bank, doesnt entitle the bank to shift the loss to the drawer-payor, in the absence
of some circumstance raising estoppel against the drawer.

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

Negotiable Instruments Case Digest: Philippine Commercial International Bank V CA (2001)

FACTS:
 These consolidated petitions involve several fraudulently negotiated checks
October 19, 1977: Ford drew and issued its Citibank Check of P4,746,114.41, in favor of the
Commissioner of Internal Revenue (CIR) as payment of percentage or manufacturer's sales taxes for
the third quarter of 1977
check was deposited with the IBAA (now PCIBank) and was subsequently cleared at the
Central Bank
Ford, with leave of court, filed a third-party complaint before the trial court impleading Pacific
Banking Corporation (PBC) and Godofredo Rivera, as third party defendants
dismissed the complaint against PBC for lack of cause of action
dismissed the third-party complaint against Godofredo Rivera because he could not be
served with summons as a "fugitive from justice"
trial court: Citibank and IBAA (now PCI Bank), jointly and severally, to pay the Ford
April 20, 1979, Ford drew another Citibank Check of P6,311,591.73, representing the payment of
percentage tax for the first quarter of 1979 payable to the CIR
Both checks were "crossed checks" and contain two diagonal lines on its upper corner between,
which were written the words "payable to the payee's account only."
The checks never reached the payee, CIR
As far as the BIR is concernced, the said two BIR Revenue Tax Receipts were considered "fake
and spurious".
forced Ford to pay the BIR anew, while an action was filed against Citibank and PCIBank
for recovery
RTC: Mr. Godofredo Rivera was employed by FORD as its General Ledger Accountant. He
prepared the check for payment to the BIR. Instead, of delivering to the payee, he gave it to Remberto
Castro, a co-conspirator who was a pro-manager of PCIB. Castro opened a Checking Account in the
name of a fictitious person "Reynaldo Reyes" with connivance of Dulay, assistant manager of PCIB
After an initial deposit of P100 to validate the account, Castro deposited a worthless Bank of
America Check in exactly the same amount as the first FORD check while this worthless check was
coursed through PCIB's main office enroute to the Central Bank for clearing, replaced this worthless
check with Ford's and accordingly tampered the accompanying documents to cover the replacement.
As a result, Ford's check was cleared by CITIBANK, and the fictitious deposit account of 'Reynaldo
Reyes' was credited at the PCIB
December 9, 1988: RTC Citibank (drawee bank) liable for the value of the 2 checks while
absolving PCIBank (collecting bank) from any liability
ISSUE: W/N Ford can hold both PCIB and Citibank liable

