NIL Digest (Updated Case 7)

NEGOTIABLE
INSTRUMENTS LAW
CASE DIGESTS
COMMERCIAL LAW REVIEW
FEU JD4401
2ND Semester, S.Y. 2017-2018
(27) Dino vs. Judal-Loot ......................28
TABLE OF CONTENTS
(28) Bank of America NT & SA v. Phil.
Racing Club .......................................29
(1) Evangelista vs. Screenex, Inc. ......... 1
(29) Bank of America vs. Associated
(2) BDO Unibank vs. Lao ...................... 2
Citizens Bank .....................................30
(3) Ubas, Sr. vs. Chan ......................... 3
(30) Security Bank and Trust Company
(4) Asia Brewery Inc. vs. Equitable PBI vs. Rizal Commercial Banking Corporation
Bank.................................................. 4 G.R. No. 170984, January 30, 2009 By:
(5) RCBC Savings Bank vs. Odrada ....... 5 Mano, Razna I. ...................................32
(6) Aguilar vs. Calimbas ....................... 6 (31) BPI vs. Spouses Reynaldo and
Victoria Royeca ..................................33
(7) Rivera vs. Spouses Chua ................. 7
(32) Philippine National Bank vs.
(8) Areza vs. Express Savings Bank ....... 8 Rodriguez ..........................................34
(9) Metropolitan Bank and Trust Company (33) Violago vs. BA Finance Corporation 35
vs. Chiok ............................................ 9
(34) Far East Bank & Trust Company vs.
(10) Wesleyan University-Philippines vs. Gold Palace Jewellery Co. ....................36
Nowella Reyes ................................... 10
(35) Ang v. Associated Bank ................37
(11) The Hongkong and Shanghai Banking
Corporation Limited-Philippine Branches (36) Metropolitan Bank and Trust
vs. CIR ............................................. 11 Company vs. BA Finance .....................39
(12) Alvin Patrimonio vs Napoleon (37) Allied Banking Corporation vs. Lim
Gutierrez and Octavio Marasigan III ..... 12 Sio Wan ............................................40
(13) People vs. Wagas ........................ 13 (38) Lopez vs. People .........................42
(14) Lim vs. Mindanao Wines & Liquor

Galleria ............................................. 14
(15) PNB vs. Spouses Cheah Chee Chong
........................................................ 15
(16) PNB vs. Tria ............................... 16
(17) RCBC vs. Hi-Tri Development
Corporation ....................................... 17
(18) Equitable Banking Corporation vs.
Special Steel Products, Inc. ................. 18
(19) Aglibot vs. Santia ........................ 20
(20) Philippine Commercial International
Bank vs. Balmaceda ........................... 21
(21) Gonzales vs. PCIB ....................... 22
(22) Cayanan vs. North Star International
Travel Inc.......................................... 23
(23) Vicente Go vs. MBTC ................... 24
(24) San Miguel Corp vs. Puzon ........... 25
(25) Citytrust vs. Cruz ........................ 26
(26) Salazar vs. JY Bros ...................... 27
NIL CASE DIGESTS |1
FEU JD4401 | 2nd SEMESTER, S.Y. 2017-2018
(1) Evangelista vs. Screenex, Inc.

G. R. No. 211564, November 20, 2017
By: Alba, Ma. Angela
Topic: Discharge of a check
Doctrine: A check is subject to prescription of actions upon a written contract.
Evangelista obtained a loan from Screenex, Inc. As security for the loan, Evangelista gave two open-dated checks
both pay to the order of Screenex, Inc. From the time the checks were issued by Evangelista, they were held in safe
keeping by Philip Gotuaco, Sr. until the his death on 19 November 2004. Before the checks were deposited, there
was a personal demand from the family of the decedent for Evangelista to settle the loan and likewise a demand
letter sent by the family lawyer. Evangelista heed their demand thus, on August 2005, he was charged with violation
of Batas Pambansa Blg. 22 filed with the Metropolitan Trial Court of Makati. Evangelista raises the defense that any
civil liability attributable to him had been extinguished and/or was barred by prescription.
Can Evangelista successfully interpose the defense of prescription?
Yes. The defense of prescription can be successfully invoked.
Section 119, Paragraph (d) of the NIL states that a negotiable instrument like a check may be discharged by any
other act which will discharge a simple contract for the payment of money. A check therefore is subject to prescription
of actions upon a written contract. Article 1144 of the Civil Code provides, “The following actions must be brought
within ten years from the time the right of action accrues: 1.) Upon a written contract, …”
Barring any extrajudicial or judicial demand that may toll the 10-year prescription period and any evidence which
may indicate any other time when the obligation to pay is due, the cause of action based on a check is reckoned
from the date indicated on the check. If the check is undated, however, the cause of action is reckoned from the
date of the issuance of the check. This is so because regardless of the omission of the date indicated on the check,
Section 17 of the Negotiable Instruments Law instructs that an undated check is presumed dated as of the time of
its issuance.
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(2) BDO Unibank vs. Lao

G.R. No. 227005, June 19, 2017
By: Arid, Hannah Mhae G.
Topic: Indorsements; Liabilities of an Indorser; Crossed-checks
Doctrine: 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."
Respondent Lao entered into a transaction with Ever link, under which, Everlink would supply him with "HCG sanitary
wares"; and that for the down payment, he issued two (2) Equitable crossed checks payable to Everlink: Check No.
0127-242249 and Check No. 0127-242250, in the amounts of ₱273,300.00 and ₱336,500.00, respectively. Upin
encashment of the chevhs, however, Everlink failed to perofrm its obligation. Lao learned that the checks were
deposited in two different bank accounts at respondent International Exchange Bank, now respondent Union Bank of
the Philippines (UnionBank).Lao filed a complaint against Everlink and Wu for their failure to comply with their
obligation and against BDO for allowing the encashment of the two (2) checks. He later withdrew his complaint
against Everlink as the corporation had ceased existing. Lao filed an Amended Complaint, wherein he impleaded
Union Bank as additional defendant for allowing the deposit of the crossed checks in two bank accounts other than
the payee's, in violation of its obligation to deposit the same only to the payee's account.
Should Union Bank, as a collecting bank, assume responsibility for a crossed check as a general endorser
in accordance with section 66 of the Negotiable Instruments Law?
Yes, UnionBank is liable for the crossed checks as the general endorser. The liability of the collecting bank is anchored
on its guarantees as the last endorser of the check. 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 collecting bank 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 collecting bank turns out to be
false, then the drawee bank may recover from it up to the amount of the check.
In the case at bar, BDO as the drawee bank when it paid to UnionBank the value of the check other than the payee
named in the check which, in turn, credited the amount to New Wave's account, it did not comply with the terms of
the check and violates its duty to charge the drawer's account only for properly payable items because as a drawee
bank it is under strict liability to pay the check only to the payee or to the payee's order and in this case the payee
named in the check was in favour of Everlink and that said check was not even endorsed by Everlink to New Wave.
Nevertheless, even if BDO violated its duty, the loss still pertained to Union Bank being the collecting bank. Union
Bank was clearly negligent when it allowed the check to be presented by, and deposited in the account of New Wave,
despite knowledge that it was not the payee named therein. Further, it could not have escaped its attention that the
subject checks were crossed checks. A crossed check is one where two parallel lines are drawn across its face or
across the comer thereof. A check may be crossed generally or specially. A check is crossed especially when the
name of a particular banker or company is written between the parallel lines drawn. It is crossed generally when only
the words "and company" are written at all between the parallel lines. Jurisprudence dictates that the effects of
crossing a check are: (1) that the check may not be encashed but only deposited in the bank; (2) that the check
may be negotiated only once - to one who has an account with a bank; and (3) that the act of crossing the check
serves as a warning to the holder that the check has been issued for a definite purpose so that he must inquire if he
has received the check pursuant to that purpose. The effects of crossing a check, thus, relate to the mode of payment,
meaning that the drawer had intended the check for deposit only by the rightful person, i.e., the payee named
therein. It is undisputed that Check No. 0127-242250 had been crossed generally as nothing was written between
the parallel lines appearing on the face of the instrument. This indicated that Lao, the drawer, had intended the same
for deposit only to the account of Everlink, the payee named therein. Despite this clear intention, however, Union
Bank negligently allowed the deposit of the proceeds of the said check in the account of New Wave.
NIL CASE DIGESTS |3
(3) Ubas, Sr. vs. Chan

G.R. No. 215910, February 6, 2017
By: Bernardo, Michael Gerard T.
Topic: Presumption of consideration; Privity of contracts
Doctrine: Unless otherwise rebutted, every negotiable instrument is deemed to have been issued for a valuable
consideration.
Wilson Chan under the name and style of UNIMASTERS entered into a loan agreement with Manuel Ubas for an
amount of P 1, 500, 000.00 representing the price of boulders, sand, gravel, and other construction materials
allegedly purchased by Wilson Chan from Manuel Ubas for the construction of the Macagtas Dam in Macagtas,
Catarman, Northern Samar. Wilson Chan issued three (3) bank checks, payable to “CASH” in the amount of
₱500,000.00 each but when Manuel Ubas presented the subject checks for encashment, the same were dishonored
due to a stop payment order.
Manuel Ubas filed a collection case against Wilson Chan. Wilson Chan filed a Motion to Dismiss on the ground that
Manuel Ubas has no cause of action against him considering that Manuel Ubas failed to present any documentary
proof that he or his firm delivered construction materials for the Macagtas Dam project and that the checks does not
belong to him but to UNIMASTERS.
A. Can Chan successfully invoke the defense of lack of consideration?
No, Wilson Chan cannot successfully invoke the defense of lack of consideration.
Section 24 of the Negotiable Instrument Law provides that every negotiable instrument is deemed prima facie to
have been issued for a valuable consideration; and every person whose signature appears thereon to have become
a party thereto for value.
In this case, Manuel Ubas had presented in evidence the three (3) dishonored checks which were undeniably signed
by respondent. The respondent even admitted that he signed the checks. Hence, it is presumed that the subject
checks were issued for a valid consideration, which therefore, dispensed with the necessity of any documentary
evidence to support petitioner's monetary claim. Unless otherwise rebutted, the legal presumption of consideration
under Section 24 of the NIL stands.
B. Can Manuel Ubas collect from Wilson Chan despite the fact that the checks issued were under the
name of UNIMASTERS?
Yes, Manuel Ubas may collect from Wilson Chan.
Jurisprudence provides that the manner or mode of payment does not alter the nature of the obligation.
The source of obligation, as claimed by Manuel Ubas in this case, stems from his contract with Wilson Chan. When
they agreed upon the purchase of the construction materials on credit for the amount of P1,500,000,00, the contract
between them was perfected. Therefore, even if corporate checks were issued for the payment of the obligation, the
fact remains that the juridical tie between the two (2) parties was already established during the contract's perfection
stage and, thus, does not preclude the creditor from proceeding against the debtor during the contract's
consummation stage.
NIL CASE DIGESTS |4
(4) Asia Brewery Inc. vs. Equitable PBI Bank

G.R. No. 190432, April 25, 2017
By: Bigornia, Donna
Topic: Delivery; when effectual; when presumed
Doctrine: Where the instrument is no longer in the possession of a party whose signature appears thereon, a valid
and intentional delivery by him is presumed until the contrary is proved.
Several checks and demand drafts were issued in the name of Charlie Go, bearing the annotation "endorsed by PCI
Bank, Ayala Branch, All Prior Endorsement And/Or Lack of Endorsement Guaranteed." All the demand drafts were
crossed. However, none of the above checks and demand drafts reached payee, co-plaintiff Charlie S. Go. Rather,
all of the above checks and demand drafts fell into the hands of the then Sales Accounting Manager of plaintiff Asia
Brewery, Inc., who falsely, willfully, and maliciously pretending to be the payee, co-plaintiff Charlie S. Go, succeeded
in opening accounts with defendant Equitable PCI Bank in the name of Charlie Go and thereafter deposited the said
checks and demand drafts in said accounts and withdrew the proceeds thereof to the damage and prejudice of
plaintiff Asia Brewery, Inc. For this reason, petitioners filed a Complaint for payment, reimbursement, or restitution
against respondent. Respondent, in its answer, alleged that Go is not entitled to reimbursement on the ground that
he never became the holder or owner of the instruments due to non-delivery and, hence, did not acquire any right
or interest.
Was there a delivery of the subject instruments to Go such that he has a right to seek for the
reimbursement of the value of the instruments from the defendant Equitable PCI Bank?
Yes, there was a delivery.
Section 16 of the Negotiable Instrument Law provides that where the instrument is no longer in the possession of a
party whose signature appears thereon, a valid and intentional delivery by him is presumed until the contrary is
proved. Furthermore, Associated Bank vs. Court of Appeals held that the possession of a check on a forged or
unauthorized indorsement is wrongful, and when the money is collected on the check, the bank can be held for
moneys had and received.
In this case, the defendant bank did not present any evidence to dispute the presumption that the signatories of the
subject instruments validly and intentionally delivered the instrument to petitioner Go. Also, there was a wrongful
collection considering that the Sales accounting manager who deposited and withrew the proceeds of the instruments
was not the payee of the subject instruments. The subject instruments were also endorsed by PCI-Bank-Ayala Branch
"All Prior Endorsement And / Or Lack of Endorsement Guaranteed.
Therefore, Go is entitled to reimbursement from Equitable PCI Bank of the value of the subject instruments
considering that the said instruments were presumed to be delivered to the former.
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(5) RCBC Savings Bank vs. Odrada

