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Case Digests in Negotiable Instruments Law

NEGOTIABILITY

(1) Philippine Education Co. vs. Soriano
GR L-22405, 30 June 1971
39 SCRA 587

FACTS:
Enrique Montinola sought to purchase from the Manila Post Office 10 money orders (P200 each),
offering to pay for them with a private check. Montinola was able to leave the building with his
check and the 10 money orders without the knowledge of the teller. Upon discovery, message was
sent to all postmasters and banks involving the unpaid money orders. One of the money orders was
received by the Philippine Education Co. as part of its sales receipt. It was deposited by the company
with the Bank of America, which cleared it with the Bureau of Post. The Postmaster, through the
Chief of the Money Order Division of the Manila Post Office informed the bank of the irregular
issuance of the money order. The bank debited the account of the company. The company moved
for reconsideration.

ISSUE:
Whether postal money orders are negotiable instruments?

HELD:
Philippine postal statutes are patterned from those of the United States, and the weight of authority
in said country is that Postal money orders are not negotiable instruments inasmuch as the
establishment of a postal money order is an exercise of governmental power for the publics benefit.
Furthermore, some of the restrictions imposed upon money order by postal laws and regulations are
inconsistent with the character of negotiable instruments. For instance, postal money orders may be
withheld under a variety of circumstances, and which are restricted to not more than one
indorsement.

(2) CALTEX (PHILIPPINES), INC. vs. CA
G.R. No. 97753, August 10, 1992
212 SCRA 448

FACTS:
Security bank issued Certificates of Time Deposits to Angel dela Cruz. The same were given by Dela
Cruz to petitioner in connection to his purchase of fuel products of the latter. On a later date, Dela
Cruz approached the bank manager, communicated the loss of the certificates and requested
for a reissuance. Upon compliance with some formal requirements, he was issued replacements.
Thereafter, he secured a loan from the bank where he assigned the certificates as security. Here
comes the petitioner, averred that the certificates were not actually lost but were given as
security for payment for fuel purchases. The bank demanded some proof of the agreement but the
petitioner failed to comply. The loan matured and the time deposits were terminated and then
applied to the payment of the loan.
Petitioner demands the payment of the certificates but to no avail.

ISSUE:
Whether or not the certificates of time deposits (CTDs) are negotiable instruments?

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HELD:
The Court held that the CTDs are negotiable instruments. The CTDs in question undoubtedly meet
the requirements of the law for negotiability. The Negotiable Instruments Law provides, an
instrument to be negotiable must conform to certain requirements, hence, (a) It must be in writing
and signed by the maker or drawer; (b) Must contain an unconditional promise or order to pay a
sum certain in money; (c) Must be payable on demand, or at a fixed or determinable future time; (d)
Must be payable to order or to bearer; and (e) Where the instrument is addressed to a drawee, he
must be named or otherwise indicated therein with reasonable certainty.

The documents provide that the amounts deposited shall be repayable to the depositor. And who,
according to the document, is the depositor? It is the "bearer." The documents do not say that the
depositor is Angel de la Cruz and that the amounts deposited are repayable specifically to him.
Rather, the amounts are to be repayable to the bearer of the documents or, for that matter,
whosoever may be the bearer at the time of presentment.

If it was really the intention of respondent bank to pay the amount to Angel de la Cruz only, it
could have with facility so expressed that fact in clear and categorical terms in the documents,
instead of having the word "BEARER" stamped on the space provided for the name of the depositor
in each CTD. On the wordings of the documents, therefore, the amounts deposited are
repayable to whoever may be the bearer thereof. Thus, petitioner's aforesaid witness merely
declared that Angel de la Cruz is the depositor "insofar as the bank is concerned," but obviously
other parties not privy to the transaction between them would not be in a position to know
that the depositor is not the bearer stated in the CTDs. Hence, the situation would require any
party dealing with the CTDs to go behind the plain import of what is written thereon to unravel
the agreement of the parties thereto through facts aliunde. This need for resort to extrinsic
evidence is what is sought to be avoided by the Negotiable Instruments Law and calls for
the application of the elementary rule that the interpretation of obscure words or stipulations in
a contract shall not favor the party who caused the obscurity.

(3) Metropolitan Bank & Trust Company vs. Court of Appeals
G.R. No. 88866, February, 18, 1991
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.

ISSUE:
Whether or not treasury warrants are negotiable instruments?

HELD:
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The Court held in the negative. 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: 1
st
, 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.

(4) Sesbreno vs. CA
GR 89252, 24 May 1993
222 SCRA 446

FACTS:
On 9 February 1981, Raul Sesbreno made a money market placement in the amount of P300,000
with the Philippine Underwriters Finance Corporation (PhilFinance), with a term of 32 days.
PhilFinance issued to Sesbreno the Certificate of Confirmation of Sale of a Delta Motor Corporation
Promissory Note (2731), the Certificate of Securities Delivery Receipt indicating the sale of the note
with notation that said security was in the custody of Pilipinas Bank, and postdated checks drawn
against the Insular Bank of Asia and America for P304,533.33 payable on 13 March 1981. The checks
were dishonored for having been drawn against insufficient funds. Pilipinas Bank never released the
note, nor any instrument related thereto, to Sesbreno; but Sesbreno learned that the security was
issued 10 April 1980, maturing on 6 April 1981, has a face value of P2,300,833.33 with PhilFinance as
payee and Delta Motors as maker; and was stamped non-negotiable on its face. As Sesbreno was
unable to collect his investment and interest thereon, he filed an action for damages against Delta
Motors and Pilipinas Bank.

ISSUE:
Whether non-negotiability of a promissory note prevents its assignment?

HELD:
Only an instrument qualifying as a negotiable instrument under the relevant statute may be
negotiated either by indorsement thereof coupled with delivery, or by delivery alone if it is in bearer
form. A negotiable instrument, instead of being negotiated, may also be assigned or transferred. The
legal consequences of negotiation and assignment of the instrument are different. A negotiable
instrument may not be negotiated but may be assigned or transferred, absent an express prohibition
against assignment or transfer written in the face of the instrument. Wherein, there was no
prohibition stipulated.

(5) Firestone Tire and Rubber Co. vs CA
G.R. No. 113236. March 5, 2001
353 SCRA 601

FACTS:
Fojas-Arca Enterprises Company maintained a special account with respondent Luzon Development
Bank which authorized and allowed the former to withdraw funds from its account through the
medium of special withdrawal slips. Fojas-Arca purchased on credit products from Firestone with a
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total amount of P4,896,000.00. In payment of these purchases, Fojas-Arca delivered to plaintiff six
special withdrawal slips drawn upon the respondent bank. In turn, these were deposited by the
plaintiff with its current account with the Citibank. All of them were honored and paid by the
defendant. However, in a subsequent transaction involving the payment of withdrawal slips by
Fojas-Arca for purchases on credit from petitioner, two withdrawal slips for the total sum of
P2,078,092.80 were dishonored and not paid by respondent bank for the reason "NO
ARRANGEMENT".

ISSUE:
Whether or not the acceptance and payment of the special withdrawal slips gives the impression
that it is a negotiable instrument like a check?

HELD:
No. The essence of negotiability which characterizes a negotiable paper as a credit instrument lies in
its freedom to circulate freely as a substitute for money. The withdrawal slips in question lacked this
character. As the withdrawal slips in question were non-negotiable, the rules governing the giving
of immediate notice of dishonor of negotiable instruments do not apply. The respondent bank was
under no obligation to give immediate notice that it would not make payment on the subject
withdrawal slips. Citibank should have known that withdrawal slips were not negotiable
instruments. It could not expect these slips to be treated as checks by other entities. Payment or
notice of dishonor from respondent bank could not be expected immediately, in contrast to the
situation involving checks. Citibank was not bound to accept the withdrawal slips as a valid mode of
deposit. But having erroneously accepted them as such, Citibank and petitioner as account-holder
must bear the risks attendant to the acceptance of these instruments.

PAYABLE TO BEARER

(6) Ang Tek Lian vs. CA
G.R. No. L-2516
September 25, 1950

Negotiable Instruments Law Negotiable Instruments in General 87 Phil 383 Indorsement to
Cash Bearer Instrument

FACTS:
In 1946, Ang Tek Lian approached Lee Hua and asked him if he could give him P4,000.00. He said
that he meant to withdraw from the bank but the banks already closed. In exchange, he gave Lee
Hua a check which is payable to the order of cash. The next day, Lee Hua presented the check for
payment but it was dishonored due to insufficiency of funds. Lee Hua eventually sued Ang Tek Lian.
In his defense, Ang Tek Lian argued that he did not indorse the check to Lee Hua and that when the
latter accepted the check without Ang tek Lians indorsement, he had done so fully aware of the risk
he was running thereby.

ISSUE:
Whether or not Ang Tek Lian is correct?

HELD:
No. Under the Negotiable Instruments Law (sec. 9 *d+), a check drawn payable to the order of cash
is a check payable to bearer hence a bearer instrument, and the bank may pay it to the person
presenting it for payment without the drawers indorsement. Where a check is made payable to the
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order of cash, the word cash does not purport to be the name of any person, and hence the
instrument is payable to bearer. The drawee bank need not obtain any indorsement of the check,
but may pay it to the person presenting it without any indorsement.

(7) PNB vs. Rodriguez
GR No. 170325

Justice Reyes

FACTS:
Respondents-Spouses Erlando and Norma Rodriguez were clients of petitioner Philippine National
Bank (PNB), Amelia Avenue Branch, Cebu City. They maintained savings and demand/checking
accounts, namely, PNBig Demand Deposits (Checking/Current Account No. 810624-6 under the
account name Erlando and/or Norma Rodriguez), and PNBig Demand Deposit (Checking/Current
Account No. 810480-4 under the account name Erlando T. Rodriguez).

The spouses were engaged in the informal lending business. In line with their business, they had a
discounting arrangement with the Philnabank Employees Savings and Loan Association (PEMSLA), an
association of PNB employees. Naturally, PEMSLA was likewise a client of PNB Amelia Avenue
Branch. The association maintained current and savings accounts with petitioner bank.

PEMSLA regularly granted loans to its members. Spouses Rodriguez would rediscount the postdated
checks issued to members whenever the association was short of funds. As was customary, the
spouses would replace the postdated checks with their own checks issued in the name of the
members.

