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FAR EAST REALTY INVESTMENT INC. v.
CA
G.R. No. L-36549 October 5, 1988
Paras, J.
Doctrine:
• Where the instrument is not payable on
demand, presentment must be made on
the day it falls due. Where it is payable
on demand, presentment must be made
within a reasonable time after issue,
except that in the case of a bill of
exchange, presentment for payment will
be sufficient if made within a reasonable
time after the last negotiation thereof.
• Reasonable Time has been defined as
so much time as is necessary under the
circumstances for a reasonable prudent
and diligent man to do, conveniently,
what the contract or duty requires should
be done, having a regard for the rights,
and possibility of loss, if any, to the
other party.
• No hard and fast demarcation line can
be drawn between what may be
considered as a reasonable or an
unreasonable time, because “reasonable
time” depends upon the peculiar facts
and circumstances in each case.
Facts:
Private respondents asked the petitioner
to extend an accommodation loan in the
sum of P4,500.00. Respondents
delivered to the petitioner a check for
P4,500.00, drawn by Dy Hian Tat, and
signed by them at the back of said
check, with the assurance that after one
month from September 13, 1960, the
said check would be redeemed by them
by paying cash in the sum of P4,500.00,
or the said check can be presented for
payment on or immediately after one
month. Petitioner agreed and extended
an accommodation loan
The aforesaid check was presented for
payment to the China Banking
Corporation, but said check bounced
and was not cashed by said bank, for
the reason that the current account of
the drawer thereof had already been
closed. Petitioner demanded payment
from the private but the latter failed and
refused to pay notwithstanding repeated
demands.
Both private respondents raised the
defense that both have been wholly
discharged by delay in presentment of
the check for payment.
The Lower Court ruled in favor of the
petitioner. However, this was reversed
by the CA upon appeal by the
respondents, ruling that the check was
not given as collateral to guarantee a
loan secured since the check passed
through other hands before reaching the
petitioner and the said check was not
presented within a reasonable time.
Hence this petition.
Petitioner argues that presentment for
payment and notice of dishonor are not
necessary as when funds are insufficient
to meet a check, thus the drawer is
liable, whether such presentment and
notice be totally omitted or merely
delayed.
Issues:
1. Whether or not presentment for
payment can be dispensed with
2. Whether or not presentment for
payment and notice of dishonor of the
questioned check were made within
reasonable time
Held:
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1. No. Where the instrument is not
payable on demand, presentment must
be made on the day it falls due. Where it
is payable on demand, presentment
must be made within a reasonable time
after issue, except that in the case of a
bill of exchange, presentment for
payment will be sufficient if made within
a reasonable time after the last
negotiation thereof (Section 71,
Negotiable Instruments Law).
2. No. It is obvious in this case that
presentment and notice of dishonor
were not made within a reasonable time.
“Reasonable time” has been defined as
so much time as is necessary under the
circumstances for a reasonable prudent
and diligent man to do, conveniently,
what the contract or duty requires should
be done, having a regard for the rights,
and possibility of loss, if any, to the
other party (Citizens’ Bank Bldg. v. L &
E. Wertheirmer 189 S.W. 361, 362, 126
Ark, 38, Ann. Cas. 1917 E, 520).
Notice may be given as soon as the
instrument is dishonored; and unless
delay is excused must be given within
the time fixed by the law (Section 102,
Negotiable Instruments Law).
In the instant case, the check in
question was issued on September 13,
1960, but was presented to the drawee
bank only on March 5, 1964, and
dishonored on the same date. After
dishonor by the drawee bank, a formal
notice of dishonor was made by the
petitioner through a letter dated April 27,
1968. Under these circumstances, the
petitioner undoubtedly failed to exercise
prudence and diligence on what he
ought to do al. required by law. The
petitioner likewise failed to show any
justification for the unreasonable delay.
No hard and fast demarcation line can
be drawn between what may be
considered as a reasonable or an
unreasonable time, because “reasonable
time” depends upon the peculiar facts
and circumstances in each case
(Tolentino, Commentaries and
Jurisprudence on Commercial Laws of
the Philippines, Vol. I, Eighth Edition, p.
327).
Notice of Dishonor
Section 89, 114
GREAT ASIAN vs. CA
GR No. 105774 April 25, 2002
FACTS:
March 17, 1981: Great Asian BOD
approved a resolution authorizing its
Treasurer and General Manager, Arsenio
Lim Piat, Jr. (Arsenio) to secure a loan,
not exceeding 1M, from Bancasia
February 10, 1982: Great Asian BOD
approved a resolution authorizing Great
Asian to secure a discounting line with
Bancasia in an amount not exceeding
P2M
also designated Arsenio as the
authorized signatory to sign all
instruments, documents and checks
necessary to secure the discounting line
Tan Chong Lin signed 2 surety
agreements in favor of Bancasia
Great Asian, through its Treasurer and
General Manager Arsenio, signed 4
Deeds of Assignment of Receivables
(Deeds of Assignment), assigning to
Bancasia 15 postdated checks:
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9 checks were payable to Great Asian
3 were payable to "New Asian Emp."
3 were payable to cash
various customers of Great Asian issued
these postdated checks in payment for
appliances and other merchandise.
Deed of Assignments of assignment:
January 12, 1982: 4 post-dated checks
of P244,225.82 maturing March 17,
1982, 2 were dishonored
January 12, 1982: 4 post-dated checks
of P312,819 maturing April 1, 1982, all 4
were dishonored
February 11, 1982: 8 postdated checks
of P344,475 maturing April 30, 1982, all
8 checks were dishonored
March 5, 1982: 1 postdated checks of
P200K maturing March 18, 1982 also
dishonored
Great Asian assigned the postdated
checks to Bancasia at a discount rate of
less than 24% of the face value of the
checks
Arsenio endorsed all the 15 dishonored
checks by signing his name at the back
of the checks
8 dishonored checks bore the
endorsement of Arsenio below the
stamped name of "Great Asian Sales
Center"
7 dishonored checks just bore the
signature of Arsenio
The drawee banks dishonored the 15
checks on maturity when deposited for
collection by Bancasia, with any of the
following as reason for the dishonor:
"account closed"
"payment stopped"
"account under garnishment"
"insufficiency of funds
March 18, 1982: Bancasia's lawyer,Atty.
Eladia Reyes, sent by registered mail to
Tan Chong Lin a letter notifying him of
the dishonor and demanding payment
from him
June 16, 1982: Bancasia sent by
personal delivery a letter to Tan Chong
Lin
May 21, 1982: Great Asian filed a case
before the CFI for insolvency listing
Bancasia as one of the creditors of
Great Asian in the amount of
P1,243,632.00
June 23, 1982: Bancasia filed a
complaint for collection of a sum of
money against Great Asian and Tan
Chong Lin
CFI: favored Bancasia ordering Great
Asian and Tan Chong Lin to pay jointly
and severally
CA: deleted atty. fees
ISSUE: W/N Bancasia and Tang Chon
Lin should be held liable under the Civil
Code because it was a separate and
distinct deed of assignment
HELD: YES. Affirmed with Modification
As plain as daylight, the two board
resolutions clearly authorize Great Asian
to secure a loan or discounting line from
Bancasia.
Clearly, the discounting arrangements
entered into by Arsenio under the Deeds
of Assignment were the very
transactions envisioned in the two board
resolutions of Great Asian to raise funds
for its business.
There is nothing in the Negotiable
Instruments Law or in the Financing
Company Act (old or new), that prohibits
Great Asian and Bancasia parties from
adopting the with recourse stipulation
uniformly found in the Deeds of
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Assignment. Instead of being
negotiated, a negotiable instrument may
be assigned.
The endorsement does not operate to
make the finance company a holder in
due course. For its own protection,
therefore, the finance company usually
requires the assignor, in a separate and
distinct contract, to pay the finance
company in the event of dishonor of the
notes or checks. (only security)
Otherwise, consumers who purchase
appliances on installment, giving their
promissory notes or checks to the seller,
will have no defense against the finance
company should the appliances later
turn out to be defective.
As endorsee of Great Asian, Bancasia
had the option to proceed against Great
Asian under the Negotiable Instruments
Law. Had it so proceeded, the
Negotiable Instruments Law would have
governed Bancasia’s cause of action.
Bancasia, however, did not choose this
route. Instead, Bancasia decided to sue
Great Asian for breach of contract under
the Civil Code, a right that Bancasia had
under the express with recourse
stipulation in the Deeds of Assignment.
Great Asian, after paying Bancasia, is
subrogated back as creditor of the
receivables. Great Asian can then
proceed against the drawers who issued
the checks. Even if Bancasia failed to
give timely notice of dishonor, still there
would be no prejudice whatever to Great
Asian.
Under the Negotiable Instruments Law,
notice of dishonor is not required if the
drawer has no right to expect or require
the bank to honor the check, or if the
drawer has countermanded payment
In the instant case, all the checks were
dishonored for any of the following
reasons:
"account closed"
"account under garnishment"
"insufficiency of funds"
drawers had no right to expect or require
the bank to honor the checks
"payment stopped"
drawers had countermanded payment
Moreover, under common law, delay in
notice of dishonor, where such notice is
required, discharges the drawer only to
the extent of the loss caused by the
delay.
Again, we reiterate that this obligation of
Great Asian is separate and distinct from
its warranties as indorser under the
Negotiable Instruments Law.Civil Code
are applicable and not the Negotiable
Instruments Law.
separate Deeds of Assignment -
provisions of the Civil Code are
applicable (NOT Negotiable Instruments
Law)
Great Asian’s four contracts assigning
its fifteen postdated checks to Bancasia
expressly stipulate the suspensive
condition that in the event the drawers
of the checks fail to pay, Great Asian
itself will pay Bancasia
The stipulations in the Surety
Agreements undeniably mandate the
solidary liability of Tan Chong Lin with
Great Asian
Moreover, the stipulations in the Surety
Agreements are sufficiently broad,
expressly encompassing "all the notes,
drafts, bills of exchange, overdraft and
other obligations of every kind which the
PRINCIPAL may now or may hereafter
owe the Creditor".
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----notes Thus, whether or not Bancasia gives

