Negotiable Instrument Law Digest PDF

SOL-Negotiable Instrument Law
State Investment House, Inc. vs. Court Of Appeals and Nora B. Moulic
G.R. No. 101163, 11 January 1993
Facts:
Nora B. Moulic issued to Corazon Victoriano, as security for pieces of jewelry to be

sold on commission, two (2) post-dated Equitable Banking Corporation checks in the
amount of Fifty Thousand Pesos (P50,000.00) each, one dated 30 August 1979 and the
other, 30 September 1979. Thereafter, the payee negotiated the checks to petitioner State
Investment House. Inc. (STATE). Before the maturity date Moulic withdrew her funds from
the bank contesting that she incurred no obligation on the checks because the jewelry was
never sold and the checks are negotiated without her knowledge and consent. Upon
presentment of for payment, the checks were dishonored for insufficiency of funds. STATE
sued to recover the value of the checks plus attorney's fees and expenses of litigation.
In her Answer, MOULIC contends that she incurred no obligation on the checks
because the jewelry was never sold and the checks were negotiated without her knowledge
and consent. She also instituted a Third-Party Complaint against Corazon Victoriano, who
later assumed full responsibility for the checks.
On 26 May 1988, the trial court dismissed the Complaint as well as the Third-Party
Complaint, and ordered STATE to pay MOULIC P3,000.00 for attorney's fees.
STATE elevated the order of dismissal to the Court of Appeals, but the appellate
court affirmed the trial court on the ground that the Notice of Dishonor to MOULIC was
made beyond the period prescribed by the Negotiable Instruments Law and that even if
STATE did serve such notice on MOULIC within the reglementary period it would be of no
consequence as the checks should never have been presented for payment. The sale of the
jewelry was never effected; the checks, therefore, ceased to serve their purpose as security
for the jewelry. Hence, this petition.
Issue:
Is the Notice of Dishonor indispensable in order for MOULIC to be held liable?
Ruling:
No. The fact that STATE failed to give Notice of Dishonor to MOULIC is of no
moment. The need for such notice is not absolute; there are exceptions under Sec. 114 of
the Negotiable Instruments Law:
Sec. 114. When notice need not be given to drawer. — Notice of dishonor is
not required to be given to the drawer in the following cases: (a) Where the
drawer and the drawee are the same person; (b) When the drawee is a
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 had
countermanded payment.
Indeed, MOULIC'S actuations leave much to be desired. She did not retrieve the
checks when she returned the jewelry. She simply withdrew her funds from her drawee
bank and transferred them to another to protect herself. After withdrawing her funds, she
could not have expected her checks to be honored. In other words, she was responsible for
the dishonor of her checks, hence, there was no need to serve her Notice of Dishonor, which
is simply bringing to the knowledge of the drawer or indorser of the instrument, either
verbally or by writing, the fact that a specified instrument, upon proper proceedings taken,
has not been accepted or has not been paid, and that the party notified is expected to pay it.
In addition, the Negotiable Instruments Law was enacted for the purpose of
facilitating, not hindering or hampering transactions in commercial paper. Thus, the said
statute should not be tampered with haphazardly or lightly. Nor should it be brushed aside
in order to meet the necessities in a single case.
JAMES SVENDSEN vs. PEOPLE OF THE PHILIPPINES
G.R. No. 175381, 26 February 2008
Facts:
Cristina Reyes (Cristina) extended a loan to petitioner in the amount of P200,000, to

bear interest at 10% a month. After petitioner had partially paid his obligation, he failed to
settle the balance thereof which had reached P380,000 inclusive of interest. Cristina thus
filed a collection suit against petitioner, which was eventually settled when petitioner paid
her P200,000 and issued in her favor an International Exchange Bank check postdated
February 2, 1999 (the check) in the amount of P160,000 representing interest. The check
was co-signed by one Wilhelm Bolton.
When the check was presented for payment on February 9, 1999, it was dishonored
for having been Drawn Against Insufficient Funds (DAIF).
Cristina, through counsel, thus sent a letter to petitioner by registered mail

informing him that the check was dishonored by the drawee bank, and demanding that he
make it good within five (5) days from receipt thereof.
No settlement having been made by petitioner, Cristina filed a complaint dated

March 1, 1999 against him and his co-signatory to the check, Bolton, for violation of B.P.
Blg. 22. The Metropolitan Trial Court found James Svendsen guilty of violation of B.P. Blg.22
or the Bouncing Checks Law. The RTC affirmed the decision of the MeTC. Hence, this
petition.
Issue:
Is Svendsen guilty for violation of BP 22?
Ruling:
No. For Svendsen to be validly convicted of the crime under B.P. Blg. 22, the
following requisites must thus concur: (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 the 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.
The evidence for the prosecution failed to prove the second element. While the
registry receipt, which is said to cover the letter-notice of dishonor and of demand sent to
petitioner, was presented, there is no proof that he or a duly authorized agent received the
same. Receipts for registered letters including return receipts do not themselves prove
receipt; they must be properly authenticated to serve as proof of receipt of the letters.
For failure then to prove all the elements of violation of B.P. Blg. 22, Svendsen’s
acquittal is in order. Svendsen is civilly liable, however. For in a criminal case, the social
injury is sought to be repaired through the imposition of the corresponding penalty,
whereas with respect to the personal injury of the victim, it is sought to be compensated
through indemnity, which is civil in nature.
Eliza T. Tan vs. People of the Philippines

G.R. No. 141466, 19 January 2001
Facts:
Eliza is the Vice-President of Hometown Development, Inc. (HDI), owner/developer

