K.

ALTERATIONS
PNB v. CA 259 SCRA 491 G.R. 108052 July 24, 1996 (incorrect!)

PNB v. CA G.R. No. 107508. April 25, 1996 (this one dapat!)

FACTS:
A check with serial number 7-3666-223-3, was issued by the Ministry of Education and Culture
payable to F. Abante Marketing. This check was drawn against Philippine National Bank (herein
petitioner).

F. Abante Marketing, a client of Capitol City Development Bank (Capitol), deposited the
questioned check in its savings account with said bank. 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. Petitioner, however, returned the check
to PBCom.

On the other hand, Capitol could not, in turn, debit F. 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had already withdrawn the amount of the check.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 petitioner.

Since the demands of Capitol were not heeded, it filed a civil suit against PBCom which, in turn,
filed a third-party complaint against petitioner for reimbursement/indemnity with respect to the claims of
Capitol. Petitioner, on its part, filed a fourth-party complaint against F. Abante Marketing.

ISSUE: WON an alteration in the serial number of the check is considered as a material alteration

RULING: In this case, no - it is an innocent alteration. If the purpose of the serial number is merely to
identify the issuing government office or agency, its alteration in this case had no material effect
whatsoever on the integrity of the check. The identity of the issuing government office or agency was
not changed thereby and the amount of the check was not charged against the account of another
government office or agency which had no liability under the check.

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.

Section 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;
(f) 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.

L. CONSIDERATION (SEC.24)

PINEDA V. DE LA RAMA GR L-31831 April 28, 1983

FACTS:
Dela Rama is a practising lawyer whose services were retained by Pineda for the purpose of
making representations with the chairman and general manager of the National Rice and Corn
Administration (NARIC) to stop or delay the institution of criminal charges against Pineda who allegedly
misappropriated 11,000 cavans of palay deposited at his ricemill in Concepcion, Tarlac. The NARIC
general manager was allegedly an intimate friend of Dela Rama.

The court believed the evidence of Pineda that he signed the promissory note for P9,300.00 only
because Dela Rama had told him that this amount had already been advanced to grease the palms of
the 'Chairman and General Manager of NARIC in order to save Pineda from criminal prosecution.

ISSUE: WON there was a valid consideration

RULING: No. Although the Court of Appeals relied on the efficacy of the promissory note for its decision,
citing Section 24 of the Negotiable Instruments Law which reads:

SECTION 24. Presumption of consideration.—Every negotiable instrument is deemed prima facie to

have been issued for a valuable consideration; and every person whose signature appears thereon to
have become a party thereto for value.

This presumption is only prima facie. It can be rebutted by proof to the contrary. The consideration for
the promissory note - to influence public officers in the performance of their duties - is contrary to law
and public policy. The promissory note is void ab initio and no cause of action for the collection cases
can arise from it.

Articles 1409 and 1412 of the Civil Code in part, provide:

Art. 1409. The following contracts are inexistent and void from the beginning:
(1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order and
public policy; xxx xxx xxx

Art. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal
offense, the following rules shall be observed:
(1) When the fault is on the part of both contracting parties, neither may recover what he has given by
virtue of the contract, or demand the performance of the other's undertaking.

M. ACCOMODATION PARTY
ANG v. ASSOCIATED BANK 532 scra 244

FACTS:
 Associated Bank filed a collection suit against Antonio Ang Eng Liong (principal debtor) and
petitioner Tomas Ang (co-maker) for the 2 promissory notes obtained a loan of P50,000 and P30,000
evidenced by promissory note payable, jointly and severally, on January 31, 1979 and December 8,
1978

Despite repeated demands for payment, they failed to settle their obligations totalling to
P539,638.96 as of July 31, 1990.