G.R. No. 219037, October 19, 2016
By: Corona, Jose Enrico V.
Topic: Personal Defense
Doctrine: The purchaser of a manager's check may validly countermand payment to a holder who is not a holder in
due course. Accordingly, the drawee bank may refuse to pay the manager's check by interposing a personal defense
of the purchaser.
In April 2002, respondent Odrada sold a secondhand Mitsubishi Montero to Lim for 1,510,000php. 900,000php was
financed by RCBC through a loan obtained by Lim. RCBC required Lim to submit original copies of Certificate of
Registration and Official Receipt. When RCBC received the documents, RCBC issued two manager's checks dated 12
April 2002 payable to Odrada for Nine Hundred Thousand Pesos (P900,000) and Thirteen Thousand Five Hundred
Pesos (P13,500). Subsequently, Lim notified Odrada that there was an issue of roadworthiness of the vehicle. Odrada
disregarded the notice and deposited the manager's checks with International Exchange Bank (Ibank) on 16 April
2002 and redeposited them on 19 April 2002 but the checks were dishonored both times apparently upon Lim's
instruction to RCBC. Odrada filed a collection suit against Lim and RCBC.
Does the drawee bank of a manager's check have the option of refusing payment by interposing a
personal defense of the purchaser of the manager's check who delivered the check to a third party?
Yes. RCBC has the option to refuse payment by interposing a personal defense of the purchaser of the manager’s
check who delivered the check to a third party.
The law provides that when a manager’s check is purchased, the check becomes the primary obligation of the bank.
Notably, the mere issuance of a manager's check creates a privity of contract between the holder and the drawee
bank, the latter primarily binding itself to pay according to the tenor of its acceptance. However, although a manager’s
check is automatically accepted, a holder not in due course is still subject to defenses. The purchaser of a manager's
check may validly countermand payment to a holder who is not a holder in due course. Accordingly, the drawee bank
may refuse to pay the manager's check by interposing a personal defense of the purchaser.
To be a holder in due course, the law requires that a party must have acquired the instrument in good faith and for
value. Odrada attempted to deposit the manager's checks after Lim had informed him that there was a serious
problem with the Montero. Odrada's actions do not amount to good faith. Odrada's action in depositing the manager's
checks despite knowledge of the Montero's defects amounted to bad faith.
Therefore, RCBC has the option to refuse payment by interposing a personal defense of the purchaser of the
manager’s check who delivered the check to a third party.
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(6) Aguilar vs. Calimbas

G.R. No. 209605, January 12, 2015
By: Kathrina De Castro
Topic: Check
Doctrine: A check constitutes an evidence of indebtedness and is a veritable proof of an obligation.
Three complaints for sum of money filed against Tantiangco, Aguilar and Calimbas as evidence by Cash Disbursement
Vouchers and supported by PNB Checks. In which, there is discrepancy between the principal amount of the loan
evidenced by the cash disbursement voucher and the net amounts being collected. The PNB checks issued to the
petitioners proved the existence of the loan transactions. Both Calimbas and Aguilar liable to respondent for their
respective debts. Their receipts of the loan were proven by their signatures appearing on the dorsal portions of the
checks as well as on the cash disbursement vouchers.
Can the court rely on the check as an evidence of indebtedness?
Yes. Based on several Jurisprudence, the Court expressly recognized that a check constitutes an evidence of
indebtedness and is a veritable proof of an obligation. Hence, it can be used in lieu of and for the same purpose as
a promissory note. It pointed out that a check functions more than a promissory note since it not only contains an
undertaking to pay an amount of money but is an “order addressed to a bank and partakes of a representation that
the drawer has funds on deposit against which the check is drawn, sufficient to ensure payment upon its presentation
to the bank. In this case, there is no dispute that the signatures of the petitioners were present on both the PNB
checks and the cash and the cash disbursement vouchers. The checks were also made payable to the order of the
petitioners. Hence, respondent can properly demand that they pay the amounts borrowed. Therefore, the check can
be used as an evidence of indebtedness or that there is a contract of loan that existed.
NIL CASE DIGESTS |7
(7) Rivera vs. Spouses Chua

G.R. No. 184458, January 14, 2015
By: Gaite, Rhio Angeline
Topic: Promissory Note; When demand is not necessary
Doctrine: A negotiable promissory note is an unconditional promise in writing made by one person to another, signed
by the maker, engaging to pay on demand, or at a fixed or determinable future time, a sum certain in money to
order or to bearer. Where a note is drawn to the maker’s own order, it is not complete until indorsed by him.
Rivera and Chua were kumpadres. On 24 February 1995, Rivera obtained a loan from the Spouses Chua in the
amount of Php120,000.00. Rivera then made a promise to pay the spouses Chua on 31 December 1995. He also
stipulated that in the event of failure on his part, he agrees to pay the sum equivalent to 5% interest monthly from
the date of default until the entire obligation is fully paid for. Almost three years from the date of payment stipulated
in the promissory note, Rivera, as partial payment for the loan, issued and delivered to the spouses Chua, as payee,
a check, dated 30 December 1998, drawn against Rivera’s current account with PCIB in the amount of ₱25,000.00.
On 21 December 1998, Spouses Chua received another check presumably issued by Rivera, likewise drawn against
Rivera’s PCIB current account, duly signed and dated, but blank as to payee and amount. Ostensibly, as per
understanding by the parties, PCIB Check was issued in the amount of ₱133,454.00 with "cash" as payee.
Purportedly, both checks were simply partial payment for Rivera’s loan in the principal amount of ₱120,000.00. Upon
presentment for payment, the two checks were dishonored for the reason "account closed." As of 31 May 1999, the
amount due the Spouses Chua was pegged at ₱366,000.00 covering the principal of ₱120,000.00 plus 5% interest
per month from 1 January 1996 to 31 May 1999. The Spouses Chua alleged that they have repeatedly demanded
payment from Rivera to no avail.
A. Is the promissory note a negotiable instrument?
No, the promissory note is not a negotiable instrument.
The negotiable instruments law provides that a negotiable promissory note is an unconditional promise in writing
made by one person to another, signed by the maker, engaging to pay on demand, or at a fixed or determinable
future time, a sum certain in money to order or to bearer. Where a note is drawn to the maker’s own order, it is not
complete until indorsed by him. In this case, the promissory note is made out specifically to spouses Chua as payees.
Thus, the promissory note made by Rivera is not a negotiable instrument.
B. Is demand necessary?
No, demand is not necessary.
In this case, the Negotiable Instruments Law does not apply. What is applicable is the New Civil Code which provides
that demand is not necessary for delay to exist when the law or obligation expressly so declare. The promissory note
herein is not a negotiable instrument since it was made out specifically to spouses Chua as payees. Further, the
promissory note is unequivocal when the obligation becomes due and demandable which is on 31 December 1995.
Thus, demand is not necessary.
NIL CASE DIGESTS |8
(8) Areza vs. Express Savings Bank

G.R. No. 176697, September 10, 2014
By: Grande, Jonicocel
Topic: Duty of depositary/collecting bank or last endorser
Doctrine: 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.
A certain Gerry paid petitioners with 9 checks payable to different payees and drawn against the Philippine Veterans
Bank (drawee), each valued at 200,000.00 for a total of ₱1,800,000.00. 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.
Equitable-PCI Bank presented the checks to the drawee, the Philippine Veterans Bank, which honored the checks.
The subject checks were returned to the drawee on the ground that the amount on the face of the checks was altered
from the original amount. The drawee returned the checks amounting to ₱1,800,000.00 and the debited the account
of Equitable-PCI Bank. In turn, Equitable-PCI Bank debited the deposit account of the Bank of the same amount. The
Bank then withdrew the same amount representing the returned checks from petitioners’ savings account.
Does the bank have the right to debit the amount of ₱1,800,000.00 from the petitioners’ accounts?
NO.
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." 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. However, the 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 this case, as a collecting bank, the Bank is liable for the amount of the materially altered checks because it has
the duty to ascertain the genuineness of all prior endorsements and no negligence can be attributed to petitioners.
Thus, the Bank had no right to debit the account of the petitioners.
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(9) Metropolitan Bank and Trust Company vs. Chiok

G.R. No. 172652, Nov. 26, 2014
By: Jovero, John Tristram V.
Topic: Manager’s/Cashier’s Check
Doctrine: It is a well-known and accepted practice in the business sector that a Manager’s/Cashier’s Check is deemed
as cash.
Respondent Wilfred N. Chiok (Chiok) had been engaged in dollar trading for several years. He usually buys dollars
from Gonzalo B. Nuguid (Nuguid) at the exchange rate prevailing on the date of the sale. Chiok pays Nuguid either
in cash or manager’s check, to be picked up by the latter or deposited in the latter’s bank account. Nuguid delivers
the dollars either on the same day or on a later date as may be agreed upon between them, up to a week later.
Chiok then deposited the three checks (Asian Bank MC Nos. 025935 and 025939, and Metrobank CC No. 003380),
with an aggregate value of P26,068,350.00 in Nuguid’s account with Far East Bank & Trust Company (FEBTC), the
predecessor-in-interest of petitioner Bank of the Philippine Islands (BPI). Nuguid was supposed to deliver
US$1,022,288.50,4 the dollar equivalent of the three checks as agreed upon, in the afternoon of the same day.
Nuguid, however, failed to do so, prompting Chiok to request that payment on the three checks be stopped. Chiok
was allegedly advised to secure a court order within the 24-hour clearing period. On the following day, July 6, 1995,
Chiok filed a Complaint for damages with application for ex parte restraining order and/or preliminary injunction with
the Regional Trial Court (RTC) of Quezon City against the spouses Gonzalo and Marinella Nuguid, and the depositary
banks, Asian Bank and Metrobank.
A. Is the payment of manager’s and cashier’s checks subject to the condition that the payee thereof
should comply with his obligations to the purchaser of the checks?
No. While indeed, it cannot be said that manager’s and cashier’s checks are pre-cleared, clearing should not be
confused with acceptance. Manager’s and cashier’s checks are still the subject of clearing to ensure that the same
have not been materially altered or otherwise completely counterfeited. However, manager’s and cashier’s checks
are pre-accepted by the mere issuance thereof by the bank, which is both its drawer and drawee. Thus, while
manager’s and cashier’s checks are still subject to clearing, they cannot be countermanded for being drawn against
a closed account, for being drawn against insufficient funds, or for similar reasons such as a condition not appearing
on the face of the check. Long-standing and accepted banking practices do not countenance the countermanding of
manager’s and cashier’s checks on the basis of a mere allegation of failure of the payee to comply with its obligations
towards the purchaser. On the contrary, the accepted banking practice is that such checks are as good as cash.
Thus, in New Pacific Timber & Supply Company, Inc. v. Hon. Seneris, we held: It is a well-known and accepted
practice in the business sector that a Cashier’s Check is deemed as cash. It is an understanding that the check is
good then, and shall continue good, and this agreement is as binding on the bank as its notes in circulation, a
certificate of deposit payable to the order of the depositor, or any other obligation it can assume. The object of
certifying a check, as regards both parties, is to enable the holder to use it as money.”
B. Does the purchaser of manager’s and cashier’s checks have the right to have the checks cancelled by
filing an action for rescission of its contract with the payee?
No. Metrobank and Global Bank are not parties to the contract to buy foreign currency between Chiok and Nuguid.
Therefore, they are not bound by such contract and cannot be prejudiced by the failure of Nuguid to comply with the
terms thereof. Neither could Chiok be validly granted a writ of injunction against Metrobank and Global Bank to enjoin
said banks from honoring the subject manager’s and cashier’s checks. Chiok could have and should have proceeded
directly against Nuguid to claim damages for breach of contract and to have the very account where he deposited
the subject checks garnished. Evidently, it was the utmost trust and confidence reposed by Chiok to Nuguid that
caused this entire debacle, dragging three banks into the controversy, and having their resources threatened because
of an alleged default in a contract they were not privy to.
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(10) Wesleyan University-Philippines vs. Nowella Reyes

G.R. No. 208321, July 30, 2014
By: Lapuz, Jesus Ros
Topic: Crossed Checks
Doctrine: The crossing of a check means that the check may not be encashed but only deposited in the bank.
Respondent Nowella Reyes was appointed as WUP’s University Treasurer on probationary basis. A little over a year
after, she was appointed as full time University Treasurer. WUP Board of Trustees discovered following an audit were
irregularities in the handling of petitioner’s finances, mainly, the encashment by its Treasury Department of checks
issued to WUP personnel, a practice purportedly in violation of the imprest system of cash management, and the
encashment of various crossed checks payable to the University Treasurer by Chinabank despite management’s
intention to merely have the funds covered thereby transferred from one of petitioner’s bank accounts to another.
It was noted that checks consisting of various checks payable to teachers, staffs and other third parties had been
the subject of encashment directly with the Treasury Department under the stewardship of Mrs. Nowella A. Reyes,
the University Treasurer. This practice is a clear violation of imprest system of cash management, hence, she was
terminated.
Can a crossed check be encashed?
No, the crossing of a check means that the check may not be encashed but only deposited in the bank.
As Treasurer, respondent knew or is at least expected to be aware of and abide by this basic banking practice and
commercial custom. Clearly, the issuance of a crossed check reflects management’s intention to safeguard the funds
covered thereby, its special instruction to have the same deposited to another account and its restriction on its
encashment.
(11) The Hongkong and Shanghai Banking Corporation Limited-Philippine Branches vs. CIR
G.R. No. 166018, June 4, 2014
By: Mano, Razna I.
Topic: Requisites of Negotiability; Presentment for Payment; Presentment for Acceptance
Doctrine: The Documentary Stamp Tax under Section 181 of the Tax Code is levied on the acceptance or payment
of a “bill of exchange purporting to be drawn in a foreign country but payable in the Philippines.” The instructions
given through electronic messages that are subjected to DST are not negotiable instruments as they do not comply
with the requisites of negotiability under Section 1 of the Negotiable Instruments Law.
HSBC is a custodian bank. HSBC’s investor-clients maintain Philippine peso and/or foreign currency accounts, which
are managed by HSBC through instructions given through electronic messages. The said instructions are standard
forms known in the banking industry as SWIFT, or "Society for Worldwide Interbank Financial Telecommunication."
In purchasing shares of stock and other investment in securities, the investor-clients would send electronic messages
from abroad instructing HSBC to debit their local or foreign currency accounts and to pay the purchase price therefor
upon receipt of the securities.
Pursuant to the electronic messages of its investor-clients, HSBC purchased and paid Documentary Stamp Tax (DST).
Subsequently, HSBC filed an administrative claim for the refund of the erroneously paid DST to the BIR pursuant to
BIR Ruling No. 132-99 to the effect that instructions or advises from abroad on the management of funds located in
the Philippines which do not involve transfer of funds from abroad are not subject to DST.
A. Are electronic messages negotiable instruments as to make it proper subjects of DST?
No, the instructions given through electronic messages are not negotiable instruments as they do not comply with
the requisites of negotiability under Section 1 of the Negotiable Instruments Law (NIL).
Applying the requisites under Section 1 of the NIL, the electronic messages are not signed by the investor-clients as
supposed drawers of a bill of exchange; they do not contain an unconditional order to pay a sum certain in money
as the payment is supposed to come from a specific fund or account of the investor-clients; and, they are not payable
to order or bearer but to a specifically designated third party. Thus, the electronic messages are not bills of exchange.
As there was no bill of exchange or order for the payment drawn abroad and made payable here in the Philippines,
there could have been no acceptance or payment that will trigger the imposition of the DST under Section 181 of the
Tax Code.
Therefore, the electronic messages "cannot be considered negotiable instruments as they lack the feature of
negotiability, which, is the ability to be transferred" and that the said electronic messages are "mere memoranda" of
the transaction consisting of the "actual debiting of the investor-client-payor’s local or foreign currency account in
the Philippines" and "entered as such in the books of account of the local bank," HSBC.
B. Do the electronic messages received by HSBC from its investor-clients abroad, instructing the former
to debit the latter's local and foreign currency accounts and to pay the purchase price of shares of stock
or investment in securities, properly qualify as either presentment for acceptance or presentment for
payment?
No, there is neither presentment for acceptance nor presentment for payment.
Acceptance applies only to bills of exchange. Under Section 132 of the NIL, what is accepted is a bill of exchange,
and the acceptance of a bill of exchange is both the manifestation of the drawee’s consent to the drawer’s order to
pay money and the expression of the drawee’s promise to pay.
In the case at bar, there was no bill of exchange or order for the payment drawn abroad and made payable here in
the Philippines. Thus, there was no acceptance as the electronic messages did not constitute the written and signed
manifestation of HSBC to a drawer's order to pay money. As HSBC could not have been an acceptor, then it could
not have made any payment of a bill of exchange or order for the payment of money drawn abroad but payable here
in the Philippines.
Therefore, HSBC erroneously paid DST on the said electronic messages for which it is entitled to a tax refund.
(12) Alvin Patrimonio vs Napoleon Gutierrez and Octavio Marasigan III

