Nego 2j Case Digest Compilation

NEGOTIABLE INSTRUMENTS LAW
Atty. Maria Zarah Villanueva – Castro

Compilation of Case Digests
SAN BEDA COLLEGE
COLLEGE OF LAW
MENDIOLA, MANILA
COMPILATION OF CASE DIGESTS IN
NEGOTIABLE
INSTRUMENTS
LAW
ATTY. MARIA ZARAH VILLANUEVA – CASTRO
NAME
STUDENT NUMBER
SECTION

SAN BEDA COLLEGE OF LAW – MENDIOLA || 2J A.Y. 2017 - 2018 1

TABLE OF CONTENTS
1. Phil. Educ. Co., Inc. v. Soriano 39 SCRA 587
2. Tibajia, Jr. v. CA 223 SCRA 163
3. Philippine Airlines v. CA 181 SCRA 557
4. Metropolitan Bank & Trust Company v. CA Feb. 18, 1991;
194 SCRA 169
5. Caltex Phils. V. CA 212 SCRA 448
6. Ang Tek Lian v. CA 87 PHIL 383
7. PNB v. Rodriguez G.R. No. 170325;
September 26, 2008
8. Philippine National Bank v. Manila Oil Refining & By- 43 PHIL 445
Products Company
9. Republic Planters Bank v. CA 216 SCRA 738
10. Sps. Evangelista v. Mercator Finance Corp., et. Al. August 21, 2003
11. Ilano v. Hon. Espanol G.R. No. 161756;
December 16, 2005
12. Sesbreño v. CA 222 SCRA 466
13. Consolidated Plywood Inc. v. IFC Leasing 149 SCRA 448
14. De la Victoria v. Hon. Burgos 245 SCRA 374
15. Development Bank of Rizal v. Sima Wei 219 SCRA 736
16. Metropol (Bacolod) Financing v. Sambok Motors Co., et. Al. 120 SCRA 864
17. Gempesaw v. CA 218 SCRA 622
18. De Ocampo v. Gatchalian 03 SCRA 596
19. Yang v. CA G.R. No. 138074;
August 15, 2003
20. Mesina v. IAC 145 SCRA 497
21. Philippine National Bank v. Picornell, et. Al. 46 PHIL. 716
22. Astro Electronics v. Roxas, et. Al. September 23, 2003
23. Garcia v. Dionisio December 8, 2003
24. Crisologo-Jose v. CA September 15, 1989
25. Sadaya v. Sevilla 19 SCRA 924
26. Travel-On v. CA 210 SCRA 352
27. Agro-Conglomerates Inc. v. CA 348 SCRA 350
28. Gonzales v. RCBC 29 November 2006
29. Ang v. Associated Bank September 5, 2007
30. Far East v. Gold Palace Jewelry G.R. No. 168274;
August 20, 2008
31. Patrimonio v. Napoleon G.R. No. 187769;
June 4, 2014
32. Salas v. CA January 22, 1990
33. Philippine National Bank v. CA 256 SCRA 491
34. International Corporate Bank v. CA September 2006
35. Associate Bank v. CA January 31, 1996
36. Jai-Alai v. BPI 66 SCRA 29
37. Republic v. Ebrada July 31, 1975
38. Philippine National Bank v. Quimpo March 14, 1998
39. Gempesaw v. CA February 9, 1993
40. Philippine Commerical International Bank v. CA 350 SCRA 446
41. MWSS v. CA 143 SCRA 20
42. Ilusorio v. CA 393 SCRA 89
43. Samsung Construction v. Far East Bank August 15, 2004
44. Metrobank v. Cabilzo December 6, 2006
45. Bank of America v. Philippine Racing Club G.R. No. 150228;
July 20, 2009


TABLE OF CONTENTS

46. Far East Realty Investment, Inc. v. CA 166 SCRA 256
47. Wong v. CA February 2, 2001
48. International Corporate Bank v. Sps. Gueco February 12, 2001
49. Far East Realty v. CA October 5, 1988
50. State Investment House v. CA 217 SCRA 32
51. Asia Banking Corporation v. Javier 44 PHIL 777
52. Nyco Sales Corporation v. BA Finance Corporation 200 SCRA 637
53. Arceo, Jr. v. People of the Philippines G.R. No. 142641;
July 17, 2006
54. Allied Banking v. CA, GG Sportswear July 11, 2006
55. Areza v. Express Savings Bank, Inc. G.R. No. 176697;
September 10, 2014
56. New Pacific Timber v. Hon. Seneris December 19, 1980
57. PNB v. National City Bank of New York 63 PHIL. 711
58. Bataan Cigar v. CA 230 SCRA 648
59. Stelco Marketing Corporation v. CA June 17, 1992
60. State Investment House v. CA 175 SCRA 311
61. Papa v. A.U. Valencia 284 SCRA 643
62. Villanueva v. Nite G.R. No. 148211;
July 25, 2006
63. Equitable PCI v. Ong September 15, 2006
64. Security Bank & Trust Company v. RCBC G.R. Nos. 170984 &
170987; January 30,
2009


PRELIMINARY CONSIDERATIONS
PHILIPPINE EDUCATION CORPORATION v. SORIANO

39 SCRA 587 G.R. No. L – 22405; June 30, 1971 Dizon, J.:
By: Abrillo, Maria Isabella
FACTS:
Enrique Montinola sought to purchase form the Manila Post office 10 money orders of 200 pesos
each. Offering to pay for them with a private check, the teller advised Montinola to see the Chief of the
Money Order Division as private checks were not generally accepted in payment of money orders. Without
knowledge of the teller, Montinola managed to leave the building with his own check and the 10 money
orders.
A notice was served upon all banks instructing them not to pay anyone of the money orders
aforesaid if presented for payment. Petitioner received one of the money orders and deposited the same
with Bank of America, and thereafter received 200 pesos.
Soriano, Chief of the Money Order Division, notified the Bank of America that the money order
attached has been found to have been irregularly issued and that the amount had been deducted from the
bank’s clearing account. Bank of America debited petitioner’s account with the same amount and gave it
advice by means of a debit memo. Petitioner requested the Postmaster General to reconsider the deduction
of 200 pesos, but it was denied.
Montinola was charged with theft but was acquitted on the ground of reasonable doubt. Petitioner
filed an action against respondent praying to countermand the notice given to the Bank of America,
deducting 200 pesos from the bank’s clearing account or to indemnify the petitioner the same amount with
interest contending that the postal money order is a negotiable instrument and that its nature is not affected
by the letter addressed to all banks with a clearing account with the post office.
ISSUE:
Whether or not a postal money order is a negotiable instrument
RULING:
NO.
The postal statutes were patterned after similar statutes in force in the US. For this reason, the
Philippine statutes are generally construed in accordance with the construction given in the US to their
own postal statutes, in the absence of any special reason justifying a departure from this policy or practice.
The weight of authority in the US is that postal money orders are not negotiable instruments, the reason
behind this rule being that, in establishing and operating a postal money order system, the government is
not engaging in commercial transactions but merely exercises a governmental power for the public benefit.
Moreover, some of the restrictions imposed upon money orders by postal laws and regulations are
inconsistent with the character of negotiable instruments. For instance, such laws and regulations usually
provide for not more than one endorsement; payment of money orders may be withheld under a variety of
circumstances.

TIBAJIA, JR. v. COURT OF APPEALS
223 SCRA 163 G.R. No. 100290; June 4, 1993 Padilla, J.:
By: Abrillo, Maria Isabella
FACTS:
Eden Tan filed a suit for collection of a sum of money against herein petitioner. A writ of
attachment was issued by the trial court, the Deputy sheriff filed a return stating that a deposit made by
the spouses in the RTC for 442, 750 pesos in another case had been garnished by him. The court rendered
its decision on favor of Tan, ordering the spouses to pay 300, 000 pesos. Tan filed a motion for execution
and thereafter, the garnished funds were levied upon.
The spouses delivered to the Sheriff 262, 750 pesos in Cashier’s check and 135, 733.70 pesos in
cash. Tan refused to accept the payment and insisted that the garnished funds deposited be withdrawn to
satisfy the judgment obligation.
Petitioner contends that the cashier’s check of the BPI, a bank in good standing, and which was a
crossed check marked “For Payee’s Account Only” and payable to Tan, is considered legal tender,
payment with which operates to discharge their monetary obligation.
ISSUE:
Whether or not payment by means of check is considered payment in legal tender
RULING:
NO.
In the cases of Philippine Airlines, Inc. vs. CA and Roman Catholic Bishop of Malolos, the court
held that – “A check, whether a manager’s check or ordinary check, is not legal tender, and an offer of a
check in payment of a debt is not a valid tender of payment and may be refused receipt by the obligee or
creditor.”
A check is not legal tender and a creditor may validly refuse payment by check, whether it be a
manager’s, cashier’s or personal check.

PHILIPPINE AIRLINES v. COURT OF APPEALS
181 SCRA 557 G.R. No. L – 49188; January 30, 1990 Gutierrez, Jr., J.:
By: Aguilar, Charmaine
FACTS:
Respondent Amelia Tan, under the name and style of Able Printing Press, commenced a complaint
for damages before the CFI of Manila against petitioner Philippine Airlines. The CFI rendered a judgment
in favor of Tan. The appellate court rendered its decision, affirming but modifying the CFI's decision as
to the amount of damages. The judgment became final and executory, and the case was remanded to the
trial court for execution. Tan filed a motion praying for the issuance of a writ of execution of the judgment
rendered by the Court of Appeals. The writ was duly referred to Deputy Sheriff Emilio Z. Reyes for
enforcement. 4 months later, Tan moved for the issuance of an alias writ of execution stating that the
judgment rendered by the lower court, and affirmed with modification by the Court of Appeals, remained
unsatisfied. PAL filed an opposition to the motion for the issuance of an alias writ of execution stating
that it had already fully paid its obligation to Tan through the deputy sheriff of the court, Reyes, as
evidenced by cash vouchers properly signed and receipted by said Emilio Z. Reyes.
ISSUE:
Whether or not the payment made to the absconding sheriff by check in his name operate to satisfy
the judgment debt
RULING:
NO.
In general, a payment, in order to be effective to discharge an obligation, must be made to the

proper person. Article 1240 of the Civil Code provides that "Payment shall be made to the person in whose
favor the obligation has been constituted, or his successor in interest, or any person authorized to receive
it." Further, Article 1249 of the Civil Code provides that "The payment of debts in money shall be made
in the currency stipulated, and if it is not possible to deliver such currency, then in the currency which is
legal tender in the Philippines. The delivery of promissory notes payable to order, or bills of exchange or
other mercantile documents shall produce the effect of payment only when they have been cashed, or
when through the fault of the creditor they have been impaired. In the meantime, the action derived from
the original obligation shall be held in abeyance." In the absence of an agreement, either express or
implied, payment means the discharge of a debt or obligation in money and unless the parties so agree, a
debtor has no rights, except at his own peril, to substitute something in lieu of cash as medium of payment
of his debt. Consequently, unless authorized to do so by law or by consent of the obligee, a public officer
has no authority to accept anything other than money in payment of an obligation under a judgment being
executed.
Strictly speaking, the acceptance by the sheriff of PAL's checks does not, per se, operate as a
discharge of the judgment debt. Since a negotiable instrument is only a substitute for money and not
money, the delivery of such an instrument does not, by itself, operate as payment. A check, whether a
manager's check or ordinary check, is not legal tender, and an offer of a check in payment of a debt is not
a valid tender of payment and may be refused receipt by the obligee or creditor. Mere delivery of checks
does not discharge the obligation under a judgment. The obligation is not extinguished and remains
suspended until the payment by commercial document is actually realized.

FORM AND INTERPRETATION OF NEGOTIABLE
INSTRUMENTS
METROPOLITAN BANK & TRUST COMPANY v. COURT OF APPEALS

194 SCRA 169 G.R. No. 88866; February 18, 1991 Cruz, J.:
By: Aguilar, Charmaine
FACTS:
A certain Eduardo Gomez opened an account with Golden Savings and deposited over a period of
2 months 38 treasury warrants which were all drawn by the Philippine Fish Marketing Authority and
purportedly signed by its General Manager and counter-signed by its Auditor. 6 of these were directly
payable to Gomez while the others appeared to have been indorsed by their respective payees, followed
by Gomez as second indorser. All warrants were subsequently indorsed by Gloria Castillo as Cashier of
Golden Savings and deposited to its Savings account in Metrobank branch in Calapan, Mindoro. They
were sent for clearance. Gomez was meanwhile not allowed to withdraw from his account but it finally
decided to allow Golden Savings to withdraw from the proceeds of the warrants. Golden Savings
subsequently allowed Gomez to make withdrawals from his own account. Metrobank informed Golden
Savings that 32 of the warrants had been dishonored by the Bureau of Treasury and demanded the refund
by Golden Savings of the amount it had previously withdrawn.
ISSUE:
Whether or not the treasury warrants in question are negotiable instruments
RULING:
NO.
Clearly stamped on the treasury warrants' face is the word "non-negotiable." Moreover, and this is
of equal significance, it is indicated that they are payable from a particular fund, to wit, Fund 501. Under
Section 3 of the NIL, "An unqualified order or promise to pay is unconditional within the meaning of this
Act though coupled with — (a) An indication of a particular fund out of which reimbursement is to be
made or a particular account to be debited with the amount; or (b) A statement of the transaction which
gives rise to the instrument. But an order or promise to pay out of a particular fund is not unconditional."
The indication of Fund 501 as the source of the payment to be made on the treasury warrants makes the
order or promise to pay "not unconditional" and the warrants themselves non-negotiable.

CALTEX PHIIPPINES v. COURT OF APPEALS
212 SCRA 448 G.R. No. 97753; August 10, 1992 Regalado, J.:
By: Arada, Beatriz Nicole
FACTS:
In 1982, Angel de la Cruz obtained certificates of time deposit (CTDs) from Security Bank and
Trust Company for the former’s deposit with the said bank amounting to P1,120,000.00. The said CTDs
are couched in the following manner:
This is to Certify that BEARER has deposited in this Bank the sum of _______ Pesos,
Philippine Currency, repayable to said depositor _____ days. after date, upon presentation
and surrender of this certificate, with interest at the rate of ___ % per cent per annum.
Angel de la Cruz subsequently delivered the CTDs to Caltex in connection with the purchase of
fuel products from Caltex.
In March 1982, Angel de la Cruz advised Security Bank that he lost the CTDs and executed an
affidavit of loss submitted to the bank. The bank then issued another set of CTDs. In the same month,
Angel de la Cruz acquired a loan of P875,000.00 and he used his time deposits as collateral.
In November 1982, a representative from Caltex went to Security Bank to present the CTDs
(delivered by de la Cruz) for verification. Caltex advised Security Bank that de la Cruz delivered Caltex
the CTDs as security for purchases he made with the latter. Security Bank refused to accept the CTDs and
instead required Caltex to present documents proving the agreement made by de la Cruz with Caltex.
Caltex however failed to produce said documents.
In April 1983, de la Cruz’ loan with Security bank matured and no payment was made by de la
Cruz. Security Bank eventually set-off the time deposit to pay off the loan.
Caltex sued Security Bank to compel the bank to pay off the CTDs. Security Bank argued that the
CTDs are not negotiable instruments even though the word “bearer” is written on their face because the
word “bearer” contained therein refer to depositor and only the depositor can encash the CTDs and no one
else
ISSUE:
Whether or not the Certificates of Time Deposit are negotiable instruments
RULING:
YES.
The CTDs indicate that they are payable to the bearer; that there is an implication that the depositor
is the bearer but as to who the depositor is, no one knows. It does not say on its face that the depositor is
Angel de la Cruz. If it was really the intention of respondent bank to pay the amount to Angel de la Cruz
only, it could have with facility so expressed that fact in clear and categorical terms in the documents,
instead of having the word “BEARER” stamped on the space provided for the name of the depositor in
each CTD. On the wordings of the documents, therefore, the amounts deposited are repayable to whoever
may be the bearer thereof.
However, Caltex may not encash the CTDs because although the CTDs are bearer instruments, a
valid negotiation thereof for the true purpose and agreement between Caltex and De la Cruz, requires both
delivery and indorsement. As discerned from the testimony of Caltex’ representative, the CTDs were
delivered to them by de la Cruz merely for guarantee or security and not as payment.

ANG TEK LIAN v. COURT OF APPEALS
87 PHIL. 383 G.R. No. L – 2516; September 25, 1950 Bengzon, J.:
By: Arada, Beatriz Nicole
FACTS:
In 1946, Ang Tek Lian approached Lee Hua and asked him if he could give him P4,000.00. He
said that he meant to withdraw from the bank but the bank’s already closed. In exchange, he gave Lee
Hua a check which is “payable to the order of ‘cash’”. Lee Hua presented the check for payment but it
was dishonored due to insufficiency of funds. Lee Hua eventually sued Ang Tek Lian for estafa. In his
defense, Ang Tek Lian argued that he did not indorse the check to Lee Hua and that when the latter
accepted the check without Ang Tek Lian’s indorsement, he had done so fully aware of the risk he was
running thereby.
ISSUE:
Whether or not the check issued by Ang Tek Lian that is payable to the order to “cash” and not
have been indorsed by Ang Tek Lian, making him not guilty for the crime of estafa
RULING:
NO.
Under Sec. 9 of NIL a check drawn payable to the order of “cash” is a check payable to bearer.
The drawee bank need not obtain any indorsement of the check, but may pay it to the person presenting it
without any indorsement. However, if the bank is not sure of the bearer’s identity or financial solvency, it
has the right to demand identification or assurance against possible complication, such as forgery of
drawer’s signature, loss of the check by the rightful owner, raising of the amount payable, etc. But where
the bank is satisfied of the identity or economic standing of the bearer who tenders the check for collection,
it will pay the instrument without further question; and it would incur no liability to the drawer in thus
acting.

PHILIPPINE NATIONAL BANK v. RODRIGUEZ
G.R. No. 170325; September 26, 2008 Reyes, R.T., J.:
By: Argonza II, Estalker
FACTS:
Respondents Spouses Erlando and Norma Rodriguez were clients of petitioner Philippine National
Bank (PNB) Cebu City. They maintained savings and demand/checking accounts under 2 “PNBig
Demand Deposits.” The spouses were engaged in the informal lending business. In line with their business,
they had a discounting arrangement with the Philnabank Employees Savings and Loan Association
(PEMSLA), an association of PNB employees, hence, making PEMSLA a client of PNB naturally.
PEMSLA regularly granted loans to its members. Spouses Rodriguez would rediscount the postdated
checks issued to members whenever the association was short of funds. It was PEMSLA’s policy not to
approve applications for loans of members with outstanding debts. To subvert this policy, some PEMSLA
officers devised a scheme to obtain additional loans despite their outstanding loan accounts by forging
indorsement of the named payees in the checks
For the period November 1998 to February 1999, the spouses issued sixty nine (69) checks, in the
total amount of P2,345,804.00. These were payable to forty seven (47) individual payees who were all
members of PEMSLA. Petitioner PNB eventually found out about these fraudulent acts. PNB closed the
current account of PEMSLA. As a result, the PEMSLA checks deposited by the spouses were returned or
dishonored for the reason Account Closed. Now, the Rodriguez incurred losses from the rediscounting
transactions. Spouses filed civil complaint against PEMSLA. RES contended that PNB credited the
checks to the PEMSLA account even without indorsements, hence, the payees were considered as
fictitious payees. PET argues that the checks are payable to bearer, thus, it shall be issued to whoever
bears the checks.
RTC rendered judgment in favor of spouses Rodriguez, hence, petition. The CA found that the
checks were bearer instruments, thus they do not require indorsement for negotiation; and that spouses
Rodriguez and PEMSLA conspired with each other to accomplish this moneymaking scheme. Spouses
moved for reconsideration.
ISSUE:
Whether or not the subject checks are payable to order or to bearer
RULING:
As a rule, when the payee is fictitious or not intended to be the true recipient of the proceeds, the
check is considered as a bearer instrument. The instrument is payable to order where it is drawn payable
to the order of a specified person or to him or his order (refer to Sec. 8 of NIL). The instrument is payable
to bearer when it is expressed to be so payable; payable to a person named therein or bearer; payable to
the order of a fictitious or non-existing person, and such fact is known to the person making it so payable
(refer to Sec. 9 of NIL).
Thus, the subject checks are presumed order instruments. This is because, as found by both lower
courts, PNB failed to present sufficient evidence to defeat the claim of respondents-spouses that the named
payees were the intended recipients of the checks proceeds. The bank failed to satisfy a requisite
condition of a fictitious-payee situation that the maker of the check intended for the payee to have no
interest in the transaction.
In a fictitious-payee situation, the drawee bank is absolved from liability and the drawer bears
the loss. However, there is a commercial bad faith exception to the fictitious-payee rule. A showing of
commercial bad faith on the part of the drawee bank, or any transferee of the check for that matter, will
work to strip it of this defense. Because of a failure to show that the payees were fictitious in its broader
sense, the fictitious-payee rule does not apply. Thus, the checks are to be deemed payable to order.
Consequently, the drawee bank bears the loss.
PNB, as the drawee bank, had the responsibility to ascertain the regularity of the indorsements,
and the genuineness of the signatures on the checks before accepting them for deposit. The facts clearly
show that the bank did not pay the checks in strict accordance with the instructions of the respondents-
spouses.
PHILIPPINE NATIONAL BANK v. MANILA OIL REFINING & BY-
PRODUCTS COMPANY
43 PHIL. 445 G.R. No. L – 18103; June 8, 1922 Malcolm, J.:
By: Argonza II, Estalker
FACTS:
The manager and the treasurer of the Manila Oil Refining & By-Products Company, Inc,. executed
and delivered to the Philippine National Bank (PNB), a written instrument reading as follows:
"RENEWAL. P61,000.00 MANILA, P.I., May 8, 1920. On demand after date we promise to pay to the
order of the Philippine National Bank sixty-one thousand only pesos at Philippine National Bank, Manila,
P.I. Without defalcation, value received; and do hereby authorize any attorney in the Philippine Islands,
in case this note be not paid at maturity, to appear in my name and confess judgment for the above sum
with interest, cost of suit and attorney's fees of ten (10) per cent for collection, a release of all errors and
waiver of all rights to inquisition and appeal, and to the benefit of all laws exempting property, real or
personal, from levy or sale. Value received.”
The Manila Oil Refining & By-Products Company, Inc. failed to pay the promissory note on
demand; PNB brought action in the CFI Manila, to recover P61,000, the amount of the note, together with
interest and costs; Mr. Elias N. Recto, an attorney associated with PNB, entered his appearance in
representation of Manila Oil, and filed a motion confessing judgment; Manila Oil, however, in a sworn
declaration, objected strongly to the unsolicited representation of attorney Recto.
Later, attorney Antonio Gonzalez appeared for Manila Oil and filed a demurrer, and when this was
overruled, presented an answer; The trial judge rendered judgment on the motion of attorney Recto in the
terms of the complaint.
In the Supreme Court, the question of first impression raised in the case concerns the validity in
this jurisdiction of a provision in a promissory note whereby in case the same is not paid at maturity, the
maker authorizes any attorney to appear and confess judgment thereon for the principal amount, with
interest, costs, and attorney's fees, and waives all errors, rights to inquisition, and appeal, and all property
exemptions.
ISSUE:
Whether or not the Negotiable Instruments Law expressly recognized judgment notes, enforceable
under the regular period
RULING:
The Negotiable Instruments Law, in section 5, provides that:
"An instrument which contains an order or promise to do any act in addition to the payment
of money is not negotiable.
But the negotiable character of an instrument otherwise negotiable is not affected by a provision
which:
(b) Authorizes confession of judgment if the instrument be not paid at maturity";
but this provision of law cannot be taken to sanction judgments by confession, because it is a portion of a
uniform law which merely provides that, in jurisdictions where judgments notes are recognized, such
clauses shall not affect the negotiable character of the instrument. Moreover, the same section of the
Negotiable Instruments Law concludes with these words: "But nothing in this section shall validate any
provision or stipulation otherwise illegal."