Antonio Ang Eng Liong only admitted to have secured a loan amounting to P80,000

Tomas Ang: bank is not the real party in interest as it is not the holder of the promissory notes,
much less a holder for value or a holder in due course; the bank knew that he did not receive any
valuable consideration for affixing his signatures on the notes but merely lent his name as an
accommodation party bank granted his co-defendant successive extensions of time within which to pay,
without his knowledge and consent the bank imposed new and additional stipulations on interest,
penalties, services charges and attorney's fees more onerous than the terms of the notes, without his
knowledge and consent, he should be reimbursed by his co-defendant any and all sums that he may be
adjudged liable to pay, plus P30,000, P20,000 and P50,000 for moral and exemplary damages, and
attorney's fees, respectively.

ISSUE: WON the Ang is liable as an accommodation party even without consideration and his co-
accommodation party was granted accommodation even without his knowledge

RULING: Yes, he is liable. Accommodation party is a person "who has signed the instrument as
maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of
lending his name to some other person.”

As gleaned from the text, an accommodation party is one who meets all the three requisites, viz:
(1) he must be a party to the instrument, signing as maker, drawer, acceptor, or indorser;
(2) he must not receive value therefor; and
(3) he must sign for the purpose of lending his name or credit to some other person

Petitioner signed the promissory note as a solidary co-maker and not as a guarantor. This is
patent even from the first sentence of the promissory note which states as follows:

"Ninety one (91) days after date, for value received, I/we, JOINTLY and SEVERALLY promise
to pay to the PHILIPPINE BANK OF COMMUNICATIONS at its office in the City of Cagayan de Oro,
Philippines the sum of FIFTY THOUSAND ONLY (P50,000.00) Pesos, Philippine Currency, together
with interest x x x at the rate of SIXTEEN (16) per cent per annum until fully paid.”

Immaterial so far as the bank is concerned whether one of the signers, particularly petitioner,
has or has not received anything in payment of the use of his name.

Since the liability of an accommodation party remains not only primary but also
unconditional to a holder for value, even if the accommodated party receives an extension of the
period for payment without the consent of the accommodation party, the latter is still liable for the whole
obligation and such extension does not release him because as far as a holder for value is
concerned, he is a solidary co-debtor.
LIM v. SABAN December 16, 2004

FACTS:
The late Eduardo Ybañez entered into an Agreement and Authority to Sell and Negotiate
(Agency Agreement) with Saban. Under the Agency Agreement, Ybañez authorises Saban to look for
a buyer of the lot for Two Hundred Thousand Pesos (P200,000.00) and to mark up the selling price to
include the amounts needed for payment of taxes, transfer of title and other expenses incident to the
sale, as well as Saban’s commission for the sale.
Through Saban's effort, he sold said lot to Spouses Lim and Genevieve Lim. He sold the lot for
Php600,000.00. Saban gave Ybanez Php230, 000.00. However, Ybanez found out that the lot was
being sold for Php600, 000.00 and asked Lim to directly pay him the balance. Lim cancelled all checks
issued to Saban and paid directly to Ybanez. Saban said that Lim and Ybanez did it to deprive him of
the commission due him.

ISSUE: WON Lim is liable on the checks because she signed them as an accommodation party

RULING: No, she is not liable as she is not an accommodation party, with the absence of the 2nd
requisite of an accommodation party according to Section 29 of the NIL.

The absence of the second requisite is clear when it is noted at the outset that Lim issued the checks
in question on account of her transaction, along with the other purchasers, with Ybañez which was a
sale and, therefore, a reciprocal contract. Specifically, she drew the checks in payment of the balance
of the purchase price of the lot subject of the transaction. And she had to pay the agreed purchase price
in consideration for the sale of the lot to her and her co-vendees. In other words, the amounts covered
by the checks form part of the cause or consideration from Ybañez’s end, as vendor, while the lot
represented the cause or consideration on the side of Lim, as vendee Ergo, Lim received value for her
signature on the checks.