ISSUE: What is the nature of a deed notice of dishonor to Great Asian,
of assignment with recourse? the latter remains liable to Bancasia
because of the with recourse
HELD: By express provision in the stipulation which is independent of
Deeds of Assignment, Great Asian the warranties of an endorser under
unconditionally obligated itself to pay the Negotiable Instruments Law. There
Bancasia the full value of the is nothing in the Negotiable
dishonored checks. In short, Great Instruments Law or in the Financing
Asian sold the postdated checks on Company Act (old or new), that
with recourse basis against itself. This prohibits Great Asian and Bancasia
is an obligation that Great Asian is parties from adopting the with
bound to faithfully comply because it recourse stipulation uniformly found
has the force of law as between in the Deeds of Assignment. Instead
Great Asian and Bancasia. Article of being negotiated, a negotiable
1159 of the Civil Code further instrument may be assigned.
provides that - "Obligations arising Assignment of a negotiable instrument
from contracts have the force of law is actually the principal mode of
between the contracting parties and conveying accounts receivable under
should be complied with in good faith." the Financing Company Act. Since in
Great Asian and Bancasia agreed on discounting of receivables the
this specific with recourse stipulation, assignee is subrogated as creditor of
despite the fact that the receivables the receivable, the endorsement of
were negotiable instruments with the the negotiable instrument becomes
endorsement of Arsenio. necessary to enable the assignee to
collect from the drawer. This is
The contracting parties had the right particularly true with checks because
to adopt the with recourse stipulation collecting banks will not accept
which is separate and distinct from checks unless endorsed by the
the warranties of an endorser under payee. The purpose of the
the Negotiable Instruments Law. endorsement is merely to facilitate
Article 1306 of the Civil Code collection of the proceeds of the
provides that: "The contracting parties checks.
may establish such stipulations, ISSUE: In such case, what is the
clauses, terms and conditions as purpose of an indorsement?
they may deem convenient, provided
they are not contrary to law, morals, HELD: The purpose of the
good customs, public order, or public endorsement is not to make the
policy." The explicit with recourse assignee finance company a holder
stipulation against Great Asian in due course because policy
effectively enlarges, by agreement of considerations militate against
the parties, the liability of Great Asian according finance companies the
beyond that of a mere endorser of rights of a holder in due course.
a negotiable instrument. Otherwise, consumers who purchase
appliances on installment, giving their
promissory notes or checks to the
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seller, will have no defense against
the finance company should the
appliances later turn out to be
defective. Thus, the endorsement
does not operate to make the
finance company a holder in due
course. For its own protection,
therefore, the finance company usually
requires the assignor, in a separate
and distinct contract, to pay the
finance company in the event of
dishonor of the notes or checks.
ISSUE: What is the effect of absence
of notice of dishonor?
HELD: When notice of dishonor need
not be given (Section 114)? Section
114. When notice need not be given
to drawer. – Notice of dishonor is
not required to be given to the
drawer in either of the following
cases: (a) Where the drawer and the
drawee are the same person. (b)
When the drawee is fictitious person
or a person not having capacity to
contract. (c) When the drawer is the
person to whom the instrument is
presented for payment. (d) Where the
drawer has no right to expect or
require that the drawee or acceptor
will honor the instrument. (e) Where
the drawer has countermanded
payment.
Here, The exercise by Bancasia of
its option to sue for breach of
contract under the Civil Code will
not leave Great Asian holding an
empty bag. Great Asian, after paying
Bancasia, is subrogated back as
creditor of the receivables. Great
Asian can then proceed against the
drawers who issued the checks. Even
if Bancasia failed to give timely
notice of dishonor, still there would
be no prejudice whatever to Great
Asian. Under the Negotiable
Instruments Law, notice of dishonor is
not required if the drawer has no
right to expect or require the bank
to honor the check, or if the drawer
has countermanded payment. In the
instant case, all the checks were
dishonored for any of the following
reasons: "account closed", "account
under garnishment", insufficiency of
funds", or "payment stopped". In the
first three instances, the drawers had
no right to expect or require the
bank to honor the checks, and in the
last instance, the drawers had
countermanded payment.
ISSUE: What is the effect of delay
in giving notice of dishonor? What
law applies on matters not covered
by the NIL (Section 196)?
HELD: Delay in notice of dishonor,
where such notice is required,
discharges the drawer only to the
extent of the loss caused by the
delay. This rule finds application in
this jurisdiction pursuant to Section
196 of the Negotiable Instruments
Law which states, "Any case not
provided for in this Act shall be
governed by the provisions of
existing legislation, or in default
thereof, by the rules of the Law
Merchant."
ISSUE: What does delay in Section
186 of the NIL refer to?
HELD: Under Section 186 of the
Negotiable Instruments Law, delay in
the presentment of checks discharges
the drawer. However, Section 186
refers only to delay in presentment of
checks but is silent on delay in
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giving notice of dishonor.
Consequently, the common law or
Law Merchant can supply this gap in
accordance with Section 196 of the
Negotiable Instruments Law.
ISSUE: What is the difference
between rediscounting and loan
accommodation?
HELD: There is indeed a fine
distinction between a discounting line
and a loan accommodation. If the
accounts receivable, like postdated
checks, are sold for a consideration
less than their face value, the
transaction is one of discounting, and
is subject to the provisions of the
Financing Company Act. The
assignee is immediately subrogated as
creditor of the accounts receivable.
However, if the accounts receivable
are merely used as collateral for the
loan, the transaction is only a simple
loan, and the lender is not
subrogated as creditor until there is
a default and the collateral is
foreclosed.
KING vs. PEOPLE
GR No. 131540 Dec. 2, 1999
FACTS:
On April 28, 1993, Second Assistant
Provincial Prosecutor Jaime A. Adoc
filed against petitioner eleven separate
Informations,[6] which are identically
worded, except for the check number,
the amount and the date, as follows:
That in or about the month of January,
1992 in the Municipality of Las Pias,
Metro Manila, Philippines and within the
jurisdiction of this Honorable Court, the
above-named accused, did, then and
there willfully, unlawfully and feloniously
make or draw and issue to EILEEN
FERNANDEZ herein represented by
