52. ATRIUM MANAGEMENT VS.

CA
Facts:
Hi-Cement Corp. issued checks in favor of E.T. Henry and Co. Inc., as payee. The latter, in turn, endorsed
the checks to Atrium for valuable consideration. But upon presentment for payment, the drawee bank
dishonored the checks for the common reason "payment stopped" which prompted petitioner to institute
this action. The trial court rendered a decision ordering E.T. Henry and Co., Inc. and Hi-Cement to pay
petitioner Atrium, jointly and severally, the amount corresponding to the value of the checks. CA,
however, absolved & ruled, inter alia, that Lourdes de Leon of Hi-Cement was not authorized to issue the
subject checks in favor of E.T. Henry, Inc.
ISSUE:
WON the issuance of the checks were ultra vires.
HELD:
No. the act of issuing the checks was well within the ambit of a valid corporate act, for it was for securing
a loan to finance the activities of the corporation, hence, not an ultra vires act. An ultra vires act is one
committed outside the object for which a corporation is created as defined by the law of its organization
and therefore beyond the power conferred upon it by law" The term "ultra vires" is "distinguished from
an illegal act for the former is merely voidable which may be enforced by performance, ratification, or
estoppel, while the latter is void and cannot be validated.
53. CRISOLOGO-JOSE VS. CA
Facts:
The Vice-president of Mover Enterprises, Inc. issued a check drawn against Traders Royal Bank, payable
to petitioner Ernestina Crisologo-Jose, for the accommodation of his client. Petitioner-payee was charged
with the knowledge that the check was issued at the instance and for the personal account of the
President who merely prevailed upon respondent vice-president to act as co-signatory in accordance with
the arrangement of the corporation with its depository bank. While it was the corporation's check which
was issued to petitioner for the amount involved, petitioner actually had no transaction directly with said
corporation.
ISSUE:
WON private respondent, one of the signatories of the check issued under the account of Mover
Enterprises, Inc., is an accommodation party under NIL and a debtor of petitioner to the extent of the
amount of said check.
HELD:
Yes.
The liability of an accommodation party to a holder for value, although such holder does not include nor
apply to corporations which are accommodation parties. This is because the issue or indorsement of
negotiable paper by a corporation without consideration and for the accommodation of another is ultra
vires.
54. SALAS VS. CA (G.R. No. 76788 January 22, 1990)

FACTS: Juanita Salas (Petitioner) bought a motor vehicle from the Violago Motor Sales Corporation (VMS)
as evidenced by a promissory note. This note was subsequently endorsed to Filinvest Finance & Leasing
Corporation (private respondent) which financed the purchase. Petitioner defaulted in her installments
allegedly due to a discrepancy in the engine and chassis numbers of the vehicle delivered to her and those
indicated in the sales invoice, certificate of registration and deed of chattel mortgage, which fact she
discovered when the vehicle figured in an accident. This failure to pay prompted private respondent to
initiate an action for a sum of money against petitioner before the Regional Trial Court.

ISSUE: WON private respondent is a holder in due course?

HELD: YES. The Promissory Note was negotiated by indorsement in writing on the instrument itself
payable to the Order of Filinvest Finance and Leasing Corporation and it is an indorsement of the entire
instrument. Under the circumstances, there appears to be no question that Filinvest is a holder in due
course, having taken the instrument under the following conditions: [a] it is complete and regular upon
its face; [b] it became the holder thereof before it was overdue, and without notice that it had previously
been dishonored; [c] it took the same in good faith and for value; and [d] when it was negotiated to
Filinvest, the latter had no notice of any infirmity in the instrument or defect in the title of VMS
Corporation. Accordingly, respondent corporation holds the instrument free from any defect of title of
prior parties, and free from defenses available to prior parties among themselves, and may enforce
payment of the instrument for the full amount thereof. This being so, petitioner cannot set up against
respondent the defense of nullity of the contract of sale between her and VMS.

55. Prudencio v CA
FACTS
Petitioners were induced to sign a promissory note after a Deed of Assignment was executed by the
Construction Company in favor of PNB. Later, PNB approved release of payments in contravention of the
tenor of the said deed.

ISSUE
Whether or not PNB may be considered as a holder in due course after fraudulent inducement.

RULING
NO. PNB is not a holder in due course. Not only was PNB an immediate party or in privy to the promissory
note – that is, it had dealt directly with the petitioners knowing fully well that the latter only signed as
accommodation – but petitioners were made to believe and on that belief entered into the agreement
that no other conditions would alter the terms thereof and yet, PNB altered the same.
56. ASSOCIATED BANK VS. CA
Facts:
The Province of Tarlac maintains a current account with the Philippine National Bank where the provincial
funds are deposited. A portion of the funds of the province is allocated to the Concepcion Emergency
Hospital. The allotment checks for said government hospital are drawn to the order of "Concepcion
Emergency Hospital, Concepcion, Tarlac" or "The Chief, Concepcion Emergency Hospital, Concepcion,
Tarlac”. It was later discovered that the hospital did not receive several allotment checks drawn by the
Province. After the checks were examined, it was learned that 30 checks were encashed by one Fausto
Pangilinan, with the Associated Bank acting as collecting bank. It turned out that Fausto Pangilinan, who
was the administrative officer and cashier of payee hospital, collected the questioned checks from the
office of the Provincial Treasurer claiming to be assisting or helping the hospital on the release of the
checks. To encash the checks, he forged the signature of Dr. Adena Canlas chief of the payee hospital. All
the checks bore the stamp of Associated Bank which reads "All prior endorsements guaranteed
ASSOCIATED BANK." The Provincial Treasurer sought to recover from PNB various amounts debited from
the current account of the Province. In turn, PNB demanded reimbursement from the Associated Bank
who refused to pay interposing the defense of forgery.
ISSUE:
Whether or Not Associated Bank (collecting bank) may interpose the real defense of forgery against PNB
(drawee bank) as to bar recovery by the latter
HELD:
NO. Where the instrument is payable to order at the time of the forgery, such as the checks in this case,
the signature of its rightful holder (here, the payee hospital) is essential to transfer title to the same
instrument. When the holder's indorsement is forged, all parties prior to the forgery may raise the real
defense of forgery against all parties subsequent thereto. An indorser of an order instrument warrants
"that the instrument is genuine and in all respects what it purports to be; that he has a good title to it;
that all prior parties had capacity to contract; and that the instrument is at the time of his indorsement
valid and subsisting." He cannot interpose the defense that signatures prior to him are forged. A collecting
bank where a check is deposited and which indorses the check upon presentment with the drawee bank,
is such an indorser. So even if the indorsement on the check deposited by the bank's client is forged, the
collecting bank is bound by his warranties as an indorser and cannot set up the defense of forgery as
against the drawee bank.
The rule is “Parties who warrant or admit the genuineness of the signature in question and those who, by
their acts, silence or negligence are estopped from setting up the defense of forgery, are precluded from
using this defense. Indorsers, persons negotiating by delivery and acceptors are warrantors of the
genuineness of the signatures on the instrument.” When the indorsement is a forgery, only the person
whose signature is forged can raise the defense of forgery against a holder in due course.

The loss incurred by drawee bank-PNB can be passed on to the collecting bank-Associated Bank which
presented and indorsed the checks to it. Associated Bank can, in turn, hold the forger, Fausto Pangilinan,
liable. The drawee bank is not similarly situated as the collecting bank because the former makes no
warranty as to the genuineness of any indorsement. The drawee bank's duty is but to verify the
genuineness of the drawer's signature and not of the indorsement because the drawer is its client.
57. GEMPESAW VS. CA
Facts: Natividad Gempesaw issued checks, prepared by her bookkeeper, a total of 82 checks in favor of
several supplies. Most of the checks for amounts in excess of actual obligations as shown in their
corresponding invoices. It was only after the lapse of more than 2 years did she discovered the fraudulent
manipulations of her bookkeeper. It was also learned that the indorsements of the payee were forged,
and the checks were brought to the chief accountant of Philippine Bank of Commerce (the Drawee Bank,
Buendia Branch) who deposited them in the accounts of Alfredo Romero and Benito Lam. Gempesaw
made demand upon the bank to credit the amount charged due the checks. The bank refused. Hence, the
present action.
ISSUE: W/N the bank shall bear the loss resulting from the forged indorsements?
No. Under Sec. 23 of the Negotiable Instruments Law, a forged signature is “wholly inoperative, no one
can gain title to the instrument through such forged indorsement. Such an indorsement prevents any
subsequent party from acquiring any right as against any party whose name appears prior to the forgery.
Such forged indorsement cuts-off the rights of all subsequent parties as against parties prior to the
forgery. As a rule, a drawee bank who has paid a check on which an indorsement has been forged cannot
charge the drawer’s account for the amount of said check. An exception to the rule is where the drawer
is guilty of such negligence which causes the bank to honor such checks. Gempesaw did not exercise
prudence in taking steps that a careful and prudent businessman would take in circumstances to discover
discrepancies in her account. Her negligence was the proximate cause of her loss, and under Section 23
of the Negotiable Instruments Law, is precluded from using forgery as a defense.

Forgery of Bearer Instrument

GR. L-40796 July 31, 1975
58. Republic Bank v. Mauricia T. Ebrada
FACTS: Ebrada encashed a back pay check dated Jan. 15, 1963for P1,246.08 at the main office of the
Republic Bank. The check was issued by the Bureau of Treasury. The Bureau advised the bank that the
alleged indorsement by Martin Lorenzo at the dorsal portion of the check was a forgery because Lorenzo
has already died as of July 14, 1952. The Bureau requested the bank to refund the aforesaid amount.
To recover what it refunded to the Bureau, the bank made verbal and formal demands upon Ebrada for
the same amount. Ebrada refused. The bank sued Ebrada before the City Court of Manila. Ebrada alleged
that she was a holder in due course, or at least acquired her rights from a holder in due course and was
therefore entitled to the proceeds thereof. She also alleged that the bank was estopped or was so
negligent as not to be entitled to recover anything from her.
Ebrada later filed a 3rd party complaint against Adelaida Dominguez, who in turn filed a 4th party complaint
against Justin Tino. The dorsal portion bears the following signatures in this order: Martin Lorenzo; Ramon
R. Lorenzo; Delia Dominguez; and Mauricia Ebrada. Adelaida delivered the cash to Ebrada for encashment.
The Court ordered Ebrada to pay the bank the above amount, however any actions Ebrada may have
against Dominguez is reserved.
ISSUE: WON Ebrada is liable to return the money paid to her by Republic Bank subject of a forged check
and may the petitioner recover the proceeds given?
HELD: Yes. It is clear from the provision of Section 23 of the NIL that where the signature on a negotiable
instrument if forged, the negotiation of the check is without force or effect. But does this mean that the
existence of one forged signature therein will render void all the other negotiations of the check with
respect to the other parties whose signature are genuine? No. Applying the principle of Beam vs. Farrel,
135 Iowa 670, 113 N.W. 590, it can be safely concluded that it is only the negotiation predicated on the
forged indorsement that should be declared inoperative. [
This means that the negotiation of the check in question from Martin Lorenzo, the original payee, to
Ramon R. Lorenzo, the 2nd indorser, should be declared of no effect, but the negotiation of the aforesaid
check from Ramon R. Lorenzo to Adelaida Dominguez, the 3rd indorser, and from Adelaida Dominguez to
Ebrada who did not know of the forgery, should be considered valid and enforceable, barring any claim
of forgery. Being the last indorser, however, Ebrada warrants that she has good title to the check subject
of this action.
The bank can recover from the holder [Ebrada] the money paid to the latter on a forged instrument. It is
not supposed to be its duty to ascertain whether the signatures of the payee or indorsers are genuine
or not. This is because the indorser is supposed to warrant to the drawee that the signatures of the
payee and previous indorsers are genuine, warranty not extending only to holders in due course.
Ebrada, upon receiving the check in question from Dominguez, was duty-bound to ascertain whether the
check in question was genuine before presenting it to plaintiff Bank for payment. Indorsers own credulity
or recklessness or misplaced confidence was the sole cause of the loss. Why should he be permitted to
shift the loss due to his own fault in assuming the risk, upon the drawee, simply because of the
accidental circumstance that the drawee afterwards failed to detect the forgery when the check was
presented for payment.
59. MWSS V. CA
143 SCRA 20

