SAINT LOUIS UNIVERSITY

Bonifacio Street, 2600 Baguio City

NEGOTIABLE INSTRUMENTS LAW

A.Y. 2019-2020
SECOND SEMESTER

JD2, BLOCK B
BOQUIREN, Nicole Abigail DG.
MAURICIO, Edilyn C.
MENDOZA, Alexir T.
RICO, Erika Charmain Faye P.
SIANEN, Moachi C
PRELIMINARY CONSIDERATIONS

GSIS v. CA and Spouses Racho

G. R. No. L-40824, February 23, 1989
Regalado, J:

FACTS:
Spouses Racho together with Spouses Lagasca, executed a deed of
mortgage in favor of GSIS and subsequently, another deed of mortgage in
connection with two loans granted by the latter in the sums of P 11,500.00 and
P 3,000.00, respectively. A parcel of land co-owned by said mortgagor
spouses was given as security under the aforesaid two deeds. They also
executed a promissory note which states that they would be jointly and
severally liable to pay Php11,500.00 with 6% interest payable in 120 equal
monthly installments. Spouses Lagasca executed an assumption of mortgage
under which they obligated themselves to assume the obligation and to
secure the release of the mortgage covering that portion of the land
belonging to Spouses Racho. However, this undertaking was not fulfilled. Upon
failure of the mortgagors to pay, GSIS extrajudicially foreclosed the mortgage
and caused the mortgaged property to be sold at public auction. More than
two years thereafter, Spouses Racho filed a complaint against the GSIS and
the Spouses Lagasca for damages, praying that the extrajudicial foreclosure
be declared null and void. They alleged that they signed the mortgage
contracts not as sureties or guarantors for the Spouses Lagasca but they merely
gave their common property to the said co-owners who were solely benefited
by the loans from the GSIS.

ISSUE:
Can the promissory note and the mortgage deeds be considered as
negotiable instruments?

RULING:
The promissory note and the mortgage deeds are not negotiable
instruments. These documents do not comply with the fourth requisite to be
considered as such under Section 1 of the Negotiable Instruments Law
because they are neither payable to order nor to bearer. The note is payable
to a specified party, the GSIS. It cannot be said that Spouses Racho are without
liability. The factual context of this case is precisely what is contemplated in the
last paragraph of Article 2085 of the Civil Code to the effect that third persons
who are not parties to the principal obligation may secure the latter by
pledging or mortgaging their own property.

-1-
 Kauffman v. PNB
G.R. No. 16454, September 21, 1921
Street, J:

FACTS:
George A. Kauffman was the president of the Philippine Fiber and Produce
Company, of which company George Kauffman apparently held in his own
right nearly the entire issue of capital stock. Wicks, the treasurer thereof,
presented himself in the exchange department of PNB and requested that a
telegraphic transfer of $45,000 should be made to Kauffman He was informed
that the total cost of said transfer would be P90,355.50. Accordingly, he drew
and delivered a check for that amount which states:
“Pay George A. Kauffman, New York, account Philippine Fiber Produce Co.,
$45,000. (Sgd.) PHILIPPINE NATIONAL BANK, Manila.”
However, PNB’s representative in New York withheld the money from
Kauffman, in view of his reluctance to accept certain bills of the PFPC.
Kauffman demanded the money but was refused to be paid.

ISSUE:

Does Kauffman has a right of action based on Negotiable Instruments Law?

RULING:
No. Kauffman has no right of action based on Negotiable Instrument’s Law
on the ground that it can only come into operation if there is a document in
existence of the character described in Section 1 of the said Law, and rights
properly speaking arise in respect to said instrument until it is delivered. In this
case, there was an order transmitted by PNB to its New York branch, for the
payment of a specified sum of money to Kauffman. But this order was not
made payable “to order” or “to bearer,” as required in subsection (d) of that
Act. Also, there was no delivery in the sense intended in Section 16 of the same
Law. In this connection it is unnecessary to point out that the official receipt
delivered by the bank to the purchaser of the telegraphic order, and already
set out above, cannot itself be viewed in the light of a negotiable instrument,
although it affords complete proof of the obligation actually assumed by the
bank. Kauffman, however, has remedy based on the Civil Code, particularly
on stipulations pour atrui.

2
 Phil. Education Co. v. Soriano et al.
G.R. No. L-22405, June 30, 1971
Dizon, J:

FACTS:
Enrique Montinola sought to purchase from the Manila Post Office 10
money orders of P200.00 each, payable to E.P. Montinola with address at
Lucena, Quezon. After the postal teller had made out money orders, Montinola
offered to pay for them with a private checks. However, since they were not
generally accepted as payment of money orders, the teller advised him to see
the Chief of the Money Order Division, but instead of doing so, Montinola
managed to leave building with his own check and the 10 money orders
without the knowledge of the teller. A notice was thereafter issued to all post
offices as well as the Bank of America, about the irregularly issued money
orders and the order not to accept such orders. PECO was one of those
who received the subject money orders and encashed it with the Bank of
America. At first, it was given the money but later on, his account was
debited in pursuance of the letter given by the Chief.

ISSUE:
Is a postal money order a negotiable instrument?

RULING:
No. Some of the restrictions imposed upon money orders by postal laws
and regulations are inconsistent with the character of negotiable instruments.
For instance, such laws and regulations usually provide for not more than one
endorsement. Payment of money orders may be withheld under a variety of
circumstances. Also, in establishing and operating a postal money order
system, the government is not engaged in commercial transactions but
merely exercises a governmental power for the public benefit.

3
 PAL v. CA
G.R. No. L-49188, January 30, 1990
Gutierrez, J:

FACTS:
Amelia Tan filed a complaint for damages against Philippine Airlines, Inc.
(PAL). The Court rendered a judgment in favor of the former and against the
latter. PAL filed its appeal with the CA, and the appellate court affirmed the
judgment of the lower court with the modification that PAL is condemned to
pay the latter the sum of P25, 000.00 as damages and P5, 000.00 as attorney’s
fee. Judgment became final and executory and was correspondingly entered
in the case, which was remanded to the trial court for execution. The trial court
upon the motion of Amelia Tan issued an order of execution with the
corresponding writ in favor of the respondent. Said writ was duly referred to
Deputy Sheriff Reyes for enforcement.
Four months later, Amelia Tan moved for the issuance of an alias writ of
execution, stating that the judgment rendered by the lower court, and
affirmed with modification by the CA, remained unsatisfied. PAL opposed the
motion, stating that it had already fully paid its obligation to plaintiff through
the issuance of checks payable to the deputy sheriff who later did not appear
with his return and instead absconded. The CA denied the issuance of the alias
writ for being premature. PAL filed an urgent motion to quash the alias writ of
execution stating that no return of the writ had as yet been made by Deputy
Sheriff Reyes and that judgment debt had already been fully satisfied by the
former as evidenced by the cash vouchers signed and received by the
executing sheriff.

ISSUE:
Is the obligation extinguished through the issuance of checks?

RULING:
No. Since a negotiable instrument is only a substitute for money and not
money, the delivery of such an instrument does not, by itself, operate as
payment. A check, whether a manager's check or ordinary cheek, is not legal
tender, and an offer of a check in payment of a debt is not a valid tender of
payment and may be refused receipt by the obligee or creditor. Mere delivery
of checks does not discharge the obligation under a judgment. The obligation
is not extinguished and remains suspended until the payment by commercial
document is actually realized. If bouncing checks had been issued in the
name of Amelia Tan and not the Sheriff's, there would have been no payment.
After dishonor of the checks, Ms. Tan could have run after other properties of
PAL. The theory is that she has received no value for what had been awarded
her. Because the checks were drawn in the name of Emilio Z. Reyes, neither
has she received anything.

4
 Sesbreño v. CA
G.R. No. 89252, May 24, 1993
Feliciano, J:

FACTS:
Raul Sesbreño made a money market placement in the amount of
P300,000.00 with Philfinance. Philfinance issued a certificate of confirmation of
sale of Delta Motors Corp. promissory note, certificate of secruities delivery
receipt, and post-dated checks with Sesbreño as the payee and Insular Bank
as the drawee. Sesbreño sought to encash the postdated checks issued by
Philfinance. However, the checks were dishonored for having been drawn
against insufficient funds. This prompted Sesbreño to ask for the promissory note
from DMC and it was discovered that the note issued by DMC was marked as
non-negotiable. As Sesbreno failed to recover his money, he filed case against
DMC and Philfinance.

ISSUE:
Can the promissory note be considered as negotiable?

RULING:
No. The DMC promissory note was not intended to be negotiated or
otherwise transferred by Philfinance as manifested by the word "non-
negotiable" stamp across the face of the Note. The maker Delta and payee
Philfinance intended that this note would be offset against the outstanding
obligation of Philfinance represented by Philfinance PN No. 143-A issued to
Delta as payee.
It is important to bear in mind that the negotiation of a negotiable
instrument must be distinguished from the assignment or transfer of an
instrument whether that be negotiable or non-negotiable. 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 where the negotiable instrument is in bearer form. A negotiable
instrument may, however, instead of being negotiated, also be assigned or
transferred. The legal consequences of negotiation as distinguished from
assignment of a negotiable instrument are, of course, different. A non-
negotiable instrument may, obviously, not be negotiated; but it may be
assigned or transferred, absent an express prohibition against assignment or
transfer written in the face of the instrument.

5
 Spouses Tibajia v. CA and Tan
G.R. No. 10290, June 4, 1993
Padilla, J:

FACTS:
A suit for collection of a sum of money was filed by Eden Tan against the
Spouses Tibajia. A writ of attachment was issued by the trial court and the
Deputy Sheriff filed a return stating that a deposit made by the Tibajia spouses
had been garnished by him. On appeal, the CA modified the decision by
reducing the award of moral and exemplary damages. The decision having
become final, Eden Tan filed the corresponding motion for execution and
thereafter, the garnished funds were levied upon. The Tibajia spouses delivered
to Deputy Sheriff Bolima the total money judgment in the following form:
Cashier's Check P262,750.00 and Cash amounting to P135,733.70. However,
Tan, refused to accept the payment made by the Tibajia spouses and instead
insisted that the garnished funds deposited with the cashier of the RTC be
withdrawn to satisfy the judgment obligation.

ISSUE:
Is the check issued by Spouses Tibajia considered as legal tender?

RULING:
A check, whether a manager’s check or ordinary check, is not legal tender,
and an offer of a check in payment of a debt is not a valid tender of payment
and may be refused receipt by the obligee or creditor based on the
jurisprudence. The court is not, by decision, sanctioning the use of a check for
the payment of obligations over the objection of the creditor. Thus, the petition
must fail.

6
FORM AND INTERPRETATION OF NEGOTIABLE INSTRUMENTS

Ang Tek Lian v. CA

G.R. No. L-2516, September 25, 1950
Bengzon, J:

FACTS:
For having issued a rubber check, Ang Tek Lian was convicted of estafa in
the CFI. The CA affirmed the verdict. Knowing he had no funds therefor, Ang
Tek Lian drew the check upon the China Banking Corporation for the sum of
P4,000, payable to the order of "cash". He delivered it to Lee Hua Hong in
exchange for money which the latter handed in act. The next business day,
the check was presented by Lee Hua Hong to the drawee bank for payment,
but it was dishonored for insufficiency of funds, the balance of the deposit of
Ang Tek Lian on both dates being P335 only.

ISSUE:
Is Ang Tek Lian liable for estafa for issuing the check that is payable to the
order to “cash” and not have been indorsed by him?

RULING:
Yes. The form of the check was totally unconnected with its dishonor. The
CA declared that it was returned unsatisfied because the drawer had
insufficient funds, not because the drawer's indorsement was lacking.
Under Sec. 9 of NIL, a check drawn payable to the order of “cash” is a
check payable to bearer and the bank may pay it to the person presenting it
for payment without the drawer’s indorsement. However, if the bank is not sure
of the bearer’s identity or financial solvency, it has the right to demand
identification or assurance against possible complication, such as forgery of
drawer’s signature, loss of the check by the rightful owner, raising of the
amount payable, etc. But where the bank is satisfied of the identity or
economic standing of the bearer who tenders the check for collection, it will
pay the instrument without further question; and it would incur no liability to the
drawer in thus acting.

7
 Caltex v. CA and Security Bank
G.R. No. 97753, August 10, 1992
Regalado, J:

FACTS:
Security Bank and Trust Company issued 280 certificates of time deposit
(CTDs) in favor of Angel dela Cruz who deposited with Security Bank the total
amount of P1,120,000. Dela Cruz delivered the CTDs to Caltex for his purchase
of fuel products. He informed the Branch Manager of Security Bank that he lost
all CTDs, submitted the required Affidavit of Loss and received the
replacement. Later on, Dela Cruz negotiated and obtained a loan from
Security Bank in the amount of P875,000 and executed a notarized Deed of
Assignment of Time Deposit. Mr. Aranas, the Credit Manager of Caltex went to
the Sucat branch to verify the CTDs declared lost by Dela Cruz. The Security
Bank received a letter from Caltex formally informing it of its possession of the
CTDs in question and of its decision to pre-terminate the same. Security Bank
rejected Caltex demand for payment as it failed to furnish a copy of its
agreement with Dela Cruz. Thereafter, the loan of Dela Cruz with Security Bank
matured. As such, CTD were set-off w/ the matured loan.

ISSUE:
Are the CTDs negotiable?

RULING:
Yes. All of the requisites under Section 1 of the NIL were present. The
documents provide that the amounts deposited shall be repayable to the
depositor. The depositor is considered as the bearer. If it was really the intention
of respondent bank to pay the amount to Angel Dela 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. The negotiability or non-
negotiability of an instrument is determined from the writing, that is, from the
face of the instrument itself.

8
 Equitable Banking Corp. v. IAC and The Edward J Nell Co.
G.R. No. 74551, May 25, 1988
Melencio-Herrera, J:

FACTS:
Nell Company issued a check to help Casals and Casville Enterprises obtain
a letter of credit from Equitable Banking in connection with equipment, a
garrett skidder, which Casals and Casville were buying from Nell. Nell
indicated the payee as follows: “EQUITABLE BANKING CORPORATION A/C
CASVILLE ENTERPRISES INC.” Casals deposited the check with the bank and the
bank teller accepted the same and in accordance with customary bank
practice, stamped in the check the words “non-negotiable”. The amount
was withdrawn after the deposit. This prompted Nell to file a case against the
bank, Casals and Casville. While the instant case was being tried, Casals
and Casville assigned the garrett skidder to plaintiff which credited in favor of
defendants the amount of P450,000, as partial satisfaction of its claim against
them.

ISSUE:
Is the check negotiable?

RULING:
Equitable Banking is not liable to Nell. Nell should bear the loss as it was
through its own acts, which put it into the power of Casals and Casville
Enterprises to perpetuate the fraud against it. The check wasn’t initially non-
negotiable. Neither was it cross-checked. The rubber-stamping transversally on
the face of the check was only made by the bank teller in accordance with
customary bank practice, and not by Nell as the drawer of the check, and
simply meant that thereafter the same check could no longer be negotiated.
The payee was not indicated with reasonable certainty in contravention of
Section 8. As worded, it could be accepted as deposit to the account of the
party named therein after the symbols of A/C, or payable to the bank as
trustee, or as an agent, for Casville with the latter being the ultimate
beneficiary.

9
 Salas v. IAC and First Finance & Leasing Corp
G.R. No. 76788, January 22, 1990
Fernan, C.J:

FACTS:
Juanita Salas bought a motor vehicle from the Violago Motor Sales
Corporation as evidenced by a promissory note. This note was subsequently
endorsed to Filinvest Finance & Leasing Corporation which financed the
purchase. She defaulted in her installments. This failure to pay prompted
private respondent to initiate a case for a sum of money against Salas.
Imputing fraud, bad faith and misrepresentation against VMS for having
delivered a different vehicle to her, the latter prayed for a reversal of the trial
court's decision so that she may be absolved from the obligation under the
contract.

ISSUE:
Can the promissory note be considered as a negotiable instrument?

RULING:
Yes. A careful study of the questioned promissory note shows that it is a
negotiable instrument, having complied with the requisites under the law as
follows:
a. it is in writing and signed by the maker Juanita Salas
b. it contains an unconditional promise to pay the amount of P58,138.20
c. it is payable at a fixed or determinable future time which is P1,614.95
monthly for 36 months due and payable on the 21st day of each month
starting March 21, 1980 thru and inclusive of Feb. 21, 1983
d. it is payable to Violago Motor Sales Corporation, or order

It was negotiated by indorsement in writing on the instrument itself payable

to the Order of Filinvest Finance and Leasing Corporation and it is an
indorsement of the entire instrument. Under the circumstances, there appears
to be no question that Filinvest is a holder in due course.

10
(TREASURY WARRANTS)

Metrobank v. CA et al.
G.R. No. 88866, February 18, 1991
Cruz,J:

FACTS:
Eduardo Gomez opened an account with Golden Savings and deposited
over a period of two months 38 treasury warrants. They were all drawn by the
Philippine Fish Marketing Authority and purportedly signed by its General
Manager and countersigned by its Auditor. Six of these were directly payable
to Gomez while the others appeared to have been indorsed by their
respective payees, followed by Gomez as second indorser. All these warrants
were subsequently indorsed by Gloria Castillo as Cashier of Golden Savings
and deposited to its savings account in the Metrobank. More than two weeks
after the deposits, Gloria went to the Calapan branch several times to ask
whether the warrants had been cleared. She was told to wait until Metrobank
allowed Golden Savings to withdraw from the proceeds of the warrants.
Thereafter, 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. However, the demand was rejected. Metrobank then
sued Golden Savings.

ISSUE:
Whether or not the treasury warrants are negotiable.

RULING:
No. Clearly stamped on the face of the treasury warrants are the words
"non-negotiable." It is also indicated that they are payable from a particular
fund. The indication of Fund as the source of the payment to be made on the
treasury warrants makes the order or promise to pay "not unconditional" and
the warrants themselves non-negotiable. Metrobank cannot contend that by
indorsing the warrants in general, Golden Savings assumed that they were
"genuine and in all respects what they purport to be," in accordance with
Section 66 of the NIL. The simple reason is that this law is not applicable to the
non-negotiable treasury warrants. The indorsement was made by Gloria
Castillo not for the purpose of guaranteeing the genuineness of the warrants
but merely to deposit them with Metrobank for clearing.

11
 Metrobank v. Renato Cabilzo
G.R. No. 154469, December 6, 2006
Chico-Nazario,J:

FACTS:
Renato D. Cabilzo was one of Metrobank’s clients who maintained a
current account with Metrobank. On 12 November 1994, Cabilzo issued a
Metrobank Check No. 985988, payable to CASH and postdated on 24
November 1994 in the amount of P 1,000.00. The check was drawn against
Cabilzo’s account with Metrobank under current account and was paid by
Cabilzo to a certain Mr. Marquez, as his sales commission. Subsequently, the
check was presented to Westmont Bank for payment. Westmont Bank, in turn,
indorsed the check to Metrobank for appropriate clearing. After the entries
thereon were examined, including the availability of funds and the authenticity
of the signature of the drawer, Metrobank cleared the check for encashment.
Cabilzo’s representative was at Metrobank to make some transaction when
he was asked by a bank personnel if Cabilzo had issued a check in the amount
of P 91,000.00 to which the former replied in the negative. Cabilzo himself
called Metrobank to reiterate that he did not issue a check in the amount of P
91,000.00 and requested that the questioned check be returned to him for
verification, to which Metrobank complied. Upon receipt of the check, Cabilzo
discovered that Metrobank Check No. 985988 which he issued on 12
November 1994 in the amount of P 91,000.00 and the date 24 November 1994
was changed to 14 November 1994.

ISSUE:
Was there a material alteration on the instrument?

RULING:
Yes. An alteration is said to be material if it changes the effect of the
instrument. It means that an unauthorized change in an instrument that
purports to modify in any respect the obligation of a party or an unauthorized
addition of words or numbers or other change to an incomplete instrument
relating to the obligation of a party. In other words, a material alteration is one
which changes the items which are required to be stated under Section 1 of
the NIL. In this case, the check was altered so that the amount was increased
from P 1,000.00 to P91,000.00 and the date was changed from 24 November
1994 to 14 November 1994. Apparently, since the entries altered were among
those enumerated under Section 1 and 125, namely, the sum of money
payable and the date of the check, the instant controversy therefore squarely
falls within the purview of material alteration.
Indubitably, Cabilzo was not the one who made nor authorized the
alteration. Neither did he assent to the alteration by his express or implied acts.

12
 Metrobank v. CA et al.
G.R. No. 88866, February 18, 1991
Cruz,J:
FACTS:
Eduardo Gomez opened an account with Golden Savings and deposited
over a period of two months 38 treasury warrants. They were all drawn by the
Philippine Fish Marketing Authority and purportedly signed by its General
Manager and countersigned by its Auditor. Six of these were directly payable
to Gomez while the others appeared to have been indorsed by their
respective payees, followed by Gomez as second indorser. All these warrants
were subsequently indorsed by Gloria Castillo as Cashier of Golden Savings
and deposited to its savings account in the Metrobank. More than two weeks
after the deposits, Gloria went to the Calapan branch several times to ask
whether the warrants had been cleared. She was told to wait until Metrobank
allowed Golden Savings to withdraw from the proceeds of the warrants.
Thereafter, 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. However, the demand was rejected. Metrobank then
sued Golden Savings.

ISSUE:
What is the effect of a materially altered instrument?

RULING:
Under Section 124 of the NIL, it states that: where a negotiable instrument
is materially altered without the assent of all parties liable thereon, it is avoided,
except as against a party who has himself made, authorized, and assented to
the alteration and subsequent indorsers. But when the instrument has been
materially altered and is in the hands of a holder in due course not a party to
the alteration, he may enforce the payment thereof according to its original
tenor.
Indubitably, Cabilzo was not the one who made nor authorized the
alteration. Neither did he assent to the alteration by his express or implied acts.
There is no showing that he failed to exercise such reasonable degree of
diligence required of a prudent man which could have otherwise prevented
the loss. Cabilzo was never remiss in the preparation and issuance of the check,
and there were no indicia of evidence that would prove otherwise. Indeed,
Cabilzo placed asterisks before and after the amount in words and figures in
order to forewarn the subsequent holders that nothing follows before and after
the amount indicated other than the one specified between the asterisks.

13
 Pay v. Palanca
G.R. No. L-29900, June 28, 1974
Fernando,J:

FACTS:
George Pay is a creditor of the late Justo Palanca who died in Manila. His
claim is based on a promissory note whereby the late Justo Palanca and Rosa
Gonzales Vda. de Carlos Palanca promised to pay him the amount of
P26,900.00, with interest thereon at the rate of 12% per annum. Pay is now
asking that Segundina Chua vda. de Palanca, surviving spouse of the late
Justo Palanca, whom he appointed as administratrix of a parcel of land. The
idea is that once said property is brought under administration, George Pay,
as creditor, can file his claim against the administratrix.
There was a refusal on the part of Segundina to be appointed as
administratrix and the property sought to be administered no longer belonged
to Justo. The promissory note is worded thus: " `For value received from time to
time since 1947, we [jointly and severally promise to] pay to Mr. [George Pay]
at his office at the China Banking Corporation the sum of P26,900.00, with
interest thereon at the rate of 12% per annum upon receipt by either of the
undersigned of cash payment from the Estate of the late Don Carlos Palanca
or upon demand.

ISSUE:
Is the promissory note payable upon demand?

RULING:
Yes. The wording of the promissory note being "upon demand," the
obligation was immediately due. However, ten years had already transpired
and as such, the action of the Pay has definitely prescribed. The obligation
being due and demandable, it would appear that the filing of the suit after
fifteen years was much too late. The prescriptive period for a written contract
is that of ten years.

14
 People v. Wagas
G.R. No. 157943, September 4, 2013
Bersamin,J:

FACTS:
Gilbert Wagas ordered from Alberto Ligaray 200 bags of rice over the
telephone. As payment, Wagas issued a check in favor of Ligaray. When the
check was deposited it was dishonored due to insufficiency of funds. Ligaray
notified Wagas and demanded payment from the latter but Wagas refused
and failed to pay the amount, Ligaray filed a complaint for estafa before the
RTC. RTC convicted Wagas of estafa because the RTC believed that the
prosecution had proved that it was Wagas who issued the dishonored check,
despite the fact that Ligaray had never met Wagas in person.

ISSUE:
Can a check made payable to cash be negotiated by mere delivery?

RULING:
Yes. The check delivered to Ligaray was made payable to cash. Under the
Negotiable Instruments Law, this type of check was payable to the bearer and
could be negotiated by mere delivery without the need of an indorsement.
This rendered it highly probable that Wagas had issued the check not to
Ligaray, but to somebody else like Cañada, his brother-in-law, who then
negotiated it to Ligaray. Relevantly, Ligaray confirmed that he did not himself
see or meet Wagas at the time of the transaction and thereafter, and expressly
stated that the person who signed for and received the stocks of rice was
Cañada.
Therefore, Wagas could not be held guilty of estafa simply because he had
issued the check used to defraud Ligaray. The proof of guilt must still clearly
show that it had been Wagas as the drawer who had defrauded Ligaray by
means of the check.

15
 PNB v. Spouses Rodriguez
G.R. No. 170325, September 26, 2008
Reyes,J:

FACTS:
Spouses Rodriguez were engaged in the informal lending business and had
a discounting arrangement with the Philnabank Employees Savings and Loan
Association (PEMSLA), an association of PNB employees. They 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.
However, 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
officers carried this out by forging the indorsement of the named payees in the
checks. 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 became
the usual practice for the parties until PNB eventually found out about these
fraudulent acts. As a result, the PEMSLA checks deposited by the spouses were
returned or dishonored for the reason “Account Closed.” The amounts were
duly debited from the Rodriguez account. Spouses filed a civil complaint for
damages against PEMSLA, the Multi-Purpose Cooperative of Philnabankers
(MCP), and PNB.

ISSUE:
Are the checks payable to order for not being issued to fictitious persons?

RULING:
No. Under Sections 8 and 9 of the NIL, the rule is that when the payee is
fictitious or not intended to be the true recipient of the proceeds, the check is
considered as a bearer instrument. In a fictitious-payee situation, the drawee
bank is absolved from liability and the drawer bears the loss. When faced with
a check payable to a fictitious payee, it is treated as a bearer instrument that
can be negotiated by delivery. The underlying theory is that one cannot
expect a fictitious payee to negotiate the check by placing his indorsement
thereon

16
 PNB v. Manila Oil Refining & By-Products Company
G.R. No. L-18103, June 8,1922
Malcolm,J:

FACTS:
In May 1920, the manager and treasurer of respondent executed and
delivered to PNB a promissory note whereby respondent promises to pay to
the order of PNB the amount of P61,000. It contains the following stipulations:
“Without defalcation, value received; and do hereby authorize any attorney
in the Philippines, in case this note be not paid at maturity, to appear in the
name and confess judgment for the above sum with interest, cost of suit and
attorney’s fees of 10% for collection, a release of all errors and waiver of all
rights to inquisition and appeal, and to the benefit of all laws exempting
property, real or personal, from levy or sale.” However, respondent failed to
pay on demand. Thus, PNB filed an action to recover the amount in the note,
together with the interest. Respondent claimed that the instrument is not
negotiable because the stipulations are invalid.

ISSUE:
Can the invalidity of a stipulation affect the negotiability of the instrument?

RULING:
No. Section 5 of the NIL states that: “The negotiable character of an
instrument otherwise negotiable is not affected by a provision which (b)
authorizes a confession of judgment if the instrument be not paid at maturity.”
It also provides that nothing therein shall validate any provision or stipulation
otherwise illegal. Respondent is correct in saying that the stipulations are void.
However, the same cannot affect the negotiable character of the promissory
note.

17
 Sesbreno v. CA, Delta Motors, and Pilipinas Bank
G.R. No. 89252, May 24, 1993
Feliciano,J:

FACTS:
Raul Sesbreño made a money market placement in the amount of
P300,000.00 with the Philippine Underwriters Finance Corporation. Philfinance
issued post-dated checks with petitioner as payee, Philfinance as drawer, and
Insular Bank of Asia and America as drawee. petitioner sought to encash the
postdated checks issued by Philfinance. However, the checks were
dishonored for having been drawn against insufficient funds. This prompted
petitioner to ask for the promissory note from DMC and it was discovered that
the note issued by DMC was marked as non-negotiable. As Sesbreno failed to
recover his money, he filed case against DMC and Philfinance.

ISSUE:
Is a non-negotiable instrument capable of assignment or transfer?

RULING:
The non-negotiability of the instrument doesn’t mean that it is non-
assignable or transferable. It may still be assigned or transferred in whole or in
part, even without the consent of the promissory note, since consent is not
necessary for the validity of the assignment. In assignment, the assignee is
merely placed in the position of the assignors and acquires the instrument
subject to all the defenses that might have been set up against the original
payee

18
 Traders Royal Bank v. CA, Filriters Guaranty, and Central Bank
G.R. No. 93397, March 3, 1997
Torres,J:

FACTS:
Filriters Guaranty Assurance Corporation executed a detached
assignment wherey it sold, transferred, assigned and delivered unto Philfinance
all its rights and title to Central Bank Certificates of Indebtedness (CBCI) having
an aggregate value of P3,500,000.00. Traders Royal entered into a repurchase
agreement with PhilFinance whereby, for and in consideration of P500,000.00,
PhilFinance sold, transferred and delivered to petitioner CBCI which was
among those previously acquired by PhilFinance from Filriters. PhilFinance
failed to repurchase the CBCI on the agreed date of maturity, when the
checks it issued in favor of petitioner were dishonored for insufficient funds.
Owing to the default of PhilFinance, it executed a detached assignment in
favor of petitioner to enable the latter to have its title completed and
registered in the books of the respondent. Philfinance transferred and assigned
all its rights and title in the said CBCI to petitioner and, furthermore, it
irrevocably authorize the said issuer/respondent to transfer the said
bond/certificate on the books of its fiscal agent. Petitioner prayed for the
registration by the Central Bank of the subject CBCI in its name.

ISSUE:
Is CBCI a negotiable instrument?

RULING:
No. CBCI is not a negotiable instrument due to the absence of words of
negotiability within the meaning of the NIL. A certificate of indebtedness is a
certificate of for the creation and maintenance of a permanent improvement
revolving fund. The instrument provides for a promise to pay the registered
owner Filriters. Very clearly, the instrument was only payable to Filriters. It
lacked the words of negotiability which should have served as an expression
of the consent that the instrument may be transferred by negotiation. The
language of negotiability which characterize a negotiable paper as a credit
instrument is its freedom to circulate as a substitute for money. The transfer of
the instrument from Philfinance to TRB was merely an assignment, and is not
governed by the NIL.

19
KINDS OF NEGOTIABLE INSTRUMENTS

Firestone Tire & Rubber Company v. CA and Luzon Development Bank

G.R. No. 113236, March 5, 2001
Quisumbing,J:

FACTS:
Defendant is a banking corporation. It had as one of its client-depositors
the Fojas-Arca Enterprises Company. Fojas-Arca maintaining a special savings
account with the defendant, the latter authorized and allowed withdrawals of
funds therefrom through the medium of special withdrawal slips. Plaintiff
Firestone Tire and Fojas-Arca entered into a Franchised Dealership Agreement
whereby Fojas-Arca has the privilege to purchase on credit and sell plaintiff's
products. Fojas-Arca purchased on credit Firestone products from plaintiff and
as payment of these purchases, Fojas-Arca delivered to plaintiff 6 special
withdrawal slips drawn upon the defendant. 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. This singular circumstance made plaintiff relied on
the fact that the succeeding special withdrawal slips drawn upon the
defendant would be equally sufficiently funded. Relying on such confidence,
plaintiff extended to Fojas-Arca other purchases on credit of its products.
However, plaintiff was informed by Citibank that some special withdrawal
slips were dishonored and not paid for the absence of arrangement. As a
consequence, the Citibank debited plaintiff's account representing the
aggregate amount of the above-two special withdrawal slips. Under such
situation, plaintiff averred that the pecuniary losses it suffered is caused by and
directly attributable to defendant's gross negligence.

ISSUE:
Is the acceptance and payment of the special withdrawal slips without
the presentation of the depositor’s passbook gives the impression that it is a
negotiable instrument like a check?

RULING:
No. Withdrawal slips in question were non-negotiable instrument. Hence,
the rules governing the giving of immediate notice of dishonor of negotiable
instrument do not apply. 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.
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. But having
erroneously accepted them as such, Citibank and petitioner as account-
holder must bear the risks attendant to the acceptance of these instruments.

20
 (Non-negotiable money order)

Phil. Education Co. v. Soriano et al.

G.R. No. L-22405, June 30,1971
Dizon,J:

FACTS:
Enrique Montinola sought to purchase from the Manila Post Office 10
money orders of P200.00 each payable to E.P. Montinola. After the postal teller
had made out money orders, Montinola offered to pay for them with a private
checks were not generally accepted in payment of money orders, the teller
advised him to see the Chief of the Money Order Division, but instead of doing
so, Montinola managed to leave with his own check and the 10 money orders
without the knowledge of the teller. Upon discovery of the disappearance of
the unpaid money orders, an urgent message was sent to all postmasters,
including Bank of America which received a copy of said notice three days
later. One of the money orders was received by PECO as part of its sales
receipts. The following day it deposited the same with the Bank of America,
and one day thereafter the latter cleared it.
Mauricio A. Soriano, Chief of the Money Order Division of the Manila Post
Office notified the Bank of America that the money order had been found to
have been irregularly issued and that, in view thereof, the amount it
represented had been deducted from the bank's clearing account. PECO
requested the Postmaster General to reconsider the action taken by his office
deducting the sum of P200.00 from the clearing account of the Bank of
America, but his request was denied.

ISSUE:
Can the money order be considered as negotiable?

RULING:
No. It is to be noted in this connection that some of the restrictions imposed
upon money orders by postal laws and regulations are inconsistent with the
character of negotiable instruments. For instance, such laws and regulations
usually provide for not more than one endorsement, while payment of money
orders may be withheld under a variety of circumstances
It is not disputed that the Philippine postal statutes were patterned after
similar statutes in force in United States. The weight of authority in the United
States is that postal money orders are not negotiable instruments, the reason
being that in establishing and operating a postal money order system, the
government is not engaged in commercial transactions but merely exercises
a governmental power for the public benefit.

21
 PNB v. Spouses Rodriguez
G.R. No. 170325, September 26, 2008
Reyes,J:

FACTS:
Spouses Rodriguez were engaged in the informal lending business and had
a discounting arrangement with the Philnabank Employees Savings and Loan
Association (PEMSLA), an association of PNB employees. They 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.
However, 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
officers carried this out by forging the indorsement of the named payees in the
checks. 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 became
the usual practice for the parties until PNB eventually found out about these
fraudulent acts. As a result, the PEMSLA checks deposited by the spouses were
returned or dishonored for the reason “Account Closed.” The amounts were
duly debited from the Rodriguez account. Spouses filed a civil complaint for
damages against PEMSLA, the Multi-Purpose Cooperative of Philnabankers
(MCP), and PNB.

ISSUE:
Are the checks payable to order?

RULING:
Yes. As a rule, when the payee is fictitious or not intended to be the true
recipient of the proceeds, the check is considered as bearer instrument. A
check is a bill of exchange drawn on a bank payable on demand. It is either
an order or bearer instrument, pursuant to Sections 8 and 9 of the NIL. A check
that is payable to a specified payee is an order instrument. However, under
Section 9(c) of the NIL, a check payable to a specified payee may
nevertheless be considered as a bearer instrument if it is payable to the order
of a fictitious or non-existing person, and such fact is known to the person
making it so payable. In a fictitious-payee situation, the drawee bank is
absolved from liability and the drawer bears the loss. The underlying theory is
that one cannot expect a fictitious payee to negotiate the check by placing
his indorsement thereon.