It was PEMSLAs policy not to approve applications for loans of members with outstanding debts. To
subvert this policy, some PEMSLA officers devised a scheme to obtain additional loans despite their
outstanding loan accounts. They took out loans in the names of unknowing members, without the
knowledge or consent of the latter. The PEMSLA checks issued for these loans were then given to
the spouses for rediscounting. The officers carried this out by forging the indorsement of the named
payees in the checks. In return, the spouses issued their personal checks (Rodriguez checks) in the
name of the members and delivered the checks to an officer of PEMSLA. The PEMSLA checks, on the
other hand, were deposited by the spouses to their account.

Meanwhile, the Rodriguez checks were deposited directly by PEMSLA to its savings account without
any indorsement from the named payees. This was an irregular procedure made possible through
the facilitation of Edmundo Palermo, Jr., treasurer of PEMSLA and bank teller in the PNB Branch. It
appears that this became the usual practice for the parties. For the period November 1998 to
February 1999, the spouses issued sixty nine (69) checks, in the total amount
ofP2,345,804.00. These were payable to forty seven (47) individual payees who were all members
of PEMSLA.

Petitioner PNB eventually found out about these fraudulent acts. To put a stop to this
scheme, PNB closed the current account of PEMSLA. As a result, the PEMSLA checks deposited by
the spouses were returned or dishonored for the reason Account Closed. The corresponding
Rodriguez checks, however, were deposited as usual to the PEMSLA savings account. The amounts
were duly debited from the Rodriguez account. Thus, because the PEMSLA checks given as
payment were returned, spouses Rodriguez incurred losses from the rediscounting transactions.

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ISSUE:
Whether the subject checks are payable to order or to bearer and who bears the loss?

HELD:
In the case at bar, respondents-spouses were the banks depositors. The checks were drawn against
respondents-spouses accounts. PNB, as the drawee bank, had the responsibility to ascertain the
regularity of the indorsements, and the genuineness of the signatures on the checks before
accepting them for deposit. Lastly, PNB was obligated to pay the checks in strict accordance with
the instructions of the drawers. Petitioner miserably failed to discharge this burden.

The checks were presented to PNB for deposit by a representative of PEMSLA absent any type of
indorsement, forged or otherwise. The facts clearly show that the bank did not pay the checks in
strict accordance with the instructions of the drawers, respondents-spouses. Instead, it paid the
values of the checks not to the named payees or their order, but to PEMSLA, a third party to the
transaction between the drawers and the payees.

Moreover, PNB was negligent in the selection and supervision of its employees. The trustworthiness
of bank employees is indispensable to maintain the stability of the banking industry. Thus, banks are
enjoined to be extra vigilant in the management and supervision of their employees.

COMPLETE BUT UNDELIVERED

(8) DEVELOPMENT BANK OF RIZAL vs. SIMA WEI, ET AL.
G.R. No. 85419
March 9, 1993

Complete undelivered

FACTS:
Respondent Sima Wei executed and delivered to petitioner Bank a promissory note engaging to pay
the petitioner Bank or order the amount of P1,820,000.00. Sima Wei subsequently issued two
crossed checks payable to petitioner Bank drawn against China Banking Corporation in full
settlement of the drawer's account evidenced by the promissory note. These two checks however
were not delivered to the petitioner-payee or to any of its authorized representatives but instead
came into the possession of respondent Lee Kian Huat, who deposited the checks without the
petitioner-payee's indorsement to the account of respondent Plastic Corporation with Producers
Bank. Inspite of the fact that the checks were crossed and payable to petitioner Bank and bore no
indorsement of the latter, the Branch Manager of Producers Bank authorized the acceptance of the
checks for deposit and credited them to the account of said Plastic Corporation.

ISSUE:
Whether petitioner Bank has a cause of action against Sima Wei for the undelivered checks?

HELD:
No. A negotiable instrument must be delivered to the payee in order to evidence its existence as a
binding contract. Section 16 of the NIL provides that every contract on a negotiable instrument is
incomplete and revocable until delivery of the instrument for the purpose of giving effect
thereto. Thus, the payee of a negotiable instrument acquires no interest with respect thereto until
its delivery to him. Without the initial delivery of the instrument from the drawer to the payee,
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there can be no liability on the instrument. Petitioner however has a right of action against Sima
Wei for the balance due on the promissory note.

(9) SAN MIGUEL CORPORATION, Petitioner,
vs.
BARTOLOME PUZON, JR., Respondent.
G.R. No. 167567
September 22, 2010

FACTS:
Respondent Bartolome V. Puzon, Jr., (Puzon) owner of Bartenmyk Enterprises, was a dealer of beer
products of petitioner San Miguel Corporation (SMC) for Paraaque City. Puzon purchased SMC
products on credit. To ensure payment and as a business practice, SMC required him to issue
postdated checks equivalent to the value of the products purchased on credit before the same were
released to him. Said checks were returned to Puzon when the transactions covered by these checks
were paid or settled in full.

On December 31, 2000, Puzon purchased products on credit amounting to P11,820,327 for which he
issued, and gave to SMC, Bank of the Philippine Islands (BPI) Check Nos. 27904 (for P309,500.00) and
27903 (for P11,510,827.00) to cover the said transaction.

On January 23, 2001, Puzon, together with his accountant, visited the SMC Sales Office in Paraaque
City to reconcile his account with SMC. During that visit Puzon allegedly requested to see BPI Check
No. 17657. However, when he got hold of BPI Check No. 27903 which was attached to a bond paper
together with BPI Check No. 17657 he allegedly immediately left the office with his accountant,
bringing the checks with them.

SMC sent a letter to Puzon on March 6, 2001 demanding the return of the said checks. Puzon
ignored the demand hence SMC filed a complaint against him for theft with the City Prosecutors
Office of Paraaque City.

ISSUE:
Whether or not there is complete delivery of negotiable instrument?

HELD:
The Court held in the negative. Sec. 12. Antedated and postdated The instrument is not invalid for
the reason only that it is antedated or postdated, provided this is not done for an illegal or
fraudulent purpose. The person to whom an instrument so dated is delivered acquires the title
thereto as of the date of delivery. (Underscoring supplied.)

Note however that delivery as the term is used in the aforementioned provision means that the
party delivering did so for the purpose of giving effect thereto.
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Otherwise, it cannot be said that
there has been delivery of the negotiable instrument. Once there is delivery, the person to whom
the instrument is delivered gets the title to the instrument completely and irrevocably.
If the subject check was given by Puzon to SMC in payment of the obligation, the purpose of giving
effect to the instrument is evident thus title to or ownership of the check was transferred upon
delivery. However, if the check was not given as payment, there being no intent to give effect to the
instrument, then ownership of the check was not transferred to SMC.
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The evidence of SMC failed to establish that the check was given in payment of the obligation of
Puzon. There was no provisional receipt or official receipt issued for the amount of the check. What
was issued was a receipt for the document, a "POSTDATED CHECK SLIP."

LIABILITY OF PERSON SIGNING AS AN AGENT

(10) Philippine Bank of Commerce vs. Aruego
GR L-25836-37, 31 (102 SCRA 530)
January 1981,

Agents

FACTS:
To facilitate payment of the printing of a periodical called World Current Events., Aruego, its
publisher, obtained a credit accommodation from the Philippine Bank of Commerce. For every
printing of the periodical, the printer collected the cost of printing by drawing a draft against the
bank, said draft being sent later to Aruego for acceptance. As an added security for the payment of
the amounts advanced to the printer, the bank also required Aruego to execute a trust receipt in
favor of the bank wherein Aruego undertook to hold in trust for the bank the periodicals and to sell
the same with the promise to turn over to the bank the proceeds of the sale to answer for the
payment of all obligations arising from the draft. The bank instituted an action against Aruego to
recover the cost of printing of the latters periodical. Aruego however argues that he signed the
supposed bills of exchange only as an agent of the Philippine Education Foundation Company where
he is president.

ISSUES:
Whether Aruego can be held liable by the petitioner although he signed the supposed bills of
exchange only as an agent of Philippine Education Foundation Company?

HELD:
Aruego did not disclose in any of the drafts that he accepted that he was signing as representative of
the Philippine Education Foundation Company. For failure to disclose his principal, Aruego is
personally liable for the drafts he accepted, pursuant to Section 20 of the NIL which provides that
when a person adds to his signature words indicating that he signs for or on behalf of a principal or
in a representative capacity, he is not liable on the instrument if he was duly authorized; but the
mere addition of words describing him as an agent or as filing a representative character, without
disclosing his principal, does not exempt him from personal liability.

(11) ADALIA FRANCISCO vs. COURT OF APPEALS, ET AL.
G.R. No. 116320
November 29, 1999

FACTS:
A. Francisco Realty & Development Corporation (AFRDC), of which petitioner Francisco is the
president, entered into a Land Development and Construction Contract with private respondent
Herby Commercial & Construction Corporation (HCCC), represented by its President and General
Manager private respondent Ong. Under the contract, HCCC was to be paid on the basis of the
completed houses and developed lands delivered to and accepted by AFRDC and the
GSIS. Sometime in 1979, Ong discovered that Diaz and Francisco, the Vice-President of GSIS, had
executed and signed seven checks of various dates and amounts payable to HCCC for completed and
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delivered work under the contract. Ong, however, claims that these checks were never delivered to
HCCC. It turned out that Francisco forged the indorsement of Ong on the checks and indorsed the
checks for a second time by signing her name at the back of the checks, petitioner then deposited
said checks in her savings account. A case was brought by private respondents against petitioner to
recover the value of said checks. Petitioner however claims that she was authorized to sign Ong's
name on the checks by virtue of the Certification executed by Ong in her favor giving her the
authority to collect all the receivables of HCCC from the GSIS, including the questioned checks.

ISSUE:
Whether petitioner cannot be held liable on the questioned checks by virtue of the Certification
executed by Ong giving her the authority to collect such checks from the GSIS?

HELD:
Petitioner is liable. The Negotiable Instruments Law provides that where any person is under
obligation to indorse in a representative capacity, he may indorse in such terms as to negative
personal liability. An agent, when so signing, should indicate that he is merely signing in behalf of
the principal and must disclose the name of his principal; otherwise he shall be held personally
liable. Even assuming that Francisco was authorized by HCCC to sign Ong's name, still, Francisco did
not indorse the instrument in accordance with law. Instead of signing Ong's name, Francisco should
have signed her own name and expressly indicated that she was signing as an agent of HCCC. Thus,
the Certification cannot be used by Francisco to validate her act of forgery.