HELD: YES. CA AFFIRMED. PCIBank, know formerly as Insular Bank of Asia and America, id declared
solely responsible for the loss of the proceeds of Citibank Check in the amount P4,746,114.41. However,
MODIFIED as follows: PCIBank and Citibank are adjudged liable for and must share the loss, concerning
the proceeds of Citibank Check Numbers SN 10597 and 16508 on a 50-50 ratio to pay Ford
GR: if the master is injured by the negligence of a third person and by the concuring contributory
negligence of his own servant or agent, the latter's negligence is imputed to his superior and will
defeat the superior's action against the third person, asuming, of course that the contributory
negligence was the proximate cause of the injury of which complaint is made.
although the employees of Ford initiated the transactions attributable to an organized syndicate,
in our view, their actions were not the proximate cause of encashing the checks payable to the CIR
degree of Ford's negligence, if any, could not be characterized as the proximate cause of
the injury to the parties
Rivera's instruction to replace the check with PCIBank's Manager's Check was not in the ordinary
course of business which could have prompted PCIBank to validate the same.
checks were made payable to the CIR
Both were crossed checks
 These checks were apparently turned around by Ford's emploees, who were
acting on their own personal capacity.
Given these circumstances, the mere fact that the forgery was committed by a drawer-payor's
confidential employee or agent, who by virtue of his position had unusual facilities for perpertrating
the fraud and imposing the forged paper upon the bank, does not entitle the bank to shift the loss to
the drawer-payor, in the absence of some circumstance raising estoppel against the drawer.
This rule likewise applies to the checks fraudulently negotiated or diverted by the
confidential employees who hold them in their possession.
Furthermore, it was admitted that PCIBank is authorized to collect the payment of taxpayers in
behalf of the BIR.
As an agent of BIR, PCIBank is duty bound to consult its principal regarding the
unwarranted instructions given by the payor or its agent
Otherwise stated, the diversion can be justified only by proof of authority from the
drawer, or that the drawer has clothed his agent with apparent authority to receive the proceeds of
such check.
it is the duty of the collecting bank PCIBank to ascertain that the check be deposited in
payee's account only. Therefore, it is the collecting bank (PCIBank) which is bound to scruninize the
check and to know its depositors before it could make the clearing indorsement "all prior
indorsements and/or lack of indorsement guaranteed".
PCIBank did not actually receive nor hold the 2 Ford checks at all. Neither is there any proof that
defendant PCIBank contributed any official or conscious participation in the process of the
embezzlement.
the switching operation (involving the checks while in transit for "clearing") were the
clandestine or hidden actuations performed by the members of the syndicate in their own personl,
covert and private capacity and done without the knowledge of the defendant PCIBank
clearing stamps at the back of Citibank Check do not bear any initials
Citibank failed to notice and verify the absence of the clearing stamps
For this reason, Citibank had indeed failed to perform what was incumbent upon it,
which is to ensure that the amount of the checks should be paid only to its designated payee. The fact
that the drawee bank did not discover the irregularity seasonably, in our view, consitutes negligence
in carrying out the bank's duty to its depositors.
invoking the doctrine of comparative negligence, both PCIBank and Citibank failed in their
respective obligations and both were negligent in the selection and supervision of their employees
resulting in the encashment
hold them equally liable for the loss of the proceeds of the checks issued by Ford in favor
of the CIR
The statute of limitations begins to run when the bank gives the depositor notice of the payment,
which is ordinarily when the check is returned to the alleged drawer as a voucher with a statement of
his account, and an action upon a check is ordinarily governed by the statutory period applicable to
instruments in writing.
Our laws on the matter provide that the action upon a written contract must be brought
within ten year from the time the right of action accrues hence, the reckoning time for the prescriptive
period begins when the instrument was issued and the corresponding check was returned by the
bank to its depositor (normally a month thereafter).
Applying the same rule, the cause of action for the recovery of the proceeds of
Citibank Check No. SN 04867 would normally be a month after December 19, 1977, when Citibank
paid the face value of the check in the amount of P4,746,114.41. Since the original complaint for the
cause of action was filed on January 20, 1984, barely six years had lapsed. Thus, we conclude that
Ford's cause of action to recover the amount of Citibank Check No. SN 04867 was seasonably filed
within the period provided by law.
Failure on the part of the FORD depositor to examine its passbook, statements of account, and
cancelled checks and to give notice within a reasonable time (or as required by statute) of any
discrepancy which it may in the exercise of due care and diligence find therein, serves to mitigate the
 banks' liability by reducing the award of interest from twelve percent (12%) to six percent (6%) per
annum.
Article 1172 of the Civil Code of the Philippines, respondibility arising from negligence
in the performance of every kind of obligation is also demandable, but such liability may be regulated
by the courts, according to the circumstances. In quasi-delicts, the contributory negligence of the
plaintiff shall reduce the damages that he may recover.

PNB V. CA- Material Alteration

256 SCRA 491

FACTS:
DECS issued a check in favor of Abante Marketing containing a specific serial number, drawn
against PNB. The check was deposited by Abante in its account with Capitol and the latter
consequently deposited the same with its account with PBCOM which later deposited it with
petitioner for
clearing. The check was thereafter cleared. However, on a relevant date, petitioner PNB returned the
check on account that there had been a material alteration on it. Subsequent debits were made but
Capitol cannot debit the account of Abante any longer for the latter had withdrawn all the money
already from the account. This prompted Capitol to seek reclarification from PBCOM and
demanded the recrediting of its account. PBCOM followed suit by doing the same against PNB.
Demands unheeded,
it filed an action against PBCOM and the latter filed a third-party complaint against petitioner.