of the South Garden Homes, and is the president of the construction firm F. M. Francisco &
Associates (FMF). When Eliza failed to pay, both parties terminated the contract. For its
accomplishment for the month of November 1992, FMF was paid P23,739.09 by Eliza with
Philtrust Bank Check.
Upon presentment for payment, however, subject check was dishonored. After
receipt of the notice of dishonor, Fidel verbally notified Eliza and the latter promised to
pay. Later on, when Eliza still did not pay, Fidel sent her a demand letter by registered mail.
Failing to heed his demand letter, Eliza was charged in court. The Regional Trial Court,
found Eliza T. Tan guilty of violation of B.P. 22 . the court of Appeals affirmed the lower
court’s decision. Hence, this petition.
Issue:
Is Tan guilty for violation of B.P. 22?
Ruling:
No. The elements of the offense defined and penalized in Section 1 of Batas
Pambansa Blg. 22 are:
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, and
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 this case, the third and fourth elements of the offense charged were not
established or proved.
In the first place, the bank's representative testified that petitioner's account at the
time of the presentment of the check she issued was funded, as she had a credit line to the
extent of P25 million, much more than the amount of the check issued.
In the second place, even without relying on the credit line, petitioner's bank account
covered the check she issued because even though there were some deposits that were still
uncollected the deposits became "good" and the bank certified that the check was "funded."
Actually, the check in question was not issued without sufficient funds and was not
dishonored due to insufficiency of funds. What was stamped on the check in question was
"Payment Stopped-Funded" at the same time "DAUD" meaning drawn against uncollected
deposits. Even with uncollected deposits, the bank may honor the check at its discretion in
favor of favored clients, in which case there would be no violation of B.P. 22.
Maria Tuazon, Alejandro P. Tuazon, Melecio P. Tuazon, Spouses Anastacio and Mary T.
Buenaventura vs. Heirs of Bartolome Ramos
G.R. No. 156262, 14 July 2005
Facts:
Leonilo and Maria Tuazon purchased a total of 8,326 cavans of rice from [the
deceased Bartolome Ramos [predecessor-in-interest of respondents]. 4,437 cavans have
been paid for so far leaving unpaid 3,889 cavans valued at P1,211,919.00. In payment
therefor, the spouses Tuazon issued several Traders Royal Bank checks. When these checks
were encashed, all of the checks bounced due to insufficiency of funds. Respondents
advanced that before issuing said checks, spouses Tuazon already knew that they had no
available fund to support the checks, and they failed to provide for the payment of these
despite repeated demands made on them. Tuazon alleged that it was Magdalena Ramos,
wife of said deceased, who owned and traded the merchandise and Maria Tuazon was
merely her agent. The corresponding civil and criminal cases were filed by respondents
against Spouses Tuazon. The trial court acquitted Tuazon in all three of the consolidated
criminal cases, they appealed only its decision finding them civilly liable to respondent.
Sustaining the RTC, the CA held that petitioners had failed to prove the existence of an
agency between respondents and Spouses Tuazon.
Issue:
Is Evangeline Santos an indispensable party to the suit?
Ruling:
No. Respondents’ cause of action is clearly founded on petitioners’ failure to pay the
purchase price of the rice. The trial court held that Petitioner Maria Tuazon had indorsed
the questioned checks in favor of respondents, in accordance with Sections 31 and 63 of the
Negotiable Instruments Law. That Santos was the drawer of the checks is thus immaterial
to the respondents’ cause of action.
As indorser, Petitioner Maria Tuazon warranted that upon due presentment, the
checks were to be accepted or paid, or both, according to their tenor; and that in case they
were dishonored, she would pay the corresponding amount. After an instrument is
dishonored by nonpayment, indorsers cease to be merely secondarily liable; they become
principal debtors whose liability becomes identical to that of the original obligor. The
holder of a negotiable instrument need not even proceed against the maker before suing
the indorser.1 Clearly, Evangeline Santos as the drawer of the checks is not an
indispensable party in an action against Maria Tuazon, the indorser of the checks.
Luis S. Wong vs. Court of Appeals and People of the Philippines

G.R. No. 117857, 2 February 2001
Facts:
Wong was an agent of Limtong Press. Inc. (LPI), a manufacturer of calendars. LPI
would print sample calendars, then give them to agents to present to customers. The agents
would get the purchase orders of customers and forward them to LPI. After printing the
calendars, LPI would ship the calendars directly to the customers. Thereafter, the agents
would come around to collect the payments. Petitioner, however, had a history of
unremitted collections, which he duly acknowledged in a confirmation receipt he co-signed
with his wife.2Hence, petitioner’s customers were required to issue postdated checks
before LPI would accept their purchase orders. Wong issued six (6) postdated checks
totaling P18,025.00, all dated December 30, 1985 and drawn payable to the order of LPI.
The checks were initially intended to guarantee the calendar orders of customers who
failed to issue post-dated checks. However, following company policy, LPI refused to accept
the checks as guarantees. Instead, the parties agreed to apply the checks to the payment of
petitioner’s unremitted collections for 1984 amounting to P18,077.07.
LPI deposited the checks with Rizal Commercial Banking Corporation (RCBC). The
checks were returned for the reason "account closed." The dishonor of the checks was
evidenced by the RCBC return slip.
On June 20, 1986, complainant through counsel notified the petitioner of the
dishonor. Petitioner failed to make arrangements for payment within five (5) banking days.
On November 6, 1987, petitioner was charged with three (3) counts of violation of
B.P. Blg. 22. The trial court found Wong guilty beyond reasonable doubt of the offense of
Violations of Batas Pambansa Bilang 22 . The Court of Appeals. affirmed the trial court’s
decision in toto. Hence, this petition.
Issue:
Is Wong guilty of the crime charged?
Ruling:
Yes. The elements of B.P. Blg. 22 under the first situation, pertinent to the present
case, are:
(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."
As to the second element, B.P. Blg. 22 creates a presumption juris tantum that the
second element prima facie exists when the first and third elements of the offense are
present. Thus, the maker’s knowledge is presumed from the dishonor of the check for
insufficiency of funds.
An essential element of the offense is "knowledge" on the part of the maker or

drawer of the check of the insufficiency of his funds in or credit with the bank to cover the
check upon its presentment. Since this involves a state of mind difficult to establish, the
statute itself creates a prima facie presumption of such knowledge where payment of the
check "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." To mitigate the
harshness of the law in its application, the statute provides that such presumption shall not
arise if within five (5) banking days from receipt of the notice of dishonor, the maker or
drawer makes arrangements for payment of the check by the bank or pays of the holder
the amount of the check.
DISCHARGE OF NEGOTIABLE INSTRUMENT LAW
Anamer Salazar vs. J.Y. Brothers Marketing Corporation

G.R. No. 171998, 20 October 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. 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, 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. Salazar was
acquitted but ordered to pay J.Y. Brothers Marketing Corporation the sum of P214,000.00.
Salazar attempted a reconsideration on the civil aspect of the order and to allow her
to present evidence thereon. The motion was denied. Accused went up to the Supreme
Court on a petition for review on certiorari under Rule 45 of the Rules of Court.
Issue:
Is the issuance of Solidbank a crossed check discharged petitioner from liability?
Ruling:
No. 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.
And, under Article 1231 of the Civil Code, obligations can be extinguished 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.
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.
In this case, respondent’s 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 P214,000.00 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 petitioner’s recognition of the existing obligation to respondent to
pay P214,000.00 subject of the replaced Prudential Bank check.
Bank of the Philippine Islands vs. Court Of Appeals and Benjamin C. Napiza
G.R. No. 112392, 29 February 2000
Facts:
Napiza deposited in Foreign Currency Deposit Unit (FCDU) Savings Account No.
028-187 which he maintained in petitioner bank's Buendia Avenue Extension Branch,
Continental Bank Manager's Check No. 00014757 dated August 17, 1984, payable to "cash"
in the amount of Two Thousand Five Hundred Dollars ($2,500.00) and duly endorsed by
private respondent on its dorsal side. It appears that the check belonged to a certain Henry
who went to the office of private respondent and requested him to deposit the check in his
dollar account by way of accommodation and for the purpose of clearing the same. Private
respondent acceded, and agreed to deliver to Chan a signed blank withdrawal slip, with the
understanding that as soon as the check is cleared, both of them would go to the bank to
withdraw the amount of the check upon private respondent's presentation to the bank of
his passbook.
Using the blank withdrawal slip given by private respondent to Chan, on October 23,
1984, one Ruben Gayon, Jr. was able to withdraw the amount of $2,541.67 from FCDU
Savings Account No. 028-187. Notably, the withdrawal slip shows that the amount was
payable to Ramon A. de Guzman and Agnes C. de Guzman and was duly initialed by the
branch assistant manager, Teresita Lindo
Petitioner received communication from the Wells Fargo Bank International of New
York that the said check deposited by private respondent was a counterfeit check7 because
it was "not of the type or style of checks issued by Continental Bank
International."8 Consequently, Mr. Ariel Reyes, the manager of petitioner's Buendia Avenue
Extension Branch, instructed one of its employees, Benjamin D. Napiza IV, who is private
respondent's son, to inform his father that the check bounced. Private respondent's son
undertook to return the amount of $2,500.00 to petitioner bank. Petitioner filed a
complaint against private respondent, praying for the return of the amount of $2,500.00 or
the prevailing peso equivalent plus legal interest from date of demand to date of full
payment, a sum equivalent to 20% of the total amount due as attorney's fees, and litigation
and/or costs of suit. A decision was rendered dismissing the complaint. the Court of
Appeals affirmed the lower court's decision. Hence, this petition.
Issue:
Is the instrument discharged when BPI committed "clears gross negligence" in