22
 Prudential Bank v. CIR
G.R. No. 180390, July 27, 2011
Del Castillo,J:

FACTS:
Prudential Bank received from the CIR a final assessment notice and a
demand letter for deficiency documentary stamp tax (DST) for the 1995
taxable year on its repurchase agreement with the BSP, purchase of treasury
bills from the BSP, and on its Savings Account Plus. Prudential Bank protested
the assessment on the ground that the documents are not subject to DST.
However, the CIR denied the protest. Thus, Prudential Bank filed a petition for
review before the CTA, but the latter affirmed the decision of the CIR.

ISSUE:
Is Prudential Bank's Savings Account Plus is subject to Documentary Stamp
Tax?

RULING:
Yes. DST is imposed on certificates of deposit bearing interest pursuant to
Section 180 of the old NIRC. Stamp tax on all loan agreements, promissory
notes, bills of exchange, drafts, instruments and securities issued by the
government or any of its instrumentalities, certificates of deposit bearing
interest and others not payable on sight or demand. On all loan agreements
signed abroad wherein the object of the contract is located or used in the
Philippines. Bills of exchange, drafts, instruments and securities issued by the
Government or any of its instrumentalities or certificates of deposits drawing
interest, or orders for the payment of any sum of money otherwise than at the
sight or on demand, or on all promissory notes, whether negotiable or non-
negotiable, except bank notes issued for circulation, and on each renewal of
any such note, there shall be collected a documentary stamp tax of P0.30 on
each Two hundred pesos, or fractional part thereof, of the face value of any
such agreement, bill of exchange, draft, certificate of deposit, or note:
Provided, however, that only one documentary stamp tax shall be imposed on
either loan agreement, or promissory note issued to secure such loan,
whichever will yield a higher tax.

23
FORM AND INTERPRETATION OF NEGOTIABLE INSTRUMENTS: SEC. !7 NIL

Ilano v. Hon. Espanol et al.

G.R. No. 161756, December 16, 2005
Carpio-Morales,J:

FACTS:
Amelia Alonzo is a trusted employee of Victoria Ilano. During those times
that Ilano is in the Unied States for medical check-up, Alonzo was entrusted
with Ilano‘s Metrobank Check Book which contains both signed and unsigned
blank checks. A complaint for revocation/cancellation of promissory notes
and bills of exchange or checks with damages and TRO against Alonzo et al.
was filed. Ilano contends that Alonzo, by means of deceit and abuse of
confidence succeeded in procuring the promissory notes and signed blank
checks. Alonzo likewise succeeded in inducing Ilano to sign antedated
promissory notes. The RTC rendered a decision dismissing the complaint for lack
of cause of action and failure to allege the ultimate facts of the case. On
appeal, the Court of Appeals affirmed the dismissal of the complaint. Hence,
this petition.

ISSUE:
Are the checks negotiable?

RULING:
No. When petitioner filed her complaint, all the checks subject hereof
which were drawn against the same closed account were already rendered
valueless or non-negotiable. Hence, petitioner had, with respect to them, no
cause of action. On the other hand, with respect to one check which was
drawn against another account of petitioner, its validity and negotiable
character at the time the complaint was filed was not affected. Pursuant to
Section 6 of the NIL, the validity and negotiable character of an instrument are
not affected by the fact that the same is not dated.

24
 Republic Planters Bank v. CA and Canlas
G.R. No. 93073, December 21, 1992
Campos,J:

FACTS:
Fermin Canlas, an officer of Worldwide Garment Manufacturing, Inc., was
authorized to apply for credit facilities with Republic Planters Bank, which
issued 9 promissory notes uniformly worded except for the dates and amounts.
It states: “______, after date, for value received, I/we, jointly and severally
promise to pay to the ORDER of REPUBLIC PLANTERS BANK, at its office in Manila,
Philippines, the sum of ______ PESOS, () Philippine currency”On the right bottom
margin, there appears the signature of Canlas with the phrase “and in his
personal capacity” typewritten.
Canlas contends that inasmuch as he signed the promissory notes in his
capacity as officer of the defunct Worldwide Garment Manufacturing, Inc, he
should not be held personally liable for such authorized corporate acts that he
performed. It is the contention of Republic Planters Bank that having
unconditionally signed the 9 promissory notes with Shozo Yamaguchi, jointly
and severally, defendant Canlas is solidarity liable with him on each of the nine
notes.

ISSUE:
Is Canlas personally and severally liable for the promissory notes?

RULING:
Yes. Canlas is solidarily liable on each of the promissory notes bearing his
signature. he promissory motes are negotiable instruments and must be
governed by the NIL. Persons who write their names on the face of promissory
notes are makers and are liable as such. There is no denying that Canlas is one
of the co-makers of the promissory notes. As such, he cannot escape liability
arising therefrom. The fact that the singular pronoun is used indicates that the
promise is individual as to each other and each of the co-signers is deemed to
have made an independent singular promise to pay the notes in full.
The solidary liability of Canlas is made clearer and certain, without reason
for ambiguity, by the presence of the phrase "joint and several" as describing
the unconditional promise to pay to the order of Republic Planters Bank.

25
 Spouses Evangelista v. Mercator Finance Corp. et al.
G.R. No. 148864, August 21, 2003
Puno,J:

FACTS:
Spouses Evangelista filed a complaint for annulment of titles against
respondents, Mercator Finance Corporation, Lydia P. Salazar, Lamecs Realty
and Development Corporation, and the Register of Deeds of Bulacan. They
claimed being the registered owners of 5 parcels of land contained in the Real
Estate Mortgage executed by them and Embassy Farms, Inc. They alleged that
they executed the REM in favor of Mercator only as officers of Embassy Farms.
They did not receive the proceeds of the loan evidenced by a promissory note,
as all of it went to Embassy Farms. Thus, they contended that the mortgage
was without any consideration as to them since they did not personally obtain
any loan or credit accommodations. There being no principal obligation on
which the mortgage rests, the REM is void. With the void mortgage, they
assailed the validity of the foreclosure proceedings conducted by Mercator,
the sale to it as the highest bidder in the public auction, the issuance of the
transfer certificates of title to it, the subsequent sale of the same parcels of land
to Salazar and the transfer of the titles to her name, and lastly, the sale and
transfer of the properties to respondent Lamecs Realty. Mercator contended
that since petitioners and Embassy Farms signed the promissory note as co-
makers, aside from the Continuing Suretyship Agreement subsequently
executed to guarantee the indebtedness of Embassy Farms, and the
succeeding promissory notes restructuring the loan, then petitioners are jointly
and severally liable with Embassy.

ISSUE:
Is the wording in the promissory note ambiguous?

RULING:
No. Courts can interpret a contract only if there is doubt in its letter. An
examination of the promissory note shows no such ambiguity. Assuming
arguendo that there is an ambiguity, Section 17 of the NIL states that where
the language of the instrument is ambiguous or there are omissions therein, the
following rules of construction apply: (g) Where an instrument containing the
word "I promise to pay" is signed by two or more persons, they are deemed to
be jointly and severally liable thereon.
Even if petitioners intended to sign the note merely as officers of Embassy
Farms, still this does not erase the fact that they subsequently executed a
continuing suretyship agreement. A surety is bound by the same consideration
that makes the contract effective between the principal parties thereto.
Having executed the suretyship agreement, there can be no dispute on the
personal liability of petitioners.

26
COMPLETION AND DELIVERY

Dela Victoria v. Hon. Burgos and Sesbreño

G.R. No. 111190 June 27, 1995
Bellosillo,J:

FACTS:
Raul Sesbreño filed a complaint for damages against Assistant City Fiscals
Bienvenido N. Mabanto, Jr., and Dario D. Rama, Jr. After trial judgment was
rendered ordering the defendants to pay P11,000.00 to Sesbreño. The decision
having become final and executory, on motion of the latter, the trial court
ordered its execution. A notice of garnishment was served on Loreto D. de la
Victoria as City Fiscal of Mandaue City where defendant Mabanto, Jr., was
then detailed. The notice directed petitioner not to disburse, transfer, release
or convey to any other person except to the deputy sheriff concerned the
salary checks or other checks, monies, or cash due or belonging to Mabanto,
Jr., under penalty of law. Sesbreño filed a motion before the trial court for
examination of the garnishees.

ISSUE:
Can the salary of a government employee be garnished?

RULING:
No. The salary of a government employee does not belong to him until the
same is physically delivered to him. Accordingly, before there is actual delivery
of the check, the payee has no power over it. Moreover, there was no sufficient
reason for petitioner to hold the checks because they were no longer
government funds and presumably delivered to the payee, conformably with
the last sentence of Sec. 16 of the NIL. As Assistant City Fiscal, the source of the
salary of Mabanto, Jr., is public funds. He receives his compensation in the form
of checks from the Department of Justice through petitioner as City Fiscal of
Mandaue City and head of office. Under Sec. 16, every contract on a
negotiable instrument is incomplete and revocable until delivery of the
instrument for the purpose of giving effect thereto.

27
 Ting Ting Pua v. Spouses Benito Lo Bun Tiong and Caroline Siok Ching Teng
G.R. No. 198660, October 23, 2013
Velasco, Jr.,J:

FACTS:
A complaint for sum of money was filed by the petitioner against the Sps.
Tiong for the amount of Php 8,500,00.00 covered by a check given by the latter
as payment of the loans obtained from her. It was petitioner’s sister, Lilian, who
vouched for the spouses’ ability to pay so that when the spouses approached
her, she immediately acceded and lent money to them without requiring any
collateral except post-dated checks bearing the borrowed amounts. The
spouses then issued 17 checks. These checks were dishonored upon
presentment to the drawee bank. The spouses asked petitioner to reduce their
indebtedness. The spouses then delivered to petitioner a check bearing the
reduced amount with the assurance that the check was good and
demanded the return of the 17 previously dishonored checks. Petitioner,
however, refused to return the bad checks and advised respondents that she
will do so only after the encashment of the latest issued check but such was
also dishonored when it was presented by petitioner to the drawee bank. For
the defense, the spouses categorically denied obtaining a loan from petitioner.

ISSUE:
Are the checks delivered to petitioner to pay for the spouses’ loan
obligation considered as consideration?

RULING:
Yes. The Court has expressly recognized that a check “constitutes an
evidence of indebtedness” and is a veritable “proof of an obligation.” In fact,
a check functions more than a promissory note since it not only contains an
undertaking to pay an amount of money but is an “order addressed to a bank
and partakes of a representation that the drawer has funds on deposit against
which the check is drawn, sufficient to ensure payment upon its presentation
to the bank.”
Under Section 24 of the NIL, every negotiable instrument is deemed prima
facie to have been issued for a valuable consideration and every person
whose signature appears thereon to have become a party for value.
Consequently, the 17 original checks, completed and delivered to petitioner,
are sufficient by themselves to prove the existence of the loan obligation of
the respondents to petitioner.

28
COMPLETION AND DELIVERY: COMPLETION OF BLANKS

Quirino Gonzales Logging Concessionaire v. CA and Republic Planters Bank

G.R. No. 126568, April 30, 2003
Carpio-Morales,J:

FACTS:
In the expansion of its logging business, petitioner applied for credit
accommodations with respondent Republic Bank, later as Republic Planters
Bank. The Bank approved QGLC’s application granting credit line of
P900,000.00 broken into overdraft line of P500,000.00 which was later reduced
to P 450,000.00 and a letter of Credit line of P400,000.00. In separate
transactions, petitioners, to secure certain advances from the Bank in
connection with QGLC’s exportation of logs, executed a promissory note in
1964 in favor of the Bank. They were to execute 3 more promissory notes in 1967.
Petitioners having long defaulted in the payment of their obligations under the
credit line, the Bank foreclosed the mortgage and bought the properties
covered thereby, it being the highest bidder in the auction sale held in the
same year. Ownership over the properties was later consolidated in the Bank
on account of which new titles thereto were issued to it.

ISSUE:
Can the promissory notes be considered as invalid for want of
consideration?

RULING:
No, the promissory notes are valid. The promissory notes appear to be
negotiable as they meet the requirements of Section 1 of the NIL. Such being
the case, the notes are prima facie deemed to have been issued for
consideration. It bears noting that no sufficient evidence was adduced by
petitioners to show otherwise.
It is no defense that the promissory notes were signed in blank as Section
14 of the NIL concedes the prima facie authority of the person in possession of
negotiable instruments, such as the notes herein, to fill in the blanks.

29
COMPLETION AND DELIVERY: COMPLETE BUT UNDELIVERED

DBP v. Sima Wei et al.

G.R. No. 85419, March 9, 1993
Campos,J:

FACTS:
In consideration for a loan extended by DBP to Sima Wei, the latter
executed and delivered to the former a promissory note, engaging to pay DBP
or order the amount of P1,820,000.00 on or before June 24, 1983 with interest
at 32% per annum. Sima Wei made partial payments. Sima Wei issued two
crossed checks payable to DBP drawn against China Banking Corporation.
Said checks were allegedly issued in full settlement of the drawer's account
evidenced by the promissory note. These two checks were not delivered to the
petitioner-payee or to any of its authorized representatives. These checks
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. Cheng Uy, Branch Manager of the Balintawak
branch of Producers Bank, relying on the assurance of respondent Samson
Tung, President of Plastic Corporation, that the transaction was legal and
regular, instructed the cashier of Producers Bank to accept the checks for
deposit and to credit them to the account of said Plastic Corporation, inspite
of the fact that the checks were crossed and payable to petitioner Bank and
bore no indorsement of the latter. Hence, petitioner filed the complaint.

ISSUE:
Does DBP have a cause of action against all of the respondents?

RULING:
No. DBP did not acquire any right or interest over the checks. The normal
parties to a check are the drawer, the payee and the drawee bank. A
negotiable instrument, of which a check is, is not only a written evidence of a
contract right but is also a species of property. Section 16 of the NIL which
governs checks 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, there can be no liability on the
instrument.

30
 Equitable Banking Corp. v. Special Steel Products
G.R. No. 175350, June 13, 2012
Del Castillo,J:

FACTS:
Augusto L. Pardo is SSPI’s President and majority stockholder. International
Copra Export Corporation (Interco) is its regular customer. Jose Isidoro Uy is an
Interco employee, in charge of the purchasing department, and the son-in-
law of its majority stockholder. Equitable Banking Corporation is the depository
bank of Interco and of Uy. SSPI sold welding electrodes to Interco, as
evidenced by sales invoices. The invoices provided that Interco would pay
interest at the rate of 36% per annum in case of delay. As payment for the
above welding electrodes, Interco issued three checks payable to the order
of SSPI. Each check was crossed with the notation “account payee only” and
was drawn against Equitable. The records do not identify the signatory for
these three checks, or explain how Uy, Interco’s purchasing officer, came into
possession of these checks. The records only disclose that Uy presented each
crossed check to Equitable on the day of its issuance and claimed that he had
good title thereto. He demanded the deposit of the checks in his personal
accounts in Equitable.

ISSUE:
Was the payment made by Equitable proper?

RULING:
No. The checks that Interco issued in favor of SSPI were all crossed, made
payable to SSPI’s order, and contained the notation “account payee only.”
This creates a reasonable expectation that the payee alone would receive the
proceeds of the checks and that diversion of the checks would be averted.
This expectation arises from the accepted banking practice that crossed
checks are intended for deposit in the named payee’s account only and no
other.
Equitable did not observe the required degree of diligence expected of a
banking institution under the existing factual circumstances. Equitable’s
pretension that there is nothing under the circumstances that rendered Uy’s
title to the checks questionable is outrageous. These are crossed checks,
whose manner of discharge, in banking practice, is restrictive and specific.
Equitable, not knowing the named payee on the check, had no way of
verifying for itself the alleged genuineness of the indorsement to Uy. The checks
bear nothing on their face that supports the belief that the drawer gave the
checks to Uy. Uy’s relationship to Interco’s majority stockholder will not justify
disregarding what is clearly ordered on the checks.

31
 Dela Victoria v. Hon. Burgos and Sesbreño
G.R. No. 111190 June 27, 1995
Bellosillo,J:

FACTS:
Raul Sesbreño filed a complaint for damages against Assistant City Fiscals
Bienvenido N. Mabanto, Jr., and Dario D. Rama, Jr. After trial judgment was
rendered ordering the defendants to pay P11,000.00 to Sesbreño. The decision
having become final and executory, on motion of the latter, the trial court
ordered its execution. A notice of garnishment was served on Loreto D. de la
Victoria as City Fiscal of Mandaue City where defendant Mabanto, Jr., was
then detailed. The notice directed petitioner not to disburse, transfer, release
or convey to any other person except to the deputy sheriff concerned the
salary checks or other checks, monies, or cash due or belonging to Mabanto,
Jr., under penalty of law. Sesbreño filed a motion before the trial court for
examination of the garnishees.

ISSUE:
Can the checks be garnished to satisfy the judgment?

RULING:
No. As Assistant City Fiscal, the source of the salary of Mabanto, Jr., is public
funds. He receives his compensation in the form of checks from the
Department of Justice through petitioner as City Fiscal of Mandaue City and
head of office. Under Sec. 16 of the NIL, every contract on a negotiable
instrument is incomplete and revocable until delivery of the instrument for the
purpose of giving effect thereto.
As a necessary consequence of being public fund, the checks may not be
garnished to satisfy the judgment. The rationale behind this doctrine is obvious
consideration of public policy. The Court find no difficulty in concluding that
the trial court exceeded its jurisdiction in issuing the notice of garnishment
concerning the salary checks of Mabanto, Jr., in the possession of petitioner.

32
 San Miguel Corp. v. Puzon
G.R. No. 167567, September 22, 2010
Del Castillo,J:

FACTS:
Bartolome V. Puzon, Jr., owner of Bartenmyk Enterprises, was a dealer
of beer products of petitioner San Miguel Corporation for Parañaque 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. Puzon, together with
his accountant, visited the SMC Sales Office in Parañaque City to reconcile
his account with SMC. During that visit Puzon allegedly requested to see BPI
check. However, when he got hold of it which was attached to a bond
paper together with another check, he immediately left the office with his
accountant, bringing the checks with them. SMC sent a letter to Puzon
demanding the return of the said checks. Puzon ignored the demand
hence SMC filed a complaint against him for theft.

ISSUE:
Was ownership of the postdated checks transferred to SMC?

RULING:
No. Since the checks were issued to cover the credit purchases not as
payment. 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.
Furthermore, the petitioner's demand letter sent to respondent states
"As per company policies on receivables, all issuances are to be covered
by post-dated checks. However, you have deviated from this policy by
forcibly taking away the check you have issued to us to cover the
December issuance." Notably, the term "payment" was not used instead
the terms "covered" and "cover" were used.

33
SIGNATURE

Francisco v. CA, Herby Commercial & Construction Corporation, Ong

G.R. No. 116320, November 29, 1999
Gonzaga-Reyes,J:

FACTS:
A. Fransisco Realty and Development and Herby Commercial and
Construction Corporation entered into a Land Development and Construction
Contract. Fransisco was the president of AFRDC while Ong was the president
of HCCC. It was agreed upon that HCCC would undertake the construction of
housing units and the development of a large parcel of land. The payment
would be on a turnkey basis. To facilitate the payment, AFDRC executed a
Deed of Assignment to enable the HCCC to collect payments from the GSIS.
Further, they opened an account with a bank from which checks would be
issued by Fransisco and the GSIS president. HCCC later on filed a complaint for
the unpaid balance in pursuance to its agreement with AFRDC. However, an
amicable settlement ensued, which was embodied in a MOA.
A year later, it was found out that Diaz and Fransisco had drawn checks
payable to Ong. Ong denied accepting said checks and it was further found
out that Diaz entrusted the checks to Fransisco who later forged the signature
of Ong, showing that he indorsed the checks to her and then she deposited
the checks to her personal savings account. This incident prompted Ong to file
a complaint against Fransisco.

ISSUE:
Is Francisco authorized to Ong’s name on the checks?

RULING:
No. The NIL 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.
Every person who, contrary to law, wilfully or negligently causes damage
to another, shall indemnify the latter for the same. Due to her forgery of Ong's
signature which enabled her to deposit the checks in her own account,
Francisco deprived HCCC of the money due it from the GSIS pursuant to the
Land Development and Construction Contract.

34
 Philippine Bank of Commerce v. Aruego
G.R. Nos. L-25836-37, January 31, 1981
Fernandez,J:

FACTS:
Jose Aruego obtained a credit accommodation from the Philippine Bank
of Commerce to facilitate the payment of printing of “World Current Events”,
the periodical he is publishing. Thus, for every printing of the periodical, the
printer, Encal Press and Photo Engraving, collected the cost of printing by
drawing a draft against the plaintiff, said draft being sent later to the
defendant for acceptance. As an added security for the payment of the
amounts advanced to Encal Press and Photo-Engraving, the plaintiff bank also
required defendant Aruego to execute a trust receipt in favor of said bank
wherein said defendant undertook to hold in trust for plaintiff the periodicals
and to sell the same with the promise to turn over to the plaintiff the proceeds
of the sale of said publication to answer for the payment of all obligations
arising from the draft. The Philippine Bank of Commerce instituted an action
against Aruego to recover the cost of printing of the latter’s 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.

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

RULING:
Yes. Aruego did not disclose in any of the drafts that he accepted that he
was signing as representative of the Philippine Education Foundation
Company. Section 20 of the NIL provides that “where the instrument contains
or a person adds to his signature words indicating that he signs for or on behalf
of a principal or in a representative capacity, he is not liable on the instrument
if he was duly authorized, but the mere addition of words describing him as an
agent or as filing a representative character, without disclosing his principal,
does not exempt him from personal liability." In this case, an inspection of the
drafts accepted by the defendant shows that nowhere has he disclosed that
he was signing as a representative of the Philippine Education Foundation
Company. He merely signed as follows: "JOSE ARUEGO (Acceptor) (SGD) JOSE
ARGUEGO For failure to disclose his principal, Aruego is personally liable for the
drafts he accepted.

35
FORGERY

Associated Bank and Cruz v. CA and Reyes

G.R. No. 89802, May 7, 1992
Cruz,J:

FACTS:
Merle Reyes is engaged in the business of ready-to-wear garments under
the firm name "Melissa's RTW." She deals with, among other customers,
Robinson's Department Store, Payless Department Store, Rempson
Department Store, and the Corona Bazaar. These companies issued in
payment of their respective accounts crossed checks payable to Melissa's RTW.
When she went to these companies to collect on what she thought were still
unpaid accounts, she was informed of the issuance of the crossed checks.
Further inquiry revealed that the said checks had been deposited with the
Associated Bank and subsequently paid by it to one Rafael Sayson, one of its
alleged trusted depositors. In the words of its branch manager and co-
petitioner, Conrado Cruz, Sayson had not been authorized by the private
respondent to deposit and encash the said checks. Reyes sued the petitioners
for recovery of the total value of the checks plus damages.
Petitioners contended that Reyes had no cause of action against them
and should have proceeded instead against the companies that issued the
checks.

ISSUE:
Is the bank negligent and therefore liable for the value of the checks?

RULING:
Yes. The possession of a check on a forged and unauthorized indorsement
is wrongful, and when the money is collected on the check, the bank can be
held liable. The act of the bank in taking the check on the forged and
unauthorized indorsement is the same as if it had taken the check and
collected without indorsement at all. The same amounts to conversion of the
check. When petitioner Bank paid the checks so indorsed, it did so at its own
risk and thus became liable to the payee for the value thereof. This liability
attached regardless of the knowledge of the Bank of the unauthoirzed
indorsement.

36
 BPI v. Casa Montessori Int’l and Yabut
G.R. No. 149454, May 28, 2004
Panganiban,J:

FACTS:
Casa Montessori International opened a current account with BPI. In 1991,
Casa discovered that nine of its checks had been encashed by a certain
Sonny D. Santos since 1990 in the total amount of P782,000.00. It turned out that
Santos was a fictitious name used by third party defendant Leonardo T. Yabut
who worked as external auditor of CASA. He voluntarily admitted that he
forged the signature of Ms. Lebron and encashed the checks. Casa filed the
a complaint for collection with damages against BPI praying that the latter be
ordered to reinstate the amount in the current and savings accounts of Casa
with interest at 6% per annum.

ISSUE:
Was there a forgery provided under the NIL?

RULING:
Yes. There was forgery of the drawers signature on the check. A forged
signature is a real or absolute defense, and a person whose signature on a
negotiable instrument is forged is deemed to have never become a party
thereto and to have never consented to the contract that allegedly gave rise
to it. The counterfeiting of any writing, consisting in the signing of anothers
name with intent to defraud, is forgery.
Negligence is attributable to BPI alone. A banking business is impressed with
public interest, of paramount importance thereto is the trust and confidence
of the public in general. BPI, despite claims of following its signature verification
procedure, still failed to detect the eight instances of forgery. Its negligence
consisted in the omission of that degree of diligence required of a bank. Thus,
BPI is liable for the value of the forged checks

37
 BDO v. Equitable Banking Corp. et al.
G.R. No. 74917, January 20, 1988
Gancayco,J:

FACTS:
Equitable Bank drew six crossed manager’s checks payable to certain
member establishments of Visa Card. They were subsequently deposited to
BDO to the credit of its depositor. Following normal procedures and after
stamping at the back of the checks the usual indorsements, BDO sent the
checks for clearing through the Philippine Clearing House Corp. Thereafter,
Equitable paid the checks and its clearing account was debited for the value
of the checks. BDO’s account was cedited for the same amount. Thereafter,
Equitable discovered that the indorsements appearing at the back of the
checks purporting to be that of the payees were forged or unauthorized,
belonging to persons other than the payees. As such, Equitable presented the
checks directly to BDO for the purpose of claiming reimbursement from the
latter. However, BDO refused to accept the same and to reimburse Equitable
for the value of the checks.

ISSUE:
Can BDO still claim that the checks under consideration are non-
negotiable?

RULING:
No. Having stamped its guarantee of all prior indorsements or lack of
indorsements, BDO can no longer claim that the checks are not negotiable.
By such deliberate act of BDO, it has for all legal intents and purposes treated
said chcks as negotiable and accordingly assumed the warranty of the
indorser when it stamped its guarantee of prior indorsements at the back of
the checks. It led Equitable to believe that it was acting as indorser of the
checks and on the strength of this guarantee, the latter cleared the checks in
question and credited the account of BDO. Thus, BDO is now barred from
taking an opposite position by claiming that the disputed checks are not
negotiable intsruments.

38
 Citibank, N.A. v. Sabeniano
G.R. No. 156132, October 12, 2006
Chico-Nazario,J:

FACTS:
Modesta Sabeniano is a client of Citibank and FNCB Finance. She obtained
a loan of Php 200,000 from Citibank. This loan was followed with several other
loans – some were paid, while some were not. These loans were secured by
Sabeniano’s money market placements with FNCB Finance through a Deed of
Assignment plus a Declaration of Pledge which states that all present and
future fiduciary placements held in her personal and/or joint name with
Citibank Switzerland, will secure all claims that Citibank may have or, in the
future, acquire against her. Since Sabeniano failed to pay her obligations to
Citibank, the latter sent demand letters to request payment. Still failing to pay,
Citibank executed the Deeds of Assignment and used the proceeds of
Sabeniano’s money market placement from FNCB Finance and her deposits
with Citibank.
Since the loan remains unpaid, Citibank proceeded to execute the
Declaration of Pledge and remitted a total of $149,632.99 from Sabeniano’s
Citibank-Geneva accounts to off-set the loan. Sabeniano then filed a
complaint against Citibank for damages and specific performance. She also
contended that her signatures were forged in the loan transactions.

ISSUE:
Whether or not the signatures of Sabeniano were forged.

RULING:
No. Although respondent attempted to raise suspicion as to the
authenticity of her signatures on certain documents, these were nothing more
than naked allegations with no corroborating evidence. Moreover, even her
own allegations were replete with inconsistencies. She could not even establish
in what manner or under what circumstances the fraud or forgery was
committed. Mr. Pujeda, the officer who was previously in charge of loans and
placements, confirmed that the signatures on the PNs were verified against
respondent's specimen signature with the bank. Hence, the Court finds that
the preponderance of evidence supports the existence of the respondent's
loans

39
 Gempesaw v. CA and Phil. Bank of Commerce
G.R. No. 92244, February 9, 1993
Campos,J:

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 are 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, 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. However, the
bank refused.

ISSUE:
Who bears the loss resulting from the forged indorsements?

RULING:
Both Gempesaw and Phil. Bank of Commerce shall bear the loss on a 50:50
ratio. As a rule, a drawee bank who has paid a check on which an
indorsement has been forged cannot charge the drawer’s account for the
amount of said check. An exception to the rule is where the drawer is guilty of
such negligence which causes the bank to honor such checks.
Gempesaw did not exercise prudence in taking steps that a careful and
prudent businessman would take in circumstances to discover discrepancies
in her account. Her negligence was the proximate cause of her loss, and under
Section 23 of the NIL, 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 NIL.
Thus, pursuant to Section 196 of the NIL, the bank may be held liable for
damages in accordance with Article 1170 of the Civil Code.

40
 Jai-Alai Corp. v. BPI
G.R. No. L-29432, August 6,1975
Castro,J:

FACTS:
Ten checks with a total face value of P8,030.58 were deposited by the
petitioner in its current account with the respondent bank. All the foregoing
checks, which were acquired by petitioner from one Antonio J. Ramirez, a sales
agent of the Inter-Island Gas and a regular bettor at jai-alai games, were, upon
deposit, temporarily credited to the petitioner's account in accordance with
the clause printed on the deposit slips issued by the respondent bank. Later on,
after Ramirez had resigned from the Inter-Island Gas and after the checks had
been submitted to inter-bank clearing, the Inter-Island Gas discovered that all
the indorsements made on the checks as well as the rubber stamp impression
were forgeries. In due time, the Inter-Island Gas advised the petitioner, the
respondent, the drawers and the drawee-banks of the said checks about the
forgeries. Meanwhile, the drawers of the checks demanded reimbursement
from the drawee-banks, which in turn demanded from the respondent, as
collecting bank, the return of the amounts they had paid. When the drawee-
banks returned the checks to the respondent, the latter paid their value which
the former in turn paid to the Inter-Island Gas. The respondent, for its part,
debited the petitioner's current account and forwarded to the latter the
checks containing the forged indorsements, which the petitioner, however,
refused to accept.

ISSUE:
Did BPI validly debit from petitioner’s account the value of the checks with
the forged indorsements?

RULING:
Yes. BPI acted within legal bounds when it debited the petitioner's account.
The payments made by the drawee-banks to the respondent on account of
the said checks were ineffective. The relationship of creditor and debtor
between the petitioner and the respondent had not been validly effected, the
checks not having been properly and legitimately converted into cash.
Respondent had acted promptly after being informed that the
indorsements on the checks were forged. Moreover, having received the
checks merely for collection and deposit, the respondent cannot be expected
to know or ascertain the genuineness of all prior indorsements on the said
checks. Indeed, having itself indorsed them to the respondent, the petitioner
is deemed to have given the warranty prescribed in Section 66 of the NIL that
every single one of those checks "is genuine and in all respects what it purports
to be." Respondent which relied upon the petitioner's warranty should not be
held liable for the resulting loss.

41
 Metrobank v. The First National City Bank
G.R. No. L-55079, November 19, 1982
Melencio-Herrera,J:

FACTS:
A check dated July 8, 1964 for P50,000.00, payable to CASH, drawn by
Joaquin Cunanan & Company on FNCB was deposited with Metrobank by a
certain Salvador Sales. Earlier that day, Sales had opened a current account
with Metrobank depositing P500.00 in cash. Metro Bank immediately sent the
cash check to the Clearing House of the Central Bank. The check was cleared
the same day. FNCB paid Metrobank through clearing the amount of
P50,000.00, and Sales was credited with the said amount in his deposit with
Metrobank. Nine days later, FNCB returned cancelled said check to drawer
Joaquin Cunanan & Company, together with the monthly statement of the
company's account with FNCB. That same day, the company notified FNCB
that the check had been altered. The actual amount of P50.00 was raised to
P50,000.00, and over the name of the payee, Manila Polo Club, was
superimposed the word CASH. FNCB wrote Metrobank asking for
reimbursement of the amount of P50,000.00. The latter did not oblige, so FNCB
reiterated its request. However, Metrobank was adamant in its refusal.

ISSUE:
Which bank is liable for the payment of the altered check, FNCB as the
drawee bank or Metrobank as the collecting bank?

RULING:
Metrobank can not be held liable for the payment of the altered check.
Since both parties are part of banking system, and both are subject to the
regulations of the Central Bank, they are bound by the 24-hour clearing house
rule of the Central Bank. The check was not returned to Metrobank in
accordance with 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 Metrobank. Its remedy lies not against
Metrobank, but against the party responsible for the changing the name of
the payee and the amount on the face of the check.

42
 Metropolitan Waterworks and Sewerage System v. CA
G.R. No. L-62943, July 14, 1986
Gutierrez,J:

FACTS:
MWSS is a GOCC created under RA No. 6234 as the successor-in- interest
of the defunct NWSA. PNB is the depository bank of MWSS. Among the several
accounts of NWSA with PNB is NWSA Account No. 6 and the authorized
signature for said account were those of MWSS treasurer Sanchez, its auditor
Aguilar, and its acting General Manager Recio. By special arrangement with
the PNB, the MWSS used personalized checks in drawing from this account.
These checks were printed for MWSS by its printer, F. Mesina Enterprises. Twenty-
three checks were prepared, processed, issued and released by NWSA, all of
which were paid and cleared by PNB and debited by PNB.
The foregoing checks were deposited by the payees Dizon, Sison and
Mendoza in their respective current accounts with PCIB and PBC. Thru the
Central Bank Clearing, these checks were presented for payment by PBC and
PCIB to the defendant PNB, and paid. At the time of their presentation to PNB
these checks bear the standard indorsement which reads 'all prior indorsement
and/or lack of endorsement guaranteed.' However, investigation conducted
by the NBI showed that Raul Dizon, Arturo Sison and Antonio Mendoza were all
fictitious persons. Hence, NWSA addressed a letter to PNB requesting the
immediate restoration to its Account No. 6, but the latter refused.

ISSUE:
Was there forgery of the signatures on the checks?

RULING:
No. There is no express and categorical finding in these documents that the
23 questioned checks were indeed signed by persons other than the
authorized MWSS signatories. The NBI Reports relied upon by the petitioner are
inadequate to sustain its allegations of forgery. These reports did not touch on
the inherent qualities of the signatures which are indispensable in the
determination of the existence of forgery. There must be conclusive findings
that there is a variance in the inherent characteristics of the signatures and
that they were written by two or more different persons.
Forgery cannot be presumed. It must be established by clear, positive, and
convincing evidence. This was not done in this case. MWSS is barred from
setting up the defense of forgery under Section 23 of the NIL because it was
guilty of negligence not only before the questioned checks were negotiated
but even after the same had already been negotiated.