FACTS:
MWSS had an account from PNB. Its treasurer, auditor, and General Manager are the ones
authorized to sign checks. During a period of time, 23 checks were drawn and debited against the
account of petitioner. Bearing the same check numbers, the amounts stated therein were again
debited from the account of petitioner. The amounts drawn were deposited in the accounts of the payees
in PCIB. It was found out though that the names stated in the drawn checks were all fictitious. Petitioner
demanded the return of the amounts debited but the bank refused to do so. Thus, it filed a complaint.
Issue: Whether or not Forgery was committed
Held: No. There was no categorical finding that the 23 checks were signed by persons other than
those authorized to sign. On the contrary, the NBI reports shows that the fraud was an “inside job”
and that the delay in the reconciliation of the bank statements and the laxity and loss of records
control in the printing of the personalized checks facilitated the fraud. It further doesn’t provide that the
signatures were forgeries.
Every negotiable instrument is deemed prima facie to have been issued for valuable consideration and
every person whose signature appears thereon to have become a party thereto for value
A bank is bound to know the signatures of its customers; and if it pays a forged check it must be considered
as making the payment out of its obligation funds, and cannot ordinarily charge the amount so paid to the
account of the depositor whose name was forged.

Forgery cannot be presumed. It should be proven by clear, convincing and positive evidence. This wasn’t
done in the present case.

The petitioner cannot invoke Section 23 because it was guilty of negligence not only before the questioned
checks but even after the same had already been negotiated.
60. MWSS VS. CA
GR No. L-62943; July 14, 1986

Facts: 23 checks were deposited by the payees Dizon, Sison and Mendoza in their respective current
accounts with the PCIB and PBC. Thru the Central Bank Clearing, these checks were presented for payment
by PBC and PCIB to the defendant PNB, and were paid. At the time of their presentation to PNB, these
checks bear the standard indorsement which reads 'all prior indorsement and/or lack of endorsement
guaranteed.' Subsequent investigation however, conducted by the NBI showed that Raul Dizon, Arturo
Sison and Antonio Mendoza were all fictitious persons. NWSA addressed a letter to PNB requesting the
immediate restoration to its Account No. 6, of the total sum of P3,457,903.00 corresponding to the total
amount of these twenty-three (23) checks claimed by NWSA to be forged and/or spurious checks.

ISSUE: WON THE DRAWEE BANK WAS LIABLE FOR THE LOSS UNDER SECTION 23 OF THE NEGOTIABLE
INSTRUMENTS LAW?

HELD: The NBI does not declare or prove that the signatures appearing on the questioned checks are
forgeries. These reports did not touch on the inherent qualities of the signatures which are indispensable
in the determination of the existence of forgery. There must be conclusive findings that there is a variance
in the inherent characteristics of the signatures and that they were written by two or more different
persons. Forgery cannot be presumed. It must be established by clear, positive, and convincing evidence.
This was not done in the present case. Even if the twenty-three (23) checks in question are considered
forgeries, considering the petitioner's gross negligence, it is barred from setting up the defense of forgery
under Section 23 of the Negotiable Instruments Law. One factor which facilitates this fraud was the delay
in the reconciliation of bank (PNB) statements with the NAWASA bank accounts. The records likewise
show that the petitioner failed to provide appropriate security measures over its own records thereby
laying confidential records open to unauthorized persons. We cannot fault the respondent drawee Bank
for not having detected the fraudulent encashment of the checks because the printing of the petitioner's
personalized checks was not done under the supervision and control of the Bank. Under the
circumstances, therefore, the petitioner was in a better position to detect and prevent the fraudulent
encashment of its checks.

61. METROPOLITAN BANK V. CA

194 SCRA 169

Facts:Eduardo Gomez opened an account with Golden Savings and deposited 38 treasury warrants. All
warrants were subsequently indorsed by Gloria Castillo as Cashier of Golden Savings and deposited to its
Savings account in Metrobank branch in Calapan, Mindoro. They were sent for clearance. Meanwhile,
Gomez is not allowed to withdraw from his account, later, however, “exasperated” over Floria repeated
inquiries and also as an accommodation for a “valued” client Metrobank decided to allow Golden Savings
to withdraw from proceeds of the warrants. In turn, Golden Savings subsequently allowed Gomez to make
withdrawals from his own account. Metrobank informed Golden Savings that 32 of the warrants had been
dishonored by the Bureau of Treasury and demanded the refund by Golden Savings of the amount it had
previously withdrawn, to make up the deficit in its account. The demand was rejected. Metrobank then
sued Golden Savings.Metrobank argues that Golden Savings should have exercised more care in checking
the personal circumstances of Gomez before accepting his deposit
Issue:
1. WON Metropolitan Bank can use forgery of the warrants as defense, hence, making Golden Savings
liable.
2. Whether or not treasury warrants are negotiable instruments

Ruling: No. There was no question of Gomez's identity or of the genuineness of his signature as checked
by Golden Savings. In fact, the treasury warrants were dishonored allegedly because of the forgery of the
signatures of the drawers, not of Gomez as payee or indorser. Under the circumstances, it is clear that
Golden Savings acted with due care and diligence and cannot be faulted for the withdrawals it allowed
Gomez to make. By contrast, Metrobank exhibited extraordinary carelessness. The amount involved was
not trifling — more than one and a half million pesos (and this was 1979). There was no reason why it
should not have waited until the treasury warrants had been cleared; it would not have lost a single
centavo by waiting. Yet, despite the lack of such clearance — and notwithstanding that it had not received
a single centavo from the proceeds of the treasury warrants, as it now repeatedly stresses — it allowed
Golden Savings to withdraw — not once, not twice, but thrice — from the uncleared treasury warrants in
the total amount of P968,000.00.

Despite the lack of such clearance, it allowed Golden Savings to withdraw from the uncleared treasury
warrants. The supposed reason for the dishonor, to wit, the forgery of the signatures of the general
manager and the auditor of the drawer corporation, has not been established. This was the finding of the
lower courts which must not be disturbed. As held in MWSS v. Court of Appeals, forgery cannot be
presumed. It must be established by clear, positive and convincing evidence. This was not done in the
present case. Hence, petition was denied.

2. No. The treasury warrants are not negotiable instruments. Clearly stamped on their face is the word:
non negotiable.” Moreover, and this is equal significance, it is indicated that they are payable from a
particular fund, to wit, Fund 501. An instrument to be negotiable instrument must contain an
unconditional promise or orders to pay a sum certain in money. As provided by Sec 3 of NIL an unqualified
order or promise to pay is unconditional though coupled with: 1st, an indication of a particular fund out of
which reimbursement is to be made or a particular account to be debited with the amount; or 2 nd, a
statement of the transaction which give rise to the instrument. But an order to promise to pay out of
particular fund is not unconditional. The indication of Fund 501 as the source of the payment to be made
on the treasury warrants makes the order or promise to pay “not conditional” and the warrants
themselves non-negotiable. There should be no question that the exception on Section 3 of NIL is
applicable in the case at bar.

62. SAMSUNG CONSTRUCTION VS FAR EAST BANK

FACTS:
Petitionerwhile based in Bian, Laguna, maintained a current account with respondent. The sole signatory
to Samsung Constructions account was Jong Kyu Lee (Jong), its Project Manager, while the checks
remained in the custody of the companys accountant, Kyu Yong Lee (Kyu).

Roberto Gonzaga presented for payment a check to the bank’s Makati Branch. The authenticity of the
signature appearing on the check was ascertained.

At the same time, Justiani forwarded the check to the branch Senior Assistant Cashier. Sempio was the
assistant accountant of Petitioner. The check was shown to Sempio, who vouched for the genuineness of
Jong’s signature. Confirming the identity of Gonzaga, Sempio said that the check was for the purchase of
equipment for Samsung Construction. Satisfied with the genuineness of the signature of Jong, Syfu
authorized the banks encashment of the check to Gonzaga.

The following day, the accountant of Samsung Construction, Kyu, examined the balance of the bank
account and discovered that a check was encashed. Aware that he had not prepared such a check for
Jongs signature, Kyu perused the checkbook and found that the last blank check was missing. He reported
the matter to Jong, who then proceeded to the bank. Jong learned of the encashment of the check, and
realized that his signature had been forged.

During the trial, both sides presented their respective expert witnesses to testify on the claim that Jongs
signature was forged. The PNP during trial says there is no forgery.

ISSUE : Whether or not petitioner is precluded from setting up forgery as a defense?

RULING: NO
Section 23 of the Negotiable Instruments Law states:
When a signature is forged or made without the authority of the person whose signature it purports to
be, it is wholly inoperative, and no right to retain the instrument, or to give a discharge therefor, or to
enforce payment thereof against any party thereto, can be acquired through or under such signature,
unless the party against whom it is sought to enforce such right is precluded from setting up the forgery
or want of authority.

We recognize that Section 23 of the Negotiable Instruments Law bars a party from setting up the defense
of forgery if it is guilty of negligence. Yet, we are unable to conclude that Samsung Construction was guilty
of negligence in this case. The appellate court failed to explain precisely how the accountant was negligent
or how more care and prudence on his part would have prevented the forgery.

The bare fact that the forgery was committed by an employee of the party whose signature was forged
cannot necessarily imply that such party’s negligence was the cause for the forgery. Employers do not
possess the preternatural gift of cognition as to the evil that may lurk within the hearts and minds of their
employees.
In the absence of evidence to the contrary, we can conclude that there was no negligence on Samsung
Constructions part. The presumption remains that every person takes ordinary care of his concerns, and
that the ordinary course of business has been followed. Negligence is not presumed, but must be proven
by him who alleges it. While the complaint was lodged at the instance of Samsung Construction, the
matter it had to prove was the claim it had alleged - whether the check was forged. It cannot be required
as well to prove that it was not negligent, because the legal presumption remains that ordinary care was
employed.
Thus, it was incumbent upon FEBTC, in defense, to prove the negative fact that Samsung Construction was
negligent.