allowing Ruben Gayon, Jr. to withdraw the money without presenting private respondents
passbook?
passbook?
Ruling:
Yes. The proximate cause of the withdrawal and eventual loss of the amount of
$2,500.00 on petitioner's part was its personnel's negligence in allowing such withdrawal
in disregard of its own rules and the clearing requirement in the banking system. In so
doing, petitioner assumed the risk of incurring a loss on account of a forged or counterfeit
foreign check and hence, it should suffer the resulting damage.1âwphi1.nêtIn allowing the
withdrawal of private respondent's deposit, failed to exercise the diligence of a good father
of a family. In total disregard of its own rules, petitioner's personnel negligently handled
private respondent's account to petitioner's detriment.
Moreover, the withdrawal slip contains a boxed warning that states: "This receipt
must be signed and presented with the corresponding foreign currency savings passbook
by the depositor in person. For withdrawals thru a representative, depositor should
accomplish the authority at the back." The requirement of presentation of the passbook
when withdrawing an amount cannot be given mere lip service even though the person
making the withdrawal is authorized by the depositor to do so. This is clear from Rule No. 6
set out by petitioner so that, for the protection of the bank's interest and as a reminder to
the depositor, the withdrawal shall be entered in the depositor's passbook.
Cebu International Finance Corporation vs. Court of Appeals and Vicente Alegre
G.R. No. 123031, 12 October 1999
Facts:
Cebu International Finance Corporation (CIFC), a quasi-banking institution, is

engaged in money market operations. Vicente Alegre, invested with CIFC, five hundred
thousand (P500,000.00) pesos, in cash. Petitioner issued a promissory note. CIFC issued
BPI Check in the amount of P514,390.94 in favor of the private respondent as proceeds of
his matured investment plus interest. The check was drawn from petitioner's current
account, maintained with the BPI. Private respondent's wife deposited the check with Rizal
Commercial Banking Corp. (RCBC), in Puerto Princesa, Palawan. BPI dishonored the check
with the annotation, that the "Check is Subject of an Investigation.” Alegre filed a
complaint for recovery of a sum of money against CIFC. Alegre also filed a case against BPI
for unlawfully deducting from its account. The trial court rendered judgment in favor of
Vicente Alegre. Hence this appeal.
Issue:
Is CIFC discharged from the liability of paying the value of the check?
Ruling:
No. The money market transaction between the petitioner and the private
respondent is in the nature of a loan. The private respondent accepted the CHECK, instead
of requiring payment in money. Yet, when he presented it to RCBC for encashment, the
same was dishonored by non-acceptance, with BPI's annotation: "Check (is) subject of an
investigation." In a loan transaction, the obligation to pay a sum certain in money may be
paid in money, which is the legal tender or, by the use of a check. A check is not a legal
tender, and therefore cannot constitute valid tender of payment.
Since a negotiable instrument is only substitute for money and not money, the
delivery of such an instrument does not by itself, operate as payment. Mere delivery of
checks does not discharge the obligation under a judgment. Article 1249 of the New Civil
Code provides that the obligation is not extinguished and remains suspended until the
payment by commercial document is actually realized.
Producers Bank of the Philippines vs. Excelsa Industries, Inc.

G.R. No. 15207, 8 May 2009
Facts:
Excelsa Industries, Inc. is a manufacturer and exporter of fuel products, particularly

charcoal briquettes, as an alternative fuel source. Respondent applied for a packing credit
line or a credit export advance with petitioner Producers Bank of the Philippines. Prior to
the application for the packing credit line, respondent had obtained a loan from petitioner
in the form of a bill discounted and secured credit accommodation in the amount
of P200,000.00, of which P110,000.00 was outstanding at the time of the approval of the
packing credit line. The loan was secured by a real estate mortgage. Kwang Ju Bank, Ltd.
notified petitioner through cable that the Korean buyer refused to pay respondent’s export
documents on account of typographical discrepancies. Kwang Ju Bank, Ltd. returned to
petitioner the export documents. Kwang Ju Bank, Ltd. informed petitioner that it would be
returning the export documents on account of the non-acceptance by the importer.
Petitioner demanded from respondent the payment of the peso equivalent of the
export documents, plus interest and other charges, and also of the other due and unpaid
loans. Due to respondent’s failure to heed the demand, petitioner moved for the
extrajudicial foreclosure on the real estate mortgage over respondent’s properties.
The RTC rendered a decision upholding the validity of the extrajudicial foreclosure
and ordering the issuance of a writ of possession in favor of petitioner. The Court of
Appeals reversed the trial court’s decision. Hence, this petition.
Issue:
Is the extrajudicial foreclosure of the real estate mortgage discharged the

instrument?
Ruling:
Yes. The Court adopts and approves the aforequoted findings by the RTC, the same
being fully supported by the evidence on record.
Excelsa Industries is estopped from questioning the foreclosure. Excelsa Industries

is guilty of laches and cannot at this point in time question the foreclosure of the subject
properties. Pruducers Bank made demands against the Excelsa Industries for the payment
of Excelsa Industries’ outstanding loans and advances with the defendant as early as July
1997. Excelsa Industries acknowledged such outstanding loans and advances to the
defendant bank and committed to liquidate the same. For failure of the Excelsa Industries
to pay its obligations on maturity, Producers Bank foreclosed the mortgage on subject
properties on January 5, 1988 the certificate of sale was annotated on March 24, 1988 and
there being no redemption made by the Excelsa Industries, title to said properties were
consolidated in the name of Producers Bank in July 1989. Undeniably, subject foreclosure
was done in accordance with the prescribed rules.
MATERIAL ALTERATION
Associated Bank vs. Hon. Court Of Appeals, Province of Tarlac and Philippine National
Bank
G.R. No. 107382/G.R. No. 107612 , 31 January 31, 1996
Facts:
The Province of Tarlac maintains an account with PNB-Tarlac. Faustino