FORGERY

(12) JAI ALAI VS. BPI
66 SCRA 29

FACTS:
Checks were deposited by petitioner in its current account with the bank. These checks were
from a certain Ramirez, a consistent better in its games, who was a sales agent from Inter-
Island Gas. Inter-Island later found out that of the forgeries committed in the checks and
thus, it informed all the parties concerned. Upon the demands on the bank as the collecting bank, it
debited the account of petitioner. Thereafter, petitioner tried to issue a check for payment of
shares of stock but such was dishonored for insufficient funds. It filed a complaint against the
bank.

ISSUE:
Whether or not the petitioner is liable?

HELD:
Considering that the petitioner indorsed the said checks when it deposited them with the
respondent, the petitioner as an indorser guaranteed the genuineness of all prior
indorsements thereon. The respondent which relied upon the petitioners warranty should
not be held liable for the resulting loss.

Furthermore, the provision in the deposit slip on the right of reservation by the bank applies only
when there is actual receipt of current funds or solvent credits. But as earlier on indicated, the
transfer on account of the checks were ineffectual because it was made under the mistaken and
valid assumption that the indorsements of the payee thereon were genuine.

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(13) Republic Bank vs. Ebrada
GR L-40796,
31 July 1975

First Division, Martin (J)

FACTS:
Mauricia Ebrada encashed a back pay check for P1,246.08 at Republic Bank (Escolta Branch). The
Bureau of Treasury, which issued the check advised the bank that the alleged indorsement of the
check by one Martin Lorenzo was a forgery as the latter has been dead since 14 July 1952; and
requested that it be refunded the sum deducted from its account. The bank refunded the amount to
the Bureau and demanded upon Ebrada the sum in question, who refused. Hence, the present
action.

ISSUE:
Whether the bank can recover from the last indorser?

HELD:
According to Section 23 of the Negotiable Instruments Law, where the signature on a Negotiable
instrument is forged, the negotiation of the check is without force or effect. However, following the
ruling in Beam vs. Farrel (US case), where a check has several indorsements on it, only the
negotiation based on the forged or unauthorized signature which is inoperative. The last indorser,
Ebrada, was duty-bound to ascertain whether the check was genuine before presenting it to the
bank for payment. Her failure to do so makes her liable for the loss and the Bank may recover from
her the money she received for the check. Had she performed her duty, the forgery would have
been detected and fraud defeated. Even if she turned over the amount to Dominguez immediately
after receiving the cash proceeds of the check, she is liable as an accommodation party under
Section 29 of the Negotiable Instruments Law.

(14) MWSS vs. CA
GR L-62943,
14 July 1986

Second Division, Gutierrez Jr. (J)

FACTS:
By special arrangement with PNB, MWSS used personalized checks in drawing from its account. The
checks were printed by its printer, F. Mesina Enterprises. 23 checks were paid and cleared by PNB,
and debited against MWSS account from March to May 1969. The checks were deposited by payees
Raul Dizon, Arturo Sison, and Antonio Mendoza in their account with PCIBank. Said persons were
later found to be fictitious. MWSS requested PNB to restore the amount debited due to the 23
checks, allegedly forged, to its account. The bank refused. Hence, the present action.

ISSUE:
Who shall bear the loss resulting from the alleged forged checks?

HELD:
There was no express and categorical finding that the 23 checks were forged or signed by persons
other than the authorized MWSS signatories. Forgery is not presumed but should be established by
clear, positive and convincing evidence. MWSS is barred from setting up defense of forgery under
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Section 23 of the Negotiable Instruments Law as MWSS committed gross negligence in the printing
of its personalized checks, failed to reconcile its bank statements with its own records, and failed to
provide appropriate security measures over its own record. PNB, the drawee bank, had taken
necessary measures in the detection of forged checks and the prevention of their fraudulent
encashment through constant reminders to all its current account bookkeepers informing them of
the activities of forgery syndicates. MWSS gross negligence was the proximate cause of the loss (P3
million), and should bear the loss.

(15) BANCO DE ORO SAVING V. EQUITABLE
157 SCRA 188
January 20, 1988

FACTS:
BDO drew checks payable to member establishments. Subsequently, the checks were deposited in
Trencios account with Equitable. The checks were sent for clearing and was thereafter cleared.
Afterwards, BDO discovered that the indorsements in the back of the checks were forged. It then
demanded that Equitable credit its account but the latter refused to do so. This prompted BDO to file a
complaint against Equitable and PCHC. The trial court and RTC held in favor of the Equitable and PCHC.

ISSUE:
Whether or not BDO is liable on the forged indorsement?

HELD:
Petitioner is estopped from raising the non-negotiability of the checks in issue. It stamped its
guarantee at the back of the checks and subsequently presented it for clearing and it was in the
basis of these endorsements by the petitioner that the proceeds were credited in its
clearing account. The petitioner cannot now deny its liability as it assumed the liability of an indorser by
stamping its guarantee at the back of the checks.

Furthermore, the bank cannot escape liability of an indorser of a check and which may turn out to be a forged
indorsement. Whenever a bank treats the signature at the back of the checks as indorsements and thus
logically guarantees the same as such there can be no doubt that said bank had considered the checks
as negotiable.

In a long line of cases also held that in the matter of forgery in endorsements, it is the
collecting bank that generally suffers the loss because it had the duty to ascertain the genuineness of
all prior indorsements considering that the act of presenting the check for payment to the drawee is an
assertion that the party making the presentment has done its duty to ascertain the genuineness of the
indorsements.

(16) Gempesaw vs. CA
GR 92244
9 February 1993

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.
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ISSUE:
Who shall bear the loss resulting from the forged indorsements?

HELD:
As a rule, a drawee bank who has paid a check on which an indorsement has been forged cannot
charge the drawers 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. On the other hand, the banking rule banning acceptance of checks for deposit or cash
payment with more than one indorsement unless cleared by some bank officials does not invalidate
the instrument; neither does it invalidate the negotiation or transfer of said checks. The only kind of
indorsement which stops the further negotiation of an instrument is a restrictive indorsement which
prohibits the further negotiation thereof, pursuant to Section 36 of the Negotiable Instruments Law.
In light of any case not provided for in the Act that is to be governed by the provisions of existing
legislation, pursuant to Section 196 of the Negotiable Instruments Law, the bank may be held liable
for damages in accordance with Article 1170 of the Civil Code. The drawee bank, in its failure to
discover the fraud committed by its employee and in contravention banking rules in allowing a chief
accountant to deposit the checks bearing second indorsements, was adjudged liable to share the
loss with Gempesaw on a 50:50 ratio.

(17) Associated Bank vs. CA
GR 89802
7 May 1992

FACTS:
Melissas RTWs customers issued cross checks payable to Melissas RTW, which its proprietor Merle
Reyes did not receive. It was learned that the checks had been deposited with the Associated Bank
by one Rafael Sayson. Sayson was not authorized by Reyes to deposit and encash said checks. Reyes
filed an action for the recovery of the total value of the checks plus damages.

ISSUE:
Whether the bank was negligent for the loss?

HELD:
Crossing a check means that the drawee bank should not encash the check but merely accept it for
deposit, that the check may be negotiated only once by one who has an account in a bank, and that
the check serves as warning that it was issued for a definite purpose so that he must inquire if he has
received the check pursuant to that purpose. The effect, thus, relate to the mode of its presentment
for payment, in accordance with Section 72 of the Negotiable Instruments Law. The bank paid the
checks notwithstanding that title had not passed to the indorser, as the checks had been crossed
and issued for payees account only. It does did so in its own peril and became liable to the payee
for the value of the checks. The failure of the bank to make an inquiry as to Saysons authority was a
breach of its duty. The bank is negligent and is thus liable to Reyes.

(18) Metrobank vs. First National City Bank
118 SCRA 537

13

FACTS:
On August 25, 1964, a check payable for P50,000.00 to CASH drawn by Joaquin Cunanan and Co. on FNCB was
deposited with the Metrobank by a certain Salvador Sales. The check was cleared by FNCB the same day and
the amount credited to his deposit with Metro Bank. Sales withdrew his total deposit with Metrobank and the
withdrawal of the balance was allowed only when FNCB, upon verification made by Metrobank of the
regularity and genuineness of the check deposit, assured Metrobank that the fast movement of the account
was not unusual. Subsequently, FNCB returned the cancelled check to drawer Joaquin Cunanan and Co. and
the company notified FNCB that the check had been altered, the actual amount of P50.00 having been raised
to P50,000.00, and the name of the payee, Manila Polo Club, having been superimposed with the word CASH.
FNCB notified Metrobank of the alteration on September 4, 1964. When Metrobank refused to reimburse
FNCB for the amount of P50,000.00, it filed an action for recovery of the amount with the Court of First
Instance of Manila. After trial, the Trial Court rendered judgment ordering Metrobank to reimburse FNCB the
amount of P50,000.00. On appeal, the Court of Appeals affirmed the decision. Hence, the present petition.

ISSUE:
Whether or not Metrobank is liable for the payment of the altered check?

HELD:
The Supreme Court held in the negative. Metrobank is not liable. The drawee bank FNCB is the bank liable.
Under the Central Bank Circular No. 9 as amended by Circular No. 138 and Circular No. 169, the drawee bank
receiving the check for clearing from the Central Clearing House must return the check to the collecting bank
within the 24-hour period if the check is defective for any reason.

In the case at bar, the check was not returned to Metrobank in accordance within the 24-hour clearing house
period, but was cleared by FNCB. Failure of FNCB, therefore, to call the attention of Metrobank to the
alteration of the check in question until after the lapse of nine days, negates whatever right it might have had
against Metro Bank in the light of the said Central Bank Circular. Its remedy lies not against Metrobank, but
against the party responsible for the changing the name of the payee and amount on the face of the check.

(19) Republic Bank vs. CA
GR 42725
22 April 1991

First Division, Grino Aquino (J)

FACTS:
San Miguel Corporation issued a dividend check for P240 in favor of J. Roberto Delgado, a
stockholder. Delgado altered the amount of the check to P9,240. The check was indorsed and
deposited by Delgado with Republic Bank. Republic Bank endorsed the check to First National City
Bank (FNCB), the drawee bank, by stamping on the back of the check all prior and / or lack of
indorsements guaranteed. Relying on the endorsement, FNCB paid the amount to Republic Bank.
Later on, San Miguel informed FNCB of the material alteration of the amount. FNCB recredited the
amount to San Miguels account, and demanded refund from Republic Bank. Republic Bank refused.
Hence, the present action.