________ to apply on account or for
value the check described below:
EQUITABLE BANK
Check No. 021711
In the amount of P50,000.00
Postdated July 24, 1992
said accused well knowing that at the
time of issue she/he did not have
sufficient funds in or credit with the
drawee bank for the payment in full of
the face amount of such check upon
their presentment, which check when
presented for payment within ninety (90)
days from the date thereof were
subsequently dishonored by the drawee
bank for the reason Account Closed and
despite receipt of notice of such
dishonor the accused failed to pay the
face amount thereof or make
arrangement for the full payment thereof
within five (5) working days after
receiving notice.[7]
When arraigned, petitioner, assisted by
counsel, pleaded not guilty. After the
prosecution presented its evidence and
rested its case, petitioner filed a
Demurrer to Evidence without leave of
court, on the ground that the
prosecution failed to prove her guilt
beyond reasonable doubt. The trial court
denied the Demurrer in its assailed
Decision for lack of merit.
Since accused has waived her right to
present evidence, judgment is hereby
rendered finding accused guilty beyond
reasonable doubt of Violation of Batas
Pambansa Bilang 22 in the eleven (11)
above-entitled cases.
Petitioner maintains that she merely
signed the questioned checks without
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indicating therein the date and the
amount involved. She adds that they
were improperly filled up by Eileen
Fernandez.
Thus, she concludes, she did not
"issue" the dishonored checks in the
context of the Negotiable Instruments
Law, which defines "issue" as the
"first delivery of the instrument
complete in form to a person who
takes it as a holder."
Issue: whether she issued the
dishonored checks in the context of the
Negotiable Instruments Law. YES.
Issues:
I hinges on (1) the admissibility and (2)
Whether or not the trial court and the
Court of Appeals gravely erred in
admitting in evidence all the
documentary evidence of the
prosecution though their due execution
and genuineness were not duly
established in evidence pursuant to the
provisions of the Rules of Court and
prevailing jurisprudence;
II
Whether or not the trial court and the
Court of Appeals gravely erred in
declaring that Rule 118, Section 4 of the
Rules of Court, as applied in the case of
Fule vs. Court of Appeals, 162 SCRA
446, which states that no agreement or
admission made or entered during the
pre-trial conference shall be used in
evidence against the accused unless
reduced to writing and signed by him
and his counsel, is inapplicable in the
case at bar;
III
Whether or not the trial court and the
Court of Appeals gravely erred in ruling
that the burden of evidence has already
been shifted from the prosecution to the
defense despite the definite factual
issues in the pre-trial order; and
IV
Whether or not the trial court and the
Court of Appeals erred in ruling that the
prosecution has proven the guilt of the
accused beyond reasonable doubt albeit
the prosecution did not produce any
evidence.[14]
In the main, the resolution of the Petition
the sufficiency of the prosecution
evidence.
This Courts Ruling
The Petition has merit insofar as it
contends that the elements of the crime
charged have not all been proven
beyond reasonable doubt.
First Issue:
Admissibility of Documentary Evidence
Because the first, the second and the
third issues raised by petitioner all refer
to the same matter, they will be
discussed together. She contends that
the pieces of documentary evidence
presented by the prosecution during
pretrial are inadmissible, because she
did not sign the pretrial agreement as
required under Section 4 of Rule 118 of
the Rules of Court.[15] Hence, she
argues that there is no basis for her
conviction.
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True, a pretrial agreement not signed by
a party is inadmissible. However, the
conviction of petitioner was based not
on that agreement but on the documents
submitted during the trial, all of which
were admitted without any objection
from her counsel. During the hearing on
September 17, 1993, the prosecution
offered as evidence the dishonored
checks, the return check tickets
addressed to private complainant, the
notice from complainant addressed to
petitioner that the checks had been
dishonored, and the postmasters letter
that the notice had been returned to
sender. Petitioner's counsel did not
object to their admissibility. This is
shown by the transcript of stenographic
notes taken during the hearing on
September 17, 1993:
COURT:
You have no objection to the
admissibility, not that the Court will
believe it.
ATTY. MANGERA
No, Your Honor.
COURT:
Exhibits A to A to K are admitted.
ATTY. MAKALINTAL:
We offer Exhibit L, the return-check
ticket dated July 27, 1992, relative to
checks No. 021745 and 021746
indicating that these checks were
returned DAIF, drawn against insufficient
funds; Exh. M, returned check ticket
dated July 28, 1992, relative to Check
No. 021727, 021711 and 021720
likewise indicating the said checks to
have been drawn against insufficient
funds, Your Honor. Exhibit N, returned
check ticket dated July 29, 1992, relative
to Check Nos. 021749 and 021748,
having the same indications;
Exhibits O, returned check ticket dated
July 29, 1992 relative to Check Nos.
021750 and 021753, with the same
indications;
Exhibits P, returned check ticket dated
August 4, 1992 relative to Check No.
021752, having the same indication as
being drawn against insufficient funds;
Exhibit Q, the demand letter sent to the
accused by Atty. Horacio Makalintal
dated August 3, 1992;
Exhibit R, the letter-request for
certification addressed to the
Postmaster General sent by the same
law office dated 17 September 1992,
showing that the said letter was
dispatched properly by the Central Post
Office of Makati;
Exhibit S, 1st Indorsement of the Makati
Central Post Office dated 21 September
1992;
Exhibit T, the Philippine Postal
Corporation Central Post Office letter
dated 24 September 1992, addressed to
this representation showing that there
were 3 notices sent to the herein
accused who received the said letter.
COURT:
Lets go to the third check slip; any
objection to the third slip?
ATTY. MANGERA:
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We have no objection as to the due From the foregoing, it is clear that the
execution and authenticity. prosecution evidence consisted of
documents offered and admitted during
COURT: the trial. In view of this, the CA correctly
ruled that Fule v. Court of Appeals[17]
Admitted. would not apply to the present
controversy. In that case, a hearing was
ATTY. MAKALINTAL: conducted during which the prosecution
presented three exhibits. However,
We are offering Exhibits Q, R, S and T, Fule's conviction was based solely on
for the purpose of showing that there the stipulation of facts made during the
was demand duly made on the accused pre-trial on August 8, 1985, which was
and that the same had been not signed by the petitioner, nor by his
appropriately served by the Central Post counsel. Because the stipulation was
Office Services of Manila. inadmissible in evidence under Section 4
of Rule 118, the Court held that there
ATTY. MANGERA: was no proof of his guilt.