Neither is there any indication that Lim issued the checks for the purpose of enabling Ybañez, or any
other person for that matter, to obtain credit or to raise money, thereby totally debunking the presence
of the third requisite of an accommodation party.
N. RIGHTS OF HOLDERS: Classes of Holders

BPI v. ROXAS October 15, 2007

FACTS:
Gregorio Roxas, as trader, delivered stocks of vegetable oil to Spouses Rodrigo and Marissa
Cawili. As payment, they issued a personal check amounting to PHP348,805.50 which was dishonored
by the drawee bank when respondent tried to encash.
The Spouses Cawili replaced the check with a cashier's check from Bank of the Philippine Island
(Petitioner). The cashier's check was drawn against the account of Marissa Cawili. The Cashier Check
was wanded to respondent by Rodrigo Cawili. When respondent tried to encash the Cashier Check, it
was dishonored on the ground that the account of Marissa was closed on the same date that respondent
tried to encash.
Respondent thereafter filed a complaint with the Regional Trial Court for a sum of money praying
that petitioner pay him the amount of the check, damages and cost of the suit. The RTC in its decision
held that Petitioner is liable to pay the face value of the cashier's check amounting to PHP 384, 805.50.
On appeal, the CA affirmed the decision of the RTC. Hence, the filing of the Petition for Certiorari by the
petitioner.

ISSUE: WON the respondent is a holder in due course

RULING: Yes. BPI is liable to respondent.

SEC. 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 person negotiating it.

As a general rule, under the above provision, every holder is presumed prima facie to be a holder
in due course. One who claims otherwise has the onus probandi to prove that one or more of the
conditions required to constitute a holder in due course are lacking.
In this case, petitioner contends that the element of “value” is not present, therefore, respondent
could not be a holder in due course.

Petitioner’s contention lacks merit. Section 25 of the same law states:

SEC. 25. Value, what constitutes. – Value is any consideration sufficient to support a simple
contract. An antecedent or pre-existing debt constitutes value; and is deemed as such whether
the instrument is payable on demand or at a future time.

Here, there is no dispute that respondent received Rodrigo Cawili’s cashier’s check as payment
for the former’s vegetable oil. The fact that it was Rodrigo who purchased the cashier’s check from
petitioner will not affect respondent’s status as a holder for value since the check was delivered to him
as payment for the vegetable oil he sold to spouses Cawili.

This Court held that a cashier’s check is really the bank’s own check and may be treated as a
promissory note with the bank as the maker. The check becomes the primary obligation of the bank
which issues it and constitutes a written promise to pay upon demand. In New Pacific Timber & Supply
Co. Inc. v. Señeris, this Court took judicial notice of the “well-known and accepted practice in the
business sector that a cashier’s check is deemed as cash.” This is because the mere issuance of
a cashier’s check is considered acceptance thereof.

In view of the above pronouncements, petitioner bank became liable to respondent from the
moment it issued the cashier’s check. Having been accepted by respondent, subject to no condition
whatsoever, petitioner should have paid the same upon presentment by the former.

DINO v JUDAL-LOOT April 19, 2010

FACTS:
Petitioner was induced to lend a syndicate P3,000,000.00 to be secured by a real estate
mortgage on several parcels of land situated in Canjulao, Lapu-lapu City. However, petitioner
discovered that the documents covered rights over government properties. Realizing he had been
deceived, petitioner advised Metrobank to stop payment of his checks.

However, only the payment of Check No. C-MA- 142119406-CA was ordered stopped. The other
two checks were already encashed by the payees. Meanwhile, Check No. C-MA- 142119406-CA (a
cross-check) was negotiated and indorsed to respondents by petitioner in exchange for cash in the sum
of P948,000.00, which respondents borrowed from Metrobank and charged against their credit line.

Drawee bank, Metrobank, Cebu-Mabolo Branch, which is also their depositary bank, answered
that the checks were sufficiently funded. However, the same was dishonored by the drawee bank when
they tried to deposit it for reason “PAYMENT STOPPED.” The Court of Appeals ruled that petitioner
acted in good faith in ordering the stoppage of payment of the subject check and thus, he must not be
made liable for those amounts.