ISSUE:
Who shall bear the loss resulting from the altered check?

HELD:
When an indorsement is forged, the collecting bank or last indorser, as a general rule, bears the loss.
But the unqualified indorsement of the collecting bank on the check should be read together with
the 24-hour regulation on clearing house operation. Thus, when the drawee bank fails to return a
forged or altered check to the collecting bank within the 24-hour clearing period (as provided by
14

Section 4c of Central Bank Circular 9, as amended), the collecting bank is absolved from liability. The
drawee bank, FNCB, should bear the loss for the payment of the altered check for its failure to
detect and warn Republic Bank of the fraudulent character of the check within the 24-hour clearing
house rule.

(20) Philippine Commercial Industrial Bank vs. CA
GR 121413
29 January 2001

Second Division, Quisumbing (J)

FACTS:
Ford issued Citibank checks in favor of the Commissioner of Internal Revenue as payments of its
taxes, through the depository bank Insular Bank of Asia and America (later PCIBank). Proceeds of the
checks were never received by the Commissioner, but were encashed and diverted to the accounts
of members of a syndicate, to which Fords General Ledger Accountant Godofredo Rivera belongs.
Upon demand of the Commissioner anew, Ford was forced to make second payment of its taxes.
Thus, Ford instituted actions to recover the amounts from the collecting (depository) and drawee
banks.

ISSUE:
Whether Ford has the right to recover from the collecting bank (PCI Bank) and/or the drawee bank
(Citibank) the value of the checks?

HELD:
The mere fact that forgery was committed by a drawer-payors confidential employee or agent, who
by virtue of his position had unusual facilities to perpetrate the fraud and imposing the forged paper
upon the bank, does not entitle the bank to shift the loss to the drawer-payor, in the absence of
some circumstance raising estoppel against the drawer. The rule applies to checks fraudulently
negotiated or diverted by the confidential employees who hold them in their possession.

In GRs 121413 and 121479, PCIBank failed to verify the authority of Mr. Rivera to negotiate the
checks. Furthermore, PCIBanks clearing stamp which guarantees prior or lack of indorsements
render PCIBank liable as it allowed Citibank without any other option but to pay the checks. PCIBank,
being a depository / collecting bank of the BIR, had the responsibility to make sure that the crossed
checks were deposited in Payees account only as found in the instrument.

In GR 128604, on the other hand, the switching operation involving the checks, while in transit for
clearing, were the clandestine or hidden actuations performed by the members of the syndicate in
their own personal, covert and private capacity; without the knowledge nor official or conscious
participation of PCIBank in the process of embezzlement. Central Bank Circular 580 (1977), however,
provide d that any theft affecting items in transit for clearing are for the account of the sending bank
(herein PCIBank). Still, Citibank was likewise negligent in the performance of its duties as it failed to
establish its payment of Fords checks were made in due course and legally in order. The fact that
drawee bank did not discover the irregularity seasonably constitutes negligence in carrying out the
banks duty to its depositors.

(21) Samsung Construction vs. Far East Bank
G.R. No. 129015
August 15, 2004
15


Facts:
Samsung Construction held an account with Far East Bank. One day a check worth 900,000, payable
to cash, was presented by one Roberto Gonzaga in the Makati Branch of Far East Bank. The check
was certified to be true by Jose Sempio, the assistant accountant of Samsung, who was also present
during the time the check was cashed. Later however it was discovered that no such check was ever
approved by the Samsungs head accountant, the president of the company also never signed any
such check.

Issue:
Whether or not Far East Bank is liable to reimburse Samsung for cashing out the forged check, which
was drawn from the account of Samsung?

Held:
Far East Bank is liable for reimbursement. Sec. 23 of the Negotiable Instrument Law states that a
forged signature makes the instrument wholly inoperative. If payment is made the drawee (Far
East) cannot charge it to the drawers account (Samsung). The fact that the forgery is clever is
immaterial. The forged signature may so closely resemble the genuine as to defy detection by the
depositor himself. And yet, if the bank pays the check, it is paying out with its own money and not of
the depositors. This rule of liability can be stated briefly in these words: A bank is bound to know
its depositors signature. The accusation of negligence on the part of Samsung was not clearly
proven. Absence of proof to the contrary, the presumption is that the ordinary course of
business was followed.

MATERIAL ALTERATION

(22) PHILIPPINE NATIONAL BANK, petitioner,
vs.
COURT OF APPEALS and CARMELO H. FLORES, respondents.
G.R. No. 116181
April 17, 1996

FACTS:
DECS issued a check in favor of Abante Marketing containing a specific serial number, drawn
against PNB. The check was deposited by Abante in its account with Capitol and the latter
consequently deposited the same with its account with PBCOM which later deposited it with
petitioner for clearing. The check was thereafter cleared. However, on a relevant date, petitioner
PNB returned the check on account that there had been a material alteration on it.
Subsequent debits were made but Capitol cannot debit the account of Abante any longer for the
latter had withdrawn all the money already from the account. This prompted Capitol to seek
reclarification from PBCOM and demanded the recrediting of its account. PBCOM followed suit
by doing the same against PNB. Demands unheeded, it filed an action against PBCOM and the latter
filed a third-party complaint against petitioner.

ISSUE:
Whether or not there is material alteration of the check?

HELD:
An alteration is said to be material if it alters the effect of the instrument. It means an unauthorized
change in the instrument that purports to modify in any respect the obligation of a party or an
16

unauthorized addition of words or numbers or other change to an incomplete instrument relating
to the obligation of the party. In other words, a material alteration is one which changes the
items which are required to be stated under Section 1 of the NIL.

In this case, the alleged material alteration was the alteration of the serial number of the check in
issuewhich is not an essential element of a negotiable instrument under Sec. 1 PNB alleges
that the alteration was material since it is an accepted concept that a TCAA check by its very
nature is the medium of exchange of governments, instrumentalities and agencies. As a
safety measure, every government office or agency is assigned checks bearing different serial
numbers.

But this contention has to fail. The checks serial number is not the sole indicia of its origin. The
name of the government agency issuing the check is clearly stated therein. Thus, the checks drawer
is sufficiently identified, rendering redundant the referral to its serial number.

Therefore, there being no material alteration in the check committed, PNB could not return the
check to PBCOM. It should pay the same.

(23) Montinola vs. PNB
G.R. No. L-2861
February 26, 1951

FACTS:
In May 1942, Ubaldo Laya, as provincial treasurer of Misamis Oriental issued a P100,000.00
Philippine National Bank (PNB) check to Mariano Ramos. The said check was to be used by Ramos, as
disbursing officer of the US forces at that time, for military purposes. Before Ramos can encash the
check, he was made a prisoner of war by the invading Japanese forces. When he got free in
December 1944, he needed some cash for himself and so he went to a certain Enrique Montinola
and made arrangements.

In consideration thereof, Montinola promised to pay 85,000 in Japanese notes (that time peso notes
are valued higher). However, he was only able to pay 45k in Japanese notes to Ramos.
Later, Montinola sought to have the check encashed but PNB dishonored the check. It appears that
there was an insertion made. Under the signature of Laya, the words Agent, Philippine National
Bank was inserted, thus making it appear that Laya disbursed the check as an agent of PNB and not
as provincial treasurer of Misamis Oriental (NOTE: at that time, a provincial treasurer is an ex officio
agent of the governments bank).

ISSUE:
Whether or not the material alteration discharges the instrument?

HELD:
No. It was not negotiated according to the Negotiable Instruments Law (NIL) hence it is not a
negotiable instrument. There was only a partial indorsement and not a negotiation contemplated
under the NIL. Only P30k of the P100k amount of the check was indorsed. This merely make
Montinola a mere assignee and this is the clear intent of Ramos. Ramos was merely assigning P30k
to Montinola. Montinola may therefore not be regarded as an indorsee and PNB has all the right to
dishonor the check. As mere assignee, he is subject to all defenses available to the drawer Provincial
Treasurer of Misamis Oriental and against Ramos.

17

Anent the issue of alteration, the apparent purpose of which is to make the drawee (PNB) the
drawer against which Montinola can recover from directly. Such material alteration which was done
by Montinola without the consent of the parties liable thereon discharges the instrument, pursuant
to Sec. 124 of the NIL.

Montinola cannot be said to be a holder. He is an assignee. And even if he is a holder, he is not in
good faith because he did not pay the full amount of the consideration for which the P30k was
issued to him he only paid 45k Japanese notes out of the 90k Japanese notes consideration.

At any rate, even assuming that there is proper negotiation, Montinola can no longer encash said
check because when he sought to have it encashed in January 1945, it is already stale there being
two and half years passing since its time of issuance.

ACCOMODATION PARTY

(24) SADAYA vs. SEVILLA
19 SCRA 924

FACTS:
Sadaya, Sevilla and Varona signed solidarily a promissory note in favor of the bank. Varona was the
only one who received the proceeds of the note. Sadaya and Sevilla both signed as co-makers
to accommodate Varona. Thereafter, the bank collected from Sadaya. Varona failed to reimburse.

Consequently, Sevilla died and intestate estate proceedings were established. Sadaya filed a
creditors claim on his estate for the payment he made on the note. The administrator resisted the
claim on the ground that Sevilla didn't receive any proceeds of the loan. The trial court
admitted the claim of Sadaya though tis was reversed by the CA.

ISSUE:
Whether or not

HELD:
Sadaya could have sought reimbursement from Varona, which is right and just as the latter was
the only one who received value for the note executed. There is an implied contract of
indemnity between Sadaya and Varona upon the formers payment of the obligation to the bank.

Surely enough, the obligations of Varona and Sevilla to Sadaya cannot be joint and several. For
indeed, had payment been made by Varona, Varona couldn't had reason to seek reimbursement
from either Sadaya or Sevilla. After all, the proceeds of the loan went to Varona alone.

On principle, a solidary accommodation makerwho made paymenthas the right to
contribution, from his co-accomodation maker, in the absence of agreement to the contrary
between them, subject to conditions imposed by law. This right springs from an implied
promise to share equally the burdens they may ensue from their having consented to stamp
their signatures on the promissory note.