We admit as to the due execution and In the present case, petitioners

authenticity only as to that portion, Your
Honor.
COURT:
We are talking of admissibility now, so
admitted. In other words, at this point,
he makes an offer and the Court will
either grant admission, [admit] it in
evidence or deny it. It can deny
admission if it is not properly identified
etcetera.
ATTY. MANGERA:
I think it is already provided.
conviction was based on the evidence
presented during trial, and not on the
stipulations made during the pretrial.
Hence, petitioners admissions during the
trial are governed not by the Fule ruling
or by Section 4 of Rule 118, but by
Section 4 of Rule 129 which reads:
SEC. 4. Judicial Admissions. --- An
admission, verbal or written, made by a
party in the course of the proceedings in
the same case, does not require proof.
The admission may be contradicted only
by showing that it was made through
palpable mistake or that no such
admission was made.

COURT: Hence, the trial court and the Court of

Appeals did not err in taking cognizance
So, admitted. of the said documentary evidence.

ATTY. MAKALINTAL: Second Issue:

With the admission of our offer, Your
Honor, the prosecution rests.[16]
Sufficiency of Prosecution Evidence
Petitioner argues that the prosecution
failed to prove beyond reasonable doubt
the elements of the offense. After a
careful consideration of the records of
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this case, we believe and so rule that the
totality of the evidence presented does
not support petitioners conviction for
violation of BP 22.
Section 1 of BP 22 defines the offense
as follows:
Section 1. Checks without sufficient
funds. -- Any person who makes or
draws and issues any check to apply on
account or for value, knowing at the time
of issue that he does not have sufficient
funds in or credit with the drawee bank
for the payment of such check in full
upon its presentment, which check is
subsequently dishonored by the drawee
bank for insufficiency of funds or credit
or would have been dishonored for the
same reason had not the drawer, without
any valid reason, ordered the bank to
stop payment, shall be punished by
imprisonment of not less than thirty days
but not more than one (1) year or by a
fine of not less than but not more than
double the amount of the check which
fine shall in no case exceed Two
hundred thousand pesos, or both such
fine and imprisonment at the discretion
of the court.
The same penalty shall be imposed upon
any person who having sufficient funds
in or credit with the drawee bank when
he makes or draws and issues a check,
shall fail to keep sufficient funds or to
maintain a credit to cover the full amount
of the check if presented within a period
of ninety (90) days from the date
appearing thereon, for which reason it is
dishonored by the drawee bank.
Where the check is drawn by a
corporation, company or entity, the
person or persons who actually signed
the check in behalf of such drawer shall
be liable under this Act.
Accordingly, this Court has held that the
elements of the crime are as
follows:[18]
1. The accused makes, draws or issues
any check to apply to account or for
value.
2. The check is subsequently dishonored
by the drawee bank for insufficiency of
funds or credit; or it would have been
dishonored for the same reason had not
the drawer, without any valid reason,
ordered the bank to stop payment.
3. The accused knows at the time of the
issuance that he or she does not have
sufficient funds in, or credit with, drawee
bank for the payment of the check in full
upon its presentment.
We shall analyze the evidence,
purportedly establishing each of the
aforementioned elements which the trial
and the appellate courts relied upon.
Issuance of the Questioned Checks
Contending that the prosecution failed to
prove the first element, petitioner
maintains that she merely signed the
questioned checks without indicating
therein the date and the amount
involved. She adds that they were
improperly filled up by Eileen Fernandez.
Thus, she concludes, she did not issue
the dishonored checks in the context of
the Negotiable Instruments Law, which
defines issue as the first delivery of the
instrument complete in form to a person
who takes it as a holder.[19]
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Petitioners contentions are not
meritorious. The questioned checks,
marked as Exhibits A to K, contained the
date of issue and the amount involved.
In fact, petitioner even admitted that she
signed those checks. On the other hand,
no proof was adduced to show that
petitioner merely signed them in blank,
or that complainant filled them up in
violation of the former's instructions or
their previous agreement. The evidence
on record is clear that petitioner issued
eleven checks, all of which were duly
filled up and signed by her.
Checks Dishonored
Neither are we persuaded by petitioners
argument that there appears no
evidence on record that the subject
checks were unpaid and
dishonored.[20] Under Section 3 of BP
22, the introduction in evidence of any
unpaid and dishonored check, having
the drawees refusal to pay stamped or
written thereon, or attached thereto, with
the reason therefor as aforesaid, shall
be prima facie evidence of the making or
issuance of said check, and the due
presentment to the drawee for payment
and the dishonor thereof, and that the
same was properly dishonored for the
reason written, stamped, or attached by
the drawee on such dishonored check.
In the present case, the fact that the
checks were dishonored was sufficiently
shown by the checks themselves, which
were stamped with the words ACCOUNT
CLOSED. This was further supported by
the returned check tickets issued by PCI
Bank, the depository bank, stating that
the checks had been dishonored.
Clearly, these documents constitute
prima facie evidence that the drawee
bank dishonored the checks. Again, no
evidence was presented to rebut the
prosecutions claim.
---notes
ISSUE: What is the meaning of the
term “issue”?
HELD: Petitioner's contentions are
not meritorious. The questioned
checks contained the date of issue
and the amount involved. In fact,
petitioner even admitted that she
signed those checks. On the other
hand, no proof was adduced to show
that petitioner merely signed them in
blank, or that complainant filled them
up in violation of the former's
instructions or their previous
agreement. The evidence on record is
clear that petitioner issued eleven
checks, all of which were duly filled
up and signed by her.
ISSUE: What is the reason of the
need for notice of dishonor in BP
22?
HELD: The absence of a notice of
dishonor necessarily deprives an
accused an opportunity to preclude a
criminal prosecution. Accordingly,
procedural due process clearly enjoins
that a notice of dishonor be actually
served on petitioner.
SIA vs. PEOPLE
GR No. 149695 April 28, 2004
FACTS: Sia testified that, upon the
execution of the lease agreement in
1982, he drew and delivered to COLF
eighteen (18) postdated checks drawn
against his account with the RCBC, each
check in the amount of P44,980.00
corresponding to the rental for the
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leased property.[22] Every month, as
each check fell due, he informed the
COLF whether to deposit or encash the
checks, or to apply the current deposit
for the payment of the rental due.[23]
He made good the first six postdated
checks but failed to fund the ensuing
checks for January, March, and April
1983. He reasoned that his financial
condition was adversely affected by the
implementation of his project in Nueva
Vizcaya and the RCBC had since then
refused to give him credit.[24] To
facilitate payment of the checks, Sia
then asked COLF, through its assistant
manager, Go Hong Ko, to apply his
guaranty deposit for the postdated
checks to cover the rentals from January
1983. Go Hong Ko told Sia that there
would be no problem as his guaranty
deposit of P216.250.00 was still intact
and more than enough to answer for the
said checks.[25] Thus, Sia no longer
funded his account with the drawee
bank, thinking that his guaranty deposit
would answer for the checks.
Sia alleged that he never received the
January 5, 1983, March 7, 1983 and
April 6, 1983 letters of the COLF, and
that the latter never notified him that the
checks postdated January 4, 1983,
March 3, 1983 and April 4, 1983,
respectively, were deposited with the
drawee bank, and that the same were
subsequently dishonored by the drawee
bank. He was surprised when he learned
about the charges against him for
violation of B.P. Blg. 22 when he
received a subpoena from the Office of
the City Prosecutor of Makati, requiring
him to submit his counter-affidavit to the
criminal complaint of the COLF.[26]
Furthermore, he was not informed why
his guaranty deposit was not applied to
the payment of the three dishonored
checks.[27]
Issue: Whether or not the petitioner was
notified of the dishonor. NO.
Held: In this case, the prosecution failed
to prove that the COLF or the drawee
bank ever sent any written notice of
dishonor of the subject checks to the
petitioner and that the latter received the
same. The only witness presented by the
prosecution to prove its case against the
petitioner was Eduardo R. Alvarez, who
was in charge of the COLF collection
department. He testified that he signed
the letters dated January 5, 1983[51]
and July 7, 1983,[52] addressed to the
petitioner notifying the latter of the
dishonor of the subject checks.
However, Alvarez admitted that, after
signing the said letters, he had the same
transmitted to the collection department
and had no personal knowledge whether
the said letters were sent to and actually
received by the petitioner. The collection
department merely told him that the
letters were sent to the petitioner.
There is no evidence on record how the
letters were, in fact, sent to the
petitioner, whether by personal delivery
or by registered mail. The COLF did not
adduce in evidence the complaint for
replevin and damages in Civil Case No.
3958 against the petitioner. Furthermore,
the trial court did not declare in its
decision that the COLF sent notices of
dishonor of the subject checks to the
petitioner, and that the latter received
such notices of dishonor.
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the postdated checks he issued to the