43
 PCIB v. CA, Ford Philippines, and Citibank
G.R. No. 121413, January 29, 2001
Quisumbing,J:

FACTS:
The consolidated petitions arose from the action filed by BIR against
Citibank and PCIBfor the recovery of the amount of Citibank checks. Said
checks, both crossed checks were alleged to have been negotiated
fraudulently by an organized syndicate between and among two employees
of Ford and PCIB officers. It was established that instead of paying the crossed
checks, the checks were diverted and encashed for the eventual distribution
among the members of the syndicate. It was found that the manager of PCIB,
Castro, received the Citibank checks. He passed the checks to a co-
conspirator, an assistant manager of PCIB who helped him open a Checking
account of a fictitious person. Castro deposited a worthless Bank of America
Check in exactly the same amount of Ford checks. The syndicate tampered
with the checks and succeeded in replacing the worthless checks and the
eventual encashment of Citibank checks. They apparently performed their
activities using facilities in their official capacity or authority but for their
personal and private gain or benefit.
The evidence on record shows that Citibank as drawee bank was likewise
negligent in the performance of its duties. Citibank failed to establish that its
payment of Fords checks were made in due course and legally in order. It
likewise appears that although the employees of Ford initiated the transactions
attributable to an organized syndicate, their actions were not the proximate
cause of encashing the checks.

ISSUE:
Does Ford have the right to recover from PCIB as the collecting bank and
Citibank as the drawee bank the value of the checks intended as payment to
the CIR?

RULING:
Yes. There was no evidence presented confirming the conscious
participation of PCIB in the embezzlement. However, a banking corporation is
liable for the wrongful or tortuous acts and declarations of its officers or agents
within the course and scope of their employment. A bank will be held liable for
the negligence of its officers or agents when acting within the course and
scope of their employment. It may be liable for the tortuous acts of its officers.
Citibank must likewise answer for the damages incurred by Ford on
Citibank checks because of the contractual relationship existing between the
two. Citibank, as the drawee bank breached its contractual obligation with
Ford and such degree of culpability contributed to the damage caused to the
latter. Therefore, PCIB and Citibank are thus liable for and must share the loss
on a 50:50 ratio.

44
 PCIB v. Balmaceda and Ramos
G.R. No. 158143, September 21, 2011
Brion,J:

FACTS:
PCIB filed an action for recovery of sum of money with damages against
Balmaceda, its branch manager. PCIB alleged that Balmaceda, by taking
advantage of his position, fraudulently obtained and encashed 31 Manager’s
checks in the total amount of ₱10,782,150.00. PCIB impleaded Ramos as one
of the recipients of a portion of the proceeds from Balmaceda’s alleged fraud.
PCIB also increased the number of fraudulently obtained and encashed
Manager’s checks to 34, in the total amount of ₱11,937,150.00. Since
Balmaceda did not file an Answer, he was declared in default. On the other
hand, Ramos filed an Answer denying any knowledge of Balmaceda’s
scheme. According to Ramos, he is a reputable businessman engaged in the
business of buying and selling fighting cocks, and Balmaceda was one of his
clients. Ramos admitted receiving money from Balmaceda as payment for the
fighting cocks that he sold to Balmaceda, but maintained that he had no
knowledge of the source of Balmaceda’s money.

ISSUE:
Did Ramos conspire with Balmaceda in perpetrating the latter’s scheme to
defraud the Bank?

RULING:
No. All that PCIB’s evidence proves is that Balmaceda used Ramos’ name
as a payee when he filled up the application forms for the Manager’s checks.
But, the mere fact that Balmaceda made Ramos the payee on some of the
Manager’s checks is not enough basis to conclude that Ramos was complicit
in Balmaceda’s fraud.
On the other hand, PCIB is itself negligent when it allowed Balmaceda to
encash the Manager’s checks that were plainly crossed checks. A crossed
check is one where two parallel lines are drawn across its face or across its
corner. The crossing of a check is a warning that the check should be
deposited only in the account of the payee. When a check is crossed, it is the
duty of the collecting bank to ascertain that the check is only deposited to the
payee’s account. In complete disregard of this duty, PCIB’s systems allowed
Balmaceda to encash 26 Manager’s checks which were all crossed checks, or
checks payable to the "payee’s account only."

45
 PNB v. F.F. Cruz and Company, Inc.
G.R. No. 173259, July 25, 2011
Del Castillo,J:

FACTS:
FFCCI opened savings/current account and dollar savings account with
PNB. Its President Felipe Cruz and Secretary-Treasurer Angelita A. Cruz were the
named signatories for the said accounts. The said signatories on separate
dates left for and returned from the USA. While they were out of the country,
applications for cashier’s and manager’s checks bearing Felipe’s signature
were presented to and both approved by the PNB, payable to a certain
Gene B. Sangalang and the other one was payable to one Paul Bautista. The
amounts of these checks were then debited by the PNB against the combo
account of FFCCI.
When Angelita returned to the country, she examined the PNB statements
of account and she noticed the deductions. Claiming that these were
unauthorized and fraudulently made, FFCCI requested PNB to credit back and
restore to its account the value of the checks. PNB refused, and thus
constrained FFCCI filed the instant suit for damages against the PNB and its
own accountant Aurea Caparas.

ISSUE:
Is PNB liable for damages for its negligence?

RULING:
PNB was negligent in the handling of FFCCI’s combo account, specifically,
with respect to PNB’s failure to detect the forgeries in the subject applications
for manager’s check which could have prevented the loss. As expert witness,
the NBI senior document examiner testified that the forged signatures in the
subject applications for manager’s check contained noticeable and
significant differences from the genuine signatures of FFCCI’s authorized
signatories and that the forgeries should have been detected or observed by
a trained signature verifier of any bank.
The banking business is impressed with public trust. A higher degree of
diligence is imposed on banks relative to the handling of their affairs than that
of an ordinary business enterprise. PNB failed to meet the high standard of
diligence required by the circumstances to prevent the fraud.

46
 PNB v. Hon. Quimpo and Gozon
G.R. No. L-53194, March 14, 1988
Gancayco,J:

FACTS:
Francisco S. Gozon II, who was a depositor of PNB, went to the bank in his
car accompanied by his friend Ernesto Santos whom he left in the car while he
transacted business in the bank. When Santos saw that Gozon left his check
book he took a check therefrom, filled it up for the amount of P5,000.00, forged
the signature of Gozon, and thereafter he encashed the check in the bank on
the same day. The account of Gozon was debited the said amount. Upon
receipt of the statement of account from the bank, Gozon asked that the said
amount of P5,000.00 should be returned to his account as his signature on the
check was forged but the bank refused. Upon complaint, Ernesto Santos was
apprehended by the police authorities and upon investigation he admitted
that he stole the check of Gozon, forged his signature and encashed the same
with the Bank. Hence, Gozon filed the complaint for recovery of the amount
plus interest, and damages against PNB.

ISSUE:
Is PNB liable to pay damages due to its negligence?

RULING:
Yes. A bank is bound to know the signatures of its customers, and if it pays
a forged check, it must be considered as making the payment out of its own
funds, and cannot ordinarily change the amount so paid to the account of
the depositor whose name was forged. The prime duty of a bank is to ascertain
the genuineness of the signature of the drawer or the depositor on the check
being encashed. It is expected to use reasonable business prudence in
accepting and cashing a check presented to it. The trial court found that a
comparison of the signature on the forged check and the sample signatures
of private respondent show marked differences as the graceful lines in the
sample signature which is completely different from those of the signature on
the forged check. Obviously, PNB was negligent in encashing said forged
check without carefully examining the signature which shows marked variation
from the genuine signature of Gozon.

47
 Ilusorio v. CA and Manila Banking Corp.
G.R. No. 139130, November 27, 2002
Quisumbing,J:

FACTS:
Petitioner is a prominent businessman who was the Managing Director of
Multinational Investment Bancorporation and the Chairman and/or President
of several other corporations. He was a depositor in good standing of Manila
Banking Corporation, under current checking account. As he was then running
about 20 corporations, and was going out of the country a number of times,
petitioner entrusted to his secretary, Eugenio, his credit cards and his
checkbook with blank checks. It was also Eugenio who verified and reconciled
the statements of said checking account. Eugenio was able to encash and
deposit to her personal account about 17 checks drawn against the account
of the petitioner. Petitioner did not bother to check his statement of account
until a business partner apprised him that he saw Eugenio use his credit cards.
Petitioner fired Eugenio immediately, and instituted a criminal action against
her for estafa thru falsification before the Office of the Provincial Fiscal of Rizal.
Private respondent also lodged a complaint for estafa thru falsification of
commercial documents against Eugenio on the basis of petitioner’s statement
that his signatures in the checks were forged. Petitioner then requested the
respondent bank to credit back and restore to its account the value of the
checks which were wrongfully encashed but respondent bank refused. Hence,
petitioner filed the instant case.

ISSUE:
Does Ilusorio have a cause of action against Manila Banking?

RULING:
No. To be entitled to damages, petitioner has the burden of proving
negligence on the part of the bank for failure to detect the discrepancy in the
signatures on the checks. It is incumbent upon petitioner to establish the fact
of forgery, by submitting his specimen signatures and comparing them with
those on the questioned checks. However, he failed to submit additional
specimen signatures as requested by the NBI from which to draw a conclusive
finding regarding forgery. The burden to prove forgery was upon the plaintiff,
which burden he failed to discharge.
The bank’s employees ialso did not have a hint as to Eugenio’s modus
operandi because she was a regular customer of the bank, having been
designated by petitioner himself to transact in his behalf. According to the CA,
the employees of the bank exercised due diligence in the performance of their
duties.

48
 Republic Bank v. CA and First National City Bank
G.R. No. 42725, April 22, 1991
Grino-Aquino,J:

FACTS:
San Miguel Corporation drew a dividend check on its account in FNCB in
favor of J. Roberto C. Delgado, a stockholder. After the check had been
delivered to Delgado, the amount on its face was fraudulently and without
authority of the drawer, SMC, altered by increasing it from P240 to P9,240. The
check was indorsed and deposited by Delgado in his account with Republic
Bank. Republic accepted the check for deposit without ascertaining its
genuineness and regularity. Later, Republic endorsed the check to FNCB by
stamping on the back of the check "all prior and/or lack of indorsement
guaranteed" and presented it to FNCB for payment through the Central Bank
Clearing House. Believing the check was genuine, and relying on the guaranty
and endorsement of Republic appearing on the back of the check, FNCB paid
P9,240 to Republic.
SMC notified FNCB of the material alteration. FNCB lost no time in
recrediting P9,240 to SMC. FNCB informed Republic in writing of the alteration
and the forgery of the endorsement of J. Roberto C. Delgado. By then,
Delgado had already withdrawn his account from Republic. FNCB demanded
that Republic refund the P9,240 on the basis of the latter’s endorsement and
guaranty. Republic refused, claiming there was delay in giving it notice of the
alteration.

ISSUE:
Is Republic, as the collecting bank, protected by the 24-hour clearing
house rule found in CB Circular No. 9 from liability to refund the amount paid
by FNCB as the drawee bank?

RULING:
Yes. When an endorsement is forged, the collecting bank or last endorser,
as a general rule, bears the loss, but the unqualified endorsement 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, the collecting bank is absolved from liability. The CA erred in
laying upon Republic, instead of on FNCB the drawee bank, the burden of loss
for the payment of the altered SMC check, the fraudulent character of which
FNCB failed to detect and warn Republic about, within the 24-hour clearing
house rule. Thus, Republic is absolved from liability to refund to the First National
City Bank the sum of P9,240

49
 Republic Bank v. Ebrada
G.R. No. L-40796, July 31, 1975
Martin,J:

FACTS:
Mauricia T. Ebrada encashed back pay check at the main office of the
Republic Bank.. The check was issued by the Bureau of Treasury. Republic Bank
was later advised by the said Bureau that the alleged indorsement on the
reverse side of the aforesaid check by the payee, Martin Lorenzo was a forgery
since the latter had allegedly died. Bank was then requested by the Bureau to
refund the amount of P1,246.08. To recover what it had refunded, Bank made
verbal and formal demands upon defendant Ebrada to account for money,
but said defendant refused to do so. Hence, Bank sued defendant Ebrada.
Ebrada denied the material allegations of the complaint and as affirmative
defenses, she alleged that she was a holder in due course of the check in
question, or at the very least, has acquired her rights from a holder in due
course and therefore entitled to the proceeds thereof. She also alleged that
the Bank has no cause of action against her as it is already in estoppel, or so
negligent as not to be entitled to recover anything from her.

ISSUE:
Can Republic Bank recover from the last indorser?

RULING:
Yes. According to Section 23 of the NIL, 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, 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 NIL.

50
SAMSUNG CONSTRUCTION COMPANY PHILIPPINES, INC v. FAR EAST BANK AND
TRUST COMPANY AND COURT OF APPEALS
G.R. No. 129015, August 13, 2004
TINGA, J.
FACTS:
Plaintiff Samsung has an account with defendant FEBTC. A certain
Roberto Gonzaga presented for payment FEBTC Check bank’s branch
amounting P999,500.00. The bank teller was satisfied as to the authenticity of
the signature appearing on the check. At the same time, Justiani forwarded
the check to the branch Senior Assistant Cashier. He too concluded that the
check was indeed signed by Jong. Velez then forwarded the check and
signature card to Syfu, another bank officer, for approval. Syfu then noticed
that Sempio, the assistant accountant of Samsung Construction, who vouched
for the genuineness of Jong’s signature. Syfu authorized the bank’s
encashment of the check to Gonzaga. Samsung Construction filed
a Complaint for violation of Section 23 of the Negotiable Instruments Law.
The RTC held that Jong’s signature on the check was forged and accordingly
directed the bank to pay to Samsung Construction’s account. The Court of
Appeals rendered a Decision, reversing the RTC Decision and absolving FEBTC
from any liability.

ISSUE:
Whether or not the FEBTC is liable to pay Samsung Construction?

RULING:
Yes. Under Section 23 of the Negotiable Instruments Law, the general
rule is to the effect that a forged signature is "wholly inoperative," and payment
made "through or under such signature" is ineffectual or does not discharge
the instrument. Moreover, the very opportunity of the drawee to insure and to
distribute the cost among its customers who use checks makes the drawee an
ideal party to spread the risk to insurance. Still, even if the bank performed
with utmost diligence, the drawer whose signature was forged may still recover
from the bank as long as he or she is not precluded from setting up the defense
of forgery. Since the drawer, Samsung Construction, is not precluded by
negligence from setting up the forgery, the general rule should apply. A bank
is liable, irrespective of its good faith, in paying a forged check.

51
 WESTMONT BANK v. EUGENE ONG
G.R. No. 132560, January 30, 2002
QUISUMBING, J.:
FACTS:
Respondent Eugene Ong has an account with Westmont Bank. To pay
Ong, Island Securities purchased two (2) Pacific Banking Corporation
manager’s checks, both dated May 4, 1976, issued in the name of Eugene Ong
as payee. Before Ong could get hold of the checks, his friend Paciano
Tanlimco got hold of them, forged Ong’s signature and deposited these with
petitioner, where Tanlimco was also a depositor. Even though Ong’s specimen
signature was on file, petitioner accepted and credited both checks to the
account of Tanlimco, without verifying the ‘signature indorsements’ appearing
at the back thereof. Tanlimco then immediately withdrew the money and
absconded.
It was only on October 7, 1977, about five (5) months from discovery of
the fraud, did Ong cry foul and demanded in his complaint that petitioner pay
the value of the two checks from the bank on whose gross negligence he
imputed his loss.

ISSUE:
Whether or not petitioner is absolved from liability due to laches?

RULING:
No, petitioner could not escape liability for its negligent acts. Banks are
engaged in a business impressed with public interest, and it is their duty to
protect in return their many clients and depositors who transact business with
them. They have the obligation to treat their client’s account meticulously and
with the highest degree of care, considering the fiduciary nature of their
relationship.
In the case at bar, it cannot be said that respondent sat on his rights. He
immediately acted after knowing of the forgery by proceeding to seek help
from the Tanlimco family and later the Central Bank, to remedy the situation
and recover his money from the forger, Paciano Tanlimco. These acts cannot
be construed as undue delay in or abandonment of the assertion of his rights.
Moreover, the claim of petitioner that respondent should be barred by
laches is clearly a vain attempt to deflect responsibility for its negligent act. As
explained by the appellate court, it is petitioner which had the last clear
chance to stop the fraudulent encashment of the subject checks had it
exercised due diligence and followed the proper and regular banking
procedures in clearing checks.

52
CONSIDERATION

BIBIANO V. BAÑAS, JR. v. COURT OF APPEALS

G.R. No. 102967, February 10, 2000
QUISUMBING, J.:
FACTS:
Bañas sold to AYALA a land for P2,308,770.00. AYALA issued one
promissory note covering four equal annual installments. The same day,
petitioner discounted the promissory note with AYALA, for its face value of
P1,847,016.00, evidenced by a Deed of Assignment signed by the petitioner
and AYALA.
Respondent Larin sent a letter to petitioner informing of the income tax
deficiency that must be settled him immediately. Petitioner insisted that the
sale of his land to AYALA was on installment. On June 17, 1981, Larin filed a
criminal complaint for tax evasion against the petitioner. Petitioner filed with
the RTC of Manila an action for damages against respondents for extortion
and malicious publication of the BIR's tax audit report. He claimed that the
filing of criminal complaints against him for violation of tax laws were improper
because he had already availed of two tax amnesty decrees.

ISSUE:
Whether respondent court erred in finding that petitioner's income from
the sale of land in 1976 should be declared as a cash transaction in his tax
return for the same year?

RULING:
As a general rule, the whole profit accruing from a sale of property is
taxable as income in the year the sale is made. But, if not all of the sale price
is received during such year, and a statute provides that income shall be
taxable in the year in which it is "received," the profit from an installment sale is
to be apportioned between or among the years in which such installments are
paid and received.
When petitioner had the promissory notes covering the succeeding
installment payments of the land issued by AYALA, discounted by AYALA itself,
on the same day of the sale, he lost entitlement to report the sale as a sale on
installment since, a taxable disposition resulted and petitioner was required by
law to report in his returns the income derived from the discounting. What
petitioner did is tantamount to an attempt to circumvent the rule on payment
of income taxes gained from the sale of the land to AYALA for the year 1976.

53
 ENGR. JOSE E. CAYANAN v. NORTH STAR INTERNATIONAL TRAVEL
G.R. No. 172954, October 5, 2011
VILLARAMA, JR., J.:
FACTS:
Virginia Balagtas, the General Manager of North Star, in
accommodation and upon the instruction of its client, petitioner, sent the
amount of US$60,000 to View Sea Ventures from her personal account. On
March 29, 1994, Virginia again sent US$40,000 to View Sea Ventures by
telegraphic transfer coming from petitioner. 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 ₱510,035.47.
When presented for payment, the checks were dishonored for
insufficiency of funds while the other three checks were dishonored because
of a stop payment order from petitioner.

ISSUE:
Whether the CA erred in holding him civilly liable to North Star for the
value of the checks?

RULING:
We have held that 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 [Link] 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. Sadly, however,
petitioner has not presented any credible evidence to rebut the presumption,
as well as North Star’s assertion, that the checks were issued as payment for
the US$85,000 petitioner owed. The fact that petitioner himself specifically
named North Star as the payee of the checks is an admission of his liability to
North Star and not to Virginia Balagtas, who as manager merely facilitated the
transfer of funds. Indeed, it is highly inconceivable that an experienced
businessman like petitioner would issue various checks in sizeable amounts to
a payee if these are without consideration.

54
 CHARLES LEE v. COURT OF APPEALS
G.R. No. 117913, February 1, 2002
DE LEON, JR., J:
FACTS:
Lee, as President of MICO wrote to PBCom requesting for a grant of a
discounting loan/credit line in the sum of ₱3,000,000.00 for the purpose of
carrying out MICO’s line of business as well as to maintain its volume of business
as well as for the purpose of opening letters of credit and trust receipts. As
security for the loans, MICO executed a Deed of Real Estate Mortgage over its
properties. On March 26, 1979 Charles Lee, Chua Siok Suy, Mariano Sio, Alfonso
Yap and Richard Velasco, in their personal capacities executed a Surety
Agreement in favor of PBCom.
Upon maturity of all credit availments obtained by MICO from PBCom,
the latter made a demand for payment. For failure of petitioner MICO to pay
the obligations incurred despite repeated demands, PBCom extrajudicially
foreclosed MICO’s real estate mortgage and sold the said mortgaged
properties in a public auction.

ISSUE:
Whether or not the proceeds of the loans and letters of credit
transactions were ever delivered to MICO?

RULING:
Letters of credit and trust receipts are, however, not negotiable
instruments. But drafts issued in connection with letters of credit are negotiable
instruments. The documents presented have not merely created a prima
facie case but have actually proved the solidary obligation of MICO and the
petitioners, as sureties of MICO, in favor of respondent PBCom. The
presumption that the drafts drawn in connection with the letters of credit have
sufficient consideration. Under Section 3(r), Rule 131 of the Rules of Court there
is also a presumption that sufficient consideration was given in a contract.
Hence, petitioners should have presented credible evidence to rebut that
presumption as well as the evidence presented by private respondent PBCom.
The letters of credit show that the pertinent materials/merchandise have been
received by MICO. The drafts signed by the beneficiary/suppliers in connection
with the corresponding letters of credit proved that said suppliers were paid by
PBCom for the account of MICO. The draft was later transmitted to PBCom to
support the latter’s claim for payment from MICO. MICO accepted the draft
upon presentment and negotiated it to PBCom.

55
 QUIRINO GONZALES LOGGING CONCESSIONAIRE v. COURT OF APPEALS
G.R. No. 126568, April 30, 2003
CARPIO MORALES, J.:
FACTS:
The Bank and QGLC and the spouses Quirino and Eufemia Gonzales
executed an Agreement for Credit in Current Account, Application and
Agreement for Commercial Letter of Credit, and Trust Receipt. Petitioners
secure certain advances from the Bank in connection with QGLC's exportation
of logs, executed a promissory note in favor of the Bank. In 1965, petitioners
having long defaulted in the payment of their obligations under the credit line,
the Bank foreclosed the mortgage and bought the properties covered.
Alleging non-payment of the balance of QGLC's obligation after the proceeds
of the foreclosure sale were applied and non-payment of the promissory notes,
the Bank filed a complaint for "sum of money" against petitioners.

ISSUE:
Whether or not QGLC’s may seek the return of the real and personal
properties which they may have given in good faith as the same is barred by
prescription?

RULING:
Yes, in any case, it is no defense that the promissory notes were signed
in blank as Section 14 of the Negotiable Instruments Law concedes the prima
facie authority of the person in possession of negotiable instruments, such as
the notes herein, to fill in the blanks. As for petitioners' reliance on Exhibits "B",
"P" and "T," they have failed to show the relevance thereof to the seventh up
to the ninth causes of action of the Bank.
Petitioners asseverate that with the trial court's dismissal of the Bank's
complaint and the denial of its first to sixth causes of action, it is but fair and just
that the real properties which were mortgaged and foreclosed be returned to
them. It is not disputed that the properties were foreclosed under Act No. 3135.
Though the Bank's action for deficiency is barred by prescription, nothing
irregular attended the foreclosure proceedings to warrant the reconveyance
of the properties covered thereby. As for petitioners' prayer for moral and
exemplary damages, it not having been raised as issue before the courts
below, it can not now be considered. Neither can the award of attorney's fees
for lack of legal basis.

56
 REMIGIO S. ONG v. PEOPLE OF THE PHILIPPINES and COURT OF APPEALS
G.R. No. 139006, November 27, 2000
KAPUNAN, J.:
FACTS:
Marcial de Jesus and accused Remigio Ong are both businessmen who
came to know each other since 1988 as supplier of some companies. On
December 17, 1992, Remigio Ong approached Marcial de Jesus in his place
of work in Pasay City and requested to be accommodated a loan which he
needed to pay the 13th month pay of his employees at the Master Metal Craft.
In order to insure the repayment, complainant required Mr. Ong to issue a post-
dated check for the same amount to become due on January 16, 1993. Mr.
Ong therefore issued FEBTC check. However, these were returned for reason
that it was drawn against insufficient funds. For failure of Ong to make
arrangement for the payment or replacement of the bounced check, De
Jesus filed this case.

ISSUE:
Whether or not the questioned febtc check was only a contingent
payment of petitioner's company loan which was not been proven and not
issued to apply on account or for value?

RULING:
No, The trial court as well as the Court of Appeals have found that the
prosecution clearly established the existence of the loan and the subsequent
encashment of the Producers Bank check. It has also been established that
petitioner issued the subject FEBTC check, and that said check was
subsequently dishonored for being drawn against insufficient funds.
Petitioner's argument that the subject check was issued without
consideration is inconsequential. The law invariably declares the mere act of
issuing a worthless check as malum prohibitum. In actions based upon a
negotiable instrument, it is unnecessary to aver or prove consideration, for
consideration is imported and presumed from the fact that it is a negotiable
instrument. The presumption exists whether the words "value received" appear
on the instrument or not. Furthermore, such contention is also inconsequential
in Batas Pambansa Blg. 22.

57
 TRAVEL-ON, INC. v. COURT OF APPEALS and ARTURO S. MIRANDA
G.R. No. L-56169, June 26, 1992
FELICIANO, J.:
FACTS:
Petitioner was a travel agency involved in ticket sales on
a commission basis for and on behalf of different airline
companies. Miranda has a revolving credit line with the
company. He procured tickets on behalf of others and derived
commissions from it. Petitioner filed a collection suit against Miranda
for the unpaid amount of six checks. Petitioner alleged that
Miranda procured tickets from them which he paid with cash and
checks but the checks were dishonored upon presentment to the bank.
This was being refuted by Miranda by saying that he actually
paid for his obligations, even in the excess. He argued that
the checks were for accommodation purposes only. The
company needed to show to its Board of Directors that its accounts receivable
was in good standing. The RTC and CA held Miranda not to be liable.

ISSUE:
Whether or not check was issued for valuable consideration?

HELD:
Reliance by the lower and appellate court on the
company’s financial statements were wrong, to see if Miranda was liable or
not. This financial statements were actually not updated to show that there
was indebtedness on the part of Miranda. The best evidence
that the courts should have looked at were the checks itself. There is a
prima facie presumption that a check was issued for valuable
consideration and the provision puts the burden upon the drawer to
disprove this presumption. Miranda was unable to relieve himself of this
burden.
Only clear and convincing evidence and not mere self-serving
evidence of drawer can rebut this presumption. The company
was entitled to the benefit conferred by the statutory provision.
Miranda failed to show that the checks weren’t issued for any valuable
consideration. The checks were clear by stating that the company
was the payee and not a mere accommodated party. And
also, notice was given to the fact that the checks were issued
after a written demand by the company regarding Miranda’s
unpaid liabilities.

58
ACCOMMODATION PARTY

AGRO CONGLOMERATES, INC. v. COURT OF APPEALS

G.R. No. 117660, December 18, 2000
QUISUMBING, J.:
FACTS:
On July 17, 1982, petitioner Agro Conglomerates, Inc. as vendor, sold
two parcels of land to Wonderland Food Industries, Inc. Hence, these shall be
paid in four equal installments. Consequently, petitioner Mario Soriano signed
as maker several promissory notes, payable to the respondent bank. Thereafter,
the bank released the proceeds of the loan to petitioners. However, petitioners
failed to meet their obligations as they fell due. During that time, the bank was
experiencing financial turmoil and was under the supervision of the Central
Bank. Central Bank examiner and liquidator Cordula de Jesus, endorsed the
subject promissory notes to the bank’s counsel for collection. The bank gave
petitioners opportunity to settle their account by extending payment due
dates. Mario Soriano manifested his intention to re-structure the loan, yet did
not show up nor submit his formal written request. Respondent bank filed three
separate complaints before the Regional Trial Court of Manila for Collection of
Sums of money.

ISSUE:
Whether or nor petitioners become liable as accommodation party?

RULING:
Yes. Petitioners became liable as accommodation party. An
accommodation party is a person who has signed the instrument as maker,
acceptor, or indorser, without receiving value therefor, and for the purpose of
lending his name to some other person and is liable on the instrument to a
holder for value, notwithstanding such holder at the time of taking the
instrument knew to be an accommodation party. He has the right, after paying
the holder, to obtain reimbursement from the party accommodated, since the
relation between them has in effect become one of principal and surety, the
accommodation party being the surety. The surety’s liability to the creditor is
said to be direct, primary and absolute. Neither could petitioners excuse
themselves and hold Wonderland still liable to pay the loan upon the rescission
of their sales contract. If petitioners sustained damages as a result of the
rescission, they should have impleaded Wonderland and asked damages. The
non-inclusion of a necessary party does not prevent the court from proceeding
in the action, and the judgment rendered therein shall be without prejudice to
the rights of such necessary party.

59
 ANG TIONG [Link] TING
G.R. No. L-26767, February 22, 1968
CASTRO, J.:
FACTS:
Lorenzo Ting issued Philippine Bank of Communications check, for the
sum of P4,000, payable to "cash or bearer". With Felipe Ang's signature at the
back thereof, the instrument was received by the plaintiff Ang Tiong who
thereafter presented it to the drawee bank for payment. The bank dishonored
it. The plaintiff then made written demands on both Lorenzo Ting and Felipe
Ang that they make good the amount represented by the check. These
demands went unheeded; so he filed in the municipal court of Manila an
action for collection of the sum of money.

ISSUE:
Whether or not appellant becomes liable as accommodation party?

RULING:
Yes, even on the assumption that the appellant is a mere
accommodation party, he is nevertheless, by the clear mandate of section 29
of the Negotiable Instruments Law, yet "liable on the instrument to a holder for
value, notwithstanding that such holder at the time of taking the instrument
knew him to be only an accommodation party." The accommodation party is
liable to a holder for value as if the contract was not for accommodation. It is
not a valid defense that the accommodation party did not receive any
valuable consideration when he executed the instrument. Nor is it correct to
say that the holder for value is not a holder in due course merely because at
the time he acquired the instrument, he knew that the indorser was only an
accommodation party. The liability of the appellant remains primary and
unconditional. To sanction the appellant's theory is to give unwarranted legal
recognition to the patent absurdity of a situation where an indorser, when sued
on an instrument by a holder in due course and for value, can escape liability
on his indorsement by the convenient expedient of interposing the defense
that he is a mere accomodation indorser.

60
 BANK OF THE PHILIPPINE ISLANDS v. COURT OF APPEALS
G.R. No. 112392, February 29, 2000
YNARES-SANTIAGO, J.:
FACTS:
Private respondent deposited in Foreign Currency Deposit Unit (FCDU)
Savings Account which he maintained in petitioner bank, Continental Bank
Manager's Check payable to "cash" and duly endorsed by private respondent
on its dorsal side. It appears that the check belonged to a certain Henry who
went to the office of private respondent and requested him to deposit the
check in his dollar account by way of accommodation and for the purpose of
clearing the same. Private respondent acceded, and agreed to deliver to
Chan a signed blank withdrawal slip, with the understanding that as soon as
the check is cleared, both of them would go to the bank to withdraw the
amount of the check upon private respondent's presentation to the bank of
his passbook. Using the blank withdrawal slip given by private respondent to
Chan, one Ruben Gayon, Jr. was able to withdraw the amount of $2,541.67
from FCDU. On August 12, 1986, petitioner filed a complaint against private
respondent, praying for the return of the amount of $2,500.00.

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

RULING:
It is thus clear that ordinarily private respondent may be held liable as an
indorser of the check or even as an accommodation party. However, to hold
private respondent liable for the amount of the check he deposited by the
strict application of the law and without considering the attending
circumstances in the case would result in an injustice and in the erosion of the
public trust in the banking system. The interest of justice thus demands looking
into the events that led to the encashment of the check.
In in depositing the check in his name, private respondent did not become the
outright owner of the amount stated therein. Under the rule, by depositing the
check with petitioner, private respondent is merely designating petitioner as
the collecting bank. As such, after receiving the deposit, under its own rules,
petitioner shall credit the amount in private respondent's account or infuse
value thereon only after the drawee bank shall have paid the amount of the
check or the check has been cleared for deposit.

61
 R. N. CLARK v. GEORGE C. SELLNER
G.R. No. 16477, November 22, 1921
ROMUALDEZ, J. :
FACTS:
The defendant, in conjunction with two other persons, signed the note
in favor of the plaintiff. Counsel for the defendant allege that the latter did not
receive in that transaction either the whole or any part of the amount of the
debt; that the instrument was not presented to the defendant for payment;
and that the defendant, being an accommodation party, is not liable unless
the note is negotiated, which was not done.

ISSUE:
Whether or not defendant is an accommodation party?

RULING:
Yes, it should be taken into account that by putting his signature to the
note, he lent his name, not to the creditor, but to those who signed with him
placing himself with respect to the creditor in the same position and with the
same liability as the said signers. It should be noted that the phrase "without
receiving value therefor," as used in section 29 of the aforesaid Act, means
"without receiving value by virtue of the instrument" and not, as it apparently is
supposed to mean, "without receiving payment for lending his name." In reality
the legal situation of the defendant in this case may properly be regarded as
that of a joint surety rather than that of an accommodation party. The
defendant, as a joint surety, may, upon the maturity of the note, pay the debt,
demand the collateral security and dispose of it to his benefit; but there is no
proof whatever that this was done. As to the plaintiff, he is the "holder for value,"
under the phrase of said section 29, for he had paid the money to the signers
at the time the note was executed and delivered to him.

62
 ERNESTINA CRISOLOGO-JOSE v. COURT OF APPEALS and RICARDO S. SANTOS,
JR. in his own behalf and as Vice-President for Sales of Mover Enterprises, Inc.
G.R. No. 80599, September 15, 1989
REGALADO, J.:
FACTS:
Ricardo S. Santos, Jr. was the vice-president of Mover Enterprises, Inc.
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 No. 093553 drawn 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
as an alternate story. Plaintiff Ricardo S. Santos, Jr. did sign the check. When
defendant deposited this replacement check with her account at Family
Savings Bank, Mayon Branch, it was dishonored for insufficiency of funds.

ISSUE:
Whether or not Mover Enterprises, Inc. is the accommodation party?

RULING:
No. Petitioner's submission is that no creditor-debtor relationship exists
between the parties, hence consignation is not proper. As previously
discussed, however, respondent Santos is an accommodation party and is,
therefore, liable for the value of the check. The fact that he was only a co-
signatory does not detract from his personal liability. A co-maker or co-drawer
under the circumstances in this case is as much an accommodation party as
the other co-signatory or, for that matter, as a lone signatory in an
accommodation instrument.
Under the doctrine in Philippine Bank of Commerce vs. Aruego, supra,
he is in effect a co-surety for the accommodated party with whom he and his
co-signatory, as the other co-surety, assume solidary liability ex lege for the
debt involved. With the dishonor of the check, there was created a debtor-
creditor relationship, as between Atty. Benares and respondent Santos, on the
one hand, and petitioner, on the other. This circumstance enables respondent
Santos to resort to an action of consignation where his tender of payment had
been refused by petitioner.

63
 EUSEBIO GONZALES v. PHILIPPINE COMMERCIAL AND INTERNATIONAL BANK,
EDNA OCAMPO and ROBERTO NOCEDA
G.R. No. 180257, February 23, 2011
VELASCO, JR., J.:
FACTS:
Petitioner Eusebio Gonzales (Gonzales) was a client of PCIB for a good
15 years before he filed the instant case. His account with PCIB was handled
by respondent Edna Ocampo until she was replaced by respondent Roberto
Noceda. Gonzales and his wife obtained a loan for PhP 500,000. Subsequently,
the spouses Panlilio and Gonzales obtained two additional loans from PCIB.
These three loans amounting to PhP 1,800,000 were covered by three
promissory notes. To secure the loans, a real estate mortgage (REM) over a
parcel of land was executed by Gonzales and the spouses Panlilio. Notably,
the promissory notes specified, among others, the solidary liability of Gonzales
and the spouses Panlilio for the payment of the loans.

ISSUE:
Whether oor not Gonzales is liable for the promissory notes covering loan
he made with the spouses Panlilio where a REM over a parcel of land?