G.R. No. 187769, June 4, 2014
By: Marasigan, Mariz Angelle R.
Topic: Blank negotiable instrument
Doctrine: 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. If it was proven that the instrument had not been filled up
strictly in accordance with the authority given and within a reasonable time, the maker can set this up as a personal
defense and avoid liability.
Alvin Patrimonio and Napoleon Gutierrez entered into a business venture under the name of Slam Dunk Corporation,
a production outfit that produced mini-concerts and shows related to basketball. In the course of their business,
Patrimonio pre-signed 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 Patrimonio. In 1993, Gutierrez went to Octavio Marasigan
III to secure a loan in the amount of P200,000.00. Marasigan acceded to Gutierrez’ request and gave him
P200,000.00 sometime in 1994. Gutierrez simultaneously delivered to Marasigan one of the blank checks Patrimonio
pre-signed with Pilipinas Bank with the blank portions filled out with the words “Cash” “Two Hundred Thousand Pesos
Only,” and the amount of “P200,000.00.” Marasigan deposited the check but it was dishonored. Marasigan sought
recovery from Gutierrez, to no avail. He sent several demand letters to Patrimonio asking for the payment of
P200,000.00, but his demands were likewise unheeded. Consequently, he filed a criminal case for violation of B.P.
22 against Patrimonio. Patrimonio completely denied authorizing the loan or the check’s negotiation, and asserted
that he was not privy to the parties’ loan agreement.
Is Patrimonio liable under the instrument?
NO, Patrimonio is not liable.
Under the law, 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.
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. If it was proven that the instrument had not
been filled up strictly in accordance with the authority given and within a reasonable time, the maker can set this up
as a personal defense and avoid liability. However, if the holder is a holder in due course, there is a conclusive
presumption that authority to fill it up had been given and that the same was not in excess of authority.
In the present case, Marasigan’s knowledge that the petitioner is not a party or a privy to the contract of loan, and
correspondingly had no obligation or liability to him, renders him dishonest, hence, in bad faith. Since he 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.
Gutierrez has exceeded the authority to fill up the blanks and use the check. To repeat, Patrimonio gave Gutierrez
pre-signed checks to be used in their business provided that he could only use them upon his approval. His 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. While under the law, Gutierrez had a prima
facie authority to complete the check, such prima facie authority does not extend to its use (i.e., subsequent transfer
or negotiation) once the check is completed. In other words, only the authority to complete the check is presumed.
Considering that Marasigan is not a holder in due course, Patrimonio can validly set up the personal defense that the
blanks were not filled up in accordance with the authority he gave. Consequently, Marasigan has no right to enforce
payment against the petitioner and the latter cannot be obliged to pay the face value of the check.
(13) People vs. Wagas

G.R. No. 157943, September 04, 2013
By: Pangilinan, Gene Alexis
Topic: Checks payable to bearer
Doctrine: A check payable to cash is payable to the bearer and could be negotiated by mere delivery without the
need of an indorsement.
Gilbert R. Wagas was accused for estafa when, through a telephone, he placed an order with Alberto Ligaray for 200
bags of rice with the proposed payment by a postdated check. Ligaray released the goods to Wagas on April 30,
1997 and at the same time received a check for P200,000.00 payable to cash and postdated May 8, 1997. Ligaray
deposited the check with his depository bank, but the check was dishonored due to insufficiency of funds, and despite
repeated demands, Wagas did not pay Ligaray.
Wagas testified and said that he issued the Check to Cañada, his brother-in-law, and that it was Cañada who had
transacted with Ligaray. He explained that the check was intended as payment for a portion of Cañada’s property
that he wanted to buy, but when the sale did not push through, he did not anymore fund the check. It was Cañada
who had negotiated the check to Ligaray
Can it be established beyond reasonable doubt that it was Wagas who defrauded Ligaray by issuing the
check?
No, the check delivered to Ligaray was made payable to cash. Under the Negotiable Instruments Law, this type of
check was payable to the bearer and could be negotiated by mere delivery without the need of an indorsement. This
rendered it highly probable that Wagas had issued the check not to Ligaray, but to somebody else like Cañada, his
brother-in-law, who then negotiated it to Ligaray. Relevantly, Ligaray confirmed that he did not himself see or meet
Wagas at the time of the transaction and thereafter, and expressly stated that the person who signed for and received
the stocks of rice was Cañada. The accused, to be guilty of estafa, must have used the check in order to defraud the
complainant. Wagas could not be held guilty of estafa simply because he had issued the check used to defraud
Ligaray. The proof of guilt must still clearly show that it had been Wagas as the drawer who had defrauded Ligaray
by means of the check.
(14) Lim vs. Mindanao Wines & Liquor Galleria

G.R. No. 175851. July 4, 2012
By: Radovan, Althea Therese
Topic: Check
Doctrine: It is well to remember that a check may be evidence of indebtedness.
Mindanao Wines and Liquor Galleria (Mindanao Wines) delivered several cases of liquors to H & E Commercial owned
by Emilia, for which the latter issued four Philippine National Bank (PNB) postdated checks worth P25,000.00 each.
Two (2) of the checks bounced for the reasons ‘ACCOUNT CLOSED’ and ‘DRAWN AGAINST INSUFFICIENT FUNDS.’
Mindanao Wines, demanded payment from H & E Commercial. Despite repeated demands, H&E commercial did not
pay. Thus, Mindanao Wines filed a case of BP22 against Emilia. Emilia was acquitted for the criminal charges, however
she was still found to be civilly liable because she has redeemed one of the checks during the pendency of the criminal
cases.
Is Emilia liable to pay the value of the bounced checks, notwithstanding her acquittal?
Yes. When Emilia redeemed one of the checks, such is considered as an acknowledgement on her part of her
obligation with Mindanao Wines. She had impliedly admitted that she was the maker of the checks when she
redeemed a third check from the complainant. A check may be evidence of indebtedness. A check, the entries of
which are in writing, could prove a loan transaction. While Emilia is acquitted of violations of BP 22, she should
nevertheless pay the debt she owes.
(15) PNB vs. Spouses Cheah Chee Chong

G.R. No. 170865, April 25, 2012
By: Rosario, Patricia Kaye
Topic: Diligence Required of Banks
Doctrine: The diligence required of banks is more than that of a good father of a family. With regard to collection or
encashment of checks, the law imposes on the collecting bank the duty to scrutinize diligently the checks deposited
with it for the purpose of determining their genuineness and regularity.
Adelina Guarin requested respondent Ofelia Cheah if she could have Filipina Tuazon’s check cleared and encashed,
since she has a joint dollar savings account with her husband with PNB Buendia Branch. The check is Bank of America
Check No. 190 drawn against Bank of America in California, USA, with a face amount of $300,000.00. That same
day, Ofelia and Adelina went to PNB Buendia Branch, where Ofelia deposited Filipina’s check. A week before the 15-
day clearing period, PNB informed Ofelia that the check was already cleared and allowed her to withdraw the credited
amount. Filipina received all the proceeds. Subsequently, PNB Buendia Branch learned that the subject check was
dishonored and demanded Ofelia to return the money withdrawn. Ofelia immediately contacted Filipina to get the
money back, but all the money had already been given to several beneficiaries. Meanwhile, the bank officials and
the spouses Cheah signed a letter stating that the amount withdrawn would be treated as a loan account with
deferred interest while the spouses try to recover the money from those who defrauded them. However, the
agreement did not materialize. PNB eventually sent a demand letter to spouses Cheah, froze their peso and dollar
deposits and filed a complaint for sum of money. The spouses Cheah countered that the proximate cause of PNB’s
injury was its own negligence of paying a US dollar denominated check without waiting for the 15-day clearing period,
in violation of its bank practice as mandated by its own bank circular.
A. Was PNB’s negligence of paying a US dollar denominated check without waiting for the 15-day clearing
period the proximate cause of the loss?
YES, PNB’s act was the proximate cause of the loss.
Proximate cause is that cause, which, in natural and continuous sequence, unbroken by any efficient intervening
cause, produces the injury and without which the result would not have occurred. Jurisprudence dictates that when
a bank allows the withdrawal of the value of a check prior to its clearing, the collecting bank can only assume at its
own risk that the check would be cleared and paid out. This is because the diligence required of banks is more than
that of a good father of a family. With regard to collection or encashment of checks, the law imposes on the collecting
bank the duty to scrutinize diligently the 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
on this field, and thus is expected to have the necessary means to ascertain whether a check, local or foreign, is
sufficiently funded.
Here, PNB Buendia Branch, upon calling up Ofelia that the check had been cleared, allowed the proceeds thereof to
be withdrawn a week before the lapse of the standard 15-day clearing period. Hence, PNB is guilty of gross negligence
when it miserably failed to do its duty of exercising extraordinary diligence.
B. Should the complaint for sum of money against the spouses Cheah be dismissed?
NO, the spouses Cheah are guilty of contributory negligence and are bound to equally suffer the loss with PNB.
Contributory negligence is conduct on the part of the injured party, contributing as a legal cause to the harm he has
suffered, which falls below the standard to which he is required to conform for his own protection.
Here, considering that Filipina was not personally known to her and the amount of the foreign check to be encashed
was $300,000 a higher degree of care is expected of Ofelia. Also, the fact that the check was cleared after only eight
banking days from the time it was deposited should have prompted Ofelia to verify the regularity of such hasty
clearance. If something goes wrong with the transaction, it is she and her husband who would be put at risk and not
the accommodated party, being the clients of PNB and the ones who negotiated the instrument with the bank. Hence,
the spouses Cheah are equally negligent and must equally suffer the loss.
(16) PNB vs. Tria

G.R. No. 193250, April 25, 2012
By: Samson, Maria Johanna Ilyssa
Topic: Characteristics of a Manager’s Check
Doctrine: A manager’s check is one drawn by a bank’s manager upon the bank itself; by its peculiar character and
general use in commerce, a manager’s check is regarded substantially to be as good as the money it represents.
Respondent Tria was a former Branch Manager of petitioner PNB, assigned at PNB’s Metropolitan Waterworks and
Sewerage System Branch (PNB-MWSS). MWSS opened Current Account (C/A) No. 244-850099-6 with PNB-MWSS
and made an initial deposit. PNB- MWSS received a letter-request from MWSS instructing the deduction of the plus
charges from C/A 244-850099-6 and the issuance of the corresponding manager’s check in the same amount payable
to a certain “Atty. Rodrigo A. Reyes.” The letter-request was purportedly signed and approved by the duly authorized
signatories of MWSS. Hence, C/A 244-850099-6 was re-activated in light of the letter-request. Manager’s Check No.
1165848 was, thus, prepared and issued in the name of Atty. Reyes for the amount of Php 5,200,000. Tria
accompanied Atty. Reyes in presenting Manager’s Check No. 1165848 to PNB’s Quezon City Circle Branch for
encashment and told PNB-Circle’s SSO, George Flandez that PNB-MWSS had no available cash to pay the amount
indicated in the Manager’s Check. To confirm the issuance of Manager’s Check No. 1165848, Flandez called PNB-
MWSS and talked to its Sales and Service Head, Veniegas, the latter confirmed that PNB-MWSS issued a manager’s
check in favor of Atty. Reyes and sent a letter-confirmation through e-mail to PNB-Circle. Tria retired as PNB-MWSS’
Manager. Zaida Pulida, the MWSS employee in charge of C/A No. 244-850099-6, inquired about the account’s
outstanding balance. While she was trying to reconcile the records of MWSS and PNB, she inquired about a debit
entry dated April 22, 2004 to C/A No. 244-850099-6 in the amount of Php 5,200,000. Pulida discovered that the
duplicate copy of Manager’s Check No. 1165848, the manager’s check application form and the letter of authority
were all missing. Pulida notified Veniegas that MWSS did not apply for the issuance of the manager’s check payable
to Atty. Reyes. Upon verification with the Integrated Bar of the Philippines, it was discovered that there was no
Rodrigo A. Reyes included in its membership roster. Further, upon inspection of the PNB-MWSS microfilm copy of
Manager’s Check No. 1165848, it was shown that the check was negotiated and encashed at the PNB-Circle on April
26, 2004 and was annotated with “ok for payment per confirmation and approval of PNB MWSS” by Tria on the dorsal
portion of the check. PNB conducted its own investigation and, at its conclusion, sought to hold Tria liable for qualified
theft. The Assistant City Prosecutor issued a Resolution stating that Tria’s identification of the payee did not
consummate the payment of the Manager’s Check. Rather, it was held, the consummation of the payment occurred
during Flandez’ approval of the encashment. The CA decided in favor of Tria. In affirming the DOJ Resolution issued
by Secretary Gonzales, the CA took notice of how Manager’s Check No. 1165848 was issued and paid by PNB after
the verification made by PNB’s own employees.
Was the approval of the request for the issuance and for encashment of the manager’s check by
employees of the PNB did consummate the payment of the said check?
NO, the Court of Appeals erroneously overlooked the vital factual circumstances, and there is probable cause to
proceed against Tria for qualified theft.
The acts of Tria and the relevant circumstances that led to the encashment of the check provide more than sufficient
basis for the finding of probable cause to file an information against him and
John Doe/Atty. Reyes for qualified theft. All the elements for qualified theft are present in the case. The check in
question was a manager’s check. A manager’s check is one drawn by a bank’s manager, Tria in this case, upon the
bank itself. We have held that it stands on the same footing as a certified check, which is deemed to have been
accepted by the bank that certified it, as it is an order of the bank to pay, drawn upon itself, committing in effect its
total resources, integrity and honor behind its issuance. By its peculiar character and general use in commerce, a
manager’s check is regarded substantially to be as good as the money it represents.
The wheels of the felony started turning days before the misrepresentations made by Tria at PNB-Circle, and the
encashment was a mere culmination of the crime that was commenced in PNB-MWSS. Tria is duty-bound to verify
from the bank’s client any supposed authority given for the issuance of a manager’s check. He was, therefore, duty-
bound to confirm with MWSS whether the letter-authorization for the deduction of Php 5.2 million from the MWSS
C/A is genuine, legal and binding. Tria is required to exercise the highest degree of care since the degree of diligence
required of banks is more than that of a good father of a family where the fiduciary nature of their relationship with
their depositors is concerned.
Tria likewise made representations to the PNB-Circle that the Manager’s check is legal and valid as evidenced by the
annotation at the dorsal portion of the check “ok for payment per confirmation and approval of PNB MWSS.” The act
of Tria in confirming and approving the encashment of the check by Reyes is the pretense of the consent given to
him by PNB to authorize the issuance of the manager’s check that resulted in the taking of Php 5.2 million from PNB.
Tria must, therefore, be prosecuted and tried before the courts of justice.
(17) RCBC vs. Hi-Tri Development Corporation