Pangilinan, cashier of the Concepcion Emergency Hospital, forged the signature of Dr.
Adena Canlas who was the Chief of the said hospital and endorsed 30 checks amounting to
P203,300 to himself. The money was drawn from the account of the Province of Tarlac with
PNB. Pangilinan deposited the checks to his personal savings account with Associated Bank
which was cleared and paid for by PNB. The checks have a stamp of Associated Bank which
reads:
“All prior endorsements guaranteed by Associated Bank”.
The Province of Tarlac, through the Provincial Treasurer, wrote PNB to restore the
various amounts debited from the current account of the Province. PNB on its part
demanded reimbursement from Associated Bank. Both banks resisted payment which led
to the Province of Tarlac suing PNB. PNB in turn impleaded Associated Bank in the suit as a
third-party defendant while Associated Bank impleaded Canlas and Pangilinan as fourth-
party defendants.
The trial court ruled that PNB should pay the Province of Tarlac the P203,300 with
legal interests, and Associated Bank should be pay the same amount to PNB, and ordered
that the case be dismissed against Canlas and Pangilinan. On appeal, the Court of Appeals
affirmed the ruling of the trial court
Issue:
Are the PNB and Associated Bank liable for the value of the forged checks?
Resolution:
Yes. The Court finds as reasonable, the proportionate sharing of fifty percent – fifty
percent (50%-50%). Province of Tarlac contributed to the loss and shall be liable to the
PNB for fifty (50%), Province of Tarlac can only recover fifty percent (50%) from PNB.
Associated Bank, shall be liable to PNB for fifty (50%). It is liable on its warranties as
indorser of the checks which were deposited to it. PNB's duty was to verify the genuineness
of the drawer's signature and not the genuineness of payee's indorsement. Associated
Bank, as the collecting bank, is the entity with the duty to verify the genuineness of the
payee's indorsement.
A forged signature, whether it be that of the drawer or the payee, is wholly

inoperative and no one can gain title to the instrument through it. A person whose
signature to an instrument was forged was never a party and never consented to the
contract which allegedly gave rise to such instrument. Section 23 does not avoid the
instrument but only the forged signature. 19 Thus, a forged indorsement does not operate
as the payee's indorsement.
The exception to the general rule in Section 23 is where "a party against whom it is
sought to enforce a right is precluded from setting up the forgery or want of authority."
Parties who warrant or admit the genuineness of the signature in question and those who,
by their acts, silence or negligence are estopped from setting up the defense of forgery, are
precluded from using this defense. Indorsers, persons negotiating by delivery and
acceptors are warrantors of the genuineness of the signatures on the instrument.
Bank of America Nt & Sa, vs. Philippine Racing Club

G.R. No. 150228, 30 July 2009
Facts:
PRCI is a domestic corporation which maintains several accounts with different

banks in the Metro Manila area. The President and Vice President of PRCI were scheduled
to go out of the country in connection with the corporation’s business. In order not to
disrupt operations in their absence, they pre-signed several checks. The intention was to
insure continuity of plaintiff-appellee’s operations by making available cash/money
especially to settle obligations that might become due. These checks were entrusted to the
accountant with instruction to make use of the same as the need arose. The internal
arrangement was, in the event there was need to make use of the checks, the accountant
would prepare the corresponding voucher and thereafter complete the entries on the pre-
signed checks. a John Doe presented to Bank of America for encashment a couple of PRCI
checks with the indicated value of P110,000.00 each. It is admitted that these 2 checks
were among those presigned by PRCI. The two (2) checks had similar entries with similar
infirmities and irregularities. On the space where the name of the payee should be
indicated (Pay To The Order Of) the following 2-line entries were instead typewritten: on
the upper line was the word "CASH" while the lower line had the following typewritten
words, viz: "ONE HUNDRED TEN THOUSAND PESOS ONLY." Despite the highly irregular
entries on the face of the checks, defendant-appellant bank, without as much as verifying
and/or confirming the legitimacy of the checks considering the substantial amount
involved and the obvious infirmity/defect of the checks on their faces, encashed said
checks.
PRCI filed an action for damages against the bank. PRCI maintains that there exists a
duty on the drawee bank to inquire from the drawer before encashing a check only when
the check bears a material alteration. The lower court awarded actual and exemplary
damages. On appeal, the Court of Appeals affirmed the lower court's decision and held that
the bank was negligent. Hence this petition.
Issue:
Is the Bank of America liable for encashing a checks which bears are materially
altered?
Ruling:
The Court ruled that following established jurisprudential precedents, it is believe

that the allocation of sixty percent (60%) of the actual damages involved in this case
(represented by the amount of the checks with legal interest) to Bank of America is proper
under the premises. PRCI should, in light of its contributory negligence, bear forty percent
(40%) of its own loss.
It is well-settled that banks are engaged in a business impressed with public

interest, and it is their duty to protect in return their many clients and depositors who
transact business with them. They have the obligation to treat their client’s account
meticulously and with the highest degree of care, considering the fiduciary nature of their
relationship. The diligence required of banks, therefore, is more than that of a good father
of a family. The Court also cannot ignore the fact that the person who stole the pre-signed
checks subject of this case from respondent’s accountant turned out to be another
employee, purportedly a clerk in respondent’s accounting department. As the employer of
the "thief," respondent supposedly had control and supervision over its own employee.
This gives the Court more reason to allocate part of the loss to respondent.
The International Corporate Bank, Inc. vs. Court of Appeals and Philippine National
Bank
G.R. No. 129910, 5 September 2006
Facts:
The Ministry of Education and Culture issued 15 checks drawn against PNB which
ICB accepted for deposit on various date. After 24 hours from submission of the checks to
PNB for clearing, ICB paid the value of the checks and allowed the withdrawals of the
deposits. However, on 14 October 1981, PNB returned all the checks to ICB without
clearing them on the ground that they were materially altered. Thus, petitioner instituted
an action for collection of sums of money against respondent to recover the value of the
checks. The trial court ruled that PNB is expected to use reasonable business practices in
accepting and paying the checks presented to it. Thus, PNB cannot be faulted for the delay
in clearing the checks considering the ingenuity in which the alterations were effected. The
Court of Appeals reversed the trial court’s Decision. Hence, this petition.
Issue:
Is the alteration on the check’s serial numbers constitutes material alteration.
Ruling:
No. An alteration is said to be material if it alters the effect of the instrument. It

means an unauthorized change in an instrument that purports to modify in any respect the
obligation of a party or an unauthorized addition of words or numbers or other change to
an incomplete instrument relating to the obligation of a party. In other words, a material
alteration is one which changes the items which are required to be stated under Section 1
of the Negotiable Instruments Law. The case at the bench is unique in the sense that what
was altered is the serial number of the check in question, an item which, it can readily be
observed, is not an essential requisite for negotiability under Section 1 of the Negotiable
Instruments Law. The aforementioned alteration did not change the relations between the
parties. The name of the drawer and the drawee were not altered. The intended payee was
the same. The sum of money due to the payee remained the same.
Metropolitan Bank and Trust Company vs. Renato D. Cabilzo