RULING:
Gonzales is solidarily liable with the spouses Panlilio for the three
promissory notes. Clearly, Gonzales is liable for the loans covered by the above
promissory notes. First, Gonzales admitted that he is an accommodation party
which PCIB did not dispute. In his testimony, Gonzales admitted that he merely
accommodated the spouses Panlilio at the suggestion of Ocampo, who was
then handling his accounts, in order to facilitate the fast release of the loan.
Second, the records of PCIB indeed bear out, and was admitted by Noceda,
that the loan proceeds went to the spouses Panlilio. Third, as an
accommodation party, Gonzales is solidarily liable with the spouses Panlilio for
the loans. Fourth, the solidary liability of Gonzales is clearly stipulated in the
promissory notes which uniformly begin, "For value received, the undersigned
(the "BORROWER") jointly and severally promise to pay x x x." Solidary liability
cannot be presumed but must be established by law or contract.

64
 GOVERNMENT SERVICE INSURANCE SYSTEM v. COURT OF APPEALS and MR. &
MRS. ISABELO R. RACHO
G.R. No. L-40824, February 23, 1989
REGALADO , J.:
FACTS:
Private respondents, Mr. and Mrs. Isabelo R. Racho, together with the
spouses Mr. and Mrs Flaviano Lagasca, executed a deed of mortgage in favor
of GSIS and subsequently, another deed of mortgage in connection with two
loans granted by the latter. A parcel of land co-owned by said mortgagor
spouses, was given as security under the aforesaid two deeds. 2 They also
executed a 'promissory note" which states in part:
... for value received, we the undersigned ... JOINTLY, SEVERALLY
and SOLIDARILY, promise to pay the GOVERNMENT SERVICE
INSURANCE SYSTEM the sum of xxx…
In their aforesaid complaint, private respondents alleged that they
signed the mortgage contracts not as sureties or guarantors for the Lagasca
spouses but they merely gave their common property to the said co-owners
who were solely benefited by the loans from the GSIS.

ISSUE:
Whether or not private respondents shall be held solidarily liable?

RULING:
No. The promissory note as well as the mortgage deeds are clearly not
negotiable instruments. These documents do not comply with the fourth
requisite to be considered as such under Section 1 of Act No. 2031 because
they are neither payable to order nor to bearer. The note is payable to a
specified party, the GSIS.
However, contrary to the holding of the respondent court, it cannot be
said that private respondents are without liability under the aforesaid
mortgage contracts. So long as valid consent was given, the fact that the
loans were solely for the benefit of the Lagasca spouses would not invalidate
the mortgage with respect to private respondents' share in the property. In
consenting thereto, even assuming that private respondents may not be
assuming personal liability for the debt, their share in the property shall
nevertheless secure and respond for the performance of the principal
obligation.

65
 FERNANDO MAULINI, ET AL. , v. ANTONIO G. SERRANO
G.R. No. L-8844, December 16, 1914
MORELAND, J.:
FACTS:
The action was brought by the plaintiff upon the contract of indorsement
alleged to have been made in his favor by the defendant upon the promissory
note stating “We jointly and severally agree to pay to the order of Don Antonio
G. Serrano on or before the 5th day of September, 1912, the sum of three
thousand pesos (P3,000) for value received for commercial operations.” The
note was indorsed on the back.

ISSUE:
Whether or not defendant is an accommodation indorser?

RULING:
No, the defendant is not an accommodation indorser. It is true that in
the case at bar it was an accommodation to the plaintiff, in a popular sense,
to have the defendant indorse the note; but it was not the accommodation
described in the law, but, rather, a mere favor to him and one which in no way
bound Serrano. In cases of accommodation indorsement the indorser makes
the indorsement for the accommodation of the maker. Such an indorsement
is generally for the purpose of better securing the payment of the note — that
is, he lend his name to the maker, not to the holder. Putting it in another way:
An accommodation note is one to which the accommodation party has put
his name, without consideration, for the purpose of accommodating some
other party who is to use it and is expected to pay it. The credit given to the
accommodation part is sufficient consideration to bind the accommodation
maker. Where, however, an indorsement is made as a favor to the indorsee,
who requests it, not the better to secure payment, but to relieve himself from a
distasteful situation, and where the only consideration for such indorsement
passes from the indorser to the indorsee, the situation does not present one
creating an accommodation indorsement, nor one where there is a
consideration sufficient to sustain an action on the indorsement.

66
 PEOPLE OF THE PHILIPPINES v. JULIA MANIEGO
G.R. No. L-30910, February 27, 1987
NARVASA, J.:
FACTS:
The accused, Lt. Ubay, a duly appointed officer in the Armed Forces of
the Philippines in active duty, who, during the period specified above, was
designated as Disbursing Officer in the Office of the Chief of Finance and as
such was entrusted with and had under his custody and control public funds,
conspiring and confederating with co-accused did then and there, unlawfully,
willfully and feloniously, with intent of gain and without authority of law, and in
pursuance of their conspiracy, take, receive, and accept from his said co-
accused several personal checks drawn against the Philippine National Bank
and the Bank of the Philippine Islands, of which the accused, Milagros T.
Pamintuan is the drawer and the accused, Julia T. Maniego, is the indorser, in
the total amount of P66,434.50, cashing said checks and using for this purpose
the public funds entrusted to and placed under the custody and control of the
said Lt. Rizalino M. Ubay, all the said accused knowing fully well that the said
checks are worthless and are not covered by funds in the aforementioned
banks, for which reason the same were dishonored and rejected by the said
banks when presented for encashment, to the damage and prejudice of the
Republic of the Philippines.

ISSUE:
Whether or not Maniego is an accommodation party?

RULING:
Yes, Maniego may also be deemed an "accommodation party" in the
light of the facts, as a person "who has signed the instrument as maker, drawer,
acceptor, or indorser, without receiving value therefor, and for the purpose of
lending his name to some other person." As such, she is under the law "liable
on the instrument to a holder for value, notwithstanding such holder at the time
of taking the instrument knew to be only an accommodation party," although
she has the right, after paying the holder, to obtain reimbursement from the
party accommodated, "since the relation between them is in effect that of
principal and surety, the accommodation party being the surety."

67
 THE PHILIPPINE NATIONAL BANK v. RAMON MAZA and FRANCISCO MECENAS
G.R. No. L-24224, November 3, 1925
MALCOLM, J.:
FACTS:
The Philippine National Bank is suing Ramon Maza and Francisco
Mecenas on five promissory notes of ten thousand pesos (P10,000) each. Maza
and Mecenas executed two of the promissory notes on January 20, 1921, due
three months after date. The three other notes due four months after date. The
three other notes due four months after date were executed by the same
parties on January 21, 1921. The notes were not taken up by Maza and
Mecenas at maturity.
To recover the amounts stated on the face of the notes with back
interest, action was begun by the Philippine National Bank in the court of first
instance of Iloilo against Ramon Maza and Francisco Mecenas. The special
defense interposed by the defendants was that the promissory notes were sent
in blank to them by Enrique Echaus with the request that they sign them so that
he, Echaus, might negotiate them with the Philippine National Bank in case of
need.

ISSUE:
Whether or not defendants are accommodation parties?

RULING:
The most plausible and reasonable stand for the defendants is that they
are accommodation parties. But as accommodation parties, the defendants
having signed the instruments without receiving value therefor and for the
purpose of lending their names to some other person, are still liable on the
instruments. The law now is that the accommodation party can claim no
benefit as such, but he is liable according to the face of his undertaking, the
same as if he were himself financially interested in the [Link] defense
is made to the action that the defendants never received the value of the
promissory notes.
While perhaps unnecessary to this decision, it may properly be remarked
that when the accommodation parties make payment to the holder of the
notes, they have the right to sue the accommodated party for reimbursement,
since the relation between them is in effect that of principal and sureties, the
accommodation parties being the sureties.

68
INTESTATE ESTATE OF VICTOR SEVILLA. SIMEON SADAYA v. FRANCISCO SEVILLA,
G.R. No. L-17845, April 27, 1967
SANCHEZ, J.:
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 creditor’s 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 Sadaya is an accommodation party?

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 former’s 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 maker who made

payment has 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 thay may ensue from their having
consented to stamp their signatures on the promissory note.

69
 STELCO MARKETING CORPORATION v. HON. COURT OF APPEALS and
STEELWELD CORPORATION OF THE PHILIPPINES, INC
G.R. No. 96160, June 17, 1992
NARVASA, C.J.:
FACTS:
Stelco Marketing Corporation sold to RYL Construction, Inc. quantities of
steels bars of various sizes and rolls of G.I. wire. Although the corresponding
invoices issued by STELCO stipulated that RYL pay "COD" (cash on delivery),
the latter made no payments for the construction materials thus ordered and
delivered despite insistent demands for payment by the former.
RYL gave to Armstrong, Industries. The check was issued by Limson at the
behest of his friend, Romeo Y. Lim, President of RYL. Romeo Lim had asked
Limson, for financial assistance, and the latter had agreed to give Lim a check
only by way of accommodation, "only as guaranty but not to pay for
anything." Eleven months later, some four (4) years after issuance of the check
in question STELCO filed a civil complaint against both RYL and STEELWELD for
the recovery of the valued of the steel bars and wire sold to and delivered to
RYL.

ISSUE:
Whether or not STEELWELD is accommodation party?

RULING:
To be sure, as regards an accommodation party such as STEELWELD, the
fourth condition, lack of notice of any infirmity in the instruments or defect in
title of the persons negotiating it, has no application. This is because Section 29
of the law above quoted preserves the right of recourse of a "holder for value"
against the accommodation party notwithstanding that "such holder, at the
time of taking the instrument, knew him to be only an accommodation
party." The STELCO never became a holder for value. The record does not
show any intervention or participation by STELCO in any manner of form
whatsoever in these transactions, or any communication of any sort between
STEELWELD and STELCO, or between either of them and Armstrong Industries,
at any time before the dishonor of the check. It is clear from the relevant
circumstances that STELCO cannot be deemed a holder of the check for
value. It does not meet two of the essential requisites prescribed by the statute.
It did not become "the holder of it before it was overdue, and without notice
that it had been previously dishonored," and it did not take the check "in good
faith and for value."

70
 TOWN SAVINGS AND LOAN BANK, INC v. THE COURT OF APPEALS, SPOUSES
MIGUELITO HIPOLITO AND ALICIA N. HIPOLITO
G.R. No. 106011, June 17, 1993
GRIÑO-AQUINO, J.:
FACTS:
Spouses Hipolito applied for and was granted a loan by
the bank, which was secured by a promissory note. For failure
to pay their monthly payments, they were declared in default. The
spouses denied having any liability. They stated that the real party-in-interest
is the sister of the husband, Pilarita Reyes. The spouses, not
having received part of the loan, were mere guarantors of Reyes. As such,
they protested against being dragged into the litigation. The trial court held
that they were liable as accommodation parties to the promissory note. This
was reversed by the Court of Appeals.

ISSUE:
Whether or not Spouses Hipolito is an accommodation party?

HELD:
An accommodation party is one who has signed the instrument as
maker, drawer, indorser, without receiving value therefore and for the purpose
of lending his name to some other person. Such person is
liable on the instrument to a holder for value, notwithstanding such holder,
at the time of the taking of the instrument knew him to be an accommodation
party. In lending his name to the accommodated party, the
accommodation party is in effect a surety for the latter. He
lends his name to enable the accommodated party to obtain
credit or to raise money. He receives no part of the
consideration for the instrument but assumes liability to the other
parties thereto because he wants to accommodate another.
In the case at bar, it is indisputable that the spouses signed the
promissory note to enable Reyes to secure a loan from the bank. She was the
actual beneficiary of the loan and the spouses accommodated her by signing
the note.

71
 TRAVEL-ON, INC v. COURT OF APPEALS and ARTURO S. MIRANDA
G.R. No. L-56169, June 26, 1992
FELICIANO, J.:
FACTS:
Petitioner was a travel agency involved in ticket sales on
a commission basis for and on behalf of different airline
companies. Miranda has a revolving credit line with the
company. He procured tickets on behalf of others and derived
commissions from it. Petitioner filed a collection suit against Miranda
for the unpaid amount of six checks. Petitioner alleged that
Miranda procured tickets from them which he paid with cash and
checks but the checks were dishonored upon presentment to the bank.
This was being refuted by Miranda by saying that he actually
paid for his obligations, even in the excess. He argued that
the checks were for accommodation purposes only. The
company needed to show to its Board of Directors that its accounts receivable
was in good standing. The RTC and CA held Miranda not to be liable.

ISSUE:
Whether or not Travel-On is an accommodated party?

RULING:
In the case at bar, Travel-On obviously was not an accommodated
party; it realized no value on the checks which bounced. The
"accommodation" or assistance extended to Travel-On's passengers abroad
as testified by petitioner's General Manager involved, not the accommodation
transactions recognized by the NIL, but rather the circumvention of then
existing foreign exchange regulations by passengers booked by Travel-On,
which incidentally involved receipt of full consideration by private respondent.
Thus, we believe and so hold that private respondent must be held liable
on the six (6) checks here involved. Those checks in themselves constituted
evidence of indebtedness of private respondent, evidence not successfully
overturned or rebutted by private respondent. Since the checks constitute the
best evidence of private respondent's liability to petitioner Travel-On, the
amount of such liability is the face amount of the checks, reduced only by the
P10,000.00 which Travel-On admitted in its complaint to have been paid by
private respondent sometime in March 1992.

72
DISTINGUISHMENT FROM ASSIGNMENT

JUAN CASABUENA v. COURT OF APPEALS

G.R. No. 115410, February 27, 1998
ROMERO, J.:
FACTS:
The rivals are the spouses Ciriaco and Ofelia-Ipil Urdaneta, beneficiaries
of the Land of the Landless Program, and Juan Casabuena, transferee of the
right, title and interest of Ciriacos assignee, Arsenia Benin.
Meanwhile, the administration of the property was assigned to brothers
Candido and Juan Casabuena, to whom Benin had transferred her right, title
and interest. Notwithstanding this assignment, Benin constructed a two-door
apartment on the lot separately occupied by Jose Abejero and Juan
Casabuena, who collected rentals from the former.

ISSUE:
Can a deed of assignment transfer ownership of the property to the
assignee?

RULING:
Ciriaco Urdaneta was indebted to Benin, to secure which debt the
spouses ceded their rights over the land through a deed of assignment. The
act of assignment could not have operated to efface liens or restrictions
burdening the right assigned, because an assignee cannot acquire a greater
right than that pertaining to the assignor. At most, an assignee can only
acquire rights duplicating those which his assignor is entitled by law to exercise.
In the case at bar, the Casabuenas merely stepped into Benins shoes, who was
not so much an owner as a mere assignee of the rights of her debtors. Not
having acquired any right over the land in question, it follows that Benin
conveyed nothing to defendants with respect to the property.

73
 CONSOLIDATED PLYWOOD INDUSTRIES, INC., HENRY WEE, and RODOLFO T.
VERGARA v. IFC LEASING AND ACCEPTANCE CORPORATION
G.R. No. 72593, April 30, 1987
GUTIERREZ, JR., J.:
FACTS:
The petitioner is a corporation engaged in the logging business. Atlantic
Gulf & Pacific Company of Manila offered to sell to petitioner-corporation two
(2) "Used" Allis Crawler Tractors, one (1) an HDD-21-B and the other an HDD-16-
B. With the assurance and warranty, and relying on the seller-assignor's skill and
judgment, petitioner-corporation through petitioners Wee and Vergara,
agreed to purchase on installment. Simultaneously with the execution of the
deed of sale with chattel mortgage with promissory note, the seller-assignor,
by means of a deed of assignment assigned its rights and interest in the chattel
mortgage in favor of the respondent. Barely 14 days had elapsed after their
delivery when one of the tractors broke down and after another 9 days, the
other tractor likewise broke down. The complaint was filed by the respondent
against the petitioners.

ISSUE:
Whether or not the promissory note in question is a negotiable instrument
so as to bar completely all the available defenses of the petitioner against the
respondent-assignee?

RULING:
It is patent then, that the seller-assignor is liable for its breach of warranty
against the petitioner. This liability as a general rule, extends to the corporation
to whom it assigned its rights and interests unless the assignee is a holder in due
course of the promissory note in question, assuming the note is negotiable, in
which case the latter's rights are based on the negotiable instrument and
assuming further that the petitioner's defenses may not prevail against it.
Therefore, considering that the subject promissory note is not a negotiable
instrument, it follows that the respondent can never be a holder in due course
but remains a mere assignee of the note in question. Thus, the petitioner may
raise against the respondent all defenses available to it as against the seller-
assignor Industrial Products Marketing.
This being so, there was no need for the petitioner to implied the seller-
assignor when it was sued by the respondent-assignee because the petitioner's
defenses apply to both or either of either of them.

74
 RAUL SESBREÑO v. COURT OF APPEALS, DELTA MOTORS CORPORATION AND
PILIPINAS BANK,
G.R. No. 89252, May 24, 1993
FELICIANO, J.:
FACTS:
On 9 February 1981, petitioner Raul Sesbreño made a money market
placement with the Philippine Underwriters Finance Corporation. He sought to
encash the postdated checks issued by Philfinance. However, the checks
were dishonored for having been drawn against insufficient funds. Petitioner
approached Ms. Elizabeth de Villa of private respondent and handed her a
demand letter informing the bank that his placement with Philfinance in the
amount reflected in the DCR No. 10805 had remained unpaid and outstanding,
and that he in effect was asking for the physical delivery of the underlying
promissory note. As petitioner had failed to collect his investment and interest
thereon, he filed an action for damages with the Regional Trial Court and
dismissed the complaint and counterclaims for lack of merit and for lack of
cause of action, with costs against petitioner.

ISSUE:
Whether Philfinance remains liable to petitioner under the terms of the
assignment?

RULING:
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 where the negotiable instrument is in bearer
form. A negotiable instrument may, however, instead of being negotiated,
also be assigned or transferred. The legal consequences of negotiation as
distinguished from assignment of a negotiable instrument are, of course,
different. A non-negotiable instrument may, obviously, not be negotiated; but
it may be assigned or transferred, absent an express prohibition against
assignment or transfer written in the face of the instrument.
The record shows, petitioner notified Delta of his rights as assignee after
compensation had taken place by operation of law because the offsetting
instruments had both reached maturity. It is a firmly settled doctrine that the
rights of an assignee are not any greater that the rights of the assignor, since
the assignee is merely substituted in the place of the assignor and that the
assignee acquires his rights subject to the equities. Philfinance remains liable to
petitioner under the terms of the assignment made by Philfinance to petitioner.

75
 TRADERS ROYAL BANK v. COURT OF APPEALS
G.R. No. 93397, March 3, 1997
TORRES, JR., J.:
FACTS:
Filriters Guaranty Assurance Corporation executed a "Detached
Assignment" whereby Filriters, as registered owner, sold, transferred, assigned
and delivered unto (Philfinance) all its rights and title to Central Bank
Certificates of Indebtedness. On February 4, 1981, petitioner entered into a
Repurchase Agreement with PhilFinance. PhilFinance failed to repurchase the
CBCI on the agreed date of maturity, April 27, 1981, when the checks it issued
in favor of petitioner were dishonored for insufficient funds. TRB prayed for the
registration by the Central Bank of the subject CBCI in its name.
ISSUE:
Whether or not CBCI is non negotiable instrument?
RULING:
Yes, the CBCI is not a negotiable instrument. The instrument
provides for a promise to pay the registered owner Filriters. Very clearly,
the instrument was only payable to Filriters. It lacked the words of
negotiability which should have served as an expression of the
consent that the instrument may be transferred by negotiation. The
language of negotiability which characterize a negotiable paper
as a credit instrument is its freedom to circulate as a substitute
for money. Hence, freedom of negotiability is the touchstone relating to the
protection of holders in due course, and the freedom of negotiability is the
foundation for the protection, which the law throws around a
holder in due course. This freedom in negotiability is totally absent
in a certificate of indebtedness as it merely acknowledges to pay
a sum of money to a specified person or entity for a period of time.
The transfer of the instrument from Philfinance to TRB was
merely an assignment, and is not governed by the negotiable instruments law.
Clearly shown in the record is the fact that Philfinance’s title
over CBCI is defective since it acquired the instrument from
Filriters fictitiously. Thus, for lack of any consideration, the assignment
made is a complete nullity. Furthermore, the transfer wasn't in conformity
with the regulations set by the CB. Giving more credence to rule
that there was no valid transfer or assignment to petitioner.

76
MODES OF NEGOTIATION

ANG TEK LIAN v. THE COURT OF APPEALS

G.R. No. L-2516, September 25, 1950
BENGZON, J.:
FACTS:
For having issued a rubber check, Ang Tek Lian was convicted
of estafa in the Court of First Instance of Manila. The Court of Appeals affirmed
the verdict.
It appears that, knowing he had no funds therefor, Ang Tek Lian the
check payable to the order of "cash". He delivered it to Lee Hua Hong in
exchange for money which the latter handed in act. On the next business day,
the check was presented by Lee Hua Hong to the drawee bank for payment,
but it was dishonored for insufficiency of funds. The Court of Appeals believed
the version of Lee Huan Hong.
ISSUE:
Whether or not indorsement is necessary to negotiate a check payable
to the order of “cash”?
RULING:
No, indorsement is no longer necessary. It is argued, that as the check
had been made payable to "cash" and had not been endorsed by Ang Tek
Lian, the defendant is not guilty of the offense charged. Under the Negotiable
Instruments Law, a check drawn payable to the order of "cash" is a check
payable to bearer, and the bank may pay it to the person presenting it for
payment without the drawer's indorsement.
A check payable to bearer is authority for payment to holder. Where a
check is in the ordinary form, and is payable to bearer, so that no indorsement
is required, a bank, to which it is presented for payment, need not have the
holder identified, and is not negligent in falling to do so. Anyway, it is significant,
and conclusive, that the form of the check Exhibit A was totally unconnected
with its dishonor. The Court of Appeals declared that it was returned
unsatisfied because the drawer had insufficient funds not because the
drawer's indorsement was lacking.

77
 CALTEX (PHILIPPINES), INC v. COURT OF APPEALS
G.R. No. 97753, August 10, 1992
REGALADO, J.:
FACTS:
On various dates, defendant, a commercial banking institution, through
its Sucat Branch issued 280 certificates of time deposit (CTDs) in favor of one
Angel dela Cruz who deposited with herein defendant the aggregate amount
of P1,120,000.00. Angel dela Cruz delivered the said certificates of time (CTDs)
to herein plaintiff in connection with his purchased of fuel products from the
latter. On March 25, 1982, Angel dela Cruz negotiated and obtained a loan
from defendant bank. In April 1983, the loan of Angel dela Cruz with the
defendant bank matured and fell due and on August 5, 1983, the latter set-off
and applied the time deposits in question to the payment of the matured loan.
In view of the foregoing, plaintiff filed the instant complaint, praying that
defendant bank be ordered to pay it the aggregate value of the certificates
of time deposit.
ISSUE:
Whethter or not CTDs in question are negotiable instruments?
RULING:
Yes, the court hereby holds that the CTDs in question are negotiable
instruments. Section 1 of the Negotiable Instruments Law, enumerates the
requisites for an instrument to become negotiable:
(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 CTDs in question undoubtedly meet the requirements of the law for
negotiability.

78
 LORETO D. DE LA VICTORIA v. HON. JOSE P. BURGOS
G.R. No. 111190, June 27, 1995
BELLOSILLO, J.:
FACTS:
Raul H. Sesbreño filed a complaint for damages against Assistant City
Fiscals Bienvenido N. Mabanto. After trial judgment was rendered ordering the
defendants to pay P11,000.00 to the plaintiff, private respondent herein. The
decision having become final and executory, on motion of the latter, the trial
court ordered its execution. This order was questioned by the defendants.
However, on 15 January 1992 a writ of execution was issued. On 4 February
1992 a notice of garnishment was served on petitioner. The notice directed
petitioner not to disburse, transfer, release or convey to any other person
except to the deputy sheriff concerned the salary checks or other checks,
monies, or cash due or belonging to Mabanto, Jr., under penalty of law.
On the other hand, on 19 January 1993 petitioner moved to quash the
notice of garnishment claiming that he was not in possession of any money,
funds, credit, property or anything of value belonging to Mabanto, Jr., except
his salary and RATA checks, but that said checks were not yet properties of
Mabanto, Jr., until delivered to him. He further claimed that, as such, they were
still public funds which could not be subject to garnishment. Hence, it was
denied.
ISSUES:
Whether a check still in the hands of the maker or its duly authorized
representative is owned by the payee before physical delivery?
RULING:
No. The thesis of petitioner is that the salary checks still formed part of
public funds and therefore beyond the reach of garnishment proceedings. As
Assistant City Fiscal, the source of the salary of Mabanto, Jr., is public funds. He
receives his compensation in the form of checks from the Department of
Justice through petitioner as City Fiscal of Mandaue City and head of office.
Under Sec. 16 of the Negotiable Instruments Law, every contract on a
negotiable instrument is incomplete and revocable until delivery of the
instrument for the purpose of giving effect thereto. As ordinarily understood,
delivery means the transfer of the possession of the instrument by the maker or
drawer with intent to transfer title to the payee and recognize him as the holder
thereof. Inasmuch as said checks had not yet been delivered to Mabanto, Jr.,
they did not belong to him and still had the character of public funds.

79
 DEVELOPMENT BANK OF RIZAL v. SIMA WEI
G.R. No. 85419, March 9, 1993
CAMPOS, JR., J.:
FACTS:
On July 6, 1986, the Development Bank of Rizal filed a complaint for a
sum of money against respondents Sima Wei and/or Lee Kian Huat, Mary
Cheng Uy, Samson Tung, Asian Industrial Plastic Corporation and the Producers
Bank of the Philippines. In consideration for a loan extended by petitioner Bank
to respondent Sima Wei, the latter executed and delivered to the former a
promissory note. She made partial payments on the note, and issued two
crossed checks payable to petitioner Bank drawn against China Banking
Corporation. These two checks were not delivered to the petitioner-payee or
to any of its authorized representatives. For reasons not shown, these checks
came into the possession of respondent Lee Kian Huat, who deposited the
checks without the petitioner-payee's indorsement (forged or otherwise) to the
account of respondent Plastic Corporation, and bore no indorsement of the
latter. Hence, petitioner filed the complaint as
[Link] virtual law library
ISSUE:
Whether petitioner Bank has a cause of action against any or all of the
defendants?
RULING:
The normal parties to a check are the drawer, the payee and the
drawee bank. Courts have long recognized the business custom of using
printed checks where blanks are provided for the date of issuance, the name
of the payee, the amount payable and the drawer's signature. All the drawer
has to do when he wishes to issue a check is to properly fill up the blanks and
sign it.
Therefore, unless respondent Sima Wei proves that she has been relieved
from liability on the promissory note by some other cause, petitioner Bank has
a right of action against her for the balance due thereon.
However, insofar as the other respondents are concerned, petitioner
Bank has no privity with them. Since petitioner Bank never received the checks
on which it based its action against said respondents, it never owned them
(the checks) nor did it acquire any interest therein. Petitioner Bank has
therefore no cause of action against said respondents, in the alternative or
otherwise.

80
 MANUEL LIM and ROSITA LIM [Link] OF APPEALS
G.R. No. 107898, December 19, 1995
BELLOSILLO, J.:
FACTS:
Manuel Lim and Rosita Lim are the officers of the Rigi Bilt Industries, Inc.
(RIGI). RIGI had been transacting business with Linton Commercial Company,
Inc. The Lims ordered 100 pieces of mild steel plates from Linton and were
delivered to the Lim’s place of business which was in Caloocan. To pay Linton,
the Lims issued a postdated check for P51,800.00. On a different date, the Lims
also ordered another 65 pcs of mild steel plates and were delivered in the
place of business. They again issued another postdated check. On that same
day, they also ordered purlins worth P241,800 which were delivered to them on
various dates. The Lims issued 7 checks for this. When the 7 checks were
presented to the drawee bank (Solidbank), it was dishonored because
payment for the checks had been stopped and/or insufficiency of funds. So
the Lims were charged with 7 counts of violation of Bouncing Checks Law.
ISSUE:
Whether or not delivery of the instrument complete in its form?
RULING:
Although LINTON sent a collector who received the checks from
petitioners at their place of business in Kalookan City, they were actually issued
and delivered to LINTON at its place of business in Balut, Navotas. The receipt
of the checks by the collector of LINTON is not the issuance and delivery to the
payee in contemplation of law. The collector was not the person who could
take the checks as a holder, i.e., as a payee or indorsee thereof, with the intent
to transfer title thereto. Neither could the collector be deemed an agent of
LINTON with respect to the checks because he was a mere employee.
Under Section 191 of the Negotiable Instruments Law, issue
means the first delivery of the instrument complete in its form to a
person who takes it as holder. The term holder on the other hand refers
to the payee or indorsee of a bill or note who is in possession of it or the bearer
thereof. The important place to consider in the consummation of a
negotiable instrument is the place of delivery. Delivery is the final act
essential to its consummation as an obligation.

81
KINDS OF INDORSEMENTS
ANG TEK LIAN v. THE COURT OF APPEALS
G.R. No. L-2516, September 25, 1950
BENGZON, J.:
FACTS:
For having issued a rubber check, Ang Tek Lian was convicted
of estafa in the Court of First Instance of Manila. The Court of Appeals affirmed
the verdict.
It appears that, knowing he had no funds therefor, Ang Tek Lian the
check payable to the order of "cash". He delivered it to Lee Hua Hong in
exchange for money which the latter handed in act. On the next business day,
the check was presented by Lee Hua Hong to the drawee bank for payment,
but it was dishonored for insufficiency of funds. The Court of Appeals believed
the version of Lee Huan Hong.
ISSUE:
Whether or not a check payable to the order of cash is a bearer
instrument?
RULING:
The check had been made payable to "cash" and had not been
endorsed by Ang Tek Lian, the defendant is not guilty of the offense charged.
Based on the proposition that by uniform practice of all banks in the Philippines
a check so drawn is invariably dishonored. Under the Negotiable Instruments
Law sec. 9 [d], a check drawn payable to the order of "cash" is a check
payable to bearer, and the bank may pay it to the person presenting it for
payment without the drawer's indorsement. A check payable to the order of
cash is a bearer instrument. Where a check is made payable to the 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. Of course, if the bank is not sure of the bearer's
identity or financial solvency, it has the right to demand identification and /or
assurance against possible complications, — for instance, (a) forgery of
drawer's signature, (b) loss of the check by the rightful owner, (c) raising of the
amount payable, etc. The bank may therefore require, for its protection, that
the indorsement of the drawer — or of some other person known to it — be
obtained. But where the Bank is satisfied of the identity and /or the economic
standing of the bearer who tenders the check for collection, it will pay the
instrument without further question; and it would incur no liability to the drawer
in thus acting.

82
 ENRIQUE P. MONTINOLA v. THE PHILIPPINE NATIONAL BANK
G.R. No. L-2861, February 26, 1951
MONTEMAYOR, J.:
FACTS:
Ramos, as a disbursing officer of an army division of the USAFE, made
cash advancements w/ the Provincial Treasurer of Lanao. In
exchange, the Prov’l Treasurer of Lanao gave him a P500,000 check.
Thereafter, Ramos presented the check to Laya for encashment.
Laya issued a check to Ramos on the Philippines National Bank as
drawee; the P400,000 value of the check was paid in military notes. Ramos
was unable to encash the said check for he was captured by
the Japanese. The writing made by Ramos at the back of the
check was to the effect that he was assigning only P30000 of the value of
the document with an instruction to the bank to pay P30000 to Montinola and
to deposit the balance to Ramos's credit. At the time of the transfer of
this check to Montinola, the check was long overdue by about 2
and 1/2 years.
ISSUE:
Whether or not insertion of the words "Agent, Phil. National Bank" which
converts the bank from a mere drawee to a drawer?
HELD:
The insertion of the words "Agent, Phil. National Bank" which converts the
bank from a mere drawee to a drawer and therefore changes its liability,
constitutes a material alteration of the instrument without the consent of the
parties liable thereon, and so discharges the instrument. The check was not
legally negotiated within the meaning of the Negotiable Instruments Law.
Section 32 of the same law provides that "the indorsement must be an
indorsement of the entire instrument. Neither can Montinola be considered as
a holder in due course because under certain conditions, one of which is that
he became the holder before it was overdue. When Montinola received the
check, it was long overdue. And, Montinola is not even a holder because
Section 191 of the same law defines holder as the payee or indorsee of a bill
or note and Montinola is not a payee. As already stated, as a mere assignee
Montinola is subject to all the defenses available against assignor Ramos. And,
Ramos had he retained the check may not now collect its value because it
had been issued to him as disbursing officer. As observed by the trial court, the
check was issued to M. V. Ramos not as a person but M. V. Ramos as the
disbursing officer of the USAFFE. Therefore, he had no right to indorse it
personally to plaintiff. It was negotiated in breach of trust, hence he transferred
nothing to the plaintiff.

83
 NATIVIDAD GEMPESAW v. THE HONORABLE COURT OF APPEALS

G.R. No. 92244, February 9, 1993

CAMPOS, JR., J.:
FACTS:
Petitioner Natividad O. Gempesaw (petitioner) owns and operates four
grocery stores. Petitioner signed each and every check without bothering to
verify the accuracy of the checks against the corresponding invoices because
she reposed full and implicit trust and confidence on her bookkeeper.
Respondent drawee Bank notified her of all checks presented to and paid by
the bank, petitioner did not verify he correctness of the returned checks, much
less check if the payees actually received the checks in payment for the
supplies she received.
On January 23, 1985, petitioner filed a Complaint against the private
respondent Philippine Bank of Communications for recovery of the money
value of eighty-two (82) checks charged against the petitioner's account with
the respondent drawee Bank on the ground that the payees' indorsements
were forgeries. The Regional Trial Court rendered a decision dismissing the
complaint as well as the respondent drawee Bank's counterclaim. Court of
Appeals affirmed the decision of the RTC.
ISSUE:
Whether or not it is a restrictive indorsement?
RULING:
Practically, all the checks issued and honored by the respondent
drawee bank were crossed checks. In the case at bar, petitioner admitted that
the checks were filled up and completed by her trusted employee, and were
given to her for her signature. Her signing the checks made the negotiable
instrument complete. Prior to signing the checks, there was no valid contract
yet. Every contract on a negotiable instrument is incomplete and revocable
until delivery of the instrument to the payee for the purpose of giving effect
thereto.
In this kind of restrictive indorsement, the prohibition to transfer or negotiate
must be written in express words at the back of the instrument, so that any
subsequent party may be forewarned that ceases to be negotiable. However,
the restrictive indorsee acquires the right to receive payment and bring any
action thereon as any indorser, but he can no longer transfer his rights as such
indorsee where the form of the indorsement does not authorize him to do so.

84
 METROPOL (BACOLOD) FINANCING & INVESTMENT CORPORATION v.
SAMBOK MOTORS COMPANY
G.R. No. L-39641, February 28, 1983
DE CASTRO, J.:
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 indorsement—with recourse.
ISSUE:
Whether or not it is a qualified indorsement?
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.