COLF for the rentals due from June to
The trial court convicted the petitioner of
December, 1982 had been duly honored.
the crime of violating Section 1, B.P.
The drawee bank subsequently closed
Blg. 22, relying principally on the
the petitioners account only because the
petitioners admission that, when Check
latter had suffered financial reverses.
No. 233533 became due, his funds in
the drawee bank were insufficient to pay
for the amount of the check; that his
Assuming that the petitioner had
account with the drawee bank had
knowledge that he had insufficient funds
already been closed when COLF
in the drawee bank when he issued the
deposited Check No. 233534; and, that
questioned checks, he could still have
he no longer funded his account to pay
paid the checks or made arrangements
for the amounts of the ensuing checks.
with the drawee bank for the payment of
The trial court concluded that on the
the said checks if he had been duly
basis of the said admission, there was
notified of their dishonor. In not sending
no longer a need for the prosecution to
a notice or letter of dishonor to the
prove that the petitioner received notices
petitioner as required by law, the COLF
or letters notifying him of the dishonor of
deprived the petitioner of his right to
the subject checks after the dishonor
avoid prosecution for violation of B.P.
thereof. The appellate court agreed with
Blg. 22.
the trial court.

IN LIGHT OF THE FOREGOING, the

We do not agree.
Indeed, the petitioner admitted when he
testified in his defense, that, on the due
date of Check No. 233533, he was
aware that he did not have funds in the
drawee bank for the payment of the said
check, and that when Check No. 233534
fell due on March 4, 1983, the bank had
already closed the said account. This,
however, did not amount to an
admission that, when he issued the said
checks in June 1982, he had known that
he had no funds in the drawee bank
sufficient to pay for the amounts of the
checks. In fact, the petitioner testified
that in 1983, he was granted credit
facilities by the drawee bank and that
petition is GRANTED. The Decision of
the Court of Appeals affirming with
modifications the Decision of the
Regional Trial Court in Criminal Cases
Nos. 11865 and 11866 are REVERSED
and SET ASIDE. The petitioner is
ACQUITTED of the crimes charged in
said cases for insufficiency of evidence.
ISSUE: What is the prima facie
presumption of “knowledge” of
insufficiency of funds?
HELD: Section 2 of B.P. Blg. 22
created a prima facie presumption of
knowledge on the part of the drawer
or maker of the check of the
insufficiency of his fund in the
drawee bank, thus: SEC. 2. Evidence
of knowledge of insufficient
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funds.The making, drawing and
issuance of a check payment of
which is refused by the drawee
because of insufficient funds in or
credit with such bank, when
presented within ninety (90) days
from the date of the check, shall be
prima facie evidence of knowledge of
such insufficiency of funds or credit
unless such maker or drawer pays
the holder thereof the amount due
thereon, or makes arrangements for
payment in full by the drawee of
such check within five (5) banking
days after receiving notice that such
check has not been paid by the
drawee. However, for the presumption
to arise, the prosecution must adduce
evidence to prove the factual basis
for its onset, namely, (a) the check
is presented within ninety (90) days
from the date of the check; (b) the
drawer or maker of the check
receives notice that such check has
not been paid by the drawer; and,
(c) the drawer or maker of the
check fails to pay the holder of the
check the amount due thereon, or
makes arrangements for payment in
full within five (5) banking days after
receiving notice that such check has
not been paid by the drawer. With
the onset of the presumption, the
burden of evidence is shifted on the
drawer/maker of the check to prove
that, when he issued the subject
check, he had no knowledge that he
had insufficient funds in the drawee
bank to answer for the amount due.
The notice of dishonor may be sent
to the drawer or maker by the
drawee bank, the holder of the
check, or the offended party, either
by personal delivery or by registered
mail. The drawer or maker of a
check has a right, under the law, to
demand that a written notice of
dishonor be sent to and received by
him to enable him to avoid indictment
for violation of B.P. Blg. 22.
ISSUE: Must the notice of dishonor
be in writing?
HELD: The notice of dishonor of a
check to the maker must be in
writing. A mere oral notice to the
drawer or maker of the dishonor of
his check is not enough.
ISSUE: What is the need that such
notice to be in writing?
RULING: Unless and until the drawer
or maker of the check receives a
written notice of dishonor of the
check, or where there is no proof as
to when such notice of dishonor
was received by the drawer or maker,
the five-day period within which the
drawer or maker has to pay the
amount due or made arrangements
with the drawee bank for the
payment of the check, cannot be
determined. In such case, the prima
facie presumption cannot arise.
ISSUE: What is the effect of
payment?
HELD: If the maker or drawer pays,
or makes arrangements with the
drawee bank for the payment of the
amount due within the five-day
period from notice of the dishonor
given to the drawer, it is a complete
defense; the accused may no longer
be indicted for violation of Section 1,
B.P. Blg. 22. If he is so indicted,
he may set up the payment of the
amount due as a complete defense.
LIM LAO vs. CA
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GR No. 119178 June 20, 1997
FACTS: Father Artelijo Palijo was
investing with Premiere Investment
House through the latter’s trader,
Rosemarie Lachenal. Through the course
of his business with Premiere
Investment, he was issued three Traders
Royal Bank checks in the amounts of
P150k, P150k, and P26k, respectively.
These checks were eventually
dishonored.
The checks, before they were issued to
Palijo went through the normal
procedure within Premiere investment, to
wit; First, the checks are required to be
co-signed by Lina Lim Lao, a junior
officer of Premiere Investment. Second,
the checks are then forwarded to her
head office to be co-signed by one
Teodulo Asprec. Third, Asprec would
then decide to whom the checks were to
be ultimately issued and delivered, in
this case to Palijo.
Since the checks were dishonored,
Palijo sent notices of dishonor to
Premiere Investment but he sent the
same to the latter’s main office in Cubao
(note that Lao and Asprec were holding
office in the Binondo Branch of Premiere
Investment). Premiere Investment was
only able to pay P5k and no further
payment was made. Apparently,
Premiere Investment was going insolvent
and was subsequently placed under
receivership.
Palijo filed a criminal case against Lao
and Asprec for violation of Batas
Pambansa Blg. 22.
ISSUE: Whether or not Lao is guilty of
the crime charged.
ISSUE: wether there was notice of
dishonor? No.
HELD: No. The elements of violations
against BP 22 are as follows:
1. That a person makes or draws and
issues any check.
2. That the check is made or drawn and
issued to apply on account or for value.
3. That the person who makes or draws
and issues the check knows at the time
of issue that he does not have sufficient
funds in or credit with the drawee bank
for the payment of such check in full
upon its presentment.
4. That the check is subsequently
dishonored by the drawee bank for
insufficiency of funds or credit, or would
have been dishonored for the same
reason had not the drawer, without any
valid reason, ordered the bank to stop
payment.
In the present case, the fact alone that
petitioner was a signatory to the checks
that were subsequently dishonored
merely engenders the prima facie
presumption that she knew of the
insufficiency of funds, but it does not
render her automatically guilty under
B.P. 22. After a thorough review of the
case at bar, the SC finds that Petitioner
Lao did not have actual knowledge of
the insufficiency of funds in the
corporate accounts at the time she
affixed her signature to the checks
involved in this case, at the time the
same were issued, and even at the time
the checks were subsequently
dishonored by the drawee bank. The
scope of Lao’s duties and
responsibilities did not encompass the
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funding of the corporation’s checks; her
duties were limited to the marketing
department of the Binondo branch.