HELD:
An alteration is said to be material if it alters the effect of the instrument. It means an unauthorized
change in the instrument that purports to modify in any respect the obligation of a party or an
unauthorized addition of words or numbers or other change to an incomplete instrument relating to the
obligation of the party. In other words, a material alteration is one which changes the items which
are required to be stated under Section 1 of the NIL.

In this case, the alleged material alteration was the alteration of the serial number of the check in issue
which is not an essential element of a negotiable instrument under Section 1. PNB alleges that the
alteration was material since it is an accepted concept that a TCAA check by its very
nature is the medium of exchange of governments, instrumentalities and agencies. As a safety
measure, every government office or agency is assigned checks bearing different serial numbers.

But this contention has to fail. The checks serial number is not the sole indicia of its origin. The name of
the government agency issuing the check is clearly stated therein. Thus, the checks drawer is sufficiently
identified, rendering redundant the referral to its serial number.

Therefore, there being no material alteration in the check committed, PNB could not return the check to
PBCOM. It should pay the same.

HILIPPINE NATIONAL BANK VS. COURT OF APPEALS

GR. NO. 107508 April 25, 1996
1st Division Kapunan
FACTS:
Ministry of Education Culture issued a check payable to Abante Marketing and drawn against Philippine
National Bank (PNB). Abante Marketing, deposited the questioned check in its savings account with
Capitol City Development Bank (CAPITOL). In turn, Capitol deposited the same in its account with the
Philippine Bank of Communications (PBCom) which, in turn, sent the check to PNB for clearing. PNB
cleared the check as good and thereafter, PBCom credited Capitol's account for the amount stated in the
check. However, PNB returned the check to PBCom and debited PBCom's account for the amount
covered by the check, the reason being that there was a "material alteration" of the check number.
PBCom, as collecting agent of Capitol, then proceeded to debit the latter's account for the same amount,
and subsequently, sent the check back to petitioner. PNB, however, returned the check to PBCom. On the
other hand, Capitol could not in turn, debit Abante Marketing's account since the latter had already
withdrawn the amount of the check. Capitol sought clarification from PBCom and demanded the re-
crediting of the amount. PBCom followed suit by requesting an explanation and re-crediting from PNB.
Since the demands of Capitol were not heeded, it filed a civil suit against PBCom which in turn, filed a
third-party complaint against PNB for reimbursement/indemnity with respect to the claims of Capitol.
PNB, on its part, filed a fourth-party complaint against Abante Marketing.
The Trial Court rendered its decision, ordering PBCom to re-credit or reimburse; PNB to reimburse and
indemnify PBCom for whatever amount PBCom pays to Capitol; Abante Marketing to reimburse and
indemnify PNB for whatever amount PNB pays to PBCom. The court dismissed the counterclaims of
PBCom and PNB. The appellate court modified the appealed judgment by ordering PNB to honor the
check. After the check shall have been honored by PNB, the court ordered PBCom to re-credit Capitol's
account with it the amount. PNB filed the petition for review on certiorari averring that under Section 125
of the NIL, any change that alters the effect of the instrument is a material alteration.
ISSUE:
WON an alteration of the serial number of a check is a material alteration under the NIL.
HELD:
NO, alteration of a serial number of a check is not a material alteration contemplated under Sec. 125 of the
NIL.
RATIO:
An alteration is said to be material if it alters the effect of the instrument. It means an unauthorized
change in an instrument that purports to modify in any respect the obligation of a party or an
unauthorized addition of words or numbers or other change to an incomplete instrument relating to the
obligation of a party. In other words, a material alteration is one which changes the items which are
required to be stated under Section 1 of the Negotiable Instruments Law.
In the present case what was altered is the serial number of the check in question, an item which 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. The check's serial number is not the sole indication of its origin. The name of the
government agency which issued the subject check was prominently printed therein. The check's issuer
was therefore insufficiently identified, rendering the referral to the serial number redundant and
inconsequential.