85
HOLDERS

ATRIUM MANAGEMENT CORPORATION v. COURT OF APPEALS

G.R. No. 109491, February 28, 2001
LOURDES M. DE LEON v. COURT OF APPEALS
G.R. No. 121794, February 28, 2001
PARDO, J.:
FACTS:
Atrium Management Corporation filed with the Regional Trial Court,
Manila an action for collection of the proceeds of four postdated checks in
the total amount of P2 million. Hi-Cement Corporation through its corporate
signatories, petitioner Lourdes M. de Leon, treasurer, and the late Antonio de
las Alas, Chairman, issued checks in favor of E.T. Henry and Co. Inc., as payee.
E.T. Henry and Co., Inc., in turn, endorsed the four checks to petitioner Atrium
Management Corporation for valuable consideration. Upon presentment for
payment, the drawee bank dishonored all four checks for the common reason
"payment stopped". Atrium, thus, instituted this action after its demand for
payment of the value of the checks was denied.
ISSUE:
Whether Atrium was not a holder in due course and for value?
RULING:
No, the checks were crossed checks and specifically indorsed for
deposit to payee's account only. From the beginning, Atrium was aware of the
fact that the checks were all for deposit only to payee's account, meaning E.T.
Henry. Clearly, then, Atrium could not be considered a holder in due course.
The disadvantage of Atrium in not being a holder in due course is that
the negotiable instrument is subject to defenses as if it were non-
negotiable. One such defense is absence or failure of consideration. We need
not rule on the other issues raised, as they merely follow as a consequence of
the foregoing resolutions.

86
 BATAAN CIGAR AND CIGARETTE FACTORY, INC v. THE COURT OF APPEALS and
STATE INVESTMENT HOUSE, INC
G.R. No. 93048, March 3, 1994
NOCON, J.:
FACTS:
Petitioner engaged one of its suppliers, King Tim Pua George to deliver
2,000 bales of tobacco leaf starting October 1978. In consideration thereof,
BCCFI, on July 13, 1978 issued crossed checks post dated sometime in March
1979 in the total amount of P820,000.00. During these times, George King was
simultaneously dealing with private respondent SIHI. He sold at a discount
check drawn by petitioner, naming George King as payee to SIHI. Then, he
again sold to respondent checks drawn by petitioner in favor of George King.
George King failed to deliver the bales of tobacco leaf hence, a stop
payment order on all checks payable to George King. Subsequently, stop
payment was also ordered on checks.
ISSUE:
Whether SIHI is a holder in due course and able to collect from BCCF?
RULING:
No, ruling that SIHI was not a holder in due course, the three checks in
the case at bar had been crossed generally and issued payable to New
Sikatuna Wood Industries, Inc. which could only mean that the drawer had
intended the same for deposit only by the rightful person. Apparently, it was
not the payee who presented the same for payment and therefore, there was
no proper presentment, and the liability did not attach to the drawer. Thus, in
the absence of due presentment, the drawer did not become liable.
Consequently, no right of recourse is available to petitioner (SIHI) against the
drawer of the subject checks, private respondent wife (Anita), considering that
petitioner is not the proper party authorized to make presentment of the
checks in question.
In the present case, there being failure of consideration, SIHI is not a
holder in due course. Consequently, BCCFI cannot be obliged to pay the
checks. The foregoing does not mean, however, that respondent could not
recover from the checks. The only disadvantage of a holder who is not a holder
in due course is that the instrument is subject to defenses as if it were non-
negotiable. Hence, respondent can collect from the immediate indorser, in
this case, George King.

87
 CELY YANG v. HON. COURT OF APPEALS
G.R. No. 138074, August 15, 2003
QUISUMBING, J.:
FACTS:
Cely Yang and private respondent Prem Chandiramani entered into an
agreement whereby the latter was to give Yang a PCIB manager’s check in
the amount of P4.2 million in exchange for two (2) of Yang’s manager’s checks.
Yang and Chandiramani also further agreed that the former would secure
from FEBTC a dollar draft in the amount of US$200,000.00, payable to PCIB
FCDU which Chandiramani would exchange for another dollar draft in the
same amount to be issued by Hang Seng Bank Ltd. of Hong Kong.
Chandiramani did not appear at the rendezvous and Ranigo allegedly
lost the two cashier’s checks and the dollar draft bought by petitioner. It
transpired, however, that the checks and the dollar draft were not lost, for
Chandiramani was able to get hold of said instruments, without delivering the
exchange consideration consisting of the PCIB manager’s check and the
Hang Seng Bank dollar draft.
ISSUE:
Whether Fernando David to be a holder in due course?
RULING:
Yes. Every holder of a negotiable instrument is deemed prima facie a
holder in due course. However, this presumption arises only in favor of a person
who is a holder as defined in Section 191 of the Negotiable Instruments Law, 15
meaning a "payee or indorsee of a bill or note, who is in possession of it, or the
bearer thereof.
The law itself creates a presumption in David’s favor that he gave
valuable consideration for the checks in question. In alleging otherwise, the
petitioner has the onus to prove that David got hold of the checks absent said
consideration. In other words, the petitioner must present convincing evidence
to overthrow the presumption. Our scrutiny of the records, however, shows that
the petitioner failed to discharge her burden of proof. The petitioner’s
averment that David did not give valuable consideration when he took
possession of the checks is unsupported, devoid of any concrete proof to
sustain it.

88
 CHAN WAN v. TAN KIM and CHEN SO
G.R. No. L-15380, September 30, 1960
BENGZON, J.:

FACTS:
This suit to collect eleven checks. Such checks payable to "cash or
bearer" and drawn by defendant Tan Kim upon the Equitable Banking
Corporation, were all presented for payment by Chan Wan to the drawee
bank, but they "were all dishonored and returned to him unpaid due to
insufficient funds and/or causes attributable to the drawer."c

On the other hand, Tan Kim declared without contradiction that the
checks had been issued to two persons named Pinong and Muy for some
shoes the former had promised to make and "were intended as mere receipts."

ISSUE:
Whether or not the plaintiff has the right to collect on the eleven
commercial documents?

RULING:

The Negotiable Instruments Law regulating the issuance of negotiable

checks, the rights and the liabilities arising therefrom, does not mention
"crossed checks." Art. 541 of the Code of Commerce refers to such instruments.
The bills of Exchange Act of England of 1882, contains several provisions about
them, some of which are quoted in the margin. In Philippine National Bank v.
Zulueta, 101 Phil., 1071; 55 Off. Gaz., 222, we applied some provisions of said
Bills of Exchange Act because the Negotiable Instruments Law, originating from
England and codified in the United States, permits resort thereto in matters not
covered by it and local legislation.

Needless to say, if it were true that the checks had been issued in
payment for shoes that were never made and delivered, Tan Kim would have
a good defense as against a holder who is not a holder in due course.

89
 CHARLES A. FOSSUM v. FERNANDEZ HERMANOS
G.R. No. L-19461, March 28, 1923
STREET, J.:
FACTS:
Prior to the date of the making of the contract which gave rise to this
litigation the plaintiff, Charles A. Fossum, was the resident agent in Manila of
the American Iron Products Company, Inc. He procured an order from
Fernandez Hermanos, a general commercial partnership engaged in business
in the Philippine Islands, to deliver to said firm a tail shaft, to be installed on the
ship Romulus. In due course the draft was presented to Fernandez Hermanos
for acceptance, and was accepted by said firm.
Upon inspection the shaft was found not to be in conformity with the
specifications and was incapable of use for the purpose for which it had been
intended. Upon discovering this, Fernandez Hermanos refused to pay the draft,
and it remained for a time dishonored in the hands of the Philippine National
Bank in Manila. Later the bank indorsed the draft in blank, without
consideration, and delivered it to the plaintiff, Charles A. Fossum, who
thereupon instituted the present action on the instrument against the
acceptor, Fernandez Hermanos, and the two individuals named as
defendants in the complaint, in the character of members of said partnership.
ISSUE:
Whether or not plaintiff is a holder of this draft in due course?
RULING:
No. To begin with, the plaintiff himself is far from being a holder of this
draft in due course. In the fact place, he was himself a party to the contract
which supplied the consideration for the draft, albeit he there acted in a
representative capacity. In the second place, he procured the instrument to
be indorsed by the bank and delivered to himself without the payment of
value, after it was overdue, and with full notice that, as between the original
parties, the consideration had completely failed. Under these circumstance
recovery on this draft by the plaintiff by virtue of any merit in his own position is
out of the question. His attorney, however, calls attention to the familiar rule
that a person who is not himself a holder in due course may yet recover against
the person primarily liable where it appears that such holder derives his title
through a holder in due course.

90
 G.R. No. L-15126, November 30, 1961
VICENTE R. DE OCAMPO & CO. v. ANITA GATCHALIAN
LABRADOR, J.:
FACTS:
The action is for the recovery of the value of a check for P600 payable
to the plaintiff and drawn by defendant Anita C. Gatchalian. The complaint
sets forth the check and alleges that plaintiff received it in payment of the
indebtedness of one Matilde Gonzales; that upon receipt of said check,
plaintiff gave Matilde Gonzales P158.25, the difference between the face
value of the check and Matilde Gonzales' indebtedness. The defendants
admit the execution of the check but they allege in their answer, as affirmative
defense, that it was issued subject to a condition, which was not fulfilled, and
that plaintiff was guilty of gross negligence in not taking steps to protect itself.
ISSUE:
Whether or not plaintiff-appellee may be considered as a holder in due
course?
RULING:
No. The plaintiff-appellee was guilty of gross neglect in not finding out
the nature of the title and possession of Manuel Gonzales, amounting to legal
absence of good faith, and it may not be considered as a holder of the check
in good faith. To such effect is the consensus of authority.
It is sufficient that the buyer of a note had notice or knowledge that the
note was in some way tainted with fraud. It is not necessary that he should
know the particulars or even the nature of the fraud, since all that is required is
knowledge of such facts that his action in taking the note amounted bad faith.
It would seem sufficient to justify our ruling that plaintiff-appellee should
not be allowed to recover the value of the check. In the case at bar as the
payee acquired the check under circumstances which should have put it to
inquiry, why the holder had the check and used it to pay his own personal
account, the duty devolved upon it, plaintiff-appellee, to prove that it actually
acquired said check in good faith. The stipulation of facts contains no
statement of such good faith, hence we are forced to the conclusion that
plaintiff payee has not proved that it acquired the check in good faith and
may not be deemed a holder in due course thereof.

91
 G.R. No. 76788, January 22, 1990
JUANITA SALAS v. HON. COURT OF APPEALS
FERNAN, C.J.:
FACTS:
Juanita Salas bought a motor vehicle from the Violago Motor Sales
Corporation for P58,138.20 as evidenced by a promissory note. This note was
subsequently endorsed to Filinvest Finance & Leasing Corporation which
financed the purchase. Petitioner defaulted in her installments, allegedly due
to a discrepancy in the engine and chassis numbers of the vehicle delivered
to her and those indicated in the sales invoice, certificate of registration and
deed of chattel mortgage, which fact she discovered when the vehicle
figured in an accident. This failure to pay prompted private respondent to
initiate Civil Case for a sum of money against petitioner.
ISSUE:
Whether Filinvest is a holder in due course?
RULING:
Yes, there appears to be no question that Filinvest is a holder in due
course, having taken the instrument under the following conditions: [a] it is
complete and regular upon its face; [b] it became the holder thereof before
it was overdue, and without notice that it had previously been dishonored; [c]
it took the same in good faith and for value; and [d] when it was negotiated
to Filinvest, the latter had no notice of any infirmity in the instrument or defect
in the title of VMS Corporation.
Accordingly, respondent corporation holds the instrument free from any
defect of title of prior parties, and free from defenses available to prior parties
among themselves, and may enforce payment of the instrument for the full
amount thereof. This being so, petitioner cannot set up against respondent the
defense of nullity of the contract of sale between her and VMS.

92
 MARCELO A. MESINA v. THE HONORABLE INTERMEDIATE APPELLATE COURT
G.R. No. 70145, November 13, 1986
PARAS, J.:
FACTS:
Respondent Jose Go purchased from Associated Bank Cashier's Check
No. 011302 for P800,000.00. Unfortunately, Jose Go left said check on the top
of the desk of the bank manager when he left the bank. The bank manager
entrusted the check for safekeeping to a bank official, a certain Albert Uy, who
had then a visitor in the person of Alexander Lim. Uy had to answer a phone
call on a nearby telephone after which he proceeded to the men's room.
When he returned to his desk, his visitor Lim was already gone. When Jose Go
inquired for his cashier's check from Albert Uy, the check was not in his folder
and nowhere to be found. The latter advised Jose Go to go to the bank to
accomplish a "STOP PAYMENT" order, which suggestion Jose Go immediately
followed. He also executed an affidavit of loss. Albert Uy went to the police to
report the loss of the check, pointing to the person of Alexander Lim as the one
who could shed light on it. The check was immediately dishonored by
Associated Bank by sending it back to Prudential Bank, with the words
"Payment Stopped" stamped on it.
ISSUE:
Whether or not petitioner is a holder in due course?
RULING:
No. Petitioner failed to substantiate his claim that he is a holder in due
course and for consideration or value as shown by the established facts of the
case. Admittedly, petitioner became the holder of the cashier's check as
endorsed by Alexander Lim who stole the check. He refused to say how and
why it was passed to him. He had therefore notice of the defect of his title over
the check from the start. The holder of a cashier's check who is not a holder in
due course cannot enforce such check against the issuing bank which
dishonors the same. If a payee of a cashier's check obtained it from the issuing
bank by fraud, or if there is some other reason why the payee is not entitled to
collect the check, the respondent bank would, of course, have the right to
refuse payment of the check when presented by the payee, since respondent
bank was aware of the facts surrounding the loss of the check in question. The
bank was therefore liable to nobody on the check but Jose Go. The bank had
no intention to issue it to petitioner but only to buyer Jose Go. When payment
on it was therefore stopped, respondent bank was not the one who did it but
Jose Go, the owner of the check.

93
 EULALIO PRUDENCIO and ELISA T. PRUDENCIO v. THE HONORABLE COURT OF
APPEALS
G.R. No. L-34539, July 14, 1986
GUTIERREZ, JR., J.:
FACTS:
Appellants are the registered owners of a parcel of land which was
mortgaged to the Philippine National Bank, to guarantee a loan of P1,000.00
extended to one Domingo Prudencio. The terms and conditions of the original
mortgage were made integral part of the new mortgage for P10,000.00. The
promissory note covering the was signed by Jose Toribio, as attorney-in-fact of
the Company, and by the appellants. On the same date that the 'Amendment
of Real Estate' was executed, Jose Toribio, in the same capacity as attorney-
in- fact of the Company, executed also the 'Deed of Assignment' assigning all
payments to be made by the Bureau to the Company on account of the
contract for the construction of the Puerto Princesa building in favor of the PNB.
The Company abandoned the work, the Bureau rescinded the construction
contract and assumed the work of completing the building.
ISSUE:
Whether or not PNB can be considered a holder for value?
RULING:
No. Although as a general rule, a payee may be considered a holder in
due course we think that such a rule cannot apply with respect to the
respondent PNB. Not only was PNB an immediate party or in privy to the
promissory note, that is, it had dealt directly with the petitioners knowing fully
well that the latter only signed as accommodation makers but more important,
it was the Deed of Assignment execut ed by the Construction Company in
favor of PNB which principally moved the petitioners to sign the promissory note
also in favor of PNB. Petitioners were made to believe and on that belief
entered into the agreement that no other conditions would alter the terms
thereof and yet, PNB altered the same.
We, therefore, hold that respondent PNB is not a holder in due course. Thus, the
petitioners can validly set up their personal defense of release from the real
estate mortgage against PNB.

94
 STELCO MARKETING CORPORATION v. HON. COURT OF APPEALS and
STEELWELD CORPORATION OF THE PHILIPPINES, INC
G.R. No. 96160, June 17, 1992
NARVASA, C.J.:
FACTS:
Stelco Marketing Corporation sold to RYL Construction, Inc. quantities of
steels bars of various sizes and rolls of G.I. wire. Although the corresponding
invoices issued by STELCO stipulated that RYL pay "COD" (cash on delivery),
the latter made no payments for the construction materials thus ordered and
delivered despite insistent demands for payment by the former.
RYL gave to Armstrong, Industries. The check was issued by Limson at the
behest of his friend, Romeo Y. Lim, President of RYL. Romeo Lim had asked
Limson, for financial assistance, and the latter had agreed to give Lim a check
only by way of accommodation, "only as guaranty but not to pay for
anything." Eleven months later, some four (4) years after issuance of the check
in question STELCO filed a civil complaint against both RYL and STEELWELD for
the recovery of the valued of the steel bars and wire sold to and delivered to
RYL.
ISSUE:
Is STELCO is a holder in due course ?
RULING:
No, there is no evidence whatever that STELCO's possession of Check No.
765380 ever dated back to nay time before the instrument's presentment and
dishonor. There is no evidence whatsoever that the check was ever given to it,
or indorsed to it in any manner or form in payment of an obligation or as
security for an obligation, or for any other purpose before it was presented for
payment. On the contrary, the factual finding of the Court of Appeals, which
by traditional precept is normally conclusive on this Court, is that STELCO never
became a holder for value and that "(n)owhere in the check itself does the
name of Stelco Marketing appear as payee, indorsee or depositor thereof."
It is clear from the relevant circumstances that STELCO cannot be
deemed a holder of the check for value. It does not meet two of the essential
requisites prescribed by the statute. It did not become "the holder of it before
it was overdue, and without notice that it had been previously dishonored,"
and it did not take the check "in good faith and for value."

95
 VICENTE R. DE OCAMPO & CO. v. ANITA GATCHALIAN

G.R. No. L-15126, November 30, 1961

LABRADOR, J.:
FACTS:
The action is for the recovery of the value of a check for P600 payable
to the plaintiff and drawn by defendant Anita C. Gatchalian. The complaint
sets forth the check and alleges that plaintiff received it in payment of the
indebtedness of one Matilde Gonzales; that upon receipt of said check,
plaintiff gave Matilde Gonzales P158.25, the difference between the face
value of the check and Matilde Gonzales' indebtedness. The defendants
admit the execution of the check but they allege in their answer, as affirmative
defense, that it was issued subject to a condition, which was not fulfilled, and
that plaintiff was guilty of gross negligence in not taking steps to protect itself.
ISSUE:
Whether or not plaintiff-appellee may be considered as a holder in due
course?
RULING:
No. The plaintiff-appellee was guilty of gross neglect in not finding out
the nature of the title and possession of Manuel Gonzales, amounting to legal
absence of good faith, and it may not be considered as a holder of the check
in good faith. To such effect is the consensus of authority.
It is sufficient that the buyer of a note had notice or knowledge that the
note was in some way tainted with fraud. It is not necessary that he should
know the particulars or even the nature of the fraud, since all that is required is
knowledge of such facts that his action in taking the note amounted bad faith.
It would seem sufficient to justify our ruling that plaintiff-appellee should
not be allowed to recover the value of the check. In the case at bar as the
payee acquired the check under circumstances which should have put it to
inquiry, why the holder had the check and used it to pay his own personal
account, the duty devolved upon it, plaintiff-appellee, to prove that it actually
acquired said check in good faith. The stipulation of facts contains no
statement of such good faith, hence we are forced to the conclusion that
plaintiff payee has not proved that it acquired the check in good faith and
may not be deemed a holder in due course thereof.

96
LIABILITIES OF PARTIES (MAKER)
REPUBLIC PLANTERS BANK vs. COURT OF APPEALS and FERMIN CANLAS
G.R. No. 93073, December 21, 1992
CAMPOS, JR., J.:
FACTS:
Defendant Shozo Yamaguchi and private respondent Fermin Canlas were
President/Chief Operating Officer and Treasurer respectively, of Worldwide
Garment Manufacturing, Inc.. By virtue of Board Resolution No.1 dated August
1, 1979, defendant Shozo Yamaguchi and private respondent Fermin Canlas
were authorized to apply for credit facilities with the petitioner Republic
Planters Bank in the forms of export advances and letters of credit/trust receipts
accommodations. Petitioner bank issued nine promissory notes, marked as
Exhibits A to I. Hence, only defendant Fermin Canlas appealed to the then
Intermediate Court. His contention was that inasmuch as he signed the
promissory notes in his capacity as officer of the defunct Worldwide Garment
Manufacturing, Inc, he should not be held personally liable for such authorized
corporate acts that he performed.
ISSUE:
Whether or not private respondent Fermin Canlas is solidarily liable with
the other defendants?
RULING:
Yes. We hold that private respondent Fermin Canlas is solidarily liable on
each of the promissory notes bearing his signature. The promissory notes are
negotiable instruments and must be governed by the Negotiable Instruments
Law. Under the Negotiable lnstruments Law, persons who write their names on
the face of promissory notes are makers and are liable as such. By signing the
notes, the maker promises to pay to the order of the payee or any
holder according to the tenor thereof. Based on the above provisions of law,
there is no denying that private respondent Fermin Canlas is one of the co-
makers of the promissory notes. As such, he cannot escape liability arising
therefrom. Where an instrument containing the words "I promise to pay" is
signed by two or more persons, they are deemed to be jointly and severally
liable thereon. In the case at bar, the solidary liability of private respondent
Fermin Canlas is made clearer and certain, without reason for ambiguity, by
the presence of the phrase "joint and several" as describing the unconditional
promise to pay to the order of Republic Planters Bank.

97
LIABILITIES OF PARTIES (DRAWER)

BANK OF THE PHILIPPINE ISLANDS v. REYNALD R. SUAREZ

G.R. No. 167750, March 15, 2010
CARPIO, J.:
FACTS:
Suarez had a client who planned to purchase several parcels of land in
Tagaytay City, but preferred not to deal directly with the land owners. In
accordance with his client’s instruction, Suarez transacted with the owners of
the Tagaytay properties, making it appear that he was the buyer of the lots.
Suarez would issue checks to the sellers for payment.
Suarez claimed that the checks were tampered with, specifically the
reason for the dishonor, prompting him to send another letter informing BPI of
its act of falsification by making it appear that it marked the checks with
"drawn against uncollected deposit (DAUD) and not "drawn against
insufficient fund" (DAIF).
ISSUE:
Whether or not BPI is liable to par Suarez?
RULING:
Considering that there was no binding representation on BPI’s part as
regards the same-day crediting of the RCBC check, no negligence can be
ascribed to BPI’s dishonor of the checks precisely because BPI was justified in
dishonoring the checks for lack of available funds in Suarez’s account.
However, BPI mistakenly marked the dishonored checks with "drawn against
insufficient funds (DAIF), " instead of "drawn against uncollected deposit
(DAUD)."
In the present case, Suarez failed to establish that his claimed injury was
proximately caused by the erroneous marking of DAIF on the checks. There is
nothing in Suarez’s testimony which convincingly shows that the erroneous
marking of DAIF on the checks proximately caused his alleged psychological
or social injuries. Considering that BPI legally dishonored the checks for being
drawn against uncollected deposit, BPI was justified in debiting the penalty
charges against Suarez’s account, pursuant to the Rules of the Philippine
Clearing House Corporation.

98
 JAI-ALAI CORPORATION OF THE PHILIPPINES v. BANK OF THE PHILIPPINE ISLAND
G.R. No. L-29432, August 6, 1975
CASTRO, J.:
FACTS:
Petitioner deposited in its current account with respondent bank several
checks with a total face value of P8,030.58, all acquired from Antonio J.
Ramirez, a regular bettor at the jai-alai games and a sale agent of the Inter-
Island Gas Service, Inc., the payee of the checks. The deposits were all
temporarily credited to petitioner’s account in accordance with the clause
printed on the bank’s deposit slip. Subsequently, Ramirez resigned and after
the checks had been submitted to inter-bank clearing, the Inter-Island Gas
discovered that all the indorsement made on the cheeks purportedly by its
cashiers, as well as the rubber stamp impression thereon reading "Inter-Island
Gas Service, Inc.", were forgeries. It informed petitioner, the respondent, the
drawers and the drawee banks of the said checks and forgeries and filed a
criminal complaint against its former employee. In view of these circumstances,
the respondent Bank debited the petitioner’s current account and forwarded
to the latter the checks containing the forged indorsements, which petitioner
refused to accept. Later, petitioner drew against its current account a check
for P135,000.00. This check was dishonored by respondent as its records
showed that petitioner’s balance after netting out the value of the checks with
the forged indorsement, was insufficient to cover the value of the check drawn.

ISSUE:

Whether or not respondent may be held liable for the resulting loss?

RULING:

The Supreme Court ruled that respondent acted within legal bounds
when it debited petitioner’s account; that the payments made by the drawee
banks to the respondent on account of the checks with forged indorsements
were ineffective; that on account thereof, no creditor-debtor relationship was
created between the parties; that petitioner was grossly recreant in accepting
the checks in question from Ramirez without making any inquiry as to authority
to exchange checks belonging to the payee-corporation; and that petitioner,
in indorsing the said checks when it deposited them with respondent,
guaranteed the genuineness of all prior indorsement thereon so that the
respondent, which relied upon its warranty, cannot be held liable for the
resulting loss.

99
 MYRON C. PAPA v. A.U. VALENCIA
G.R. No. 105188, January 23, 1998
KAPUNAN, J.:

FACTS:
Myron Papa is the administrator of the estate of Angela Butte. In 1973,
he sold a portion of said estate to FelixPeñarroyo through A.U. Valencia and
Co., Inc. Peñarroyo gave Papa P5,000.00 plus a check worth P40,000.00.
However,Papa was not able to deliver the certificate of title to Peñarroyo. A
litigation ensued and ten years after, Papa argued thatthe sale between him
and Peñarroyo was never consummated because he did not encash the
P40,000.00 check and that theP5,000.00 cash was merely earnest money.

ISSUE:

Whether or not petitioner is liable in this case?

HELD:

Considering that respondents Valencia and Peñarroyo had fulfilled their

part of the contract of sale by delivering the payment of the purchase price,
said respondents, therefore, had the right to compel petitioner to deliver to
them the owner’s duplicate of TCT No. 28993 of Angela M. Butte and the
peaceful possession and enjoyment of the lot in question.

Neither is the estate of Ramon Papa, Jr. an indispensable party without

whom, no final determination of the action can be had. Whatever prior and
subsisting mortgage rights the estate of Ramon Papa, Jr. has over the property
may still be enforced regardless of the change in ownership thereof.

100
ACCEPTOR
ASSOCIATED BANK vs. HON. COURT OF APPEALS, and MERLE V. REYES
G.R. No. 89802, May 7, 1992
Cruz, J.
Facts:
Respondent Reyes, owner of Melissa’s RTW, was issued checks by her
customers which were deposited with Associated Bank without her knowledge.
Said bank paid the checks to Rafael Sayson who was not authorized by Reyes
to deposit and encash the checks.
The subject checks were accepted for deposit by the Bank for the account
of Rafael Sayson although they were “crossed checks” or “for payee’s
account only” as indicated by two parallel lines diagonally on the left top
portion of the checks.
Reyes filed a case at the RTC of Quezon City for recovery of the total value
of the checks plus damages. Both the RTC and the CA required petitioners to
pay Reyes total value of subject checks as well as damages; however, the
petitioner’s argue that Reyes had no cause of action and that her customer
companies, not the Associated Bank, are liable for not giving clear instructions.
Issues:
1. Did Reyes have cause of action?
2. Is petitioner Bank liable and required to pay for the amount improperly paid
to Sayson?

Ruling:
1. Yes, Reyes did have cause of action.
2. Yes, the bank was liable for the amount.
The Bank, by accepting the checks had stamped thereon its guarantee that
"all prior endorsements and/or lack of endorsements (were) guaranteed.", thus
they made themselves liable for said checks.
The banks are also responsible for ascertaining he validity of the checks
they were presented, to inquire to the depositor’s authority and to ensure that
the signatures affixed therein were not forged; however, petitioner bank failed
to do all said responsibilities and thus bears the liability for refunding the
amount lost.

101
 PHILIPPINE NATIONAL BANK vs. THE COURT OF APPEALS and PHILIPPINE
COMMERCIAL AND INDUSTRIAL BANK
G.R. No. L-26001, October 29, 1968
CONCEPCION, C.J.
FACTS
A GSIS check with petitioner PNB as the drawee bank was deposited by
a Augusto Lim in his current account with the private respondent PCIB. PCIB
stamped "All prior indorsements and/or Lack of Endorsement Guaranteed,
Philippine Commercial and Industrial Bank". PNB paid PCIB the amount in the
check without returning the same while clearing. PNB received a formal
notice from the GSIS that the check had been lost, with the request that
payment thereof be stopped, yet PNB still proceeded. The check was later
discovered to have forged signatures, yet despite the demand to re-credit said
checks because of the forgery they were denied.

ISSUE: May PNB recover from PCIB?

RULING
No. Despite PCIB stamping its guarantee at the back of the check, PNB
had been guilty of a greater degree of negligence, because it had a previous
and formal notice from the GSIS that the check had been lost, with the request
that payment thereof be stopped
By not returning the check to the PCIB, by thereby indicating that the
PNB had found nothing wrong with the check and would honor the same, and
by actually paying its amount to the PCIB, the PNB induced the latter, not only
to believe that the check was genuine and good in every respect, but, also,
to pay its amount to Augusto Lim. In other words, the PNB was the primary or
proximate cause of the loss, and, hence, may not recover from the PCIB.
Section 62 of Act No. 2031 provides that the acceptor by accepting the
instrument engages that he will pay it according to the tenor of his
acceptance; and admits, the existence of the drawer, the genuineness of his
signature, and his capacity and authority to draw the instrument; and, the
existence of the payee and his then capacity to indorse.
When both parties are at fault the court leaves them as is.

102
 PNB V. PICORNELL
46 PHIL 716
ROMUALDEZ, J.
FACTS:
Picornell followed the instructions of Hyndman, Tavera and
Venutra by buying bales of tobacco. He was able to obtain in National
Bank a sum of money together with his commission. He drafted a bill of
exchange against the firm and in favor of the bank. It was received by
National Bank and was accepted thereafter by the firm. However, on
alleged conditions of the tobacco, the bill of exchange was not paid.
ISSUE: Is Picornell liable for the amount in the instrument?
HELD:
Yes, the respondent is liable.
The firm accepted the bill unconditionally but did not pay it at maturity,
wherefore its responsibility to pay the same is clear. The question whether
tobacco was worth the value of the bill doesn’t concern the bank. Such partial
want of consideration, if it was, doesn’t exist with respect to the bank which
paid Picornell the full value of the said bill of exchange. The bank was a
holder in due course and was such for value full and complete.
The firm cannot escape liability.

103
 SAMSUNG CONSTRUCTION COMPANY PHILIPPINES v. FAR EAST BANK
GR No. 129015, 2004-08-13
TINGA, J,

Facts:
Samsung Construction Company Philippines, Inc. maintained a current
account with defendant Far East Bank and Trust Company‘s ("FEBTC").
The sole signatory to Samsung Construction's account was Jong Kyu Lee
("Jong"), its Project Manager, while the checks remained in the custody of the
company's accountant, Kyu Yong Lee ("Kyu").
A Samsung Employee presented for payment FEBTC Check to the bank.
The check, payable to cash and drawn against Samsung Construction's
current account. The bank teller verified their authenticity and the checks were
later encashed to Gonzaga.
Kyu discovered that a check in the amount of P999,500.00 had been
encashed. It was found that Jong’s signature had been forged.
Issues:
1. Was Samsung Construction negligent in keeping its checks?
2. Was Samsung Construction precluded from setting up the defense of
forgery under Section 23 of the Negotiable Instruments Law?
Ruling:
1. No, Samsung was not guilty of negligence in this case.
The bare fact that the forgery was committed by an employee of the party
whose signature was forged cannot necessarily imply that such party's
negligence was the cause for the forgery. Negligence is not presumed, but
must be proven by him who alleges it, yet, FEBTC was unable to do so.
2. No, Samsung Construction was not precluded from setting up the
defense of Forgery.
The general rule is to the effect that a forged signature is "wholly
inoperative," and payment made "through or under such signature" is
ineffectual or does not discharge the instrument.
Under Section 23 of the Negotiable Instruments Law, forgery is a real or
absolute defense by the party whose signature is forged but it cannot be
raised if said party had been negligent. Hence, if Jong's signature was indeed
forged, FEBTC is liable for the loss since it authorized the discharge of the forged
check. Such liability attaches even if the bank exerts due diligence and care
in preventing such faulty discharge.

104
 WESTMONT BANK V. ONG
373 SCRA 212
QUISUMBING, J.
FACTS:
Ong was supposed to be the payee of the checks issued by Island
Securities. Ong has a current account with petitioner bank. He opted to sell his
shares of stock through Island Securities. The company issued checks in favor
of Ong but the latter wasn't able to receive any. Tamlinco, a friend of Ong, got
hold of the checks, forged Ong’s signatures and deposited the checks in
Tamlinco’s account with Westmont Bank. Ong then sought to collect the
money from Tamlinco’s family first before filing a complaint with the Central
Bank. As his efforts were futile to recover his money, he filed an action against
the petitioner. The trial and appellate court decided in favor of Ong.
ISSUE:
1. Was the instrument valid and operative against Ong?
2. Can Ong collect the money he lost directly from the bank?
HELD:
1. Yes, since the signature of the payee was forged, such signature should be
deemed inoperative and ineffectual. Petitioner, as the collecting bank,
grossly erred in making payment by virtue of said forged signature.

2. Yes, the payee should be allowed to collect from the collecting bank as
Westmont Bank Grossly erred in making a payment because of said forged
signature
It should be liable for the loss because it is the bank’s legal duty to ascertain
that the payee’s endorsement was genuine before cashing the check. As a
general rule, a bank or corporation who has obtained possession of a check
with an unauthorized or forged indorsement of the payee’s signature and who
collects the amount of the check other from the drawee, is liable for the
proceeds thereof to the payee or the other owner, notwithstanding that the
amount has been paid to the person from whom the check was obtained.
Ong act of directly collecting the loss from the Bank is also valid according
to the Doctrine of Desirable Short Cut.

105
LIABILITIES OF PARTIES
Agro Conglomerates Inc. V. CA
G.R. No. 117660, December 18, 2000
QUISUMBING, J.

FACTS:
Agro Conglomerates, Inc. (Agro) sold 2 parcels of land to Wonderland Food
Industries, Inc (Wonderland). On July 19, 1982, Agro and Wonderland and
Regent Savings & Loan Bank (Regent) amended the arrangement. Now, Agro
would secure a loan in the name of Agro Conglomerates Inc. for the total
amount of the initial payments, while the settlement of loan would be assumed
by Wonderland
Agro made several promissory notes, payable to Regent in favor of
Wonderland; hence, a subsidiary contract of suretyship had taken effect since
Agro signed the promissory notes as maker and accommodation party for the
benefit of Wonderland. Regent then released the proceeds of the loan to Agro
who failed to meet their obligations as they fell due.
ISSUE: Is Agro liable to the instrument even as an accommodation party?
HELD: YES
There was no contract of sale that materialized. The original agreement
was changed through an addendum, that Agro would instead secure a loan
and the settlement of the same would be shouldered by Wonderland; thus,
the contract of surety was extinguished by the rescission of the contract.
Accommodation party is a person who has signed the instrument as
maker, acceptor and, indorser without receiving value therefor for the purpose
of lending his name to some other person is liable on the instrument to a holder
for value, notwithstanding such holder at the time of taking the instrument
knew (the signatory) to be an accommodation party.
He has the right, after paying the holder, to obtain reimbursement from
the party accommodated, since the relation between them has in effect
become one of principal and surety, the accommodation party being the
surety. The surety’s liability to the creditor or promisee is directly and equally
bound with the principal and the creditor may proceed against any one of
the solidary debtors.
Agro had no legal or just ground to retain the proceeds of the loan at
the expense of Wonderland. Neither could Agro excuse themselves and hold
Wonderland still liable to pay the loan upon the rescission of their sales contract
and if Agro sustained damages as a result of the rescission, they should have
impleaded Wonderland and asked damages. Agro is duty-bound under the
law to pay the claims of Regent from whom they had obtained the loan
proceeds.