63. PNB VS. HON. ROMULO QUIMPO, Presiding Judge (GR No. L-53194, March 14, 1988)
FACTS: Private Respondent Francisco Gozon II went to the Caloocan City Branch of PNB with his friend
Ernesto Santos, who he left in the car while he transacted business in the bank. Santos saw that Gozon
left his checkbook, he took a check therefrom, filled it up for P5,000 and forged the signature of Gozon.
Santos was later on apprehended and admitted that he stole the check and encashed the same with the
bank. Gozon filed an action to recover the amount from the Bank which the court granted. Hence the
petition.
Not satisfied therewith, the bank now filed this petition for review on certiorari in this Court raising the
sole legal issue that —
THE ACT OF RESPONDENT FRANCISCO GOZON II IN PUTTING HIS CHECK BOOK CONTAINING THE CHECK
IN QUESTION INTO THE HANDS OF ERNESTO SANTOS WAS INDEED THE PROXIMATE CAUSE OF THE LOSS,
THEREBY PRECLUDING HIM FROM SETTING UP THE DEFENSE OF FORGERY OR WANT 0F AUTHORITY
UNDER SECTION 23 OF THE NEGOTIABLE INSTRUMENTS LAW
ISSUE: WON Gozon who left his checkbook into hands of Santos was indeed the proximate cause of the
loss and thus precluded from setting up the defense of forgery?
HELD: NO. A bank is bound to know the signatures of its customers; and if it pays a forged check, it must
be considered as making the payment out of its own funds, and cannot ordinarily change the amount so
paid to the account of the depositor whose name was forged. This rule is absolutely necessary to the
circulation of drafts and checks, and is based upon the presumed negligence of the drawee in failing to
meet its obligation to know the signature of its correspondent.
There is nothing inequitable in such a rule. If the paper comes to the drawee in the regular course of
business, and he, having the opportunity ascertaining its character, pronounces it to be valid and pays it,
it is not only a question of payment under mistake, but payment in neglect of duty which the commercial
law places upon him, and the result of his negligence must rest upon him. The prime duty of the bank is
to ascertain the genuineness of the signature of the drawer or the depositor on the check being encashed.
It is expected to use reasonable business prudence in accepting and cashing a check presented to it.
Obviously, petitioner was negligent in encashing said forged check without carefully examining the
signature which shows marked variation from the genuine signature of private respondent. The act of the
plaintiff in leaving his checkbook in the car cannot be considered negligence sufficient to excuse the
defendant bank from its own negligence. Santos could not have been expected to know that Santos, a
long time classmate and friend, would remove a check from his checkbook.
64. BANCO DE ORO SAVINGS VS. EQUITABLE BANKING CORP. (GR No. 74917, Jan. 20, 1988)

Facts: Manager's checks (Checks) having an aggregateamount of P45,982.23 and payable to certain
member establishments ofVisa Card. Subsequently, the Checks were deposited with the
defendant(respondent Equitable) to the credit of its depositor (Aida Trencio’s account). Following normal
procedures, and after stamping at the back ofthe Checks the usual endorsements (All prior and/or lack of
endorsementguaranteed), Equitable sent the checks for clearing through the PhilippineClearing House
Corporation (PCHC). Accordingly, BDO paid the Checks; itsclearing account was debited for the value of
the Checks and defendant'sclearing account was credited for the same amount. Thereafter,
BDOdiscovered that the endorsements appearing at the back of the Checks,purporting to be that of the
payees, were forged and/or unauthorized orotherwise belong to persons other than the payees. Pursuant
to the PCHCClearing Rules and Regulations, it presented the Checks directly to Equitable for the purpose
of claiming reimbursement from the latter.However, Equitable refused to do so. After an exhaustive
investigation andhearing, the Arbiter rendered a decision in favor of BDO and againstEquitable ordering
the PCHC to debit the clearing account of thedefendant (E), and to credit the clearing account of the
plaintiff (B) of theforegoing amount with interest at the rate of 12% per annum from date ofthe complaint.
The Board of Directors of the PCHC affirmed the decision ofthe Arbiter. Hence this petition.

Issue:Whether or not the bank is in estoppel from setting up its defense of nonnegotiability
of the checks in question.

Ruling: A commercial bank cannot escape the liability of an endorser of a check and which may turn out
to be a forged endorsement. Whenever any bank treats the signature at the back of the checks as
endorsements and thus logically guarantees the same as such there can be no doubt said bank has
considered the checks as negotiable. Apropos the matter of forgery in endorsements, this Court has
succinctly emphasized that 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 (PNB vs. National City Bank) In another case,
this court held that if thedrawee-bank discovers that the signature of the payee was forged after ithas
paid the amount of the check to the holder thereof, it can recover theamount paid from the collecting
bank.

65. WESTMONT BANK V. ONG

373 SCRA 212
FACTS:
Ong was supposed to be the payee of the checks issued by Island Securities. Ong has a current
account with petitioner bank. He opted to sell his shares of stock through Island Securities. The company
in turn issued checks in favor of Ong but unfortunately, the latter wasn't able to receive any. His signatures
were forged by Tamlinco and the checks were deposited in his own account with petitioner. Ong then
sought to collect the money from the family of Tamlinco first before filing a complaint with the Central
Bank. As his efforts were futile to recover his money, he filed an action against the petitioner. The trial
and appellate court decided in favor of Ong.
Issue: Whether or not the respondent can collect from the bank
HELD:
Yes. Since the signature of the payee was forged, such signature should be deemed inoperative
and ineffectual. Petitioner, as the collecting bank, grossly erred in making payment by virtue of said
forged signature. The payee, herein respondent, should therefore be allowed to collect from the
collecting bank.

It should be liable for the loss because it is its legal duty to ascertain that the payee’s endorsement was
genuine before cashing the check. As a general rule, a bank or corporation who has obtained possession
of a check with an unauthorized or forged indorsement of the payee’s signature and who collects the
amount of the check other from the drawee, is liable for the proceeds thereof to the payee or the other
owner, notwithstanding that the amount has been paid to the person from whom the check was
obtained.
66. ILLUSORIO VS. CA (GR No. 139130; Nov. 27, 2002)

FACTS: Petitioner was adepositor in good standing of respondent bank, the Manila BankingCorporation.
As he was then running about 20 corporations, and was going outof the country a number of times,
petitioner entrusted to his secretary,Katherine E. Eugenio, his credit cards and his checkbook with blank
checks. Itwas also Eugenio who verified and reconciled the statements of said checkingaccount. Between
the dates September 5, 1980 and January 23, 1981, Eugeniowas able to encash and deposit to her personal
account about seventeen (17)checks drawn against the account of the petitioner at the respondent
bank.Upon learning that Eugenio has been using his credit cards, petitioner firedEugenio immediately,
and instituted a criminal action against her for estafa thrufalsification. Private respondent also lodged a
complaint for estafa thrufalsification of commercial documents against Eugenio on the basis ofpetitioner’s
statement that his signatures in the checks were forged. Petitionerthen requested the respondent bank
to credit back and restore to its accountthe value of the checks which were wrongfully encashed but
respondent bankrefused.

Hence, petitioner filed the instant case. Petitioner contends thatManila Bank is liable for damages for its
negligence in failing to detect thediscrepant checks. He adds that as a general rule a bank which has
obtained
possession of a check upon an unauthorized or forged endorsement of thepayee’s signature and which
collects the amount of the check from the draweeis liable for the proceeds thereof to the payee. Petitioner
further contends thatunder Section 23 of the Negotiable Instruments Law a forged check isinoperative,
and that Manila Bank had no authority to pay the forged checks.

ISSUE: WON petitioner may put up the defense of forgery against Manilabank?

HELD: NO. True, it is a rule that when a signature is forged or madewithout the authority of the person
whose signature it purports to be, thecheck is wholly inoperative. No right to retain the instrument, or to
give adischarge therefor, or to enforce payment thereof against any party, can beacquired through or
under such signature. However, the rule does provide foran exception, namely: “unless the party against
whom it is sought to enforcesuch right is precluded from setting up the forgery or want of authority.” In
theinstant case, it is the exception that applies. In our view, petitioner isprecluded from setting up the
forgery, assuming there is forgery, dueto his own negligence in entrusting to his secretary his credit
cardsand checkbook including the verification of his statements of account.
Petitioner’s reliance on Associated Bank vs. Court of Appeals and PhilippineBank of Commerce vs. CA to
buttress his contention that respondent Manila Bank as the collecting or last endorser generally suffers
the loss because it hasthe duty to ascertain the genuineness of all prior endorsements is misplaced.In the
cited cases, the fact of forgery was not in issue.

In the present case,the fact of forgery was not established with certainty. In those cited cases,
thecollecting banks were held to be negligent for failing to observe precautionarymeasures to detect the
forgery. In the case before us, both courts belowuniformly found that Manila Bank’s personnel diligently
performed their duties,
having compared the signature in the checks from the specimen signatures onrecord and satisfied
themselves that it was petitioner’s.

67. GEMPESAW VS. CA

Facts:
Natividad Gempesaw is a businesswoman who entrusted to her bookkeeper, Alicia Galang, the
preparation of checks about to be issued in the course of her business transactions. From 1984 to 1986,
82 checks amounting to P1,208,606.89, were prepared and were supposed to be delivered to Gempesaw’s
clients as payees named thereon. However, through Galang, these checks were never delivered to the
supposed payees. Instead, the checks were fraudulently indorsed to Alfredo Romero and Benito Lam.

ISSUE: Whether or not the bank should refund the money lost by reason of the forged indorsements.

HELD: No. Gempesaw cannot set up the defense of forgery by reason of her negligence. Under Sec. 23 of
the Negotiable Instruments Law, a forged signature is “wholly inoperative, no one can gain title to the
instrument through such forged indorsement. Such an indorsement prevents any subsequent party from
acquiring any right as against any party whose name appears prior to the forgery. Such forged
indorsement cuts-off the rights of all subsequent parties as against parties prior to the forgery. As a rule,
a drawee bank who has paid a check on which an indorsement has been forged cannot charge the
drawer’s account for the amount of said check. An exception to the rule is where the drawer is guilty of
such negligence which causes the bank to honor such checks.

However, Gempesaw did not exercise prudence in taking steps that a careful and prudent businessman
would take in circumstances to discover discrepancies in her account. Her negligence was the proximate
cause of her loss, and under Section 23 of the Negotiable Instruments Law, is precluded from using
forgery as a defense.