INTERNATIONAL CORPORATE BANK VS CA (501 SCRA 20)

International Corporate Bank, Inc vs Court of Appeals
501 SCRA 20 [G.R. No. 129910 September 5, 2006]
Facts: The Ministry of Education and Culture issued 15 checks drawn against respondent which
petitioner accepted for deposit on various dates. After 24 hours from submission of the checks to
respondent for clearing, petitioner paid the value of the checks and allowed the withdrawals of the
deposits. However, on 14 October 1981, respondent returned all the checks to petitioner without clearing
them on the ground that they were materially altered. Thus, petitioner instituted an action for collection
of sums of money against respondent to recover the value of the checks.
Issue: Whether the alterations in the serial numbers of the check is a material alteration.
Held: No. Sections 124 and 125 of Act No. 2031, otherwise known as the Negotiable Instruments Law,
provide:
SEC. 124. Alteration of instrument; effect of. Where a negotiable instrument is materially altered
without the assent of all parties liable thereon, it is avoided, except as against a party who has himself
made, authorized, or assented to the alteration and subsequent indorsers. But when an instrument has
been materially altered and is in the hands of a holder in due course, not a party to the alteration, he may
enforce payment thereof according to its original tenor.
SEC. 125. What constitutes a material alteration. Any alteration which changes: (a) The date; (b) The
sum payable, either for principal or interest; (c) The time or place of payment; (d) The number or the
relations of the parties; (e) The medium or currency in which payment is to be made; or which adds a
place of payment where no place of payment is specified, or any other change or addition which alters
the effect of the instrument in any respect, is a material alteration.
An alteration is said to be material if it alters the effect of the instrument. It means an unauthorized
change in an instrument that purports to modify in any respect the obligation of a party or an
unauthorized addition of words or numbers or other change to an incomplete instrument relating to the
obligation of a party. In other words, a material alteration is one which changes the items which are
required to be stated under Section 1 of the Negotiable Instruments Law.
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.

METROPOLITAN BANK AND TRUST COMPANY (formerly ASIANBANK CORPORATION) V.

BA FINANCE CORPORATION and MALAYAN INSURANCE CO. INC.
[G.R. No. 179952, Dec. 4, 2009] (607 SCRA 620)

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.
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 entireamount of the check.
ISSUE 2:
Is Metrobank liable to BA Finance for the full value of the check, under the Negotiable Instruments
Law?
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. his 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.
 ETROBANK V. CABLIZO

510 SCRA 259

FACTS:

Cablizo maintained an account with petitioner. It drew a check payable to cash payable to a certain
Marquez, for the latters sales commission. The check was subsequently deposited in Westmont bank
and the latter submitted it with Metrobank for clearing. The check was cleared.

Thereafter, the banks representative asked Cablizo if he issued a check for P91,000. The answer was in
the negative. This prompted Cablizo to call Metrobank and ask for the recrediting of P90,000 but
petitioner failed to recredit the amount prompting Cablizo to file an action against it.

HELD:

An alteration is said to be material if it alters the effect of the instrument. It means an unauthorized
change in the instrument that purports to modify in any respect the obligation of a party or an
unauthorized addition of words or numbers or other change to an incomplete instrument relating to the
obligation of the party. In other words, a material alteration is one which changes the items which
are required to be stated under Section 1 of the NIL.

The check in issue was materially altered when its amount was increased from P1000 to P91000. Cablizo
was not the one who authorized or made such increase. There is no showing that he was negligent
in exercising what was due in a prudent man which could have otherwise prevented the
loss. Cablizo was never remiss in the preparation and issuance of the check.
The doctrine of equitable estoppel is inapplicable against Cablizo. This doctrine states that when
one of the two innocent person, each guiltiness of an intentional or moral wrong, must suffer a loss, it
must be borne by the one whose erroneous conduct, either by omission or commission, was the cause of
the injury. Negligence is never presumed.

Metrobank was actually the one remiss in its duties. The CA took into consideration that the
alterations were actually visible in the eye and yet the bank allowed someone not acquainted with the
examination of checks to do the same. Furthermore, it cannot rely on the indorsement of
Westmont Bank of the check. It should have exercised meticulous care in handling the affairs of its clients
especially if the clients money is involved.