REPUBLIC PLANTERS BANK v. COURT OF APPEALS
216 SCRA 738 G.R. No. 93073; December 21, 1992 Campos, Jr., J.:
By: Baylon, Shena Gladdys
FACTS:
Shozo Yamaguchi and Fermin Canlas were President/Chief Operating Officer and Treasurer
respectively, of Worldwide Garment Manufacturing, Inc. (WGMI) By virtue of Board Resolution No. 1
dated August 1, 1979, they were authorized to apply for credit facilities with the Republic Planters Bank
(RPB) in the forms of export advances and letters of credit/trust receipts accommodations. RPB issued 9
promissory notes, inclusive, each of which were uniformly worded in the following manner:
"_____________, after date, for value received, I/we, jointly and severally promise to pay
to the ORDER of the REPUBLIC PLANTERS BANK, at its office in Manila, Philippines,
the sum of __________ PESOS ( ), Philippine Currency . . . ."
On the right bottom margin of the notes appeared the signatures of Yamaguchi and Canlas above
their printed names with the phrase "and (in) his personal capacity" typewritten below. At the bottom of
the promissory notes appeared:
"Please credit proceeds of this note to: _____ Savings Account ___ XX Current Account
No. 1372-00257- of WORLDWIDE GARMENT MFG. CORP.”
These entries were separated from the text of the notes with a bold line which ran horizontally
across the pages.
On December 20, 1982, WGMI voted to change its corporate name to Pinch Manufacturing
Corporation (PMC). On February 5, 1982, RPB filed a complaint for the recovery of sums of money
covered by the 9 promissory notes.
RTC: Decided in favor of RPB and held PMC, Yamaguchi and Canlas solidarily liable for the
amount due and other damages.
CA: Affirmed RTC’s decision, however absolved Canlas from his liability under the notes.
Canlas Argument: He denied having issued the notes since, according to him, he was not an
officer of PMC, but instead of WMGI and that when he issued said notes in behalf of WMGI, the same
were in blank.
ISSUE/S:
1. Whether or not Canlas is solidarily liable on each of the promissory notes bearing his signature
2. Whether or not Canlas can avoid liability on the promissory notes of the corporation
3. Whether or not the promissory notes were delivered to Canlas in blank for his signature to allow
the application of Sec. 14 of NIL
RULING:
1. YES. Canlas is solidarily liable.
Under the NIL, persons who write their names on the face of promissory notes are makers and are
liable as such. By signing the notes, the maker promises to pay to the order of the payee or any holder.
Where an instrument containing the words "I promise to pay" is signed by two or more persons, they are
deemed to be jointly and severally liable thereon. An instrument which begins with "I", "We", or "Either
of us" promise to pay, when signed by two or more persons, makes them solidarily liable. The fact that
the singular pronoun is used indicates that the promise is individual as to each other; meaning that each
of the co-signers is deemed to have made an independent singular promise to pay the notes in full.
In the case at bar, there is no denying that Canlas is one of the co-makers of the promissory notes.
Hence, he cannot escape liability. The solidary liability of Canlas is made clearer and certain by the

presence of the phrase "Joint and several" as describing the unconditional promise to pay to the order of
RPB.
2. NO. He cannot avoid liability.
As a general rule, officers or directors under the old corporate name bear no personal liability for acts
done or contracts entered into by officers of the corporation, if duly authorized. Inasmuch as such officers
acted in their capacity as agent of the old and the change of name meant only the continuation of the old
juridical entity, the corporation bearing the same name is still bound by the acts of its agents if authorized
by the Board. Under NIL, where the instrument contains or a person adds to his signature words
indicating that he signs for or on behalf of a principal, or in a representative capacity, he is not liable on
the instrument if he was duly authorized; but the mere addition of words describing him as an agent, or
as filling a representative character, without disclosing his principal, does not exempt him from personal
liability (Section 20).
In the case at bar, Canlas signs his name but nowhere in the instrument has he disclosed the fact that
he is acting in a representative capacity of WGMI/PMC. Hence, he cannot escape liability as per Section
20 of NIL.
3. NO.
A careful examination of the notes in question shows that they are the stereotype printed form of
promissory notes generally used by commercial banking institutions to be signed by their clients in
obtaining loans. Such printed notes are incomplete because there are blank spaces to be filled up on
material particulars such as payee's name, amount of the loan, rate of interest, date of issue and the maturity
date. The terms and conditions of the loan are printed on the note for the borrower-debtor's perusal. An
incomplete instrument which has been delivered to the borrower for his signature is governed by Section
14 of NIL.
However, in this case, the SC believed that proof that the notes were signed in blank was only the self-
serving testimony of Canlas. SC believed that the bank's testimony that the notes were filled up before
they were given to Canlas and Yamaguchi for their signatures as joint and several promissors. For signing
the notes above their typewritten names, they bound themselves as unconditional makers.

SPOUSES EVANGELISTA v. MERCATOR FINANCE CORPORATION,
ET.AL.
G.R. No. 148864; August 21, 2003 Puno, J.:
By: Baylon, Shena Gladdys
FACTS:
Sps. Evangelista filed a complaint for annulment of titles against Mercator Finance Corporation, et. al. They claimed
being the registered owners of 5 parcels of land contained in the Real Estate Mortgage executed by them and Embassy Farms,
Inc. ("Embassy Farms").
Sps. Evangelista alleged that they executed the Mortgage in favor of Mercator Financing Corporation ("Mercator")
only as officers of Embassy Farms and they did not receive the proceeds of the loan (promissory note), as all of it went to
Embassy Farms. Hence, they contended that the mortgage was without any consideration, as to them. There being no principal
obligation on which the mortgage rests, the real estate mortgage is void. With the void mortgage, they assailed the validity of
the foreclosure proceedings and the subsequent sales of the same parcels of land and transfer of the properties Lamecs.
Mercator however, contended that since petitioners and Embassy Farms signed the promissory note as co-makers,
aside from the Continuing Suretyship Agreement subsequently executed to guarantee the indebtedness of Embassy Farms, and
the succeeding promissory notes restructuring the loan, then petitioners are jointly and severally liable with Embassy Farms.
Due to their failure to pay the obligation, the foreclosure and subsequent sale of the mortgaged properties are valid.
Salazar and Lamecs asserted that they are innocent purchasers for value and in good faith, relying on the validity of
the title of Mercator. They also assailed the long silence and inaction by petitioners as it was only after a lapse of almost 10
years from the foreclosure of the property and the subsequent sales that they made their claim and averred that petitioners are
in estoppel and guilty of laches.
RTC: Dismissed the complaint. Inc. RTC held that it is crystal clear then that the spouses signed the promissory note
not only as officers of Embassy Farms, Inc. but in their personal capacity as well.
CA: Affirmed RTC’s decision. CA held that in constituting a mortgage over their own property in order to secure the
purported corporate debt of Embassy Farms, Inc., the appellants undeniably assumed the personality of persons interested in
the fulfillment of the principal obligation. CA also observed that if they really felt aggrieved by the foreclosure, procrastination
for about 9 years is difficult to understand.
Hence, this petition.
ISSUE:
Whether or not the Spouses Evangelista is solidary liable with Embassy Farms
RULING:
YES, Spouses is solidarily liable with Embassy Farms.
Section 17 of NIL states that where the language of the instrument is ambiguous or there are
omissions therein, the following rules of construction apply – “where an instrument containing the word
"I promise to pay" is signed by two or more persons, they are deemed to be jointly and severally liable
thereon.”
In the case at bar, promissory note states:
“For value received, I/We jointly and severally promise to pay to the order of
MERCATOR FINANCE CORPORATION at its office, the principal sum of EIGHT
HUNDRED FORTY-FOUR THOUSAND SIX HUNDRED TWENTY-FIVE PESOS &
78/100 (P844,625.78), Philippine currency, . . ., in installments. . . .”
The note was also signed at the bottom by petitioners and Embassy Farms with the signature of
Eduardo B. Evangelista below it.
Petitioners also do not deny that they obtained a loan from Mercator. They merely claim that they
got the loan as officers of Embassy
Farms without intending to personally bind themselves or their property.
Hence, applying Section 17 of NIL, Spouses Evangelista is solidarily liable.

ILANO v. HON. ESPANOL
G.R. No. 161756; December 16, 2005 Carpio – Morales, J.:
By: Bayot, Jr., Abel Angelo
FACTS:
Amelia Alonzo is a trusted employee of Victoria Ilano. She had been working for Ilano for several
years that she was able to gain the trust and confidence of Ilano and her family. Due to this trust and
confidence, there were occasions were Alonzo was entrusted by Ilano of her Metrobank Check book
containing either signed of unsigned checks.
On March 28, 2000, a complaint was filed by Ilano against Alonzo in the RTC of Imus, Cavite for
Revocation/Cancellation of Promissory Notes and Bills of Exchange with damages. She alleged that on
different dates stated in her complaint, Alonzo, with deceit and through her machination, was able to
induce her to sign antedated promissory notes and some blank checks payable to private respondents. It
was also alleged that Alonzo, with some of the other private respondents, took undue advantage of her
signature in said blank checks and forged her signature in other unsigned checks as to appear that she is
under the obligation to pay them several amounts of money when in truth and in fact, she does not owe
any of the said defendants any single amount.
The private respondents move to dismiss the complaint on the ground that that Ilano has no cause
of action because the checks subject to the complaint had been issued on account and for value and that
some had been dishonored due to “ACCOUNT CLOSED”.
The RTC Judge Español dismissed the complaint. The Court of Appeals affirmed the decision
which held that the subject checks which she sought to cancel or revoke had already been dishonored and
stamped “ACCOUNT CLOSED” Being the case, the subject checks could no longer be negotiated and
deduced that Ilano’s allegation that respondents are secretly negotiating the checks with third persons as
untenable.
ISSUE:
Whether or not Ilano’s complaint should prosper
RULING:
YES, but only partly.
The Supreme Court held that with respect to the checks subject of the complaint, it is gathered that
all the checks except for Check No. 0084078 were drawn against Ilano’s Metrobank Account No 00703-
955536-7. A photocopy of one of the checks drawn against said account shows that it was dishonored on
January 12, 2000 due to “ACCOUNT CLOSED”. When Ilano filed a complaint on March 28, 2000. All
the checks subject hereof which were drawn against the same closed account were already valueless or
non-negotiable, hence, Ilano has no cause of action.
However, with respect to Check No. 0084078, it was drawn against another account of Ilano, albeit
the date of issue bears only the year (1999), its validity and negotiable character at the time of the
complaint was not affected. The pertinent provisions of the negotiable instruments law will state that:
Sec 17 (c): Where the instrument is not dated, it will be considered to be dated as of the
time it was issued
Sec 6. Omissions, seal, particular money – The validity and negotiable character of an
instrument are not affected by the fact that –
(a) It is not dated
Even if Check No. 0084078 would have filled up the month and day of issue thereon to be
“December” and “31” respectively, it would have, as it did, become stale 6 months or 180 days thereafter,
following current banking practice. Hence, the Supreme Court ordered that Civil Case 2079-00 which
concerns this check be reinstated in the Regional Trial Court.

NEGOTIATION
SESBRENO v. COURT OF APPEALS

222 SCRA 466 G.R. No. 89252; May 24, 1993 Feliciano, J.:
By: Bayot, Abel Angelo
FACTS:
On April 10, 1980, private respondent Delta Motors Corporation (Delta) invested, by making a money market
placement with Philippine Underwriters Finance Corporation (PhilFinance) in the amount of P4,600,000. On the same day, it
borrowed back the bulk of the placement (P4,000,000) and issued two promissory notes: DMC PN 2730 and DMC PN 2731.
Thus, PhilFinance was left of P600,000 and these two notes representing the total amount of P4,000,000.
On February 9, 1981, Raul Sesbreño made a money market placement in the amount of P300,000 with PhilFinance
issued a Certificate of Delivery receipt indicating the sale of DMC PN 2731 to Sesbreño with the notation that the DMC PN
2731 was in the custodianship of Pilipinas Bank.
Post-dated checks were also given to him. They state that Sesbreño is the payee, PhilFinance is the drawer and Insular
Bank of America as drawee. They were dishonored when he sought to encash them for having been drawn against insufficient
funds.
Sesbreño approached Pilipinas Bank and handed a demand letter informing the bank that his placement with
PhilFinance had remained unpaid and outstanding and asks for the physical delivery of DMC PN 2731. He examined the PN
and saw that it it non-negotiable and that PhilFinance is the payee and Delta is the maker. Pilipinas Bank did not released the
promissory note to Sesbreño.
PhilFinance was placed under the joint control of the Securities and Exchange Commission and the Central Bank.
Pilipinas Bank delivered to the SEC DMC PN 2731 to which date the court ruled in this case remained in the SEC.
Sesbreño also made a written demand upon Delta for the partial satisfaction of DMC PN No. 2731, explaining that
PhilFinance, as payee thereof, had assigned to him said Note to the extent of P307,933.33. Delta, however, denied any liability
to petitioner on the promissory note, and explained in turn that it had previously agreed with PhilFinance to offset its DMC PN
No. 2731 (along with DMC PN No. 2730) against PhilFinance’s PN No. 143-A issued in favor of Delta.
Sesbreño had failed to collect his investment and interest. He filed an action for damages against Delta and Pilipinas
Bank in the RTC. The lower court dismissed the complaint. The Court of Appeals denied the appeal saying that if anyone
should be liable, it is PhilFinance who accepted the investment of Sesbreño and charged it against DMC PN 2371. However,
PhilFinance was not impleaded as one of the defendants in the case, hence the Court is without jurisdiction to pronounce
judgment against it.
ISSUE:
Whether or not Sesbreño can collect against Delta
RULING:
NO.
Petitioner could not have acquired any right over DMC PN No. 2731 as the same is "non-negotiable" as stamped on
its face. Negotiation is defined as the transfer of an instrument from one person to another so as to constitute the transferee the
holder of the instrument (Sec. 30, Negotiable Instruments Law). A person not a holder cannot sue on the instrument in his own
name and cannot demand or receive payment.
Petitioner contends that the Note had been validly transferred, in part to him by assignment and that as a result of such
transfer he can collect the amount of P307,933.33. It may be conceded that a negotiable instrument may, instead of being
negotiated, also be assigned or transferred. However, in this case, it is too late for petitioner to collect as he notified Delta of
the fact of the assignment to him only on 14 July 1981, that is, after the maturity not only of the money market placement made
by petitioner but also of both DMC PN No. 2731 and PhilFinance PN No. 143-A. In other words, petitioner notified Delta of
his rights as assignee after compensation had taken place by operation of law because the offsetting instruments had both
reached maturity. The third paragraph of Article 1285 of the Civil Code provides that If the assignment is made without the
knowledge of the debtor, he may set up the compensation of all credits prior to the same and also later ones until he had
knowledge of the assignment. Since Sesbreño failed to notify Delta before the compensation or the maturity of the promissory
note, the Court is compelled to uphold the defense of compensation raised by private respondent Delta.

CONSOLIDATED PLYWOOD INC. v. IFC LEASING
149 SCRA 448 G.R. No. 76788; January 22, 1990 Gutierrez, Jr., J.:
By: Biano, Krizel Mae
FACTS:
Consolidated Plywood Industries Inc. (CPII) is a corporation engaged in the logging business. It had for its
program of logging activities the opening of additional roads, and simultaneous logging operations along the route
of said roads. With this, it requires two more units of tractors to attain its objective. Atlantic Gulf and Pacific
Company of Manila’s sister company, Industrial Products Marketing (IPM), offered to sell to CPII 2 "Used" Allis
Crawler Tractors. IPM assured CPII that the "Used" Allis Crawler Tractors which were offered are fit for the job,
and gave the corresponding warranty of 90 days performance of the machines and availability of parts. The president
and vice president of CPII, agreed to purchase on installment said 2 units of "Used" Allis Crawler Tractors relying
on IPM’s guarantee. They paid a down payment of 210,000.00. After issuance of the sales invoice, the deed of sale
with chattel mortgage with promissory note was executed. Simultaneously with the execution of the deed of sale
with chattel mortgage with promissory note, IPM, by means of a deed of assignment, assigned its right sand interest
in the chattel mortgage in favor of IFC Leasing and Acceptance Corporation.
Immediately thereafter, IPM delivered said 2 units of "Used “tractors to CPII's jobsite as agreed upon.
Eventually, one of the tractors broke down, 9 days subsequent to the incident; the other tractor also broke down.
IPM sent mechanics to fix the tractors but was unable to do so as the units were not serviceable. Due to this, the
road building and simultaneous logging operations were delayed. The Vice President of CPII advised IPM that the
payments of the installments as listed in the promissory note would likewise be delayed until IPM completely fulfills
its obligation under its warranty. Since the tractors were no longer serviceable, the President asked IPM to pull out
the units and have them reconditioned, and thereafter to offer them for sale. The proceeds were to be given to IFC
Leasing and the excess, if any, to be divided between IPM and CPII which offered to bear 1/2 of their conditioning
cost. No response to this letter was received by CPII and despite several follow-up calls; IPM did nothing with
regard to the request, until the complaint in the case was filed by IFC Leasing against CPII. The trial court rendered
judgment, ordering CPII, et al. to pay jointly and severally in their official and personal capacities the principal sum
of P1, 093,798.71 with accrued interest. CPII et al.'s motion for reconsideration was denied by the Intermediate
Appellate Court Hence, this case.
ISSUE:
Whether or not the promissory note in question is a negotiable instrument?
RULING:
YES.
The pertinent portion of the note provides that ""FORVALUE RECEIVED, I/we jointly and
severally promise to pay to the INDUSTRIAL PRODUCTS MARKETING, the sum of ONEMILLION
NINETYTHREE THOUSAND SEVEN HUNDRED EIGHTYNINE PESOS & 71/100 only
(P1,093,789.71), Philippine Currency, the said principal sum, to be payable in 24 monthly installments
starting July 15, 1978 and every 15th of the month thereafter until fully paid." Considering that paragraph
(d), Section 1 of the Negotiable Instruments Law requires that a promissory note "must be payable to order
or bearer," it cannot be denied that the promissory note in question is not a negotiable instrument. The
instrument in order to be considered negotiable must contain the so called "words of negotiability" ³ i.e.,
must be payable to "order" or "bearer."These words serve as an expression of consent that the instrument
maybe transferred. This consent is indispensable since a maker assumes greater risk under a negotiable
instrument than under a non-negotiable one. Without the words "or order" or "to the order of," the
instrument is payable only to the person designated therein and is therefore non-negotiable. Any
subsequent purchaser thereof will not enjoy the advantages of being a holder of a negotiable instrument,
but will merely "step into the shoes "of the person designated in the instrument and will thus be open to
all defenses available against the latter. Therefore, considering that the subject promissory note is not a
negotiable instrument, it follows that IFC Leasing can never be a holder in due course but remains a mere
assignee of the note in question. Thus, CPII may raise against IFC Leasing all defenses available to it as
against IPM. This being so, there was no need for CPII to implead IPM when it was sued by IFC Leasing
because CPII's defenses apply to both or either of them.

DE LA VICTORIA v. HON. BURGOS
245 SCRA 376 G.R. No. 111190; June 27, 1995 Bellosillo, J.:
By: Prudente, Gabriel Alessandro
FACTS:
Private respondent Raul H. Sesbreño (Sesbreño) filed a complaint for damages against defendants
Bienvenido N. Mabanto, Jr. (Mabanto, Jr.), and Dario D. Rama, Jr. (Rama, Jr.), before the RTC. After
trial, defendants were ordered to pay Sesbreño. The decision having become final and executory, on
motion of the latter, the RTC ordered its execution. A notice of garnishment was served on petitioner
Loreto D. de la Victoria (petitioner) as City Fiscal, directing petitioner not to disburse, transfer, release or
convey to any other person except to the deputy sheriff concerned the salary checks, monies, or cash due
or belonging to Mabanto, Jr., under penalty of law.
Sesbreño filed a motion for examination of the garnishees. The RTC acting on the motion, directed
petitioner to submit his report showing the amount of the garnished salaries of Mabanto, Jr. Thereafter,
when petitioner failed to comply, Sesbreño filed a motion to require petitioner to explain why the latter
should not be held in contempt for such failure. However, petitioner moved to quash the notice of
garnishment claiming that he was not in possession of any money, funds, credit, property or anything of
value belonging to Mabanto, Jr., except his salary and RATA checks, but that said checks were not yet
properties of Mabanto, Jr., until delivered to him. He further claimed that, as such, they were still public
funds which could not be subject to garnishment.
The RTC denied both motions and ordered petitioner to comply with its order. It opined that the
checks of Mabanto, Jr., had already been released through petitioner by the Department of Justice duly
signed by the officer concerned. Upon service of the writ of garnishment, petitioner as custodian of the
checks was under obligation to hold them for the judgment creditor. Further, it was not the duty of the
garnishee to inquire or judge for himself whether the issuance of the order of execution, writ of execution
and notice of garnishment was justified. His only duty was to turn over the garnished checks to the trial
court which issued the order of execution.
ISSUE:
Whether or not a check still in the hands of the maker or its duly authorized representative is owned
by the payee before physical delivery to the latter?
RULING:
NO.
The check, prior to delivery, does not belong to the payee.Inasmuch as said checks had not yet
been delivered to Mabanto, Jr., they did not belong to him and still had the character of public funds.
The salary check of a government officer or employee does not belong to him before it is physically
delivered to him. Until that time the check belongs to the government. Accordingly, before there is actual
delivery of the check, the payee has no power over it; he cannot assign it without the consent of the
Government. The reason being that The functions and public services rendered by the State cannot be
allowed to be paralyzed or disrupted by the diversion of public funds from their legitimate and specific
objects, as appropriated by law.
Under Sec. 16 of the NIL, every contract on a negotiable instrument is incomplete and revocable
until delivery of the instrument for the purpose of giving effect thereto. As ordinarily understood, delivery
means the transfer of the possession of the instrument by the maker or drawer with intent to transfer title
to the payee and recognize him as the holder thereof.