Further, there can be no prima facie
evidence of knowledge of insufficiency
of funds in the instant case because no
notice of dishonor was actually sent to
or received by Lao. Pariljo sent the
notices of dishonor to Premiere
Investment’s main branch. The main
branch did not send the notices to the
Binondo branch because it deemed it
futile because at that time it knows that
it does not have sufficient funds to cover
the debt anyway. Notice to the main
branch does not serve as constructive
notice to Lao. BP 22 is a personal crime
hence notice should have been sent to
her personally if she were to be made
liable.
ISSUE: What are the elements of BP 22?
HELD: This Court listed the elements
of the offense penalized under B.P.
22, as follows: "(1) the making,
drawing and issuance of any check
to apply to account or for value; (2)
the knowledge of the maker, drawer
or issuer that at the time of issue he
does not have sufficient funds in or
credit with the drawee bank for the
payment of such check in full upon
its presentment; and (3) 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." Justice Luis B.
Reyes, an eminent authority in
criminal law, also enumerated the
elements of the offense defined in
the first paragraph of Section 1 of
B.P. 22, thus: 1. 2. 3. That a
person makes or draws and issues
any check. That the check is made
or drawn and issued to apply on
account or for value. That the person
who makes or draws and issues the
check knows at the time of issue
that he does not have sufficient
funds in or credit with the drawee
bank for the payment of such check
in full upon its presentment. 4. That
the check is subsequently dishonored
by the drawee bank for insufficiency
of funds or credit, or would have
been dishonored for the same
reason had not the drawer, without
any valid reason, ordered the bank to
stop payment.
---notes
ISSUE: funds?
HELD: What constitutes knowledge of
insufficiency of Knowledge of
insufficiency of funds or credit in the
drawee bank for the payment of a
check upon its presentment is an
essential element of the offense.
There is a prima facie presumption of
the existence of this element from
the fact of drawing, issuing or
making a check, the payment of
which was subsequently refused for
insufficiency of funds. It is important
to stress, however, that this is not a
conclusive presumption that
forecloses or precludes the
presentation of evidence to the
contrary. In the present case, the
fact alone that petitioner was a
signatory to the checks that were
subsequently dishonored merely
engenders the prima facie
presumption that she knew of the
insufficiency of funds, but it does
not render her automatically guilty
under B.P. 22. The prosecution has a
duty to prove all the elements of the
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crime, including the acts that give
rise to the prima facie presumption;
petitioner, on the other hand, has a
right to rebut the prima facie
presumption. Therefore, if
knowledge of insufficiency of funds is
proven to be actually absent or non-
existent, the accused should not be
held liable for the offense defined
under the first paragraph of Section
1 of B.P. 22. Although the offense
charged is a malum prohibitum, the
prosecution is not thereby excused
from its responsibility of proving
beyond reasonable doubt all the
elements of the offense, one of
which is knowledge of
insufficiency of funds. Petitioner Lina
Lim Lao did not have actual
knowledge of the insufficiency of
funds in the corporate accounts at
the time she affixed her signature to
the checks involved in this case, at
the time the same were issued, and
even at the time the checks were
subsequently dishonored by
drawee bank.
ISSUE: What is the need for notice
of dishonor? To whom must notice
be given?
HELD: There can be no prima facie
evidence of knowledge of
insufficiency of funds in the instant
case because no notice of dishonor
was actually sent to or received by
the petitioner. The notice of dishonor
may be sent by the offended party
or the drawee bank. The trial court
itself found absent a personal notice
of dishonor to Petitioner Lina Lim Lao
by the drawee bank based on the
unrebutted testimony of Ocampo
"(t)hat the checks bounced when
presented with the drawee bank but
she did not inform anymore the
Binondo branch and Lina Lim Lao as
there was no need to inform them as
the corporation was in distress." The
such Court of Appeals affirmed this factual
finding.
Pursuant to prevailing jurisprudence,
this finding is binding on this Court.
The records show that the notice of
dishonor was addressed to Premiere
Financing Corporation and sent to its
main office in Cubao, Quezon City.
Furthermore, the same had not been
transmitted to Premiere's Binondo
Office where petitioner had been
the holding office.
Likewise no notice of dishonor from
the offended party was actually sent
to or received by Petitioner Lao.
Because no notice of dishonor was
actually sent to and received by the
petitioner, the prima facie
the presumption that she knew about the
insufficiency of funds cannot apply.
Section 2 of B.P. 22 clearly provides
that this presumption arises not from
the mere fact of drawing, making
and issuing a bum check; there must
also be a showing that, within five
banking days from receipt of the
notice of dishonor, such maker or
drawer failed to pay the holder of
the check the amount due thereon
or to make arrangement for its
payment in full by the drawee of
such check. The absence of a notice
of dishonor necessarily deprives an
accused an opportunity to preclude a
criminal prosecution. Accordingly,
procedural due process clearly enjoins
that a notice of dishonor be actually
served on petitioner. Petitioner has a
right to demand and the basic
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postulates of fairness require that the PNB vs. CA GR No. 107508 April
notice of dishonor be actually sent to 25, 1996
and received by her to afford her
the opportunity to avert prosecution FACTS: The serial number in the
under B.P. 22. Premiere has no check was altered. The check was
obligation to forward the notice returned the reason being that there
addressed to it to the employee was a "material alteration" of the
concerned, especially because the check number.
corporation itself incurs no criminal
liability under B.P. 22 for the ISSUE:What is an alteration under
issuance of a bouncing check. Section 125?
Responsibility under B.P. 22 is
personal to the accused; hence, HELD: Sec. 125. What constitutes a
personal knowledge of the notice of material alteration. Any alteration which
dishonor is necessary. Consequently, changes: (a) The date; (b) The sum
constructive notice to the corporation payable, either for principal or interest;
is not enough to satisfy due (c) The time or place of payment;
process. Moreover, it is petitioner, as (d) The number or the relations of
an officer of the corporation, who is the parties; (e) The medium or
the latter's agent for purposes of currency in which payment is to be
receiving notices and other made; (f) Or which adds a place of
documents, and not the other way payment where no place of payment
around. It is but axiomatic that notice is specified, or any other change or
to the corporation, which has a addition which alters the effect of the
personality distinct and separate from instrument in any respect, is a
the petitioner, does not constitute material alteration.
notice to the latter.
ISSUE: What is the meaning of
The check's serial number is not the Section 125 (f)? What is the relation
sole indication of its origin. The of Section 125 to Section 1?
name of the government agency
which issued the subject check was HELD: Section 125 does not refer to
prominently printed therein. The any change that alters the effect of
check's issuer was therefore the instrument is a material alteration.
sufficiently identified, rendering the An alteration is said to be material if
referral to the serial number it alters the effect of the instrument.
redundant and inconsequential. It means an unauthorized change in
Petitioner, thus cannot refuse to an instrument that purports to modify
accept the check in question on the in any respect the obligation of a
ground that the serial number was party or an unauthorized addition of
altered, the same being an immaterial words or numbers or other change to
or innocent one. an incomplete instrument relating to
the obligation of a party. In other
Material Alteration (Sections 124 and words, a material alteration is one
125) which changes the items which are