GR No. 192413, June 13, 2012
By: Torres, Ma. Roma
Topic: Delivery
Doctrine: The delivery, in order to be effectual, must be made either by or under the authority of the party making,
drawing, accepting, or indorsing, as the case may be.
In a civil case between Spouses Bakunawa and Teresita Millan, the former prayed for a rescission of the sale of their
property to Millan and for the latter to accept the downpayment she made. Spouses Bakunawa through their
company, Hi-Tri, issued a Manager’s Check from RCBC in the amount of 1M payable to Millans company Rosmil Realty
and Development Corporation (Rosmil) c/o Teresita Millan. Unknown to Spouses Bakunawa, RCBC reported the value
representing this check to the Bureau of Treasury as among its unclaimed balances against Rosmil. Later, this value
was included in the escheat proceedings against Rosmil.
Petitioner argues that, since the funds represented by the Manager’s Check were deemed transferred to the credit
of the payee upon issuance of the check, the proper party entitled to the notices was the payee Rosmil and not
respondents. Petitioner avers that it was not under any obligation to record the address of the payee of a Manager’s
Check.
Was it proper to include the value of the manager’s check in the escheat proceedings without prior notice
to the payee respondents?
NO.
The Negotiable Instruments Law provide:

Sec. 16. Delivery; when effectual; when presumed. Every contract on a negotiable instrument is incomplete and
revocable until delivery of the instrument for the purpose of giving effect thereto. As between immediate parties and
as regards a remote party other than a holder in due course, the delivery, in order to be effectual, must be made
either by or under the authority of the party making, drawing, accepting, or indorsing, as the case may be xxx
When Rosmil did not accept the Manager’s Check offered by respondents, the latter retained custody of the
instrument instead of cancelling it. As the Manager’s Check neither went to the hands of Rosmil nor was it further
negotiated to other persons, the instrument remained undelivered. Since there was no delivery, presentment of the
check to the bank for payment did not occur. An order to debit the account of respondents was never made.
As a result, the assigned fund is deemed to remain part of the account of Hi-Tri, which procured the Manager’s Check.
(18) Equitable Banking Corporation vs. Special Steel Products, Inc.

G.R. No. 175350, June 13, 2012
By: Valencia, Emmanuelle Nicole L.
Topic: Deposit of Crossed Checks; Accountability for Quasi-Delict; Stipulated Interest as Actual
Damages
Doctrine: A crossed check with the notation “account payee only” can only be deposited in the named payee’s
account. It is gross negligence for a bank to ignore this rule solely on the basis of a third party’s oral representations
of having a good title thereto.
In 1991, SSPI sold welding electrodes to InterCo, as evidenced by three sales invoices. The first, dated February 14,
1991, was in the amount of P325,976.34 and was due on March 16, 1991. The second and third, both dated April
11, 1991, were due on May 11, 1991, in the amounts of P345,412.80 and P313,845.84, respectively. The invoices
provided that InterCo would pay interest at a rate of 36% per annum in case of delay.
As payment, Interco issued three checks payable to the order of SSPI on July 10, 1991, July 16, 1991 and July 29,
1991. Each check was crossed with the notation “account payee only” and drawn against Equitable Bank.
Uy, the son-in-law of InterCo’s majority stockholder, presented each crossed check to Equitable on the day of its
issuance, and claimed that he had good title thereto. He demanded the deposit of the checks in his personal accounts
in Equitable Bank. Equitable acceded to Uy’s demands, on the assumption that Uy was acting pursuant to InterCo’s
orders.
In October 1991, SSPI reminded InterCo of the unpaid welding electrodes. It reiterated its demand on January 14,
1992, explaining its immediate need for payment due to some financial crisis. InterCo replied that it had already
issued three checks payable to SSPI and drawn against Equitable. SSPI denied receipt of the checks.
On August 6, 1992, SSPI requested information from Equitable regarding the three checks. The latter refused to give
any information, invoking confidentiality of deposits. Some time later, SSPI and InterCo discovered Uy’s scheme,
and it was determined that Uy received the proceeds of the three checks that were payable to SSPI.
On June 30, 1992, InterCo finally paid the value of the three checks to SSPI, plus a portion of the accrued interests.
InterCo refused to pay the entire accrued interest, on the ground that it was not responsible for the delay. SSPI then
filed a complaint for damages against Uy and Equitable Bank.
A. Does SSPI have a cause of action against Equitable for quasi-delict?
YES, SSPI has a cause of action against Equitable for quasi-delict.
A quasi-delict is an act or omission, there being fault or negligence, which causes damage to another. Quasi-delicts
exist even without a contractual relationship between the parties.
The checks that InterCo issued in favour of SSPI were all crossed, made payable to SSPI’s order, and contained the
notation “account payee only”. The nature of crossed checks should place a bank on notice that it should exercise
more caution or expend more than a cursory inquiry, to ascertain whether the payee on the check has authorised
the holder to deposit the same in a different account. It is important that banks should guard against injury
attributable to negligence or bad faith on its part. The discharge of crossed checks, in banking practice, is restrictive
and specific. Uy’s name did not appear anywhere on the crossed checks, and the checks bear nothing on their face
that supports the belief that the drawer gave the checks to Uy.
Since the banking business is impressed with public interest, the trust and confidence of the public in it is of
paramount importance. Consequently, the highest degree of diligence is expected, and high standards of integrity
and performance are required of it. Equitable did not observe the required degree of diligence expected of a banking
institution under the existing factual circumstances.
Therefore, SSPI has a cause of action against Equitable for quasi-delict.

B. Can SSPI recover, as actual damages, the stipulated 36% per annum from Equitable?
NO, SSPI can not recover the stipulated interest as actual damages from Equitable.
Since Equitable played a role in the conversion of the checks, which deprived SSPI of the use of these funds, it is
solidarity liable with Uy to compensate SSPI for the damages that it suffered. Among the compensable damages are
actual damages, which encompass the value of the loss sustained by the plaintiff, and the profits that the plaintiff
failed to obtain. Interest payments fall under the secondary category of actual damages.
SSPI computed its claim for interest payments based on the stipulated interest rate in its contract with InterCo. It
explained that the stipulated interest rate is the actual interest income hat it failed to obtain from InterCo due to
Equitable’s tortious conduct.
However, SSPI agreed that the delay was not InterCo’s fault, but that of the defendants. In this case, since InterCo
was not in delay, the stipulated interest payments in their contract did not become operational. Therefore, since
InterCo was not liable to pay for the 36% per annum interest rate, then SSPI did not lose that income, and it can
not lose something to which it was not entitled to begin with.
Nevertheless, since it was the actions of Equitable that deprived SSPI of the present use of its money for a period of
two years, SSPI is entitled to obtain the profits that it failed to obtain during that period. The legal rate of interest
(6% per annum) is applicable.
Therefore, although SSPI can not recover the stipulated interest as actual damages from Equitable, the latter is still
liable to pay legal interest on the amount due at a rate of 6% per annum.
(19) Aglibot vs. Santia

G.R. No. 185945, December 5, 2012
By: Valencia Mary Clydeen L.
Topic: Accommodation Party
Doctrine: In lending his name to the accommodated party, the accommodation party is in effect a surety for the
latter. The liability is immediate and direct.
Engr. Ingersol L. Santia (Santia) loaned the amount of ₱2,500,000.00 to Pacific Lending & Capital Corporation (PLCC),
through its Manager, Fideliza J. Aglibot (Aglibot). The loan was evidenced by a Promissory Note dated 1 July 2003,
issued by Aglibot in behalf of PLCC, payable in one year subject to interest at 24% per annum. Also, Aglibot issued
and delivered to Santia eleven (11) post-dated personal checks drawn from her own demand account. The aforesaid
checks, upon presentment for payment, were dishonored by the bank for having been drawn against insufficient
funds or closed account. Santia demanded payment from PLCC and Aglibot of the face value of the checks, but
neither of them heeded his demand. Consequently, eleven (11) Informations for violation of Batas Pambansa Bilang
22 corresponding to the number of dishonored checks were filed. In her counter-affidavit, Aglibot admitted that she
did obtain a loan from Santia, but she claimed that she did so in behalf of PLCC – the true borrower and beneficiary
of the loan; that she was a mere guarantor of the said debt of PLCC when she agreed to issue her own checks.
Is Aglibot a guarantor? Why or why not?
NO, Aglibot is not a guarantor. She is an accommodation party.
Sec. 29 of the NIL provides that an accommodation party is one who has signed the instrument as maker, drawer,
indorser, without receiving value therefor and for the purpose of lending his name to some other person. Such person
is liable on the instrument to a holder for value, notwithstanding such holder, at the time of the taking of the
instrument knew him to be only an accommodation party. In lending his name to the accommodated party, the
accommodation party is in effect a surety for the latter. He 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 parties thereto because he wants to accommodate another. The liability, therefore, is immediate and direct.
Aglibot, as the manager of PLCC, agreed to accommodate its loan to Santia by issuing her own post-dated checks in
payment thereof. Under the NIL, she is an accommodation party. The mere fact that she issued her own checks to
Santia made her personally liable to the latter on her checks without the need to first go after PLCC for the payment
of its loan.
(20) Philippine Commercial International Bank vs. Balmaceda

G.R. No. 158143, September 21, 2011
By: Alba, Ma. Angela
Topic: Checks; Crossed Checks
Doctrine: A crossed check is one where two parallel lines are drawn across its face or across its corner. When a
check is crossed, it is the duty of the collecting bank to ascertain that the check is only deposited to the payee’s
account.
Antonio Balmaceda is the Branch Manager of one of PCIB’s branches. By taking advantage of his position as branch
manager, he fraudulently obtained and encashed 31 Manager’s checks from different clients in various occasions in
the total amount of P10,782,150.00. The Bank filed an action against Balmaceda before the RTC and impleaded
Rolando Ramos as one of the recipients of a portion of the proceeds from Balmaceda’s alleged fraud. The RTC ruled
that Ramos acted in collusion with Balmaceda because although of the Manager’s checks payable to Ramos were
crossed checks, Balmaceda was still able to encash the checks. After Balmaceda encashed three of these Manager’s
checks, he deposited most of the money into Ramos’ account.
Is the ruling of the RTC correct?
No. Ramos’ participation cannot be established by that alone. It is PCIB who is at fault as employer. A telling indicator
of PCIB’s negligence is the fact that it allowed Balmaceda to encash the Manager’s checks that were plainly crossed
checks.
A crossed check is one where two parallel lines are drawn across its face or across its corner. Based on jurisprudence,
the crossing of a check has the following effects: (a) the check may not be encashed but only deposited in the bank;
(b) the check may be negotiated only once—to the one who has an account with the bank; and (c) the act of crossing
the check serves as a warning to the holder that the check has been issued for a definite purpose and he must inquire
if he received the check pursuant to this purpose; otherwise, he is not a holder in due course. In other words, the
crossing of a check is a warning that the check should be deposited only in the account of the payee. When a check
is crossed, it is the duty of the collecting bank to ascertain that the check is only deposited to the payee’s account.
In complete disregard of this duty, PCIB’s systems allowed Balmaceda to encash Manager’s checks which were all
crossed checks, or checks payable to the “payee’s account only.”
(21) Gonzales vs. PCIB