DEVELOPMENT BANK OF RIZAL v. SIMA WEI
219 SCRA 736 G.R. No. 85419; March 9, 1993 Campos, Jr., J.:
By: Blanco, Bruce Benedict
FACTS:
Development Bank of Rizal extended a loan to respondent for 1,820,000 Pesos. Sima Wei made
partial payment leaving a balance of 1,032,450.02 Pesos. On November 18, 1983 Sima Wei issued two
cross-checks in favor of Petitioner Bank against China Banking Corporation bearing serial numbers
384934 for 550,000 Pesos and384935 for 500,000 Pesos. The said checks were allegedly issued in full
settlement of the drawer’s account. These two checks were not delivered to petitioner-payee or to any of
its representatives. For reasons not shown, the checks reached the hand of Lee Kian Huat who deposited
the checks to Producer Bank in favor of Plastic Corporation without Petitioner’s indorsement. This
notwithstanding, the branch manager of Producer bank instructed its cashiers to make said deposit for
Plastic Corporation’s account. On July 6, 1986 Petitioner filed a complaint against Respondent to enforce
the checks abovementioned to serve as payment for respondent’s remaining loan balance.
ISSUE:
Whether or not Petitioner Bank may have an interest to enforce said checks insofar as it is the
named payee in the said checks
RULING:
The Payee of a negotiable instrument acquires no interest with respect thereto until its delivery to
him. Delivery of instrument means transfer of possession actual or constructive from one person to
another. Without the initial delivery of the instrument from the drawer to Payee, there can be no liability
to the instrument. Without the delivery of said checks to Petitioner-Payee there can be no right or interest
and cause of action founded on said checks whether against Sima Wei or Producer Bank.

METROPOL (BACOLOD) FINANCING v. SAMBOK MOTORS CO., ET. AL.
120 SCRA 864 G.R. No. L – 39641; February 28, 1983 De Castro, J.:
By: Blanco, Bruce Benedict
FACTS:
On April 15, 1969 Dr. Javier Villaruel executed a promissory note in favor of Ng Sambok Sons
Motors Co., Ltd., in the amount of P15,939.00 payable in twelve (12) equal monthly installments,
beginning May 18, 1969, with interest at the rate of one percent per month. It is further provided that in
case on non-payment of any of the installments, the total principal sum then remaining unpaid shall
become due and payable with an additional interest equal to twenty-five percent of the total amount due.
On the same date, Sambok Motors Company (hereinafter referred to as Sambok), a sister company of Ng
Sambok Sons Motors Co., Ltd., and under the same management as the former, negotiated and indorsed
the note in favor of plaintiff Metropol Financing & Investment Corporation with the following
indorsement:
Pay to the order of Metropol Bacolod Financing & Investment Corporation with recourse.
Notice of Demand; Dishonor; Protest; and Presentment are hereby waived.
SAMBOK MOTORS CO. (BACOLOD)
By:
RODOLFO G. NONILLO Asst. General Manager
The maker, Dr. Villaruel defaulted in the payment of his installments when they became due, so
on October 30, 1969 plaintiff formally presented the promissory note for payment to the maker. Dr.
Villaruel failed to pay the promissory note as demanded, hence plaintiff notified Sambok as indorsee of
said note of the fact that the same has been dishonored and demanded payment. Sambok failed to pay.
Appellant Sambok argues that by adding the words "with recourse" in the indorsement of the note, it
becomes a qualified indorser that being a qualified indorser, it does not warrant that if said note is
dishonored by the maker on presentment, it will pay the amount to the holder.
ISSUE:
Whether or not Sambok is liable to pay if the maker fails to pay
RULING:
The appeal is without merit. "Recourse" means resort to a person who is secondarily liable after
the default of the person who is primarily liable. Appellant, by indorsing the note "with recourse" does
not make itself a qualified indorser but a general indorser who is secondarily liable, because by such
indorsement, it agreed that if Dr. Villaruel fails to pay the note, plaintiff-appellee can go after said
appellant. The effect of such indorsement is that the note was indorsed without qualification. A person
who indorses without qualification engages that on due presentment, the note shall be accepted or paid, or
both as the case may be, and that if it be dishonored, he will pay the amount thereof to the holder.
Appellant Sambok's intention of indorsing the note without qualification is made even more apparent by
the fact that the notice of demand, dishonor, protest and presentment were an waived. The words added
by said appellant do not limit his liability, but rather confirm his obligation as a general indorser.

GEMPESAW v. COURT OF APPEALS
218 SCRA 622 G.R. No. 92244; February 9, 1993 Campos, Jr. J.:
By: Cabael, Alexandra Nicole
FACTS:
The petitioner, Natividad Gempesaw, owns and operates four grocery stores. She draws checks for
the payment of her debts. Alicia Galang, her bookkeeper, prepares the checks needed for the payment.
After filling up the checks, Galang forwards them to Gempesaw for signatures. Gempesaw did not bother
to verify the checks that she signed because of the trust she has for Galang. Galang was assigned for the
delivery of the checks to the suppliers. In a span of two years, a total of 82 checks were prepared for the
payment of Gempesaw’s suppliers. The checks were not delivered to the suppliers; rather, they were
indorsed to Alfredo Romero and Benito Lam. The checks were delivered to Ernesto Boon, a chief
accountant of the bank. He accepted and approved, without authority, the checks for deposit.
ISSUE:
Whether or not the bank should refund the money lost of Gempesaw by reason of the forged
endorsements
RULING:
NO.
A party whose signature to an instrument was forged was never a party and never gave his consent
to the contract, which gave rise to the instrument. In the present case, it is admitted that Galang prepared
the checks, which Gempesaw signed. Instead of delivering the checks to the suppliers, Galang delivered
them to Boon. It was established that the signatures of the payees as first indorsers were forged. The
checks were then indorsed for the second time with the names of Alfredo Y. Romero and Benito Lam,
and were deposited in the latter's accounts as earlier noted. The second indorsements were all genuine
signatures of the alleged holders. As a rule, a drawee bank who has paid a check on which an indorsement
has been forged cannot charge the drawer's account for the amount of said check. An exception to this
rule is where the drawer is guilty of such negligence which causes the bank to honor such a check or
checks.
The negligence of a depositor, which will prevent recovery of an unauthorized payment, is based
on failure of the depositor to act as a prudent businessman would under the circumstances. In the present
case, Gempesaw was negligent. She simply relied on the honesty of Galang and did not verify the checks
she signed. Furthermore, although she regularly received her bank statements, she apparently did not
carefully examine the same nor the check stubs and the returned checks, and did not compare them with
the sales invoices. Otherwise, she could have easily discovered the discrepancies between the checks and
the documents serving as bases for the checks.

HOLDERS
DE OCAMPO v. GATCHALIAN
03 SCRA 596 G.R. No. L – 15126; November 30, 1961 Labrador, J.:
By: Cabael, Alexandra Nicole
FACTS:
An action, for the recovery of the value of the check drawn by Anita Gatchalian and payable to
De Ocampo for the formers indebtedness, was filed. Gatchalian was interested in looking for a car. Manuel
Gonzales offered her a car. Gonzales alleged that the owner of the car, Ocampo Clinic, authorized him to
sell the car. Gatchalian requested to bring the car and the certificate of registration. Gonzales advised them
that the owner of the car will not be willing to give the certificate of registration unless there is a showing
that the party interested in the purchase of said car is ready and willing to make such purchase. Gonzales
requested for a check to show their intention of purchasing the car. The check would be for the safekeeping
of Gonzales and will be returned to Gatchalian. Gonzales and the car did not appear on the day they agreed
upon.
Gonzales delivered the check to Ocampo clinic but not for the reason of payment for the car; rather
as a payment for the fees and expenses incurred by them in the Ocampo clinic. Gatchalian issued a stop
payment order. By reason of this, Ocampo was not able to encash the check.
ISSUE:
Whether or not De Ocampo is a holder in due course
RULING:
NO.
De Ocampo was not aware of the circumstances under which the check was delivered to Gonzales.
It was payee's duty to ascertain from the holder Manuel Gonzales what the nature of the latter's title to the
check was or the nature of his possession. Having failed in this respect, we must declare that plaintiff-
appellee was guilty of gross neglect in not finding out the nature of the title and possession of Manuel
Gonzales, amounting to legal absence of good faith, and it may not be considered as a holder of the check
in good faith. In the present case, Section 52 and 59 of the NIL cannot be applied because there was a
defect in the title of the holder.

YANG v. COURT OF APPEALS
G.R. No. 138074; August 15, 2003 Quisumbing, J.:
By: de la Peña, Jeanne Pauline
FACTS:
On or before 22 December 1987, Cely Yang and Prem Chandiramani entered into an agreement whereby the latter
was to give Yang a PCIB manager's check in the amount of P4.2 million in exchange for 2 of Yang's manager's checks, each
in the amount of P2.087 million, both payable to the order of Fernando David. Yang and Chandiramani agreed that the
difference of P26,000.00 in the exchange would be their profit to be divided equally between them. Yang and Chandiramani
also further agreed that the former would secure from FEBTC a dollar draft in the amount of US$200,000.00, payable to PCIB,
which Chandiramani would exchange for another dollar draft in the same amount to be issued by Hang Seng Bank Ltd. of
Hong Kong.
Accordingly, on December 22, 1987, Yang procured 3 more checks and at about 1:00 p.m. of the same day, Yang
gave the aforementioned cashier's checks and dollar drafts to her business associate, Albert Liong, to be delivered to
Chandiramani by Liong's messenger, Danilo Ranigo. Ranigo was to meet Chandiramani at Philippine Trust Bank, Ayala
Avenue, Makati City, Metro Manila where he would turn over Yang's cashier's checks and dollar draft to Chandiramani who,
in turn, would deliver to Ranigo a PCIB manager's check in the sum of P4.2 million and a Hang Seng Bank dollar draft for
US$200,000.00 in exchange. Chandiramani did not appear at the rendezvous and Ranigo allegedly lost the two cashier's checks
and the dollar draft bought by Yang. Ranigo reported the alleged loss of the checks and the dollar draft to Liong at 4:30 p.m.
of 22 December 1987. Liong, in turn, informed Yang, and the loss was then reported to the police. It transpired, however, that
the checks and the dollar draft were not lost, for Chandiramani was able to get hold of said instruments, without delivering the
exchange consideration consisting of the PCIB manager's check and the Hang Seng Bank dollar draft.
At 3:00 p.m. or some 2 hours after Chandiramani and Ranigo were to meet in Makati City, Chandiramani delivered
to David at China Banking Corporation branch in San Fernando City, Pampanga, the (a) FEBTC Cashier's Check 287078, and
the (b) Equitable Cashier's Check CCPS 14-009467. In exchange, Chandiramani got US$360,000.00 from David, which
Chandiramani deposited in the savings account of his wife, Pushpa Chandiramani; and his mother, Rani Reynandas, who held
FCDU Account 124 with the United Coconut Planters Bank (UCPB) branch in Greenhills, San Juan, Metro Manila.
Chandiramani also deposited FEBTC Dollar Draft 4771, in PCIB FCDU Account 4195-01165-2 on the same date. Meanwhile,
Yang requested FEBTC and ECB to stop payment on the instruments she believed to be lost. Both banks complied with her
request, but upon the representation of PCIB, FEBTC subsequently lifted the stop payment order on FEBTC Dollar Draft 4771,
thus enabling the holder of PCIB FCDU Account 4195-01165-2 to receive the amount of US$200,000.00.
On 28 December 1987, Yang lodged a Complaint for injunction and damages against ECB, Chandiramani, and David,
with prayer for a temporary restraining order, with the Regional Trial Court of Pasay City (Civil Case 5479). The Complaint
was subsequently amended to include a prayer for Equitable to return to Yang the amount of P2.087 million, with interest
thereon until fully paid. On 12 January 1988, Yang filed a separate case for injunction and damages, with prayer for a writ of
preliminary injunction against FEBTC, PCIB, Chandiramani and David, with the RTC of Pasay City.
The trial court dismissed the complaint against FEBTC, PCIB and EBC; without prejudice to whatever action Yang
will file against Chandiramani for reimbursement of the amounts received by him from David. Yang then moved for
reconsideration of the RTC judgment, but the trial court denied her motion in its Order of 20 September 1995. Yang seasonably
filed an appeal with the Court of Appeals. On 25 March 1999, the appellate court affirmed the decision of the trial court with
modification and ordered Yang to pay PCIB the amount of P25,000.00, as attorney's fees. Yang filed the petition for review on
certiorari.
ISSUE:
Whether or not David was a holder in due course
RULING:
YES.
Every holder of a negotiable instrument is deemed prima facie a holder in due course. However, this presumption
arises only in favor of a person who is a holder as defined in Section 191 of the Negotiable Instruments Law, meaning a "payee
or indorsee of a bill or note, who is in possession of it, or the bearer thereof." Herein, it is not disputed that David was the payee
of the checks in question. The weight of authority sustains the view that a payee may be a holder in due course. Hence, the
presumption that he is a prima facie holder in due course applies in his favor. However, said presumption may be rebutted.
Hence, what is vital to the resolution of this issue is whether David took possession of the checks under the conditions provided
for in Section 52 of the Negotiable Instruments Law. All the requisites provided for in Section 52 must concur in David's case,
otherwise he cannot be deemed a holder in due course. Yang's challenge to David's status as a holder in due course hinges on
two arguments: (1) the lack of proof to show that David tendered any valuable consideration for the disputed checks; and (2)
David's failure to inquire from Chandiramani as to how the latter acquired possession of the checks, thus resulting in David's
intentional ignorance tantamount to bad faith. In sum, Yang posits that the last two requisites of Section 52 are missing, thereby
preventing David from being considered a holder in due course. Unfortunately for Yang, her arguments on this score are less
than meritorious and far from persuasive.

MESINA v. INTERMEDIATE APPELLATE COURT
145 SCRA 497 G.R. No. L – 70145; November 13, 1986 Paras, J.:
FACTS:
Respondent Jose Go, on December 29, 1983, purchased from Associated Bank Cashier's Check
No. 011302 for P800,000.00. Unfortunately, Jose Go left said check on the top of the desk of the bank
manager when he left the bank. The bank manager entrusted the check for safekeeping to a bank official,
a certain Albert Uy, who had then a visitor in the person of Alexander Lim. Uy had to answer a phone call
on a nearby telephone after which he proceeded to the men's room. When he returned to his desk, his
visitor Lim was already gone. When Jose Go inquired for his cashier's check from Albert Uy, the check
was not in his folder and nowhere to be found. The latter advised Jose Go to go to the bank to accomplish
a "STOP PAYMENT" order, which suggestion Jose Go immediately followed. He also executed an
affidavit of loss. Albert Uy went to the police to report the loss of the check, pointing to the person of
Alexander Lim as the one who could shed light on it.
The records of the police show that Associated Bank received the lost check for clearing on
December 31, 1983, coming from Prudential Bank, Escolta Branch. The check was immediately
dishonored by Associated Bank by sending it back to Prudential Bank, with the words "Payment Stopped"
stamped on it. However, the same was again returned to Associated Bank on January 4, 1984 and for the
second time it was dishonored. Several days later, respondent Associated Bank received a letter, dated
January 9, 1984, from a certain Atty. Lorenzo Navarro demanding payment on the cashier's check in
question, which was being held by his client. He however refused to reveal the name of his client and
threatened to sue, if payment is not made. Respondent bank, in its letter, dated January 20, 1984, replied
saying the check belonged to Jose Go who lost it in the bank and is laying claim to it.
On February 1, 1984, police sent a letter to the Manager of the Prudential Bank, Escolta Branch,
requesting assistance in Identifying the person who tried to encash the check but said bank refused saying
that it had to protect its client's interest and the Identity could only be revealed with the client's conformity.
ISSUE:
Whether or not petitioner is a holder in due course
RULING:
NO.
Petitioner failed to substantiate his claim that he is a holder in due course and for consideration or
value as shown by the established facts of the case. Admittedly, petitioner became the holder of the
cashier's check as endorsed by Alexander Lim who stole the check. He refused to say how and why it was
passed to him. He had therefore notice of the defect of his title over the check from the start. The holder
of a cashier's check who is not a holder in due course cannot enforce such check against the issuing bank
which dishonors the same. If a payee of a cashier's check obtained it from the issuing bank by fraud, or if
there is some other reason why the payee is not entitled to collect the check, the respondent bank would,
of course, have the right to refuse payment of the check when presented by the payee, since respondent
bank was aware of the facts surrounding the loss of the check in question. Moreover, there is no similarity
in the cases cited by petitioner since respondent bank did not issue the cashier's check in payment of its
obligation.

LIABILITY OF PARTIES
PHILIPPINE NATIONAL BANK v. PICORNELL, ET. AL.

46 PHIL. 716 G.R. N. 18751; September 26, 1922 Romualdez, J.:
By: Elnas, Kathy Mae
FACTS:
Bartolome Picornell, under the instruction of Hyndman, Tavera & Ventura, bought in Cebu 1, 735
bales of tobacco. As a consequence, Picornell obtained from National Bank in Cebu the sum of Php 39,
529.83 covering the value of the tobacco. In return, he drafted a bill of exchange against Hyndman, Tavera
& Ventura and in favor of the bank.
“28 Feb 1920. For Php 39, 529.83; At thirty days sight please pay this first of exchange
(second unpaid) to the order of Philippine National Bank. Value received. To: Sres.
HYNDMAN, TAVERA Y VENTURA, Calle Soler 26 y 28. (Sgd.) B. Picornell”
The bill of exchange was delivered to the Philippine National Bank, which was shipped in the boat
Don Ildefonso with the invoice and bill of lading of the tobacco, consigned to Hyndman, Tavera & Ventura
at Manila. However, the invoice and bill of lading were given to the National Bank with the intention that
the bank should not deliver them to Hyndman until payment of the bill (condition was expressed by putting
“D/P” – Documents for payment). The central office of Philippine National Bank in Manila subsequently
received the bill and presented the same to Hyndman et al who accepted it.
Upon the arrival of the tobacco at Manila, Hyndman, Tavera & Ventura proceeded to examine the
same which was deposited in their warehouses. Picornell was notified that a certain portion of the tobacco
was of no use and was damaged. As a result, they refused to pay the bill. The bank protested the bill, took
possession of the tobacco, and had it appraised and sold at an auction.
ISSUE:
Whether or not Picornell can be held liable for the non-payment of the Bill of Exchange
RULING:
YES.
Picornell warranted the instrument as a drawer; that it would be accepted upon proper presentment,
and paid in due course. As it was not paid by the drawee (Hyndman, Tavera & Ventura) he became liable
to the payment of its value to PNB. The act of negotiating a bill is a different contract from that of having
purchased tobacco on behalf of the firm. Picornell cannot exempt himself from responsibility by saying
he is an agent of the firm, as the same is not even indicated on the bill.
Notice was given to Picornell of the dishonor of the bill, and the protest for non-payment was
mailed to him. PNB has a right of recourse against him because of his warranty. He is secondarily liable
on the instrument and upon its non-payment, he is liable provided that the necessary proceedings on
dishonor be duly taken which was present in this case. (Sec 61, NIL)

ASTRO ELECTRONICS v. ROXAS, ET. AL.
G.R. No. 136729; September 23, 2003 Austria-Martinez, J.:
By: Elnas, Kathy Mae
FACTS:
Petitioner Astro Electronics Corp. (Astro) was granted several loans by the Philippine Trust
Company (Philtrust) amounting to P3M with interest, secured by three promissory notes signed twice by
petitioner Roxas, as President of Astro and in his personal capacity. When Astro thereafter failed to pay
these loan obligations to Philtrust, respondent Philippine Export and Foreign Loan Guarantee Corp.
(Philguarantee) paid 70% of the amount as guaranteed in behalf of Astro. Subsequently, Philguarantee
filed a complaint for sum of money against Astro and Roxas and both the RTC and Court of Appeals ruled
in favor of Philguarantee. Roxas, however, disclaims any liability on the instruments alleging that he
merely signed the same in blank and the phrases "in his personal capacity" and "in his official capacity"
were fraudulently inserted without his knowledge.
In signing his name aside from being the President of Astro, Roxas became a co-maker of the
promissory notes and cannot escape any liability arising from it. He did not deny signing the notes twice
and did not offer any explanation why he did so. Roxas, as President of Astro, is reasonably, a businessman
who is presumed to take ordinary care of his concerns.
ISSUE:
Whether or not Roxas should be primarily liable jointly and severally as co-maker
RULING:
YES.
Astro's loan with Philtrust Bank is secured by three promissory notes. These promissory notes are
valid and binding against Astro and Roxas. As it appears on the notes, Roxas signed twice: first, as
president of Astro and second, in his personal capacity. In signing his name aside from being the President
of Astro, Roxas became a co-maker of the promissory notes and cannot escape any liability arising from
it. Under the Negotiable Instruments Law, persons who write their names on the face of promissory notes
are makers, promising that they will pay to the order of the payee or any holder according to its tenor.
Thus, even without the phrase "personal capacity," Roxas will still be primarily liable as a joint and several
debtor under the notes considering that his intention to be liable as such is manifested by the fact that he
affixed his signature on each of the promissory notes twice which necessarily would imply that he is
undertaking the obligation in two different capacities, official and personal.
The three promissory notes uniformly provide: "FOR VALUE RECEIVED, I/We jointly, severally
and solidarily, promise to pay to PHILTRUST BANK or order. .." An instrument which begins with "I",
"We", or "Either of us" promise to pay, when signed by two or more persons, makes them solidarily liable.
Also, the phrase "joint and several" binds the makers jointly and individually to the payee so that all may
be sued together for its enforcement, or the creditor may select one or more as the object of the suit. Having
signed under such terms, Roxas assumed the solidary liability of a debtor and Philtrust Bank may choose
to enforce the notes against him alone or jointly with Astro.

GARCIA v. DIONISIO
G.R. No. 154127; December 8, 2003 Panganiban, J.:
By: Enriquez, Lianne Mae
FACTS:
On 23 December 1996, Romeo Garcia and Eduardo de Jesus borrowed P400,000 from Dionisio Llamas
and executed a promissory note binding themselves jointly and severally to pay the loan on or before 23 January
1997 with a 5% interest per month.
Upon maturity of the loan and after repeated demands by Llamas, Garcia and de Jesus failed and refused to
pay. Thus, Llamas filed a Complaint for Sum of Money and Damages before the RTC of Quezon City. In answer,
Garcia averred that he assumed no liability under the promissory note because he signed it merely as an
accommodation party for de Jesus, and that alternatively, he is relieved from any liability arising from the same
note inasmuch as the loan had been paid by de Jesus by means of a check dated 17 April 1997. For his part, de Jesus
asserted that out of the P400,000 loan, he received only P360,000, and that Llamas acted in bad faith when he
instituted the case despite having agreed to extend the time for payment of the loan. For having failed to appear and
file a pre-trial brief, petitioners were declared in default.
The RTC of Quezon City ruled in favor of Llamas and ordered petitioners to pay, jointly and severally, the
sum of P400,000 principal amount plus 5% interest (from January 23, 1997), less the amount of P120,000 already
paid by de Jesus.
The Court of Appeals however, ruled that the RTC erred when it rendered judgment on the pleadings against
de Jesus for not requiring the latter to present his evidence ex-parte against the former. As to Garcia, the CA treated
his case as a summary judgment. In so doing, it held that no novation—express or implied—had taken place when
Llamas accepted the check from de Jesus for it was issued precisely to pay for the loan covered by the promissory
note, and such acceptance did not serve to make de Jesus the sole debtor because, first, the obligation to pay was
taken by petitioners jointly and severally, and second, the check bounced upon presentment.
ISSUES:
1. Whether or not the promissory note is a negotiable instrument

2. Whether or not, as an accommodation party, petitioner is released from fulfilling the obligation
RULINGS:
1. NO.
By its terms, the note was made payable to a specific person rather than to bearer or to order, which
is a requisite for negotiability under the Negotiable Instruments Law. The promissory note is thus
covered by the general provisions of the Civil Code and not by the NIL.
2. NO.
Even granting arguendo that the NIL was applicable, still, petitioner would be liable for the
promissory note. Under Article 29 of the NIL, an accommodation party is liable for the instrument to a
holder for value even if, at the time of its taking, the latter knew the former to be only an accommodation
party. The relation between an accommodation party and the party accommodated is, in effect, one of
principal and surety — the accommodation party being the surety. It is a settled rule that a surety is bound
equally and absolutely with the principal and is deemed an original promisor and debtor from the
beginning. The liability is immediate and direct.