68. BPI vs CA
216 SCRA 51 (1992)

FACTS: A phone call to BPI's Money Market Department was made by a woman who identified herself as
Eligia G. Fernando, owner of a money market placement as evidenced by a promissory note with a
maturity date of November 11, 1981. The caller wanted to preterminate the placement, but Reginaldo
Eustaquio, the Dealer Trainee who received the call and who happened to be alone in the trading room
at the time, told her that trading time was over for the day. Eustaquio conveyed the request for
pretermination to the officer who before had handled Eligia G. Fernando's account but Eustaquio was left
to attend to the pretermination process.
The caller followed up with Eustaquio, by phone again, on the pretermination of the placement. Although
not familiar with the voice of the real Eligia G. Fernando, Eustaquio made certain that the caller was the
real Eligia G. Fernando by verifying that the details the caller gave about the placement tallied with the
details in the ledger/folder of the account. Neither Eustaquio nor Bulan who originally handled Fernando's
account, nor anybody else at BPI, bothered to call up Fernando to verify the request for pretermination.
Eustaquio, thus, proceeded to prepare the requested pretermination as required by office procedure.
From his desk, the papers, following the processing route, passed through the position analyst, securities
clerk, verifier clerk and documentation clerk, before the two cashier's checks, both payable to Eligia G.
Fernando, covering the preterminated placement, were prepared. The same caller called again to give
delivery instructions that instead of the delivering the checks to her office at Philamlife, she would send
her niece, Rosemarie Fernando, to pick them up. It was, in fact Rosemarie Fernando who got the two
checks from the dispatcher, as shown by the delivery receipt. Actually, as it turned out, the same
impersonated both Eligia G. Fernando and Rosemarie Fernando. Although the checks represented the
termination proceeds of Eligia G. Fernando's placement, the dispatcher failed to get or to require the
surrender of the promissory note evidencing the placement. There is also no showing that Eligia G.
Fernando's purported signature on the letter requesting the pretermination and the latter authorizing
Rosemarie Fernando to pick up the two checks, both of which letters were presumably handed to the
dispatcher by Rosemarie Fernando, was compared or verified with Eligia G. Fernando's signature in BPI's
file. The story's scene now shifted when a woman who represented herself to be Eligia G. Fernando
applied at China Banking Corporation(CBC) Head Office for the opening of a current account. The
application form shows the signature of "Eligia G. Fernando", "her" date of birth, sex, civil status,
nationality, occupation ("business woman"), tax account number, and initial deposit of P10,000.00. This
final approval of the new current account is indicated on the application form by the initials of the CBC
Cashier who did not interview the new client but affixed her initials on the application form after reviewing
it. The following day, the woman holding herself out as Eligia G. Fernando deposited the two checks in
controversy. The two checks were forthwith sent to clearing by CBC and BPI cleared both on the same
day. Two days after, withdrawals began. All withdrawals were allowed on the basis of the verification of
the drawer's signature with the specimen signature on file and the sufficiency of the funds in the account.
When the maturity date of Eligia G. Fernado's money market placement with BPI came, the real Eligia G.
Fernando went to BPI for the roll-over of her placement. She disclaimed having preterminated her
placement. She executed an affidavit stating that while she was the payee of the two checks in
controversy, she never received nor endorsed them and that her purported signature on the back of the
checks was not hers but forged. With her surrender of the original of the promissory note evidencing the
placement which matured that day, BPI issued her a new promissory note to evidence a roll-over of the
placement. Investigation of the fraud led to the filing of criminal actions for "Estafa Thru Falsification of
Commercial Documents" against four employees of BPI and the woman who impersonated Eligia G.
Fernando.

BPI returned the two checks in controversy to CBC for the reason "Payee's endorsement forged". CBC, in
turn, returned the checks for reason "Beyond Clearing Time". RTC ruled in favor of CBC and ordered BPI
to pay CBC. CA affirmed. Hence, this petition seeking to set aside the decision and resolution of the Court
of Appeals in CA-G.R. SP No. 24306which affirmed the earlier decision of the Regional Trial Court of Makati

ISSUE: Whether or not BPI is solely liable to refund the amount of the check.

HELD: No. Petitioner BPI first returned to CBC the two (2) checks on the ground that “Payee’s
endorsement (was) forged” on November 12, 1981. At that time the clearing regulation then in force
under PCHC’s Clearing House Rules and Regulations as revised on September 19, 1980 provides:
“Items which have been the subject of material alteration or items bearing a forged endorsement when
such endorsement is necessary for negotiation shall be returned within twenty four (24) hours after
discovery of the alteration or the forgery, but in no event beyond the period prescribed by law for the filing
of a legal action by the returning bank/branch institution or entity against the bank/branch, institution or
entity sending the same.” (Section 23)
In the case of Banco de Oro Savings and Mortgage Bank v. Equitable Banking Corporation (157 SCRA
188 [1988]) the clearing regulation (this is the present clearing regulation) at the time the parties’ dispute
occurred was as follows:
“Sec. 21. xxx xxx xxx
Items which have been the subject of material alteration or items bearing forged endorsement when such
endorsement is necessary for negotiation shall be returned by direct presentation or demand to the
Presenting Bank and not through the regular clearing house facilities within the period prescribed by law
for the filing of a legal action by the returning bank/branch, institution or entity sending the same.”

It is to be noted that the above-cited clearing regulations are substantially the same in that it allows a
return of a check “bearing forged endorsement when such endorsement is necessary for negotiation”
even beyond the next regular clearing although not beyond the prescriptive period “for the filing of a legal
action by the returning bank.”

69. Bank of America vs. Associated Bank

Facts:

BA-Finance granted Miller a credit line facility through which the latter could assign or discount its trade
receivables with the former.

Miller discounted and assigned several trade receivables to BA-Finance by executing Deeds of Assignment
in favor of the latter. In consideration of the assignment, BA-Finance issued four checks payable to the
"Order of Miller Offset Press, Inc." 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 (a.k.a. Robert Ching), then the corporate secretary of
Miller, in Account No. 989 in Associated Citizens Bank (Associated Bank). Associated Bank stamped the
checks with the notation "all prior endorsements and/or lack of endorsements guaranteed," and sent
them through clearing. Later, the drawee bank, Bank of America, honored the checks and paid the
proceeds to Associated Bank as the collecting bank.

Miller failed to deliver to BA-Finance the proceeds of the assigned trade receivables. Consequently, BA-
Finance filed a Complaint against Miller for collection of the amount of ₱731,329.63 which BA-Finance
allegedly paid in consideration of the assignment and an Amended Complaint impleading Bank of
America as additional defendant for allegedly allowing encashment and collection of the checks by
person or persons other than the payee named thereon. Ching Uy Seng, on the other hand, did not file
his Answer to the complaint.

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 (a.k.a. Robert Ching) and Uy Chung Guan Seng, but alleged that Robert Ching, being one of
the corporate officers of Miller, was duly authorized to act for and on behalf of Miller.

The Court of Appeals ruled that (1) Defendant and third-party plaintiff-appellant, Bank of America, NT &
SA, is ordered to pay plaintiff-appellee BA-Finance Corporation the sum of ₱741,277.78, with legal interest
thereon from the time of the filing of the complaint until the whole amount is fully paid;(2) Third-party
defendant-appellant Associated Citizens Bank is likewise ordered to reimburse Bank of America the
aforestated amount;

Issue: Whether or not Associated Citizens Bank is liable to reimburse Bank of America for the amount
it paid to BA Finance

Ruling:

Yes. A collecting bank where a check is deposited, and which endorses the check upon presentment with
the drawee bank, is an endorser. Under Section 66 of the Negotiable Instruments Law, an endorser
warrants "that the instrument is genuine and in all respects what it purports to be; that he has good title
to it; that all prior parties had capacity to contract; and that the instrument is at the time of his
endorsement valid and subsisting." This 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 Associated 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. Being so, Associated
Bank cannot deny liability on the checks.

Associated Bank was also clearly negligent in disregarding established banking rules and regulations by
allowing the four checks to be presented by, and deposited in the personal bank account of, a person who
was not the payee named in the checks. The checks were issued to the "Order of Miller Offset Press, Inc.,"
but were deposited, and paid by Associated Bank, to the personal joint account of Ching Uy Seng (a.k.a.
Robert Ching) and Uy Chung Guan Seng. It could not have escaped Associated Bank’s attention that the
payee of the checks is a corporation while the person who deposited the checks in his own account is an
individual. Verily, when the bank allowed its client to collect on crossed checks issued in the name of
another, the bank is guilty of negligence.

70. PNB VS. CA (GR No. 107508; April 25, 1996)

FACTS:
A check with serial number 7-3666-223-3, dated August 7, 1981 in the amount of P97,650.00 was issued
by the Ministry of Education and Culture payable to F. Abante Marketing. This check was drawn against
Philippine National Bank (herein petitioner). F. Abante Marketing, a client of Capitol City Development
Bank (Capitol), deposited the questioned check in its savings account with said bank. In turn, Capitol
deposited the same in its account with the Philippine Bank of Communications (PBCom) which, in turn,
sent the check to petitioner for clearing. Petitioner cleared the check as good and, thereafter, PBCom
credited Capitol’s account for the amount stated in the check. However, petitioner PNB returned the
check to PBCom and debited PBCom’s account for the amount covered by the check, the reason being
that there was a “material alteration” of the check number. PBCom, as collecting agent of Capitol, then
proceeded to debit the latter’s account for the same amount. On the other hand, Capitol could not, in
turn, debit F. Abante Marketing’s account since the latter had already withdrawn the amount of the check.

ISSUE: WON AN ALTERATION OF THE SERIAL NUMBER OF A CHECK IS A MATERIAL ALTERATION UNDER
THE NEGOTIABLE INSTRUMENTS LAW?
HELD:
No. An alteration is said to be material if it alters the effect of the instrument. It means an unauthorized
change in an instrument that purports to modify in any respect the obligation of a party or an
unauthorized addition of words or numbers or other change to an incomplete instrument relating to the
obligation of a party. In other words, a material alteration is one which changes the items which are
required to be stated under Section 1 of the Negotiable Instrument Law. The case at the bench is unique
in the sense that what was altered is the serial number of the check in question, an item which, it can
readily be observed, is not an essential requisite for negotiability under Section 1 of the Negotiable
Instruments Law. The aforementioned alteration did not change the relations between the parties. The
name of the drawer and the drawee were not altered. The intended payee was the same. The sum of
money due to the payee remained the same. If the purpose of the serial number is merely to identify the
issuing government office or agency, its alteration in this case had no material effect whatsoever on the
integrity of the check. The identity of the issuing government office or agency was not changed thereby
and the amount of the check was not charged against the account of another government office or agency
which had no liability under the check.