The following are the rules:
1. A joint and several accommodation maker of a negotiable promissory note may
demand from the principal debtor reimbursement for the amount that he paid to the
payee
18

2. A joint and several accommodation maker who pays on the said promissory note may
directly demand reimbursement from his co-accommodation maker without first directing
his action against the principal debtor provided that
a. He made the payment by virtue of a judicial demand
b. A principal debtor is insolvent.
It was never shown that there was a judicial demand on Sadaya to pay the obligation and also, it was
never proven that Varona was insolvent. Thus, Sadaya cannot proceed against Sevilla for
reimbursement.

(25) Crisologo-Jose vs. Court of Appeals
177 SCRA 594
(1989)

FACTS:
Plaintiff Ricardo S. Santos, Jr. was the vice-president of Mover Enterprises, Inc. in-charge of
marketing and sales; and the president of the said corporation was Atty. Oscar Z. Benares. Atty.
Benares, in accommodation of his clients, the spouses Jaime and Clarita Ong, issued check against
Traders Royal Bank, payable to defendant Ernestina Crisologo-Jose. Since the check was under the
account of Mover Enterprises, Inc., the same was to be signed by its president, Atty. Oscar Z.
Benares, and the treasurer of the said corporation. However, since at that time, the treasurer of
Mover Enterprises was not available, Atty. Benares prevailed upon the plaintiff, Ricardo S. Santos,
Jr., to sign the aforesaid check. The check was issued to defendant Ernestina Crisologo-Jose in
consideration of the waiver or quitclaim by said defendant over a certain property which the
Government Service Insurance System (GSIS) agreed to sell to the spouses Jaime and Clarita Ong,
with the understanding that upon approval by the GSIS of the compromise agreement with the
spouses Ong, the check will be encashed accordingly. Since the compromise agreement was not
approved within the expected period of time, the aforesaid check was replaced by Atty. Benares.
This replacement check was also signed by Atty. Oscar Z. Benares and by the plaintiff Ricardo S.
Santos, Jr. When defendant deposited this replacement check with her account at Family Savings
Bank, Mayon Branch, it was dishonored for insufficiency of funds. The petitioner filed an action
against the corporation for accommodation party.

ISSUE:
WON the corporation can be held liable as accommodation party?

HELD:
No. Accommodation party liable on the instrument to a holder for value, although such holder at the
time of taking the instrument knew him to be only an accommodation party, 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. Hence, one who has taken the instrument with knowledge of the accommodation
nature thereof cannot recover against a corporation where it is only an accommodation party. If the
form of the instrument, or the nature of the transaction, is such as to charge the indorsee with
knowledge that the issue or indorsement of the instrument by the corporation is for the
accommodation of another, he cannot recover against the corporation thereon. By way of
exception, an officer or agent of a corporation shall have the power to execute or indorse a
negotiable paper in the name of the corporation for the accommodation of a third person only if
specifically authorized to do so. Corollarily, corporate officers, such as the president and vice-
president, have no power to execute for mere accommodation a negotiable instrument of the
corporation for their individual debts or transactions arising from or in relation to matters in which
19

the corporation has no legitimate concern. Since such accommodation paper cannot thus be
enforced against the corporation, especially since it is not involved in any aspect of the corporate
business or operations, the inescapable conclusion in law and in logic is that the signatories thereof
shall be personally liable therefor, as well as the consequences arising from their acts in connection
therewith.

(26) STELCO MARKETING V. CA
210 SCRA 51

FACTS:
Petitioner was engaged in the distribution and sale of structural steel bars. RYL bought on several
occasion large quantities of steel bars but the same were never paid for despite several demands by
petitioner.

On a relevant date, RYL gave to Armstrong Industries a check in payment of its obligations. The
check was drawn by Steelweld Corporationallegedly the owner of RYL persuaded the
president of Steelweld to accommodate the former in its obligation. The check, when deposited
was thereafter dishonored due to insufficient funds. A case ensued for violations of BP22 but
the case was dismissed as the check was held to be for accommodation purposes only.

Thereafter a complaint was filed by petitioner against RYL and Steelweld for the recovery of
sum of money in payment of the steel bars ordered. RYL was nowhere to be found that is why
the proceedings commenced as against Steelweld only. The trial court decided in favor of
petitioner but this was reversed by the CA.

ISSUE:
Whether or not

HELD:
Petitioner contends that the acquittal of Lim and Tianson didn't operate to release Steelweld from
its liability as an accommodation party. Noteworthy is that neither said pronouncement nor any
other part of the judgment of acquittal declared it liable to petitioner. To be sure, as regards
an accommodation party, the condition of lack of notice of any infirmity or defect in title of
the persons negotiating it is of no application since the law preserves the right of recourse of
a holder for value against an accommodation party notwithstanding knowledge that at the time
of taking the instrument, knew him only as an accommodation party.

Further, there is no evidence to show that petitioner possessed the check before the instruments
presentment and dishonor. In what transpired during the transactions involving the check,
evidence and facts show that there was any participation or intervention on the part of petitioner.
What the record shows is that only after the check was deposited and dishonored, petitioner
came into possession of it in some way and was able to give it in evidence at the trial of the civil case
it has instituted against the drawers of the check.

(27) BANK OF THE PHILIPPINE ISLANDS vs. COURT OF APPEALS
326 SCRA 641

Negotiable Instruments Law Negotiation Indorsement 326 SCRA 641 Withdrawal Slip

FACTS:
20

Benjamin Napiza maintains an account with the Bank of the Philippine Islands (BPI). In 1987, Napiza
was approached by Henry Chan and the latter gave him a $2,500 Continental Bank Managers check.
Chan asked if Napiza can deposit the check to his (Napizas BPI account) by way of accommodation
and for the purpose of clearing the said check. Napiza agreed and so he deposited the check on
September 3, 1987. Napiza then delivered a signed blank withdrawal slip to Chan with the condition
that the $2,500.00 may only be withdrawn if the check cleared. For some reason, the withdrawal slip
ended up in the hands of one Ruben Gayon who went to BPI and successfully withdrew the
$2,500.00. At the time of the withdrawal, the check was not yet cleared. Then days later, BPI was
notified by the drawee bank named in the check that the check is actually a counterfeit.

ISSUE:
Whether or not Napiza may be held liable to refund the amount of the check?

HELD:
No. The Supreme Court ruled that ordinarily, Napiza would have been liable because he is an
accommodation indorser. But due to the attendant circumstances, Napiza is discharged from
liability.

The withdrawal slip indicates as well as the rules promulgated by BPI that withdrawal from the bank
should be accompanied by the presentment of the account holders (Napizas) savings bankbook.
This was not done so in the case at bar because Gayon was able to withdraw without it. Further, BPI
allowed the withdrawal even before the check cleared. BPI already credited the $2,500.00 to
Napizas account even without the drawee bank clearing the check. This is contrary to common
banking practices and because of such negligence and lack of diligence, BPI, as the collecting bank,
shall suffer the loss.

(28) Agro Conglomerates Inc. vs. CA
348 SCRA 450
(2000)

FACTS:
Petitioner sold to Wonderland Food Industries two parcels of land. They stipulated under a
Memorandum of Agreement that the terms of payment would be P1,000,000 in cash, P2,000,000
in shares of stock, and the balance would be payable in monthly installments. Thereafter,
an addendum was executed between them, qualifying the cash payment. Instead of cash
payment, the vendee authorized the vendor to obtain a loan from the financier on which the
vendee bound itself to pay for. This loan was to cover for the payment of P1,000,000. This
addendum was not notarized.

Petitioner Soriano signed as maker the promissory notes payable to the bank. However, the
petitioners failed to pay the obligations as they were due. During that time, the bank was in
financial distress and this prompted it to endorse the promissory notes for collection. The bank
gave ample time to petitioners then to satisfy their obligations.

The trial court held in favor of the bank. It didn't find merit to the contention that
Wonderland was the one to be held liable for the promissory notes.

ISSUE:
W/N Agro should be liable because there was no accomodation or surety?

21

HELD:
First, there was no contract of sale that materialized. The original agreement was that
Wonderland would pay cash and petitioner would deliver possession of the farmlands. But
this was changed through an addendum, that petitioner would instead secure a loan and the
settlement of the same would be shouldered by Wonderland. Petitioners became liable as
accommodation parties. They have the right after paying the instrument to seek reimbursement
from the party accommodated, since the relation between them has in effect became one of
principal and surety.

Furthermore, as it turned out, the contract of surety between Woodland and petitioner was
extinguished by the rescission of the contract of sale of the farmland. With the rescission, there was
confusion in the persons of the principal debtor and surety. The addendum thereon likewise lost
its efficacy.

HOLDERS IN DUE COURSE

(29) De Ocampo vs. Gatchalian
3 SCRA 596

Negotiable Instruments Law Rights of the Holder 3 SCRA 596 What Constitutes a Holder in Due
Course Is a payee a holder in due course?

FACTS:
Matilde Gonzales was a patient of the De Ocampo Clinic. She incurred a debt amounting to P441.75.
Her husband, Manuel Gonzales designed a scheme in order to pay off this debt: In 1953, Manuel
went to a certain Anita Gatchalian. Manuel purported himself to be selling the car of De Ocampo.
Gatchalian was interested in buying said car but Manuel told her that De Ocampo will only sell the
car if Gatchalian shows her willingness to pay for it. Manuel advised Gatchalian to draw a check of
P600.00 payable to De Ocampo so that Manuel may show it to De Ocampo and that Manuel in the
meantime will hold it for safekeeping. Gatchalian agreed and gave Manuel the check. After that,
Manuel never showed himself to Gatchalian.

Meanwhile, Manuel gave the check to his wife who in turn gave the check to De Ocampo as
payment of her bills with the clinic. De Ocampo received the check and even gave Matilde her
change (sukli). On the other hand, since Gatchalian never saw Manuel again, she placed a stop-
payment on the P600.00 check so De Ocampo was not able to cash on the check. Eventually, the
issue reached the courts and the trial court ordered Gatchalian to pay de Ocampo the amount of the
check.

Gatchalian argued that De Ocampo is not entitled to payment because there was no valid
indorsement. De Ocampo argued tha he is a holder in due course because he is the named payee.

ISSUE:
Whether or not De Ocampo is a holder in due course?