CRISOLOGO – JOSE v. COURT OF APPEALS
G.R. No. 80599; September 15, 1989 Regalado, J.:
By: Enriquez, Lianne Mae
FACTS:
In 1980, Ricardo Santos, Jr. was the Vice-President of Mover Enterprises, Inc, with Atty. Oscar
Benares sitting as its President. On April 30, 1980, Atty. Benares, in accommodation of Sps. Jaime and Clarita Ong, issued a
check drawn against Traders Royal Bank, dated June 14, 1980, in the amount of P45, 000, payable to Ernestina Crisologo-Jose.
Since the check was under the account of Mover Enterprises, Inc., the same was to be signed by Atty. Benares as its president,
and the treasurer of the company. However, since the treasurer was unavailable at the time, Santos, Jr. was the one who signed
the check upon insistence of Atty. Benares.
The subject check was issued to Crisologo-Jose in consideration of her waiver or quitclaim over a certain property
which the GSIS agreed to sell to the Sps. Ong, with the understanding that upon approval by the GSIS of the compromise
agreement, the check will be encashed accordingly. Since the agreement was not approved within the expected period of time,
Atty. Benares replaced the aforesaid check with another Traders Royal Bank check, dated August 10, 1980, in the same amount,
payable to Crisologo-Jose. It also bore the signatures of Atty. Benares and Santos, Jr.
However, when Crisologo-Jose deposited the check, it was dishonored for insufficiency of funds. A subsequent
redepositing was likewise dishonored. Hence, a criminal complaint for violation of BP Blg. 22 was filed against Atty. Benares
and Santos, Jr. Meanwhile, during preliminary investigation of the criminal charge, Santos, Jr. tendered a cashier’s check dated
April 10, 1981 to Crisologo-Jose, who in turn, refused it so the former encashed the same and deposited the amount of P45,000
to the court to be applied in payment of the dishonored check.
The RTC was not persuaded to believe that consignation is applicable to the case so the case was dismissed. The Court
of Appeals was however, of a different opinion, and revived the complaint for consignation, and directed the trial court to give
due course thereto.
ISSUE:
Whether or not private respondent is an accommodation party under the NIL, and a debtor of
petitioner to the extent of the amount of said check
RULING:
YES.
To be considered an accommodation party, a person must: (1) be a party to the instrument, signing
as maker, drawer, acceptor, or indorser; (2) not receive value therefor; and (3) sign for the purpose of
lending his name for the credit of some other person. From the standpoint of contract law, he differs from
the ordinary concept of a debtor therein in the sense that he has not received any valuable consideration
for the instrument he signs. Nevertheless, he is liable to a holder for value as if the contract was not for
accommodation, in whatever capacity such accommodation party signed the instrument, whether
primarily or secondarily. Thus, it has been held that in lending his name to the accommodated party, the
accommodation party is in effect a surety for the latter.
The fact that for lack of capacity the corporation is not bound by an accommodation paper does
not thereby absolve, but should render the signatories of said instrument personally liable, where the facts
show that the accommodation involved was for their personal account, undertaking or purpose and the
creditor was aware thereof.
Petitioner was evidently charged with the knowledge that the check was issued at the instance and
for the personal account of Atty. Benares who merely prevailed upon respondent Santos to act as co-
signatory in accordance with the arrangement of the corporation with its depository bank. That it was a
personal undertaking of said corporate officers was apparent to petitioner by reason of her personal
involvement in the financial arrangement and the fact that, while it was the corporation's check which was
issued to her for the amount involved, she actually had no transaction directly with said corporation.
Petitioner, as hereinbefore explained, was evidently charged with the knowledge that the check was issued
at the instance and for the personal account of Atty. Benares who merely prevailed upon respondent Santos
to act as co-signatory in accordance with the arrangement of the corporation with its depository bank. That
it was a personal undertaking of said corporate officers was apparent to petitioner by reason of her personal
involvement in the financial arrangement and the fact that, while it was the corporation's check which was
issued to her for the amount involved, she actually had no transaction directly with said corporation.

SADAYA v. SEVILLA
19 SCRA 924 G.R. No. L – 17845; April 27, 1967 Sanchez, J.:
By: Espinosa, Phillip John
FACTS:
Victor Sevilla, Oscar Varona and Simeon Sadaya executed, jointly and severally, in favor of BPI,
or its order, a promissory note for P15,000.00 with interest at 8% per annum, payable on demand. The
entire, amount of P15,000.00, proceeds of the promissory note, was received from the bank by Varona
alone. Sevilla and Sadaya signed the promissory note as co-makers only as a favor to Varona. As of June
15, 1950, the outstanding balance stood P4,850.00. No payment was made.
The bank collected from Sadaya the foregoing balance which, together with interest, P5,416.12.
Varona failed to reimburse Sadaya despite repeated demands. Victor Sevilla died. Intestate estate
proceedings were started in the Court of First Instance of Rizal, Special Proceeding No. 1518. Francisco
Sevilla was named administrator.
Sadaya filed a creditor's claim for the above sum of P5,746.12, plus attorney’s fees in the sum of
P1,500.00. The administrator resisted the claim upon the averment that the deceased Sevilla "did not
receive any amount as consideration for the promissory note," but signed it only "as surety for Varona.
The trial court issued an order admitting the claim of Sadaya in the amount of P5,746.12, and directing
the administrator to pay the same from funds belonging to the estate of the deceased Sevilla. The Court of
Appeals voted to set aside the order and to disapprove and disallow "appellee's claim against the intestate
estate."
ISSUE:
Whether or not Sadaya can claim against the estate of Sevilla as co-accomodation party when
Varona as principal debtot is not yet insolvent
RULING:
NO.
It was never shown that there was a judicial demand on Sadaya to pay the obligation. Also, it was
never proven that Varona was insolvent. Thus, Sadaya cannot proceed against Sevilla for reimbursement.
By Article 18 of the Civil Code in matters not covered by the special laws, "their deficiency shall be
supplied by the provisions of this Code." Nothing extant in the Negotiable Instruments Law would define
the right of one accommodation maker to seek reimbursement from another. Because Sevilla and Sadaya,
in themselves, are but co-guarantors of Varona, their case comes within the ambit of Article 2073.
The following rules should be applied in this case: (1) A joint and several accommodation maker
of a negotiable promissory note may demand from the principal debtor reimbursement for the amount that
he paid to the payee; and (2) a joint and several accommodation maker who pays on the said promissory
note may directly demand reimbursement from his co-accommodation maker without first directing his
action against the principal debtor provided that (a) he made the payment by virtue of a judicial demand,
or (b) a principal debtor is insolvent.

TRAVEL-ON v. COURT OF APPEALS
210 SCRA 352 G.R. No. L – 56169; June 26, 1992 Feliciano, J.:
By: Espinosa, Phillip John
FACTS:
Travel-On Inc. is a travel agency selling airline tickets on commission basis for and in behalf of
different airline companies. Arturo S. Miranda had a revolving credit line with Travel-On. He procured
tickets on behalf of airline passengers and derived commissions therefrom. Miranda apparently owed
Travel-On the amount of P278,201.57 which represented the value of airline tickets sold to the former, to
which Miranda paid various amounts in cash and in kind.
He thereafter issued six (6) post-dated checks amounting to P115,000 which were all dishonored
by the drawee bank. Travel-On filed suit to recover the value of the checks. Miranda countered that he
instead overpaid his obligations, and that he merely issued the checks for purposes of accommodation as
he allegedly had in the past accorded Travel-On.
ISSUE:
Whether or not Miranda is liable on the postdated checks he issued assuming that said checks
were issued for accommodation only
RULING:
YES.
Miranda must be held liable on the checks involved as Travel-on is entitled to the benefit of the
statutory presumption that it was a holder in due course and that the checks were supported by valuable
consideration.
There was no accommodation transaction in this case. In accommodation transactions recognized

by the Negotiable Instruments Law, an accommodating party lends his credit to the accommodated party,
by issuing or indorsing a check which is held by a payee or indorsee as a holder in due course, who gave
full value therefor to the accommodated party. The latter, in other words, receives or realizes full value
which the accommodated party then must repay to the accommodating party. But the accommodating
party is bound on the check to the holder in due course who is necessarily a third party and is not the
accommodated party. In the case at bar, Travel-On was payee of all six (6) checks, it presented these
checks for payment at the drawee bank but the checks bounced. Travel-On obviously was not an
accommodated party; it realized no value on the checks which bounced.

AGRO-CONGLOMERATES INC. v. COURT OF APPEALS
348 SCRA 350 G.R. No. 117660; December 18, 2000 Quisumbing, J.:
By: Fernando, Aira Abbygale
FACTS:
Agro Conglomerates, Inc. sold 2 parcels of land to Wonderland Food Industries, Inc for P 5M
under the terms and conditions that P 1M Pesos shall be paid in cash upon the signing of the agreement;
P 2M Pesos worth of common shares of stock of the Wonderland Food Industries, Inc.; and the balance
of P2,000,000.00 shall be paid in 4 equal installments, the first installment falling due, 180 days after the
signing of the agreement and every six months thereafter, with an interest rate of 18% per annum, to be
advanced by the vendee upon the signing of the agreement. Then Agro, Wonderland and Regent Savings
& Loan Bank amended the arrangement resulting to a revision - addedum was not notarized, Agro would
secure a loan in the name of Agro Conglomerates Inc. for the total amount of the initial payments, while
the settlement of loan would be assumed by Wonderland. Mario Soriano of Agro signed as maker several
promissory notes, payable to Regent in favor of Wonderland. A subsidiary contract of suretyship had
taken effect since Agro signed the promissory notes as maker and accommodation party for the benefit of
Wonderland. Thereafter, the bank released the proceeds of the loan to Agro who failed to meet their
obligations as they fell due. However, Mario Soriano manifested his intention to re-structure the loan, yet
did not show up nor submit his formal written request.
ISSUE:
Whether or not Agro should be liable because there was no accommodation or surety
RULING:
YES.
A subsidiary contract of surety ship had taken effect since petitioners signed the promissory notes
as maker and accommodation party for the benefit of Wonderland. Under the law, an accommodation
party is a person who has signed the instrument as maker, acceptor, or indorser, without receiving any
value therefor and for the purpose of lending his name to some other person. He is liable on the instrument
to a holder for value and he has the right to obtain reimbursement from the party accommodated since the
relation between them has in effect become one of a principal and surety.

GONZALES v. RCBC
G.R. No. 156294; November 29, 2006 Garcia, J.:
By: Fernando, Aira Abbygale
FACTS:
Petitioner Gonzales was an employee of respondent bank, RCBC, in its head office as new
accounts clerk. A foreign check was drawn by Don Zapanta of Ade Medical Group Los Angeles California
against the drawee bank Wilshire Center Bank Los Angeles California and made payable to Gonzales’
mother, Alviar. Alviar endorsed the check and Gonzales presented the foreign check to Olivia Gomez.
Thereafter, Gomez requested Gonzales to endorse the check which he did. Gomez then acquiesced to the
early encashment of the check and signed thereon her authority of up to P17,500 only. Carlos Ramos also
signed the check. Gonzales presented the check to Rolando Zamora, head of foreign remittances, and
Gonzales received the peso equivalent. RCBC then tried to collect the amount of the check but the same
was dishonored two times because of an irregular indorsement and “account closed”. RCBC demanded
Gonzales the amount and the latter agreed for salary deduction. Gonzales resigned from RCBC, then the
latter filed a complaint for collection.
ISSUE:
Whether or not Gonzales and Alviar are liable to RCBC by virtue of their general indorsement
RULING:
NO.
Under Section 66 of NIL, the warranties for which Alviar and Gonzales are liable as general
endorsers in favor of subsequent endorsers extend only to the state of the instrument at the time of their
endorsements. This provision cannot be used by the party which introduced a defect on the instrument
(RCBC) w/c qualifiedly endorsed it. Had it not been for the qualified endorsement "up to P17,500.00
only" of Olivia Gomez, who is the employee of RCBC, there would have been no reason for the dishonor
of the check. The holder or subsequent endorser who tries to claim under the instrument which had been
dishonored for "irregular endorsement" must not be the irregular endorser himself who gave cause for the
dishonor. Otherwise, a clear injustice results when any subsequent party to the instrument may simply
make the instrument defective and later claim from prior endorsers who have no knowledge or
participation in causing or introducing said defect to the instrument, which thereby caused its dishonor.

ANG v. ASSOCIATED BANK
G.R. No. 146511; September 5, 2007 Azcuna, J.:
By: Hiquiana, Jayson
FACTS:
Respondent Associated Bank filed a collection suit against Antonio Ang Eng Liong and petitioner
Tomas Ang for the two promissory notes that they executed as principal debtor and co-maker,
respectively. The Bank alleged that Tomas and Antonio obtained a loan of P50,000 and P30,000 evidenced
by two promissory notes. Despite repeated demands for payment, Antonio and Tomas failed and refused
to settle their obligation.
On his defense, petitioner contended, among others, that 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 and that the promissory notes did not indicate in what capacity he was intended to
be bound. In the Bank’s reply, it countered that the fat that Tomas never received any moneys in
consideration of the two loans and that such was known to the bank are immaterial because, as an
accommodation maker, he is considered as a solidary debtor who is primarily liable for the payment of
the promissory notes. Citing Sec. 29 of the NIL, the bank posited that absence or failure of consideration
is not a matter of defense; neither is the fact that the holder knew him to be only an accommodation party.
The trial court dismissed the complaint by virtue of the Deeds of Transfer and Trust Agreement
presented by petitioner, which established that, at the time the suit was filed, the bank was not the holder
of the notes. The CA reversed and set aside the trial court’s ruling, and held that the bank is a holder under
Sec. 191 of the NIL. Furthermore, it held that, as a co-maker, Tomas cannot validly set up the defense that
he did not receive any consideration therefor as the fact that the loan was granted to the principal debtor
already constitutes a sufficient consideration.
ISSUE:
Whether or not Tomas Ang is liable as an accommodation party even without consideration
RULING:
YES.
Section 29 of the NIL defines an accommodation party as a person "who has signed the instrument
as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending
his name to some other person." As gleaned from the text, an accommodation party is one who meets all
the three requisites: (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. An accommodation party lends his name to enable the accommodated party
to obtain credit or to raise money; he receives no part of the consideration for the instrument but assumes
liability to the other party/ies thereto. The accommodation party is liable on the instrument to a holder for
value even though the holder, at the time of taking the instrument, knew him or her to be merely
an accommodation party, as if the contract was not for accommodation.
In the instant case, petitioner agreed to be jointly and severally liable under the two promissory
notes that he co-signed with Antonio Ang Eng Liong as the principal debtor. This being so, it is
completely immaterial if the bank would opt to proceed only against petitioner or Antonio Ang Eng
Liong or both of them since the law confers upon the creditor the prerogative to choose whether to
enforce the entire obligation against any one, some or all of the debtors. Nonetheless, petitioner, as an
accommodation party, may seek reimbursement from Antonio Ang Eng Liong, being the party
accommodated.

FAR EAST v. GOLD PLACE JEWELRY
G.R. No. 168274; August 20, 2008 Nachura, J.:
By: Hiquiana, Jayson
FACTS:
Samuel Tagoe, a foreigner, purchased from respondent Gold Palace’s store several pieces of jewelry valued at
P258,000 and offered a Foreign Draft for payment, issued by the United Overseas Bank (UOB), Kuala Lumpur Branch,
addressed to the Land Bank of the Philippines (LBP), and payable to respondent company for P380,000. Following Far East
Bank’s advice, Judy Yang, the assistant general manager of Gold Palace, informed Tagoe that the pieces of jewelry would be
released when the draft had already been cleared. Gold Palace’s manager, Julie Yang-Go, then deposited the draft in the
company’s account with the Far East. When Far East (collecting bank) presented the draft for clearing to LBP (drawee bank),
the latter cleared the same, and Gold Palace’s account with Far East was credited with the amount. After ascertaining that the
draft had been cleared, Yang released the pieces of jewelry to Tagoe and issued a check for his change amounting to P122,000,
which was paid by the Far East Bank.
LBP then informed Far East that the amount in the Foreign Draft had been materially altered from P300 to P380,000.
Intending to debit the amount from respondents account, Far East then refunded the P380,000 earlier paid by LBP. Far East
then debited the amount of P168,053.36 from the account of Gold Palace without a prior written notice. Subsequently, Far East
demanded from Gold Palace the payment of the difference between the amount in the materially altered draft and the amount
debited from Gold Palace’s account. Far East consequently filed a civil case against Gold Palace for the sum of money. Gold
Palace on the other hand contended that the complaint states no cause of action since the subject foreign draft was cleared and
that Gold Palace was not the party who made the material alteration.
The RTC ruled in favor of Far East and held that, on the basis of its warranties as a general indorser, Gold Palace was
liable to Far East. On appeal, the CA reversed the RTC’s ruling. It held that Far East could not charge Gold Palace on its
secondary liability as an indorser since it did not protest the foreign draft or to notify Gold Palace of the draft’s dishonor.
Moreover, the drawee bank had cleared the check, and its remedy should be against the party responsible for the alteration.
ISSUE:
Whether or not Gold Palace shall be liable for the amount in the materially altered draft
RULING:
NO.
Act No. 2031, or the Negotiable Instruments Law (NIL), explicitly provides that the acceptor, by accepting the
instrument, engages that he will pay it according to the tenor of his acceptance. His actual payment of the amount in the check
implies not only his assent to the order of the drawer and a recognition of his corresponding obligation to pay the
aforementioned sum, but also, his clear compliance with that obligation. In this case the drawee bank cleared and paid the
subject foreign draft and forwarded the amount thereof to the collecting bank. The latter then credited to Gold Palaces account
the payment it received. Following the plain language of the law, the drawee, by the said payment, recognized and complied
with its obligation to pay in accordance with the tenor of his acceptance. The tenor of the acceptance is determined by the
terms of the bill as it is when the drawee accepts. Stated simply, LBP was liable on its payment of the check according to the
tenor of the check at the time of payment, which was the raised amount.
Gold Palace was not a participant in the alteration of the draft, was not negligent, and was a holder in due courseit
received the draft complete and regular on its face, before it became overdue and without notice of any dishonor, in good faith
and for value, and absent any knowledge of any infirmity in the instrument or defect in the title of the person negotiating it.
Having relied on the drawee banks clearance and payment of the draft and not being negligent (it delivered the purchased
jewelry only when the draft was cleared and paid), respondent is amply protected by the said Section 62. Commercial policy
favors the protection of any one who, in due course, changes his position on the faith of the drawee banks clearance and payment
of a check or draft.
Having relied on the drawee banks clearance and payment of the draft and not being negligent (it delivered the
purchased jewelry only when the draft was cleared and paid), respondent is amply protected by the said Section 62. Commercial
policy favors the protection of any one who, in due course, changes his position on the faith of the drawee banks clearance and
payment of a check or draft.
Far East cannot invoke the warranty of the payee/depositor who indorsed the instrument for collection to shift the
burden it brought upon itself. This is precisely because the said indorsement is only for purposes of collection which, under
Section 36 of the NIL, is a restrictive indorsement. It did not in any way transfer the title of the instrument to the collecting
bank. Far East did not own the draft, it merely presented it for payment. Considering that the warranties of a general indorser
as provided in Section 66 of the NIL are based upon a transfer of title and are available only to holders in due course, these
warranties did not attach to the indorsement for deposit and collection made by Gold Palace to Far East. Without any legal
right to do so, the collecting bank, therefore, could not debit respondents account for the amount it refunded to the drawee bank.

PATRIMONIO v. NAPOLEON
G.R. No. 187769; June 4, 2014 Brion, J.:
By: Josue, Bahama Mirachylle
FACTS:
The petitioner and the respondent Napoleon Gutierrez (Gutierrez) entered into a business venture under the name of
Slam Dunk Corporation (Slam Dunk), a production outfit that produced mini-concerts and shows related to basketball.
Petitioner pre-signed several checks to answer for the expenses of Slam Dunk. Although signed, these checks had no payee’s
name, date or amount. The blank checks were entrusted to Gutierrez with the specific instruction not to fill them out without
previous notification to and approval by the petitioner. However, without Patrimonio’s knowledge and consent, Gutierrez went
to Marasigan to secure a loan in the amount of P200,000.00 on the excuse that the petitioner needed the money for the
construction of his house to which Marasigan acceded. When Marasigan deposited the check, it was dishonored for the reason
“Account Closed”. It was later revealed that petitioner’s account with the bank had been closed since May 28, 1993. Marasigan
sought recovery from Gutierrez, to no avail. He thereafter sent several demand letters to the petitioner asking for the payment
of P200,000.00, but his demands likewise went unheeded. Consequently, he filed a criminal case for violation of B.P. 22 against
the petitioner. Patrimonio then filed before the RTC. a Complaint for Declaration of Nullity of Loan and Recovery of Damages
against Gutierrez and co-respondent Marasigan. He completely denied authorizing the loan or the check’s negotiation, and
asserted that he was not privy to the parties’ loan agreement. RTC ruled in favor of Marasigan. On appeal, the CA, despite its
ruling that Marasigan is not a holder in due course, concluded that the check had been strictly filled out by Gutierrez in
accordance with the petitioner’s authority. It held that the loan may not be nullified since it is grounded on an obligation arising
from law and ruled that the petitioner is still liable to pay Marasigan.
ISSUE:
Whether or not petitioner is liable to pay Marasigan as respondent Gutierrez has completely filled
out the subject check strictly under the authority given by the petitioner
RULING:
NO.
Article 1878 paragraph 7 of the Civil Code expressly requires a special power of authority before
an agent can loan or borrow money in behalf of the principal. Gutierrez did not have any authority to
borrow money in behalf of the petitioner as records do not show that the petitioner executed any special
power of attorney (SPA) in favor of Gutierrez. Hence, the loan agreement is void. Furthermore, that the
petitioner entrusted the blank pre-signed checks to Gutierrez is not legally sufficient because the authority
to enter into a loan can never be presumed. The contract of agency and the special fiduciary relationship
inherent in this contract must exist as a matter of fact. The records show that Marasigan merely relied on
the words of Gutierrez without securing a copy of the SPA in favor of the latter and without verifying
from the petitioner whether he had authorized the borrowing of money or release of the check. He was
thus bound by the risk accompanying his trust on the mere assurances of Gutierrez.
Proceeding to the liability of petitioner under the check he signed, Section 14 of the Negotiable
Instruments Law applies to an incomplete but delivered instrument. Under this rule, if the maker or
drawer delivers a pre-signed blank paper to another person for the purpose of converting it into a
negotiable instrument, that person is deemed to have prima facie authority to fill it up. It merely requires
that the instrument be in the possession of a person other than the drawer or maker and from such
possession, together with the fact that the instrument is wanting in a material particular, the law presumes
agency to fill up the blanks. If any such instrument, after completion, is negotiated to a holder in due
course, it is valid and effectual for all purposes in his hands, and he may enforce it as if it had been filled
up strictly in accordance with the authority given and within a reasonable time. In this case, Since
Marasigan knew that the underlying obligation was not actually for the petitioner, the rule that a possessor
of the instrument is prima facie a holder in due course is inapplicable. In order, however, that one who is
not a holder in due course can enforce the instrument against a party prior to the instrument’s completion,
two requisites must exist: (1) that the blank must be filled strictly in accordance with the authority given;
and (2) it must be filled up within a reasonable time. The Court held that Gutierrez has exceeded the
authority to fill up the blanks and use the check. Petitioner’s instruction could not be any clearer as
Gutierrez’ authority was limited to the use of the checks for the operation of their business, and on the
condition that the petitioner’s prior approval be first secured. Under the law, only the authority to complete
the check and not its use is presumed. Hence, that Marasigan is not a holder in due course, the petitioner
can validly set up the personal defense that the blanks were not filled up in accordance with the authority
he gave. Consequently, petitioner cannot be held liable.