106
 ALLIED BANKING CORPORATION vs. BANK OF THE PHILIPPINE ISLANDS
G.R. No. 188363, February 27, 2013
VILLARAMA, JR., J.

FACTS:
A P1,000,000.00 check payable to "Mateo Mgt. Group International"
(MMGI) was deposited to and accepted by petitioner. The check, post-dated
"Oct. 9, 2003", was drawn against Marciano Silva, Jr. (Silva)’s account with
respondent BPI. Upon receipt, petitioner sent the check for clearing to
respondent through the Philippine Clearing House Corporation (PCHC).

The check was cleared by respondent and petitioner credited the

account of MMGI with P1,000,000.00. Later, MMGI’s account was closed and
all the funds therein were withdrawn. A month later, Silva discovered the debit
of P1,000,000.00 from his account. In response to Silva’s complaint, respondent
credited his account with the aforesaid sum.

Petitioner filed a complaint before the Arbitration Committee, asserting

that respondent should solely bear the entire face value of the check due to
its negligence in failing to return the check to petitioner within the 24-hour their
own reglementary period. Respondent charged petitioner with gross
negligence for accepting the post-dated check in the first place claiming that
was the proximate cause.

ISSUE: Is the respondent liable for the instrument?

RULING:
[Link] evidence shows that the proximate cause of the unwarranted
encashment of the subject check was the negligence of respondent who
cleared a post-dated check without observing its own verification procedure.
If respondent exercised ordinary care in the clearing process, it could have
easily noticed the glaring defect upon seeing the date written on the face of
the check "Oct. 9, 2003" and then promptly dishonored it. Thus, petitioner can
seek reimbursement from respondent the amount credited to the payee’s
account .

The doctrine of last clear chance is that the negligence of the plaintiff does
not preclude a recovery for the negligence of the defendant where it appears
that the defendant, by exercising reasonable care and prudence, might have
avoided injurious consequences to the plaintiff notwithstanding the plaintiff’s
negligence.

107
 Tiong V. Ang
G.R. No. L-26767, February 22, 1968
Castro, J.
Facts:
Ting issued a P4,000 Philippine Bank of Communications(PBC) check
payable to cash or bearer with Ang’s signature on the back as indorsement.
Tiong received said check and presented it to PBC which dishonored it. Tiong
then made written demands to Ting and Ang to make good with said check.
When defendants did not comply, a suit was filed. Both MTC and CA ruled in
favor of Tiong, thus this petition.
Issues:
1. Is the instrument negotiable?
2. Is he a general indorser?
3. Would being an accommodation party change Ang’s liability?
Ruling:
1. The genuineness and the due execution of the instrument was not
controverted and appellee is a holder for value; hence, the instrument is
negotiable as the presumption of negotiability was never overcome.
2. Yes, there is nothing in the instrument which states otherwise and according
to NIL section 66 ordains that "every indorser who indorses without
qualification, warrants to all subsequent holders in due course" (a) that the
instrument is genuine and in all respects what it purports to be; (b) that he
has a good title to it; (c) that all prior parties have capacity to contract;
and (d) that the instrument is at the time of his indorsement valid and
subsisting. In addition, "he engages that on due presentment, it 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."
3. No, even as an accommodation party, he is still liable to the instrument
according to Sec. 29 of the NIL which states that an accommodation party
is one who has signed the instrument as maker, drawer, acceptor, or
indorser, without receiving value therefor, and for the purpose of lending his
name to some other person. Such a person is liable on the instrument to a
holder for value, notwithstanding such holder, at the time of taking the
instrument, knew him to be only an accommodation party.

108
 TOMAS ANG v. ASSOCIATED BANK AND ANTONIO ANG ENG LIONG
G.R. No. 146511, September 5, 2007
AZCUNA, J.

FACTS:
Associated Bank filed a collection suit against Antonio Ang Eng Liong
(Liong)(principal debtor) and petitioner Tomas Ang (Ang)(co-maker) for the 2
promissory notes
On October 3 and 9, 1978, Liong and Ang obtained a loan of
P50,000 and P30,000 evidenced by promissory note payable, jointly and
severally, on January 31, 1979 and December 8, 1978, but despite repeated
demands for payment they failed to settle their obligations totaling
to P539,638.96 as of July 31, 1990
Liong only admitted to have secured a loan amounting to P80,000 while
Tomas Ang claimed that the bank is not the real party in interest as it is not the
a holder for value or a holder in due course; as the bank knew that he did not
receive any valuable consideration for affixing his signatures on the notes but
merely lent his name as an accommodation party
Liong was ordered to pay the principal amount of P80,000 plus 14% interest per
annum and 2% service charge per annum while it ruled in favor of Ang
and against the bank.
Ruling on Ang was reversed by the CA who ordered Ang to pay the bank.
ISSUE:
Is Ang liable as accomodation party even without consideration?
HELD: Yes
Accommodation party as a person "who has signed the instrument as
maker, drawer, acceptor, or indorser, without receiving value therefor, and for
the purpose of lending his name to some other person." An accommodation
party requires that (1) he must be a party to the instrument, signing as maker,
drawer, acceptor, or indorser; (2) he must not receive value therefor; and (3)
he must sign for the purpose of lending his name or credit to some other person
However, it is immaterial so far as the bank is concerned whether one of the
signers, particularly petitioner, has or has not received anything in payment of
the use of his name as the bank may hold the accommodation party liable.

109
 ASTRO ELECTRONICS CORP. and PETER ROXAS v. PHILIPPINE EXPORT AND
FOREIGN LOAN GUARANTEE CORPORATION
411 SCRA 462
AUSTRIA-MARTINEZ, J.
FACTS:
Astro obtained loans from Philtrust Bank, secured by promissory notes
that were signed twice by Roxas, both as President of Astro Electronics and in
his personal capacity. Roxas also signed a continuing suretyship in favor of
Philtrust. Thereafter, PhilGuarantee bound itself as a guarantor. At default of
Astro, PhilGuarantee paid the obligation. It then filed an action for collection
of money from Astro and Roxas; however, Roxas contests this claiming that if
he wished to sign the instruments merely in his capacity as President of Astro,
then he should have signed only once.
ISSUE:
Should Roxas be jointly and severally liable with Astro?
HELD:
Yes. Under the Negotiable Instruments Law, persons who write their
names on the face of promissory notes are makers, promising that they will pay
to the order of the payee or any holder according to its tenor.
Even without the phrase personal capacity, Roxas will still be primarily
liable as a joint and several debtor under the notes considering that his
intention to be liable as such is manifested by the fact that he affixed his
signature on each of the promissory notes twice which necessarily would imply
that he is undertaking the obligation in 2 different capacities, official and
personal.

110
 BPI vs. Court of Appeals and Napiza
G.R. No. 112392. February 29, 2000
YNARES-SANTIAGO, J.

FACTS:
A certain Henry Chan owned a Continental Bank Manager’s Check
payable to "cash" in the amount of $2,500.00. Chan went to the office of
Napiza and requested him to deposit the check in his dollar account by way
of accommodation and for the purpose of clearing the same. Napiza agreed
to deliver to Chan a signed blank withdrawal slip, with the understanding that
as soon as the check is cleared, they would go to the bank to withdraw the
amount of the check. Napiza 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 only to accommodate Chan but BPI
claims that Napiza, 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:
Is private respondent obliged to return the money paid out by BPI on a
counterfeit check even if he deposited the check "for clearing purposes" only
to accommodate Chan?

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 respondent’s 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 over and above the aggregate amount
of private respondent’s 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 personnel’s 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.

111
 ERNESTINA CRISOLOGO-JOSE v. COURT OF APPEALS.
G.R. No. 80599, September 15, 1989.
REGALADO, J.
FACTS:
Oscar Benares and Ricardo Santos are the president and vice-president,
respectively, of Mover Enterprises, Inc. In accommodation of their clients the
Ongs, the company issued a check payable to Jose. Since the check was
under the account of the Enterprise, it was signed by Benares and Santos.
The check was to be encashed after the approval of a compromise
agreement which was disapproved. The checks were then replaced and were
signed by both. When Jose encashed the checks, it was dishonored for
insufficiency of funds.
Jose filed a complaint in the lower court citing that respondents were in
violation of Art. 1256 of the Civil Code. It was dismissed thus the petition to the
SC where Jose points out that the accommodation party in the case is the
enterprise and not Santos.

ISSUE: Was Mover Enterprises an accommodation party?

RULING:
The SC ruled that a corporation cannot be an accommodation party.
The law on accommodation parties does not include corporation because it
is ultra vires on their part.
Thus, if one knows and takes an instrument that was accommodated by
a corporation cannot recover against the corporation.

112
 Far East Bank & Trust Co. V. Gold Palace Jewelry Co.
G.R. No. 168274 August 20, 2008
NACHURA, J.
FACTS:
Tagoe, a foreigner, purchased from Gold Palace Jewellery Co.'s (Gold
Palace) store at SM-North EDSA several pieces of jewelry valued at P258,000
paying such with a Foreign Draft issued by the United Overseas Bank (Malaysia)
to Land Bank of the Philippines, Manila (LBP) for P380,000
A Gold Palace Employee, issued Cash Invoice so the jewelries can be
released and deposited the draft in the company's account with the petitioner.
Far East then presented the draft for clearing, LBP cleared it and Gold Palace's
account with Far East was credited. Tagoe eventually returned to claim the
goods and after ascertaining that the draft had been cleared, Yang released
the pieces of jewelry and his change, Far East Check of P122,000 paid by the
bank.
LBP notified Far East that the Foreign Draft had been altered from P300
to P380,000. Far East debited only P168,053.36 of the amount left in Gold
Palace' account to LBP. Far East demanded the payment of balance and
upon refusal filed in the RTC. RTC ruled in favor of Far East but the CA reversed
the decision.
ISSUE:
Should Gold Palace be liable for the altered Foreign Draft?
HELD:
NO, since according to the NIL the acceptor, by accepting the instrument,
engages that he will pay it according to the tenor of his acceptance. Court
applied the principle that where one of two innocent parties must suffer a loss,
the law will leave the loss where it finds it.
Gold Palace was a non-negligent, holder in due course. Since the
transaction in this case had been closed and the principal-agent relationship
already ceased, the latter in returning the amount to the drawee bank was
already acting on its own and should now be responsible for its own actions.
Petitioner cannot be considered to have acted as the representative of the
drawee bank when it debited respondent's account, because the drawee
bank had no right to recover what it paid. Neither can Far East invoke the
warranty of the payee/depositor who indorsed the instrument for collection to
shift the burden because the said indorsement is only for purposes of collection
which, under Section 36 of the NIL, is a restrictive indorsement. It did not
transfer the title of the instrument to the collecting bank. Far East did not own
the draft, it merely presented it for payment. Considering that the warranties
of a general indorser as provided in Section 66 of the NIL are based upon a
transfer of title and are available only to holders in due course, these warranties
did not attach to the indorsement for deposit and collection made by Gold
Palace to Far East. Without any legal right to do so, the collecting bank could
not debit respondent's account for the amount it refunded to the drawee bank.

113
 ROMEO GARCIA V. DIONISIO LLAMAS
GR 154127
PANGANIBAN, J.
FACTS:
Garcia and de Jesus borrowed P400,000 from Llamas, executing a
promissory note, binding themselves solidarily to pay on or before 1997 Jan. The
loan had long been overdue and despite repeated demands, they failed to
pay.
Garcia replied that he assumed no liability because he merely signed as
an accommodation party for de Jesus. Alternatively, he is relieved from any
liability inasmuch as de Jesus already paid the loan through a check. Llamas ,
on the other hand, said that the check de Jesus gave bounced
RTC ruled against Garcia and de Jesus but CA favored de Jesus.
ISSUES:
1. Was Garcia liable as an accommodation party?
2. Did the acceptance of the check by the co-debtor novate the agreement?
HELD:
1. NO, he is not liable as an accommodation party, as defined under the
Negotiable Instruments Law. The Promissory Note was not a Negotiable
Instrument under Section 1 of the NIL.
By its terms, the note was made payable to a specific person rather than
to bearer or to order—a requisite for negotiability under Act 2031, the NIL.
Hence, petitioner cannot avail himself of the NIL’s provisions on the liabilities
and defenses of an accommodation party.
A non-negotiable note is merely a simple contract in writing and is
evidence of such intangible rights as may have been created by the assent of
the parties covered by Civil Code, not by the NIL. Even granting arguendo that
the NIL was applicable, still, petitioner would be liable for the promissory note.
Under Art 29of NIL, an accommodation party is liable for the instrument to a
holder for value even if, at the time of its taking, the latter knew the former to
be only an accommodation party. Accommodation party—creates a surety-
principal relationship. Surety is bound equally and absolutely with the principal.
Effect is, he cannot escape his solidary liability with de Jesus
2. No it did not. While Garcia is not liable as an accommodation party, a
novation did not take place as no equivocal declaration that old obligation
had been extinguished by acceptance of check nor that check would take
place of note neither was there incompatibility.
Novation cannot be presumed. It must be clearly shown either by the
express assent of the parties or by the complete incompatibility between the
old and the new agreements. Petitioner herein fails to show either requirement
convincingly; hence, the summary judgment holding him liable as a joint and
solidary debtor stands.

114
 Melva Theresa Alviar Gonzales vs. Rizal Commercial Banking Corporation
G.R. No. 156294. November 29, 2006
GARCIA, J.
Facts:
Gonzales was an employee of Rizal Commercial Banking Corporation
(RCBC) as New Accounts Clerk in the Retail Banking Department at its Head
Office. A foreign check in the amount of $7,500 was drawn by Dr. Don Zapanta
against the drawee bank Wilshire Center Bank(WCB), payable to Gonzales’
mother, defendant Eva Alviar (or Alviar) then endorsed this check to RCBC
Gonzales got the check encashed and received its peso equivalent.
RCBC then tried to collect the check amount from First Interstate Bank of
California but the check was dishonored on 2 occasions because of irregular
indorsement before finally getting returned because the account had been
closed. Unable to collect, RCBC demanded from Gonzales the payment of
the peso equivalent of the check that she received. Gonzales agreed to have
the amount deducted from her salary.
RCBC demanded for the payment of Alviar’s obligation but did not
receive any response. RCBC sent a letter to Gonzales reminding her of her
liability as an indorser of the subject check; but, Gonzales resigned from RCBC.
Issue:
Is Alviar Gonzales liable for the instrument?
Ruling:
No. WCB dishonored the check because of a defect and it is undeniable
that only the signature of Olivia Gomez, an RCBC employee, was a qualified
endorsement because of the phrase "up to ₱17,500.00 only." There can be no
other acceptable explanation for the dishonor of the foreign check than this
signature of Olivia Gomez with the phrase "up to ₱17,500.00 only"
accompanying it. The foreign drawee bank would not have dishonored the
check had it not been for this signature of Gomez; thus, WCB refused to pay
the bearer because of a defect introduced by the RCBC employee. The
Check is therefore a useless piece of paper if returned in that state to its original
payee, Eva Alviar.
A subsequent party which caused the defect in the instrument cannot
have any recourse against any of the prior endorsers in good faith as
according to Sec. 66 of NIL, every indorser who indorses without qualification,
warrants to all subsequent holders in due course, that the instrument is, at the
time of his indorsement, valid and subsisting.

115
 Melva Theresa Alviar Gonzales vs. Rizal Commercial Banking Corporation
G.R. No. 156294. November 29, 2006
GARCIA, J.
Facts:
Gonzales was an employee of Rizal Commercial Banking Corporation
(RCBC) as New Accounts Clerk in the Retail Banking Department at its Head
Office. A foreign check in the amount of $7,500 was drawn by Dr. Don Zapanta
against the drawee bank Wilshire Center Bank(WCB), payable to Gonzales’
mother, defendant Eva Alviar (or Alviar) then endorsed this check to RCBC
Gonzales got the check encashed and received its peso equivalent.
RCBC then tried to collect the check amount from First Interstate Bank of
California but the check was dishonored on 2 occasions because of irregular
indorsement before finally getting returned because the account had been
closed. Unable to collect, RCBC demanded from Gonzales the payment of
the peso equivalent of the check that she received. Gonzales agreed to have
the amount deducted from her salary.
RCBC demanded for the payment of Alviar’s obligation but did not
receive any response. RCBC sent a letter to Gonzales reminding her of her
liability as an indorser of the subject check; but, Gonzales resigned from RCBC.
Issue:
Is Alviar Gonzales liable for the instrument?
Ruling:
No. WCB dishonored the check because of a defect and it is undeniable
that only the signature of Olivia Gomez, an RCBC employee, was a qualified
endorsement because of the phrase "up to ₱17,500.00 only." There can be no
other acceptable explanation for the dishonor of the foreign check than this
signature of Olivia Gomez with the phrase "up to ₱17,500.00 only"
accompanying it. The foreign drawee bank would not have dishonored the
check had it not been for this signature of Gomez; thus, WCB refused to pay
the bearer because of a defect introduced by the RCBC employee. The
Check is therefore a useless piece of paper if returned in that state to its original
payee, Eva Alviar.
A subsequent party which caused the defect in the instrument cannot
have any recourse against any of the prior endorsers in good faith as
according to Sec. 66 of NIL, every indorser who indorses without qualification,
warrants to all subsequent holders in due course, that the instrument is, at the
time of his indorsement, valid and subsisting.

116
 Maralit V. Imperial
G.R. No. 130756. January 21, 1999
Mendoza, J.
Facts:
In two separate occasions Jesusa Imperial deposited in her savings
account at the PNB, 3 United States treasury warrants and withdrew their peso
equivalent of P59,216.86, P130,743.60, and P130,326 on the same day. The
treasury warrants were subsequently returned one after the other by the United
States Treasury, through Citibank, on the ground that the amounts thereof had
been altered. Maralit, an employee of the PNB and the one who accepted
the checks, claimed that she was held personally liable by the PNB for the total
amount of P320, 287. 30.
Imperial, in her defence, alleged that she merely helped a relative
encash the treasury warrants and that she did not know the alterations on the
treasury warrants and that she did not represent to petitioner that the treasury
warrants were genuine. Three estafa cases were filed against Imperial. MCT
acquitted Imperial of criminal liability but held that she is civilly liable as indorser
of the checks.
Issue:
Is Imperial civilly liable?
Ruling:
Yes, while there is no criminal liability; petitioner is civilly liable.
The established procedure of banks is that US Treasury Warrants should
first be cleared before the same is to be paid. More so if the holder is a second
indorser; but, because Maralit knew Imperial is working in the same building
and a depositor, she took the risk of approving the withdrawal of the peso
equivalent, without the check being cleared and if the same is dishonored she
should be responsible. She took the risk; therefore, she should be responsible
for the outcome of the risk she has taken. There was negligence on both Maralit
and Ismael but greater responsibility should be borne by Maralit as the
accused could not have encashed and deposited the checks without her
approval.
For Ismael’s civil liability, the 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.
(Sec. 66 Negotiable Instrument Law); thus, while petitioner is responsible for the
encashment of the altered checks, respondent is civilly liable because of her
indorsements of the treasury warrants.

117
METROPOL (BACOLOD) FINANCING & INVESTMENT CORPORATION vs. SAMBOK
MOTORS COMPANY and NG SAMBOK SONS MOTORS CO., LTD.
G.R. No. L-39641 February 28, 1983
De Castro, J.
FACTS:
Dr. Javier Villaruel executed a promissory note in favor of Ng Sambok,
which states that in case on non-payment of any of the installments, the total
principal sum then remaining unpaid shall become due and payable with
additional interest.
Sambok Motors Company indorsed the note in favor of plaintiff Metropol
with recourse. However, Dr. Villaruel defaulted in the payment of his
installments when they became due, and failed to pay the promissory note as
demanded, hence plaintiff notified Sambok as indorsee of the note of the fact
dishonor. Sambok also failed to pay, hence plaintiff filed a complaint for
collection of a sum of money. Sambok did not deny its liability but contended
that it could not be obliged to pay until after its co-defendant Dr. Villaruel has
been declared insolvent but during the pendency of the case, Dr. Villaruel
died.
Sambok argues that adding the word “with recourse” makes the
indorsement a qualified one.
ISSUE:
Is Sambok a qualified indorser?
RULING:
NO, Sambok is not and the appeal is without merit. 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.
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. This does not make itself a qualified
indorser but a general indorser who is secondarily liable.
A person who indorses without qualification engages that on due
presentment, the note shall be accepted or paid, or both, and that if it be
dishonored, he will pay the amount thereof to the holder.
The words added by said appellant do not limit his liability, but rather
confirm his obligation as a general indorser.

118
 ALVIN PATRIMONIO v. NAPOLEON GUTIERREZ
G.R. No. 187769, June 4, 2014
BRION, J.
Facts:
The petitioner (Patrimonio) and the respondent (Gutierrez) entered a
business venture under the name of Slam Dunk Corporation (Slum Dunk) a
basketball event company.
The petitioner pre-signed several checks to answer for the expenses of
Slam Dunk. Although signed, these checks had no payee’s name, date or
amount. Said blank checks were entrusted to Gutierrez with the specific
instruction not to fill them out without previous notification to and approval by
the petitioner. However, without the petitioner’s knowledge and consent,
Gutierrez went to Marasigan (the petitioner’s former teammate), to secure a
loan in the amount of P200,000.00 on the excuse that the petitioner needed
the money for the construction of his house.
In addition to the payment of the principal, Gutierrez assured Marasigan
that he would be paid an interest of 5% per month from March to May 1994.
On May 24, 1994, Marasigan deposited the check but it was dishonored for the
reason “ACCOUNT CLOSED.” It was later revealed that petitioner’s account
with the bank had been closed since May 28, 1993.
Petitioner filed before the Regional Trial Court (RTC) a Complaint for
Declaration of Nullity of Loan and Recovery of Damages against Gutierrez and
co-respondent Marasigan.
Issues:
Can Marasigan validly enforce the instrument against Patrimonio?
Ruling: No as the petitioner can raise personal defenses against him.
Section 14 NIL applies to an incomplete but delivered instrument. Here,
if the maker or drawer delivers a pre-signed blank paper to another person for
the purpose of converting it into a negotiable instrument, that person is
deemed to have prima facie authority to fill it up.
If a holder is not one in due course wishes to enforce the instrument
against the maker then (1) that the blank must be filled strictly in accordance
with the authority given; and (2) it must be filled up within a reasonable time; if
these do not exist the maker can set this up as a personal defense and avoid
liability. Marasigan is not a holder in due course and failed to fulfill the first
requirement as the instrument was filled outside given authority thus petitioner
can validly set up the personal defense that the blanks were not filled up in
accordance with the authority he gave. Consequently, Marasigan has no right
to enforce payment against the petitioner and the latter cannot be obliged
to pay the face value of the check.

119
 PEOPLE OF THE PHILIPPINES vs. Julia Maniego
G.R. No. L-30910. | February 27, 1987
Narvasa, J.

FACTS:
Accused-appellant Maniego was an indorser of several checks drawn
by her sister, which were dishonored after they have been exchanged with
cash belonging to the Government. Maniego was charged with malversation
of funds but was acquitted of the criminal charge. Maniego contends that her
civil liabilities should also be extinguished claiming that since she is a mere
indorser she cannot be held liable for the instrument.

ISSUE:
Is Maniego liable for the instrument?

RULING:
Yes. Appellant’s contention that as mere indorser, she may not be made
liable on account of the dishonor of the checks indorsed by her is untenable.
Under the law, the holder or last indorsee of a negotiable instrument has the
right to “enforce payment of the instrument for the full amount thereof against
all parties liable thereon.”

120
 PHILIPPINE NATIONAL BANK vs. THE COURT OF APPEALS and PHILIPPINE
COMMERCIAL AND INDUSTRIAL BANK
G.R. No. L-26001, October 29, 1968
CONCEPCION, C.J.
FACTS
A GSIS check with petitioner PNB as the drawee bank was deposited by
a Augusto Lim in his current account with the private respondent PCIB. PCIB
stamped “All prior indorsements and/or Lack of Endorsement Guaranteed,
Philippine Commercial and Industrial Bank”. PNB paid PCIB the amount in the
check without returning the same while clearing. PNB received a formal
notice from the GSIS that the check had been lost, with the request that
payment thereof be stopped, yet PNB still proceeded. The check was later
discovered to have forged signatures, yet despite the demand to re-credit said
checks because of the forgery they were denied.

ISSUE: May PNB recover from PCIB?

RULING
No. Despite PCIB stamping its guarantee at the back of the check, PNB
had been guilty of a greater degree of negligence, because it had a previous
and formal notice from the GSIS that the check had been lost, with the request
that payment thereof be stopped
By not returning the check to the PCIB, by thereby indicating that the
PNB had found nothing wrong with the check and would honor the same, and
by actually paying its amount to the PCIB, the PNB induced the latter, not only
to believe that the check was genuine and good in every respect, but, also,
to pay its amount to Augusto Lim. In other words, the PNB was the primary or
proximate cause of the loss, and, hence, may not recover from the PCIB.
Section 62 of Act No. 2031 provides that the acceptor by accepting the
instrument engages that he will pay it according to the tenor of his
acceptance; and admits, the existence of the drawer, the genuineness of his
signature, and his capacity and authority to draw the instrument; and, the
existence of the payee and his then capacity to indorse.
When both parties are at fault the court leaves them as it finds them.

121
INTESTATE ESTATE OF VICTOR SEVILLA. SIMEON SADAYA vs. FRANCISCO SEVILLA
G.R. No. L-17845, April 27, 1967
Sanchez, J.

Facts:
Sadaya, Sevilla and Varona executed jointly or severally a promissory note
worth P15,000 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 the remaining
balance and interest of P5,416.12 from Sadaya. Varona failed to reimburse.

Consequently, Sevilla died and intestate estate proceedings were

established. Sadaya filed a creditor’s 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:
Should the administrator pay half of what Sadaya paid to the bank using
any available funds belonging to the estate of the deceased Sevilla?

HELD:
NO, Sadaya did not have the right to demand payment from his co-
accomodator when the bank had made no judicial demand and Varona had
not been proven insolvent.

Sadaya could have sought reimbursement from Varona as the latter was
the only one who received value for the note executed.

The court postulated the following rules regarding collection from a co-
accommodation party:
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.

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 he made the payment by virtue of a judicial
demand and principal debtor is insolvent.

The bank did not make a judicial demand and nothing shows that Varona
was insolvent. Thus, Sadaya cannot proceed against Sevilla for reimbursement.

122
 REMEDIOS NOTA SAPIERA vs. COURT OF APPEALS and RAMON SUA
G.R. No. 128927. September 14, 1999
BELLOSILLO, J.

FACTS:
Petitioner Sapiera was issued by Arturo de Guzman checks as payment
for purchases he made at her store. She used these checks to pay for the items
she bought from Ramon Sua’s store. These checks were signed at the back by
petitioner. When presented for payment the checks were dishonored
because the drawer’s 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 for the charge of estafa by the RTC, but
she was found liable for the value of the checks by the Court of Appeals. Thus,
this petition.

ISSUE:
Is petitioner liable for the value of the checks despite signing the subject
checks only for the identification of the signature of Arturo de Guzman?

RULING:
Yes, despite being acquitted from her criminal liabilities, petitioner is still
liable for the value of the checks as she has made herself an unqualified
endorser. As Sapiera 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 indorser thereof according to Sec. 17 of the NIL which tackles construction
when instrument is ambiguous.
According to Sec. 66 of the NIL, 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.

123
 Travel-On V. CA
G.R. No. L-56169, June 26, 1992
FELICIANO, J.
FACTS:
Arturo S. Miranda had a revolving credit line with Travel-On and
procured tickets from Travel-On on behalf of airline passengers and derived
commissions therefrom. Travel-On, then filed before the Court of First Instance
to collect 6 checks issued by Miranda
Travel-On further sold and delivered airline tickets to Miranda. Miranda
paid in cash and through 6 checks; however, the checks all got dishonored by
the drawee banks. Miranda then reduced the owed amount but P105,000 was
left.
Miranda claimed that the checks were issued for to “accommodate”
Travel-On’s General Manager to show the BOD of Travel-On that their
receivables were still good
CA ordered Travel-On to pay Miranda P8,894.91 for Miranda’s net
overpayments and an additional 15,000 for moral damages and attorney’s
fees. Said decision was because Travel-On did not show that Miranda had an
outstanding balance of P115,000.00
ISSUE:
Is Miranda Liable for the 6 dishonored checks?
HELD:
YES. The check which is regular on its face is deemed prima facie to have
been issued for a valuable consideration and every person whose signature
appears thereon is deemed to have become a party thereto for value.
A negotiable instrument is presumed to have been given or indorsed for
enough consideration unless otherwise contradicted and overcome by other
competent evidence. Those checks in themselves constituted evidence of
indebtedness of Miranda, evidence not successfully overturned.
While the Negotiable Instruments Law does refer to accommodation
transactions, no such transaction was shown. Having issued or indorsed the
check, the accommodating party has warranted to the holder in due course
that he will pay the same according to its tenor.
Travel-On was not an accommodated party; it realized no value on the
checks which bounced.

124
 ASSOCIATED BANK vs. HON. COURT OF APPEALS, and MERLE V. REYES
G.R. No. 89802, May 7, 1992
Cruz, J.
Facts:
Respondent Reyes, owner of Melissa’s RTW, was issued checks by her
customers which were deposited with Associated Bank without her knowledge.
Said bank paid the checks to Rafael Sayson who was not authorized by Reyes
to deposit and encash the checks.
The subject checks were accepted for deposit by the Bank for the account
of Rafael Sayson although they were “crossed checks” or “for payee’s
account only” as indicated by two parallel lines diagonally on the left top
portion of the checks.
Reyes filed a case at the RTC of Quezon City for recovery of the total value
of the checks plus damages. Both the RTC and the CA required petitioners to
pay Reyes total value of subject checks as well as damages; however, the
petitioner’s argue that Reyes had no cause of action and that her customer
companies, not the Associated Bank, are liable for not giving clear instructions.
Issues:
1. Did Reyes have cause of action?
2. Is petitioner Bank liable and required to pay for the amount improperly
paid to Sayson?

Ruling:
1. Yes, Reyes did have cause of action.
2. Yes, the bank was liable for the amount.
The Bank, by accepting the checks had stamped thereon its guarantee that
“all prior endorsements and/or lack of endorsements (were) guaranteed.”,
thus they made themselves liable for said checks.
The banks are also responsible for ascertaining he validity of the checks
they were presented, to inquire to the depositor’s authority and to ensure that
the signatures affixed therein were not forged; however, petitioner bank failed
to do all said responsibilities and thus bears the liability for refunding the
amount lost.

125
DEFENSES
ASSOCIATED BANK vs. HON. COURT OF APPEALS, PROVINCE OF TARLAC and
PNB
G.R. No. 107382, January 31, 1996
ROMERO, J.

Facts:
The Province of Tarlac has a current account with the PNB where the
provincial funds are deposited. A portion of these funds is allocated to the
Concepcion Emergency Hospital. The checks are received for the hospital by
its administrative officer and cashier. It was later discovered that the hospital
did not receive several allotment checks. 30 checks totaling P203,300 were
encashed by Fausto Pangilinan, former administrative officer and cashier of
payee hospital, with the Associated Bank acting as collecting bank.
Pangilinan was able to withdraw the money when the check was
cleared and paid by PNB, but PNB returned the checks after several days. After
forging the signature of Dr. Adena Canlas, Pangilinan did the same for the
other checks. All the checks bore the stamp of Associated Bank which reads
“All prior endorsements guaranteed ASSOCIATED BANK”. Thus, a petition was
filed by the province. RTC ordered Associated Bank to reimburse PNB and
ordering PNB to pay Province of Tarlac. CA affirmed.

Issues:
• What are the effects of the forged signature?
• Who are liable for the loss and why?
Ruling:
• A forged signature is inoperative and no one can gain title to the
instrument through it; but parties who warrant or admit the genuineness of
the signature in question and those who, by their acts, silence or negligence
are estopped from setting up the defense of forgery, are precluded from
using this defense. Finally, only the one whose signature was forged can
raise this defense.
• Both PNB and AB are liable for the losses.
In cases involving checks with forged indorsements, the drawee bank
can seek reimbursement from the presentor bank or person; however, a
drawee bank has the duty to promptly inform the presentor of the forgery
upon discovery. If the drawee bank delays in informing the presentor of the
forgery, the former is deemed negligent and can no longer recover from
the presentor.
PNB did not return the questioned checks within twenty-four hours, but
several days later, Associated Bank alleges that PNB should be considered
negligent and not entitled to reimbursement of the amount it paid on the
checks; while AB stamped its guarantee on the checks; hence, they are
equally liable for the amount in the checks.

126
 Atrium Management Corporation v. Court of Appeals E.T. Henry and Co.,
Lourdes Victoria De Leon, Rafael De Leon Jr., and Hi-Cement Corporation
G.R. No. 109491, February 28, 2001.
PARDO, J.
Facts:
Hi-Cement Corporation through its corporate signatories, petitioner
Lourdes M. de Leon, treasurer, and the late Antonio de las Alas, Chairman,
issued checks in favor of E.T. Henry and Co. Inc., as payee. E.T. Henry and Co.,
Inc., endorsed the four crossed checks to petitioner (Atrium) as financial aid
not as payment. Upon presentment for payment, the bank dishonored all four
checks because “payment stopped”. Atrium, thus, instituted this action after
its demand for payment of the value of the checks (P2,000,000) was denied.
In this petition Hi-Cement claims that it did not authorize the checks and even
if it did, there was a failure of consideration.
Issue:
1. Was the issuance of the questioned checks an ultra vires act?
2. Can Lourdes be held personally liable for the checks?
3. Was Atrium a holder in due course and for value?
Ruling:
1. No, the issuance of the checks was not an ultra vires act. An ultra vires act
is one committed outside the object for which a corporation is created as
defined by the law of its organization and therefore beyond the power
conferred upon it by law. Lourdes had the authority to issue said checks as
treasurer of the company; thus, it is not ulta vires.
2. Yes, Lourdes M. de Leon was negligent when she signed the confirmation
letter requested for the rediscounting of the crossed checks issued in favor of
E.T. Henry. She was aware that the checks were strictly endorsed for deposit
only to the payee’s account and not to be further negotiated. Her negligence
resulted in damage to the corporation. Hence, Ms. De Leon may be held
personally liable therefor.
3. No, as Atrium knew that there was a defect in the instrument when they
accepted it as the checks were crossed checks and specifically indorsed for
deposit to payee’s account only. According to Sec. 52 of the NIL, a holder in
due course, among others, is a holder who has taken the instrument that it is
complete and regular upon its face. Therefore, he defense of lack of
consideration can be raised.

127
 Bank of America NT & SA v. Philippine Racing Club
G.R. No. 150228, 20 July 2009
Leonardo-De Castro, J
FACTS:
The President and Vice President of Philippine Racing Club Inc. pre-
signed several checks to have available cash to settle obligations that might
become due. The checks were entrusted to the accountant. A certain John
Doe presented a 2 of the pre signed checks to the bank for encashment.
The checks had similar infirmities and irregularities but the bank did not
verify and confirm the legitimacy of the checks and immediately encashed
them.
It was later found that here was no transaction involving the payment
out of the subject checks and that one Clarita Mesina completed without
authority the entries on the pre-signed checks.
ISSUE:
What is the proximate cause of the wrongful encashment and who
should be liable for the damages?
RULING:
Both the bank’s failure to make a verification and the pre-signing of
blank checks were the proximate cause and both parties are liable to a
degree.
While Sections 14 and 16 of the NIL states that the bank could validly
presume, upon presentation of the checks, that the party who filled up the
blanks had authority and that a valid and intentional delivery to the party
presenting the checks had taken place it would only be applicable if the
subject checks were correctly and properly filled out by the thief and
presented to the bank in good order; however, said checks had irregularities.
At the same time, the practice of pre-signing of blank checks is a
seriously negligent behavior and a highly risky means of ensuring the efficient
operation of businesses. It should be foreseen that the pre-signed blank checks
could fall into the wrong hands.
Following established jurisprudence, the allocation of sixty percent (60%)
of the actual damages involved in this case to the bank is proper. The
corporation also bears forty percent (40%) of the loss.