G.R. No. 154469, 6 December 2006
Facts:
Cabilzo issued a Metrobank Check payable to "CASH" and postdated on 24

November 1994 in the amount of P1,000.00. The check was drawn against Cabilzo’s
Account with Metrobank and was paid by Cabilzo to a certain Mr. Marquez, as his sales
commission. Subsequently, the check was presented to Westmont Bank for payment.
Westmont Bank, in turn, indorsed the check to Metrobank for appropriate clearing. After
the entries thereon were examined, including the availability of funds and the authenticity
of the signature of the drawer, Metrobank cleared the check for encashment in accordance
with the Philippine Clearing House Corporation (PCHC) Rules. Cabilzo discovered that
Metrobank Check No. 985988 which he issued on 12 November 1994 in the amount
of P1,000.00 was altered to P91,000.00 and the date 24 November 1994 was changed to 14
November 1994. Cabilzo demanded that Metrobank re-credit the amount of P91,000.00 to
his account. Third-Party Complaint was then filed by Westmont bank because another case
involving the same cause of action was pending before a different court.
The trial court granted the Motion to Dismiss the Third-Party Complaint on the
ground of litis pendentia. On 4 September 1998, the RTC rendered a Decision in favor of
Cabilzo and thereby ordered Metrobank to pay the sum of P90,000.00, the amount of the
check. The Court of Appeals affirmed the RTC’s decision. Hence this petition.
Issue:
Is Metrobank liable for the alterations on the subject check bearing the forged
signature of the drawer?
Ruling:
Yes. An alteration is said to be material if it changes the effect of the instrument. It

means that an unauthorized change in an instrument that purports to modify in any
respect the obligation of a party or an unauthorized addition of words or numbers or other
change to an incomplete instrument relating to the obligation of a party. In other words, a
material alteration is one which changes the items which are required to be stated under
Section 1 of the Negotiable Instruments Law. In the present case, it is obvious that
Metrobank was remiss in that duty and violated that relationship. As observed by the Court
of Appeals, there are material alterations on the check that are visible to the naked eye.
Surprisingly, however, Metrobank failed to detect the above alterations which could
not escape the attention of even an ordinary person. This negligence was exacerbated by
the fact that, as found by the trial court, the check in question was examined by the cash
custodian whose functions do not include the examinations of checks indorsed for payment
against drawer’s accounts. Obviously, the employee allowed by Metrobank to examine the
check was not verse and competent to handle such duty.
Enrique P. Montinola vs. The Philippine National Bank, et al.

G.R. No. L-2861, 26 February 1951
Facts:
In May 1942, Ubaldo Laya, as provincial treasurer of Misamis Oriental issued a

P100,000.00 Philippine National Bank (PNB) check to Mariano Ramos. The said check was
to be used by Ramos, as disbursing officer of the US forces at that time, for military
purposes. Before Ramos can encash the check, he was made a prisoner of war by the
invading Japanese forces. When he got free in December 1944, he needed some cash for
himself and so he went to a certain Enrique Montinola and made arrangements.
On the back of the check, Ramos wrote:
Pay to the order of Enrique P. Montinola P30,000 only. The balance to be
deposited in the Philippine National Bank to the credit of M. V. Ramos.
In consideration thereof, Montinola promised to pay 85,000 in Japanese notes.
However, he was only able to pay 45k in Japanese notes to Ramos.
Later, Montinola sought to have the check encashed but PNB dishonored the check.
It appears that there was an insertion made. Under the signature of Laya, the words “Agent,
Philippine National Bank” was inserted, thus making it appear that Laya disbursed the
check as an agent of PNB and not as provincial treasurer of Misamis Oriental.
The Court of First Instance of Manila dismissed the complaint against the PNB the
Provincial Treasurer of Misamis Oriental. Hence, Montinola has appealed directly to the
Supreme Court.
Issue:
Is Montinola entitled to the value represented in an altered instrument?
Ruling:
No. The insertion of the words "Agent, Phil. National Bank" which converts the bank
from a mere drawee to a drawer and therefore changes its liability, constitutes a material
alteration of the instrument without the consent of the parties liable thereon, and so
discharges the instrument pursuant to Section 124 of the Negotiable Instruments Law. The
check was not legally negotiated within the meaning of the Negotiable Instruments Law.
Section 32 of the same law provides that "the indorsement must be an indorsement of the
entire instrument. An indorsement which purports to transfer to the indorsee a part only of
the amount payable does not operate as a negotiation of the instrument." Montinola may
therefore not be regarded as an indorsee. At most he may be regarded as a mere assignee