DEFENSES
SALAS v. COURT OF APPEALS

G.R. No. 76788; January 22, 1990 Fernan, C.J.:
By: Josue, Bahama Mirachylle
FACTS:
Juanita Salas bought a motor vehicle from the Violago Motor Sales Corporation (VMS) for Php58,
138.20 as evidenced by a promissory note. This note was subsequently endorsed to Filinvest Finance and
Leasing Corp. which financed the purchase. Salas defaulted in her installments allegedly due to a
discrepancy in the engine and chassis numbers of the vehicle delivered and those indicated in the
documents, which fact she discovered when the vehicle figured in an accident. Filinvest brought an action
for a sum of money with the RTC which ruled in its favor. Imputing fraud against VMS, Salas appealed
to the CA. The CA affirmed the RTC with modifications. It ruled that in an action or defense founded
upon a written instrument…the genuineness and due execution of the instrument shall be deemed admitted
unless the adverse party, under oath, specifically denied them, and sets forth what he claims to be the facts
(Sec.8, Rule 8, Revised Rules of Court). The CA upheld the genuineness of the promissory note. In the
present action, Salas assigns 12 errors focused on the alleged fraud, bad faith, and misrepresentation of
VMS. Filinvest argues that the issues are a mere rehash of those raised in the lower court and that the
judgment in the “breach of contract” suit filed against VMS cannot be invoked as the same is still pending.
ISSUE:
Whether or not the promissory note is a negotiable instrument which will bar completely all the
available defenses of petitioner against private respondent
RULING:
YES.
Salas’ liability on the promissory note, the due execution and genuineness of which she never
denied under oath is, under the foregoing, as inevitable as it is clearly established. Here, the basis of
Filinvest’s claim against Salas is a promissory note which bears all the earmarks of negotiability. The said
note shows that it is a negotiable instrument, having complied with all the requisites under the law.
Moreover, under the circumstances, there appears to be no question that Filinvest is a holder in due course,
having taken the instrument under the following conditions: it is complete and regular upon its face; it
became the holder thereof before it was overdue, and without notice that it had been previously
dishonored; it took the same in good faith and for value; and when it was negotiated to Filinvest, the latter
had no choice of any infirmity in the instrument or defect in the title of VMS Corporation. Accordingly,
Filinvest holds the instrument free from any defect of title of prior parties, and free from defenses available
to prior parties among themselves, and may enforce payment of the instrument for the full amount thereof.
Hence, Salas cannot set up against respondent the defense of nullity of the contract of sale between her
and VMS.

PHILIPPINE NATIONAL BANK v. COURT OF APPEALS
256 SCRA 491 G.R. No. 107508; April 25, 1996 Kapunan, J.:
By: Lavalle, Jan Edrich Paolo
FACTS:
A check (Serial No. 7-3666-223-3) dated August 7, 1981 in the amount P97, 650 was issued by
the Ministry of Education and Culture (now DECS) payable to F. Abante Marketing (Abante). The check
was drawn against the Philippine National Bank (PNB), herein petitioner.
On August 11, 1981, Abante, a client of Capitol City Development Bank (Capitol), deposited the
check in its savings account with the latter. Capitol in turn, deposited the same in its account with
Philippine Bank of Communications (PBCom). PBCom sent the check to petitioner for clearing. The
check was cleared as good, and petitioner credited Capitol’s account with the stated amount.
On October 19, 1981, petitioner returned the check to PBCom and debited PBCom’s account for
covered amount due to a “material alteration” of the check number. In turn, PBCom debited Capitol’s
account for the same amount and sent the check back to petitioner. Petitioner, however, sent the check
back to PBCom. Capitol could not debit Abante’s account for the covered amount since the latter had
already withdrawn the amount of the check on October 15. Capitol sought clarification from PBCom and
demanded the re-crediting of its account; PBCom requested the same from petitioner.
Since the demands were unheeded, Capitol filed a civil suit with the RTC against PBCom. PBCom,
in turn, filed a third-party complaint against petitioner for reimbursement and indemnity. Petitioner then
filed a fourth-party complaint against Abante. The RTC ordered PBCom to re-credit Capitol; PNB to re-
credit PBcom; and Abante to reimburse PNB. The CA affirmed with modifications.
ISSUE:
Whether or not an alteration of a serial number of a check constitutes a material alteration under
the Negotiable Instruments Law
RULING:
NO.
An altercation is said to be material when it 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 change is one which changes the items
which are required to be stated under Section 1 of the Negotiable Instruments Law. A serial number is
not one of the requisites stated in the said provision.
Petitioner also argues that a TCAA check by its very nature is the medium of exchange between
governments, instrumentalities and agencies. As a safety measure, every government office or agency is
assigned checks bearing different serial numbers. The Supreme Court disagreed with the contention,
declaring that the name of the government agency or office is sufficient to satisfy the requirement that the
DRAWER of the check be identifiable.

INTERNATIONAL CORPORATE BANK v. COURT OF APPEALS
G.R. No. 129910; September 5, 2006 Carpio, J.:
By: Lavalle, Jan Edrich Paolo
FACTS:
The Ministry of Education and Culture (MEC) issued 15 checks drawn against the Philippine
National Bank [PNB (respondent)] which International Corporate Bank (petitioner). Petitioner accepted
the checks for deposit on various dates for different accounts. After 24 hours from submission of the
checks with respondent for clearing, petitioner paid the value of the checks and allowed the withdrawal
of deposits.
On October 14, 1981, respondent returned all the checks to petitioner without clearing them on
the ground that they were materially altered (altered serial numbers). Petitioner instituted an action against
respondent. The RTC rule in favor or respondent, saying that it was expected to use reasonable business
practice in accepting and paying the checks presented to it. Thus, it cannot be faulted for the delay in
clearing the checks. Petitioner, on the other, did not even attempt to verify the status of the checks with
respondent before paying the value of the checks and allowing withdrawals.
The CA reversed the decision, stating that under Section 4(C) of the Central Bank Circular No.580,
series of 1977, checks that have been materially altered shall be returned within 24 hours after discovery
of the alteration. To escape from liability, however, the return should be within the 24-hour clearing
period.
ISSUE:
Whether or not a change in serial numbers is a material alteration
RULING:
NO.
The Supreme Court stated that an alteration is only material if alters the effect of the instrument.
It is 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 changes the items required to be
stated under Section 1 of the Negotiable Instruments Law.
The Supreme Court did not rule on the CA’s 24 –hour clearing time decision because there were
in fact, no material alterations in the checks concerned.

ASSOCIATED BANK v. COURT OF APPEALS
G.R. Nos. 107832 & 107612; January 31, 1996 Romero, J.:
By: Manuel, Angelica Marie
FACTS:
The Province of Tarlac was disbursing funds to Concepcion Emergency Hospital via checks drawn
against its account with the Philippine National Bank (PNB). These checks were drawn payable to the
order of Concepcion Emergency Hospital. Fausto Pangilinan was the cashier of Concepcion Emergency
Hospital in Tarlac until his retirement in 1978. He used to handle checks issued by the provincial
government of Tarlac to the said hospital. However, after his retirement, the provincial government still
delivered checks to him until its discovery of this irregularity in 1981. By forging the signature of the
chief payee of the hospital (Dr. Adena Canlas), Pangilinan was able to deposit 30 checks amounting to
P203k to his account with the Associated Bank. When the province of Tarlac discovered this irregularity,
it demanded PNB to reimburse the said amount. PNB in turn demanded Associated Bank to reimburse
said amount. PNB averred that Associated Bank is liable to reimburse because of its indorsement borne
on the face of the checks: “All prior endorsements guaranteed ASSOCIATED BANK.”
ISSUE:
Whether or not PNB and Associated Bank should be held liable
RULING:
YES.
The checks involved in this case are order instruments. In sum, by reason of Associated Bank’s
indorsement and warranties of prior indorsements as a party after the forgery, it is liable to refund the
amount to PNB. The Province of Tarlac can ask reimbursement from PNB because the Province is a party
prior to the forgery. Hence, the instrument is inoperative. HOWEVER, it has been proven that the
Provincial Government of Tarlac has been negligent in issuing the checks especially when it continued to
deliver the checks to Pangilinan even when he already retired. Due to this contributory negligence, PNB
is only ordered to pay 50% of the amount or half of P203 K.
BUT THEN AGAIN, since PNB can pass its loss to Associated Bank (by reason of Associated
Bank’s warranties), PNB can ask the 50% reimbursement from Associated Bank. Associated Bank can
ask reimbursement from Pangilinan but unfortunately in this case, the court did not acquire jurisdiction
over him.

JAI – ALAI v. BANK OF THE PHILIPPINE ISLANDS
66 SCRA 29 G.R. No. L – 29432; August 6, 1975 Castro, J.:
By: Manuel, Angelica Marie
FACTS:
From April 2, 1959 to May 18, 1959, ten checks with a total face value of P8,030.58 were deposited by the petitioner
Jai-Alai in its current account with the respondent bank BPI, which the former acquired from one Antonio Ramirez who was a
sales agent of Inter-Island Gas Corporation and a regular bettor at jai-alai games.
Drawn By: (drawer) Drawn Upon: (drawee) Payable to: (payee)

5 checks: Delta Engineering Service Pacific Banking Corporation Inter-Island Gas Service
or ORDER
2 checks: Enrique Cortiz & Co, Pacific Banking Corporation Inter-Island Gas Service or
BEARER
1 check: Luzon Tinsmith & Co. China Banking Corporation Inter-Island Gas Service or BEARER
2 checks: Roxas Manufacturing Inc Philippine National Bank Inter-Island Gas Service or ORDER
After Ramirez had resigned from the Inter-Island Gas and after the checks had been submitted to inter-bank clearing,
the Inter-Island Gas discovered that all the indorsements made on the checks purportedly by its cashiers as well as the rubber
stamp impression thereon reading "Inter-Island Gas Service, Inc.," were forgeries. Inter-Island Gas notified the petitioner, the
respondent, the drawers and the drawee-banks of the said checks about the forgeries, and filed a criminal complaint against
Ramirez with the Office of the City Fiscal of Manila. The drawers demanded reimbursement from the drawee-banks, which in
turn demanded from the respondent, as collecting bank, the return of the amounts they had paid on account thereof. When the
drawee-banks returned the checks to the respondent BPI, the latter paid their value which the former in turn paid to the Inter-
Island Gas.
Respondent BPI debited petitioner’s current account and forwarded to the latter the checks containing the forged
indorsements, which the petitioner refused to accept. So when petitioner drew against its current account with respondent a
check for P135,000 payable to the order of Mariano Olondriz, the same was dishonored for the insufficiency of funds. The
petitioner filed a complaint against the respondent with CFI Manila but it was dismissed by the trial court as well as by Court
of Appeals.
ISSUE:
Whether or not the BPI had the right to debit from petitioner’s current account the value of the
checks with the forged endorsements?
RULING:
YES.
The respondent BPI acted within legal bounds when it debited the petitioner's account. When the petitioner
deposited the checks with the respondent, the nature of the relationship created at that stage was one of agency, that
is, the bank was to collect from the drawees of the checks the corresponding proceeds. Pursuant to Sec. 23 of the
NIL, a forged signature in a negotiable instrument is wholly inoperative and no right to discharge it or enforce its
payment can be acquired through or under the forged signature except against a party who cannot invoke the forgery.
It stands to reason, upon the facts of record, that the respondent, as a collecting bank which indorsed the checks to
the drawee-banks for clearing, should be liable to the latter for reimbursement, for the indorsements on the checks
had been forged prior to their delivery to the petitioner. In legal contemplation, therefore, the payments made by
the drawee-banks to the respondent on account of the said checks were ineffective; and, such being the case, the
relationship of creditor and debtor between the petitioner and the respondent had not been validly effected, the
checks not having been properly and legitimately converted into cash. It is the obligation of the collecting bank to
reimburse the drawee-bank the value of the checks subsequently found to contain the forged indorsement of the
payee. The reason is that the bank with which the check was deposited has no right to pay the sum stated therein to
the forger "or anyone else upon a forged signature."
In contrast, it was petitioner’s duty to that the payee's endorsement was genuine before cashing the check.
The petitioner must in turn shoulder the loss of the amounts which the respondent; as its collecting agent, had to
reimburse to the drawee-banks. Having indorsed the checks to respondent bank, petitioner is deemed to have given
the warranty prescribed in Section 66 of the NIL that every single one of those checks "is genuine and in all respects
what it purports to be." Respondent which relied upon the petitioner's warranty should not be held liable for the
resulting loss. (Issue on Indorsement)
Jai Alai Corporation is negligent in accepting the checks without question from Antonio Ramirez
notwithstanding that the payee was the Inter-Island Gas Services, Inc. and it did not appear that he was authorized
to indorse it.

REPUBLIC v. EBRADA
G.R. No. L – 40796; July 31, 1975 Martin, J.:
By: Mariano, Diana Lou
FACTS:
Mauricia T. Ebrada, encashed Back Pay Check dated January 15, 1963 issued by the Bureau of
Treasury at Republic Bank. The Bank was later advised by the said bureau that the alleged indorsement
by the payee, "Martin Lorenzo" was a forgery since he had allegedly died as of July 14, 1952 – 11 years
before the check was issued. Bureau of Treasury then requested the Bank to refund the sum encashed. To
recover what it had refunded to the Bureau, the Bank made demands upon Ebrada to account for the sum
refused to do so; she alleged that she was a holder in due course of the check in question, has acquired her
rights from a holder in due course and therefore entitled to the proceeds thereof. She also alleged that the
Bank has no cause of action against her; that it is in estoppel, or so negligent as not to be entitled to recover
anything from her.
The back side of aforementioned check bears the following signatures, in this order: 1) Martin
Lorenzo; 2) Ramon R. Lorenzo; 3) Delia Dominguez; And 4) Mauricia T. Ebrada;
The check was delivered to the EBRADA By ADELAIDA DOMINGUEZ, for the purpose of
encashment. That immediately after EBRADA received the cash proceeds from the Bank, she immediately
turned over the said amount to the third-party defendant and fourth-party plaintiff ADELAIDA
DOMINGUEZ, who in turn handed the said amount to the fourth-party defendant JUSTINA TINIO.
ISSUE:
Whether or not the bank can recover from Ebrada who was the last indorser of the check with the
forged indorsement
RULING:
Bank should suffer the loss when it paid the amount of the check in question to Ebrada, BUT it
has the remedy to recover from the Ebrada the amount it paid. It is not the Bank’s duty to ascertain
whether the signatures of the payee or indorsers are genuine or not. This is because the indorser is
supposed to warrant to the drawee that the signatures of the payee and previous indorsers are genuine,
warranty not extending only to holders in due course.
Ebrada was the last indorser of the said check. As such, she was supposed to have warranted that
she has good title to said check. For under Section 65 of the NIL: Every person negotiating an instrument
by delivery or by qualified indorsement, warrants that the instrument is genuine and in all respects what
it purports to be and that she has good title to it and indorser who indorses without qualification warrants
to all subsequent holders in due course:
(a) The matters and things mentioned in subdivisions (a), (b), and (c) of the next preceding sections;
(b) That the instrument is at the time of his indorsement valid and subsisting.
Under Section 23 of the NIL where the signature on a negotiable instrument if forged, the
negotiation of the check is without force or effect. Where a check has several indorsements on it, it is only
the negotiation based on the forged or unauthorized signature which is inoperative. It is only the
negotiation predicated on the forged indorsement that should be declared inoperative and negotiation of
others, who did not know of the forgery, should be considered valid and enforceable, barring any claim of
forgery.
**Ebrada immediately turning over to Adelaida Dominguez who in turn handed the amount to
Justina Tinio on the same date would not exempt her from liability because by doing so, she acted as an
accommodation party in the check for which she is also liable under Section 29 of NIL.

PHILIPPINE NATIONAL BANK v. QUIMPO
G.R. No. L – 53194; March 14, 1988 Gancayco, J.:
By: Mariano, Diana Lou
FACTS:
Francisco Gozon II went to the PNB (Caloocan City) accompanied by his friend Ernesto Santos.
Gozon left Santos in his car and while he was at the bank, Santos took a check from Gozon’s checkbook,
forged Gozon’s signature and filled out the check with the amount of P5,000.00. Santos was able to encash
the check that day, debited on account of Gozon. Gozon learned of this when his statement of account
arrived. Gozon then demanded the PNB to refund him the amount but PNB refused. Ernesto Santos was
eventually apprehended and admitted that he stole the check of Gozon, forged his signature and encashed
the same with the Bank. Hence Gozon filed the complaint for recovery of the amount against the bank.
Judge Romulo Quimpo ruled in favor of Gozon
Not satisfied therewith, the bank now posed the issue on whether Gozon’s act of leaving his
checkbook in the car the proximate cause of the loss.
ISSUE:
Whether or not PNB is liable
RULING:
YES.
A bank is bound to know the signatures of its customers; and if it pays a forged check, it must be
considered as making the payment out of its own funds, and cannot ordinarily change the amount so paid
to the account of the depositor whose name was forged. PNB failed to meet its obligation to know the
signature of its correspondent (Gozon). Further, it was found by the court that upon comparison there are
glaring differences between Gozon’s authentic specimen signatures and that of the forged check.
The prime duty of a bank is to ascertain the genuineness of the signature of the drawer or the
depositor on the check being encashed. It is expected to use reasonable business prudence in accepting
and cashing a check presented to it. Obviously, petitioner was negligent in encashing said forged check
without carefully examining the signature which shows marked variation from the genuine signature of
private respondent.

GEMPESAW v. COURT OF APPEALS
G.R. No. 92244; February 9, 1993 Campos, Jr., J.:
By: Marquez, Ana Michaela
FACTS:
Gempesaw was the owner of many grocery stores. She paid her suppliers through the issuance of
checks drawn against her checking account with respondent bank. The checks were prepared by her
bookkeeper Galang. In the signing of the checks prepared by Galang, Gempesaw didn't bother herself in
verifying to whom the checks were being paid and if the issuances were necessary. She didn't even verify
the returned checks of the bank when the latter notifies her of the same. During her two years in business,
there were incidents shown that the amounts paid for were in excess of what should have been paid. It was
also shown that even if the checks were crossed, the intended payees didn't receive the amount of the
checks. This prompted Gempesaw to demand the bank to credit her account for the amount of the forged
checks. The bank refused to do so and this prompted her to file the case against the bank
Petitioner argues that respondent drawee Bank should not have honored the checks because they
were “crossed checks”.
ISSUE:
Whether or not the issuance of “crossed checks” is restrictive indorsement
RULING:
NO.
They are not the same. In restrictive indorsement, the prohibition to transfer or negotiate must be
written in express words at the back of the instrument, so that any subsequent party may be forewarned
that ceases to be negotiable. Crossed checks, on the other hand, is done by drawing two parallel lines
across the face of the check to mean that it cannot be presented for payment in cash, but can only be
deposited in payee’s account. Crossing of checks do not ipso facto cause the cessation of its negotiable
character.
Forgery is a real defense by the party whose signature was forged. A party whose signature was
forged was never a party and never gave his consent to the instrument. Since his signature doesn’t
appear in the instrument, the same cannot be enforced against him even by a holder in due course. The
drawee bank cannot charge the account of the drawer whose signature was forged because he never gave
the bank the order to pay.
In the case at bar the checks were filled up by petitioner’s employee Galang and were later given
to her for signature. Her signing the checks made the negotiable instruments complete. Prior to signing
of the checks, there was no valid contract yet. Petitioner completed the checks by signing them and
thereafter authorized Galang to deliver the same to their respective payees. The checks were then indorsed,
forged indorsements thereon.
As a rule, a drawee bank who has paid a check on which an indorsement has been forged cannot
debit the account of a drawer for the amount of said check. An exception to this rule is when the drawer
is guilty of negligence which causes the bank to honor such checks. Petitioner in this case has relied solely
on the honesty and loyalty of her bookkeeper and never bothered to verify the accuracy of the amounts of
the checks she signed the invoices attached thereto. And though she received her bank statements, she
didn't carefully examine the same to double-check her payments. Petitioner didn't exercise reasonable
diligence which eventually led to the fruition of her bookkeeper’s fraudulent schemes