71. ENRIQUE MONTINOLA VS. PNB (GR No. L-2861 ; Feb. 26, 1951)
- In 1942, Mariano Ramos, as disbursing officer of an army division of United States Armed Forces in the
Far East (USAFFE) and based in Misamis Oriental, procured cash advances in the amount of Php800,000
with the Provincial Treasurer (PT) of Lanao for the use of USAFFE in Cagayan de Misamis. PT-Lanao did not
have that amount in cash so he gave Ramos P300,000 in emergency notes and a check for P500,000.
Thereafter, Ramos presented the check to their PT in their province for encashment. PT-Misamis did not
have enough cash to cover the check so he gave Ramos P400,000 in emergency notes and a check for
P100,000 drawn on the PNB as he had previously deposited P500,000 emergency notes in the PNB branch
in Cebu and thus he expected to have the check issued by him cashed in Cebu against said deposit. Ramos
was unable to encash said check for he was captured by the Japanese and later made a prisoner of war.
After his release, sometime in 1945, Ramos allegedly indorsed the check to herein plaintiff-appellant.
According to Montinola’s version of the circumstances that roused the present controversy, Ramos, who
then was no longer connected with the USAFFE but already a civilian who needed the money only for
himself and his family, offered to sell the check to him. But as stated by Ramos, he and Montinola agreed
to the sale of said check and the agreement regarding the transfer of the check was that he was selling
only P30,000 of it and for such reason, at the back of the document he wrote in longhand: Pay to the order
of Enrique P. Montinola P30,000 only. The balance to be deposited in the Philippine National Bank to the
credit of M. V. Ramos. Ramos further said that in exchange for this assignment of P30,000, Montinola
would pay him P90,000 in Japanese military notes but that the latter gave him only two checks of P20,000
and P25,000, leaving a balance unpaid of P45,000. The writing made at the back of the check was,
however, mysteriously obliterated and in its place, a supposed indorsement appearing on the back of the
check was made for the whole amount of the check.
ISSUE: WON the check was legally negotiated within the meaning of the NIL in view of the fact that the
instrument was indorsed for a lesser amount?
HELD: NO. Section 32 of the NIL provides that "the indorsement must be an indorsement of the entire
instrument. An indorsement which purports to transfer to the indorsee a part only of the amount payable
(as in this case) does not operate as a negotiation of the instrument." As to what was really written at the
back of the check which Montinola claims to be a full indorsement of the check, the Court agreed with
trial court that the original writing of Ramos on the back of the check was to the effect that he was
assigning only P30,000 of the value of the document and that he was instructing the bank to deposit to
his credit the balance. Montinola may therefore not be regarded as an indorsee. At most he may be
regarded as a mere assignee of the P30,000 sold to him by Ramos, in which case, as such assignee, he is
subject to all defenses available to the drawer Provincial Treasurer of Misamis Oriental and against Ramos.
72. PHILIPPINE COMMERCIAL INTERNATIONAL BANK VS. CA (GR No. 121413; Jan. 29, 2001)
Facts:
Ford Philippines filed actions to recover from the drawee bank Citibank and collecting bank PCIB the value
of several checks payable to the Commissioner of Internal Revenue as payment of percentage or
manufacturer's sales taxes. What prompted this action was the drawing of a check by Ford, which it
deposited to PCIB as payment and was debited from their Citibank account. It was later on found out that
the payment wasn’t received by the Commissioner. Meanwhile, according to the NBI report, one of the
checks issued by Ford was withdrawn from PCIB for alleged mistake in the amount to be paid. This was
replaced with manager’s check by PCIB, which were allegedly stolen by a syndicate and deposited in their
own account. The trial court decided in favor of Ford. In this petition, PCIB claims that the action of Ford
had prescribed because of its inability to seek judicial relief seasonably, considering that the alleged
negligent act took place prior to December 19, 1977 but the relief was sought only in 1983, or seven years
thereafter.
ISSUE: WON Ford’s cause of action has prescribed, hence, cannot recover anymore from PCIB?
HELD: The statute of limitations begins to run when the bank gives the depositor notice of the payment,
which is ordinarily when the check is returned to the alleged drawer as a voucher with a statement of his
account. An action upon a check is ordinarily governed by the statutory period applicable to instruments
in writing. Our laws on the matter provide that the action upon a written contract must be brought within
ten years from the time the right of action accrues. Hence, the reckoning time for the prescriptive period
begins when the instrument was issued and the corresponding check was returned by the bank to its
depositor. Applying the same rule, the cause of action for the recovery of the proceeds of Citibank would
normally be a month after December 19, 1977, when Citibank paid the face value of the check in the
amount of P4,746,114.41. Since the original complaint for the cause of action was filed on January 20,
1984, barely six years had lapsed. Thus, Ford's cause of action to recover the amount was seasonably filed
within the period provided by law. Hence, PCIB was declared solely responsible for the loss of the proceeds
of Citibank in the amount P4,746,114.41, which shall be paid together with 6% interest thereon to Ford
from the date when the original complaint was filed until said amount is fully paid.

73. PAPA VS AU VALENCIA

74. STATE INVESTMENT HOUSE V. CA
217 SCRA 32

FACTS: Moulic issued checks as security to Victoriano, for pieces of jewelry to be sold on commission.
Moulic failed to sell the pieces of jewelry, so she returned them to Victoriano. The checks however
could not be recovered by Moulic as these have been discounted already in favor of petitioner.
Consequently, before the maturity dates, Moulic withdrew her funds from her account. Thereafter,
petitioner presented the checks for payment but these were dishonored. This prompted the petitioner
to initiate an action against Moulic.

ISSUE: Can Moulic set up the defense that there was failure or want of consideration?
HELD: NO. A prima facie presumption exists that a holder of a negotiable instrument is a holder in due
course. The burden of proving that State is not a holder in due course is upon Moulic. In this regard, she
failed to do so.
The evidence shows that the dated checks were complete and regular; petitioner bought the checks
from Victoriano before their due dates; it took the checks in good faith and for value; and it was never
informed nor made aware that these checks were merely issued to payee as security.
Consequently, State is a holder in due course. Moulic cannot set up the defense that there was
failure or want of consideration. It can only invoke the defense if State was a privy to the purpose for
which they were issued and therefore is not a holder in due course.
Furthermore, the mere fact that the checks were issued as security is not sufficient ground to discharge
the instrument as against a holder in due course.
And also, Moulic was responsible for the dishonor of her checks. She withdrew her funds from
her account and could not have expected her checks to be honored by then.
75. GREAT EASTERN INSURANCE VS HONGKONG
76. QUIRINO GONZALEZ LOGGING VS. CA
GR No. 126568; April 20, 2003
FACTS:
In the expansion of its logging business, petitioner Quirino Gonzales Logging Concessionaire (QGLC),
through its proprietor, general manager - co-petitioner Quirino Gonzales, applied for credit
accommodations with respondent Republic Bank. The Bank approved QGLC’s application.
In separate transactions, petitioners, to secure certain advances from the Bank in connection with QGLC’s
exportation of logs, executed a promissory note in 1964 in favor of the Bank. They were to execute three
more promissory notes in 1967. On January 27, 1977, alleging non-payment of the balance of QGLC’s
obligation, and nonpayment of the promissory notes despite repeated demands, the Bank filed a
complaint for “sum of money” against petitioners.
The complaint listed ten causes of action, the sixth to ninth of which were anchored on the promissory
notes issued by petitioners allegedly to secure certain advances from the Bank in connection with the
exportation of logs as reflected above. The notes were payable 30 days after date and provided for the
solidary liability of petitioners as well as attorney’s fees at ten percent of the total amount due in the
event of their non-payment at maturity. Petitioners seek to avoid liability by claiming that Quirino and
Eufemia Gonzales signed the promissory notes in blank; that they had not received the value of said notes,
and that the credit line thereon was unnecessary in view of their money deposits, and unremitted
proceeds on log exports from the Bank.
ISSUE:
Whether or not petitioners may interpose the defense of lack of consideration and that the Promissory
Notes were signed in blank against the bank?
RULING:
NO. The genuineness and due execution of the notes had been deemed admitted by petitioners, they
having failed to deny the same under oath. Their claim that they signed the notes in blank does not thus
lie. Petitioners’ admission of the genuineness and due execution of the promissory notes notwithstanding,
they raise want of consideration thereof. The promissory notes, however, appear to be negotiable as they
meet the requirements of Section 1 of the Negotiable Instruments Law. Such being the case, the notes
are prima facie deemed to have been issued for consideration. It bears noting that no sufficient evidence
was adduced by petitioners to show otherwise. In any case, it is no defense that the promissory notes
were signed in blank as Section 14 of the Negotiable Instruments Law concedes the prima facie authority
of the person in possession of negotiable instruments, such as the notes herein, to fill in the blanks.
77. CRISOLOGO VS CA
78. SALAS VS. CA
Facts:
Juanita Salas (Petitioner) bought a motor vehicle from the Violago Motor Sales Corporation (VMS) as
evidenced by a promissory note. This note was subsequently endorsed to Filinvest Finance & Leasing
Corporation (private respondent) which financed the purchase. Petitioner defaulted in her installments
allegedly due to a discrepancy in the engine and chassis numbers of the vehicle delivered to her and those
indicated in the sales invoice, certificate of registration and deed of chattel mortgage, which fact she
discovered when the vehicle figured in an accident. This failure to pay prompted private respondent to
initiate an action for a sum of money against petitioner before the Regional Trial Court.
ISSUE:
WON VMS’ fraud in the conduct of its business, specifically in the delivery of a defective truck, would
release petitioner-maker from paying First Finance the amount stated in the note.
HELD:
No.
The note was a negotiable instrument and was validly negotiated to private respondent who is a holder
in due course and as such holds the instrument free from defenses available to prior parties among
themselves. This being so, petitioner cannot set up against respondent the defense of nullity of the
contract of sale between her and VMS.
79. PNB VS. CA (GR No. L-26001; Oct. 29, 1968)

FACTS: Agusto Lim deposited GSIS check no. 645915-B with respondent bank Philippine Commercial and
Industrial Bank, who in turn submitted said check to PNB, through Central Bank, for clearing which the
latter paid. Upon demand of GSIS that the signatures of its officers on the check were forged, PNB re-
credited the account of GSIS. PNB requested reimbursement from PCIB, the latter refused. Hence, the
present action.

ISSUE: WON prior acceptance before payment is required in the case of checks?
HELD: No. In general, "acceptance", in the sense in which this term is used in the Negotiable Instruments
Law is not required for checks, for the same are payable on demand. Indeed, "acceptance" and "payment"
are, within the purview of said Law, essentially different things, for the former is "a promise to perform
an act," whereas the latter is the "actual performance" thereof. In the words of the Law, "the acceptance
of a bill is the signification by the drawee of his assent to the order of the drawer," which, in the case of
checks, is the payment, on demand, of a given sum of money. Upon the other hand, actual payment of
the amount of a check implies not only an assent to said order of the drawer and a recognition of the
drawer's obligation to pay the aforementioned sum, but, also, a compliance with such obligation. Sec. 62
of the NIL is applicable to a drawee who pays a bill without having previously accepted it.

80. . ASSOCIATED BANK VS. CA

Facts:

The Province of Tarlac maintains a current account with the Philippine National Bank where the
provincial funds are deposited. A portion of the funds of the province is allocated to the Concepcion
Emergency Hospital. The allotment checks for said government hospital are drawn to the order of
"Concepcion Emergency Hospital”. It was later discovered that the hospital did not receive several
allotment checks drawn by the Province. After the checks were examined, it was learned that 30 checks
were encashed by one Fausto Pangilinan, with the Associated Bank acting as collecting bank. It turned
out that Fausto Pangilinan, who was the administrative officer and cashier of payee hospital, by forging
the signature of Dr. Adena Canlas chief of the payee hospital. All the checks bore the stamp of
Associated Bank which reads "All prior endorsements guaranteed ASSOCIATED BANK." The Provincial
Treasurer sought to recover from PNB various amounts debited from the current account of the
Province. In turn, PNB demanded reimbursement from the Associated Bank who refused to pay
interposing the defense of forgery.