of the P30,000 sold to him by Ramos, in which case, as such assignee, he is subject to all
defenses available to the drawer Provincial Treasurer of Misamis Oriental and against
Ramos. Neither can Montinola be considered as a holder in due course because section 52
of said law defines a holder in due course as a holder who has taken the instrument under
certain conditions, one of which is that he became the holder before it was overdue. When
Montinola received the check, it was long overdue. And, Montinola is not even a holder
because section 191 of the same law defines holder as the payee or indorsee of a bill or
note and Montinola is not a payee. Neither is he an indorsee for as already stated, at most
he can be considered only as assignee. Neither could it be said that he took it in good faith.
Far East Bank & Trust Company Vs. Gold Palace Jewellery Co., as Represented by Judy L.
Yang, Julie Yang-Go and Kho Soon Huat
G.R. No. 168274, 20 August 2008
Facts:
Samuel Tagoe purchased from respondent Gold Palace Jewelry Co. pieces of jewelry.
As payment, Tagoe offered a foreign draft issued by the United Overseas Bank of Malaysia,
addressed to the Landbank of the Philippines (LBP). Far East Bank & Trust Company
(FEBTC) informed Gold Palace not to release the jewelry until the draft had been cleared.
Consequently, the manager of Gold Palace deposited the draft in the company’s account
with FEBTC. FEBTC, as collecting bank, presented the draft to drawee bank LBP. Thereafter,
Gold Palace’s account was credited with the amount stated in the draft. Tagoe then
returned to Gold Palace to claim his purchase. Gold Palace released the same and even
issued an FEBTC check representing an overpayment. Tagoe eventually encashed this and
FEBTC paid the same. Thereafter, LBP informed FEBTC that the foreign draft had been
materially altered from P300 to P380,000 and that LBP will be returning it. FEBTC then
refunded LBP, intending to debit Gold Palace’s account in return.In the meantime, Gold
Palace had already used portions of the amount. FEBTC was able to debit a portion of the
amount from Gold Palace’s account, without a proper written notice. FEBTC demanded
from Gold Palace the remaining balance. However, the latter did not comply. FEBTC then
instituted a case for sum of money and damages against Gold Palace.
The Regional Trial Court ruled in favor of FEBTC, ordering Gold Palace to pay the
remaining balance on the basis of its warranties as general indorser. However, the Court of
Appeals reversed the RTC decision as FEBTC failed to undergo the proceedings on the
protest of the foreign draft or to notify Gold Palace of the dishonor of the drafts. Thus,
FEBTC could not charge Gold Palace on its secondary liability as an indorser. Its remedy
therefore is against the party who made the material alteration.
Issue:
Is the Gold Palace Jewelry liable for the materially altered foreign draft?
Ruling:
No. Section 62 of the Negotiable Instruments law provides that the acceptor, by
accepting the instrument, engages that he will pay it according to the tenor of his
acceptance. The same is applicable if the drawee pays a bill without having previously
accepted it. It amounts not only to an assent to the order of the drawer and recognition of
an obligation, but also his clear compliance. The payment of a check includes its acceptance.
In this case, LBP cleared and paid the foreign draft and forwarded the amount to FEBTC,
which credited the same to Gold Palace. LBP then, by said payment, recognized and
complied with its obligation to pay in accordance of his acceptance. LBP was liable on its
payment of the check according to the tenor of the check at the time of payment, which was
the raised amount. Therefore, LBP could not question anymore the payment it erroneously
made to a holder in due course. Gold Palace was not guilty of negligence or participation in
the alteration, and was thus a holder in due course. Gold Palace is protected by Sec. 62 of
the NIL. LBP, having the means to communicate with the Malaysian bank, should have first
verified the amount of the draft before clearing and paying it. Gold Palace, on the other
hand, merely relied on the clearance of the banks. FEBTC, consequently, should not have
debited Gold Palace’s account.
In some cases, the Court may rule that a drawee bank may recover, having paid to an
innocent holder the amount of an uncertified, altered check, from an innocent holder if said
drawee bank was in good faith and without negligence which contributed to the loss.
However, this does not apply in the present case.
Philippine National Bank vs. Court Of Appeals, Capitol City Development Bank,
Philippine Bank of Communications, and F. Abante Marketing
G.R. No. 107508, 25 April 1996
Facts:
A check with serial number 7-3666-223-3,in the amount of P97,650.00 was issued
by the Ministry of Education and Culture payable to F. Abante Marketing. This check was
drawn against Philippine National Bank. 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 petitioner for clearing.
Petitioner cleared the check as good and, thereafter, PBCom credited Capitol’s account for
the amount stated in the check. However, on October 19, 1981, petitioner 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 as of October 15, 1981.
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 with the Regional Trial
Court of Manila 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.
The RTC ordered PBCom to re-credit or reimburse Capitol the amount of

P97,650.00. As to PBCom’ third-party complaint, third-party defendant PNB is ordered to
reimburse and indemnify PBCom for whatever amount PBCom pays to Capitol. F. Abante
Marketing is ordered to reimburse and indemnify PNB for whatever amount PNB pays to
PBCom. The Court of Appeals modified the decision by exempting PBCom from liability.
Hence this petition.
Issue:
Is the alteration on a check’s serial number a material alteration under the

Negotiable Instruments Law?
Ruling:
No. 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 Instrument Law.
Section 1 of the Negotiable Instruments Law provides:
Section 1. - Form of negotiable instruments. An instrument to be

negotiable must conform to the following requirements:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain

in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or

otherwise indicated therein with reasonable certainty.
The case at the bench is unique in the sense that what was altered is the serial
number of the check in question, an item which, it can readily be observed, is not an
essential requisite for negotiability under Section 1 of the Negotiable Instruments Law. The
aforementioned alteration did not change the relations between the parties. The name of
the drawer and the drawee were not altered. The intended payee was the same. The sum of
money due to the payee remained the same.
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. The owner
and issuer of the check is boldly and clearly printed on its face, second line from the top:
"MINISTRY OF EDUCATION AND CULTURE," and below the name of the payee are the
rubber-stamped words: "Ministry of Educ. & Culture." These words are not alleged to have
been falsely or fraudulently intercalated into the check. The ownership of the check is
established without the necessity of recourse to the serial number. Neither is there any
proof that the amount of the check was erroneously charged against the account of a
government office or agency other than the Ministry of Education and Culture. Hence, the
alteration in the number of the check did not affect or change the liability of the Ministry of
Education and Culture under the check and, therefore, is immaterial.
San Carlos Milling Co., Ltd. vs. Bank of the Philippine Islands and China Banking
Corporation
G.R. No. L-37467, 11 December 1933
Facts:
San Carlos Milling in the Philippine Islands was in the hands of Alfred D. Cooper, its
agent under general power of attorney with authority of substitution. The principal
employee in the Manila office was one Joseph L. Wilson, to whom had been given a general
power of attorney but without power of substitution. In 1926 Cooper, desiring to go on
vacation, gave a general power of attorney to Newland Baldwin and at the same time
revoked the power of Wilson relative to the dealings with the Bank of the Philippine
Islands, one of the banks in Manila in which plaintiff maintained a deposit. Wilson,
conspiring together with one Alfredo Dolores, a messenger-clerk in plaintiff's Manila office,
sent a cable gram in code to the company in Honolulu requesting a telegraphic transfer to
the China Banking Corporation of Manila of $100,00. The money was transferred by cable,
and upon its receipt the China Banking Corporation, likewise a bank in which plaintiff
maintained a deposit, sent an exchange contract to plaintiff corporation offering the sum of
P201,000, which was then the current rate of exchange.
San Carlos Milling filed a complaint against both the Bank of the Philippine Islands
and the China Banking Corporation. The trial court held that the deposit of P201,000 in the
Bank of the Philippine Islands being the result of a forged endorsement, the relation of
depositor and banker did not exist, but the bank was only a gratuitous bailee; that the Bank
of the Philippine Islands acted in good faith. Hence this petition.
Issue:
Is BPI liable in favor of San Carlos Milling?
Ruling:
Yes. The bank paid out its money because it relied upon the genuineness of the
purported signatures of Baldwin. These, they never questioned at the time its employees
should have used care. In fact, even today the bank represents that it has a relief that they
are genuine signatures. The China Banking Corporation was not bound to inspect and
verify all endorsements of the check, even if some of them were also those of depositors in
that bank
The signatures to the check being forged, under section 23 of the Negotiable
Instruments Law they are not a charge against plaintiff nor are the checks of any value to
the defendant.It must therefore be held that the proximate cause of loss was due to the
negligence of the Bank of the Philippine Islands in honoring and cashing the two forged
checks.
Traders Royal Bank vs. Radio Philippines Network, Inc., Intercontinental Broadcasting
Corporation and Banahaw Broadcasting Corporation, through the Board of
Administrators, and Security Bank and Trust Company
G.R. No. 138510, 10 October 2002
Facts:
The Bureau of Internal Revenue (BIR) assessed plaintiffs Radio Philippines Network
(RPN), Intercontinental Broadcasting Corporation (IBC), and Banahaw Broadcasting
Corporation (BBC) of their tax obligations for the taxable years 1978 to 1983. RPN, et al.
purchased from defendant Traders Royal Bank (TRB) three (3) manager’s checks to be
used as payment for their tax liabilities,
The BIR again assessed RPN, et al for their tax liabilities for the years 1979-82. It
was then they discovered that the three (3) manager’s checks intended as payment for
their taxes were never delivered nor paid to the BIR by Mrs. Vera. Instead, the checks were
presented for payment by unknown persons to defendant Security Bank and Trust
Company (SBTC). RPN, et al. sent letters to TRB, demanding that the amounts covered by
the checks be reimbursed or credited to their account. The RTC ruled in favor of RPN, et al.
The trial court also ordered SBTC, being collecting bank, to reimburse the defendant TRB.
The Court of Appeals absolved the liability of SBTC. Hence, this petition.
Issue:
Is Traders Royal Bank liable for paying a forged check?
Ruling:
Yes. By encashing in favor of unknown persons, checks which were on their face
payable to the BIR, a government agency which can only act only through its agents, TRB
did so at its peril and must suffer the consequences of the unauthorized or wrongful
endorsement. In this light, TRB cannot exculpate itself from liability by claiming that
respondent networks were themselves negligent.
A bank is engaged in a business impressed with public interest and it is its duty to
protect its many clients and depositors who transact business with it. It is under the
obligation to treat the accounts of the depositors and clients with meticulous care, whether
such accounts consist only of a few hundreds or millions of pesos.
ACCEPTANCE
New Pacific Timber & Supply Company, Inc. vs. Hon. Alberto Seneris, Ricardo A. Tong
and Ex-Officio Sheriff Hakim S. Abdulwahid
G.R. No. L-41764, 10 December 1980
Facts:
New Pacific Timber & Supply Company was the defendant in a complaint for collection of a
sum of money filed by the private Ricardo Tong. A compromise judgment was rendered by
the respondent Judge in accordance with an amicable settlement entered into by the
parties. For failure of the New Pacific to comply with his judgment obligation, the
respondent Judge, issued an order for the issuance of a writ of execution. Accordingly, writ
of execution was issued for the amount of P63,130.00 pursuant to which, the Ex Officio
Sheriff levied upon the following personal properties of the petitioner and set the auction
sale thereof on January 15, 1975. New Pacific deposited with the Clerk of CFI the sum of
P63,130.00 for the payment of the judgment obligation, consisting of the following. (1)
P50,000.00 in Cashier's Checks dated January 3, 1975 of the Equitable Banking
Corporation; and (2) P13,130.00 in cash. The Tong refused to accept the check as well as
the cash deposit. The respondent judge upheld private respondent's claim that he has the
right to refuse payment by means of a check, the respondent Judge citing Section 63 of the
Central Bank Act, and Article 1249 of the New Civil Code.
Issue:
Is the refusal of Ricardo Tong to accept the payment of the judgment obligation
made by the New Pacific Timber & Supply Company consisting of P50, 000.00 in Cashier’s
Check and P13, 130.00 in cash valid?
Ruling:
No. It is to be emphasized in this connection that the check deposited by the