Dy V. People (2008)

FACTS:
Since 1990, John Dy under the business name Dyna MarketinG has been the distributor of W.L.
Food Products (W.L. Foods)

Dy would pay W.L. Foods in either cash or check upon pick up of stocks of snack foods

At times, he would entrust the payment to one of his drivers.

 June 24, 1992: Dy's driver went to the branch office of W.L. Foods to pick up stocks of snack
foods.

He introduced himself to the checker, Mary Jane D. Maraca, who upon confirming Dy's
credit with the main office, gave him merchandise worth P106,579.60

In return, the driver handed her a blank Far East Bank and Trust Company (FEBTC)
Check postdated July 22, 1992 signed by Dy

July 1, 1992: the driver obtained snack foods worth P226,794.36 in exchange for a blank FEBTC
Check postdated July 31, 1992

In both instances, the driver was issued an unsigned delivery receipt.

When presented for payment, FEBTC dishonored the checks for insufficiency of funds.

Later, Gonzales sent Atty. Jimeno another letter advising her that FEBTC Check for
P106,579.60 was returned to the drawee bank for the reasons stop payment order and drawn against
uncollected deposit (DAUD), and not because it was drawn against insufficient funds as stated in the
first letter.

Dy's savings deposit account ledger reflected a balance of P160,659.39 as of July 22, 1992.
This, however, included a regional clearing check for P55,000 which he deposited on July 20, 1992,
and which took 5 banking days to clear.

When William Lim, owner of W.L. Foods, phoned Dy about the matter, the latter
explained that he could not pay since he had no funds yet.

This prompted the former to send petitioner a demand letter, which the latter ignored.

July 16, 1993: Lim charged Dy with 2 counts of estafa under Article 315, paragraph 2(d) of RPC
and 2 counts of violation of B.P. Blg. 22

RTC convicted Dy on two counts each of estafa and violation of B.P. Blg. 22.

CA: affirmed

Dy contends that the checks were ineffectively issued

W.L. Foods' accountant had no authority to fill the amounts

ISSUE: W/N Dy is liable for estafa and in violation of BP 22. Acquitted for the criminal cases in relation to
the first check.

HELD: YES but only for the 2nd check.

estafa under Article 315, paragraph 2(d) of the Revised Penal Code, as amended by Republic Act
No. 4885 elements
 1. postdating or issuance of a check in payment of an obligation contracted at the time the check
was issued

2. insufficiency of funds to cover the check - including the uncollected deposit he had more than
enough funds to cover the first check

3. damage to the payee

Section 191 of the Negotiable Instruments Law

"issue" - first delivery of an instrument, complete in form, to a person who takes it as a

holder

Significantly, delivery is the final act essential to the negotiability of an instrument.

Delivery denotes physical transfer of the instrument by the maker or drawer coupled with an
intention to convey title to the payee and recognize him as a holder. It means more than handing over
to another; it imports such transfer of the instrument to another as to enable the latter to hold it for
himself

Even if the checks were given to W.L. Foods in blank, this alone did not make its issuance invalid.

When the checks were delivered to Lim, through his employee, he became a holder
with prima facie authority to fill the blanks

SEC. 14. Blanks; when may be filled.-Where the instrument is wanting in any material particular,the person
in possession thereof has a prima facie authority to complete it by filling up the blanks therein. And a
signature on a blank paper delivered by the person making the signature in order that the paper may be
converted into a negotiable instrument operates as aprima facie authority to fill it up as such for any
amount.
law merely requires that the instrument be in the possession of a person other than the drawer or
maker

From such possession, together with the fact that the instrument is wanting in a material
particular, the law presumes agency to fill up the blanks

burden of proving want of authority or that the authority granted was exceeded, is
placed on the person questioning such authority - Dy didn't fulfill this

estafa punished under Article 315, paragraph 2(d) of the Revised Penal Code is committed when
a check is dishonored for being drawn against insufficient funds or closed account, and not against
uncollected deposit. Corollarily, the issuer of the check is not liable for estafa if the remaining balance
and the uncollected deposit, which was duly collected, could satisfy the amount of the check when
presented for payment.