ISSUE:

Whether or Not Associated Bank is secondarily liable apart from the forger

What are the obligation of the drawee bank (PNB)

HELD:

YES. The loss incurred by drawee bank PNB can be passed on to the collecting bank Associated Bank
which presented and indorsed the checks to it. Associated Bank can, in turn, hold the forger, Fausto
Pangilinan, liable. The drawee bank is not similarly situated as the collecting bank because the former
makes no warranty as to the genuineness of any indorsement. The drawee bank's duty is but to verify
the genuineness of the drawer's signature and not of the indorsement because the drawer is its client. A
collecting bank where a check is deposited and which indorses the check upon presentment with the
drawee bank, is such an indorser. So even if the indorsement on the check deposited by the bank's client
is forged, the collecting bank is bound by his warranties as an indorser and cannot set up the defense of
forgery as against the drawee bank. Only the person whose signature is forged and all parties before the
forgery may set such defense.
 In cases involving checks with forged indorsements, such as the present petition, the chain of
liability does not end with the drawee bank. The drawee bank may not debit the account of the drawer
but may generally pass liability back through the collection chain to the party who took from the forger
and, of course, to the forger himself, if available. In other words, the drawee bank can seek
reimbursement or a return of the amount it paid from the presentor bank or person.Theoretically, the
latter can demand reimbursement from the person who indorsed the check to it and so on. The loss falls
on the party who took the check from the forger, or on the forger himself. In this case, the checks were
indorsed by the collecting bank (Associated Bank) to the drawee

bank (PNB). The former will necessarily be liable to the latter for the checks bearing forged
indorsements. If the forgery is that of the payee's or holder's indorsement, the collecting bank is held
liable, without prejudice to the latter proceeding against the forger.

Obligations of the drawee bank

However, a drawee bank has the duty to promptly inform the presentor of the forgery upon
discovery. If the drawee bank delays in informing the presentor of the forgery, thereby depriving said
presentor of the right to recover from the forger, the former is deemed negligent and can no longer
recover from the presentor.

Such bank also is under strict liability to pay the check to the order of the payee. The drawer’s
instructions are reflected on the face and by the terms of the check. Payment under a forged
indorsement is not to the drawer’s order. When the drawee bank pays a person other than the payee, it
does not comply with the terms of the check and violates its duty to charge its customer’s (the drawer)
account only for properly payable items. Since the drawee bank did not pay a holder or other person
entitled to receive payment, it has no right to reimbursement from the drawer. The general rule then is
that the drawee bank may not debit the drawer’s account and is not entitled to indemnification from
the drawer. The risk of loss must perforce fall on the drawee bank.

81. GREAT EASTERN LIFE INSURANCE CO. (GELIC) VS. HONGKONG & SHANGHAI BANKING CORP (HSBC)
and PNB (GR No. 18657; Aug. 23, 1922)
Facts: In May 1920, petitioner GELIC drew its check for P2,000 on HSBC whom it had an account, payable
to the order of Lazaro Melicor. E. M. Maasim fraudulently obtained possession of the check, forged
Melicor's signature, as an endorser, and then personally endorsed and presented it to PNB where the
amount of the check was placed to his credit. After having paid the check, and on the next day, PNB
endorsed the check to HSBC which paid it and charged the amount of the check to the account of the
plaintiff. In the ordinary course of business, HSBC rendered a bank statement to GELIC showing that the
amount of the check was charged to its account, and no objection was then made to the statement. About
four (4) months after the check was charged to the account of the plaintiff, it developed that Lazaro
Melicor, to whom the check was made payable, had never received it, and that his signature, as an
endorser, was forged by Maasim, who presented and deposited it to his private account in PNB. With this
knowledge, the plaintiff promptly made a demand upon the HSBC that it should be given credit for the
amount of the forged check, which the bank refused to do, and GELIC commenced this action to recover
the P2,000 which was paid on the forged check. On the petition of HSBC, PNB was made defendant. The
former Bank denies any liability, but prays that, if a judgment should be rendered against it, in turn, it
should have like judgment against the latter Bank which denies all liability to either party. Upon the issues
being joined, a trial was had and judgment was rendered against
33 Cesar Nickolai F. Soriano Jr. Arellano University School of Law 2011-0303 NEGOTIABLE INSTRUMENTS
LAW (Act No. 2031) based on the book of Aquino and De Leon and Audio Lecture of Dean Sundiang. GELIC
and in favor HSBC and PNB from which GELIC appealed.
ISSUE: WON plaintiff GELIC can recover?
HELD: Yes. GELIC’s check was drawn on HSBC payable to the order of Melicor. In other words, GELIC
authorized and directed HSBC to pay Melicor, or his order, P2,000. It did not authorize or direct the bank
to pay the check to any other person than Melicor, or his order, and the testimony is undisputed that
Melicor never did part with his title or endorse the check, and never received any of its proceeds. Neither
is GELIC estopped or bound by the bank statement, which was made to it by the HSBC. This is not a case
where the GELIC's own signature was forged to one of it checks. In such a case, the plaintiff would have
known of the forgery, and it would have been its duty to have promptly notified the bank of any forged
signature, and any failure on its part would have released bank from any liability. That is not this case.
Here, the forgery was that of Melicor, who was the payee of the check, and the legal presumption is that
the bank would not honor the check without the genuine endorsement of Melicor. In other words, when
GELIC received its banks statement, it had a right to assume that Melicor had personally endorsed the
check, and that, otherwise, the bank would not have paid it. Sec. 23 of the NIL is square in point. The
money was on deposit in HSBC, and it had no legal right to pay it out to anyone except GELIC or its order.
Here, GELIC ordered HSBC to pay the P2,000 to Melicor, and the money was actually paid to Maasim and
was never paid to Melicor, and he never paid to Melicor, and he never personally endorsed the check, or
authorized any one to endorse it for him, and the alleged endorsement was a forgery. Hence, upon the
undisputed facts, it must follow that HSBC has no defense to this action. It is admitted that the PNB cashed
the check upon a forged signature, and placed the money to the credit of Maasim, who was a forger. That
the PNB then endorsed the check and forwarded it to HSBC by whom it was paid. PNB had no license or
authority to pay the money to Maasim or anyone else upon a forge signature. It was its legal duty to know
that Melicor's endorsement was genuine before cashing the check. Its remedy is against Maasim to whom
it paid the money. The Supreme Court reversed the lower court's judgment, and entered another in favor
of GELIC and against HSBC for P2,000, with interest thereon from 8 November 1920, at the rate of 6% per
annum, and the costs of the action, and a corresponding judgment will be entered in favor of HSBC against
PNB for the same amount, together with the amount of its costs in the action.
Person Secondarily Liable When Instrument Dishonored
GR. L-40796 July 31, 1975
82. Republic Bank v. Mauricia T. Ebrada
FACTS: Ebrada encashed a back pay check dated Jan. 15, 1963for P1,246.08 at the main office of the
Republic Bank. The check was issued by the Bureau of Treasury. The Bureau advised the bank that the
alleged indorsement by Martin Lorenzo at the dorsal portion of the check was a forgery because Lorenzo
has already died as of July 14, 1952. The Bureau requested the bank to refund the aforesaid amount.
To recover what it refunded to the Bureau, the bank made verbal and formal demands upon Ebrada for
the same amount. Ebrada refused. The bank sued Ebrada before the City Court of Manila. Ebrada alleged
that she was a holder in due course, or at least acquired her rights from a holder in due course and was
therefore entitled to the proceeds thereof. She also alleged that the bank was estopped or was so
negligent as not to be entitled to recover anything from her.
Ebrada later filed a 3rd party complaint against Adelaida Dominguez, who in turn filed a 4th party complaint
against Justin Tino. The dorsal portion bears the following signatures in this order: Martin Lorenzo; Ramon
R. Lorenzo; Delia Dominguez; and Mauricia Ebrada. Adelaida delivered the cash to Ebrada for encashment.
The Court ordered Ebrada to pay the bank the above amount, however any actions Ebrada may have
against Dominguez is reserved.
ISSUE: WON Ebrada is secondarily liable to pay the bank despite being a holder in due course.
HELD: Yes. Only the negotiation predicated on the forged indorsement that should be declared
inoperative. This means that the negotiation of the check in question from Martin Lorenzo, the original
payee, to Ramon R. Lorenzo, the 2nd indorser, should be declared of no effect, but the negotiation of the
aforesaid check from Ramon R. Lorenzo to Adelaida Dominguez, the 3rd indorser, and from Adelaida
Dominguez to Ebrada who did not know of the forgery, should be considered valid and enforceable,
barring any claim of forgery. Being the last indorser, however, Ebrada warrants that she has good title to
the check subject of this action.
The bank can recover from the holder [Ebrada] the money paid to the latter on a forged instrument. It is
not supposed to be its duty to ascertain whether the signatures of the payee or indorsers are genuine
or not. This is because the indorser is supposed to warrant to the drawee that the signatures of the
payee and previous indorsers are genuine, warranty not extending only to holders in due course.
Ebrada, upon receiving the check in question from Dominguez, was duty-bound to ascertain whether the
check in question was genuine before presenting it to plaintiff Bank for payment.

83. PNB VS. QUIMPO (GR No. L-53194, March 14, 1988)
FACTS: Private Respondent Francisco Gozon went to the Caloocan City Branch of PNB with his friend
Ernesto Santos, who he left in the car while he transacted business in the bank. Santos saw that Gozon
left his checkbook, he took a check therefrom, filled it up for P5,000 and forged the signature of Gozon.
Santos was later on apprehended and admitted that he stole the check and encashed the same with the
bank. Gozon filed an action to recover the amount from the Bank which the court granted. Hence the
petition.
ISSUE: WON Gozon who left his checkbook into hands of Santos was indeed the proximate cause of the
loss and thus precluded from setting up the defense of forgery?
HELD: No. A bank is bound to know the signatures of its customers; and if it pays a forged check, it must
be considered as making the payment out of its own funds, and cannot ordinarily change the amount so
paid to the account of the depositor whose name was forged' (San Carlos Milling Co. vs. Bank of the P.I).
This rule is absolutely necessary to the circulation of drafts and checks, and is based upon the presumed
negligence of the drawee in failing to meet its obligation to know the signature of its correspondent. ...
There is nothing inequitable in such a rule. If the paper comes to the drawee in the regular course of
business, and he, having the opportunity ascertaining its character, pronounces it to be valid and pays it,
it is not only a question of payment under mistake, but payment in neglect of duty which the commercial
law places upon him, and the result of his negligence must rest upon him. The prime duty of the bank is
to ascertain the genuineness of the signature of the drawer or the depositor on the check being encashed.
It is expected to use reasonable business prudence in accepting and cashing a check presented to it.
Obviously, petitioner was negligent in encashing said forged check without carefully examining the
signature which shows marked variation from the genuine signature of private respondent. The act of the
plaintiff in leaving his checkbook in the car cannot be considered negligence sufficient to excuse the
defendant bank from its own negligence. Santos could not have been expected to know that Santos, a
long time classmate and friend, would remove a check from his checkbook.
84. NATIVIDAD GEMPESAW VS. CA
GR No. 92244; Feb. 9, 1993

Facts: Natividad Gempesaw issued checks, prepared by her bookkeeper, a totalof 82 checks in favor of
several supplies. Most of the checks are for amountsin excess of actual obligations as shown in
theircorresponding invoices. Itwas only after the lapse of more than 2 years did she discovered
thefraudulent manipulations of her bookkeeper. It was also learned that theindorsements of the payee
were forged, and the checks were brought tothe chief accountant of Philippine Bank of Commerce (the
Drawee Bank,Buendia Branch) who deposited them in the accounts of Alfredo Romeroand Benito Lam.
Gempesaw made demand upon the bank to credit theamount charged due the checks. The bank refused.
Hence, the presentaction.