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required to be stated under Section
1 of the Negotiable Instruments Law.
Sec. 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.
Reproduced hereunder are some
examples of material and immaterial
alterations:
A. Material Alterations:
(1) Substituting the words "or
bearer" for "order."
(2) Writing "protest waived" above
blank indorsements.
(3) A change in the date from which
interest is to run.
(4) A check was originally drawn as
follows: "Iron County Bank, Crystal
Falls, Mich. Aug. 5, 1901. Pay to
G.L. or order $9 fifty cents CTR" The
insertion of the figure 5 before the
figure 9, the instrument being
otherwise unchanged.
(5) Adding the words "with interest"
with or without a fixed rate.
(6) An alteration in the maturity of a
note, whether the time for payment is
thereby curtailed or extended.
(7) An instrument was payable "First
Nat'l Bank" the plaintiff added the
word "Marion."
(8) Plaintiff, without consent of the
defendant, struck out the name of
the defendant as payee and inserted
the name of the maker of the
original note.
(9) Striking out the name of the
payee and substituting that of the
person who actually discounted the
note.
(10) Substituting the address of the
maker for the name of a co-maker.
B. Immaterial Alterations:
(1) Changing "I promise to pay" to
"We promise to pay", where there are
two makers.
(2) Adding the word "annual" after
the interest clause.
(3) Adding the date of maturity as a
marginal notation.
(4) Filling in the date of actual
delivery where the makers of a note
gave it with the date in blank, "July
____."
(5) An alteration of the marginal
figures of a note where the sum
stated in words in the body remained
unchanged.
(6) The insertion of the legal rate of
interest where the note had a
provision for "interest at _______ per
cent."
(7) A printed form of promissory
note had on the margin the printed
words, "Extended to ________." The
holder on or after maturity wrote in
the blank space the words "May 1,
1913," as a reference memorandum
of a promise made by him to the
principal maker at the time the
words were written to extend the time
of payment.
(8) Where there was a blank for the
place of payment, filling in the blank
with the place desired.
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(9) Adding to an indorsee's name check's issuer was therefore

the abbreviation "Cash" when it had sufficiently identified, rendering the
been agreed that the draft should be referral to the serial number
discounted by the trust company of redundant and inconsequential.
which the indorsee was cashier. Petitioner, thus cannot refuse to
(10) The indorsement of a note by accept the check in question on the
a stranger after its delivery to the ground that the serial number was
payee at the time the note was altered, the same being an immaterial
negotiated to the plaintiff. or innocent one.
(11) An extension of time given by
the holder of a note to the principal INT’L CORP BANK vs. CA GR No.
maker, without the consent of a 1229910 Sept. 5, 2006
surety comaker.
FACTS: The Ministry of Education and
ISSUE:What is spoliation? Culture issued 15 checks drawn
against respondent which petitioner
HELD: Spoliation is an accepted for deposit on various
alterationsdone by a stranger and will dates. After 24 hours from
not avoid the instrument, but the submission of the checks to
holder may enforce it only according respondent for clearing, petitioner paid
to its original tenor. the value of the checks and allowed
the withdrawals of the deposits.
ISSUE: Is the change in the serial However, on 14 October 1981,
number material alteration? respondent returned all the checks to
petitioner without clearing them on
HELD: NO, it is not a material the ground that they were materially
alteration. The case at bench is altered. Thus, petitioner instituted an
unique in the sense that what was action for collection of sums of
altered is the serial number of the money against respondent to recover
check in question, an item which, it the value of the checks. The
can readily be observed, is not an alterations in the checks were made
essential requisite for negotiability on their serial numbers.
under Section 1 of the Negotiable
Instruments Law. The aforementioned ISSUE: What is material alteration and
alteration did not change the relations whether or not the checks were
between the parties. The name of materially altered? No.
the drawer and the drawee were not
altered. The intended payee was the HELD: An alteration is said to be
same. The sum of money due to material if it alters the effect of the
the payee remained the same. instrument. It means an
unauthorized change in an instrument
The check's serial number is not the that purports to modify in any
sole indication of its origin. The respect the obligation of a party or
name of the government agency an unauthorized addition of words or
which issued the subject check was numbers or other change to an
prominently printed therein. The incomplete instrument relating to the
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obligation of a party. In other demand to Metrobank for the payment

words, a material alteration is one of P 90,000.00, after deducting the
which changes the items which are original value of the check in the
required to be stated under Section amount of P 1,000.00. Such written
1 of the Negotiable Instrument[s] demand notwithstanding, Metrobank
Law. Petitioner, thus cannot refuse to still failed or refused to comply with its
accept the check in question on the obligation. Consequently, Cabilzo
ground that the serial number was instituted a civil action for damages
altered, the same being an immaterial against Metrobank. RTC rendered a
or innocent one. In the present case Decision in favor of Cabilzo. The
the alterations of the serial numbers Court of Appeals affirmed with
do not constitute material alterations modification the Decision of the court
on the checks. a quo.
ISSUE : Was there materia
METROBANK vs. CABILZO GR No. Alteration? YES?
154469 Dec. 6, 2006
What is material alteration?
FACTS : Respondent Renato Cabilzo
issued a Metrobank Check payable to RULING : An alteration is said to be
“CASH” and postdated on 24 material if it changes the effect of
November 1994 in the amount of the instrument. It means that an
One Thousand Pesos (P 1,000.00). unauthorized change in an instrument
The check was drawn against that purports to modify in any
Cabilzo’s Account with Metrobank and respect the obligation of a party or
was paid by Cabilzo to a certain Mr. an unauthorized addition of words or
Marquez, as his sales commission. numbers or other change to an
Subsequently, the check was incomplete instrument relating to the
presented to Westmont Bank for obligation of a party. In other words,
payment. Westmont Bank, in turn, a material alteration is one which
indorsed the check to Metrobank for changes the items which are required
appropriate clearing. After the entries to be stated under Section 1 of the
thereon were examined, including the Negotiable Instruments Law. In the
availability of funds and the case at bar, the check was altered
authenticity of the signature of the so that the amount was increased
drawer, Metrobank cleared the check from P 1,000.00 to P 91,000.00 and
for encashment in accordance with the date was changed from 24
the Philippine Clearing House November 1994 to 14 November
Corporation (PCHC) Rules. Upon 1994. Apparently, since the entries
receipt of the check, Cabilzo altered were among those enumerated
discovered that Metrobank Check under Section 1 and 125, namely, the
which he issued on 12 November sum of money payable and the date
1994 in the amount of P 1,000.00 of the check, the instant controversy
was altered to P 91,000.00 and the therefore squarely falls within the
date 24 November 1994 was purview of material alteration.
changed to 14 November 1994.
Cabilzo, thru counsel, sent a letter-
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ISSUE : What is the effect of ISSUE : What is the doctrine of