B.P. Blg. 22 elements = malum prohibitum

the making, drawing and issuance of any check to apply to account or for value
 the knowledge of the maker, drawer or issuer that at the time of issue he does not have
sufficient funds in or credit with the drawee bank for the payment of such check in full upon its
presentment

subsequent dishonor of the check by the drawee bank for insufficiency of funds or credit
or dishonor for the same reason had not the drawer, without any valid cause, ordered the bank
to stop payment - considered by the bank to retroactively have had P160,659.39 in his account on
July 22, 1992 which was more than enough to cover the first check

Dy admitted that he issued the checks, and that the signatures appearing on them were his

Section 2 of B.P. Blg. 22, petitioner was prima facie presumed to know of the inadequacy of his
funds with the bank when he did not pay the value of the goods or make arrangements for their
payment in full within 5 banking days upon notice

Vicky Ty vs. People (G.R. No. 149275)

Posted by taxcasesdigest on Thursday, July 16, 2009

Labels: BP 22, consideration, Negotiable instruments
Facts: Tys mother was confined in Manila Doctor's Hospital to which a medical bill amounting
to 600,000 pesos was made to be paid to TY, after signing a contract of responsibility with the
hospital. Ty, issued 7 checks to cover the said expenses, all of which were dishonored for being
drawn against a closed a account. Manila Doctors Hospital then instituted criminal actions
against Ty for violation of BP22.

In her defense she alleged that she issued the checks involuntarily because her mother threatened
to commit suicide due to the inhumane treatment she allegedly suffered while confined in the
hospital. She further claimed that no consideration was obtained by her because all the checks
were made as payment to the medical bills.

Issue: Whether or not valuable consideration exists.

Held: Under Section 24 of the Negotiable Instruments Law, it is presumed that valuable
consideration exist upon the issuance of a check in the absence of evidence to the
contrary.Valuable consideration is any benefit, interest or profit accruing to the party. The use of
the hospital facilities and services may be deemed as such.

Ty vs People Case Digest

Facts:
Ty's mother and sister was confined at the Manila Doctors Hospital. The total hospital bills amounted to
P1 million. After signing a contract of responsibility with the hospital, Ty issued 7 checks to cover the said
expenses, all of which were dishonored for being drawn against a closed a account. Manila Doctors
Hospital sued Ty for violation of BP 22. In her defense, Ty alleged that she issued the checks because of
an "uncontrollable fear of a greater injury". She averred that her mother threatened to commit suicide due
to the inhumane treatment she allegedly suffered while confined in the hospital. Ty was found guilty by
the trial court of 7 counts of violation of BP 22. Ty appealed wherein she reiterated her defense that she
issued the checks under the impulse of an uncontrollable fear of a greater injury or in avoidance of a
greater evil or injury.

Issue:

Is the defense of uncontrollable fear or avoidance of a greater evil or injury tenable to warrant Ty's
exemption from criminal liability?

Held:

Uncontrollable fear

For this exempting circumstance to be invoked successfully, the following requisites must concur: (1)
existence of an uncontrollable fear; (2) the fear must be real and imminent; and (3) the fear of an injury is
greater than or at least equal to that committed.

It must appear that the threat that caused the uncontrollable fear is of such gravity and imminence that
the ordinary man would have succumbed to it. It should be based on a real, imminent or reasonable fear
for ones life or limb. A mere threat of a future injury is not enough. It should not be speculative, fanciful,
or remote. A person invoking uncontrollable fear must show therefore that the compulsion was such that
it reduced him to a mere instrument acting not only without will but against his will as well. It must be of
such character as to leave no opportunity to the accused for escape.

In this case, far from it, the fear, if any, harbored by Ty was not real and imminent. Ty claims that she was
compelled to issue the checks a condition the hospital allegedly demanded of her before her mother could
be discharged for fear that her mothers health might deteriorate further due to the inhumane treatment of
the hospital or worse, her mother might commit suicide. This is speculative fear; it is not the
uncontrollable fear contemplated by law.