PHILIPPINE COMMERCIAL INTERNATIONAL BANK v. COURT OF
APPEALS
350 SCRA 446 G.R. Nos. 121413, 121479 & 128604; Quisumbing, J.:
January 29, 2001
By: Marquez, Ana Michaela
FACTS:
In G.R. No. 121413 and 128604; on October 19, 1977, the plaintiff Ford drew and issued its
Citibank Check No. SN-04867 which was a crossed check in that, on its face were two parallel lines and
written in between said lines was the phrase "Payee's Account Only”, in the amount of P4,746,114.41, in
favor of the Commissioner of Internal Revenue as payment of plaintiff’s percentage or manufacturer's
sales taxes for the third quarter of 1977. The said check was deposited with the defendant PCI Bank and
was subsequently cleared by the Central Bank. Upon presentment with the defendant Citibank, the
proceeds of the check were paid to PCI Bank as collecting or depository bank.
Upon verification, plaintiff discovered that its Citibank Check No. SN-04867 in the amount of
P4,746,114.41 was not paid to the Commissioner of Internal Revenue. Hence, in separate letters dated
October 26, 1979, addressed to the defendants, the plaintiff notified the latter that in case it will be re-
assessed by the BIR for the payment of the taxes covered by the said checks, then plaintiff shall hold the
defendants liable for reimbursement of the face value of the same. Both defendants denied liability and
refused to pay. In February 1980, the BIR wrote to plaintiff regarding its non-receipt of the payment and
was instead encashed by unauthorized persons and that plaintiff had to pay the amount assessed. The
plaintiff, upon advice of its lawyer paid its tax for the third quarter of 1977. Due to the refusal of the
defendants’ to reimburse plaintiff for its payment, this suit was instituted.
Further, an investigation by the National Bureau of Investigation (NBI) revealed that Citibank
Check No. SN-04867 was recalled by Godofredo Rivera, the General Ledger Accountant of Ford. He
purportedly needed to hold back the check because there was an error in the computation of the tax due to
the Bureau of Internal Revenue (BIR). With Rivera's instruction, PCIBank replaced the check with two of
its own Manager's Checks (MCs). Alleged members of a syndicate later deposited the two MCs with the
Pacific Banking Corporation.
RTC decided in favor of the plaintiff and held the defendants PCIB and Citibank jointly and
severally liable for the face value of the check SN-04867 and for PCIB to reimburse whatever Citibank
paid to the plaintiff. Court of Appeals affirmed the RTC decision.
In another case, G.R. 128604, two crossed checks issued as payment of plaintiff’s taxes for the
second quarter of 1978 and first quarter of 1979 which were issued Revenue Tax Receipts. The payee
BIR, failed to receive the proceeds of said checks and finds that the receipts issued were fake and spurious.
Upon investigation, the NBI confirmed said fact and that the checks were embezzled by the same
Godofredo Rivera which was coursed through PCIB. The RTC found defendant PCIB also liable to
plaintiff. Court of Appeals affirmed RTC decision.
ISSUE:
Whether or not Ford has a right to recover against PCIB and Citibank
RULING:
YES.
The applicable provision in these cases is Sec. 55, NIL, where it states that “The title of a person
who negotiates an instrument is defective within the meaning of this Act when he obtained the instrument,
or any signature thereto, by fraud, duress, or fore and fear, or other unlawful means, or for an illegal
consideration, or when he negotiates it in breach of faith or under such circumstances as amount to a
fraud”. Whereupon, to raise the defense of fraud, the person negotiating must prove that there was no
negligence in the performance of his duties so as to escape liability to and recover from other parties who,
through their own negligence, allowed the commission of the crime. In these cases, the defendants PCIB

and Citibank cannot raise the defense of fraud as the Court finds the defendants negligent with the
performance of their duties to the plaintiff Ford and payee BIR.
As to G.R. No. 121413 and 121479, the Court finds that PCIB liable in the amount corresponding
to the proceeds of Citibank Check No. SN-04867. The neglect of PCIB employees to verify whether his
letter requesting for the replacement of the Citibank Check No. SN-04867 was duly authorized, showed
lack of care and prudence required in the circumstances. PCIB was also an agent of BIR, it had the
responsibility to make sure that the check in question is deposited in Payee's account only, of which the
defendant Bank failed to do. Moreover, upon presentment by PCIB to Citibank, it warranted the validity
of all prior indorsements whereupon, the drawee bank has a right to believe that the cashing bank (or the
collecting bank) had, by the usual proper investigation, satisfied itself of the authenticity of the negotiation
of the checks.
As to G.R. No. 128604, the Court finds both Citibank and PCIB equally liable under the doctrine
of comparative liability. While PCIB had no actually received the checks under question, its employees
participated in the embezzlement of the checks, where, as a general rule, a banking corporation is liable
for the wrongful or tortuous acts and declarations of its officers or agents within the course and scope of
their employment. A bank holding out its officers and agents as worthy of confidence will not be permitted
to profit by the frauds these officers or agents were enabled to perpetrate in the apparent course of their
employment; nor will it be permitted to shirk its responsibility for such frauds, even though no benefit
may accrue to the bank therefrom. For the general rule is that a bank is liable for the fraudulent acts or
representations of an officer or agent acting within the course and apparent scope of his employment or
authority.
Citibank is likewise negligent in this case, as it failed to establish that its payment of Ford's checks
were made in due course and legally in order. Citibank, as the drawee bank breached its contractual
obligation with Ford and such degree of culpability contributed to the damage caused to the latter. Citibank
had indeed failed to perform what was incumbent upon it, which is to ensure that the amount of the checks
should be paid only to its designated payee.
The Court further finds that Ford is not completely blameless in its failure to detect the fraud.
Failure on the part of the depositor to examine its passbook, statements of account, and cancelled checks
and to give notice within a reasonable time (or as required by statute) of any discrepancy which it may in
the exercise of due care and diligence . The Court mitigates the liability of Citibank and PCIB by reducing
the interest from 12% to 6% per annum.

MWSS v. COURT OF APPEALS
143 SCRA 20 G.R. No. L – 62943; July 14, 1986 Gutierrez, J.:
By: Miguel, Reuchelle
FACTS:
Metropolitan Waterworks and Sewerage System (MWSS) had an account with PNB. When it was
still called NAWASA, MWSS made a special arrangement with PNB so that it may have personalized
checks to be printed by Mesina Enterprises. These personalized checks were the ones being used by
MWSS in its business transactions. From March to May 1969, MWSS issued 23 checks to various payees
in the aggregate amount of P320,636.26. During the same months, another set of 23 checks containing the
same check numbers earlier issued were forged. The aggregate amount of the forged checks amounted to
P3,457,903.00. This amount was distributed to the bank accounts of three persons: Arturo Sison, Antonio
Mendoza, and Raul Dizon. MWSS then demanded PNB to restore the amount of P3,457,903.00. PNB
refused. The trial court ruled in favor of MWSS but the Court of Appeals reversed the trial court’s decision.
ISSUE:
Whether or not PNB should restore the said amount
RULING:
NO.
MWSS is precluded from setting up the defense of forgery. It has been proven that MWSS has
been negligent in supervising the printing of its personalized checks. It failed to provide security measures
and coordinate the same with PNB. Further, the signatures in the forged checks appear to be genuine as
reported by the National Bureau of Investigation so much so that the MWSS itself cannot tell the
difference between the forged signature and the genuine one. The records likewise show that MWSS failed
to provide appropriate security measures over its own records thereby laying confidential records open to
unauthorized persons. Even if the twenty-three (23) checks in question are considered forgeries,
considering the MWSS’s gross negligence, it is barred from setting up the defense of forgery under Section
23 of the Negotiable Instruments Law.

ILUSORIO v. COURT OF APPEALS
393 SCRA 89 G.R. No. 139130; November 27, 2002 Quisumbing, J.:
By: Miguel, Reuchelle
FACTS:
Ilusorio was a businessman who was in charge of 20 or so corporations. He was a depositor in

good standing of Manila Banking Corporation. As he was in charge of a big number of corporations, he
was usually out of the country for business. He then entrusted his credit cards, checkbook, blank checks,
passbooks, etc to his secretary, Katherine Eugenio. Eugenio was also in charge of verifying and
reconciling the statements of Ilusorio’s checking account. Eugenio was able to encash and deposit to her
personal account checks drawn against Ilusorio’s account with an aggregate amount of 119K. Ilusorio
didn’t bother to check his statement of account until a business partner informed him that he saw Eugenio
using his credit cards. Ilusorio then fired her and instituted criminal case of Estafa thru falsification against
Eugenio. Manila Banking Corp. also instituted a complaint of estafa against Eugenio based on the affidavit
of Dante Razon, an employee. Razon stated that he personally examined and scrutinized the encashed
checks in accordance with their verification procedures. Manila Bank sought the expertise of NBI in
determining the genuineness of the checks but Ilusorio failed to submit specimen signatures and thus, NBI
could not conduct the examination.
ISSUE:
Whether or not Manila Bank is liable for damages for failing to detect a forged check
RULING:
NO.
To be entitled to damages, Ilusorio has the burden of poving that the bank was negligent in failing
to detect the discrepancy in the signatures on the checks. Ilusorio had to establish the fact of forgery which
he failed to do by failing to submit his specimen signatures for NBI to conclusively establish forgery.
Furthermore, the Bank was not negligent in verifying the checks as they verified the drawer’s signatures
against their specimen signatures and in doubt, referred to more experienced verifier for further
verification.

SAMSUNG CONSTRUCTION v. FAR EAST BANK
August 15, 2004 G.R. No. 129015; August 13, 2004 Tinga, J.:
By: Nacino, Allana Marie
FACTS:
Samsung Construction held an account with Far East Bank. One day a check worth 900,000,
payable to cash, was presented by one Roberto Gonzaga in the Makati Branch of Far East Bank. The check
was certified to be true by Jose Sempio, the assistant accountant of Samsung, who was also present during
the time the check was cashed. Later however it was discovered that no such check was ever approved by
the Samsung’s head accountant, the president of the company also never signed any such check.
ISSUE:
Whether or not Far East Bank is liable to reimburse Samsung for cashing out the forged check,
which was drawn from the account of Samsung
RULING:
YES.
Far East Bank is liable for reimbursement. Sec. 23 of the Negotiable Instrument Law states that a
forged signature makes the instrument “wholly inoperative”. If payment is made the drawee (Far East)
cannot charge it to the drawer’s account (Samsung). The fact that the forgery is clever is immaterial. The
forged signature may so closely resemble the genuine as to defy detection by the depositor himself. And
yet, if the bank pays the check, it is paying out with its own money and not of the depositor’s. This rule
of liability can be stated briefly in these words: “A bank is bound to know its depositor’s signature.” The
accusation of negligence on the part of Samsung was not clearly proven. Absence of proof to the contrary,
the presumption is that the ordinary course of business was followed.

METROBANK v. CABILZO
December 6, 2006 G.R. No. 154496; December 6, 2006 Chico-Nazario, J.:
By: Nacino, Allana Marie
FACTS:
Petitioner Metrobank is a banking institution duly organized and existing as such under Philippine
laws. Respondent Renato D. Cabilzo (Cabilzo) was one of Metrobank’s clients who maintained a current
account with Metrobank Pasong Tamo Branch. On 12 November 1994, Cabilzo issued a Metrobank Check
No. 985988, payable to “CASH” and postdated on 24 November 1994 in the amount of One Thousand
Pesos (P 1,000.00). The check was drawn against Cabilzo’s Account with Metrobank Pasong Tamo
Branch under Current Account No. 618044873-3 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. On 16 November 1994, Cabilzo’s representative was at Metrobank Pasong
Tamo Branch to make some transaction when he was asked by a bank personnel if Cabilzo had issued a
check in the amount of P 91,000.00 to which the former replied in the negative. On the afternoon of the
same date, Cabilzo himself called Metrobank to reiterate that he did not issue a check in the amount of P
91,000.00 and requested that the questioned check be returned to him for verification, to which Metrobank
complied. 1,000.00 was altered to P Upon receipt of the check, Cabilzo discovered that Metrobank Check
No. 985988 which he issued on 12 November 1994 in the amount of P 91,000.00 and the date 24
November 1994 was changed to 14 November 1994.
ISSUE:
Whether or not the alteration made in the subject check is a material alteration
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.
Section 125. What constitutes 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 relation of the parties; (e) The medium or currency in
which payment is to be made; Or which adds a place of payment where no place of payment
is specified, or any other change or addition which alters the effect of the instrument in any
respect is a material alteration.
In the case at bar, the check was altered so that the amount was increased from P 1,000.00 to
P91,000.00 and the date was changed from 24 November 1994 to 14 November 1994. Apparently, since
the entries altered were among those enumerated under Section 1 and 125, namely, the sum of money
payable and the date of the check, the instant controversy therefore squarely falls within the purview of
material alteration.
Now, having laid the premise that the present petition is a case of material alteration, it is now
necessary for us to determine the effect of a materially altered instrument, as well as the rights and
obligations of the parties thereunder. The following provision of the Negotiable Instrument Law will shed
us some light in threshing out this issue:

Section 124. Alteration of instrument; effect of. – Where a negotiable instrument is
materially altered without the assent of all parties liable thereon, it is avoided, except as
against a party who has himself made, authorized, assented to the alteration and subsequent
indorsers . and But when the instrument has been materially altered and is in the hands of
a holder in due course not a party to the alteration, he may enforce the payment thereof
according to its original tenor.
Indubitably, Cabilzo was not the one who made nor authorized the alteration. Neither did he assent
to the alteration by his express or implied acts. There is no showing that he failed to exercise such
reasonable degree of diligence required of a prudent man which could have otherwise prevented the loss.
As correctly ruled by the appellate court, Cabilzo was never remiss in the preparation and issuance of the
check, and there were no indicia of evidence that would prove otherwise. Indeed, Cabilzo placed asterisks
before and after the amount in words and figures in order to forewarn the subsequent holders that nothing
follows before and after the amount indicated other than the one specified between the asterisks.
The degree of diligence required of a reasonable man in the exercise of his tasks and the
performance of his duties has been faithfully complied with by Cabilzo. In fact, he was wary enough that
he filled with asterisks the spaces between and after the amounts, not only those stated in words, but also
those in numerical figures, in order to prevent any fraudulent insertion, but unfortunately, the check was
still successfully altered, indorsed by the collecting bank, and cleared by the drawee bank, and encashed
by the perpetrator of the fraud, to the damage and prejudice of Cabilzo.
Verily, Metrobank cannot lightly impute that Cabilzo was negligent and is therefore prevented
from asserting his rights under the doctrine of equitable estoppel when the facts on record are bare of
evidence to support such conclusion. The doctrine of equitable estoppel states that when one of the two
innocent persons, each guiltless of any intentional or moral wrong, must suffer a loss, it must be borne by
the one whose erroneous conduct, either by omission or commission, was the cause of injury. Metrobank’s
reliance on this dictum, is misplaced. For one, Metrobank’s representation that it is an innocent party is
flimsy and evidently, misleading. At the same time, Metrobank cannot asseverate that Cabilzo was
negligent and this negligence was the proximate cause of the loss in the absence of even a scintilla proof
to buttress such claim. Negligence is not presumed but must be proven by the one who alleges it.
When the drawee bank pays a materially altered check, it violates the terms of the check, as well
as its duty to charge its client’s account only for bona fide disbursements he had made. Since the drawee
bank, in the instant case, did not pay according to the original tenor of the instrument, as directed by the
drawer, then it has no right to claim reimbursement from the drawer, much less, the right to deduct the
erroneous payment it made from the drawer’s account which it was expected to treat with utmost fidelity.

BANK OF AMERICA v. PHILIPPINE RACING CLUB
G.R. No. 150228; July 20, 2009 Leonardo-De Castro, J.:
By: Nuyda, Romaine
FACTS:
Plaintiff-appellee PRCI is a domestic corporation which maintains several accounts. Among the accounts maintained
was Current Account No. 58891-012 with defendant-appellant BA (Paseo de Roxas Branch). The authorized joint signatories
were plaintiff-appellee's President (Antonia Reyes) and Vice President for Finance (Gregorio Reyes). On or about the 2nd week
of December 1988, the President and Vice President of plaintiff-appellee corporation were scheduled to go out of the country.
In order not to disrupt operations in their absence, they pre-signed several checks relating to Current Account No. 58891-012.
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. December 16, 1988, a John Doe presented to defendant- appellant bank for encashment a couple of plaintiff-
appellee corporation's checks (Nos. 401116 and 401117) with the indicated value of P110,000.00 each. It is admitted that these
2 checks were among those presigned. 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 encashed said checks. The checks appeared to have come into the hands of an employee (one Clarita Mesina
who was subsequently criminally charged for qualified theft) who eventually completed without authority the entries on the
pre-signed checks. The trial court rendered a Decision in favor of respondent. Petitioner appealed the aforesaid trial court
Decision to the CA which, however, affirmed said decision. Hence, this petition. Petitioner insists that it merely fulfilled its
obligation under law and contract when it encashed the aforesaid checks. Invoking Sections 126 and 185 of the Negotiable
Instruments Law (NIL), petitioner claims that its duty as a drawee bank to a drawer-client maintaining a checking account with
it is to pay orders for checks bearing the drawer-client's genuine signatures. Furthermore, petitioner 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.
There is no dispute that the signatures appearing on the subject checks were genuine. However, the presence of the irregularities
in each check should have alerted the petitioner to be cautious before proceeding to encash them which it did not do.
ISSUE:
Whether or not petitioner, Bank of America, can be held liable for negligence and should pay
damages to respondent corporation
RULING:
YES.
The Court finds that petitioner plainly failed to adhere to the high standard of diligence expected
of it as a banking institution. Petitioner's contention would have been correct if the subject checks were
correctly and properly filled out by the thief and presented to the bank in good order. In that instance,
there would be nothing to give notice to the bank of any infirmity in the title of the holder of the checks
and it could validly presume that there was proper delivery to the holder. In all, we see no reason to depart
from the finding in the assailed CA Decision that the subject checks are properly characterized as
incomplete and undelivered instruments thus making Section 15 of the NIL applicable in this case. In the
case at bar, petitioner cannot evade responsibility for the loss by attributing negligence on the part of
respondent because, even if we concur that the latter was indeed negligent in pre-signing blank checks,
the former had the last clear chance to avoid the loss. Verily, petitioner had the final opportunity to avert
the injury that befell the respondent. Failing to make the necessary verification due to the volume of
banking transactions on that particular day is a flimsy and unacceptable excuse, considering that the
"banking business is so impressed with public interest where the trust and confidence of the public in
general is of paramount importance such that the appropriate standard of diligence must be a high degree
of diligence, if not the utmost diligence." In the interest of fairness, however, we believe it is proper to
consider respondent's own negligence to mitigate petitioner's liability. The allocation of sixty percent
(60%) of the actual damages involved in this case to petitioner is proper under the premises. Respondent
should, in light of its contributory negligence, bear forty percent (40%) of its own loss. Finally, we find
that the awards of attorney's fees and litigation expenses in favor of respondent are not justified under the
circumstances and, thus, must be deleted.

ENFORCEMENT OF LIABILITY
FAR EAST REALTY INVESTMENT, INC. v. COURT OF APPEALS

166 SCRA 256 G.R. No. L – 36549; October 5, 1988 Paras, J.:
By: Pascual, Feliz Khristine
FACTS:
Petitioner filed a complaint against private respondents for payment of unpaid and dishonored
check worth P4,500. The petitioner alleged that private respondents approached the former at its office in
Manila to extend them an accommodation loan worth P4,500, Philippine currency which they needed in
their business and promised to pay jointly and severally in one month. Private respondents also proposed
that they pay petitioner 14% interest per annum. Private respondents gave a China Banking Corp. check
dated Sept 13, 1960 for P4,500 drawn by Hian Tat, and signsd by them with the assurance that after one
month from Sept 13, 1960, check would be redeemed by paying cash, or check can be presented for
payment on or immediately after one month and bank would honor it. Petitioner agreed under said
conditions and amount was delivered to private respondents. On March 5, 1964, check bounced because
the current account of the drawer had already been closed. Petitioner demanded payment of loan obligation
but private respondents refused. Suy An filed counterclaim dated July 8, 1968 alleging that petitioner has
no cause of action against him because Suy An signed said endorsement for his principal, Victory
Hardware, and not for his individual account, hence not personally liable; acting in his own capacity as
endorser, he was discharged by delay in presentment of the check. Hian Tat also filed counterclaim dated
Feb 27, 1970 alleging that he never had transactions or negotiations of any check with the petitioner
because as far as he can remember, said check was delivered to him by Sin Chin Just Grocery and not to
the petitioner; but by the endorsement at the back of the check means Hian Tat was one of those who
approached the petitioner at its office on Sept 13; accdg to immediat endorser, Suy An, who endorsed the
check for his principal, Victory Hardware, check as delivered to Asian Surety & Insurance Co. Inc;
petitioner not being the holder of the check has no recourse against immediate endorser and neither with
the drawer thus discharging endorser and drawer bec of unreasonable delay in presentment (check was
dated Sept 13, 1960 and deposited only for payment on March 5, 1964). On March 31, 1970, Say Chee
was declared in default. The Trial courts ruled in favor of petitioner but was reversed by appellate court
that check has passed through other hands before reaching petitioner and check was not presented within
reasonable time and after its issuance.
ISSUE:
Whether or not presentment for payment and notice of dishonor of the check were made within
reasonable time
RULING:
NO.
Presentment and notice of dishonor were not made within reasonable time. Petitioner failed to
exercise prudence and diligence on what he was ought to do as required by law and failed to show
justification for the unreasonable delay. “Reasonable time” means 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 regard for the rights, and possibility of loss, if any, to the other party. It
depends upon the peculiar facts and circumstances in each case. In the case at bar, these are the following
facts:
September 13, 1960 - date when check was drawn
March 5, 1964 - presented to drawee bank
April 27, 1968 - notice of dishonor
Thus, where the instrument is not payable on demand, presentment must be made on the day it
falls due. Where it is payable on demand, presentment must be made within a reasonable time after issue,
except that in case of a bill of exchange, presentment for payment is sufficient if made within reasonable
time after the last negotiation thereof. Notice may be given as soon as instrument has been dishonored and
unless delay is excused must be given within the time fixed by law

WONG v. COURT OF APPEALS
G.R. No. 117857; February 2, 2001 Quisumbing, J.:
By: Pascual, Feliz Khristine
FACTS:
Wong was an agent of Limtong Press Inc (LPI), manufacturer of calendars; LPI prints simple
calendars and give them to agents to present to customers; agents would get purchase orders of customers
and forward them to LPI; after printing, LPI would ship calendars directly to customers; agents would
then collect payments. Wong had a history of unremitted collections which he acknowledged in a
confirmation receipt he co-signed with his wife hence Wong’s customers were required to issue postdated
checks before LPI would accept their purchase orders. On, December 1985, Wong issued 6 postdated
checks totaling P18,025 all dated Dec 30, 1985, drawn payable to the order of LPI. LPI refused to accept
checks as guarantees; parties agreed to apply the checks to the payment of petitioners unremitted
collections for 1984 amounting to P18,077.07; LPI waived P52.07 difference. Before maturity of checks,
Wong prevailed upon LPI not to deposit the checks and promised to replace them in 30 days but Wong
revoked on his promise. On June 5, 1986, LPI deposited checks with RCBC but returned because the
account was closed; dishonored checks was evidenced by RCBC return slip. On June 20, 1986,
complainant through counsel notified Wong of the dishonor; Wong failed to make arrangements for
payment within 5 banking days. And on November 6, 1987, Wong was charged with 3 counts of violation
of BP 22 for 3 checks.
ISSUE:
Whether or not LPI deposited the checks within a reasonable time
RULING:
YES.
Since complainant deposited checks on June 5, 1986, 157 days after the Dec 30, 1985 maturity
date, the presumption of knowledge of lack of duns under Sec. 2 BP 22 sold not apply. He further claims
that he should not be expected to keep his bank account active and funded beyond the 90-day period. Sec
186 of the NIL provides:
“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 cause by the
delay”.
By current banking practice, a check becomes stale after more than 6 months or 180 days. Private
respondent deposited checks 157 days after the date of check. Hence 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 to circumstantial evidence. Private respondent did not deposit checks because of the
reassurance of Wong that he would issue new checks. Upon his failure to do so, LPI was constrained to
deposit said checks. After checks were dishonored, petitioner was duly notified of such fact but failed to
make arrangements for full payment within 5 banking days. There is 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 checks.