ISSUE: WON respondents are holders in due course

HELD: Yes. Section 52 of the Negotiable Instruments Law defines a holder in due course, thus:

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

(b) That he became the holder of it before it was overdue, and without notice that it has been previously
dishonored, if such was the fact;
(c) That he took it in good faith and for value;(d) That at the time it was negotiated to him, he had no
notice of any infirmity in the instrument or defect in the title of the person negotiating it.

In the case of a crossed check, as in this case, the following principles must additionally be considered:

A crossed check:
(a) may not be encashed but only deposited in the bank;
(b) maybe negotiated only once — to one who has an account with a bank; and
(c) warns the holder that it has been issued for a definite purpose so that the holder thereof must inquire
if he has received the check pursuant to that purpose; otherwise, he is not a holder in due course.

Based on the foregoing, respondents had the duty to ascertain the indorser’s, in this case
Lobitana’s, title to the check or the nature of her possession. This respondents failed to do.
 Respondents’ verification from Metrobank on the funding of the check does not amount to
determination of Lobitana’s title to the check. Failing in this respect, respondents are guilty of gross
negligence amounting to legal absence of good faith contrary to Section 52(c) of the Negotiable
Instruments Law. Hence, respondents are not deemed holders in due course of the subject check.

However, the fact that respondents are not holders in due course does not automatically
mean that they cannot recover on the check. The Negotiable Instruments Law does not provide that
a holder who is not a holder in due course may not in any case recover on the instrument. The only
disadvantage of a holder who is not in due course is that the negotiable instrument is subject to defenses
as if it were non-negotiable. Among such defenses is the absence or failure of consideration,[ which
petitioner sufficiently established in this case. Petitioner issued the subject check supposedly for a loan
in favor of Consing’s group, who turned out to be a syndicate defrauding gullible individuals. Since there
is in fact no valid loan to speak of, there is no consideration for the issuance of the check. Consequently,
petitioner cannot be obliged to pay the face value of the check.

Q. PRESENTMENT FOR ACCEPTANCE

PRUDENTIAL BANK v. IAC December 8, 1992

FACTS:
Philippine Rayon Mills, Inc. entered into a contract with Nissho Co., Ltd. of Japan for the
importation of textile machineries under a five-year deferred payment plan.
To effect payment for said machineries, Philippine Rayon Mills opened a commercial letter of
credit with the Prudential Bank and Trust Company in favor of Nissho. Against this letter of credit, drafts
were drawn and issued by Nissho, which were all paid by the Prudential Bank through its correspondent
in Japan. Two of these drafts were accepted by Philippine Rayon Mills while the others were
not. Petitioner instituted an action for the recovery of the sum of money it paid to Nissho as Philippine
Rayon Mills was not able to pay its obligations arising from the letter of credit. Respondent court ruled
that with regard to the ten drafts which were not presented and accepted, no valid demand for payment
can be made. Petitioner however claims that the drafts were sight drafts which did not require
presentment for acceptance to Philippine Rayon.

ISSUE: WON presentment for acceptance of the drafts was indispensable to make Philippine Rayon
liable thereon.

RULING: No, it is still liable even if it was not presented since the drafts are “sight” drafts. Presentment
for acceptance is necessary only in the cases expressly provided for in Section 143 of the
Negotiable Instruments Law (NIL). The said section provides that presentment for acceptance must
be made:

(a) Where the bill is payable after sight, or in any other case, where presentment for acceptance
is necessary in order to fix the maturity of the instrument; or

(b) Where the bill expressly stipulates that it shall be presented for acceptance; or

(c) Where the bill is drawn payable elsewhere than at the residence or place of business of the
drawee.
 In no other case is presentment for acceptance necessary in order to render any party to the bill
liable. Obviously then, sight drafts do not require presentment for acceptance.

WONG v. CA February 2, 2001

FACTS:

Wong was an agent of Limtong Press Inc. (LPI), a manufacturer of calendars. However,
petitioner had a history of unremitted collections. Hence, petitioner’s customers were required to issue
postdated checks before LPI would accept their purchase orders. Wong issued 6 postdated checks
payable to the order of LPI and were intended to guarantee the calendar orders of customers who
failed to issue post-dated checks. Before the maturity of the checks, petitioner convinced LPI not to
deposit the checks and promised to replace them within 30 days. However, Wong failed his promise.
Thus, LPI deposited the checks with RCBC but were returned because the “account was already
closed”.
LPI notified Wong of the dishonor however, he failed to make arrangements for payment within
banking days. He was convicted under B.P. 22.