G.R. No. 180257, February 23, 2011
By: Arid, Hannah Mhae G.
Topic: Accommodation Party
Doctrine: The relation between an accommodation party and the accommodated party is one of principal and
surety—the accommodation party being the surety. As such, he is deemed an original promissor and debtor from the
beginning, he is considered in law as the same party as the debtor in relation to whatever is adjudged touching the
obligation of the latter since their liabilities are interwoven as to be inseparable. Although a contract of suretyship is
in essence accessory or collateral to a valid principal obligation, the surety’s liability to the creditor is immediate,
primary and absolute; he is directly and equally bound with the principal. As an equivalent of a regular party to the
undertaking, a surety becomes liable to the debt and duty of the principal obligor even without possessing a direct
or personal interest in the obligations nor does he receive any benefit therefrom.
Gonzales was a client of PCIB for a good 15 years. He was granted a credit line by the bank through a Credit-On-
Hand-Loan Agreement (COHLA). He drew from the credit line through a check and said credit line was secured by a
collateral in the form of his accounts with PCIB which was a foreign currency deposit worth USD 8000. He obtained
several loans from PCIB which are: 1. obtained with his wife worth 500,000.00; and b. obtained with spouses Panlilio
worth P1M, P300K.The aforementioned loans totalling 1.8M were covered by 3 promissory notes and were secured
by a real estage mortgage on a land co owned by Gonzales and spouses Panlilio. the promissory notes state the
solidary liability of Gonzales andspouses Panlilio. However, it was the spouses Panlilio who received the proceeds of
1.8M. The monthly interest dues were paid by the spouses Panlilio through auto debit from their PCIB account.
however, they defaulted in the payment because their PCIB account had insufficient deposits. Gonzales issued a
check to Rene Unson worth 250K drawn against his credit line but said check was subsequently dishonored due to
termination of gonzales’ credit line because of the unpaid period interest dues from the loans. PCIB also froze the
foreign currency deposit account of Gonzales.
Is Gonzales liable for the three promissory notes covering PHP1.8M loan he made with spouses Panlilio?
Yes, he is liable. Gonzales was an accommodation party of the loan.
An accommodation party is one who meets all the three requisites according to Sec 29 of NIL: 1. he must be a party
to the instrument, signing as a 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 raise money. He receives no part but assumed liability.
The relation between an accommodation party is one of principal and surety, the accommodation party being the
surety. As such, he is deemed an original promisor and debtor from the beginning. He is considered in law as the
same party as the debtor in relation to whatever is adjudged touching the obligation of the latter since their liabilities
are interwoven.
Hence, as an accommodation party Gonzales is solidarily liable with the spouses Panlilio for the loans. Moreover, the
solidary nature of the loan was expressly stated in the promissory notes which state: “…the undersigned JOINTLY
AND SEVERALLY promiseto pay xx” hence, Gonzales’ is directly liable for the payment of the promissory notes being
that his liability is solidary even though he did not receive any amount from the loans.
(22) Cayanan vs. North Star International Travel Inc.

G.R. No. 172594, October 5, 2011
By: Bernardo, Michael Gerard T.
Topic: Presumption of consideration
Doctrine: Upon issuance of a check, in the absence of evidence to the contrary, it is presumed that the same was
issued for valuable consideration which may consist either in some right, interest, profit or benefit accruing to the
party who makes the contract, or some forbearance, detriment, loss or some responsibility, to act, or labor, or service
given, suffered or undertaken by the other side.
Virginia Balagtas, the General Manager of North Star, in accommodation and upon the instruction of its client,
Cayanan, sent considerable amount of money to View Sea Ventures Ltd., in Nigeria from her personal account in
Citibank Makati. Likewise, on various dates, North Star extended credit to Cayanan for the airplane tickets of
Cayanan’s clients who will fly to Nigeria. To cover the payment of the foregoing obligations, Cayanan issued multiple
checks to North Star. However, when presented for payment, the checks were dishonored because of stop payment
order from Cayanan.
North Star demanded payment but Cayanan failed to pay. North Star later on instituted an action against Cayanan.
On his defense, Cayanan claim that North Star did not give any valuable consideration for the checks since the
amount involved was taken from the personal dollar account of Virginia and not the corporate funds of North Star.
Can Cayanan invoke the defense of lack of consideration?
No, Cayanan cannot invoke the defense of lack of consideration.
Section 24 of the Negotiable Instrument Law provides that every negotiable instrument is deemed prima facie to
have been issued for a valuable consideration; and every person whose signature appears thereon to have become
a party thereto for value.
As Cayanan alleged that there was no consideration for the issuance of the subject checks, it devolved upon him to
present convincing evidence to overthrow the presumption and prove that the checks were in fact issued without
valuable consideration. In this case, however, petitioner has not presented any credible evidence to rebut the
presumption that the checks were issued as payment for the amount petitioner owed. Cayanan himself specifically
named North Star as the payee of the checks is an admission of his liability to North Star and not to Virginia Balagtas,
who as manager merely facilitated the transfer of funds.
(23) Vicente Go vs. MBTC

G.R. No. 168842, August 11, 2010
By: Bigornia, Donna
Topic: Crossed check; Indorsement; liability of Bank.
Doctrine: The crossing of a check is a warning that the check should be deposited only in the account of the payee.
Thus, it is the duty of the collecting bank to ascertain that the check be deposited to the payee’s account only, lest
it will be made liable.
Go, doing business under “Hope Pharmacy” filed a complaint for a sum of money with preliminary attachment and
damages against respondents MBTC and Chua, his pharmacist, trustee and caretaker of the business. Petitioner
averred that there were thirty-two (32) checks with Hope Pharmacy as payee, for varying sums, that were not
endorsed by him but were deposited under the personal account of Chua with respondent bank. Petitioner continued
the said checks were crossed checks payable to Hope Pharmacy only; and that without the participation and
connivance of respondent bank, the checks could not have been accepted for deposit to any other account, except
petitioner’s account. Respondent bank countered that petitioner is not entitled to reimbursement because petitioner
was not damaged thereby.
Is petitioner entitled to reimbursement of the whole amount of the crossed check alleged to be unlawfully
deposited in the account of and encashed by Chua in MBTC?
Yes.
Jurisprudence provides that the effect of crossing a check relates to the mode of payment, meaning that the drawer
had intended the check for deposit only by the rightful person, i.e., the payee named therein. The crossing of a check
is a warning that the check should be deposited only in the account of the payee. Thus, it is the duty of the collecting
bank to ascertain that the check be deposited to the payee’s account only, lest it will be made liable.
In this case, it was established that the payee of the subject checks were “Hope Pharmacy. Hence, the respondent
bank was negligent in permitting the deposit and encashment of the crossed checks without the proper indorsement.
An indorsement is necessary for the proper negotiation of checks specially if the payee named therein or holder
thereof is not the one depositing or encashing it. Knowing fully well that the subject checks were crossed, that the
payee was not the holder and that the checks contained no indorsement, respondent bank should have taken
reasonable steps in order to determine the validity of the representations made by Chua. Respondent bank was amiss
in its duty as an agent of the payee. Prudence dictates that respondent bank should not have merely relied on the
assurances given by Chua.
Therefore, respondent MBTC is liable to reimburse Go the amount encashed by Chua.

(24) San Miguel Corp vs. Puzon

G.R. No. 167567, September 22, 2010
By: Corona, Jose Enrico V.
Topic: Postdated Checks; Transfer of Ownership
Doctrine: Delivery means that the party delivering did so for the purpose of giving effect thereto. Otherwise, it
cannot be said that there has been delivery of the negotiable instrument. Once there is delivery, the person to whom
the instrument is delivered gets the title to the instrument completely and irrevocably.
Puzon is the owner of Bartenmyk Enterprises and was a dealer of beer products of San Miguel Corp. Puzon purchased
SMC products on credit. To ensure payment and as a business practice, SMC required him to issue postdated checks
equivalent to the value of the products purchased on credit before the same were released to him. Said checks were
returned to Puzon when the transactions covered by these checks were paid or settled in full.
On December 31, 2000, Puzon purchased products on credit for which he issued and gave to SMC checks to cover
the said transaction. Subsequently, Puzon went to the office of San Miguel and requested to see a check issued by
him. Puzon then immediately left bringing the checks with him.
SMC demanded the return of the check but was ignored by Puzon. Hence, SMC filed a case for theft. However, the
Prosecutor and Secretary of Department of Justice dismissed the case for lack of evidence. Court of Appeals affirmed.
Was the ownership of the checks transferred to SMC considering that they were issued as a payment for
purchases and not as a mere security hence, Puzon can be charged with theft?
No. There was no transfer of ownership of the checks. Hence, Puzon cannot be charged with theft.
The law provides that one of the elements of theft is “the property belongs to another”. However, the law also
provides that the instrument is not invalid for the reason only that it is antedated or postdated, provided this is not
done for an illegal or fraudulent purpose. The person to whom an instrument so dated is delivered acquires the title
thereto as of the date of delivery. Note however that delivery as the term is used in the aforementioned provision
means that the party delivering did so for the purpose of giving effect thereto. Otherwise, it cannot be said that there
has been delivery of the negotiable instrument. Once there is delivery, the person to whom the instrument is delivered
gets the title to the instrument completely and irrevocably.
In the case at bar, if the subject check was given by Puzon to SMC in payment of the obligation, the purpose of giving
effect to the instrument is evident thus title to or ownership of the check was transferred upon delivery. However, if
the check was not given as payment, there being no intent to give effect to the instrument, then ownership of the
check was not transferred to SMC. The evidence of SMC failed to establish that the check was given in payment of
the obligation of Puzon. There was no provisional receipt or official receipt issued for the amount of the check.
Therefore, there was no transfer of ownership.

(25) Citytrust vs. Cruz

G.R. No. 157049, August 11, 2010
By: Kathrina De Castro
Topic: Liability of banks
Doctrine: The banks were made liable for negligence, even without sufficient proof of malice or bad faith on their
part because a banking institution has the direct obligation to supervise very closely the employees handling its
depositors' accounts.
Respondent maintained savings and checking accounts at the petitioner’s Loyola Branch. The closure resulted in the
extreme embarrassment of the respondent, for checks that he had issued could not be honored although his savings
account was sufficiently funded and the accounts were maintained under the petitioner's check-o-matic arrangement.
Can the bank be held liable in the acts or negligence by its teller?
Yes. The petitioner, being a banking institution, had the direct obligation to supervise very closely the employees
handling its depositors' accounts, and should always be mindful of the fiduciary nature of its relationship with the
depositors. Such relationship required it and its employees to record accurately every single transaction, and as
promptly as possible, considering that the depositors' accounts should always reflect the amounts of money the
depositors could dispose of as they saw fit, confident that, as a bank, it would deliver the amounts to whomever they
directed. If it fell short of that obligation, it should bear the responsibility for the consequences to the depositors,
who, like the respondent, suffered particular embarrassment and disturbed peace of mind from the negligence in the
handling of the accounts.
(26) Salazar vs. JY Bros

G.R. No. 171998, October 20, 2010
By: Gaite, Rhio Angeline
Topic: How a negotiable instrument is discharged; Crossed Checks
Doctrine: A negotiable instrument is discharged: (a) By payment in due course by or on behalf of the principal
debtor; (b) By payment in due course by the party accommodated, where the instrument is made or accepted for
his accommodation; (c) By the intentional cancellation thereof by the holder; (d) By any other act which will discharge
a simple contract for the payment of money; (e) When the principal debtor becomes the holder of the instrument at
or after maturity in his own right.
J.Y. Brothers Marketing is a corporation engaged in the business of selling sugar, rice and other commodities. On
October 15, 1996, Anamer Salazar, a freelance sales agent, was approached by Isagani Calleja and Jess Kallos, if
she knew a supplier of rice. Answering in the positive, Salazar accompanied the two to J.Y. Bros. As a consequence,
Salazar with Calleja and Kallos procured from J. Y. Bros. 300 cavans of rice worth P214,000.00. As payment, Salazar
negotiated and indorsed to J.Y. Bros. Prudential Bank Check No. 067481 dated October 15, 1996 issued by Nena
Jaucian Timario in the amount of P214,000.00 with the assurance that the check is good as cash. On that assurance,
J.Y. Bros. parted with 300 cavans of rice to Salazar. However, upon presentment, the check was dishonored due to
closed account. Informed of the dishonor of the check, Calleja, Kallos and Salazar delivered to J.Y. Bros. a
replacement cross Solid Bank Check No. PA365704 dated October 29, 1996 again issued by Nena Jaucian Timario in
the amount of P214,000.00 but which, just the same, bounced due to insufficient funds. When despite the demand
letter dated February 27, 1997, Salazar failed to settle the amount due J.Y. Bros.
A. Was the acceptance of the Solid Bank cheque which replaced the dishonored Prudential Bank cheque
discharged the liability?
No. The acceptance of the Solid Bank check, which replaced the dishonored Prudential Bank check, did not result to
novation. The law provides that one of the acts for a negotiable instrument to be discharged is by any other act which
will discharge a simple contract for the payment of money. In this case, there was no express agreement to establish
that petitioner was already discharged from his liability to pay respondent the amount of P214,000.00 as payment
for the 300 bags of rice. In fact, when the Solid Bank check was delivered to respondent, the same was also indorsed
by petitioner which shows petitioners recognition of the existing obligation to respondent to pay P214,000.00 subject
of the replaced Prudential Bank check. Thus, Salazar was not discharged from her liability.
B. Was the acceptance of the Solid Bank crossed cheque which replaced the dishonored Prudential Bank
check, a negotiable check, is a new obligation in lieu of the old obligation arising from the issuance of
the Prudential Bank check, since there was an essential change in the circumstance of each check?
No. Among the different types of checks issued by a drawer is the crossed check. The Negotiable Instruments Law is
silent with respect to crossed checks, although the Code of Commerce makes reference to such instruments. The
Court have taken judicial cognizance of the practice that a check with two parallel lines in the upper left-hand corner
means that it could only be deposited and could not be converted into cash. Thus, the effect of crossing a check
relates to the mode of payment, meaning that the drawer had intended the check for deposit only by the rightful
person, i.e., the payee named therein. The change in the mode of paying the obligation was not a change in any of
the objects or principal condition of the contract for novation to take place.
(27) Dino vs. Judal-Loot