petitioner in the amount of P50,000.00 is not an ordinary check but a Cashier's Check of the
Equitable Banking Corporation, a bank of good standing and reputation. As testified to by
the Ex-Officio Sheriff with whom it has been deposited, it is a certified crossed check. It is a
well-known and accepted practice in the business sector that a Cashier's Check is deemed
as cash. Moreover, since the said check had been certified by the drawee bank, by the
certification, the funds represented by the check are transferred from the credit of the
maker to that of the payee or holder, and for all intents and purposes, the latter becomes
the depositor of the drawee bank, with rights and duties of one in such situation. Where a
check is certified by the bank on which it is drawn, the certification is equivalent to
acceptance. Said certification "implies that the check is drawn upon sufficient funds in the
hands of the drawee, that they have been set apart for its satisfaction, and that they shall be
so applied whenever the check is presented for payment. It is an understanding that the
check is good then, and shall continue good, and this agreement is as binding on the bank
as its notes in circulation, a certificate of deposit payable to the order of the depositor, or
any other obligation it can assume. The object of certifying a check, as regards both
parties, is to enable the holder to use it as money." When the holder procures the check to
be certified, "the check operates as an assignment of a part of the funds to the
creditors." Hence, the exception to the rule enunciated under Section 63 of the Central
Bank Act to the effect "that a check which has been cleared and credited to the account of
the creditor shall be equivalent to a delivery to the creditor in cash in an amount equal to
the amount credited to his account" shall apply in this case. Considering that the whole
amount deposited by the petitioner consisting of Cashier's Check of P50,000.00 and
P13,130.00 in cash covers the judgment obligation of P63,000.00 as mentioned in the writ
of execution, then, the Court see no valid reason for the private respondent to have refused
acceptance of the payment of the obligation in his favor.
Philippine National Bank vs. Court Of Appeals And Philippine Commercial and
Industrial Bank (PCIB)
G.R. No. L-26001, 29 October1968
Facts:
Augusto Lim deposited in his current account with the PCIB GSIS Check No.
645915- B, in the sum of P57, 415.00, drawn against the PNB. Following an established
banking practice in the Philippines, the check was, on the same date, forwarded, for
clearing, through the Central Bank, to the PNB, which did not return said check the next
day, or at any other time, but retained it and paid its amount to the PCIB, as well as debited
it against the account of the GSIS in the PNB; that, subsequently, or on January 31, 1962,
upon demand from the GSIS, said sum of P57,415.00 was re-credited to the latter's account,
for the reason that the signatures of its officers on the check were forged. The PNB
demanded from the PCIB the refund of said sum, which the PCIB refused to do. Hence, the
present action against the PCIB, which was dismissed by the Court of First Instance of
Manila, whose decision was, in turn, affirmed by the Court of Appeals.
Issue:
Is "acceptance" tantamount to "payment” in contemplation of the Negotiable