ISSUE: WON petitioner is liable

RULING: Yes. LPI herein deposited the checks 157 days after the date of the check. Hence said checks
cannot be considered stale. Only the presumption of knowledge of insufficiency of funds was lost, but
such knowledge could still be proven by direct or circumstantial evidence.

Contrary to petitioner’s assertions, nowhere in said provision does the law require a maker to
maintain funds in his bank account for only 90 days. Rather, the clear import of the law is to establish a
prima facie presumption of knowledge of such insufficiency of funds under the following conditions
(1) presentment within 90 days from date of the check, and
(2) the dishonor of the check and failure of the maker to make arrangements for payment in full
within 5 banking days after notice thereof.

That the check must be deposited within ninety (90) days is simply one of the conditions for the
prima facie presumption of knowledge of lack of funds to arise. It is not an element of the offense. Neither
does it discharge petitioner from his duty to maintain sufficient funds in the account within a reasonable
time thereof.

Under Section 186 of the Negotiable Instruments Law, “a check must be presented for
payment within a reasonable time after its issue or the drawer will be discharged from liability
thereon to the extent of the loss caused by the delay.”

By current banking practice, a check becomes stale after more than six (6) months, or 180
days. There is, on record, sufficient evidence that petitioner had knowledge of the insufficiency of his
funds in or credit with the drawee bank at the time of issuance of the checks.
U. CHECKS
SYCIP JR. v CA March 17, 2000

FACTS:
Sycip, Jr., agreed to buy, on installment, from Francel Realty Corporation (FRC), a townhouse
unit in the latter’s project at Bacoor, Cavite. Upon execution of the contract to sell, as required, issued
to FRC, 48 postdated checks, each in the amount of P9,304.00, covering 48 monthly installments.

After moving in his unit, Sycip complained, to FRC regarding defects in the unit and incomplete
features of the townhouse project. FRC ignored the complaint thus, Sycip served on FRC two notorial
notices to the effect that he was suspending his installment payments on the unit pending compliance
with the project plans and specifications, as approved by the Housing and Land Use Regulatory Board
(HLURB). Sycip and twelve (12) out of fourteen (14) unit buyers then filed a complaint with the HLURB.
The complaint was dismissed as to the defect, but FRC was ordered by the HLURB to finish all
incomplete features of its townhouse project. Sycip appealed the dismissal of the complaint as to the
alleged defects.

Notwithstanding the notorial notices, FRC continued to present for encashment Sycip’s
postdated checks in its possession. Sycip sent “stop payment orders” to the bank. When FRC continued
to present the other postdated checks to the bank as the due date fell, the bank advised Sycip to close
his checking account to avoid paying bank charges every time he made a “stop payment” order on the
forthcoming checks. Due to the closure of petitioner’s checking account, the drawee bank dishonored
six postdated checks. FRC file a complaint against petitioner for violations of B.P. Blg. 22 involving said
dishonored checks.

ISSUE: WON petitioner is liable under B.P. 22 (Bouncing Checks Law)

RULING: No, petitioner is acquitted as there is only a prima facie presumption if the elements under
BP22 are complied with, but such can be rebutted by evidence.

Under the provisions of the Bouncing Checks Law (B.P. No. 22), an offense is committed when
the following elements are present:
(1) the making, drawing and issuance of any check to apply for 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) the 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.

To begin with, the second element involves knowledge on the part of the issuer at the time of the
check's issuance that he did not have enough funds or credit in the bank for payment thereof upon
its presentment. B.P. No. 22 creates a presumption juris tantum that the second element prima facie
exists when the first and third elements of the offense are present.