128
 ERNESTINA CRISOLOGO-JOSE v. COURT OF APPEALS.
G.R. No. 80599, September 15, 1989.
REGALADO, J.
FACTS:
Oscar Benares and Ricardo Santos are the president and vice-president,
respectively, of Mover Enterprises, Inc. In accommodation of their clients the
Ongs, the company issued a check payable to Jose. Since the check was
under the account of the Enterprise, it was signed by Benares and Santos.
The check was to be encashed after the approval of a compromise
agreement which was disapproved. The checks were then replaced and were
signed by both. When Jose encashed the checks, it was dishonored for
insufficiency of funds.
Jose filed a complaint in the lower court citing that respondents were in
violation of Art. 1256 of the Civil Code. It was dismissed thus the petition to the
SC where Jose points out that the accommodation party in the case is the
enterprise and not Santos.

ISSUE:
Was Mover Enterprises an accommodation party?

RULING:
The SC ruled that a corporation cannot be an accommodation party.
The law on accommodation parties does not include corporation because it
is ultra vires on their part.
Thus, if one knows and takes an instrument that was accommodated by
a corporation cannot recover against the corporation.

129
 NATIVIDAD GEMPESAW vs. CA and PHILIPPINE BANK OF COMMUNICATIONS
G.R. No. 92244, February 9, 1993
CAMPOS, JR., J.

Facts:
Petitioner, Gempesaw, issued 82 checks, prepared by her bookkeeper, in
favor of several supplies. Most of the checks for amounts in excess of actual
obligations as shown in their corresponding invoices. After the lapse of more
than 2 years, Gempesaw 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 respondent
bank (PBC), who deposited them in the accounts of Alfredo Romero and
Benito Lam. Gempesaw demanded that the bank to credit the amount
charged due the checks. The bank refused. Hence, the present action.

Issue:
Who shall bear the loss resulting from the forged indorsements?

Held:
Both Gempesaw and PNC should bear the loss as the former was
negligent and the latter was unable to detect the fraud.
As a rule, a drawee bank who has paid a check on which an
indorsement has been forged cannot charge the drawer’s account for said
check except where the drawer is guilty of such negligence which causes the
bank to honor such checks. Gempesaw’s negligence by not exercising steps
that a careful and prudent businessman would take in circumstances to
discover discrepancies in her account was the proximate cause of her loss,
and under Section 23 of the Negotiable Instruments Law. Hence, she is
precluded from using forgery as a defense.
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.

130
 The Great Eastern Life Insurance Co. vs. Hongkong & Shanghai Banking
Corporation and PNB, G.R. No. L-18657, August 23, 1922
JOHNS, J.
FACTS:
The petitioner insurance corporation drew a check in favor of Melicor
which was stolen by Maasim. Maasim then forged the signature of Melicor and
deposited the check to his account in PNB. PNB then endorsed the check to
HSBC who later debited the account of plaintiff. Plaintiff believed all along that
Melicor received the payment. Upon knowledge of the debit HSBC did on its
account, it demanded that the same amount be credited.

Issues:
Who is liable for the loss?

HELD:
The banks are liable. The money was on deposit with the Sanghai bank
and it had no legal right to pay it out to anyone except the plaintiff or its
order. Petitioner ordered the Shanghai Bank to pay the P2,000 to Melicor but
instead it was paid to Maasim,
Section 23 of the Negotiable Instruments Law, says:
When a signature is forged or made without the authority of the person
whose signature it purports to be, it is wholly inoperative, and no right to
retain the instrument, or to give a discharge therefor, or to enforce
payment thereof against any party thereto, can be acquired through or
under such signature, unless the party against whom it is sought to
enforce such right is precluded from setting up the forgery or want of
authority.
The only remedy of the bank paying a check to a person who has forged the
name of the payee is against the forger.

131
 RAMON K. ILUSORIO vs. HON. COURT OF APPEALS and THE MANILA BANKING
CO.
G.R. No. 139130, November 27, 2002
QUISUMBING, J.
FACTS:
Ramon Ilusorio entrusted his credit cards and checkbooks and blank
checks to his secretary. Apparently, Eugenio, his secretary, was able to encash
and deposit to her personal account 17 checks drawn against his account
totaling P119,634.34.

Ilusorio requested to restore to his account the value of the checks that
were wrongfully encashed but the bank refused, hence the case.

In their defense, the bank testified that they made sure that the signature
on the check was not forged by verifying the signature in the check with the
specimen signature cards on file with the bank.

ISSUE:
1. Does Ilusorio have a cause of action against the bank?
2. Is petitioner barred from raising the defense of forgery?

RULING:

1. No, Ilusorio does not have a cause of action. Ilusorio failed to prove that
the bank was negligent on their part, as he has the burden of proof this leaves
him with no cause of action.

2. Yes, petitioner is barred from raising the defense of Forgery.

Sec. 23 of the NIL states that a drawee bank who has paid a check on
which an indorsement has been forged cannot charge the drawer’s account
for said check, except where the party against whom it is sought to enforce
such right is precluded from setting up the forgery. In this case, the drawer is
guilty of such negligence as he trusted his secretary in an unusual degree with
his accounts; he is thus precluded from raising forgery as a defense

132
 International Corporate Bank, Inc. vs. CA and Philippine National Bank
G.R. No. 129910, September 5, 2006
CARPIO, J.

FACTS:
The Ministry of Education and Culture issued checks drawn against
Philippine National Bank (PNB). Petitioner International Corporate Bank, Inc.
(ICB) accepted the checks for deposit.
After 24 hours from submission of the checks to respondent for clearing,
petitioner paid the value of the checks and allowed the withdrawals of the
deposits. However, PNB returned all the checks to petitioner without clearing
them because the serial number of the checks were allegedly materially
altered. In response, ICB instituted an action for collection of sums of money
against PNB to recover the value of the checks.
RTC ruled in favor of PNB because the ICB failed to inquire on the status
of the checks before paying their value while the CA reversed said decision.

ISSUES:
Were checks were materially altered?
RULING:
G. No, only the serial numbers were altered and alterations on the serial
numbers of checks is not a material alteration.
According to Sec. 124 of the NIL, if a material alteration happens without
the consent of all parties then the instrument is avoided except as against a
party who has himself made, authorized, or assented to the alteration and
subsequent indorsers. But when an instrument has been materially altered and
is in the hands of a holder in due course not a party to the alteration, he may
enforce payment thereof according to its original tenor.
According to Sec. 125 of NIL, an alteration is said to be material if it changes
the date, the sum payable, either for principal or interest; the time or place of
payment; the number or the relations of the parties; the medium or currency
in which payment is to be made; or which adds a place of payment where no
place of payment is specified, or any other change or addition which alters
the effect of the instrument in any respect.
The Court held that since there were no material alterations on the
checks, respondent Philippine National Bank is liable to petitioner International
Corporate Bank, Inc. for the value of the checks amounting to P1,447,920, with
legal interest from 16 March 1982 until full payment.

133
 JAI-ALAI CORPORATION OF THE PHILIPPINES v. BANK OF THE PHILIPPINE ISLAND
66 SCRA 29
CASTRO, J.
FACTS:
Jai-Alai deposited checks in its current account with BPI. These checks
were from a certain Ramirez a bettor at Jai-Alai Games and a sales agent of
the Inter-Island Gas. Inter-Island found out the forgeries committed in the
checks and thus, it informed petitioner, respondent and drawee-banks. When
the drawee-banks returned the checks to the respondent, the latter paid their
value which the former in turn paid to the Inter-Island Gas. The respondent, for
its part, debited the petitioner’s current account and forwarded to the latter
the checks containing the forged indorsements, which the petitioner, however,
refused to accept. Petitioner drew a check for payment of shares of stock, but
it was dishonored for insufficient funds. Hence, this petition.
Issue:
Does BPI have the right to debit the petitioner’s current account in the
amount corresponding to the total value of the checks in question?
HELD:
Yes, BPI acted within legal bounds when it debited the account of
petitioner. When the petitioner deposited the checks to its account, the
relationship created was one of agency still and not of creditor-debtor. The
bank was to collect from the drawees of the checks with the corresponding
proceeds.
While BPI may have already collected the proceeds when it debited the
account of petitioner, the court held that no creditor-debtor relationship was
created.
According to Section 23 of NIL, when a signature is forged or made
without the authority of the person whose signature it purports to be, it is
inoperative, and no right enforce payment thereof against any party thereto,
can be acquired through or under such signature, unless the party against
whom it is sought to enforce such right is precluded from setting up the forgery
or want of authority.
It stands to reason that the respondent, as a collecting bank which
indorsed the checks to the drawee-banks, should be liable to the latter for
reimbursement, for the indorsements on the checks had been forged prior to
their delivery to the petitioner

134
 METROPOLITAN BANK AND TRUST COMPANY vs. RENATO D. CABILZO
G.R. No. 154469, December 6, 2006
CHICO-NAZARIO, J.
FACTS:
Cablizo maintained an account with petitioner (MBTC). It drew a check
payable to cash payable worth P1,000 and post-dated to 24 Nov. 1994 to a
certain Marquez. The check was subsequently deposited in Westmont bank
and the latter submitted it with Metrobank for clearing. The check was
cleared.

Cablizo later found that the amount had been altered to P91,000 and the
date to 14 Nov. 1994. Respondent requested that petitioner recredit the
P90,000 but petitioner refused. Cablizo filed an action against MBTC.
Issue:
1. Was there material alteration to the instrument?
2. Who should be held responsible?

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

The check in issue was materially altered when its amount was increased
from P1,000 to P91,000, the date changed, and Cablizo did not authorized,
makes or allow said alterations.
2. Metrobank is to be held responsible as it was remiss in its duties. The doctrine
of equitable estoppel is inapplicable against Cablizo. This states that when
one of the two innocent persons, each guilty of an intentional or moral wrong,
must suffer a loss, it must be borne by the one whose erroneous conduct, either
by omission or commission, was the cause of the injury. Negligence is never
presumed and there is no showing that respondent was negligent in exercising
what was due in a prudent man which could have otherwise prevented the
loss.
Metrobank, on the other hand, was the one remiss in its duties. The
alterations were visible in the eye and yet the bank allowed someone not
acquainted with the examination of checks to do the same. Petitioner should
have exercised meticulous care in handling the affairs of its clients especially if
the client’s money is involved.

135
 METROPOLITAN WATERWORKS AND SEWERAGE SYSTEM vs. COURT OF APPEALS
and THE PHILIPPINE NATIONAL BANK
G.R. No. L-62943 July 14, 1986
GUTIERREZ, JR., J.
FACTS:
MWSS and its’s predecessor-in-interest NWSA shared an account from
Philippine National Bank. Only MWSS’s treasurer, auditor, and General
Manager were authorized to sign checks. NWSA released 23 checks which
were cleared debited against the account of petitioner. In the same months,
another 23 checks bearing the same check numbers, were again cleared and
debited by PNB from the account of petitioner.
The amounts drawn were deposited the payees in their accounts in
Philippine Commercial Industrial Bank and Philippine Bank of Commerce. The
names in said accounts were fictitious. Petitioner requested the restoration of
the amounts debited claiming said checks were forged. PNB’s refusal led to
this complaint.
PNB, in their defense, claims that the instruments were regular on its face.
ISSUE:
Is PNB liable for the checks because they did not hold that the signatures
were forged?
HELD:
No, PNB is not liable as it was MWSS’s negligence which was the
proximate cause of the loss. There is no express and categorical that the 23
questioned checks were indeed signed by persons other than the authorized
MWSS signatories. The findings of the National Bureau of Investigation show that
the MWSS fraud was an “inside job” and that the petitioner’s delay in the
reconciliation of bank statements and the laxity and loose records control in
the printing of its personalized checks facilitated the fraud.
According to Siasat, et al. v. Intermediate Appellate Court, forgery
cannot be presumed. It must be established by clear, positive, and convincing
evidence. This was not done in the present case.
Petitioner is barred from setting up the defense of forgery under Section
23 of the NIL due to its negligence before and after the questioned checks
were negotiated. This paired with the petitioner’s inability to reconcile it’s bank
records displays MWSS’s gross negligence.
Petitioner cannot claim that respondent was also guilty of negligence as
PNB had taken the necessary measures in the detection of forged checks and
the prevention of their fraudulent encashment.

136
 PHILIPPINE COMMERCIAL INTERNATIONAL BANK (PCIB) vs. Court of Appeals
and FORD PHILIPPINES, INC. and CITIBANK, N.A.
G.R. No. 121413, January 29, 2001
QUISUMBING, J.

FACTS:
Ford, allegedly drew a check in favor of Commissioner of Internal
Revenue (CIR), which it deposited to PCIB as payment, cleared by Central
Bank and was debited from their Citibank account. Amount was not received
by the Commissioner; hence, Ford had to issue another payment. An NBI
investigation showed that one of the checks issued by Ford was withdrawn
from PCIB by Ford’s accountant for an alleged computation error. PCIB
replaced it with 2 of its manager’s checks, which were allegedly stolen by the
syndicate and deposited in their own account.
Ford Philippines filed actions to recover from the drawee bank, Citibank,
and collecting bank, PCIB, the value of subject checks payable to the CIR
which were embezzled allegedly by an organized syndicate.
The trial court decided in favor of Ford; thus, this petition.
ISSUE:
Did Ford have the right to recover the value of the checks intended for
CIR from PCIB and Citibank?
HELD:
The title of the person negotiating the same was allegedly defective
because the instrument was obtained by fraud and unlawful means, and the
proceeds of the checks were remitted to the syndicate instead of CIR.
Pursuant Sec. 55 of the NIL, it is vital to show that the negotiation is made
by the perpetrator in breach of faith amounting to fraud. The person
negotiating the checks must have gone beyond the authority given by his
principal. If the principal could prove that there was no negligence in the
performance of his duties, he may set up the personal defense to escape
liability and recover from other parties who, through their own negligence,
allowed the commission of the crime.
The actions of Ford’s employees were not the proximate cause of
encashing the checks payable to the CIR. The degree of Ford’s negligence, if
any, could not be characterized as the proximate cause of the injury to the
parties.
PCIB and Citibank were negligent. PCIB it failed to verify the authority
of depositor to negotiate the checks; while, Citibank failed to establish that its
payment of Ford’s checks were made in due course and legally in order.
Hence, Ford had a right to recover and PCIB and Citibank are equally liable.

137
 PHILIPPINE NATIONAL BANK vs. COURT OF APPEALS, CAPITOL CITY
DEVELOPMENT BANK, PHILIPPINE BANK OF COMMUNICATIONS, and F. ABANTE
MARKETING
256 SCRA 491
KAPUNAN, J.
FACTS:
Department of Education, Culture, and Sports (DECS) issued a check
payable to respondent, Abante Marketing, drawn against PNB. The check was
deposited by Abante in its account with Capitol. Capitol then deposited the
same with its account with Philippine Bank of Communications (PBCom).
PBCom deposited said check with petitioner who cleared it. However, PNB
returned the check due to supposed material alteration. 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. Capitol
sought reclarification from PBCom and demanded the recrediting of its
account. PBCom did the same against PNB and was rejected. Hence, PNB
filed an action against PBCCom and the latter filed a third-party complaint
against petitioner.
The trial courts ordered PNB to recredit the amount to PBCom and
PBCom to do the same to Capitol,

Issue:
Was there material alteration to the check?

HELD:
No, since an alteration on the serial number is not considered material
alteration according to NIL. 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
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, it was the serial number which was
changed; ergo, no material alteration.
Therefore, there being no material alteration in the check committed,
the trial court’s ruling is sustained

138
 PHILIPPINE NATIONAL BANK vs. HON. ROMULO S. QUIMPO and FRANCISCO S.
GOZON II
G.R. No. L-53194 March 14, 1988
GANCAYCO, J.
FACTS:
Santos took respondent Gozon’s passbook without the latter’s
knowledge and proceeded to fill it up for P5,000. Santos also forged Gozon’s
signature. Santos then encashed the check and the amount was debited to
Gozon’s account; Gozon then requested from the bank that the amount be
returned to his account. The bank refused thus Gozon filed a petition which the
court ruled in favor of. Hence, this petition

ISSUE:
Was Gozon negligent in leaving his passbook in the car with Santos?

RULING:
No, a bank is bound to know the signatures of its customers; and if it pays
a forged check, it must be considered as making the payment out of its own
funds, and cannot ordinarily change the amount so paid to the account of
the depositor whose name was forged.
There were marked differences in Santos’s forgery and Gozon’s actual
signature and PNB was negligent in encashing said forged check without
carefully examining the signature which shows marked variation from the
genuine signature of private respondent.
The court ruled that the act of plaintiff in leaving his checkbook in the car
while he went out for a short while cannot be considered negligence sufficient
to excuse the defendant bank from its own negligence. Defendant had trust
in his classmate and friend. He had no reason to suspect that the latter would
breach that trust.

139
 QUIRINO GONZALES Logging Concessionaire, QUIRINO GONZALES and
EUFEMIA GONZALES vs. THE COURT OF APPEALS (CA) and REPUBLIC PLANTERS
BANK
G. R. No. 126568 – April 30, 2003
CARPIO MORALES, J.
FACTS:
Petitioner Quirino Gonzales Logging Concessionaire (QGLC) applied for
credit accommodation which the respondent bank, RPB, approved.
Petitioner’s obligation under the credit line was secured by a real estate
mortgage of parcels of land. To secure advances, QGLC executed a
promissory note in favor of the bank. QGLC failed to pay both the credit line
and the promissory notes; thus, RPB foreclosed and auctioned the property.
Being the highest bidder, the property was owned by the RPB. The Bank then
filed a complaint for a sum of money regarding the unpaid notes despite
repeated demands; while, petitioners, in their defense, deny having received
the value of the promissory notes.
RTC ruled in favor of petitioners but this was reversed by the CA; thus, this
petition.

ISSUE:
Were the promissory notes valid?

RULING:
Yes, it is valid as no proof showing otherwise has been adduced by
petitioners.
Petitioner’s raised the lack of consideration as defense; however, the
promissory notes appear to be negotiable as they meet the requirements of
Section 1of the Negotiable Instruments Law. Such being the case, the notes
are prima facie deemed to have been issued for consideration and the
petitioners have failed to prove otherwise.

140
 REPUBLIC BANK vs. MAURICIA T. EBRADA
G.R. No. L-40796, July 31, 1975
MARTIN, J.

Facts:
A check worth P1,246.08 was issued to one Martin Lorenzo who has been
dead almost eleven years before it was issued was encashed by Mauricia
Ebrada at the Republic Bank. The Bureau of Treasury informed the bank that
Lorenzo’s indorsement was forged and requested a refund. The Bank then
sued Ebrada when she refused to return the amount.

Issue:
Can the bank recover from the last endorser despite the Lorenzo’s
indorsement being forged?

Held:
Yes. Under Sec. 65 of NIL, Ebrada, despite not being the forger,
warranted a good title to the instrument as the last indorser of the check. The
negotiation from Martin Lorenzo, the original payee, to Ramon Lorenzo is of no
effect but the negotiation from Ramon Lorenzo to Adelaida Dominguez and
from her to Mauricia Ebrada who did not know of the forgery is valid and
enforceable. The bank can recover from her the money paid on the forged
check.

141
 JUANITA SALAS vs. HON. COURT OF APPEALS and FIRST FINANCE & LEASING
CORPORATION,
G.R. No. 76788, January 22, 1990
FERNAN, C.J.
FACTS:
Petitioner, Salas, bought a car from Viologo Motor Sales Company (VMS),
evidenced by a promissory note. Said note was later indorsed to Filinvest,
which financed the purchase. However, petitioner defaulted in her installments
allegedly due to a discrepancy between what was written in the sales invoice
and what was sold. This led to respondent filing a petition against her which
the RTC ruled in favor of. Questioning this decision, Salas claims that VMS had
defrauded her by selling her a different vehicle; but the CA ruled against her
case. Thus, this current petition.

Issue:
Was the promissory note negotiable?

HELD:
Yes, it is negotiable. Petitioner’s liability on the promissory note, the due
execution and genuineness of which she never denied under oath is as
inevitable as it is clearly established.
The records reveal that involved herein is not a simple case of
assignment of credit as petitioner would have it appear, where the assignee
merely steps into the shoes of, is open to all defenses available against and
can enforce payment only to the same extent as, the assignor-vendor.
The promissory note in question bears all the earmarks of negotiability as it
fulfills all the requisites under NIL; moreover, Filinvest is a holder in due course as
it took the instrument under the following conditions: [a] it is complete and
regular upon its face; [b] it became the holder thereof before it was overdue,
and without notice that it had previously been dishonored; [c] it took the same
in good faith and for value; and [d] when it was negotiated to Filinvest, the
latter had no notice of any infirmity in the instrument or defect in the title of
VMS Corporation.
As Filinvest is a holder in due course petitioner cannot set up against
respondent the defense of nullity of the contract of sale between her and VMS
and if the a different vehicle was delivered to her, petitioner must resolve it in
a breach of contract case.

142
 SAMSUNG CONSTRUCTION COMPANY PHILIPPINES v. FAR EAST BANK
GR No. 129015, 2004-08-13
TINGA, J,
Facts:
Samsung Construction Company Philippines, Inc. maintained a current
account with defendant Far East Bank and Trust Company‘s (“FEBTC”).
The sole signatory to Samsung Construction’s account was Jong Kyu Lee
(“Jong”), its Project Manager, while the checks remained in the custody of the
company’s accountant, Kyu Yong Lee (“Kyu”).
A Samsung Employee presented for payment FEBTC Check to the bank.
The check, payable to cash and drawn against Samsung Construction’s
current account. The bank teller verified their authenticity and the checks were
later encashed to Gonzaga.
Kyu discovered that a check in the amount of P999,500.00 had been
encashed. It was found that Jong’s signature had been forged.
Issues:
3. Was Samsung Construction negligent in keeping its checks?
4. Was Samsung Construction precluded from setting up the defense of
forgery under Section 23 of the Negotiable Instruments Law?
Ruling:
3. No, Samsung was not guilty of negligence in this case.
The bare fact that the forgery was committed by an employee of the party
whose signature was forged cannot necessarily imply that such party’s
negligence was the cause for the forgery. Negligence is not presumed, but
must be proven by him who alleges it, yet, FEBTC was unable to do so.
4. No, Samsung Construction was not precluded from setting up the
defense of Forgery.
The general rule is to the effect that a forged signature is “wholly
inoperative,” and payment made “through or under such signature” is
ineffectual or does not discharge the instrument.
Under Section 23 of the Negotiable Instruments Law, forgery is a real or
absolute defense by the party whose signature is forged but it cannot be
raised if said party had been negligent. Hence, if Jong’s signature was indeed
forged, FEBTC is liable for the loss since it authorized the discharge of the forged
check. Such liability attaches even if the bank exerts due diligence and care
in preventing such faulty discharge.

143
PRESENTMENT FOR PAYMENT

THE INTERNATIONAL CORPORATE BANK vs. SPS. FRANCIS S. GUECO and MA.
LUZ E. GUECO
G.R. No. 141968 February 12, 2001
KAPUNAN, J.
FACTS:
Gueco spouses obtained a loan from petitioner (ICB) to purchase a car.
In consideration thereof, spouses issued promissory notes payable in monthly
chattel mortgages. The spouses defaulted in payment of installations
prompting ICB to file a case for collection of money against spouses. Multiple
negotiations resulted in the lowering of the outstanding balance of the spouses.
Finally, Francis Gueco issued a P150,000 to settle the debt but refused to sign
the joint motion to dismiss, resulting in the non-release of the car.
ICB refused to release the car even after several demand letters,
claiming that the joint motion to dismiss is a requirement. Spouses filed a case
which the RTC and CA both ruled in favor of; thus, this petition.
ISSUE: Should the manager’s check be replaced as it had already gone stale,
before the car is released?
HELD:
Yes, as not only has the check not been encashed but the obligation to
pay had not been erased.
A check must be presented within a reasonable time and 10 years is
enough to make a check stale and is beyond the reasonable time of
presentment required by the law. However, manager’s check can be treated
as a promissory note and as a promissory note, the drawer would be the maker
and in which case the holder need not prove presentment for payment or
present the bill to the drawee for acceptance.
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 delay.
Failure to present on time, thus, does not totally wipe out all liability. In fact, the
legal situation amounts to an acknowledgment of liability in the sum stated in
the check. In this case, the Gueco spouses have not alleged, much less shown
that they or the bank which issued the manager’s check has suffered damage
or loss caused by the delay or non-presentment. The original obligation to pay
certainly has not been erased.
It has been held that, if the check had become stale, it becomes
imperative that the circumstances that caused its non-presentment be
determined. In the case at bar, there is no doubt that the ICB 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 in this position taken
by the Bank.

144
 ASSOCIATED BANK vs. HON. COURT OF APPEALS, and MERLE V. REYES
G.R. No. 89802, May 7, 1992
Cruz, J.
Facts:
Respondent Reyes, owner of Melissa’s RTW, was issued checks by her
customers which were deposited with Associated Bank without her knowledge.
Said bank paid the checks to Rafael Sayson who was not authorized by Reyes
to deposit and encash the checks.
The subject checks were accepted for deposit by the Bank for the account
of Rafael Sayson although they were “crossed checks” or “for payee’s
account only” as indicated by two parallel lines diagonally on the left top
portion of the checks.
Reyes filed a case at the RTC of Quezon City for recovery of the total value
of the checks plus damages. Both the RTC and the CA required petitioners to
pay Reyes total value of subject checks as well as damages; however, the
petitioner’s argue that Reyes had no cause of action and that her customer
companies, not the Associated Bank, are liable for not giving clear instructions.

Issues:
• Did Reyes have cause of action?
• Is petitioner Bank liable and required to pay for the amount improperly paid
to Sayson?

Ruling:
• Yes, Reyes did have cause of action.
• Yes, the bank was liable for the amount.
The Bank, by accepting the checks had stamped thereon its guarantee that
“all prior endorsements and/or lack of endorsements (were) guaranteed.”,
thus they made themselves liable for said checks.
The banks are also responsible for ascertaining he validity of the checks
they were presented, to inquire to the depositor’s authority and to ensure that
the signatures affixed therein were not forged; however, petitioner bank failed
to do all said responsibilities and thus bears the liability for refunding the
amount lost.

145
 PRUDENTIAL BANK vs. INTERMEDIATE APPELLATE COURT, PHILIPPINE RAYON
MILLS, INC. and ANACLETO R. CHI
G.R. No. 74886 December 8, 1992
DAVIDE, JR., J.
FACTS:
Respondent, Philippine Rayon Mills, Inc. entered a contract with Nissho
Co., Ltd. For the importation of textile machineries. To pay for said
machineries, respondent opened a commercial letter of credit with the
Prudential Bank in favor of Nissho. Nissho drew drafts against this letter of
credit which were all paid by the Prudential Bank. Only two of these drafts
were accepted by respondent. Respondent company ceased operation
and was purchased by AIC Development Corporation, yet the credit was still
unpaid. In response, petitioner instituted an action for the recovery of
P956,384.95 from respondent representing the amount respondent failed to
pay Prudential Bank. Respondent court ruled that the lack of presentment
meant that no valid demand was made.
ISSUE: Is the presentment for acceptance of the drafts indispensable to make
Philippine Rayon liable?
RULING:
No, as presentment for acceptance is not necessary in sight drafts.
A letter of credit is defined as an engagement by a bank or other person
made at the request of a customer that the issuer will honor drafts or other
demands for payment upon compliance with the conditions specified in the
credit. Through a letter of credit, the bank merely substitutes its own promise
to pay for one of its customers who in return promises to pay the bank the
amount of funds mentioned in the letter of credit plus credit or commitment
fees mutually agreed upon. In the instant case then, the drawee was
necessarily the herein petitioner. It was to the latter that the drafts were
presented for payment. In fact, there was no need for acceptance as the
issued drafts are sight drafts, as agreed upon by both parties. According to
Section 143 of NIL presentment for acceptance is necessary exclusively (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. Therefore, sight drafts do not need presentment for
acceptance.

146
 THE INTERNATIONAL CORPORATE BANK vs. SPS. FRANCIS S. GUECO and MA.
LUZ E. GUECO
G.R. No. 141968 February 12, 2001
KAPUNAN, J.
FACTS:
Gueco spouses obtained a loan from petitioner (ICB) to purchase a car.
In consideration thereof, spouses issued promissory notes payable in monthly
chattel mortgages. The spouses defaulted in payment of installations
prompting ICB to file a case for collection of money against spouses. Multiple
negotiations resulted in the lowering of the outstanding balance of the spouses.
Finally, Francis Gueco issued a P150,000 to settle the debt but refused to sign
the joint motion to dismiss, resulting in the non-release of the car.
ICB refused to release the car even after several demand letters,
claiming that the joint motion to dismiss is a requirement. Spouses filed a case
which the RTC and CA both ruled in favor of; thus, this petition.

ISSUE:
Should the manager’s check be replaced as it had already gone stale,
before the car is released?

HELD:
Yes, as not only has the check not been encashed but the obligation to
pay had not been erased.
A check must be presented within a reasonable time and 10 years is
enough to make a check stale and is beyond the reasonable time of
presentment required by the law. However, manager’s check can be treated
as a promissory note and as a promissory note, the drawer would be the maker
and in which case the holder need not prove presentment for payment or
present the bill to the drawee for acceptance.
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 delay.
Failure to present on time, thus, does not totally wipe out all liability. In fact, the
legal situation amounts to an acknowledgment of liability in the sum stated in
the check. In this case, the Gueco spouses have not alleged, much less shown
that they or the bank which issued the manager’s check has suffered damage
or loss caused by the delay or non-presentment. The original obligation to pay
certainly has not been erased.
It has been held that, if the check had become stale, it becomes
imperative that the circumstances that caused its non-presentment be
determined. In the case at bar, there is no doubt that the ICB 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 in this position taken
by the Bank.

147
NOTICE OF DISHONOR
LUIS S. WONG vs. COURT OF APPEALS and PEOPLE OF THE PHILIPPINES
G.R. No. 117857, February 2, 2001
QUISUMBING, J.
Facts:

Petitioner Wong, an agent of Limtong Press. Inc. (LPI) in charge of

collecting payments, issued 6 postdated checks totaling P18,025.00 in early
Dec. 1985. These were intended to guarantee the calendar orders of
customers who failed to issue post-dated checks. However, following
company policy, LPI refused to accept the checks as guarantees. Instead, the
parties agreed to apply the checks to the payment of petitioner’s unremitted
collections.

Before the maturity of the checks, petitioner prevailed upon LPI not to
deposit the checks and promised to replace them within 30 days. However,
petitioner reneged on his promise. Hence, on June 5, 1986, LPI deposited the
checks with Rizal Commercial Banking Corporation (RCBC). The checks were
returned for the reason “account closed.” Petitioner failed to account for for
payment within 5 banking days despite being notified by LPI of the dishonor.
Petitioner was charged with 3 counts of violation of B.P. Blg. 22 and was found
guilty by the trial court and later CA.

Issues:

1. Is LPI a holder for value?

2. Did LPI deposit the checks within a reasonable time?

Held:

1. Yes, as although initially intended to be used as guarantee for the purchase

orders of customers, the checks were eventually used to settle the remaining
obligations of petitioner with LPI.

2. Yes. Under Section 186 of the NIL, “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.” A check
becomes stale after more 180 days. Private respondent herein deposited the
checks 157 days after the date; hence, it’s not stale. The presumption of
knowledge of insufficiency of funds was lost, but it can be proven by direct or
circumstantial evidence. LPI did not deposit the checks because of the
reassurance of petitioner. But his failure left LPI constrained to deposit the said
checks. After the checks were dishonored, petitioner was duly notified of such
fact but failed to account for full payment within five (5) banking days thereof.
There is, on record, sufficient evidence that petitioner had knowledge of the
insufficiency of his funds in or credit with the drawee bank at the time of
issuance of the checks.

148
 JAIME DICO v. HON. COURT OF APPEALS and PEOPLE OF THE PHILIPPINES
G.R. NO. 141669, February 28, 2005
CHICO-NAZARIO, J.
Facts:
Dino, accused, is a credit card holder of the Equitable Card Network.
He’s accused of 3 violations of B.P. Blg. 22, because the three (3) checks which
the accused issued in its favor, and in payment of his obligation to the
complainant card network all bounced, for reason “Account Closed”. The
complainant sent a letter to the accused to redeem or pay the amounts of
the checks, but the accused refused to comply, hence, the filing of these
cases in Court.
Issue:
Were the requirements under B.P. BLG. 22 met?
Ruling:
G. No, as the notice of dishonor was not properly made as it was issued
before the check in question became due and before it was
deposited.
To hold a person liable under B.P. Blg. 22, the prosecution must not only
establish that a check was issued and that the same was subsequently
dishonored, it must further be shown that accused knew at the time of the
issuance of the check that he did not have sufficient funds or credit with the
drawee bank for the payment of such check in full upon its presentment.
This knowledge of insufficiency of funds or credit at the time of the
issuance of the check is the second element of the offense. Inasmuch as this
element involves a state of mind of the person making, drawing or issuing the
check, which is difficult to prove, Section 2 of B.P. Blg. 22 creates a prima
facie presumption of such knowledge.
The presumption is brought into existence only after it is proved that the
issuer had received a notice of dishonor and that within five days from
receipt thereof, he failed to pay the amount of the check or to make
arrangements for its payment. The presumption or prima facie evidence
cannot arise, if such notice of nonpayment by the drawee bank is not sent to
the maker or drawer, or if there is no proof as to when such notice was
received by the drawer, since there would simply be no way of reckoning the
crucial 5-day period. It is indispensable, must be sent by either the offended
party or the drawee bank, and, must be in writing.
The notice of dishonor, in this case was not one contemplated by law as
“notice of dishonor” denotes that a check had already been presented to
the bank; however, the check had not yet been presented when said notice
was sent to Dino.

149
 Great Asian Sales Center Corporation v. Court of Appeals
G.R. No.105774, 25 April 2002
CARPIO, J.
FACTS:
Great Asian bought and sold household appliances. Its board of
approved a resolutions authorizing its Treasurer and GM, Arsenio Lim Piat, Jr.
to secure a 1,000,000 loan from Bancasia and a 2,000,000 a discounting line
with Bancasia, to sign all notes necessary to secure the loan. Tan Chong Lin
then signed 2 Surety Agreements in favor of Bancasia to guarantee, solidarily,
the debts of Great Asian to Bancasia.
Great Asian, through Piat, signed 4 Deeds of Assignment of
Receivables, assigning to Bancasia 15 postdated checks issued by various
customers in payment for appliances and other merchandise.
The drawee banks dishonored the fifteen checks due to “account
closed”, “payment stopped”, “account under garnishment”, and
“insufficiency of funds”. After notice, Bancasia notified Tan Chong Lin and
demanded payment. Neither Great Asian nor Tan Chong Lin paid Bancasia
the dishonored checks. GA filed for insolvency but Bancasia still persued a
suit against them.
RTC ruled in favor of Bancasia and CA later sustained.

ISSUE:
Is Great Asian still liable to Bancasia despite not receiving a notice of
dishonor from the later?