ISSUE: Who shall bear the loss resulting from the forgedindorsements?

HELD: As a rule, a drawee bank who has paid a check onwhich an indorsement has been forged cannot
charge the drawer’saccount for the amount of said check. An exception to the rule is wherethe drawer is
guilty of such negligence which causes the bank to honorsuch checks. Gempesaw did not exercise
prudence in taking steps that acareful and prudent businessman would take in circumstances to
discoverdiscrepancies in her account. Her negligence was the proximate cause ofher loss, and under
Section 23 of the Negotiable Instruments Law, isprecluded from using forgery as a defense. On the other
hand, thebanking rule banning acceptance of checks for deposit or cash paymentwith more than one
indorsement unless cleared by some bank officials,does not invalidate the instrument; neither does it
invalidate thenegotiation or transfer of said checks. The only kind of indorsementwhich stops the further
negotiation of an instrument is arestrictive indorsement which prohibits the further negotiationthereof,
pursuant to Section 36 of the Negotiable InstrumentsLaw. In light of any case not provided for in the Act
that is to begoverned by the provisions of existing legislation, pursuant to Section 196of the Negotiable
Instruments Law, the bank may be held liable fordamages in accordance with Article 1170 of the Civil
Code. The draweebank, in its failure to discover the fraud committed by its employee and incontravention
banking rules in allowing a chief accountant to deposit thechecks bearing second indorsements, was
adjudged liable to share theloss with Gempesaw on a 50:50 ratio.

85. PCI vs CA.

86. PAPA vs AU VALENCIA
FACTS
A.U. Valencia and Co., Inc. filed for specific performance against herein petitioner Myron C. Papa, in his
capacity as administrator a Testate Estate.
The complaint alleged thatPapa, acting as attorney-in-fact of Angela M. Butte (dead), sold to respondent
Pearroyo, through respondent Valencia, a parcel of land, that prior to the alleged sale, the said property
had been mortgaged to Associated Citizens Bank and after the sale was made, the bank refused to release
it unless and until all the mortgaged properties were also redeemed.
The complaint further alleged that respondents Valencia and Pearroyo discovered that the mortgage
rights of the bank had been assigned to one Tomas L. Parpana (now deceased), as special administrator
of the Estate of Ramon Papa, Jr since then, herein petitioner had been collecting monthly rentals knowing
knowing of the sale, refused and failed to deliver the title to the property.
On petitioners claim that he cannot be held personally liable as he had acted merely as attorney-in-fact
of the owner, Angela M. Butte.
Petitioner alleges among others that the sale was never consummated as he did not encash the check
given by respondents Valencia and Pearroyo in payment of the full purchase price of the subject lot

ISSUE: Whether or not Papa should be liable

RULING: YES
It is an undisputed fact that respondents Valencia and Pearroyo had given petitioner Myron C. Papa cash,
in payment of the purchase price of the subject lot. Petitioner himself admits having received said
amounts, and having issued receipts therefor. Petitioners assertion that he never encashed the aforesaid
check is not subtantiated and is at odds with his statement in his answer that he can no longer recall the
transaction which is supposed to have happened 10 years ago. After more than ten (10) years from the
payment in part by cash and in part by check, the presumption is that the check had been encashed.
Granting that petitioner had never encashed the check, his failure to do so for more than 10 years
undoubtedly resulted in the impairment of the check through his unreasonable and unexplained delay.
While it is true that the delivery of a check produces the effect of payment only when it is cashed, pursuant
to Art. 1249 of the Civil Code, the rule is otherwise if the debtor is prejudiced by the creditors
unreasonable delay in presentment. The acceptance of a check implies an undertaking of due diligence in
presenting it for payment, and if he from whom it is received sustains loss by want of such diligence, it
will be held to operate as actual payment of the debt or obligation for which it was given. It has, likewise,
been held that if no presentment is made at all, the drawer cannot be held liable irrespective of loss or
injury unless presentment is otherwise excused. This is in harmony with Article 1249 of the Civil Code
under which payment by way of check or other negotiable instrument is conditioned on its being cashed,
except when through the fault of the creditor, the instrument is impaired. The payee of a check would be
a creditor under this provision and if its non-payment is caused by his negligence, payment will be deemed
effected and the obligation for which the check was given as conditional payment will be discharged.
87. FAR EAST REALTY INVESTMENT INC., vs. COURT OF APPEALS, DY HIAN TAT, SIY CHEE and GAW SUY
AN [G.R. No. L36549, October 5, 1988]
FACTS: Respondent Dy Hian Tat, Siy Chee and Gaw Suy An sought the extension of an accommodation
loan from petitioner Far East Realty Investment which the former will use to further their business.
Respondents promised to pay, jointly and severally, in one month time. To insure payment, respondents
delivered to Far East Realty Investment a China Bank Check drawn by Dy Hian Tat issued on September
13, 1960, and signed by them at the back of said check, with the assurance that after one month from
September 13, 1960, the said check would be redeemed by respondents by paying cash or the said check
can be presented for payment on or immediately after one month. The loan was actually extended but
when the check was presented for payment on March 5, 1964, it was dishonored—the account on which
it is drawn has long been closed.
The trial court held in favor of petitioner but this was reversed by the CA by ruling that the said check
wasn’t presented within reasonable time and after its issuance. Petitioner contends that presentment for
payment and notice of dishonor are not necessary as when funds are insufficient to meet a check, the
drawer is liable, whether such presentment and notice be totally omitted or merely delayed.
ISSUE: WON presentment for payment and notice of dishonor of the questioned check were made within
reasonable time?
HELD: NO. Where the instrument is not payable on demand, presentment must be made on the day it
falls due. Where it is payable on demand, presentment must be made within a reasonable time after issue,
except that in the case of a bill of exchange, presentment for payment will be sufficient if made within a
reasonable time after the last negotiation thereof.
"Reasonable time" has been defined as so much time as is necessary under the circumstances for a
reasonable prudent and diligent man to do, conveniently, what the contract or duty requires should be
done, having a regard for the rights and possibility of loss, if any, to the other party. In the instant case,
the check in question was issued on September 13, 1960, but was presented to the drawee bank only on
March 5, 1964, and dishonored on the same date. After dishonor by the drawee bank, a formal notice of
dishonor was made by the petitioner through a letter dated April 27, 1968. Under these circumstances,
the petitioner undoubtedly failed to exercise prudence and diligence on what he ought to do as required
by law. The petitioner likewise failed to show any justification for the unreasonable delay. Notice may be
given as soon as instrument has been dishonored and unless delay is excused must be given within the
time fixed by law

88. McGuire vs Province of Samar [G.R. No. L-8155. October 23, 1956.]

Facts: While the province of Samar was still occupied by Japanese military forces, a check was issued by
said province to Paulino M. Santos (then the postmaster of Borongan) for the sum of P25,000, drawn
against the Philippine National Bank Cebu Branch. The payee negotiated the check with James McGuire,
an American citizen and resident of the municipality of Borongan. James McGuire presented the check to
the municipal treasurer of Borongan for payment, but the latter (who merely noted it) was not able or did
not choose to pay the same.

James McGuire wrote letters to the Bureau of Posts seeking payment of the check, which were in turn
referred to the PNB. As of this date the province of Samar still had a deposit of P84,287.47 in the PNB.
PNB requested James McGuire to present the check to the provincial treasurer and the provincial auditor
for certification. Before the check could be certified by the authorities concerned as being in order and
entitled to priority of payment, the province of Samar, withdraw the amount of P83,504.07, leaving a
balance of only P743.43. In the meantime, James McGuire transferred his rights to the check to the herein
Plaintiffs who, unable to cash it.

Issue: WON defendants herein are solidarily liable to pay the check.

Ruling: No.The obligation of the Appellant bank is merely subsidiary.An implied acceptance of the check
by the Appellant bank was thereby created. The request by the Appellant bank from the Bureau of Posts
for photostatic copies of the check and the subsequent requirement by it for its presentation by James
McGuire to the provincial treasurer and the provincial auditor for certification, would be an empty gesture
if the Appellant did not thereby mean to assume the obligation of paying the check and holding sufficient
deposit of the drawer for the purpose. Even so, Appellant’s resulting obligation is merely subsidiary, the
province of Samar being primarily liable to pay the check.

89. ASIA BANKING VS JAVIER

FACTS: Salvador Chaves drew two checks against PNB in favor of La Insular. This check was
indorsed by the limited partners of La Insular, and then deposited by Chaves in his current
account with the plaintiff, Asia Banking Corporation. The amount represented by both checks
was used by Chaves after they were deposited in the plaintiff bank, by drawing checks on
the plaintiff. Subsequently these checks were presented by the plaintiff to the Philippine
National Bank for payment, but the latter refused to pay on the ground that the drawer,
Chaves, had no funds therein. The lower court sentenced the defendant, as indorser, to pay
the plaintiff, hence, this petition.

ISSUE: WON defendant’s liability can be enforced?

HELD: No. Section 89 of the Negotiable Instruments Law (Act No. 2031) provides that, when
a negotiable instrument is dishonored for non-acceptance or non-payment, notice thereof
must be given to the drawer and each of the indorsers, and those who are not notified shall
be discharged from liability, except where this act provides otherwise. According to this, the
indorsers are not liable unless they are notified that the document was dishonored. Then,
under the general principle of the law of procedure, it will be incumbent upon the plaintiff,
who seeks to enforce the defendant's liability upon these checks as indorser, to establish
said liability by proving that notice was given to the defendant within the time, and in the
manner, required by the law that the checks in question had been dishonored. If these facts
are not proven, the plaintiff has not sufficiently established the defendant's liability. There is
no proof in the record tending to show that plaintiff gave any notice whatsoever to the
defendant that the checks in question had been dishonored, and there it has not established
its cause of action. Hence, petition was granted.

90. GULLAS VS PNB (GR. NO. L-43191; NOV. 13, 1935)

FACTS: The Treasurer of theUnited States issued a warrant in the amount of $361 payable to
FranciscoBacos. Petitioner and Pedro Lopez signed as endorsers of this check.Thereupon it was cashed by
PNB. Subsequently the treasurer warrant wasdishonored by the Insular Treasurer. At that time, Gullas has
an outstandingbalance of P509 with PNB and had issued certain checks before he left hisresidence for
Manila. The bank on learning of the dishonor of the treasurywarrant sent notices by mail to Gullas which
could not delivered to himbecause he is not in Manila.

In view of this, the bank applied the outstandingbalances of Gullas’ current account with the PNB for the
payment of thecheck. On the return of Gullas, notice of dishonor was received and theunpaid balance of
the US Treasury was paid by him. As a result of this, thechecks issued by him before he left for Manila
were not paid because of lackof funds standing to his credit in the bank.

ISSUE: WON PNB has the rightto apply a deposit to the debt of the depositor to the bank?