To begin with, there was no showing that the mothers illness was so life-threatening such that her
continued stay in the hospital suffering all its alleged unethical treatment would induce a well-grounded
apprehension of her death. Secondly, it is not the laws intent to say that any fear exempts one from
criminal liability much less petitioners flimsy fear that her mother might commit suicide. In other words,
the fear she invokes was not impending or insuperable as to deprive her of all volition and to make her a
mere instrument without will, moved exclusively by the hospitals threats or demands.

Ty has also failed to convince the Court that she was left with no choice but to commit a crime. She did
not take advantage of the many opportunities available to her to avoid committing one. By her very own
words, she admitted that the collateral or security the hospital required prior to the discharge of her
mother may be in the form of postdated checks or jewelry. And if indeed she was coerced to open an
account with the bank and issue the checks, she had all the opportunity to leave the scene to avoid
involvement.

Avoidance of a greater evil or injury

The law prescribes the presence of three requisites to exempt the actor from liability under this
paragraph: (1) that the evil sought to be avoided actually exists; (2) that the injury feared be greater than
the one done to avoid it; (3) that there be no other practical and less harmful means of preventing it.

In the instant case, the evil sought to be avoided is merely expected or anticipated. If the evil sought to be
avoided is merely expected or anticipated or may happen in the future, this defense is not applicable. Ty
could have taken advantage of an available option to avoid committing a crime. By her own admission,
she had the choice to give jewelry or other forms of security instead of postdated checks to secure her
obligation.

Moreover, for the defense of state of necessity to be availing, the greater injury feared should not have
been brought about by the negligence or imprudence, more so, the willful inaction of the actor. In this
case, the issuance of the bounced checks was brought about by Tys own failure to pay her mothers
hospital bills. (Ty vs. People, G.R. No. 149275. September 27, 2004)

Alvin Patrimonio v. Napoleon Guttierez & OCTAVIO MARASIGAN III

FACTS:

Herein petitioner and respondent Guttierez entered into a business venture under the name Slam Dunk
Corporation. To start it up, petitioner pre-signed several check for the expenses of the business. Although
signed, however, there was no payees name, date or amount indicated in the said checks. The blank
checks were entrusted to Guttierez with the instruction that he cannot fill them out without petitioners
approval.

In 1993, without petitioners knowledge and consent, Guttierez borrowed money from co-respondent
Marasigan in the amount of 200,000php. The latter aceded to Guttierez request and gave him the
amount. Simultaneously, Guttierez deliverd to Marasigan one of the blank checks pre-signed by
petitioner. However, the same was dishonored by the bank on the reason of closed account.

Marasigan sought recovery from Guttierez, but to no avail. Hence, he sent several demand letters to
petitioner, but to no avail as well. Thus, he filed a criminal case under BP 22 against petitioner. On the
other hand, Petitioner filed with the Regional Trial Court (RTC) a Complaint for Declaration of Nullity of
Loan and Recovery of Damages against Respondents, invoking that he never authorized the loan.

The trial court ruled in favor of Marasigan and found petitioner, in issuing the pre-signed blank checks,
had the intention of issuing the check even without his approval. On appeal to the Court of Appeals
(CA), the appellate court affirmed the decision of the RTC. Hence, this present case.

ISSUE:

Whether or not petitioner is liable to the loan contracted by Guttierez to Marasigan?

RULING:

The court held no.

That under Article 1878, paragraph 7 of the Civil Code, a written authority is required when the loan is
contracted through an agent.

In the present case, the petitioner is not bound by the contract of loan since the records reveal that
Guttierez did not have any authority to borrow money in behalf of petitioner. Records do not show that
the petitioner executed any special power of attorney in favor of Guttierez to borrow in his behalf, hence,
the act of Guttierez is in violation of the said provision, and thus, he should be the only one liable for the
loan he was not able to settle.

In the present case, the petitioner is not bound by the contract of loan since the records reveal that
Guttierez did not have any authority to borrow money in behalf of petitioner. Records do not show that
the petitioner executed any special power of attorney in favor of Guttierez to borrow in his behalf, hence,
the act of Guttierez is in violation of the said provision, and thus, he should be the only one liable for the
loan he was not able to settle.