G.R. No. 170912, April 19, 2010
By: Grande, Jonicocel
Topic: Holder in due course
Doctrine: The Negotiable Instruments Law does not provide that a holder who is not a holder in due course may not
in any case recover on the instrument. The only disadvantage of a holder who is not in due course is that the
negotiable instrument is subject to defenses as if it were non-negotiable. Among such defenses is the absence or
failure of consideration.
A syndicate, one of whose members posed as an owner of several parcels of land approached petitioner and induced
him to lend the group ₱3,000,000.00 to be secured by a real estate mortgage on the properties. Enticed and
convinced by the syndicate’s offer, petitioner issued three Metrobank checks payable to Consing and/or Lobitana.
Petitioner discovered that the documents covered rights over government properties. Petitioner then advised
Metrobank to stop payment of his checks. Meanwhile, Lobitana negotiated and indorsed the check to respondents.
Before respondents accepted the check, they first inquired from the drawee bank, Metrobank to which it answered
in the positive. However, when respondents deposited the check with Metrobank, Cebu-Mabolo Branch, the same
was dishonored by the drawee bank for reason "PAYMENT STOPPED.”
A. Are the respondents holders in due course?
NO.
Section 52 of the Negotiable Instruments Law defines a holder in due course, thus:
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 has been previously
dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him, he had no notice of any infirmity in the instrument or defect in the
title of the person negotiating it.
Based on the foregoing, respondents had the duty to ascertain the indorser’s, in this case Lobitana’s, title to the
check or the nature of her possession. This respondents failed to do. Respondents’ verification from Metrobank on
the funding of the check does not amount to determination of Lobitana’s title to the check. Failing in this respect,
respondents are guilty of gross negligence amounting to legal absence of good faith, contrary to Section 52(c) of
the Negotiable Instruments Law. Hence, respondents are not deemed holders in due course of the subject check.
B. Since the respondents are not holders in due course, can they still recover on the check?
NO.
The Negotiable Instruments Law does not provide that a holder who is not a holder in due course may not in any
case recover on the instrument. The only disadvantage of a holder who is not in due course is that the negotiable
instrument is subject to defenses as if it were non-negotiable. Among such defenses is the absence or failure of
consideration.
In this case, the petitioner issued the subject check supposedly for a loan in favor of Consing’s group, who turned
out to be a syndicate defrauding gullible individuals. Since there is in fact no valid loan to speak of, there is no
consideration for the issuance of the check. Hence, respondents may not recover on the check/instrument.
(28) Bank of America NT & SA v. Phil. Racing Club

G.R. No. 150228, July 30, 2009
By: Jovero, John Tristram V.
Topic: Material Alteration
Doctrine: Although not in the strict sense “material alterations,” the misplacement of the typewritten entries for the
payee and the amount on the same blank and the repetition of the amount using a check writer were glaringly
obvious irregularities on the face of the check that should have alerted the bank to the possibility that the holder or
the person who is attempting to encash the checks did not have proper title to the checks or did not have authority
to fill up and encash the same.
Phil. Racing Club (PRCI) has an account with Bank of America (paseo de roxas branch). The authorized signatories
were its president and vice president. To ensure continuity of operations, the president and the vp, before going out
of the country for corp. business, pre-signed several checks and entrusted them to the accountant. The internal
arrangement was, in the event there was need to make use of the checks, the accountant would prepare the
corresponding voucher and thereafter complete the entries on the pre-signed checks. Someone presented to Bank
of America bank for encashment a couple of PRCI’s checks with the indicated value of P110,000.00 each. The two
(2) checks had similar entries with similar infirmities and irregularities. On the space where the name of the payee
should be indicated (Pay To The Order Of) the following 2-line entries were instead typewritten: on the upper line
was the word ―CASH while the lower line had the following typewritten words, viz: “ONE HUNDRED TEN THOUSAND
PESOS ONLY.” Despite the highly irregular entries on the face of the checks, defendant-appellant bank, without as
much as verifying and/or confirming the legitimacy of the checks considering the substantial amount involved and
the obvious infirmity/defect of the checks on their faces, encashed said checks. PRC demanded Bank of America to
pay. The bank refused.
Was there material alteration, which justifies American Bank’s failure to verify encashment with PRCI
despite the erroneous entry?
No material alteration. However, American Bank is liable for 60% (last clear chance was applied and PRCI was made
to answer for the 40% because of its contributory negligence).
A material alteration is defined in Section 125 of the NIL to be one which changes the date, the sum payable, the
time or place of payment, the number or relations of the parties, the currency in which payment is to be made or
one 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.
Although not in the strict sense “material alterations,” the misplacement of the typewritten entries for the payee and
the amount on the same blank and the repetition of the amount using a check writer were glaringly obvious
irregularities on the face of the check. Clearly, someone made a mistake in filling up the checks and the repetition of
the entries was possibly an attempt to rectify the mistake. Also, if the check had been filled up by the person who
customarily accomplishes the checks of respondent, it should have occurred to petitioner’s employees that it would
be unlikely such mistakes would be made. All these circumstances should have alerted the bank to the possibility
that the holder or the person who is attempting to encash the checks did not have proper title to the checks or did
not have authority to fill up and encash the same. As noted by the CA, petitioner could have made a simple phone
call to its client to clarify the irregularities and the loss to respondent due to the encashment of the stolen checks
would have been prevented.
Thus, although there was no material alteration, American Bank should have verified the encashment with PRCI.
(29) Bank of America vs. Associated Citizens Bank

G.R. No. 141001, May 21, 2009
By: Lapuz, Jesus Ros
Topic: Crossed Checks
Doctrine: When the drawee bank pays a person other than the payee named on the check, it does not comply with
the terms of the check and violates its duty to charge the drawer’s account only for properly payable items—a drawee
should charge to the drawer’s accounts only the payables authorized by the latter. In addition, The Supreme Court
has taken judicial cognizance of the practice that a check with two parallel lines in the upper left hand corner means
that it could only be deposited and could not be converted into cash; The effects of crossing a check as follows: (a)
the check may not be encashed but only deposited in the bank; (b) the check may be negotiated only once—to one
who has an account with a bank; and (c) the act of crossing the check serves as a warning to the holder that the
check has been issued for a definite purpose so that he must inquire if he has received the check pursuant to that
purpose; otherwise, he is not a holder in due course. Lastly, collecting bank where a check is deposited, and which
endorses the check upon presentment with the drawee bank, is an endorser; The Court has repeatedly held that in
check transactions, the 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; When the collecting bank stamped the back of the four checks with the phrase “all prior endorsements
and/or lack of endorsement guaranteed,” that bank had for all intents and purposes treated the checks as negotiable
instruments and, accordingly, assumed the warranty of an endorser.
BA-Finance Corporation (BA Finance) and Miller Offset Press, Inc. (Miller) entered into a credit line facility agreement
whereby Miller can discount and assign its trade receivables with the BA Finance. At the same time, Uy Kiat Chung,
Ching Uy Seng, and Uy Chung Guan Seng, acting for Miller, executed a Continuing Suretyship Agreement with BA-
Finance. Under the agreement, they jointly and severally guaranteed the full and prompt payment of any and all
indebtedness which Miller may incur with BA-Finance.
Miller discounted and assigned several trade receivables to BA-Finance by executing Deeds of Assignment in favor of
the latter. In consideration thereof, BA-Finance issued four checks payable to the order of Miller with the notation
“For Payee’s Account Only.” These checks were drawn against Bank of America. The four checks were deposited by
Ching Uy Seng in Associated Citizens Bank with his joint account with Uy Chung Seng. Associated Bank stamped the
checks and guaranteed all prior endorsements and/or lack of endorsements and sent them through clearing. Later,
Bank of America as drawee bank honored the checks and paid the proceeds to Associated Bank as the collecting
bank. When Miller failed to deliver to BA-Finance the proceeds of the assigned trade receivables, BA-Finance filed a
collection suit against Miller and impleaded the three representatives of the latter.
Bank of America filed a third party complaint against Associated Bank. In its answer to the third party complaint,
Associated Bank admitted having received the four checks for deposit in the joint account of Ching Uy Seng and Uy
Chung Guan Seng, but alleged that Ching Uy Seng, being one of the corporate officers of Miller, was duly authorized
to act for and on behalf of Miller.
A. Is Bank of America liable to pay BA-Finance?
YES, Bank of America is liable to pay BA Finance for any damages.
The bank on which a check is drawn, known as the drawee bank, is under strict liability, based on the contract
between the bank and its customer (drawer), to pay the check only to the payee or the payee’s order. The drawer’s
instructions are reflected on the face and by the terms of the check. When the drawee bank pays a person other than
the payee named on the check, it does not comply with the terms of the check and violates its duty to charge the
drawer’s account only for properly payable items. On the part of Associated Bank, the law imposes a duty of diligence
on the collecting bank to scrutinize checks deposited with it for the purpose of determining their genuineness and
regularity. 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. In presenting the checks for clearing and for payment, the defendant
[collecting bank] made an express guarantee on the validity of “all prior endorsements.” Thus, stamped at the back
of the checks are the defendant’s clear warranty. As the warranty has proven to be false and inaccurate, Associated
Bank is liable for any damage arising out of the falsity of its representation.
B. Should Associated Bank reimburse Bank of America the amount of the four checks?
YES, the Associated Bank should reimburse the Bank of America the amount of the four checks.
A bank that regularly processes checks that are neither payable to the customer nor duly indorsed by the payee is
apparently grossly negligent in its operations. This Court has recognized the unique public interest possessed by the
banking industry and the need for the people to have full trust and confidence in their banks. For this reason, banks
are minded to treat their customer’s accounts with utmost care, confidence, and honesty. In a checking transaction,
the drawee bank has the duty to verify the genuineness of the signature of the drawer and to pay the check strictly
in accordance with the drawer’s instructions, i.e., to the named payee in the check. It should charge to the drawer’s
accounts only the payables authorized by the latter. Otherwise, the drawee will be violating the instructions of the
drawer and it shall be liable for the amount charged to the drawer’s account. Rodriguez checks are payable to order
since the bank failed to prove that the named payees therein are fictitious.
(30) Security Bank and Trust Company vs. Rizal Commercial Banking Corporation
G.R. No. 170984, January 30, 2009
By: Mano, Razna I.
Topic: Checks
Doctrine: A manager’s check is one drawn by a banks 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.
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). 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. 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 managers 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.
RCBC filed a complaint for damages against SBTC with the RTC. The RTC and CA rendered decision in favor of RCBC.
Is SBTC liable for damages to RCBC?
Yes, SBTC is liable to RCBC for damages.
A manager’s check becomes the primary obligation of the bank and is accepted in advance by the act of its issuance.
In this case, RCBC, in immediately crediting the amount of P8 million to CMCs account, relied on the integrity and
honor of the check as it is regarded in commercial transactions. Where the questioned check, which was payable to
cash, appeared regular on its face, and the bank found nothing unusual in the transaction, as the drawer usually
issued checks in big amounts made payable to cash, RCBC cannot be faulted in paying the value of the questioned
check. By SBTC’s drawing of the instrument, SBTC admits the existence of the payee and his then capacity to indorse;
and engages that on due presentment, the instrument will be accepted, or paid, or both, according to its tenor.
Therefore, SBTC is liable for payment of damages to RCBC.

(31) BPI vs. Spouses Reynaldo and Victoria Royeca

G.R. No. 176664, July 21, 2008
By: Marasigan, Mariz Angelle R.
Topic: Tender of payment; checks
Doctrine: A check is not legal tender and, therefore, cannot constitute a valid tender of payment.
Spouses Royeca executed and delivered to Toyota Shaw, Inc. a Promissory Note for P577,008.00 payable in 48 equal
monthly installments of P12,021.00. To secure the payment of the Promissory Note, the spouses executed a Chattel
Mortgage in favor of Toyota over a certain motor vehicle. Toyota, with notice to the spouses, executed a Deed of
Assignment transferring all its rights, title and interest in the Chattel Mortgage to FEBTC. FEBTC filed a Complaint for
Replevin and Damages against the spouses with the Metropolitan Trial Court of Manila for failure to pay 4 monthly
amortizations. The spouses alleged that on May 20, 2997, they delivered to the Auto Financing Department of FEBTC
eight (8) postdated checks in different amounts totaling P97,281.78. The spouses averred that they did not receive
any notice from the drawee banks or from the FEBTC that these checks were dishonored. They explained that,
considering this and the fact that the checks were issued 3 years ago, they believed in good faith that their obligation
had already been fully paid. Mr. Vicente Magpusao, an Account Analyst of FEBTC, admitted that they had received
the 8 checks from the spouses. However, two of those checks were dishonored. The remaining two checks were not
deposited anymore due to the previous dishonor of the two checks.
Does the tender of checks constitute payment?
NO, tender of checks does not constitute payment.
Settled is the rule that payment must be made in legal tender. A check is not legal tender and, therefore, cannot
constitute a valid tender of payment. 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. 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.
To establish their defense, the spouses therefore had to present proof, not only that they delivered the checks to the
FEBTC, but also that the checks were encashed. The spouses failed to do so. Had the checks been actually encashed,
the spouses could have easily produced the cancelled checks as evidence to prove the same. Instead, they merely
averred that they believed in good faith that the checks were encashed because they were not notified of the dishonor
of the checks and three years had already lapsed since they issued the checks.
(32) Philippine National Bank vs. Rodriguez

G.R. No. 170325, September 26, 2008
By: Pangilinan, Gene Alexis
Topic: Checks; Fictitious Payee Rule
Doctrine: 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 Rodriguez Spouses had a discounting arrangement with the PEMSLA, an association of PNB employees, and was
likewise a client of PNB. PEMSLA regularly granted loans to its members. Spouses Rodriguez would rediscount the
postdated checks issued to members whenever the association was short of funds. The spouses would replace the
postdated checks with their personal checks issued in the name of the members.
Some PEMSLA officers took out loans in the names of unknowing members, without their knowledge or consent. The
PEMSLA checks issued for these loans were then given to the spouses for rediscounting. The officers carried this out
by forging the indorsement of the named payees in the checks. In return, the spouses issued their personal checks
in the name of the members and delivered the checks to an officer of PEMSLA. The PEMSLA checks were deposited
by the spouses to their account. The personal checks of the spouses were deposited directly by PEMSLA to its savings
account without any indorsement from the named payees.
PNB discovered these fraudulent acts, and closed the account of PEMSLA. The PEMSLA checks deposited were
returned or dishonored for the reason “Account Closed.” The personal checks of the spouses, however, were
deposited to the PEMSLA savings account. The amounts were duly debited from the Rodriguez account. Thus, the
spouses incurred losses from the rediscounting transactions.
A. What is the fictitious-payee rule and who is liable under it? Is there any exception?
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.
A check made expressly payable to a non-fictitious and existing person is not necessarily an order instrument. If the
payee is not the intended recipient of the proceeds of the check, the payee is considered a “fictitious” payee and the
check is a bearer instrument.
A showing of commercial bad faith on the part of the drawee bank, or any transferee of the check, will work to strip
it of the defense under the fictitious-payee rule. The exception will cause it to bear the loss. Commercial bad faith is
present if the transferee of the check acts dishonestly, and is a party to the fraudulent scheme.
B. Whether the personal checks of the spouses are payable to order or to bearer?
The personal checks are order instruments. Under Section 9(c) of the Negotiable Instruments Law, a check payable
to a specified payee may be considered as a bearer instrument if it is payable to the order of a fictitious or non-
existing person, and such fact is known to the person making it so payable. Additionally, if the payee is not the
intended recipient of the proceeds of the check, the payee is considered a “fictitious” payee and the check is a bearer
instrument.
In this case, PNB failed to present sufficient evidence to defeat the claim that the named payees were the intended
recipients of the checks’ proceeds. PNB 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. 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.
(33) Violago vs. BA Finance Corporation