payment made under a material equitable estoppel?
altered instrument?
RULING : Verily, Metrobank cannot
RULING : Section 124. Alteration of lightly impute that Cabilzo was
instrument; effect of. – Where a negligent and is therefore prevented
negotiable instrument is materially from asserting his rights under the
altered without the assent of all doctrine of equitable estoppel when
parties liable thereon, it is avoided, the facts on record are bare of
except as against a party who has evidence to support such conclusion.
himself made, authorized, and The doctrine of equitable estoppel
assented to the alteration and states that when one of the two
subsequent indorsers. But when the innocent persons, each guiltless of
instrument has been materially altered any intentional or moral wrong, must
and is in the hands of a holder in suffer a loss, it must be borne by
due course not a party to the the one whose erroneous conduct,
alteration, he may enforce the either by omission or commission,
payment thereof according to its was the cause of injury. Metrobank’s
original tenor. The bank on which reliance on this dictum, is misplaced.
the check is drawn, known as the
drawee bank, is under strict liability For one, Metrobank’s representation
to pay to the order of the payee in that it is an innocent party is flimsy
accordance with the drawer’s and evidently, misleading. At the
instructions as reflected on the face same time, Metrobank cannot
and by the terms of the check. asseverate that Cabilzo was negligent
Payment made under materially and this negligence was the
altered instrument is not payment proximate cause of the loss in the
done in accordance with the absence of even a scintilla proof to
instruction of the drawer. When the buttress such claim. Negligence is
drawee bank pays a materially altered not presumed but must be proven by
check, it violates the terms of the the one who alleges it. ISSUE : What
check, as well as its duty to charge is the degree of diligence required of
its client’s account only for bona a bank? RULING : The point is that
fide disbursements he had made. as a business affected with public
Since the drawee bank, in the interest and because of the nature
instant case, did not pay according of its functions, the bank is under
to the original tenor of the obligation to treat the accounts of
instrument, as directed by the its depositors with meticulous care,
drawer, then it has no right to claim always having in mind the fiduciary
reimbursement from the drawer, much nature of their relationship. The
less, the right to deduct the appropriate degree of diligence
erroneous payment it made from the required of a bank must be a high
drawer’s account which it was degree of diligence, if not the utmost
expected to treat with utmost fidelity. diligence. The reliance made by
Metrobank on Westmont Bank’s
indorsement is clearly inconsistent, if
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not totally offensive to the dictum
that being impressed with public
interest, banks should exercise the
highest degree of diligence, if not
utmost diligence in dealing with the
accounts of its own clients. It owes
the highest degree fidelity to its
clients and should not therefore
lightly rely on the judgment of other
banks on occasions where its clients
money were involve, no matter how
small or substantial the amount at
stake.
SALAZAR VS J.Y BROTHERS (G.R. NO.
171998 OCTOBER 20, 2010)
Salazar vs J.Y Brothers Marketing
Corporation
G.R. No. 171998 October 20, 2010
Facts: J.Y. Brothers Marketing (J.Y.
Bros., for short) is a corporation
engaged in the business of selling
sugar, rice and other commodities. On
October 15, 1996, Anamer Salazar, a
freelance sales agent, was approached
by Isagani Calleja and Jess Kallos, if she
knew a supplier of rice. Answering in the
positive, Salazar accompanied the two
to J.Y. Bros. As a consequence, Salazar
with Calleja and Kallos procured from J.
Y. Bros. 300 cavans of rice worth
P214,000.00. As payment, Salazar
negotiated and indorsed to J.Y. Bros.
Prudential Bank Check No. 067481 dated
October 15, 1996 issued by Nena
Jaucian Timario in the amount of
P214,000.00 with the assurance that the
check is good as cash. On that
assurance, J.Y. Bros. parted with 300
cavans of rice to Salazar. However,
upon presentment, the check was
dishonored due to closed account.
Informed of the dishonor of the check,
Calleja, Kallos and Salazar delivered to
J.Y. Bros. a replacement cross Solid
Bank Check No. PA365704 dated
October 29, 1996 again issued by Nena
Jaucian Timario in the amount of
P214,000.00 but which, just the same,
bounced due to insufficient funds. When
despite the demand letter dated
February 27, 1997, Salazar failed to
settle the amount due J.Y. Bros., the
latter charged Salazar and Timario with
the crime of estafa before the Regional
Trial Court of Legaspi City, docketed as
Criminal Case No. 7474.
Issue: Whether or not the issuance of
the Solidbank crossed check discharged
petitioner from liability.
Held: No. The obligation to pay a sum of
money is not novated by an instrument
that expressly recognizes the old,
changes only the terms of payment,
adds other obligations not incompatible
with the old ones or the new contract
merely supplements the old one.
Section 119 of the Negotiable Instrument
Law provides, thus:
SECTION 119. Instrument; how
discharged. A negotiable instrument is
discharged:
(a) By payment in due course by or on
behalf of the principal debtor;
(b) By payment in due course by the
party accommodated, where the
instrument is made or accepted for his
accommodation;
(c) By the intentional cancellation
thereof by the holder;
(d) By any other act which will
discharge a simple contract for the
payment of money;
(e) When the principal debtor
becomes the holder of the instrument at
or after maturity in his own right.
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And, under Article 1231 of the Civil
Code, obligations are extinguished:
xxxx
(6) By novation.
Petitioner’s claim that respondent’s
acceptance of the Solid Bank check
which replaced the dishonored
Prudential bank check resulted to
novation which discharged the latter
check is unmeritorious.
In this case, respondents acceptance of
the Solid Bank check, which replaced
the dishonored Prudential Bank check,
did not result to novation as there was
no express agreement to establish that
petitioner was already discharged from
his liability to pay respondent the
amount of P 214,000.00 as payment for
the 300 bags of rice. As we said,
novation is never presumed, there must
be an express intention to novate. In
fact, when the Solid Bank check was
delivered to respondent, the same was
also indorsed by petitioner which shows
petitioners recognition of the existing
obligation to respondent to pay P
214,000.00 subject of the replaced
Prudential Bank check.
Protest (Section 152)
ALLIED vs. CA GR No. 125851 July
11, 2006
FACTS : Petitioner Allied Bank, Manila
(ALLIED) purchased Export Bill from
respondent G.G. Sportswear Mfg.
Corporation (GGS). The bill, drawn
under a letter of credit covered
Men’s Valvoline Training Suit that
was in transit to West Germany
(Uniger via Rotterdam). The export bill
was issued by Chekiang First Bank
Ltd., Hongkong Respondents Nari
Gidwani and Alcron International Ltd.
(Alcron) executed their respective
Letters of Guaranty, holding
themselves liable on the export bill if
it should be dishonored or retired by
the drawee for any reason.
Subsequently, the spouses Leon and
Leticia de Villa and Nari Gidwani also
executed a Continuing
Guaranty/Comprehensive Surety
(surety, for brevity), guaranteeing
payment of any and all such credit
accommodations which ALLIED may
extend to GGS. When ALLIED
negotiated the export bill to
Chekiang, payment was refused due
to some material discrepancies in the
documents submitted by GGS relative
to the exportation covered by the
letter of credit. Consequently, ALLIED
demanded payment from all the
respondents based on the Letters of
Guaranty and Surety executed in favor
of ALLIED. However, respondents
refused to pay, prompting ALLIED to
file an action for a sum of money.
The trial court dismissed the
complaint. On appeal, the Court of
Appeals modified the ruling of the
trial court holding respondent GGS
liable to reimburse petitioner ALLIED
the peso equivalent of the export
bill, but it exonerated the guarantors
from their liabilities under the Letters
of Guaranty. ISSUE : Can
respondents, in their capacity as
guarantors and surety, be held jointly
and severally liable under the Letters
of Guaranty and Surety, in the
absence of protest on the bill in
accordance with Section 152 of the
NIL? RULING : Yes. In this case, the
Letters of Guaranty and Surety clearly
show that respondents undertook and
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bound themselves as guarantors and

surety to pay the full amount of the
export bill. Section 152 of the
Negotiable Instruments Law pertaining
to indorsers, relied on by
respondents, is not pertinent to this
case. There are well-defined
distinctions between the contract of
an indorser and that of a
guarantor/surety of a commercial
paper, which is what is involved in
this case. The contract of
indorsement is primarily that of
transfer, while the contract of
guaranty is that of personal security.
The liability of a guarantor/surety is
broader than that of an indorser.
Unless the bill is promptly presented
for payment at maturity and due
notice of dishonor given to the
indorser within a reasonable time, he
will be discharged from liability
thereon. On the other hand, except
where required by the provisions of
the contract of suretyship, a demand
or notice of default is not required
to fix the surety’s liability. He
cannot complain that the creditor has
not notified him in the absence of a
special agreement to that effect in
the contract of suretyship. Therefore,
no protest on the export bill is
necessary to charge all the
respondents jointly and severally
liable with G.G. Sportswear since the
respondents held themselves liable
upon demand in case the instrument
was dishonored and on the surety,
they even waived notice of dishonor
as stipulated in their Letters of
Guarantee.

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