HELD:
No. Section 52 of the Negotiable Instruments Law, defines holder in due course, thus:
A holder in due course is a holder who has taken the instrument under the following conditions:
(a) That it is complete and regular upon its face;
22

(b) That he became the holder of it before it was overdue, and without notice that it had been
previously dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him he had no notice of any infirmity in the
instrument or defect in the title of the person negotiating it.
The Supreme Court emphasized that if one is such a holder in due course, it is immaterial that he
was the payee and an immediate party to the instrument. The Supreme Court however ruled that De
Ocampo is not a holder in due course for his lack of good faith. De Ocampo should have inquired as
to the legal title of Manuel to the said check. The fact that Gatchalian has no obligation to De
Ocampo and yet hes named as the payee in the check hould have apprised De Ocampo; that the
check did not correspond to Matilde Gonzales obligation with the clinic because of the fact that it
was for P600.00 more than the indebtedness; that why was Manuel in possession of the check all
these gave De Ocampo the duty to ascertain from the holder Manuel Gonzales what the nature of
the latters title to the check was or the nature of his possession.

(30) Mesina vs. Inter Appelate Court
14 SCRA 497

Negotiable Instruments Law Rights of the Holder 145 SCRA 497 What Constitutes a Holder in
Due Course Stolen Check

FACTS:
Jose Go maintains an account with Associated Bank. He needed to transfer P800,000.00 from
Associated Bank to another bank but he realized that he does not want to be carrying that cash so
he bought a cashiers check from Associated Bank worth P800,000.00. Associated Bank then issued
the check but Jose Go forgot to get the check so it was left on top of the desk of the bank manager.
The bank manager, when he found the check, entrusted it to Albert Uy for the later to safe keep it.
The check was however stolen from Uy by a certain Alexander Lim.

Jose Go learned that the check was stolen son he made a stop payment order against the check.
Meanwhile, Associated Bank received the subject check from Prudential Bank for clearing.
Apparently, the check was presented by a certain Marcelo Mesina for payment. Associated Bank
dishonored the check.

When asked how Mesina got hold of the check, he merely stated that Alfredo Lim, whos already at
large, paid the check to him for a certain transaction.

ISSUE:
Whether or not Mesina is a holder in due course?

HELD:
No. Admittedly, Mesina became the holder of the cashiers check as endorsed by Alexander Lim who
stole the check. Mesina however refused to say how and why it was passed to him. Mesina had
therefore notice of the defect of his title over the check from the start. The holder of a cashiers
check who is not a holder in due course cannot enforce such check against the issuing bank which
dishonors the same. The check in question suffers from the infirmity of not having been properly
negotiated and for value by Jose Go who is the real owner of said instrument.

LIABILITY OF GENERAL INDORSERS

23

(31) METROPOL V. SAMBOK MOTORS CO.
120 SCRA 864

FACTS:
Dr. Villareal issued a promissory note in favor of Sambok, which was payable in monthly
installments. The promissory note was then indorsed to Metropol. Villareal defaulted payment
and this prompted Metropol to run after Sampol. Sampol alleged that it is not liable since
it was a qualified indorser through the wordings it inserted in its indorsementwith recourse.

ISSUE:
Whether or not Sampol is liable as an indorser?

HELD:
A qualified indorsement constitutes the indorser a mere assignor of the title to the instrument. It
may be made by adding to the indorser's signature the words "without recourse" or any
words of similar import. Such an indorsement relieves the indorser of the general obligation
to pay if the instrument is dishonored but not of the liability arising from warranties on the
instrument as provided in Section 65 of the Negotiable Instruments Law already mentioned
herein. However, appellant Sambok indorsed the note "with recourse" and even waived the
notice of demand, dishonor, protest and presentment.

"Recourse" means resort to a person who is secondarily liable after the default of the person
who is primarily liable. 3 Appellant, by indorsing the note "with recourse" does not make itself a
qualified indorser but a general indorser who is secondarily liable, because by such indorsement, it
agreed that if Dr. Villaruel fails to pay the note, plaintiff-appellee can go after said appellant. The
effect of such indorsement is that the note was indorsed without qualification. A person who
indorses without qualification engages that on due presentment, the note shall be accepted or paid,
or both as the case may be, and that if it be dishonored, he will pay the amount thereof to the
holder. 4 Appellant Sambok's intention of indorsing the note without qualification is made even
more apparent by the fact that the notice of demand, dishonor, protest and presentment
were an waived. The words added by said appellant do not limit his liability, but rather
confirm his obligation as a general indorser.

(32) MARALIT vs IMPERIAL
G.R. No. 130756
January 21, 1999

FACTS:
Petitioner Ester B. Maralit filed three complaints for estafa three falsification of commercial documents
through reckless imprudence against respondent Jesusa Corazon L. Imperial.
1
Maralit alleged that she was
assistant manager of the Naga City branch of the Philippine National Bank, (PNB); that on May 20, 1992, June
1, 1992, and July 1, 1992 respondent Imperial separately deposited in her savings account at the PNB three
United States treasury warrants bearing USTW Nos. 2034-91254963, 2034-91180047, and 2034-33330760
and on the same days withdrew their peso equivalent of P59,216.86, P130,743.60, and P130,326.00,
respectively; and that the treasury warrants were subsequently returned one after the other by the United
States Treasury, through the Makati branch of the Citibank, on the ground that the amounts thereof had been
altered. Maralit claimed that as a consequence, she was held personally liable by the PNB for the total
amount of P320,287.30.

In her counter-affidavit, respondent claimed that she merely helped a relative, Aida Abengoza, encash the
treasury warrants; that she deposited the treasury warrants in her savings account and then withdrew their
peso equivalent with the approval of petitioner; that she gave the money to Aida Abengoza; that she did not
24

know that the amounts on the treasury warrants had been altered nor did she represent to petitioner that
the treasury warrants were genuine; and that upon being informed of the dishonor of the warrants she
immediately contacted Aida Abengoza and signed an acknowledgment of debt promising to pay the total
amount of the treasury warrants.

ISSUE:
Whether or not respondent is civilly liable as indorser of the checks?

HELD:
Following the decision of the lower court in its statement that, the Court is of the opinion that there was
negligence on both the complainant and the accused but greater responsibility should be borne by the private
complainant, Mrs. Maralit, considering that being more knowledgeable of the banking procedures of the bank
of which she is the assistant manager. The accused could not have encashed and deposited the checks
without her approval. If the complainant was not remiss in her duty in imposing the banking rules strictly,
then these things could not have happened.

The Court symphatizes with the complainant that there was indeed damage and loss, but said loss is
chargeable to the accused who upon her indorsements warrant that the instrument is genuine in all respect
what it purports to be and that she will pay the amount thereof in case of dishonor.

Thus, while the MTC found petitioner partly responsible for the encashment of the altered checks, it found
respondent civilly liable because of her indorsements of the treasury warrants, in addition to the fact that
respondent executed a notarized acknowledgment of debt promising to pay the total amount of said
warrants.

(33) Sapiera vs Court of Appeals
G.R. No. 128927
September 14, 1999

FACTS:
Petitioner Remedios Sapiera, a sari-sari store owner, was issued by one Arturo de Guzman checks as
payment for purchases he made at her store. She used said checks to pay for certain items she
purchased from the grocery store of Ramon Sua. These checks were signed at the back by
petitioner. When presented for payment the checks were dishonored because the drawers account
was already closed. Sua informed Arturo de Guzman and petitioner about the dishonor but both
failed to pay the value of the checks. Petitioner was acquitted in the charge of estafa filed against
her but she was found liable for the value of the checks.

ISSUE:
Whether petitioner is liable for the value of the checks even if she signed the subject checks only for
the identification of the signature of Arturo de Guzman?

RULING:
Petitioner is liable for the value of the checks. As she (petitioner) signed the subject checks on the
reverse side without any indication as to how she should be bound thereby, she is deemed to be an
unqualified indorser thereof. Every indorser who indorses without qualification, warrants to all
subsequent holders in due course that, on due presentment, it shall be accepted or paid or both,
according to its tenor, and that if it be dishonored and the necessary proceedings on dishonor be
duly taken, he will pay the amount thereof to the holder or to any subsequent indorser who may be
compelled to pay it.

(34) BPI vs. Court of Appeals and Napiza
25

G.R. No. 112392
February 29, 2000
326 scra 641

FACTS:
A certain Henry Chan owned a Continental Bank Managers Check payable to "cash" in the amount
of Two Thousand Five Hundred Dollars ($2,500.00). Chan went to the office of Benjamin Napiza and
requested him to deposit the check in his dollar account by way of accommodation and for the
purpose of clearing the same. Private respondent acceded, and agreed to deliver to Chan a signed
blank withdrawal slip, with the understanding that as soon as the check is cleared, both of them
would go to the bank to withdraw the amount of the check upon private respondents presentation
to the bank of his passbook. Napiza thus endorsed the check and deposited it in a Foreign Currency
Deposit Unit (FCDU) Savings Account he maintained with BPI. Using the blank withdrawal slip given
by private respondent to Chan, one Ruben Gayon, Jr. was able to withdraw the amount of $2,541.67
from Napiza's FCDU account. It turned out that said check deposited by private respondent was a
counterfeit check.

When BPI demanded the return of $2,500.00, private respondent claimed that he deposited the
check "for clearing purposes" only to accommodate Chan.

Petitioner claims that private respondent, having affixed his signature at the dorsal side of the check,
should be liable for the amount stated therein in accordance with the provision of the Negotiable
Instruments Law on the liability of a general indorser (Sec. 66).

ISSUE:
Whether or not respondent Napiza is liable under his warranties as a general indorser?

RULING:
Ordinarily private respondent may be held liable as an indorser of the check or even as an
accommodation party. However, petitioner BPI, in allowing the withdrawal of private respondents
deposit, failed to exercise the diligence of a good father of a family. BPI violated its own rules by
allowing the withdrawal of an amount that is definitely over and above the aggregate amount of
private respondents dollar deposits that had yet to be cleared. The proximate cause of the eventual
loss of the amount of $2,500.00 on BPI's part was its personnels negligence in allowing such
withdrawal in disregard of its own rules and the clearing requirement in the banking system. In so
doing, BPI assumed the risk of incurring a loss on account of a forged or counterfeit foreign check
and hence, it should suffer the resulting damage.