G.R. No. 158262. July 21, 2008.
By: Radovan, Althea Therese
Topic: Holder in due course
Doctrine: The law presumes that a holder of a negotiable instrument is a holder thereof in due course.
Avelino Vialogo, President of VMSC sold a car to Sps. Violago, assuring the latter that they would just have to pay a
down payment, while the balance would be financed by BA Finance. The spouses and Avelino signed a promissory
note under which they bound themselves to pay jointly and severally to the order of VMSC the amount of PhP 209,601
in 36 monthly installments of PhP 5,822.25 a month, the first installment to be due and payable on September 16,
1983. The spouses also executed a chattel mortgage over the car in favor of VMSC as security for the amount of PhP
209,601. VMSC, through Avelino, endorsed the promissory note to BA Finance without recourse. After receiving the
amount of PhP 209,601, VMSC executed a Deed of Assignment of its rights and interests under the promissory note
and chattel mortgage in favor of BA Finance. However, the vehicle was not delivered to the Spouses, therefor they
did not pay any monthly amortization to BA Finance. Thereafter, BA Finance filed a complaint for Replevin with
Damages against the spouses. The spouses argue that BA Finance was not a holder in due course of the note since
it knew, through its Cebu City branch, that the car was never delivered to the spouses.
A. Is the promissory note a negotiable instrument and, hence, covered by the NIL?
Yes. Sec.1 of the NIL provides: An instrument to be negotiable must conform to the following requirements:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable
certainty.”
The promissory note clearly satisfies the requirements of a negotiable instrument under the NIL. It is in writing;
signed by the Violago spouses; has an unconditional promise to pay a certain amount, i.e., PhP 209,601, on specific
dates in the future which could be determined from the terms of the note; made payable to the order of VMSC; and
names the drawees with certainty. The indorsement by VMSC to BA Finance appears likewise to be valid and regular.
B. Is BA Finance a holder in due course of the promissory note and may therefore enforce payment?
Yes. Sec. 52 of the NIL provides: A holder in due course is a holder who has taken the instrument under the
following conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and without notice that it had been previously
dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the
title of the person negotiating it.
The law presumes that a holder of a negotiable instrument is a holder thereof in due course.
In this case BA Finance meets all the foregoing requisites:

(a) The “Promissory Note,” is complete and regular;
(b) The “Promissory Note” was endorsed by the VMSC in favor of the Appellee;
(c) BA Finance, when it accepted the Note, acted in good faith and for value;
(d) BA Finance was never informed, before and at the time the “Promissory Note” was endorsed to it, that the vehicle
sold to the Defendants-Appellants was not delivered to the latter and that VMSC had already previously sold the
vehicle to Esmeraldo Violago. Although Jose Olvido mortgaged the vehicle to Generoso Lopez, who assigned his rights
to the BA Finance Corporation (Cebu Branch), the same occurred only on May 8, 1987, much later than August 4,
1983, when VMSC assigned its rights over the “Chattel Mortgage” by the Defendants-Appellants to BA Finance.
Hence, BA Finance was a holder in due course.”
Since BA Finance is a holder in due course, petitioners cannot raise the defense of non-delivery of the object and
nullity of the sale against the corporation. Sec. 57 of the NIL provides: A holder in due course, however, holds the
instrument free from any defect of title of prior parties and from defenses available to prior parties among themselves,
and may enforce payment of the instrument for the full amount thereof.
(34) Far East Bank & Trust Company vs. Gold Palace Jewellery Co.
G.R. No. 168274, August 20, 2008
By: Rosario, Patricia Kaye
Topic: Liability of the acceptor drawee bank
Doctrine: The provision that the acceptor, by accepting the instrument, engages that he will pay it according to the
tenor of his acceptance, applies with equal force in case the drawee pays a bill without having previously accepted
it.
Samuel Tagoe, purchased from the respondent Gold Palace several pieces of jewelry valued at P258,000. In payment
of the same, he offered a foreign draft issued by the United Overseas Bank of Malaysia (UOB), addressed to the Land
Bank of the Philippines, Manila (LBP), and payable to Gold Palace for P380,000. Respondent Julie Yang-Go, the
manager of Gold Palace, issued a cash invoice to Samuel and informed him that the pieces of jewelry would be
released when the draft had already been cleared. She consequently deposited the draft in Gold Palace’s account
with the petitioner Far East. When Far East, the collecting bank, presented the draft for clearing to LBP, the drawee
bank, the latter cleared the same. After ascertaining that the draft had been cleared, Yang released the pieces of
jewelry to Samuel. After three weeks, LBP informed Far East that the amount in the draft had been materially altered
from P300,000 to P380,000 and that it was returning the same. Far East subsequently refunded the P380,000 earlier
paid by LBP and debited the amount from Gold Palace’s account. Petitioner demanded from respondents the payment
of P211,946.64 or the difference between the amount in the materially altered draft and the amount debited from
the Gold Palace’s account. Respondent countered that the complaint states no cause of action since the subject
foreign draft having been cleared and the respondent not being the party who made the material alteration.
Can petitioner Far East debit the account of respondent Gold Palace for the amount it refunded to LBP?
NO. Far East’s remedy under the law is not against Gold Palace but against the drawee-bank or the person responsible
for the alteration.
Under Section 62 of the Negotiable Instruments Law (NIL), the acceptor, by accepting the instrument, engages that
he will pay it according to the tenor of his acceptance. This provision applies with equal force in case the drawee
pays a bill without having previously accepted it. The payment of a check includes its acceptance. The drawee bank,
in most cases, is in a better position, compared to the holder, to verify with the drawer the matters stated in the
instrument.
Here, LBP, the drawee bank cleared and paid the subject foreign draft and forwarded the amount thereof to the
collecting bank. 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 of P380,000. Having relied on the drawee bank’s 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. LBP, having the most convenient means to
correspond with UOB, failed to first verify the amount of the draft before it cleared and paid the same. Gold Palace,
on the other hand, had no facility to ascertain with the drawer, UOB Malaysia, the true amount in the draft. It was
left with no option but to rely on the representations of LBP that the draft was good.
Thus, considering that, in this case, Gold Palace is protected by Section 62 of the NIL, its collecting agent, Far East,
could not debit respondent’s account for the amount it refunded to LBP.
(35) Ang v. Associated Bank

G.R. No. 146511, September 5, 2007
By: Samson, Maria Johanna Ilyssa
Topic: Liabilities of an Accommodation Party
Doctrine: 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.” 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.
Respondent Associated Bank (formerly Associated Banking Corporation and now known as United Overseas Bank
Philippines) filed a collection suit against Antonio Ang Eng Liong and Petitioner Tomas Ang for the two (2) promissory
notes that they executed as principal debtor and co-maker, respectively. As agreed, the loan would be payable,
jointly and severally. Respondent Bank claimed that Petitioner Ang and Antonio Liong failed and refused to settle
their obligation. Tomas Ang filed an answer and he interposed the affirmative defenses that: the bank is not the real
party in interest as it is not the holder of the promissory notes, much less a holder for value or a holder in due course;
the bank knew that he did not receive any valuable consideration for affixing his signatures on the notes but merely
lent his name as an accommodation party; he accepted the promissory notes in blank, with only the printed provisions
and the signature of Antonio Ang Eng Liong appearing therein; it was the bank which completed the notes upon the
orders, instructions, or representations of his co-defendant. Respondent Bank countered that it is the real party in
interest and is the holder of the notes since the Associated Banking Corporation and Associated Citizens Bank are its
predecessors-in-interest. The fact that Tomas Ang never received any moneys in consideration of the two (2) 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. Trial Court issued a preliminary pre-
trial order directing the parties to submit their respective pre-trial guide. When Antonio Ang Eng Liong failed to
submit his brief, the bank filed an ex parte motion to declare him in default. Thereafter, the court set the pre-trial
conference between the bank and Tomas Ang. Tomas Ang offered in evidence several documents, which included a
copy of the Trust Agreement between the Republic of the Philippines and the Asset Privatization Trust.
A. Did the Trial Court err in dismissing the complaint for collection of sum of money for lack of cause of
action as the bank was said to be not the “holder” of the notes at the time the collection case was filed?
YES, because the bank is a “holder” under Sec. 191 of the NIL.
It concluded that despite the execution of the Deeds of Transfer and Trust Agreement, the Asset Privatization Trust
cannot be declared as the “holder” of the subject promissory notes for the reason that it is neither the payee or
indorsee of the notes in possession thereof nor is it the bearer of said notes. The Court of Appeals observed that the
bank, as the payee, did not indorse the notes to the Asset Privatization Trust despite the execution of the Deeds of
Transfer and Trust Agreement and that the notes continued to remain with the bank until the institution of the
collection suit.
With the bank as the “holder” of the promissory notes, the Court of Appeals held that Tomas Ang is accountable
therefor in his capacity as an accommodation party. Citing Sec. 29 of the NIL, he is liable to the bank in spite of the
latter’s knowledge, at the time of taking the notes, that he is only an accommodation party. Moreover, as a co-maker
who agreed to be jointly and severally liable on the promissory notes, Tomas Ang 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.
B. Who is the real party in interest at the time of the institution of the complaint, is it the bank or the
Asset Privatization Trust?
Respondent Bank does not appear to be the real party in interest when it instituted the collection suit on August 28,
1990 against Antonio Ang Eng Liong and petitioner Tomas Ang. At the time the complaint was filed in the trial court,
it was the Asset Privatization Trust which had the authority to enforce its claims against both debtors. In fact, during
the pre-trial conference, Atty. Roderick Orallo, counsel for the bank, openly admitted that it was under the trusteeship
of the Asset Privatization Trust. The Asset Privatization Trust, which should have been represented by the Office of
the Government Corporate Counsel, had the authority to file and prosecute the case.
However, this Court cannot, at present, readily subscribe to petitioner’s insistence that the case must be dismissed.
Significantly, it stands without refute, both in the pleadings as well as in the evidence presented during the trial and
up to the time this case reached the Court, that the issue had been rendered moot with the occurrence of a
supervening event—the “buy-back” of the bank by its former owner, Leonardo Ty. By such re-acquisition from the
Asset Privatization Trust when the case was still pending in the lower court, the bank reclaimed its real and actual
interest over the unpaid promissory notes; hence, it could rightfully qualify as a “holder” thereof under
the NIL.
Notably, 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.” 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.
As petitioner acknowledged it to be, the relation between an accommodation party and the accommodated party is
one of principal and surety—the accommodation party being the surety. As such, he is deemed an original promisor
and debtor from the beginning; he is considered in law as the same party as the debtor in relation to whatever is
adjudged touching the obligation of the latter since their liabilities are interwoven as to be inseparable. Although a
contract of suretyship is in essence accessory or collateral to a valid principal obligation, the surety’s liability to the
creditor is immediate, primary and absolute; he is directly and equally bound with the principal.
C. Is Article 2080 of the Civil Code applicable to discharge petitioner Tomas Ang as accommodation maker
or surety because of the failure of respondent bank to serve its notice of appeal upon the principal debtor,
respondent Eng Liong?
NO, because Petitioner agreed to be “jointly and severally” liable under the two promissory notes that he cosigned
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.
It is plainly mistaken for petitioner to say that just because the bank failed to serve the notice of appeal and
appellant’s brief to Antonio Ang Eng Liong, the trial court’s judgment, in effect, became final and executory as against
the latter and, thereby, bars his (petitioner’s) cross-claims against him: First, although no notice of appeal and
appellant’s brief were served to Antonio Ang Eng Liong, he was nonetheless impleaded in the case since his name
appeared in the caption of both the notice and the brief as one of the defendants-appellees; Second, despite including
in the caption of the appellee’s brief his co-debtor as one of the defendants-appellees, petitioner did not also serve
him a copy thereof; Third, in the caption of the Court of Appeals’ decision, Antonio Ang Eng Liong was expressly
named as one of the defendants-appellees; and Fourth, it was only in his motion for reconsideration from the adverse
judgment of the Court of Appeals that petitioner belatedly chose to serve notice to the counsel of his co-defendant-
appellee.
(36) Metropolitan Bank and Trust Company vs. BA Finance