But such evidence may be rebutted. In this case, we find that the other party has presented evidence to
contradict said presumption. Hence, the prosecution is duty bound to prove every element of the offense
charged, and not merely rely on a rebuttable presumption.

Admittedly, what are involved here are postdated checks. Postdating simply means that on the date
indicated on its face, the check would be properly funded, not that the checks should be deemed
as issued only then. The checks in this case were issued at the time of the signing of the Contract to
Sell in August 1989. But we find from the records no showing that the time said checks were issued,
petitioner had knowledge that his deposit or credit in the bank would be insufficient to cover them when
presented for encashment.

As the evidence for the defense showed, the closure of petitioner's account with Citibank was not
for insufficiency of funds. It was made upon the advice of the drawee bank, to avoid payment of
hefty bank charges each time petitioner issued a "stop payment" order to prevent encashment
of postdated checks in private respondent's possession.

BPI EXPRESS CARD CORP v. CA September 25, 1998

FACTS:
Marasigan, a lawyer, is a BPI credit card holder. His contractual relations with BPI went on
smoothly until October 1989, when his statement of account amounting to P8,987.84 was not paid in
due time. BPI demanded immediate payment, and required him to issue a check in favor of BPI,
otherwise his card will be suspended. Marasigan issued a post-dated check (PDC) in favor of BPI. BPI,
having been informed of the PDC only a week after receipt, already sent a letter to Marasigan, informing
him of the temporary suspension of the privileges of his card. He was also told to refrain from using his
card to avoid any inconvenience/embarrassment and that unless he settles his outstanding account
within 5 days from receipt of the letter, his membership will be permanently cancelled.

Marasigan used the credit card to pay a bill but was dishonoured. Thus, he asked BPI to withhold
the deposit of his postdated check and to return the said check to him because according to him, BPI
violated their agreement that once Marasigan issues the check to the to cover his unpaid account, BPI
will not suspend the effectivity of the car.

Marasigan filed a complaint for damages against BPI before the trial court, and the trial court ruled in
favor of him. The decision was affirmed by the CA.

ISSUE/S:

1.W/N BPI had the right to suspend the credit card of the Marasigan

RATIO: Yes.
Under the terms and conditions of the credit card, signed by Marasigan, any card with
outstanding balances after 30 days from original billing shall automatically be suspended. Marasigan
admitted that he did not pay within 30 days for his original billing. BPI could automatically suspend his
credit card.

Even though there was an arrangement between the parties (that upon issuance of a check, the
card wouldn’t be suspended) the court found that Marasigan was not able to comply with his obligation.
The purpose of the arrangement between the parties was for the immediate payment of Marasigan’s
outstanding account, in order that his credit card would not be suspended. As agreed upon by the
parties, on the following day, private respondent did issue a check.

However, the check was postdated 15 December 1989. Settled is the doctrine that a check is
only a substitute for money and not money, the delivery of such an instrument does not, by itself
operate as payment. Thus, there can be damage without injury in those instances in which the loss or
harm was not the result of a violation of a legal duty. In such cases, the consequences must be borne
by the injured person alone, the law affords no remedy for damages resulting from an act which does
not amount to a legal injury or wrong. These situations are often called damnum absque injuria.

BANK OF AMERICA v. ASSOCIATED CITIZENS BANK May 21, 2009

FACTS:
BA-Finance Corporation (BA Finance) and Miller Offset Press, Inc. (Miller) entered into a credit
line facility agreement whereby Miller can discount and assign its trade receivables with the BA Finance.
At the same time, Uy Kiat Chung, Ching Uy Seng, and Uy Chung Guan Seng, acting for Miller, executed
a Continuing Suretyship Agreement with BA-Finance. Under the agreement, they jointly and severally
guaranteed the full and prompt payment of any and all indebtedness which Miller may incur with BA-
Finance.