INTERNATIONAL CORPORATE BANK v. SPOUSES GUECO
G.R. No. 141968; February 12, 2001 Kapunan, J.:
By: Porciuncula, Jehovery
FACTS:
The respondents Gueco Spouses obtained a loan from petitioner International Corporate Bank
(now Union Bank of the Philippines) to purchase a car a Nissan Sentra 1600 4DR, 1989 Model. In
consideration thereof, the Spouses executed promissory notes which were payable in monthly installments
and chattel mortgage over the car to serve as security for the notes. The Spouses defaulted in payment of
installments. A civil case was filed by the bank, petitioner, which resulted later into negotiations in
lowering the remaining unpaid balance from P184,000.00 to P150,000.00, detaining the car until payment
thereof. Respondent delivered a manager’s check but petitioner insisted on the signing of “Joint Motion
to Dismiss”, still holding the motor vehicle. Respondent initiated civil action for damages before MTC
but the case was dismissed for lack of merit. On appeal to RTC, the decision of MTC was reversed ordering
herein petitioners to indemnify the respondents. The Court of Appeals likewise affirmed the decision of
the RTC.
ISSUE:
Whether or not the Gueco Spouses are entitled of indemnification for damages
RULING:
NO.
It was held by the court that the petitioner’s act of requiring respondents to sign the Joint Motion
to Dismiss can not be said to be a deliberate attempt on the part of petitioner to renege on the compromise
agreement of the parties. The law presumes good faith. In fact, the act of petitioner bank in lowering the
debt of respondent from P184,000.00 to P150,000.00 is indicative of its good faith and sincere desire to
settle the case. The decision of the Court of Appeals affirming the decision of the Regional Trial Court is
set aside. Respondents are further ordered to pay the original obligation amounting to P150,000.00 to the
petitioner upon surrender or cancellation of the managers check in the latters possession, afterwhich,
petitioner is to return the subject motor vehicle in good working condition.

FAR EAST REALTY v. COURT OF APPEALS
G.R. No. L – 36549; October 5, 1988 Kapunan, J.:
By: Porciuncula, Jehovery
FACTS:
Private respondents asked the petitioner to extend an accommodation loan in the sum of P4,500.00.
Respondents delivered to the petitioner a check for P4,500.00, drawn by Dy Hian Tat, and signed by them
at the back of said check, with the assurance that after one month from September 13, 1960, the said check
would be redeemed by them by paying cash in the sum of P4,500.00, or the said check can be presented
for payment on or immediately after one month. Petitioner agreed and extended an accommodation loan
The aforesaid check was presented for payment to the China Banking Corporation, but said check bounced
and was not cashed by said bank, for the reason that the current account of the drawer thereof had already
been closed. Petitioner demanded payment from the private but the latter failed and refused to pay
notwithstanding repeated demands.
ISSUE:
Whether or not presentment for payment can be dispensed and notice of dishonor of the questioned
check were made within reasonable time
RULING:
NO.
Where the instrument is not payable on demand, presentment must be made on the day it falls due.
Where it is payable on demand, presentment must be made within a reasonable time after issue, except
that in the case of a bill of exchange, presentment for payment will be sufficient if made within a
reasonable time after the last negotiation thereof as provided in Section 71, Negotiable Instruments Law.
“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 petitioner undoubtedly failed to exercise prudence and diligence on what he ought to do as required
by law. The petitioner likewise failed to show any justification for the unreasonable delay. The petition is
DENIED and the decision of the Court of Appeals is AFFIRMED.

STATE INVESTMENT HOUSE v. COURT OF APPEALS
217 SCRA 32 G.R. No. 101163; January 11, 1993 Bellosillo, J.:
FACTS:
As security for pieces of jewelry to be sold on commission, private respondent Nora B. Moulic
(Moulic) issued two post-dated checks in the amount of P50,000 each to Corazon Victoriano (Victoriano).
Moulic failed to sell the pieces of jewelry and returned them to the payee before maturity of the checks.
However, the checks could no longer be retrieved as they had already been negotiated to petitioner State
Investment House Inc. (SIHI). Consequently, before their maturity dates, Moulic withdrew her funds from
the drawee bank.
Upon presentment for payment, the checks were dishonored for insufficiency of funds. SIHI
allegedly notified Moulic of the dishonor of the checks and requested that it be paid in cash instead,
although Moulic avers that no such notice was given her. SIHI sued to recover the value of the checks
plus attorney's fees and expenses of litigation.
The trial court dismissed the Complaint. SIHI elevated the order of dismissal to the CA, but it
affirmed the decision on the ground among others that SIHI did serve a Notice of Dishonor on Moulic
within the reglementary period.
ISSUE:
Whether or not a notice of dishonor is required when the drawer intentionally withdraws the funds
from the drawee bank?
RULING:
NO.
A notice of dishonor is not required. Under sec. 114 of the NIL, a 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.
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.
The drawing and negotiation of a check have certain effects aside from the transfer of title or the
incurring of liability in regard to the instrument by the transferor. The holder who takes the negotiated
paper makes a contract with the parties on the face of the instrument. There is an implied representation
that funds or credit are available for the payment of the instrument in the bank upon which it is
drawn. Consequently, the withdrawal of the money from the drawee bank to avoid liability on the checks
cannot prejudice the rights of holders in due course. In the instant case, such withdrawal renders the
drawer, Nora B. Moulic, liable to STATE, a holder in due course of the checks.
Under the facts of this case, STATE could not expect payment as MOULIC left no funds with the
drawee bank to meet her obligation on the checks, so that Notice of Dishonor would be futile.

ASIA BANKING CORPORATION v. JAVIER
44 PHIL 777 G.R. No. L – 19051; April 4, 1923 Avanceña, J.:
FACTS:
On two separate occasions, Salvador B. Chaves (Chaves) drew a check on the Philippine National
Bank (PNB) in favor of La Insular, a concern doing business in this city. Both checks were indorsed by
respondent Juan Javier, limited co-partnership (Javier), the limited partners of La Insular, and then
deposited by Chaves in his current account with the petitioner Asia Banking Corporation (ABC).
The amount represented by both checks was used by Chaves after they were deposited in the ABC
bank, by drawing checks on the latter. Subsequently these checks were presented by the ABC to PNB for
payment, but the latter refused to pay on the ground that Chaves, the drawer, had no funds therein.
The ABC now brings this action against Javier, as indorser, for the payment of the value of both
checks. The lower court sentenced Javier to pay the ABC for the amount of the checks plus interests. From
this judgment, the Javier appealed. One of the contentions of Javier in support of this appeal is, that at all
events its liability as indorser of the checks in question was extinguished.
ISSUE:
Whether or not the indorser is liable, in the absence of a notice of dishonor?
RULING:
NO.
The liability of the indorser does not arise. Under sec. 89 of the NIL, when a negotiable instrument
is dishonored for non-acceptance or non-payment, notice thereof must be given to the drawer and each of
the indorsers, and those who are not notified shall be discharged from liability, except where this act
provides otherwise.
According to this, the indorsers are not liable unless they are notified that the document was
dishonored. Then, under the general principle of the law of procedure, it will be incumbent upon the
plaintiff, who seeks to enforce the defendant's liability upon these checks as indorser, to establish said
liability by proving that notice was given to the defendant within the time, and in the manner, required by
the law that the checks in question had been dishonored. If these facts are not proven, the plaintiff has not
sufficiently established the defendant's liability. There is no proof in the record tending to show that
plaintiff gave any notice whatsoever to the defendant that the checks in question had been dishonored, and
there it has not established its cause of action.

NYCO SALES CORPORATION v. BA FINANCE CORPORATION
200 SCRA 637 G.R. No. 71694; August 16, 1991 Paras, J.:
By: Quinton, Athenai Frances
FACTS:
Nyco Sales Corporation has discounting privileges with BA Finance Corporation. In 1978,
brothers Renato Fernandez and Santiago Renato (officers of Sanshell Corporation) approached Nyco Sales
Corporation for a credit accommodation in order for the brothers make use of Nyco’s discounting
privileges. Nyco Sales agreed and so, on November 15, 1978, Sanshell issued a post-dated (November 17,
1978) BPI check to Nyco Sales in the amount of P60,000.00. Following the discounting process agreed
upon, Nyco Sales, thru its president Rufino Yao, endorsed the check in favor of BA Finance. Thereafter,
BA Finance issued a check payable to Nyco Sales which endorsed it in favor of Sanshell. Sanshell then
made use of and/or negotiated the check. Accompanying the exchange of checks was a Deed of
Assignment executed by Nyco Sales (assignor) in favor of BA Finance (assignee) with the conformity of
Sanshell. Under the said Deed, the subject of the discounting was P60k BPI check.
The check bounced. BA Finance notified Sanshell. Sanshell substituted the BPI check with a
Security Bank and Trust Company check for P60k. This check again bounced. BA Finance made repeated
demands to Nyco Sales and Sanshell but neither of the two settled the obligation. Hence, BA Finance sued
Nyco Sales. Nyco Sales averred that it received no notice of dishonor when the second check was
dishonored.
ISSUE:
Whether or not Nyco Sales is liable to pay BA Finance
RULING:
YES.
The relationship between Nyco Sales and BA Finance is one of assignor-assignee. The assignor-
vendor warrants both the credit itself (its existence and legality) and the person of the debtor (his
solvency), if so stipulated, as in the case at bar. Consequently, if there be any breach of the above
warranties, the assignor-vendor should be held answerable therefor. There is no question then that the
assignor-vendor is indeed liable for the invalidity of whatever he assigned to the assignee-vendee.
Considering now the facts of the case at bar, it is beyond dispute that Nyco executed a deed of assignment
in favor of BA Finance with Sanshell Corporation as the debtor-obligor. BA Finance is actually enforcing
said deed and the check covered thereby is merely an incidental or collateral matter. This particular check
merely evidenced the credit which was actually assigned to BA Finance. Thus, the designation is
immaterial as it could be any other check. It is only what is represented by the said checks that Nyco is
being asked to pay.
Nyco Sales’ pretension that it had not been notified of the fact of dishonor is belied not only by
the formal demand letter issued by BA Finance but also by the fact that Nyco Sales and Sanshell had
frequent contacts before, during and after the dishonor. More importantly, as long as the credit remains
outstanding, Nyco Sales shall continue to be liable to BA Finance as its assignor. The dishonor of an
assigned check simply stresses its liability and the failure to give a notice of dishonor will not discharge
it from such liability. This is because the cause of action stems from the breach of the warranties embodied
in the Deed of Assignment, and not from the dishonoring of the check alone.

ARCEO, JR. v. PEOPLE OF THE PHILIPPINES
G.R. No. 142641; July 17, 2006 Corona, J.:
By: Quinton, Athenai Frances
FACTS:
Petitioner Pacifico Arceo obtained a loan from private complainant Josefino Cenizal for a total of
P150,000.00. Arceo issued in return BPI check in favor of Cenizal. Cenizal did not deposit the check
immediately since Arceo promised that he would replace it with cash. He promised to pay (7) times. When
his patience ran out, Cenizal encashed the check but it bounced due to insufficiency of funds. Cenizal
went to the house of Arceo to inform him of the dishonor of the check but the latter is nowhereto be found.
They sent Arceo a letter about the notice but still to no avail. So Cenizal filed estafa and violation of BP
22 against Arceo. The check in question and the return slip were however lost by (Cenizal) as a result of
a fire that occurred near his residence. The latter executed an affidavit of loss regarding the loss of the
check in question and the return slip. After trial, petitioner was found guilty as charged. Hence, this
petition.
ISSUE:
Whether or not presentment of the check beyond the 90-day period would exempt the drawer from
his liability in the case of violation of BP 22
RULING:
NO.
The court ruled that the 90-day period provided in the law is not an element of the offense. Never
does it discharge the petitioner his duty to maintain sufficient funds in the account within a reasonable
time from the date indicated in the check. According to current banking practice, the reasonable period
within which t present a check to the drawee bank is six months. Thereafter, the check becomes stale and
the drawer is discharged from liability thereon to the extent of the loss caused by the delay. Thus, Cenizal's
presentment of the check to the drawee bank 120 days (four months) after its issue was still within the
allowed period. Petitioner was freed neither from the obligation to keep sufficient funds in his account nor
from liability resulting from the dishonor of the check.

ALLIED BANKING v. COURT OF APPEALS AND GG SPORTSWEAR
G.R. No. 125851; July 11, 2006 Quisumbing, J.:
By: Romano, Patrick Jon
FACTS:
On January 6, 1981, petitioner Allied Bank, Manila (ALLIED) purchased an export bill
from respondent G.G Sportswear Mfg. Corporation (GGS). The bill, drawn under a letter of credit covered
Men’s Valvoline training suit that was in transit to West Germany. The export bill was issued by Chekiang
First Bank Ltd., Hongkong. With the purchase of the bill, ALLIED credited GGS the peso equivalent of
the aforementioned bill amounting to P151,474.52 and the receipt of which was acknowledged by the
latter in its letter dated June 22, 1981.
On the same date, respondents Nari Gidwani and Alcron International Ltd. (Alcron) executed their
respective Letters of Guaranty, holding themselves liable on the export bill if it should be dishonored or
retired by the drawee for any reason.
Subsequently, the spouses Leon and Leticia de Villa and Nari Gidwani also executed a Continuing
Guaranty/Comprehensive Surety (surety, for brevity), guaranteeing payment of any and all such credit
accommodations which ALLIED may extend to GGS.
When ALLIED negotiated the export bill to Chekiang, payment was refused due to some material
discrepancies in the documents submitted by GGS relative to the exportation covered by the letter of
credit. Consequently, ALLIED demanded payment from all the respondents based on the Letters of
Guaranty and Surety executed in favor of ALLIED. However, respondents refused to pay, prompting
ALLIED to file an action for a sum of money.
Respondents claim that the petitioner did not protest upon dishonor of the export bill by Chekiang
First Bank, Ltd. According to respondents, since there was no protest made upon dishonor of the export
bill, all of them, as indorsers were discharged under Section 152 of the Negotiable Instruments Law.
ISSUE:
Whether or not respondents, in their capacity as guarantors and surety, can be held jointly and
severally liable
RULING:
NO.
Section 152 of the Negotiable Instruments Law pertaining to indorsers, relied on by respondents,
is not pertinent to this case. There are well-defined distinctions between the contract of an indorser and
that of a guarantor/surety of a commercial paper, which is what is involved in this case. The contract of
indorsement is primarily that of transfer, while the contract of guaranty is that of personal security. The
liability of a guarantor/surety is broader than that of an indorser. Unless the bill is promptly presented for
payment at maturity and due notice of dishonor given to the indorser within a reasonable time, he will be
discharged from liability thereon. On the other hand, except where required by the provisions of the
contract of suretyship, a demand or notice of default is not required to fix the surety's liability. He cannot
complain that the creditor has not notified him in the absence of a special agreement to that effect in the
contract of suretyship. Therefore, no protest on the export bill is necessary to charge all the respondents
jointly and severally liable with G.G. Sportswear since the respondents held themselves liable upon
demand in case the instrument was dishonored and on the surety, they even waived notice of dishonor as
stipulated in their Letters of Guarantee.

AREZA v. EXPRESS SAVINGS BANK, INC.
G.R. No. 176697; September 10, 2014 Perez, J.:
By: Romano, Patrick Jon
FACTS:
Petitioners Cesar and Lolita Areza maintains a savings account and a special savings account with respondent Express
savings bank. They were engaged in the business of "buy and sell" of brand new and second-hand motor vehicles.
On 2 May 2000, they received an order from a certain Gerry Mambuay (Mambuay) for the purchase of a second-hand
Mitsubishi Pajero and a brand-new Honda CRV. The buyer, Mambuay, paid petitioners with (9) Philippine Veterans Affairs
Office (PVAO) checks payable to different payees and drawn against the Philippine Veterans Bank (drawee), each valued at
Two Hundred Thousand Pesos (₱200,000.00) for a total of One Million Eight Hundred Thousand Pesos (₱1,800,000.00).
On 3 May 2000, petitioners deposited the said checks in their savings account with the Bank. The Bank, in turn,
deposited the checks with its depositary bank, Equitable-PCI Bank, in Biñan,Laguna. Equitable-PCI Bank presented the checks
to the drawee, the Philippine Veterans Bank, which honored the checks.
On 6 May 2000, the petitioners were informed that the checks they deposited with the Bank were honored. Thus, the
entire amount of ₱1,800,000.00 was credited to petitioners’ savings account. Based on this information, petitioners released
the two cars to the buyer.
Sometime in July 2000, the subject checks were returned by PVAO to the drawee on the ground that the amount on
the face of the checks was altered from the original amount of ₱4,000.00 to ₱200,000.00. The drawee returned the checks to
Equitable-PCI Bank by way of Special Clearing Receipts. In August 2000, the Bank was informed by Equitable-PCI Bank that
the drawee dishonored the checks on the ground of material alterations. Equitable-PCI Bank initially filed a protest with the
Philippine Clearing House. In February 2001, the latter ruled in favor of the drawee Philippine Veterans Bank. Equitable-PCI
Bank, in turn, debited the deposit account of the Bank in the amount of ₱1,800,000.00.
On 9 March 2001, petitioners issued a check in the amount of ₱500,000.00. Said check was dishonored by the Bank
for the reason "Deposit Under Hold." On 22 March 2001, petitioners’ counsel sent a demand letter asking the Bank to honor
their check. The Bank refused to heed their request and instead, closed the Special Savings Account of the petitioners with a
balance of ₱1,179,659.69 and transferred said amount to their savings account. The Bank then withdrew the amount of
₱1,800,000.00 representing the returned checks from petitioners’ savings account.
ISSUE:
Whether or not the Bank had the right to debit ₱1,800,000.00 from petitioners’ accounts
RULING:
NO.
When the drawee bank pays a materially altered check, it violates the terms of the check, as well as its duty to charge
its client’s account only for bona fide disbursements he had made. If the drawee did not pay according to the original tenor of
the instrument, as directed by the drawer, then it has no right to claim reimbursement from the drawer, much less, the right to
deduct the erroneous payment it made from the drawer’s account which it was expected to treat with utmost fidelity.21 The
drawee, however, still has recourse to recover its loss. It may pass the liability back to the collecting bank which is what the
drawee bank exactly did in this case. It debited the account of Equitable-PCI Bank for the altered amount of the checks.
A depositary/collecting bank where a check is deposited, and which endorses the check upon presentment with the
drawee bank, is an endorser. Under Section 66 of the Negotiable Instruments Law, an endorser warrants "that the instrument
is genuine and in all respects what it purports to be; that he has good title to it; that all prior parties had capacity to contract;
and that the instrument is at the time of his endorsement valid and subsisting." It has been repeatedly held that in check
transactions, the depositary/collecting bank or last endorser generally suffers the loss because it has the duty to ascertain the
genuineness of all prior endorsements considering that the act of presenting the check for payment to the drawee is an assertion
that the party making the presentment has done its duty to ascertain the genuineness of the endorsements. If any of the warranties
made by the depositary/collecting bank turns out to be false, then the drawee bank may recover from it up to the amount of the
check. The law imposes a duty of diligence on the collecting bank to scrutinize checks deposited with it for the purpose of
determining their genuineness and regularity. The collecting bank being primarily engaged in banking holds itself out to the
public as the expert and the law holds it to a high standard of conduct.
A depositary/collecting bank may resist or defend against a claim for breach of warranty if the drawer, the payee, or
either the drawee bank or depositary bank was negligent and such negligence substantially contributed to the loss from
alteration. In the instant case, no negligence can be attributed to petitioners. We lend credence to their claim that at the time of
the sales transaction, the Bank’s branch manager was present and even offered the Bank’s services for the processing and
eventual crediting of the checks. True to the branch manager’s words, the checks were cleared three days later when deposited
by petitioners and the entire amount of the checks was credited to their savings account.

CHECKS
NEW PACIFIC TIMBER v. HON. SENERIS

G.R. No. L – 41764; December 19, 1980 Concepcion, Jr., J.:
FACTS:
Petitioner, New Pacific Timber & Supply Co. Inc. was the defendant in a complaint for collection
of money filed by private respondent, Ricardo A. Tong. In this complaint, respondent Judge rendered a
compromise judgment based on the amicable settlement entered by the parties wherein petitioner will pay
to private respondent P54,500.00 at 6% interest per annum and P6,000.00 as attorney’s fee of which
P5,000.00 has been paid. Upon failure of the petitioner to pay the judgment obligation, a writ of execution
worth P63,130.00 was issued levied on the personal properties of the petitioner. Before the date of the
auction sale, petitioner deposited with the Clerk of Court in his capacity as the Ex-Officio Sheriff
P50,000.00 in Cashier’s Check of the Equitable Banking Corporation and P13,130.00 in cash for a total
of P63,130.00. Private respondent refused to accept the check and the cash and requested for the auction
sale to proceed. The properties were sold for P50,000.00 to the highest bidder with a deficiency of
P13,130.00. Petitioner subsequently filed an ex-parte motion for issuance of certificate of satisfaction of
judgment which was denied by the respondent Judge. Hence this present petition, alleging that the
respondent Judge capriciously and whimsically abused his discretion in not granting the requested motion
for the reason that the judgment obligation was fully satisfied before the auction sale with the deposit
made by the petitioner to the Ex-Officio Sheriff. In upholding the refusal of the private respondent
to accept the check, the respondent Judge cited Article 1249 of the New Civil Code which provides that
payments of debts shall be made in the currency which is the legal tender of the Philippines and Section
63 of the Central Bank Act which provides that checks representing deposit money do not have legal
tender power. In sustaining the contention of the private respondent to refuse the acceptance of the cash,
the respondent Judge cited Article 1248 of the New Civil Code which provides that creditor cannot be
compelled to accept partial payment unless there is an express stipulation to the contrary.
ISSUE:
Whether or not the checks may be considered valid payment for the judgment obligation
RULING:
YES.
It is to be emphasized that it is a well-known and accepted practice in the business sector that a
Cashier's Check is deemed cash. Moreover, since the check has been certified by the drawee bank, this
certification implies that the check is sufficiently funded in the drawee bank and the funds will be applied
whenever the check is presented for payment. The object of certifying a check is to enable the holder to
use it as money. When the holder procures the check to be certified, it operates as an assignment of a part
of the funds to the creditors. Hence, the exception provided in Section 63 of the Central Bank Act which
states that checks which have been cleared and credited to the account of the creditor shall be equivalent
to a delivery to the creditor in cash the amount equal to that which is credited to his account. The Cashier's
Check and the cash are valid payment of the obligation of the petitioner. The private respondent has no
valid reason to refuse the acceptance of the check and cash as full payment of the obligation.