GR No. 179952, December 4, 2009
By: Torres, Ma. Roma
Topic: Checks
Doctrine: Where an instrument is payable to the order of two or more payees or indorsees who are not partners,
all must indorse unless the one indorsing has authority to indorse for the others.
The payment of an instrument over a missing indorsement is the equivalent of payment on a forged indorsement
or an unauthorized indorsement in itself in the case of joint payees.
Bitanga obtained from BA Finance a P329,280 loan secured by a mortgage on his car. As agreed, his car is also
insured by Malayan Insurance which agreed in its policy to pay BA Finance in the event of the loss of the car. The
car was stolen. Malayan insurance then issued a check payable to the order of B.A. Finance Corporation and Bitanga
for P224,500, drawn against China Bank. The check was crossed with the notation For Deposit Payees Account Only.
Without the indorsement or authority of his co-payee BA Finance, Bitanga deposited the check to his account with
the Asianbank, now merged with herein petitioner Metrobank. Bitanga subsequently withdrew the entire proceeds of
the check. Bitanga’s loan became past due, but despite demands, he failed to settle it. BA Finance eventually learned
of the loss of the car and of Malayan Insurance’s issuance of a crossed check payable to it and Bitanga, and of
Bitanga’s depositing it in his account at Asianbank and withdrawing the entire proceeds thereof.
BA Finance thereupon demanded the payment of the value of the check from Asianbank but to no avail, prompting
it to file a complaint before the RTC for sum of money and damages against Asianbank and Bitanga, alleging that, it
is entitled to the entire proceeds of the check. Asianbank alleges that Bitanga is authorized to indorse the check as
the drawer names him as one of the payees. Moreover, his signature is not a forgery nor has he or anyone forged
the signature of the representative of BA Finance Corporation. No unauthorized indorsement appears on the check.
Is Asianbank liable to BA Finance for the entire proceeds of the check?
Yes.
Section 41 of the Negotiable Instruments Law provides: Where an instrument is payable to the order of two or more
payees or indorsees who are not partners, all must indorse unless the one indorsing has authority to indorse for the
others.
Bitanga alone endorsed the crossed check, and petitioner allowed the deposit and release of the proceeds thereof,
despite the absence of authority of Bitanga’s co-payee BA Finance to endorse it on its behalf. The payment of an
instrument over a missing indorsement is the equivalent of payment on a forged indorsement or an unauthorized
indorsement in itself in the case of joint payees. Clearly, petitioner, through its employee, was negligent when it
allowed the deposit of the crossed check, despite the lone endorsement of Bitanga, ostensibly ignoring the fact that
the check did not carry the indorsement of BA Finance.
A collecting bank, Asianbank in this case, where a check is deposited and which indorses the check upon presentment
with the drawee bank, is an indorser. This is because in indorsing a check to the drawee bank, a collecting bank
stamps the back of the check with the phrase all prior endorsements and/or lack of endorsement guaranteed and,
for all intents and purposes, treats the check as a negotiable instrument, hence, assumes the warranty of an indorser.
Without Asianbank’s warranty, the drawee bank (China Bank in this case) would not have paid the value of the
subject check. Petitioner, as the collecting bank or last indorser, generally suffers the loss because it has the duty to
ascertain the genuineness of all prior indorsements considering that the act of presenting the check for payment to
the drawee is an assertion that the party making the presentment has done its duty to ascertain the genuineness of
prior indorsements. Accordingly, one who credits the proceeds of a check to the account of the indorsing payee is
liable in conversion to the non-indorsing payee for the entire amount of the check.
Moreover, granting petitioner’s appeal for partial liability would run counter to the existing principles on the liabilities
of parties on negotiable instruments, particularly on Section 68 of the Negotiable Instruments Law which instructs
that joint payees who indorse are deemed to indorse jointly and severally. Recall that when the maker dishonors the
instrument, the holder thereof can turn to those secondarily liable the indorser for recovery. When the maker
dishonors the instrument, the holder thereof can turn to those secondarily liable—the indorser—for recovery. And
since the law explicitly mandates a solidary liability on the part of the joint payees who indorse the instrument, the
holder thereof (assuming the check was further negotiated) can turn to either Bitanga or BA Finance for full
recompense.
(37) Allied Banking Corporation vs. Lim Sio Wan

G.R. No. 133179, March 27, 2008
By: Valencia, Emmanuelle Nicole L.
Topic: Deposit of Crossed Checks; Liability for Fraud; Warranty of Indorsers
Doctrine: A bank deposit is in the nature of a simple loan or mutuum. The relationship between a bank and a client
is one of debtor-creditor.
On November 14, 1983, Lim Sio Wan deposited with Allied Banking Corporation, at its Quintin Paredes Branch in
Manila, a money market placement of PhP 1,152,597.35 for a term of 31 days, to mature on December 15, 1983.
On December 5, 1983, a person claiming to be Lim Sio Wan called up Cristina So, an officer of Allied, and instructed
her to pre-terminate Lim Sio Wan’s money market placement, and to issue a manager’s check representing the
proceeds of the placement. This check should be given to Deborah Dee Santos, who would pick it up; a description
of Santos’ appearance was then given, so that So could easily identify her.
Later, Santos arrived at the bank, and signed the application form for the issuance of the manager’s check. The bank
issued a manager’s check, in the amount of PhP 1,158,648.49, representing the proceeds of Lim Sio Wan’s money
market placement in the name of Lim Sio Wan, as payee. The check was cross-checked “for payee’s account only”
and given to Santos. Thereafter, the manager’s check was deposited in the account of Filipinas Cement Corporation
at Metropolitan Bank and Trust Co. (Metrobank) with the forged signature of Lim Sio Wan as indorser.
Earlier, in September, Filipinas Cement had deposited a money market placement for PhP 2 million with Producer’s
bank. Santos was the money market trader assigned to handle FCC’s account. The placement matured in October,
and was rolled over until December 5. When the placement matured, FCC demanded payment of the proceeds. On
the same day, the check from Lim Sio Wan’s account was deposited in the account of FCC, purportedly representing
the proceeds of FCC’s money market placement with Producer’s Bank.
To clear the check, and in compliance with the requirements of the Philippine Clearing House Corporation Rules and
Regulations, Metrobank stamped a guaranty on the check, which read “all prior endorsements and/or lack of
endorsement guaranteed.” The check was then sent to Allied through PCHC. Allied funded the check upon
presentment, without checking the authenticity of Lim Sio Wan’s purported indorsement.
On December 9, 1983, Lim Sio Wan deposited a second money market placement with Allied, due to mature on
January 9, 1984. On December 14, upon the maturity date of the first placement, Lim Sio Wan went to Allied to
withdraw it. She was informed that the placement had been pre-terminated upon her instructions. She denied giving
any instructions, and receiving the proceeds thereof, but desisted from further complaint upon the assurance by the
bank’s manager that her money would be recovered.
When Lim Sio Wan’s second placement matured on January 9, 1984, Cristina So called Lim Sio Wan to ask for her
instructions on the second placement, and the latter instructed her to roll-over the placement for another 30 days.
On January 24, 1984, realising that the promise that her money would be recovered would not materialize, sent a
demand letter to Allied asking for the payment of the first placement. Allied refused to pay, and Lim Sio Wan filed a
complaint in the RTC to recover the proceeds of her first money market placement. She subsequently withdrew her
second placement from Allied.
A. Is Allied Bank liable to Lim Sio Wan?
YES, Allied Bank is liable to Lim Sio Wan.
Articles 1953 and 1980 of the Civil Code provide:

“Art. 1953. A person who receives a loan of money or any other fungible thing acquires the ownership thereof, and
is bound to pay to the creditor an equal amount of the same kind and quality.” and
“Art. 1980. Fixed, savings, and current deposits of money in banks and similar institutions shall be governed by the
provisions concerning simple loan.”
Lim Sio Wan, as creditor of the bank for her money market placement, is entitled to payment upon her request, or
upon maturity of the placement, or until the bank is released from its obligation as debtor. Until any such event,
the obligation of Allied to Lim Sio Wan remains unextinguished.
Article 1231 of the Civil Code enumerates the instances when obligations arc considered extinguished, as such:
“obligations are extinguished: (1) by payment or performance.”
Lim Sio Wan did not authorise the release of her money market placement to Santos, and the bank was negligent in
doing the same. There is no question that the obligation of Allied to pay Lim Sio Wan has not been extinguished.
That the debtor made payment to a front party does not prejudice the creditor, and accrual of interest is not
suspended thereby.
Therefore, since there was no effective payment of Lim Sio Wan’s money market placement, the bank is still obligated
to pay her at 6% interest par annum from March 16, 1984 until the full payment of the amount owed.
B. Metrobank liable for the reimbursement of the amount adjudged demandable?
YES, Metrobank is also liable to Lim Sio Wan.
Section 66(a) in relation to Sec. 65(a) of the Negotiable Instruments Law provides:
“Section 66. Liability of general indorser.—Every 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 section;” and
“Section 65. Warranty where negotiation by delivery, so forth.—Every person negotiating an instrument by delivery
or by a qualified indorsement, warrants:
a) That the instrument is genuine and in all respects what it purports to be”.
The warranty “that the instrument is genuine and in all respects what it purports to be” covers all the defects in the
instrument affecting its validity, including a forged instrument. Thus, the last endorser will be liable for the amount
indicated in the negotiable instrument even if a previous indorsement was forged.
In Bank of the Philippine Islands vs. Court of Appeals, the Supreme Court held that the drawee bank is liable for 60%
of the amount on the face of the negotiable instrument and the collecting bank is liable for 40% because of the
relative negligence exhibited by both. In this case, Allied was negligent in issuing the manager’s check and
transmitting it to Santos without a written authorization. When Metrobank indorsed the check in compliance with the
PCHC Rules and Regulations without verifying the authenticity of Lim Sio Wan’s indorsement, and when it accepted
the check, despite the fact that it was cross-checked payable to payee’s account only, its negligence contributed to
the easier release of Lim Sio Wan’s money and perpetuation of the fraud.
Therefore, because it was negligent in its duties as a banking institution, Metrobank is liable in the amount of 40%
of the total amount due, plus 12% interest per annum from March 16, 1984 until fully paid. Allied Bank is responsible
for the remaining 60%.
(38) Lopez vs. People

G.R. No. 166810, June 26, 2008
By: Valencia, Mary Clydeen L.
Topic: Notice of Dishonor
Doctrine: A Notice of Dishonor is not required to be given to the drawer where the drawer has no right to
expect or require that the drawee or acceptor will honor the check i.e. bank account was already closed even
before the issuance of a check.
Jude Joby Lopez (Lopez) was charged with, prosecuted for and convicted of the crime of Estafa as defined
under Article 315, par. 2(d) of the Revised Penal Code for issuing a check against a closed account. On appeal,
Lopez anchored his argument that no deceit was established by the prosecution, because it failed to prove
the fact of receipt by Lopez of the notice of dishonor of the check. Corollary, no presumption or prima facie
evidence of guilt would arise if there is no proof as to the date of receipt by the drawer of the said notice
since there would simply be no way of reckoning the crucial 3-day period from receipt of notice of dishonor
of the check within which the amount necessary to cover the check may be done.
Is the argument tenable? Why or why not?
No, the argument is not tenable.
The receipt by the drawer of the notice of dishonor is not an element of the offense. The presumption only
dispenses with the presentation of evidence of deceit if such notification is received and the drawer of the
check failed to deposit the amount necessary to cover his check within three (3) days from receipt of the
notice of dishonor of the check. Pertinently,] Section 114(d) of the Negotiable Instruments Law provides that
a Notice of Dishonor is not required to be given to the drawer where the drawer has no right to expect or
require that the drawee or acceptor will honor the check.
In the instant case, Lopez had no right to expect or require the drawee bank to honor his check, because his
bank account was already closed even before the issuance of the subject check. Thus, based on Section
114(d) of the NIL, Lopez is not entitled to be given a Notice of Dishonor.

NIL Digest (Updated Case 7)

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NEGOTIABLE

COMMERCIAL LAW REVIEW

(14) Lim vs. Mindanao Wines & Liquor

(1) Evangelista vs. Screenex, Inc.

Topic: Discharge of a check

Doctrine: A check is subject to prescription of actions upon a written contract.

Can Evangelista successfully interpose the defense of prescription?

Yes. The defense of prescription can be successfully invoked.

(2) BDO Unibank vs. Lao

Topic: Indorsements; Liabilities of an Indorser; Crossed-checks

(3) Ubas, Sr. vs. Chan

Topic: Presumption of consideration; Privity of contracts

A. Can Chan successfully invoke the defense of lack of consideration?

Yes, Manuel Ubas may collect from Wilson Chan.

(4) Asia Brewery Inc. vs. Equitable PBI Bank

Topic: Delivery; when effectual; when presumed

Yes, there was a delivery.

(5) RCBC Savings Bank vs. Odrada

Topic: Personal Defense

(6) Aguilar vs. Calimbas

Doctrine: A check constitutes an evidence of indebtedness and is a veritable proof of an obligation.

Can the court rely on the check as an evidence of indebtedness?

(7) Rivera vs. Spouses Chua

Topic: Promissory Note; When demand is not necessary

A. Is the promissory note a negotiable instrument?

No, the promissory note is not a negotiable instrument.

No, demand is not necessary.

(8) Areza vs. Express Savings Bank

Topic: Duty of depositary/collecting bank or last endorser

(9) Metropolitan Bank and Trust Company vs. Chiok

Topic: Manager’s/Cashier’s Check

(10) Wesleyan University-Philippines vs. Nowella Reyes

Topic: Crossed Checks

Can a crossed check be encashed?

Topic: Requisites of Negotiability; Presentment for Payment; Presentment for Acceptance

A. Are electronic messages negotiable instruments as to make it proper subjects of DST?

(12) Alvin Patrimonio vs Napoleon Gutierrez and Octavio Marasigan III

Topic: Blank negotiable instrument

Is Patrimonio liable under the instrument?

NO, Patrimonio is not liable.

(13) People vs. Wagas

Topic: Checks payable to bearer

(14) Lim vs. Mindanao Wines & Liquor Galleria

Doctrine: It is well to remember that a check may be evidence of indebtedness.

(15) PNB vs. Spouses Cheah Chee Chong

Topic: Diligence Required of Banks

YES, PNB’s act was the proximate cause of the loss.

(16) PNB vs. Tria

Topic: Characteristics of a Manager’s Check

(17) RCBC vs. Hi-Tri Development Corporation

The Negotiable Instruments Law provide:

(18) Equitable Banking Corporation vs. Special Steel Products, Inc.

A. Does SSPI have a cause of action against Equitable for quasi-delict?

YES, SSPI has a cause of action against Equitable for quasi-delict.

Therefore, SSPI has a cause of action against Equitable for quasi-delict.

(19) Aglibot vs. Santia

Topic: Accommodation Party

Is Aglibot a guarantor? Why or why not?

NO, Aglibot is not a guarantor. She is an accommodation party.

(20) Philippine Commercial International Bank vs. Balmaceda

Topic: Checks; Crossed Checks

Is the ruling of the RTC correct?

(21) Gonzales vs. PCIB