HELD: No. TheNIL contains provisions establishing the liability of a general indorser andgiving the
procedure for a notice of dishonor. The general indorser engagesthat if he be dishonored and the
necessary proceedings of dishonor be dulytaken, he will pay the amount to the holder. The notice of
dishonor is inorder to charge all indorser and that the right of action against him does notaccrue until the
notice is given. As a general rule, a bank has a right to setoff the deposits in its hands for the payment of
any indebtedness to it on thepart of the depositor. In the case at bar, though this right to set off exist,
theremedy was not properly enforced because prior to the mailing of the noticeof dishonor, and without
waiting for any action by Gullas, the bank made use
of the money standing in his account to make good for the treasury warrant.

91. NYCO SALES VS BA

92. GREAT ASIAN SALES VS. COURT OF APPEALS

Facts:

Great Asian is engaged in the business of buying and selling general merchandise, in particular household
appliances. On March 17, 1981, the board of directors of Great Asian approved a resolution authorizing
its Treasurer and General Manager, Arsenio Lim Piat, Jr. ("Arsenio" for brevity) to secure a loan from
Bancasia in an amount not to exceed P1.0 million.

Tan Chong Lin signed a Surety Agreement in favor of Bancasia to guarantee, solidarily, the debts of Great
Asian to Bancasia. Great Asian, through its Treasurer and General Manager Arsenio, signed four (4) Deeds
of Assignment of Receivables ("Deeds of Assignment" for brevity), assigning to Bancasia fifteen (15)
postdated checks.

The drawee banks dishonored the fifteen checks on maturity when deposited for collection by Bancasia,
with any of the following as reason for the dishonor: "account closed", "payment stopped", "account
under garnishment", and "insufficiency of funds".
Bancasia sent by personal delivery a letter dated June 16, 1982 to Tan Chong Lin, notifying him of the
dishonor of the fifteen checks and demanding payment from him. Neither Great Asian nor Tan Chong Lin
paid Bancasia the dishonored checks.

On June 23, 1982, Bancasia filed a complaint for collection of a sum of money against Great Asian and Tan
Chong Lin. Bancasia impleaded Tan Chong Lin because of the Surety Agreements he signed in favor of
Bancasia.

Issue: Whether or not Tan Chong Lim is liable for the amount of the checks

Ruling:

Yes. Tan Chong Lin, the President of Great Asian, is being sued in his personal capacity based on the Surety
Agreements he signed wherein he solidarily held himself liable with Great Asian for the payment of its
debts to Bancasia. The Surety Agreements contain the following common condition:

"Upon failure of the Principal to pay at maturity, with or without demand, any of the obligations above
mentioned, or in case of the Principal’s failure promptly to respond to any other lawful demand made by
the Creditor, its successors, administrators or assigns, both the Principal and the Surety/ies shall be
considered in default and the Surety/ies agree/s to pay jointly and severally to the Creditor all outstanding
obligations of the Principal, whether due or not due, and whether held by the Creditor as Principal or
agent, and it is agreed that a certified statement by the Creditor as to the amount due from the Principal
shall be accepted by the Surety/ies as correct and final for all legal intents and purposes."

Indisputably, Tan Chong Lin explicitly and unconditionally bound himself to pay Bancasia, solidarily with
Great Asian, if the drawers of the checks fail to pay on due date. The condition on which Tan Chong Lin’s
obligation hinged had happened. As surety, Tan Chong Lin automatically became liable for the entire
obligation to the same extent as Great Asian.

Article 1207 of the Civil Code provides, "xxx There is a solidary liability only when the obligation expressly
so states, or when the law or nature of the obligation requires solidarity." The stipulations in the Surety
Agreements undeniably mandate the solidary liability of Tan Chong Lin with Great Asian. Moreover, the
stipulations in the Surety Agreements are sufficiently broad, expressly encompassing "all the notes, drafts,
bills of exchange, overdraft and other obligations of every kind which the PRINCIPAL may now or may
hereafter owe the Creditor". Consequently, Tan Chong Lin must be held solidarily liable with Great Asian
for the nonpayment of the fifteen dishonored checks, including penalty and attorney’s fees in accordance
with the Deeds of Assignment.

93. LUIS WONG VS. CA

(G.R. No. 117857; February 2, 2001)

FACTS: Petitioner Wong was an agent of Limtong Press. Inc. (LPI). LPI would print sample calendars, then
give them to agents to present to customers. The agents would get the purchase orders of customers and
forward them to LPI. After printing the calendars, LPI would ship the calendars directly to the customers.
Thereafter, the agents would come around to collect the payments. Petitioner, however, had a history of
unremitted collections, which he duly acknowledged in a confirmation receipt he co-signed with his wife.
Hence, petitioner’s customers were required to issue post-dated checks before LPI would accept their
purchase orders. Wong issued six (6) postdated checks initially intended to guarantee the calendar orders
of customers who failed to issue post-dated checks. However, following company policy, LPI refused to
accept the checks as guarantees. Instead, the parties agreed to apply the checks to the payment of
petitioner’s unremitted. Before the maturity of the checks, petitioner prevailed upon LPI not to deposit
the
checks and promised to replace them within 30 days. However, petitioner reneged on his promise. LPI
deposited the checks with Rizal Commercial Banking Corporation (RCBC) which were returned because
the account was closed. Despite receipt of the notice of dishonor, petitioner failed to make arrangements
for payment within five (5) banking days so he was charged with violation of BP 22.

ISSUE: What constitutes REASONABLE TIME for checks?

HELD:Contrary to petitioner’s assertions, nowhere in said provision does the law require a maker to
maintain funds in his bank account for only 90 days. Rather, the clear import of the law is to establish
a prima facie presumption of knowledge of such insufficiency of funds under the following conditions (1)
presentment within 90 days from date of the check, and (2) the dishonor of the check and failure of the
maker to make arrangements for payment in full within 5 banking days after the notice thereof. That the
check must be deposited within ninety (90) days is simply one of the conditions for the prima
facie presumption of knowledge of lack of funds to arise. It is not an element of the offense. Neither does
it discharge petitioner from his duty to maintain sufficient funds in the account within a reasonable time
thereof. Under Section 186 of the Negotiable Instruments Law, “a check must be presented for payment
within a reasonable time after its issue or the drawer will be discharged from liability thereon to the extent
of the loss caused by the delay.” By current banking practice, a check becomes stale after more than six
(6) months,23 or 180 days. Private respondent herein deposited the checks 157 days after the date of the
check. Hence, said checks cannot be considered stale. Only the presumption of knowledge of insufficiency
of funds was lost, but such knowledge could still be proven by direct or circumstantial evidence. As found
by the trial court, private respondent did not deposit the checks because of the reassurance of petitioner
that he would issue new checks. Upon his failure to do so, LPI was constrained to deposit the said checks.
After the checks were dishonored, petitioner was duly notified of such fact but failed to make
arrangements for full payment within five (5) banking days thereof. There is, on record, sufficient evidence
that petitioner had knowledge of the insufficiency of his funds in or credit with the drawee bank at the
time of issuance of the checks. And despite petitioner’s insistent plea of innocence, we find no error in
the respondent court’s affirmance of his conviction by the trial court for violations of the Bouncing Checks
Law.

94. BANCO DE ORO SAVINGS VS. EQUITABLE BANKING CORP. (GR No. 74917, Jan. 20, 1988)
Facts:
Manager's checks (Checks) having an aggregate amount of P45,982.23 and payable to certain member
establishments of Visa Card. Subsequently, the Checks were deposited with the defendant (respondent
Equitable) to the credit of its depositor (Aida Trencio’s account). Following normal procedures, and after
stamping at the back of the Checks the usual endorsements (All prior and/or lack of endorsement
guaranteed), Equitable sent the checks for clearing through the Philippine Clearing House Corporation
(PCHC). Accordingly, BDO paid the Checks; its clearing account was debited for the value of the Checks
and defendant's clearing account was credited for the same amount. Thereafter, BDO discovered that the
endorsements appearing at the back of the Checks, purporting to be that of the payees, were forged
and/or unauthorized or otherwise belong to persons other than the payees. Pursuant to the PCHC Clearing
Rules and Regulations, it presented the Checks directly to 4 Cesar Nickolai F. Soriano Jr. Arellano University
School of Law 2011-0303 NEGOTIABLE INSTRUMENTS LAW (Act No. 2031) based on the book of Aquino
and De Leon and Audio Lecture of Dean Sundiang Equitable for the purpose of claiming reimbursement
from the latter. However, Equitable refused to do so. After an exhaustive investigation and hearing, the
Arbiter rendered a decision in favor of BDO and against Equitable ordering the PCHC to debit the clearing
account of the defendant (E), and to credit the clearing account of the plaintiff (B) of the foregoing amount
with interest at the rate of 12% per annum from date of the complaint. The Board of Directors of the PCHC
affirmed the decision of the Arbiter. Hence this petition.
ISSUE 1: Were the subject checks nonnegotiable and if not, does it fall under the ambit of the power of
the PCHC? OR Does the PCHC has jurisdiction over the controversy involved in view of petitioner’s claim
that the subject matter of the case (the Checks) was not negotiable.
HELD: Yes. As provided in the articles of incorporation of PCHC, its operation extend to "clearing checks
and other clearing items." No doubt transactions on non-negotiable checks are within the ambit of its
jurisdiction. The term check as used in the said Articles of Incorporation of PCHC can only connote checks
in general use in commercial and business activities. It cannot be conceived to be limited to negotiable
checks only. Checks are used between banks and bankers and their customers, and are designed to
facilitate banking operations. It is of the essence to be payable on demand, because the contract between
the banker and the customer is that the money is needed on demand. Further, the participation of the
two banks, petitioner and private respondent, in the clearing operations of PCHC is a manifestation of
their submission to its jurisdiction.
ISSUE 2: How does principle of estoppel apply?
HELD:
Petitioner is estopped from raising the defense of nonnegotiability of the checks in question. It stamped
its guarantee on the back of the checks and subsequently presented these checks for clearing and it was
on the basis of these endorsements by the petitioner that the proceeds were credited in its clearing
account. The principle of estoppel effectively prevents the defendant from denying liability for any
damages sustained by the plaintiff which, relying upon an action or declaration of the defendant, paid on
the Checks. The same principle of estoppel effectively prevents the defendant from denying the existence
of the Checks. The petitioner by its own acts and representation cannot now deny liability because it
assumed the liabilities of an endorser by stamping its guarantee at the back of the checks. The petitioner
having stamped its guarantee of "all prior endorsements and/or lack of endorsements" (Exh. A-2 to F-2)
is now estopped from claiming that the checks under consideration are not negotiable instruments. The
checks were accepted for deposit by the petitioner stamping thereon its guarantee, in order that it can
clear the said checks with the respondent bank. By such deliberate and positive attitude of the petitioner
it has for all legal intents and purposes treated the said cheeks as negotiable instruments and accordingly
assumed the warranty of the endorser when it stamped its guarantee of prior endorsements at the back
of the checks. It led the said respondent to believe that it was acting as endorser of the checks and on the
strength of this guarantee said respondent cleared the checks in question and credited the account of the
petitioner. Petitioner is now barred from taking an opposite posture by claiming that the disputed checks
are not negotiable instrument.