PRESENTMENT FOR PAYMENT/ACCEPTANCE

(35) PRUDENTIAL BANK vs. INTERMEDIATE APPELLATE COURT
G.R. No. 74886
December 8, 1992
216 scra 257

FACTS:
Philippine Rayon Mills, Inc. entered into a contract with Nissho Co., Ltd. of Japan for the importation
of textile machineries under a five-year deferred payment plan. To effect payment for said
machineries, Philippine Rayon Mills opened a commercial letter of credit with the Prudential Bank
and Trust Company in favor of Nissho. Against this letter of credit, drafts were drawn and issued by
26

Nissho, which were all paid by the Prudential Bank through its correspondent in Japan. Two of these
drafts were accepted by Philippine Rayon Mills while the others were not. Petitioner instituted an
action for the recovery of the sum of money it paid to Nissho as Philippine Rayon Mills was not able
to pay its obligations arising from the letter of credit. Respondent court ruled that with regard to
the ten drafts which were not presented and accepted, no valid demand for payment can be
made. Petitioner however claims that the drafts were sight drafts which did not require
presentment for acceptance to Philippine Rayon.

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

RULING:
In the case at bar, the drawee was necessarily the herein petitioner. It was to the latter that the
drafts were presented for payment. There was in fact no need for acceptance as the issued drafts
are sight drafts. Presentment for acceptance is necessary only in the cases expressly provided for in
Section 143 of the Negotiable Instruments Law (NIL). The said section provides that presentment for
acceptance must be made:

(a) Where the bill is payable after sight, or in any other case, where presentment for
acceptance is necessary in order to fix the maturity of the instrument; or
(b) Where the bill expressly stipulates that it shall be presented for acceptance; or
(c) Where the bill is drawn payable elsewhere than at the residence or place of business of the
drawee.

In no other case is presentment for acceptance necessary in order to render any party to the bill
liable. Obviously then, sight drafts do not require presentment for acceptance.

(36) WONG vs. COURT OF APPEALS
351 SCRA 100

FACTS:
Wong is a collector of Limtong Press, Inc., a company which prints calendars. Wong was assigned to
collect check payments from LPI clients. One time, 6 of LPIs clients were not able to give the check
payments to Wong. Wong then made arrangement with LPI so that for the meantime, Wong can use
his personal checks to guarantee the calendar orders of the LPIs clients. LPI however has a policy of
not accepting personal checks of its agents. LPI instead proposed that the personal checks should be
used to cover Wongs debt with LPI which arose from unremitted checks by Wong in the past. Wong
agreed. So he issued 6 checks dated December 30, 1985.

Before the maturity of the checks, Wong persuaded LPI not to deposit the checks because he said
hell be replacing them within 30 days. LPI complied however Wong reneged on the payment. On
June 5, 1986 or 157 days from date of issue, LPI presented the check to RCBC but the checks were
dishonored (account closed). On June 20, 1986, LPI sent Wong a notice of dishonor. Wong failed to
make good the amount of the checks within 5 banking days from his receipt of the notice. LPI then
sued Wong for violations of Batas Pambansa Blg. 22.

Among others, Wong argued that hes not guilty of the crime of charged because one of the
elements of the crime is missing, that is, prima facie presumption of knowledge of lack of funds
against the drawer. According to Wong, this element is lost by reason of the belated deposit of the
27

checks by LPI which was 157 days after the checks were issued; that he is not expected to keep his
bank account active beyond the 90-day period 90 days being the period required for the prima
facie presumption of knowledge of lack of fund to arise.

ISSUE:
Whether or not Wong is guilty of the crime charged?

HELD:
Yes. Wong is guilty of violating BP 22. The elements of violation of BP 22 pertinent to this case are:
1. The making, drawing and issuance of any check to apply for account or for value;
2. The knowledge of the maker, drawer, or issuer that at the time of issue he does not have
sufficient funds in or credit with the drawee bank for the payment of such check in full upon its
presentment; and
3. The subsequent dishonor of the check by the drawee bank for insufficiency of funds or credit or
dishonor for the same reason had not the drawer, without any valid cause, ordered the bank to
stop payment.

Under the second element, the presumption of knowledge of the insufficiency arises if the check is
presented within 90 days from the date of issue of the check. This presumption is lost, as in the case
at bar, by failure of LPI to present it within 90 days. But this does not mean that the second element
was not attendant with respect to Wong. The presumption is lost but lack of knowledge can still be
proven, LPI did not deposit the checks because of the reassurance of Wong 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, Wong 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 Wong had
knowledge of the insufficiency of his funds in or credit with the drawee bank at the time of issuance
of the checks.

The Supreme Court also noted that under Section 186 of the Negotiable Instruments Law, a check
must be presented for payment within a reasonable time after its issue or the drawer will be
discharged from liability thereon to the extent of the loss caused by the delay. By current banking
practice, a check becomes stale after more than six (6) months, or 180 days. LPI deposited the
checks 157 days after the date of the check. Hence said checks cannot be considered stale.

(37) THE INTERNATIONAL CORPORATE BANK V. SPOUSES GUECO
351 SCRA 516

FACTS:
Gueco spouses obtained a loan from ICB (now Union Bank) to purchase a car. In consideration
thereof, the debtors executed PNs, and a chattel mortgage was made over the car. As the
usual story goes, the spouses defaulted in payment of their obligations and despite the
lowering of the amount to be paid, they still failed to pay. Thereafter, they tendered a
managers check in favor of the bank. Nonetheless, the car was still detained for the spouses
refused to sign the joint motion to dismiss. The bank averred that the joint motion to dismiss is
part of standard office procedure to preclude the filing of other claims. Because of this, the
spouses filed an action for damages against the bank. And by the time the case was instituted, the
check had become stale in the hands of the bank.

ISSUE:
Whether or not there is timely presentment for payment?
28


HELD:
It appeared that the check has not been encashed. The delivery of the managers check did not
constitute payment. The original obligation to pay still exists. Indeed, the circumstances that
caused the non-presentment of the check should be considered to determine who should bear
the loss. In this case, ICB held on the check and refused to encash the same because of the
controversy surrounding the signing of the joint motion to dismiss. There is no bad faith or
negligence on the part of ICB.

A stale check is one which has not been presented for payment within a reasonable time
after its issue. It is valueless and, therefore, should not be paid. A check should be presented for
payment within a reasonable time after its issue. Here, what is involved is a managers
check, which is essentially a banks own check and may be treated as a PN with the bank as a
maker. Even assuming that presentment is needed, failure to present for payment within a
reasonable time will result to the discharge of the drawer only to the extent of the loss caused
by the delaybut here there is no loss sustained. Still, such failure to present on time does not wipe
out liability.

CHECKS

(38) STATE INVESTMENT vs CA
G.R. No. 101163
January 11, 1993

FACTS:
Corazon Victoriano provided pieces of jewelry to Nora Moulic so that the latter may sell the same.
As security for the jewelries, Moulic issued to Victoriano two post dated checks in the aggregate
amount of P100,000.00. Moulic was not able to sell the jewelries so she returned the same to
Victoriano. Victoriano was however unable to return the checks hence Moulic withdrew all her funds
from the bank.

Apparently, the checks were negotiated by Victoriano to State Investment House. So when the
checks were dishonored, State Investment demanded Moulic to pay. Moulic refused to pay because
she said the checks were merely used as security for the jewelry. Moulic further averred that she
received no notice of dishonor.

ISSUE:
Whether or not State Investment House is entitled to be paid?

HELD:
Yes. State Investment is a holder in due course as it met all the requirements to be one pursuant to
Section 52 of the Negotiable Instruments Law. In particular, it is clearly shown that: (a) on their faces
the post-dated checks were complete and regular: (b) State Investment bought these checks from
Victoriano, before their due dates;

(c) State Investment took these checks in good faith and for
value, (d) State Investment was never informed nor made aware that these checks were merely
issued to Victoriano as security and not for value.

Further, there is no need to issue a notice of dishonor to Moulic. After Moulic withdrew her funds,
she could not have expected her checks to be honored. It would only be futile for State Investment
to be sending her notices of dishonor for the two checks.
29


(39) BATAAN CIGAR vs. THE COURT OF APPEALS
G.R. No. 93048
March 3, 1994

FACTS:
Bataan Cigar & Cigarette Factory, Inc. engaged one of its suppliers, King Tim PuaGeorge to deliver
2,000 bales of tobacco leaf starting October 1978. BCCFI, on July13, 1978 issued crossed checks post
dated sometime in March 1979 in the totalamount of P820,000.00.Relying on the supplier's
representation that he would complete delivery within threemonths from December 5, 1978,
petitioner agreed to purchase additional 2,500 balesof tobacco leaves, despite the supplier's failure
to deliver in accordance with their earlier agreement. Again petitioner issued post dated crossed
checks in the totalamount of P1,100,000.00, payable sometime in September 1979. George
King failedto deliver the bales of tobacco leaf as agreed despite petitioner's demand, BCCFIissued on
March 30, 1979, a stop payment order on all checks payable to George KingEfforts of SIHI to collect
from BCCFI failed, the trial court pronounced SIHI ashaving a valid claim being a holder in due
course. Which was affirmed by the CA.

ISSUE:
Whether or not SIHI, a second indorser, a holder of crossed checks, is a holder indue course, to be
able to collect from the drawer, BCCFI?

HELD:
No. Crossing of a check should have the following effects: (a) the check may not beencashed but
only deposited in the bank; (b) the check may be negotiated only once to one who has an account
with a bank; (c) and the act of crossing the check servesas warning to the holder that the check has
been issued for a definite purpose so thathe must inquire if he has received the check pursuant to
that purpose, otherwise, he isnot a holder in due courseBCCFI's defense in stopping payment is as
good to SIHI as it is to George King.Because, really, the checks were issued with the intention that
George King wouldsupply BCCFI with the bales of tobacco leaf. There being failure of
consideration,SIHI is not a holder in due course.

(40) Citytrust banking Corp., vs. Intermediate Appellate Court
GR No. 84281
May 27, 1994

FACTS:
Emme Herrero, businesswoman, made regular deposits with Citytrust Banking Corp. at its Burgoa
branch in Calamba, Laguna. She deposited the amount of P31, 500 in order to amply cover 6
postdated checks she issued. All checks were dishonored due to insufficiency of funds upon the
presentment for encashment. Citytrust banking Corp. asserted that it was due to Herreros fault that
her checks were dishonored, for he inaccurately wrote his account number in the deposit slip. RTC
dismissed the complaint for lack of merit. CA reversed the decision of RTC.