Instruments law?
Ruling:
No. In general, "acceptance", in the sense in which this term is used in the
Negotiable Instruments Law is not required for checks, for the same are payable on
demand. Indeed, "acceptance" and "payment" are, within the purview of said Law,
essentially different things, for the former is "a promise to perform an act," whereas the
latter is the "actual performance" thereof. In the words of the Law, "the acceptance of a bill
is the signification by the drawee of his assent to the order of the drawer," which, in the
case of checks, is the payment, on demand, of a given sum of money. Upon the other hand,
actual payment of the amount of a check implies not only an assent to said order of the
drawer and a recognition of the drawer's obligation to pay the aforementioned sum, but,
also, a compliance with such obligation.
Prudential Bank vs. Intermediate Appellate Court, Philippine Rayon Mills, Inc. and
Anacleto R. Chi
G.R. No. 74886, 8 December 1992
Facts:
Philippine Rayon Mills, Inc.(PRMI) entered into a contract with Nissho Co., Ltd. of
Japan for the importation of textile machineries under a 5-year deferred payment plan. To
effect the payment, PRMI applied for a commercial letter of credit with the Prudential Bank
and Trust Company in favor of Nissho. Prudential Bank opened Letter of Credit No. DPP-
63762 for $128,548.78 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, the Bank of
Tokyo. Two of the original drafts were accepted by PRMI through its president, Anacleto R.
Chi, while the others were not. Upon the arrival of the machineries, the Prudential Bank
indorsed the shipping documents to the PRMI which accepted delivery of the same. To
enable PRMI to take delivery of the machineries, it executed, by prior arrangement with the
Prudential Bank, a trust receipt which was signed by Anacleto R. Chi in his capacity as
President of PRMI company.
At the back of the trust receipt was printed a form to be accomplished by 2 sureties
who, by the very terms and conditions thereof, were to be jointly and severally liable to the
Prudential Bank should the PRMI fail to pay the total amount or any portion of the drafts
issued by Nissho and paid for by Prudential Bank. . PRMI was able to take delivery of the
textile machineries and installed the same at its factory site. Chi argued that presentment
for acceptance was necessary to make PRMI liable. The trial court ruled that that
presentment for acceptance was an indispensable requisite for Philippine Rayon’s liability
on the drafts to attach. The Intermediate Appellate Court sustained the trial court decision
in all respects. Hence, this present case.
Issue:
Is presentment for acceptance needed in order for PRMI to be liable under the draft?
Ruling:
No. Presentment for acceptance is necessary only in the cases expressly provided
for in Section 143 of the Negotiable Instruments Law (NIL). The said section reads:
Sec. 143. When presentment for acceptance must be made. — 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. The acceptance of a bill is the signification by the drawee of his assent to the
order of the drawer; this may be done in writing by the drawee in the bill itself, or in a
separate instrument.
The trial court and the IAC, therefore, erred in ruling that presentment for
acceptance was an indispensable requisite for Philippine Rayon's liability on the drafts to
attach. Contrary to both courts' pronouncements, Philippine Rayon immediately became
liable thereon upon petitioner's payment thereof. Such is the essence of the letter of credit
issued by the petitioner. A different conclusion would violate the principle upon which
commercial letters of credit are founded because in such a case, both the beneficiary and
the issuer, Nissho Company Ltd. and the petitioner, respectively, would be placed at the
mercy of Philippine Rayon even if the latter had already received the imported machinery
and the petitioner had fully paid for it.
PRESENTMENT FOR ACCEPTANCE
Far East Realty Investment Inc. vs. Court Of Appeals, Dy Hian Tat, Siy Chee And Gaw
Suy An
G.R. No. L-36549 October 5, 1988
Facts:
Dy Hian Tat, et al. asked Far East Realty Investment Inc. to extend an
accommodation loan in the sum of P4,500.00. Dy Hian Tat , et al. delivered to Far East
Realty the 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. Dy Hian Tat , et al
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. Far East Realty demanded payment from the private respondents but the latter
failed and refused to pay notwithstanding repeated demands.
Dy Hian Tat, et al. raised the defense that both have been wholly discharged by delay
in presentment of the check for payment. The trial court ruled in favor of the petitioner.
However, this was reversed by the Court of appeals 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. Far East Realty 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. Hence this petition.
Issue:
Is the presentment for payment and notice of dishonor of the questioned check were
made within reasonable time?
Ruling:
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 .
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, Far East Realty
undoubtedly failed to exercise prudence and diligence on what he ought to do al. required
by law. Far East Realty likewise failed to show any justification for the unreasonable delay.

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SOL-Negotiable Instrument Law

Nora B. Moulic issued to Corazon Victoriano, as security for pieces of jewelry to be

Is the Notice of Dishonor indispensable in order for MOULIC to be held liable?

JAMES SVENDSEN vs. PEOPLE OF THE PHILIPPINES

G.R. No. 175381, 26 February 2008

Cristina Reyes (Cristina) extended a loan to petitioner in the amount of P200,000, to

Cristina, through counsel, thus sent a letter to petitioner by registered mail

No settlement having been made by petitioner, Cristina filed a complaint dated

Is Svendsen guilty for violation of BP 22?

Eliza T. Tan vs. People of the Philippines

Eliza is the Vice-President of Hometown Development, Inc. (HDI), owner/developer

Is Tan guilty for violation of B.P. 22?

1. That a person makes or draws and issues any check;

G.R. No. 156262, 14 July 2005

Is Evangeline Santos an indispensable party to the suit?

Luis S. Wong vs. Court of Appeals and People of the Philippines

Is Wong guilty of the crime charged?

An essential element of the offense is "knowledge" on the part of the maker or

DISCHARGE OF NEGOTIABLE INSTRUMENT LAW

Anamer Salazar vs. J.Y. Brothers Marketing Corporation

Is the issuance of Solidbank a crossed check discharged petitioner from liability?

No. Section 119 of the Negotiable Instrument Law provides, thus:

SECTION 119. Instrument; how discharged. – A negotiable instrument is

(a) By payment in due course by or on behalf of the principal debtor;

(c) By the intentional cancellation thereof by the holder;

G.R. No. 112392, 29 February 2000

Is the instrument discharged when BPI committed "clears gross negligence" in

G.R. No. 123031, 12 October 1999

Cebu International Finance Corporation (CIFC), a quasi-banking institution, is

Producers Bank of the Philippines vs. Excelsa Industries, Inc.

Excelsa Industries, Inc. is a manufacturer and exporter of fuel products, particularly

Is the extrajudicial foreclosure of the real estate mortgage discharged the

Excelsa Industries is estopped from questioning the foreclosure. Excelsa Industries

The Province of Tarlac maintains an account with PNB-Tarlac. Faustino

“All prior endorsements guaranteed by Associated Bank”.

A forged signature, whether it be that of the drawer or the payee, is wholly

Bank of America Nt & Sa, vs. Philippine Racing Club

PRCI is a domestic corporation which maintains several accounts with different

The Court ruled that following established jurisprudential precedents, it is believe

It is well-settled that banks are engaged in a business impressed with public

Is the alteration on the check’s serial numbers constitutes material alteration.

No. An alteration is said to be material if it alters the effect of the instrument. It

Metropolitan Bank and Trust Company vs. Renato D. Cabilzo

Cabilzo issued a Metrobank Check payable to "CASH" and postdated on 24

Yes. An alteration is said to be material if it changes the effect of the instrument. It

Enrique P. Montinola vs. The Philippine National Bank, et al.

In May 1942, Ubaldo Laya, as provincial treasurer of Misamis Oriental issued a

Is Montinola entitled to the value represented in an altered instrument?

therefore not be regarded as an indorsee. At most he may be regarded as a mere assignee

The RTC ordered PBCom to re-credit or reimburse Capitol the amount of

Is the alteration on a check’s serial number a material alteration under the

No. An alteration is said to be material if it alters the effect of the instrument. It

Section 1 of the Negotiable Instruments Law provides:

Section 1. - Form of negotiable instruments. An instrument to be

(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

(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

Is BPI liable in favor of San Carlos Milling?

Is Traders Royal Bank liable for paying a forged check?

No. It is to be emphasized in this connection that the check deposited by the

Is "acceptance" tantamount to "payment” in contemplation of the Negotiable