Negotiable Instruments Case Digest: Violago V. BA Finance Corp. (2008)

FACTS:
1983: Avelino Violago, President of Violago Motor Sales Corporation (VMSC), offered to sell
a Toyota Cressida Model 1983 to increase the sales quota to his cousin, Pedro F. Violago and his wife,
Florencia.

spouses would just have to pay a down payment of PhP 60.5K while the balance would be
financed by BA Finance.

The spouses would pay the monthly installments to BA Finance while Avelino would
take care of the documentation and approval of financing of the car.

August 4, 1983: the spouses and Avelino signed a promissory note under which they bound
themselves to pay jointly and severally to the order of VMSC the amount of PhP 209,601 in 36
monthly installments of PhP 5,822.25 a month, the first installment to be due and payable
on September 16, 1983.

Avelino prepared a Disclosure Statement of Loan/Credit Transportation which showed

the net purchase price of the vehicle, down payment, balance, and finance charges.

VMSC then issued a sales invoice in favor of the spouses with a detailed description of
the Toyota Cressida car.

In turn, the spouses executed a chattel mortgage over the car in favor of VMSC as
security for the amount of PhP 209,601.

VMSC, through Avelino, endorsed the promissory note to BA

Finance without recourse. After receiving the amount of PhP 209,601,

VMSC executed a Deed of Assignment of its rights and interests under the promissory
note and chattel mortgage in favor of BA Finance. Meanwhile, the spouses remitted the amount of
PhP 60,500 to VMSC through Avelino

spouses were unaware that the same car had already been sold in 1982 to Esmeraldo Violago,
another cousin of Avelino

Since VMSC failed to deliver the car, Pedro did not pay any monthly amortization to BA
Finance.

March 1, 1984: BA Finance filed with the RTC a complaint for Replevin with Damages against
the spouses
 RTC: favored BA finance , however, declared that they are entitled to be indemnified by Avelino

CA: affirmed - promissory note was a negotiable instrument and that BA Finance was a holder in
due course

ISSUE: W/N the holder of an invalid promissory note may be considered a holder in due course

HELD: YES. CA reversed because Avelino and VMSC are the same
negotiable:

Section 1. Form of Negotiable Instruments. An instrument to be negotiable must conform to the

following requirements:

(a) It must be in writing and signed by the maker or drawer;

(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein
with reasonable certainty.

Section 52. What constitutes a holder in due course.A holder in due course is a holder who has taken the
instrument under the following conditions:

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

(b) That he became the holder of it before it was overdue, and without notice that it had 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.

(a) the Promissory Note, Exhibit A, is complete and regular; (b) the Promissory Note was
endorsed by the VMSC in favor of the Appellee; (c) the Appellee, when it accepted the Note, acted in
good faith and for value; (d) the Appellee was never informed, before and at the time the
Promissory Note was endorsed to the Appellee, that the vehicle sold to the Defendants-Appellants
was not delivered to the latter and that VMSC had already previously sold the vehicle to Esmeraldo
Violago. Although Jose Olvido mortgaged the vehicle to Generoso Lopez, who assigned his rights to
the BA Finance Corporation (Cebu Branch), the same occurred only on May 8, 1987, much later
than August 4, 1983, when VMSC assigned its rights over the Chattel Mortgage by the Defendants-
Appellants to the Appellee. Hence, Appellee was a holder in due course

Since BA Finance is a holder in due course, petitioners cannot raise the defense of non-delivery of
the object and nullity of the sale against the corporation.

VMSC is a family-owned corporation of which Avelino was president. Avelino committed fraud
in selling the vehicle to petitioners, a vehicle that was previously sold to Avelinos other cousin,
Esmeraldo
 Avelino clearly defrauded petitioners. His actions were the proximate cause of
petitioners loss. He cannot now hide behind the separate corporate personality of VMSC to escape
from liability for the amount adjudged by the trial court in favor of petitioners.

obligation was incurred in the name of the corporation, the petitioner [Arcilla] would still be
personally liable therefor because for all legal intents and purposes, he and the corporation are one
and the same