PNB v. NATIONAL CITY BANK OF NEW YORK
63 PHIL. 711 G.R. No. 43596; October 31, 1936 Recto, J.:
FACTS:
As part of the payment for some tire purchases, unknown person or persons negotiated checks with
respondent Motor Service Company, Inc. (MSCI). The checks were purported to have been issued by the
Pangasinan Transportation Co., Inc. (PTCI) by the Manager and Treasurer J.L. Klar against PNB and in
favor of International Aurto Repair Shop (IASR). The checks were then indorsed for deposit by MSCI at
the respondent National City Bank of New York (NCBNY) and the former was credited with the amount
of the checks.
The checks were cleared and PNB, believing the signatures were genuine, credited to NCBNY the
amounts thereof. When PNB was informed by PTCI that the signatures were forged, it demanded
reimbursement from NCBNY and MSCI. However, after repeated demands, respondents refused to make
such reimbursements.
Upon PNB's motion, the case was dismissed before trial as to NCBNY. A decision was thereafter
rendered giving PNB judgment for the total amount of P360.25, with interest and costs. From the decision,
the instant appeal was taken. It was contended that the payment of the checks in question made by the
drawee bank constitutes an "acceptance", and, consequently, the case should be governed by the
provisions of section 62 of the NIL.
ISSUE:
Whether or not payment of a check made by a drawee bank constitutes an acceptance
RULING:
NO.
A check is a bill of exchange payable on demand and only the rules governing bills of exchange
payable on demand are applicable to it. Since acceptance is a step unnecessary, in so far as bills of
exchange payable on demand are concerned, it follows that the provisions relative to "acceptance" are
without application to checks. Acceptance implies, in effect, subsequent negotiation of the instrument,
which is not true in case of the payment of a check because from the moment a check is paid it is withdrawn
from circulation. The warranty established by Sec. 62, is in favor of holders of the instrument after its
acceptance. When the drawee bank cashes or pays a check, the cycle of negotiation is terminated, and it
is illogical thereafter to speak of subsequent holders who can invoke the warranty provided in Sec. 62
against the drawee.
In law or business practice, nothing is against the presentation of checks for acceptance, before
payment, in which case we have a "certification" equivalent to "acceptance" according to section 187,
which provides that "where a check is certified by the bank on which it is drawn, the certification is
equivalent to an acceptance", and it is then that the warranty under section 62 exists. When a check is
certified, it ceases to possess the character, or to perform the functions, of a check, and represents so much
money on deposit, payable to the holder on demand. The check becomes a basis of credit — an easy mode
of passing money from hand to hand, and answers the purposes of money.
Therefore, since PNB did not warrant to the MSCI the genuineness of the checks in question, by
its acceptance thereof, nor did it perform any act which would have induced the MSCI to believe in the
genuineness of said instruments before MSCI purchased them for value, it cannot be said that the PNB is
precluded from setting up the forgery and, therefore, the MSCI is not entitled to retain the amount of the
forged check paid to it by the PNB.

BATAAN CIGAR v. COURT OF APPEALS
230 SCRA 648 G.R. No. 93048; March 3, 1994 Nocon, J.:
By: Sze, Daryl Angel
FACTS:
Petitioner, a corporation involved in the manufacturing of cigarettes, engaged one of its suppliers,
King Tim Pua George, to deliver 2,000 bales of tobacco leaf. In consideration thereof, petitioner issued
post-dated checks. Relying on the supplier's representation that he would complete delivery within three
months from December 5, 1978, petitioner agreed to purchase additional 2,500 bales of tobacco leaves,
despite the supplier's failure to deliver in accordance with their earlier agreement. Again petitioner issued
post-dated crossed checks. During these times, George King was simultaneously dealing with private
respondent State Investment House, Inc. (SIHI). He sold at a discount checks drawn by petitioner, naming
George King as payee to SIHI. In as much as George King failed to deliver the bales of tobacco leaf as
agreed despite petitioner's demand, the latter issued a stop payment order on all checks payable to George
King which prompted SIHI to file a case against petitioner. The court pronounced SIHI as having a valid
claim being a holder in due course. It further said that the non-inclusion of King Tim Pua George as party
defendant is immaterial in this case, since he, as payee, is not an indispensable party. Hence, this petition
for review.
ISSUE:
Whether or not SIHI, a second indorser, a holder of crossed checks, is a holder in due course, to
be able to collect from the drawer petitioner
RULING:
NO.
Section 52 of the NIL provides what constitutes a holder in due course. Section 59 of the NIL
further states that every holder is deemed prima facie a holder in due course. However, when it is shown
that the title of any person who has negotiated the instrument was defective, the burden is on the holder
to prove that he or some person, under whom he claims, acquired the title as holder in due course.
In the present case, petitioner’s defense in stopping payment is as good to SIHI as it is to George
King. Because, really, the checks were issued with the intention that George King would supply petitioner
with the bales of tobacco leaf. There being failure of consideration, SIHI is not a holder in due course.
Consequently, petitioner cannot be obliged to pay the checks.
The foregoing does not mean, however, that respondent could not recover from the checks. The
only disadvantage of a holder who is not a holder in due course is that the instrument is subject to defenses
as if it were non-negotiable. Hence, respondent can collect from the immediate indorser, in this case,
George King.

STELCO MARKETING CORPORATION v. COURT OF APPEALS
G.R. No. 96160; June 17, 1992 Narvasa, C.J.:
By: Sze, Daryl Angel
FACTS:
Stelco is engaged in the distribution and sale to the public of structural steel bars. On seven (7)
different occasions, it sold to RYL Construction, Inc. quantities of steels bars and wires, which were
delivered at different places at the indication of RYL. Although the corresponding invoices issued by
STELCO stipulated that RYL pay "COD" (cash on delivery), the latter made no payments for the
construction materials despite demands made by the former. RYL gave to Armstrong, Industries,
described by STELCO as its "sister corporation" and "manufacturing arm" 2 , a check drawn against
Metrobank. That check was a company check of another corporation, Steelweld Corporation of the
Philippines.
When Armstrong deposited the check at its bank, it was dishonored because "drawn against insufficient
funds." When so deposited, the check bore two (2) endorsements, that of "RYL Construction," followed
by that of "Armstrong Industries." STELCO then filed a complaint against both RYL and STEELWELD
for the recovery of the valued of the steel bars and wire sold to and delivered to RYL. STELCO theorizes
that it should be deemed a "holder for value" of STEELWELD's Check because the record shows it to
have been in "actual possession" thereof.
ISSUE:
Whether or not STELCO ever became a holder in due course of the check, a bearer instrument,
within the contemplation of the Negotiable Instruments Law
RULING:
NO.
The record does show that after the check had been deposited and dishonored, STELCO came into
possession of it in some way, and was able, several years after the dishonor of the check, to give it in
evidence at the trial of the civil case it had instituted against the drawers of the check Steelweld and RYL.
But, as already pointed out, possession of a negotiable instrument after presentment and dishonor, or
payment, is utterly inconsequential; it does not make the possessor a holder for value within the meaning
of the law; it gives rise to no liability on the part of the maker or drawer and indorsers.
It is clear from the relevant circumstances that STELCO cannot be deemed a holder of the check
for value. It does not meet two of the essential requisites prescribed by the statute. It did not become "the
holder of it before it was overdue, and without notice that it had been previously dishonored," and it did
not take the check "in good faith and for value.
Neither is there any evidence whatever that Armstrong Industries, to whom R.Y. Lim negotiated the check
accepted the instrument and attempted to encash it in behalf, and as agent of STELCO. On the contrary,
the indications are that Armstrong was really the intended payee of the check and was the party actually
injured by its dishonor; it was after all its representative (a Mr. Young) who instituted the criminal
prosecution of the drawers, Limson and Torres, albeit unsuccessfully.

STATE INVESTMENT HOUSE v. COURT OF APPEALS
175 SCRA 311 G.R. No. 72764; July 13, 1989 Fernan, J.:
By: Tan, Ellaine Rose
FACTS:
Private respondent 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 P50,000 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). Moulic failed to sell the pieces of jewelry, so she returned them to the payee before maturity of the checks. The
checks, however, could no longer be retrieved as they had already been negotiated. Consequently, before their maturity dates,
Moulic withdrew her funds from the drawee bank. Upon presentment for payment, the checks were dishonored for insufficiency
of funds. On 20 December 1979, STATE allegedly notified Moulic of the dishonor of the checks and requested that it be paid
in cash instead, although Moulic avers that no such notice was given her. Subsequently, STATE sued to recover the value of
the checks plus attorney's fees and expenses of litigation. 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. 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. Upon appeal,
CA 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.
ISSUE:
1. Whether or not STATE is a holder of the checks in due course

2. Whether or not a notice of dishonor should have been given
RULING:
1. YES.
Sec. 52 of the NIL provides that 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 was 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. Culled from the foregoing, a prima facie presumption exists that
the holder of a negotiable instrument is a holder in due course. Consequently, the burden of proving that STATE is
not a holder in due course lies in the person who disputes the presumption. In this regard, MOULIC failed. The
evidence clearly shows that: (a) on their faces the post-dated checks were complete and regular: (b) petitioner bought
these checks from the payee, Corazon Victoriano, before their due dates; (c) petitioner took these checks in good
faith and for value, albeit at a discounted price; and, (d) petitioner was never informed nor made aware that these
checks were merely issued to payee as security and not for value. Consequently, STATE is indeed a holder in due
course. As such, it holds the instruments free from any defect of title of prior parties, and from defenses available
to prior parties among themselves; STATE may, therefore, enforce full payment of the checks.
2. NO.
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 NIL 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.

PAPA v. A.U. VALENCIA
284 SCRA 643 G.R. No. 105188; January 23, 1998 Kapunan, J.:
By: Tan, Ellaine Rose
FACTS:
Sometime in June 1982, respondents A.U. Valencia and Co, Inc (Valencia for brevity) and Felix Pearroyo
filed with RTC of Pasig a complaint for specific performance against petitioner Myron Papa, in his capacity as
administrator of the Testate of one Angela M. Butte. The complaint alleged that on 15 June 1973, petitioner Myron
C. Papa, acting as attorney-in-fact of Angela M. Butte, sold to respondent Pearroyo, through respondent Valencia,
a parcel of land in Quezon City. Prior to the alleged sale, the property had been mortgaged to the Associated Banking
Corporation. Despite the representations made by respondents to the bank to release the title to the property sold to
Pearroyo, the bank refused to release it unless and until all the mortgaged properties of the late Butte were also
redeemed. In April 1977, respondents discovered that the mortgage rights of the bank had been assigned to one
Tomas L. Parpana (now deceased), as special administrator of the Estate of Ramon Papa Jr. Since then, petitioner
had been collecting monthly rentals from the tenants of the property and knowing said property had already been
sold to respondents, failed and refused to deliver the title to the property despite repeated demands. For his part,
petitioner filed a third-party complaint against herein private respondents spouses Reyes. That due to non-payment
of real estate tax by Butte, said property was sold at public auction to respondent Reyes spouses on January 1980.
Since the one-year period of redemption had expired, he prayed for restoring the subject property to him upon
payment of everything he might have to pay the Reyes spouses in recovering the property. Trial court rendered a
decision allowing petitioner to redeem the property in question from Spouses Reyes and ordering him to execute a
Deed of Absolute Sale in favor of Pearroyo.
Petitioner appealed the aforesaid decision of the trial court to the Court of Appeals, alleging among others
that the sale was never consummated as he did not encash the check (in the amount of P40,000.00) given by
respondents Valencia and Pearroyo in payment of the full purchase price of the subject lot. He maintained that what
said respondents had actually paid was only the amount of P5,000.00 (in cash) as earnest money. CA affirmed trial
court’s decision.
ISSUE:
Whether or not the sale is deemed consummated
RULING:
YES.
It is an undisputed fact that respondents Valencia and Pearroyo had given petitioner P5,000 in cash
on 24 May 1973, and P40,000.00 in check on 15 June 1973, in payment of the purchase price of the subject
lot. Petitioner himself admits having received said amounts, and having issued receipts therefor.
Petitioners assertion that he never encashed the aforesaid check is not substantiated and is at odds with his
statement in his answer that he can no longer recall the transaction which is supposed to have happened
10 years ago. After more than ten (10) years from the payment in part by cash and in part by check, the
presumption is that the check had been encashed.
Granting that petitioner had never encashed the check, his failure to do so for more than ten (10)
years undoubtedly resulted in the impairment of the check through his unreasonable and unexplained
delay.
While it is true that the delivery of a check produces the effect of payment only when it is cashed,
pursuant to Art. 1249 of the Civil Code, the rule is otherwise if the debtor is prejudiced by the creditors
unreasonable delay in presentment. The acceptance of a check implies an undertaking of due diligence in
presenting it for payment, and if he from whom it is received sustains loss by want of such diligence, it
will be held to operate as actual payment of the debt or obligation for which it was given. It has, likewise,
been held that if no presentment is made at all, the drawer cannot be held liable irrespective of loss or
injury, unless presentment is otherwise excused. This is in harmony with Article 1249 of the Civil Code
under which payment by way of check or other negotiable instrument is conditioned on its being cashed,
except when through the fault of the creditor, the instrument is impaired. The payee of a check would be
a creditor under this provision and if its non-payment is caused by his negligence, payment will be deemed
effected and the obligation for which the check was given as conditional payment will be discharged.

VILLANUEVA v. NITE
G.R. No. 148211; July 25, 2006 Corona, C.J.:
By: Tan, Mayrell
FACTS:
Marlyn Nite allegedly took out a loan of P409,000 from Sincere Villanueva. To secure the loan,
Nite issued petitioner an Asian Bank Corporation (ABC) check (Check No. AYA 020195) in the amount
of P325,500 dated February 8, 1994. The date was later changed to June 8, 1994 with the consent and
concurrence of Villanueva. The check was, however, dishonored due to a material alteration when
Villanueva deposited the check on due date.
On August 24, 1994, Nite, through her representative Emily P. Abojada, remitted P235,000 to
Villanueva as partial payment of the loan. The balance of P174, 000 was due on or before December 8,
1994. On August 24, 1994, however, Villanueva filed an action for a sum of money and damages (Civil
Case No. Q-94-21495) against ABC for the full amount of the dishonored check.
RTC of Quezon City, Branch 101 ruled in his favor in a decision dated May 23, 1997. On June 30,
1997, when Nite went to ABC Salcedo Village Branch to withdraw money from her account, she was
unable to do so because the trial court had ordered ABC to pay Villanueva the value of Nite’s ABC check.
On August 25, 1997, ABC remitted to the sheriff a manager’s check amounting to P325,500 drawn on
Nite’s account. The check was duly received by Villanueva on the same date.
Nite then filed a petition in the CA seeking to annul and set aside the trial court’s decision. CA
granted the petition.
ISSUE:
Whether or not Villanueva has the right to sue ABC for the dishonored check
RULING:
NO.
Villanueva may not sue the drawee (ABC bank). The pertinent provisions of the Negotiable
Instruments Law provides:
SEC. 185. Check, defined. – A check is a bill of exchange drawn on a bank payable on
demand. Except as herein otherwise provided, the provisions of this Act applicable to a bill
of exchange payable on demand apply to a check.
SEC. 189. When check operates as an assignment. – A check of itself does not operate as
an assignment of any part of the funds to the credit of the drawer with the bank, and the
bank is not liable to the holder, unless and until it accepts or certifies the check.
If a bank refuses to pay a check (notwithstanding the sufficiency of funds), the payee-holder
cannot, in view of the cited sections, sue the bank. The payee should instead sue the drawer who might in
turn sue the bank. Sec 189 is based on logic and established legal principles: no privity of contract exists
between the drawee-bank and the payee. There was no such privity of contract between ABC and
petitioner.
Contracts take effect only between the parties, their assigns and heirs, except in cases where the
rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or
by provision of law. The contract of loan was between petitioner and respondent. No collection suit could
prosper without respondent who was an indispensable party. An indispensable party is one whose interest
in the controversy is such that a final decree will necessarily affect his rights. The court cannot proceed
without his presence. As provided in Rule 3, Sec. 7 of the Rules of Court:
Sec. 7. Compulsory joinder of indispensable parties. – Parties in interest without whom no

final determination can be had of an action shall be joined either as plaintiffs or defendants.

EQUITABLE PCI v. ONG

G.R. No. 156207; September 15, 2006 Chico-Nazario, J.:
By: Jimenez, Louisa
FACTS:
Warliza Sarande deposited in her account at Philippine Commercial International (PCI) Bank a
TCBT Check. Having been assured that the TCBT check had been cleared, she issued 2 checks drawn
against the proceeds of the said check payable to Rowena Ong. Ong then requested PCI Bank to convert
the proceeds into a manager’s check. The PCI Bank Manager’s check was then deposited to her account
with Equitable Banking Corporation. On December 9 1991, Ong received a check return-slip informing
her that PCI Bank had stopped the payment of the check on the ground of irregular issuance. She then
filed a Complaint for sum of money, damages and attorney's fees against PCI Bank. RTC and CA ruled
in favor of Ong, and hence, this petition.
ISSUE:
Whether or not Philippine Commercial International (PCI) Bank is liable
RULING:
YES, PCI Bank is liable.
The court ruled that by clearing the check of Sarande and issuing in favor of Ong not just any
check but a manager's check, PCI Bank assumed the liability of an acceptor under Section 62 of the
Negotiable Instruments Law. Moreover, a manager's check is an order of the bank to pay, drawn upon
itself, committing in effect its total resources, integrity and honor behind its issuance. It is regarded
substantially to be as good as the money it represents, and stands on the same footing as a certified check.
Hence, Petition is DENIED.

SECURITY BANK & TRUST COMPANY v. RCBC
G.R. Nos. 170984 & 170987; January 30, 2009 Quisumbing, Acting C.J.:
By: Uayan, Jemelle Colleen
FACTS:
On January 9, 1981, Security Bank and Trust Company (SBTC) issued a manager's check for P8
million, payable to "CASH", as proceeds of the loan granted to Guidon Construction and Development
Corporation (GCDC). On the same day, the P8-million check, along with other checks, was deposited by
Continental Manufacturing Corporation (CMC) in its Current Account No. 0109-022888 with Rizal
Commercial Banking Corporation (RCBC). Immediately, RCBC honored the P8-million check and
allowed CMC to withdraw the same.
On the next banking day, January 12, 1981, GCDC issued a "Stop Payment Order" to SBTC,
claiming that the P8-million check was released to a third party by mistake. Consequently, SBTC
dishonored and returned the manager's check to RCBC. Thereafter, the check was returned back and forth
between the two banks, resulting in automatic debits and credits in each bank's clearing balance.
On February 13, 1981, RCBC filed a complaint for damages against SBTC with the then Court of
First Instance of Rizal, Branch XXII. Said case was docketed as Civil Case No. 1081 and later transferred
to the Regional Trial Court (RTC) of Makati City, Branch 143.
On May 9, 2000, the RTC of Makati City, Branch 143, rendered a Decision in favor of RCBC.
ISSUE:
Whether or not SBTC should be held liable for its manager’s check
RULING:
RCBC avers that the manager's check issued by SBTC is substantially as good as the money it
represents because by its peculiar character, its issuance has the effect of an advance acceptance. RCBC
claims that it is a holder in due course when it credited the P8-million manager's check to CMC's account.
Accordingly, RCBC asserts that SBTC's refusal to honor its obligation justifies RCBC claim for lost
interest income, exemplary damages and attorney's fees.
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.

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NEGOTIABLE INSTRUMENTS LAW

Atty. Maria Zarah Villanueva – Castro

COMPILATION OF CASE DIGESTS IN

ATTY. MARIA ZARAH VILLANUEVA – CASTRO

SAN BEDA COLLEGE OF LAW – MENDIOLA || 2J A.Y. 2017 - 2018 1

SAN BEDA COLLEGE OF LAW – MENDIOLA || 2J A.Y. 2017 - 2018 2

SAN BEDA COLLEGE OF LAW – MENDIOLA || 2J A.Y. 2017 - 2018 3

PHILIPPINE EDUCATION CORPORATION v. SORIANO

Whether or not a postal money order is a negotiable instrument

SAN BEDA COLLEGE OF LAW – MENDIOLA || 2J A.Y. 2017 - 2018 4

Whether or not payment by means of check is considered payment in legal tender

SAN BEDA COLLEGE OF LAW – MENDIOLA || 2J A.Y. 2017 - 2018 5

In general, a payment, in order to be effective to discharge an obligation, must be made to the

SAN BEDA COLLEGE OF LAW – MENDIOLA || 2J A.Y. 2017 - 2018 6

METROPOLITAN BANK & TRUST COMPANY v. COURT OF APPEALS

Whether or not the treasury warrants in question are negotiable instruments

SAN BEDA COLLEGE OF LAW – MENDIOLA || 2J A.Y. 2017 - 2018 7

Whether or not the Certificates of Time Deposit are negotiable instruments

SAN BEDA COLLEGE OF LAW – MENDIOLA || 2J A.Y. 2017 - 2018 8

SAN BEDA COLLEGE OF LAW – MENDIOLA || 2J A.Y. 2017 - 2018 9

Whether or not the subject checks are payable to order or to bearer

The Negotiable Instruments Law, in section 5, provides that:

(b) Authorizes confession of judgment if the instrument be not paid at maturity";

SAN BEDA COLLEGE OF LAW – MENDIOLA || 2J A.Y. 2017 - 2018 11

1. YES. Canlas is solidarily liable.

SAN BEDA COLLEGE OF LAW – MENDIOLA || 2J A.Y. 2017 - 2018 12

2. NO. He cannot avoid liability.

SAN BEDA COLLEGE OF LAW – MENDIOLA || 2J A.Y. 2017 - 2018 13

Hence, this petition.

YES, Spouses is solidarily liable with Embassy Farms.

In the case at bar, promissory note states:

Hence, applying Section 17 of NIL, Spouses Evangelista is solidarily liable.

SAN BEDA COLLEGE OF LAW – MENDIOLA || 2J A.Y. 2017 - 2018 14

Whether or not Ilano’s complaint should prosper

YES, but only partly.

SAN BEDA COLLEGE OF LAW – MENDIOLA || 2J A.Y. 2017 - 2018 15

SESBRENO v. COURT OF APPEALS

Whether or not Sesbreño can collect against Delta

SAN BEDA COLLEGE OF LAW – MENDIOLA || 2J A.Y. 2017 - 2018 16

Whether or not the promissory note in question is a negotiable instrument?

SAN BEDA COLLEGE OF LAW – MENDIOLA || 2J A.Y. 2017 - 2018 17

SAN BEDA COLLEGE OF LAW – MENDIOLA || 2J A.Y. 2017 - 2018 18

SAN BEDA COLLEGE OF LAW – MENDIOLA || 2J A.Y. 2017 - 2018 19

Whether or not Sambok is liable to pay if the maker fails to pay

SAN BEDA COLLEGE OF LAW – MENDIOLA || 2J A.Y. 2017 - 2018 20

SAN BEDA COLLEGE OF LAW – MENDIOLA || 2J A.Y. 2017 - 2018 21

Whether or not De Ocampo is a holder in due course

SAN BEDA COLLEGE OF LAW – MENDIOLA || 2J A.Y. 2017 - 2018 22

Whether or not David was a holder in due course

SAN BEDA COLLEGE OF LAW – MENDIOLA || 2J A.Y. 2017 - 2018 23

Whether or not petitioner is a holder in due course

SAN BEDA COLLEGE OF LAW – MENDIOLA || 2J A.Y. 2017 - 2018 24

PHILIPPINE NATIONAL BANK v. PICORNELL, ET. AL.

SAN BEDA COLLEGE OF LAW – MENDIOLA || 2J A.Y. 2017 - 2018 25

SAN BEDA COLLEGE OF LAW – MENDIOLA || 2J A.Y. 2017 - 2018 26

1. Whether or not the promissory note is a negotiable instrument

SAN BEDA COLLEGE OF LAW – MENDIOLA || 2J A.Y. 2017 - 2018 27

SAN BEDA COLLEGE OF LAW – MENDIOLA || 2J A.Y. 2017 - 2018 28

SAN BEDA COLLEGE OF LAW – MENDIOLA || 2J A.Y. 2017 - 2018 29

There was no accommodation transaction in this case. In accommodation transactions recognized

SAN BEDA COLLEGE OF LAW – MENDIOLA || 2J A.Y. 2017 - 2018 30

SAN BEDA COLLEGE OF LAW – MENDIOLA || 2J A.Y. 2017 - 2018 31

SAN BEDA COLLEGE OF LAW – MENDIOLA || 2J A.Y. 2017 - 2018 32

SAN BEDA COLLEGE OF LAW – MENDIOLA || 2J A.Y. 2017 - 2018 33