ISSUE:
Whether or not Citytrust banking Corp. has the duty to honor checks issued by Emme Herrero
despite the failure to accurately stating the account number resulting to insufficiency of funds for
the check?

HELD:
30

Yes, even it is true that there was error on the account number stated in the deposit slip, its is,
however, indicated the name of Emme Herrero. This is controlling in determining in whose
account the deposit is made or should be posted. This is so because it is not likely to commit an error
in ones name than merely relying on numbers which are difficult to remember. Numbers are for the
convenience of the bank but was never intended to disregard the real name of its depositors. The
bank is engaged in business impressed with public trust, and it is its duty to protect in return its
clients and depositors who transact business with it. It should not be a matter of the bank alone
receiving deposits, lending out money and collecting interests. It is also its obligation to see to it that
all funds invested with it are properly accounted for and duly posted in its ledgers.

(41) Tan vs. CA
GR 108555
20 December 1994

Facts:
Ramon Tan, a businessman from Puerto Princesa, secured a Cashiers Check from Philippine
Commercial Industrial Bank (PCIBank) to P30,000 payable to his order to avoid carrying cash while
enroute to Manila. He deposited the check in his account in Rizal Commercial Banking Corporation
(RCBC) in its Binondo Branch. RCBC sent the check for clearing to the Central Bank which was
returned for having been missent or misrouted. RCBC debited Tans account without informing
him. Relying on common knowledge that a cashiers check was as good as cash, and a month after
depositing the check, he issued two personal checks in the name of Go Lak and MS Development
Trading Corporation. Both checks bounced due to insufficiency of funds. Tan filed a suit for
damages against RCBC.

Issue:
Whether a cashiers check is as good as cash, so as to have funded the two checks subsequently
drawn?

Held:
An ordinary check is not a mere undertaking to pay an amount of money. There is an element of
certainty or assurance that it will be paid upon presentation; that is why it is perceived as a
convenient substitute for currency in commercial and financial transactions. Herein, what is involved
is more than an ordinary check, but a cashiers check. A cashiers check is a primary obligation of the
issuing bank and accepted in advance by its mere issuance. By its very nature, a cashiers check is a
banks order to pay what is drawn upon itself, committing in effect its total resources, integrity and
honor beyond the check. Herein, PCIB by issuing the check created an unconditional credit in favor
any collecting bank. Reliance on the laymans perception that a cashiers check is as good as cash is
not entirely misplaced, as it is rooted in practice, tradition and principle.

(42) Papa vs. AU Valencia
284 SCRA 643

Facts:
Myron Papa, acting as attorney-in-fact of Angela Butte, allegedly sold a parcel of land in La Loma,
Quezon City to Felix Penarroyo. However, prior to the alleged sale, the land was mortgaged by Butte
to Associated Banking Corporation along with other properties and after the alleged sale but prior to
the propertys release by delivery, Butte died. The Bank refused to release the property despite
Penarroyos unless and until the other mortgaged properties by Butte have been redeemed and
because of this Penarroyo settled to having the title of the property annotated.
31


It was later discovered that the mortgage rights of the Bank were transferred to one Tomas Parpana,
administrator of the estate of Ramon Papa Jr. and his since then been collecting rents. Despite
repeated demands of Penarroyo and Valencia, Papa refused to deliver the property which led to a
suit for specific performance. The trial court ruled in favor of Penarroyo and Valencia.

On appeal to the CA, and ultimately in relation to negotiable instruments, Papa averred that the sale
of the property was not consummated since the PCIB check issued by Penarroyo forpayment worth
40000 pesos was not encashed by him. However, the CA saw the contrary and that Papa in fact
encashed the check by means of a receipt.

Finally on appeal to the SC, Papa cited that according to Art 1249 of the Civil Code, payment of
checks only produce effect once they have been encashed and he insists that he never encashed the
check. He further alleged that if check was encashed, it should have been stamped as such or at
least a microfilm copy. It must be noted that the check was in possession of Papa for ten (10) years
from the time payment was made to him.

Issue:
Whether or not the check was encashed and can be considered effective as payment

Held:
YES. The Court held that acceptance of a check implies anundertaking 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 is given. In this case,
granting that check was never encashed, Papas failure to do so for more than ten (10) years
undoubtedly resulted in the impairment of the check through his unreasonable and unexplained
delay.

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.

(43) Engr. Jose E. Cayanan vs. North Star International Travel, Inc.
G.R. No. 172954
October 5, 2011

FACTS:
North Star International Travel Incorporated (North Star) is a corporation engaged in the travel
agency business while petitioner is the owner/general manager of JEAC International Management
and Contractor Services, a recruitment agency. Virginia Balagtas, the General Manager of North Star,
in accommodation and upon the instruction of its client, petitioner herein, sent the amount of
US$60,000 to View Sea Ventures Ltd., in Nigeria from her personal account in Citibank Makati. On
March 29, 1994, Virginia again sent US$40,000 to View Sea Ventures by telegraphic transfer, with
US$15,000 coming from petitioner. Likewise, on various dates, North Star extended credit to
petitioner for the airplane tickets of his clients, with the total amount of such indebtedness under
the credit extensions eventually reaching P510,035.47.To cover payment of the obligations,
petitioner issued five checks to North Star. When presented for payment, the checks in the amount
of P1,500,000 and P35,000 were dishonored for insufficiency of funds while the other three checks
were dishonored because of a stop payment order from petitioner. North Star, through its counsel,
wrote petitioner informing him that the checks he issued had been dishonored. North Star
demanded payment, but petitioner failed to settle his obligations. Hence, North Star instituted
32

Criminal Case Nos. 166549-53 charging petitioner with violation of Batas Pambansa Blg. 22, or the
Bouncing Checks Law, before the Metropolitan Trial Court (MeTC) of Makati City. After trial, the
MeTC found petitioner guilty beyond reasonable doubt of violation of B.P. 22. On appeal, the
Regional Trial Court (RTC) acquitted petitioner of the criminal charges. The RTC also held that there
is no basis for the imposition of the civil liability on petitioner. The Court of Appeals reversed the
ruling of the RTC and held petitioner civilly liable for the value of the subject checks.

ISSUE:
Whether or not the petitioner should be civilly liable to North Star for the value of the checks?

HELD:
Affirmative. Petitioner argues that the CA erred in holding him civilly liable to North Star for the
value of the checks since North Star did not give any valuable consideration for the checks. He insists
that theUS$85,000 sent to View Sea Ventures was not sent for the account of North Star but for the
account of Virginia as her investment. He points out that said amount was taken from Virginias
personal dollar account in Citibank and not from North Stars corporate account. Respondent North
Star, for its part, counters that petitioner is liable for the value of the five subject checks as they
were issued for value. Respondent insists that petitioner owes North Star plus interest.

Upon issuance of a check, in the absence of evidence to the contrary, it is presumed that the same
was issued for valuable consideration which may consist either in some right, interest, profit or
benefit accruing to the party who makes the contract, or some forbearance, detriment, loss or some
responsibility, to act, or labor, or service given, suffered or undertaken by the other side. Under the
Negotiable Instruments Law, it is presumed that every party to an instrument acquires the same for
a consideration or for value. As petitioner alleged that there was no consideration for the issuance
of the subject checks, it devolved upon him to present convincing evidence to overthrow the
presumption and prove that the checks were in fact issued without valuable consideration.

EXTINGUISHMENT

(44) ANAMER SALAZAR vs. PEOPLE AND J.Y. BROTHERS MARKETING CORP.
G.R. No. 151931
September 23, 2003

FACTS:
Petitioner Anamer Salazar purchased 300 cavans of rice from J.Y. Brothers Marketing. As payment
for these, she gave a check drawn against the Prudential Bank by one Nena Timario. J.Y. accepted
the check upon the petitioners assurance that it was good check. Upon presentment, the check was
dishonored because it was drawn under a closed account. Upon being informed of such dishonor,
petitioner replaced the check drawn against the Solid Bank, which, however, was returned with the
word DAUD (Drawn against uncollected deposit).

After the prosecution rested its case, the petitioner filed a Demurrer to Evidence with Leave of
Court. The trial court rendered judgment acquitting the petitioner of the crime charged but ordering
her to pay, as payment of her purchase. The petitioner filed a motion for reconsideration on the civil
aspect of the decision with a plea that she be allowed to present evidence pursuant to Rule 33 of the
Rules of Court, but the court denied the motion.

ISSUE:
33

Whether or not the Solid Bank Check replacement would have resulted to the novation of the
obligation arising from the issuance of the check?

HELD:
No Novation. Extinctive Novation is never presumed, it must be explicitly stated and declared
in unequivocal terms. The obligation to pay a sum of money is not novated by an instrument that
expressly recognizes the old changes only the terms of payment, adds other obligations not
incompatible with the old ones or the new contract merely supplements the old one.
Salazar contends that the issuance of the Solid Bank check and acceptance thereof by JY Bros. , in
replacement of the dishonored Prudential Bank check amounted to novation which discharged the
check. JYs acceptance of the Solid Bank check, notwithstanding its eventual dishonor by the drawee
bank, had the effect of erasing whatever criminal responsibility, under Article 315 of the Revised
Penal Code, the drawer or indorser of the Prudential Bank check would have incurred. Check is a
contract susceptible the effects of novation. Sec. 119. Instrument; how discharged. A negotiable
instrument is discharged: (a) By payment in due course by or on behalf of the principal debtor; (b) By
payment in due course by the party accommodated, where the instrument is made or accepted for
his accommodation; (c) By the intentional cancellation thereof by the holder; (d) By any other
act which will discharge a simple contract for the payment of money; (e) When the principal debtor
becomes the holder of the instrument at or after maturity in his own right.

Acceptance of Solid Bank Check, w/c replaced PB check which was dishonoured is NOT equal to
novation. There was no express agreement to establish that petitioner was already discharged from
his liability to pay respondent the amount of P214,000.00 as payment for the 300 bags of rice. In
fact, when Salazar delivered the SB check, he even indorsed it, which shows his recognition of his
existing obligation to pay the P214KThere is no incompatibility of obligation since the 2 checks
were precisely for the purpose of paying the amount ofP214,000.00, obtained from purchase of 300
bags of rise no substantial change in the object or principal condition Petitioner also contends that
the acceptance of the Solid Bank check non negotiable, crossed check.