Miller discounted and assigned several trade receivables to BA-Finance by executing Deeds of
Assignment in favor of the latter. In consideration thereof, BA-Finance issued four checks payable to
the order of Miller with the notation “For Payee’s Account Only.” These checks were drawn against Bank
of America. The four checks were deposited by Ching Uy Seng in Associated Citizens Bank with his
joint account with Uy Chung Seng. Associated Bank stamped the checks and guaranteed all prior
endorsements and/or lack of endorsements and sent them through clearing. Later, Bank of America as
drawee bank honored the checks and paid the proceeds to Associated Bank as the collecting bank.
When Miller failed to deliver to BA-Finance the proceeds of the assigned trade receivables, BA-Finance
filed a collection suit against Miller and impleaded the three representative of the latter.

Issues: Whether or not Bank of America is liable to pay BA-Finance and whether or not Associated Bank
should reimburse Bank of America the amount of the four checks.

Held: Yes. The bank on which a check is drawn, known as the drawee bank, is under strict liability,
based on the contract between the bank and its customer (drawer), to pay the check only to the payee
or the payee’s order. The drawer’s instructions are reflected on the face and by the terms of the check.
When the drawee bank pays a person other than the payee named on the check, it does not
comply with the terms of the check and violates its duty to charge the drawer’s account only for
properly payable items.

On the part of Associated Bank, the law imposes a duty of diligence on the collecting bank to
scrutinize checks deposited with it for the purpose of determining their genuineness and regularity.

In presenting the checks for clearing and for payment, the defendant [collecting bank] made an
express guarantee on the validity of “all prior endorsements.” Thus, stamped at the back of the checks
are the defendant’s clear warranty. As the warranty has proven to be false and inaccurate, Associated
Bank is liable for any damage arising out of the falsity of its representation.

In a checking transaction, the drawee bank has the duty to verify the genuineness of the
signature of the drawer and to pay the check strictly in accordance with the drawer’s
instructions, i.e., to the named payee in the check. It should charge to the drawer’s accounts
only the payables authorized by the latter. Otherwise, the drawee will be violating the instructions of
the drawer and it shall be liable for the amount charged to the drawer’s account. Rodriguez checks are
payable to order since the bank failed to prove that the named payees therein are fictitious.
 Hence, the fictitious-payee rule which will make the instrument payable to bearer does not apply.
PNB accepted the 69 checks for deposit to the PEMSLA account even without any indorsement from
the named payees. It bears stressing that order instruments can only be negotiated with a valid
indorsement.

SECURITY BANK v RCBC January 30, 2009

FACTS:
Security Bank and Trust Company (SBTC) issued a manager’s check for P8M, payable to CASH,
as proceeds of the loan granted to Guidon Construction and Development Corporation (GCDC). The
said check was deposited by Continental Manufacturing Corporation (CMC) in its Current Account with
Rizal Commercial Banking Corporation (RCBC). Immediately, RCBC honored the P8M check and
allowed CMC to withdraw.

On January 12, 1981, GCDC issued a "Stop Payment Order" to SBTC claiming that the P8M
check was released to a third party by mistake. SBTC dishonored and returned the manager’s check to
RCBC. RCBC filed a complaint for damages against SBTC. Following the rules of the Philippine Clearing
House, RCBC and SBTC stopped returning the checks to each other. By way of a temporary
arrangement pending resolution of the case, the P8M check was equally divided between RCBC and
SBTC.

ISSUE: Is SBTC liable for its manager’s check?

HELD: Yes. It must be noted that the questioned check issued by SBTC is not just an ordinary check
but a manager’s check. A manager’s check is one drawn by a bank’s manager upon the bank itself.
It stands on the same footing as a certified check, which is deemed to have been accepted by the bank
that certified it. As the bank’s own check, a manager’s check becomes the primary obligation of
the bank and is accepted in advance by the act of its issuance. In this case, RCBC, in immediately
crediting the amount of P8 million to CMC’s account, relied on the integrity and honor of the check as it
is regarded in commercial transactions. Where the questioned check, which was payable to “Cash,”
appeared regular on its face, and the bank found nothing unusual in the transaction, as the drawer
usually issued checks in big amounts made payable to cash, RCBC cannot be faulted in paying the
value of the questioned check.