HELD:
Yes, the explicit with recourse stipulation which states that the
dishonored checks were sold to Bancasia with recourse against Great Asian
effectively enlarges, by agreement of the parties, the liability of Great Asian
beyond that of a mere endorser of a negotiable instrument. Thus, whether
Bancasia gives notice of dishonor to Great Asian, the latter remains liable to
Bancasia because of the with recourse stipulation which is independent of
the warranties of an endorser under the Negotiable Instruments Law.

150
 Lao v. Court of Appeals
G.R. No. 119178, June 20, 1997
PANGANUBAN, J.
FACTS:
Private complainant Fr. Pelijo, as the provincial secretary of the Society
of the Divine Word, invested 514k with Premiere Investment House, wherein Lim
Lao worked as a junior officer of the Binondo branch. Fr. Pelijo was issued three
postdated Traders Royal Bank checks signed by Lim Lao and Asprec,
Premiere’s head of operations. When Fr. Pelijo presented the checks for
encashment, they were dishonored for insufficiency of funds. He first went to
the Binondo branch but was referred to the Cubao Main Branch to speak with
Premiere’s president, Mr. Carino. Fr. Pelijo was given 5k, but no other payments
followed. Fr. Pelijo then sent a letter of demand to the Cubao branch.
Subsequently, Premiere was later on placed under receivership. Fr. Pelijo then
filed BP 22 charges against Lim Lao, and Asprec, alleging that Lim Lao issued
checks knowing that at the time of issue he did not have sufficient funds.
Asprec remained at large while Lim Lao was convicted. Lim Lao’s conviction
was affirmed by the CA.
ISSUE:
Whether or not the notice of dishonor to the Cubao Main Branch
constituted a valid notice to Lim Lao?
RULING:
This Court listed the elements of the offense penalized under B.P. Blg. 22 is
erroneous. Premiere has no obligation to forward the notice addressed to it to
the employee concerned, especially because the corporation itself incurs no
criminal liability under B.P. Blg. 22 for the issuance of a bouncing check.
Responsibility under B.P. Blg. 22 is personal to the accused; hence, personal
knowledge of the notice of dishonor is necessary. Consequently, constructive
notice to the corporation is not enough to satisfy due process. Moreover, it is
petitioner, as an officer of the corporation, who is the latter’s agent for
purposes of receiving notices and other documents, and not the other way
around. It is but axiomatic that notice to the corporation, which has a
personality distinct and separate from the petitioner, does not constitute
notice to the latter

151
 Ofelia Marigomen v. People of the Philippines
G.R. No.153451, May 26, 2005
CALLEJO, SR., J.

FACTS:

Caltex sold their gas and oil to INSURECO through postdated checks.
Petitioner was the finance officer who was authorized to sign checks against
INSURECO. Three checks were dishonored due to insufficient funds. After
Caltex made demands to INSURECO, which was unheeded, they filed a
complaint against petitioner for violation of BP 22.

Petitioner contends that while she had drawn and signed the checks she was
not an employee anymore at the purchase of the products. She did not
receive any telegrams or notice of the dishonored checks. The lower ruled in
favor of Caltex.

ISSUE:
Whether petitioner was guilty of violating BP 22.

RULING:

The SC ruled in favor of petitioner and acquitted her. Caltex did not
prove that petitioner knew that there were insufficient funds when she drew
and signed those checks. Also the notice of dishonor should be in writing and
not a verbal notice. The SC also said that if the drawer or maker is an officer of
a corporation, the notice of dishonor to the said corporation is not notice to
the employee or officer who drew or issued the check for and in its behalf.
Prosecution also failed to prove that petition receive those notices of dishonor.

152
 Eliza Tan v. People of the Philippines
G.R. No. 141466, January 19, 2001
PARDO, J.
FACTS:
On January 28, 1992, Eliza, representing HDI, and Fidel, for FMF, entered
into a Construction Agreement whereby the FMF was hired by Eliza to
undertake land development at the South Garden Homes. Among others, the
Construction Agreement set forth that the manner of payment would be on a
monthly progress billing based on accomplishment reports to be submitted by
the FMF. Based on the testimony of Fidel, it would appear for the prosecution
that when Eliza failed to pay, both parties terminated the contract. For its
accomplishment for the month of November 1992, FMF was paid P23,739.09
by Eliza with Philtrust Bank Check No. A000913 dated February 28, 1993. Upon
presentment for payment, however, subject check was dishonored. After
receipt of the notice of dishonor, Fidel verbally notified Eliza and the latter
promised to pay. Later on, when Eliza still did not pay, Fidel sent her a demand
letter by registered mail. Failing to heed his demand letter, Eliza was charged
in court. Meanwhile, Eliza presented a different version of the case altogether.
According to accused-appellant, she initially issued four (4) checks with
P50,000.00.
Accused-appellant maintains that Philtrust Bank Check No. A000913 was
dishonored not because it was drawn against insufficient funds but precisely
because of her order to stop payment therefor.

ISSUE:

Whether or not petitioner is guilty of violation of B. P. 22 because when

she issued Philtrust Bank Check No. A000913 to FMF on February 28, 1993, she
knew that there were insufficient funds on deposit with the bank to honor the
check upon presentmen?

RULING:
Actually, the check in question was not issued without sufficient funds and
was not dishonored due to insufficiency of funds. What was stamped on the
check in question was “Payment Stopped-Funded” at the same time “DAUD”
meaning drawn against uncollected deposits. Even with uncollected deposits,
the bank may honor the check at its discretion in favor of favored clients, in
which case there would be no violation of B.P. 22.

153
 BPI v. Suarez Digest
G.R. No. 167750, March 15, 2010
Carpio, J.:

FACTS:
Reynaldo Suarez is a lawyer who used to maintain both savings and
current account with petitioner in its Ermita branch. Sometime in 1997,
respondent had a client who wanted to buy several parcels of land in
Tagaytay but the latter did not want to deal directly with the owners of said
land. Suarez and his client entered into an agreement where the former will be
the one to purchase the lands. Both likewise agreed that the client would
deposit money in Suarez’ BPI account and thereafter, he would issue the
checks for the sellers. The client deposited a check with BPI branch. Aware that
a check has 3-days clearing time, Suarez’ assistant called the bank which
confirmed that the said amount had been credited to his account on that
same day. Relying on this confirmation, Suarez issued five (5) checks in the
name of the sellers. Unfortunately, all checks were dishonored due to
insufficient funds. A penalty amounting P57,000 was also debited from his
account. The checks were dishonored despite the assurance by RCBC, the
drawee bank that the amount has been debited from the account of the
drawee. On top of this, the bank noted on the checks ‘DAIF’ (drawn against
insufficient fund) and not ‘DAUD’’ (drawn against uncollected deposit). The
bank offered to reverse the penalty but denied Suarez claim for damages.
Suarez rejected this offer hence the case filed for [Link] lower court
ruled in favor of Suarez and awarded actual, moral, and exemplary damages.
BPI appealed but the Court of Appeals affirmed the lower court ruling. The CA
ruled that the bank was negligent in handling the accounts of the respondent
hence the latter’s entitlement to damages. Hence this petition.

ISSUE:
Whether or not petitioner bank is liable for its negligence in handling the
respondent’s account.

RULING:
No, BPI was not negligent because it was justified in dishonoring the
checks for lack of sufficient funds in Suarez account. There was no sufficient
evidence to prove that BPI conclusively confirmed the same-day crediting of
the amount of the check to Suarez account. While BPI has the discretion to
disregard the 3-day clearing policy, Suarez failed to prove his entitlement to
such privilege.

154
 JAMES SVENDSEN v. PEOPLE OF THE PHILIPPINES
546 SCRA 659 February 26, 2008
Carpio Morales, J.
FACTS:

The failure of the prosecution to prove the existence and receipt by the
accused of the requisite written notice of dishonor and that he was given at
least five banking days within which to settle his account constitutes sufficient
ground for his acquittal. Cristina Reyes (Reyes) extended a loan to James
Svendsen (Svendsen) in the amount of P200,000, to bear interest at 10% a
month. After Svendsen had partially paid his obligation, he failed to settle
the balance which had reached P380,000 inclusive of interest. Reyes
thus filed a complaint against Svendson, which was eventually settled when
Svendson paid her P200,000 and issued in her favor a postdated International
Exchange Bank check. The same was co- signed by one Wilhem Bolton. When
the check was presented for payment it was dishonored for having been
Drawn Against Insufficient Funds (DAIF). Reyes then filed a complaint against
Svendsen and his co-signatory to the check, Bolton, for violation of B.P. Blg. 22
before the Metropolitan Trial Court of Manila. Svendsen denied the allegation
against him stating that he has no knowledge about the insufficiency of his
funds with the drawee bank for the payment of the check in full upon its
presentment. The MeTC rendered judgment and found Svendsin guilty of the
offense charged. The Regional Trial Court (RTC) affirmed the MeTC judgment.
On appeal, the Court of Appeals affirmed the conviction. Hence, this appeal.
ISSUE:
Whether or not the CA erred in denying the Svendson‘s appeal despite
failure of the prosecution to prove all the elements of violation of B.P. Blg. 22

RULING:
The spirit and letter of the Bouncing Checks Law require for the act to be
punished there under not only that the accused issued a check that
is dishonored, but also that the accused has actually been notified in writing
of the fact of dishonor. The same penalty shall be imposed upon any person
who, having sufficient funds in or credit with the drawee bank when he makes
or draws and issues a check, shall fail to keep sufficient funds or to maintain a
credit to cover the full amount of the check if presented within a period of
ninety (90) days from the date appearing thereon, for which reason it
is dishonored by the drawee bank. Where the check is drawn by a corporation,
company or entity, the person or persons who actually signed the check in
behalf of such drawer shall be liable under this Act. The making, drawing and
issuance of a check payment of which is refused by the drawee because of
insufficient funds in or credit with such bank, when presented within ninety (90)
days from the date of the check, shall be prima facie evidence of knowledge
of such insufficiency of funds.

155
 Jaime Dico v. Hon. Court of Appeals and People of the Philippines

G.R. NO. 141669, February 28, 2005

Chico-Nazario, J.
FACTS:
Jaime Dico, now petitioner, was charged on 28 March 1994 with three
(3) counts of violation of Batas Pambansa Bilang 22 before the MTC. When
arraigned on 11 January 1995, accused pleaded not guilty to each of the
charges. Upon agreement of the parties, pre-trial of the cases was waived.[6]
The cases were consolidated and were jointly heard. He included the above-
mentioned four (4) post dated checks as a sign of good faith; and as a way of
commitment to pay his outstanding balance to the complainant which is to
[be] amortized as follows: May 12, 1993 P100,000.00; June 12, 1993 –
P200,000.00; July 12, 1993 P300,000.00; and on August 12, 1993 P300,000.00; but
his proposal was rejected by the complainants top management in Manila;
that based on Exh. 8 which is the Summary furnished by Debbie Dy, incumbent
Branch Manager of the complainant network in Cebu City, his outstanding
balance to the complainant is P752,389.19, but with the payment of
P100,000.00 he made on April 7, 1993, his balance to the complainant is
P652,[Link] he does not understand why his total obligation to the
complainant has already reached P1,035,589.28 when his credit line is only
P499,000.00; hence, he approached the complainants manager to reconcile
his accounts and find out where the complainant was mistaken; that even if
his accounts were reconciled, he cannot admit that his obligation to the
complainant has already reached millions; and that the problem with the
complainant is that it did not return to him the checks which he sent to the
complainant together with his proposal to reconcile his accounts.
ISSUE:
Whether or not the prosecution was able to prove all the elements of
B.P. Blg. 22.

RULING:
No. The prosecution has the burden to prove all the elements of the
crime beyond reasonable doubt. Failure to do so will necessarily result in
exoneration. As regards FEBTC Check No. 369404 dated 12 June 1993 which
was deposited on 14 June 1993, petitioner maintains that the notice of dishonor
given for said check was not the one required by law since said notice was
given before the check became due and before it was deposited.

The record of the case shows the only letter received by petitioner involving
the three checks subject of these cases was the one dated 08 June 1993. This
letter sent by the counsel of private complainant asked petitioner to make
good the checks within five (5) days from receipt thereof, otherwise, criminal
charges for violation of B.P. Blg. 22 will be filed against him.

156
EFFECT OF FAILURE TO GIVE NOTICE

ALLIED BANKING v. COURT OF APPEALS, GG SPORTSWEAR

FACTS:

January 6, 1981: Allied Bank (Allied) purchased Export Bill of $20,085 from
G.G. Sportswear Mfg. Corporation (GGS) The bill, drawn under a letter of credit
covered Men’s Valvoline Training Suit that was in transit to West Germany, The
export bill was issued by Chekiang First Bank Ltd., Hongkong. With the purchase
of the bill, ALLIED credited GGS the peso equivalent of the bill amounting
to P151,474.52, Nari Gidwani and Alcron International Ltd. (Alcron) executed
their respective Letters of Guaranty, holding themselves liable on the export bill
if it should be dishonored or retired by the drawee for any reason, spouses Leon
and Leticia de Villa and Nari Gidwani also executed a Continuing
Guaranty/Comprehensive Surety (surety), guaranteeing payment of any and
all such credit accommodations which ALLIED may extend to GGS, When
ALLIED negotiated the export bill to Chekiang, payment was refused due to
some material discrepancies in the documents submitted by GGS relative to
the exportation covered by the letter of credit, ALLIED demanded payment,
GGS and Nari Gidwani: signed blank forms of the Letters of Guaranty and the
Surety, and the blanks were only filled up by ALLIED after they had affixed their
signatures. They also added that the documents did not cover the transaction
involving the subject export bill, spouses de Villa: not aware of the existence of
the export bill; they signed blank forms of the surety; and averred that the
guaranty was not meant to secure the export bill, Alcron: foreign corporation
doing business in the Philippines, its branch in the Philippines is merely a liaison
office; neither its liaison office in the Philippines nor its then representative,
Hans-Joachim Schloer, had the authority to issue Letters of Guaranty for and in
behalf of local entities and persons

ISSUE:
W/N Gidwani, Alcron and Spouses Villa can be held jointly and
severally liable I of their capacity as guarantors and surety in the absence of
protest on the bill in accordance with
RULING:

YES. CA modified. Nari Gidwani, and Spouses Leon and Leticia de Villa
are jointly and severally liable together with G.G. Sportswear. Art. 2047. By
guaranty a person, called the guarantor, binds himself to the creditor to fulfill
the obligation of the principal debtor in case the latter should fail to do so.

157
 Arceo, Jr. v. People of the Philippines
G.R. No. 142641, July 17, 2006
CORONA, J.
FACTS:

Pacifico Arceo obtained a loan from Josefino Cenizal. He then issued a check
in favor of Cenizal, in which he promised verbally seven times that he would
replace it with cash. After not replacing the check, he encashed the check
but was dishonored due to insufficient funds.

Cenizal went to Arceo’s house to inform him of the dishonor but he was not
around anymore so he went to Arceo’s lawyer and gave him a letter giving
him three days to pay the check. When Arceo failed, Cenizal charged him in
violation of BP 22. The lower court found him guilty.

Arceo contends that he should not be held liable because it was presented
beyond the 90-day period provided under the law; that he only given three
days to pay and not five banking days as per law; and that he paid his
obligation.

ISSUE:
Whether Arceo is guilty.

RULING:

The SC denied Arceo’s petition. The SC held that the life of a check is six
months. Cenizal presented the check within four months of issuance. The 90-
day period in the law is not an element of the offense. Arceo cannot claim
that he was not given five banking days (the rule is three), because he still
remained unpaid after five days of his receipt of dishonor. Lastly, his claim
that he paid the obligation was only mere allegation as there was no proof of
his payment and that the check still remained on Arceo.

158
 Areza vs. Express Savings Bank
G.R. No. 176697, September 10, 2014
PEREZ, J.:

FACTS:

Petitioners received an order for the purchase of a motor vehicle from

Gerry Mambuay where the latter paid petitioners with nine (9) Philippine
Veterans Affairs Office (PVAO) checks payable to different payees and drawn
against the Philippine Veterans Bank (drawee), each valued at Two Hundred
Thousand Pesos (₱200,000.00). Petitioners deposited the said checks in their
savings account with the Express Savings Bank which, in turn, deposited the
checks with its depositary bank, Equitable-PCI Bank and the latter presented
the checks to the drawee, the Philippine Veterans Bank, which honored the
checks. However, the subject checks were returned by PVAO to the drawee
on the ground that the amount on the face of the checks was altered from
the original amount of ₱4,000.00 to ₱200,000.00. After informing Express Savings
Bank that the drawee dishonored the checks, Equitable-PCI Bank debited the
deposit account of ESB in the amount of P1.8M. Express Savings Bank then
withdrew the amount of P1.8M representing the returned checks from
petitioners saving account.

ISSUE:

Whether or not Express Savings Bank had the right to debit ₱1,800,000.00
from petitioners’ accounts.

RULING:

No, Express Savings Bank cannot debit the savings account of petitioners.
A depositary/collecting bank where a check is deposited, and which endorses
the check upon presentment with the drawee bank, is an endorser. Under
Section 66 of the Negotiable Instruments Law, an endorser warrants “that the
instrument is genuine and in all respects what it purports to be; that he has
good title to it; that all prior parties had capacity to contract; and that the
instrument is at the time of his endorsement valid and subsisting.” As collecting
bank, Express Savings Bank is liable for the amount of the materially altered
checks. It cannot further pass the liability back to the petitioners absent any
showing in the negligence on the part of the petitioners which substantially
contributed to the loss from alteration.

159
 ASIAN BANKING CORPORATION v. JUAN JAVIER
G.R. No. L-19051 April 4, 1923
Avanceña, J.

FACTS:
Salvador B. Chaves drew a check on the Philippine National Bank for
P11,000 in favor of La Insular. This check was indorsed by the limited partners of
La Insular, and then deposited by Salvador B. Chaves in his current account
with the plaintiff, Asia Banking Corporation. Another check was drawn and
deposited in similar fashion.

The amount represented by both checks was used by Salvador B. Chaves after
they were deposited in the plaintiff bank, by drawing checks on the plaintiff.
Subsequently these checks were presented by the plaintiff to the Philippine
National Bank for payment, but the latter refused to pay on the ground that
the drawer, Salvador B. Chaves, had no funds therein.

The lower court sentenced the defendant, as indorser, to pay the plaintiff
P11,000. From this judgment the defendant appealed.

ISSUE:
Whether or not the defendant’s liability as an indorser is extinguished
for lack of notice

RULING:
Yes. Section 89 of the Negotiable Instruments Law (Act No. 2031)
provides that, when a negotiable instrument is dishonored for non-
acceptance or non-payment, notice thereof must be given to the drawer and
each of the indorsers, and those who are not notified shall be discharged from
liability, except where this act provides otherwise.

According to this, the indorsers are not liable unless they are notified that the
document was dishonored. Then, under the general principle of the law of
procedure, it will be incumbent upon the plaintiff, who seeks to enforce the
defendant’s liability upon these checks as indorser, to establish said liability by
proving that notice was given to the defendant within the time, and in the
manner, required by the law that the checks in question had been dishonored.
If these facts are not proven, the plaintiff has not sufficiently established the
defendant’s liability. There is no proof in the record tending to show that
plaintiff gave any notice whatsoever to the defendant that the checks in
question had been dishonored, and there it has not established its cause of
action.

160
 Far East Realty Investment Inc. vs. The Honorable Court of Appeals
G.R. No. L-36549, October 5, 1988
PARAS, J.
FACTS:
On September 13, 1960, the private respondents, because of business
needs, applied for an accommodation loan in the amount of Php4,500.00
with petitioner Far East Realty Investment Inc. They promised to pay jointly and
severally, in one month time and delivered to petitioner a check dated
September 13, 1960, for P4,500.00, drawn by Dy Hian Tat, and signed by them
at the back. They assured the petitioner that they would redeem the said
check by paying in cash the said amount after a month from September 13,
1960, or that the said check could be presented for payment on or after a
month from the date indicated on the check.
The accommodation loan was extended to the respondents, however, on
March 5, 1964, when the check was presented for payment to the the China
Banking Corporation, said check bounced because the current account of
the drawer had already been closed. Demand for payment failed so the
petitioner filed an action for the collection and payment of P4,500.00
representing the face value of the unpaid and dishonored check.

ISSUE:
Whether or not presentment for payment and notice of dishonor of the
questioned check were made within reasonable time.

RULING:
The Court ruled that, in this case, presentment and notice of dishonor
were not made within a reasonable time. The check was issued on September
13, 1960, but was presented to the drawee bank only on March 5, 1964, and
dishonored on the same date. After dishonor by the drawee bank, a formal
notice of dishonor was made by the petitioner through a letter dated April 27,
1968. The petitioner failed to exercise prudence and diligence on what he
ought to do as required by law. Likewise, it failed to show any justification for
the unreasonable delay.
Reasonable time” has been defined as so much time as is necessary under the
circumstances for a reasonable prudent and diligent man to do, conveniently,
what the contract or duty requires should be done, having a regard for the
rights, and possibility of loss, if any, to the other party (Citizens’ Bank Bldg. v. L
& E. Wertheirmer 189 S.W. 361, 362, 126 Ark, 38, Ann. Cas. 1917 E, 520).

161
 THE INTERNATIONAL CORPORATE BANK V. SPOUSES GUECO

351 SCRA 516, February 12, 2001

KAPUNAN, J.

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 manager’s 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 the signing of the joint motion to dismiss a part of the
compromise agreement between the spouses and the bank.

RULING:

No, it is not a part of the compromise agreement entered by the parties. And
thus, the signing is dispensible in releasing the car to the spouses. And on the
ancillary issue of the case, which is the relevant issue for the subject, whether
or not the spouses should replace the check they paid to the bank after it
became stale, the answer is yes. It appeared that the check has not
been encashed. The delivery of the manager’s 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 manager’s check, which is essentially
a bank’s own check and may be treated as a PN with the bank as a maker.

162
 NYCO SALES CORP v BA FINANCE
200 SCRA 637, August 16, 1991
PARAS, J.

FACTS:

NYCO Sales Corp extended a credit accommodation to the Fernandez

Brothers. The brothers, acting in behalf of Sanshell Corp, discounted a BPI
check for P60,000 with NYCO, which then indorsed the said check to BA
Finance accompanied by a Deed of Assignment. BA Finance, in turn, released
the funds,which were used by the brothers. The BPI check was dishonored. The
brothers issued a substitute check,which was also dishonored. Now BA Finance
goes after NYCO, which disclaims liability.

ISSUE:

W/N NYCO, as the assignor, is liable for breach of warranties.

RULING:

YES. The assignor (NYCO) warrants both the existence and legality of the
credit, as well as the solvency of the debtor. If there is a breach of any of the2
warranties, the assignor is liable to the assignee. That being the case, NYCO
cannot evade liability. So long as the credit remains unpaid, the assignor
remains liable notwithstanding failure to give notice of dishonor that is because
the liability of NYCO stems form the assignment, not on the checks alone.

163
 State Investment House Inc. vs. CA

GR No. 101163 January 11, 1993

Bellosillo, J.

FACTS:

Nora Moulic issued to Corazon Victoriano, as security for pieces of

jewellery to be sold on commission, two postdated checks in the amount of
fifty thousand each. Thereafter, Victoriano negotiated the checks to State
Investment House, Inc. When Moulic failed to sell the 164olutio, she returned it
to Victoriano before the maturity of the checks. However, the checks cannot
be retrieved as they have been negotiated. Before the maturity date Moulic
withdrew her funds from the bank contesting that she incurred no obligation
on the checks because the jewellery was never sold and the checks are
negotiated without her knowledge and consent. Upon presentment of for
payment, the checks were dishonoured for insufficiency of funds.

ISSUE:

Whether or not Moulic can set up against the petitioner the defense that
there was failure or absence of consideration

RULING:

No, Moulic can only invoke this defense against the petitioner if it was a
privy to the purpose for which they were issued and therefore is not a holder in
due course. No, Section 119 of NIL provides how an instrument be discharged.
Moulic can only invoke paragraphs c and d as possible grounds for the
discharge of the instruments. Since Moulic failed to get back the possession of
the checks as provided by paragraph c, intentional cancellation of instrument
is impossible. As provided by paragraph d, the acts which will discharge a
simple contract of payment of money will discharge the instrument.
Correlating Article 1231 of the Civil Code which enumerates the modes of
extinguishing obligation, none of those modes outlined therein is applicable in
the instant case. Thus, Moulic may not unilaterally discharge herself from her
liability by mere expediency of withdrawing her funds from the drawee bank.
She is thus liable as she has no legal basis to excuse herself from liability on her
check to a holder in due course. Moreover, the fact that the petitioner failed
to give notice of dishonor is of no moment. The need for such notice is not
absolute; there are exceptions provided by Sec 114 of NIL.

164
 Wong v. Court of Appeals

G.R. No. 117857, February 02, 2001

QUISIMBING, J.
FACTS:
Petitioner Wong was an agent of Limtong Press Inc. (LPI), a manufacturer
of calendars. LPI would print sample calendars, then give them to agents to
present to customers. The agents would get the purchase orders of customers
and forward them to LPI. After printing the calendarsL PI would ship the
calendars directly to the customers. Thereafter, the agents would come
around to collect the payments. Petitioner, however, had a history of
unremitted collections. Hence, petitioner’s customers were required to issue
postdated checks before LPI would accept their purchase orders. Wong issued
six (6) postdated checks totaling P18,025.00, all dated December 30, 1985 and
drawn payable to the order of LPI. These checks were initially intended to
guarantee the calendar orders of customers who failed to issue post-dated
checks. However, following company policy, LPI refused to accept the checks
as guarantees. Instead, the parties agreed to apply the checks to the
payment of... petitioner’s unremitted collections for 1984 amounting to
P18,077.07. LPI waived the P52.07 difference. Before the maturity of the checks,
petitioner prevailed upon LPI not to deposit the checks and promised to
replace them within 30 days. However, petitioner reneged on his promise.
Hence, LPI deposited the checks with Rizal Commercial Banking Corporation
(RCBC). The checks were returned for the reason “account closed.”...
complainant... notified the petitioner of the dishonor. Petitioner failed to make
arrangement for payment within five (5) banking days, petitioner was charged
with three (3) counts of violation of B.P. Blg. 22
ISSUE:
May the prosecution apply the prima facie presumption of “knowledge
of lack of funds” against the drawer if the checks were belatedly deposited by
the complainant 157 days after maturity, or will it be then necessary for the
prosecution to show actual... proof of “lack of funds” during the 90-day term?
RULING:
Petitioner avers that since the complainant deposited the checks
157 days after the December 30, 1985 maturity date, the presumption of
knowledge of lack of funds under Section 2 of B.P. Blg. 22 should not apply to
him. He further claims that he should not be... expected to keep his bank
account active and funded beyond the ninety-day period.
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. Private respondent herein deposited the checks
157 days after the date of the check. Hence said checks cannot be
considered stale.

165
DISCHARGE OF NEGOTIABLE INSTRUMENTS
SALAZAR V. JY BROTHERS
G.R. No. 171998, October 20, 2010
PERALTA, J.
FACTS:
J.Y. Brothers Marketing (J.Y. Bros., for short) is a corporation engaged in
the business of selling sugar, rice and other commodities. On October 15, 1996,
Anamer Salazar, a freelance sales agent, was approached by Isagani Calleja
and Jess Kallos, if she knew a supplier of rice. Answering in the positive, Salazar
accompanied the two to J.Y. Bros. As a consequence, Salazar with Calleja and
Kallos procured from J. Y. Bros. 300 cavans of rice worth P214,000.00. As
payment, Salazar negotiated and indorsed to J.Y. Bros. Prudential Bank Check
No. 067481 dated October 15, 1996 issued by Nena Jaucian Timario in the
amount of P214,000.00 with the assurance that the check is good as cash. On
that assurance, J.Y. Bros. parted with 300 cavans of rice to Salazar. However,
upon presentment, the check was dishonored due to closed account.
Informed of the dishonor of the check, Calleja, Kallos and Salazar delivered to
J.Y. Bros. a replacement cross Solid Bank Check No. PA365704 dated October
29, 1996 again issued by Nena Jaucian Timario in the amount of P214,000.00
but which, just the same, bounced due to insufficient funds. When despite the
demand letter dated February 27, 1997, Salazar failed to settle the amount due
J.Y. Bros., the latter charged Salazar and Timario with the crime of estafa before
the Regional Trial Court of Legaspi City, docketed as Criminal Case No. 7474.
ISSUE:
Whether or not the issuance of the Solidbank crossed check discharged
petitioner from liability.
RULING:
No. 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. Petitioner’s claim that
respondent’s acceptance of the Solid Bank check which replaced the
dishonored Prudential bank check resulted to novation which discharged the
latter check is unmeritorious.
In this case, respondents acceptance of the Solid Bank check, which replaced
the dishonored Prudential Bank check, did not result to novation as there was
no express agreement to establish that petitioner was already discharged from
his liability to pay respondent the amount of P 214,000.00 as payment for the
300 bags of rice. As we said, novation is never presumed, there must be an
express intention to novate. In fact, when the Solid Bank check was delivered
to respondent, the same was also indorsed by petitioner which shows
petitioners recognition of the existing obligation to respondent to pay P
214,000.00 subject of the replaced Prudential Bank check,

166
 BPI v. COURT OF APPEALS
326 SCRA 641,
FACTS:
A certain Henry Chan owned a Continental Bank Manager’s 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 respondent’s 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:
W/N Napiza can be held liable as an indorser or accommodation
party

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 respondent’s 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 respondent’s 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 personnel’s 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.

167
 CEBU INTERNATIONAL FINANCE CORPORATION VS. COURT OF APPEALS
316 SCRA 488, October 12, 1999
QUISIMBING, J.

FACTS:
On April 25, 1991, private respondent Vicente Alegre invested with Cebu
International Finance Corporation (CIFC). Petitioner issued a promissory note
to mature on May 27, 1991. The note for P516, 238. 67 covered private
respondent’s placement plus interest at 20.5%. On May 27, 1991, CIFC issued
BPI Check in favor of the private respondent as proceeds of his mature
investment plus interest. The check was drawn from petitioner’s current
account maintained with BPI main branch at Makati City. Private respondent’s
wife deposited the check with Rizal Commercial Banking Corporation (RCBC)
in Puerto Princesa, Palawan. BPI dishonored the check and took custody of the
check pending an investigation of several counterfeit checks drawn against
CIFC’s checking account and used the check to trace the perpetrators of the
forgery. Immediately, private respondent notified CIFC and demanded that
he be paid in cash. CIFC denied the request and instead instructed private
respondent to wait for its ongoing bank reconciliation with BPI and promised
to replace the check but required an impossible condition that the original
check must first be surrendered.
On February 25, 1992, Alegre filed a complaint for recovery of sum of
money against petitioner. CIFC in its response filed for leaver of court and
impleaded BPI. The court granted CIFC’s motion but dismissed the third-party
complaint. BPI filed a separate collection suit against Alegre, alleging that he
had connived with other persons to forge several checks of BPI’s client. On
September 27, 1993, RTC-Makati Branch rendered its judgment in favor of
private respondent. CIFC appealed from the said decision, but the appellate
court affirmed the decision of the lower court.
ISSUE:
Whether or not the petitioner is still liable for the payment of check even
though BPI accepted the instrument.

RULING:
The Supreme Court held that the money market transaction between
the petitioner and private respondent is in the nature of loan. In a loan
transaction, the obligation to pay a sum certain in money may be paid in
money, which is the legal tender or, by the use of a check. A check is not a
legal tender, and therefore cannot constitute valid tender of payment. In
effect, CIFC has not yet tendered a valid payment of its obligation to the
private respondent. Tender of payment involves a positive and unconditional
act by the obligor of offering legal tender currency as payment to the 168oluti
for the former’s obligation and demanding that the latter accept the same.
Tender of payment cannot be presumed by a mere inference from
surrounding circumstances. Hence, CIFC is still liable for the payment of the
check.

168
MATERIAL ALTERATION

PHILIPPINE NATIONAL BANK VS. COURT OF APPEALS, CAPITOL CITY

DEVELOPMENT BANK, PHILIPPINE BANK OF COMMUNICATIONS AND F. ABANTE
MARKETING
G.R. NO. 107508, April 25, 1996
KAPUNAN, J.

FACTS:
The Ministry of Education issued a check drawn against petitioner bank.
The payee deposited the questioned check in its savings account with Capitol
City Development Bank (Capitol) which in turn deposited the same in its
account with respondent bank. After petitioner cleared the check,
respondent bank credited Capitol for the amount. However, petitioner
returned the check to Philippine Bank and Communications and debited the
latter’s account for the amount covered by the check because the check
number was materially altered.

ISSUE:
Whether or not the alteration of the check number was material to its
negotiability.

RULING:
No. What was altered is the serial number of the check in question, an item
which, it can be readily be observed, is not an essential requisite for
negotiability under Section 1 of the Negotiable Instruments Law. The
aforementioned alteration did not change the relations between the parties.
The name of the drawer and the drawee were not altered. The intended
payee was the same. Moreover, the check’s serial number is not the sole
indication of its origin. The name of the government agency which issued the
subject was prominently printed therein. The check’s issuer was therefore
sufficiently identified, rendering the referral to the serial number redundant and
inconsequential.

169
 THE INTERNATIONAL CORPORATE BANK, INC. VS. COURT OF APPEALS AND
PHILIPPINE NATIONAL BANK
G.R. NO. 129910, September 5, 2006
CARPIO, J.

FACTS:
The Ministry of Education and Culture issued 15 checks drawn against
respondent which petitioner accepted for deposit on various dates. After 24
hours from submission of the checks to respondent for clearing, petitioner paid
the value of the checks and allowed the withdrawals of the deposits. However,
on October 14, 1981, respondent returned all the checks to petitioner without
clearing them on the ground that they were materially altered. Thus, petitioner
instituted an action for collection of sums of money against respondent to
recover the value of the checks.

ISSUE:
Whether the alterations in the serial numbers of the check is a material
alteration.

RULING:
No. An alteration is said to be material if it alters the effect of the
instrument. It means an unauthorized change in an instrument that purports to
modify in any respect the obligation of a party or an unauthorized addition of
words or numbers or other changes to an incomplete instrument relating to the
obligation of a party. In other words, a material alteration is one which changes
the items which are required to be stated under Section 1 of the Negotiable
Instruments Law.
The instant case is unique in the sense that what was altered is the serial
number of the check in question, an item which, it can readily be observed, is
not an essential requisite for negotiability under Section 1 of the Negotiable
Instruments Law. The aforementioned alteration did not change the relations
between the parties. The name of the drawer and the drawee were not
altered. The intended payee was the same. The sum of money due to the
payee remained the same.

170
 METROPOLITAN BANK AND TRUST COMPANY VS RENATO D. CABILZO
G.R. NO. 154469, December 6, 2006
CHICO-NAZARIO, J.

FACTS:
Cablizo maintained an account with petitioner. It drew a check payable
to cash payable to a certain Marquez, for the latter’s sales commission. The
check was subsequently deposited in Westmont bank and the latter submitted
it with Metrobank for clearing. The check was cleared.
Thereafter, the bank’s representative asked respondent if he issued a
check for P91,000. The answer was in the negative. This prompted Cablizo
to call Metrobank and ask for the recrediting of P90,000 but petitioner failed
to recredit the amount prompting Cablizo to file an action against it.

ISSUE:
Whether or not the alteration made in the subject check is a material
alteration.

RULING:
Yes. An alteration is said to be material if it changes the effect of the
instrument. It means that an unauthorized change in an instrument that
purports to modify in any respect the obligation of a party or an unauthorized
addition of words or numbers or other change to an incomplete instrument
relating to the obligation of a party. In other words, a material alteration is one
which changes the items which are required to be stated under Section 1 of
the Negotiable Instruments Law.
In the case at bar, the check was altered so that the amount was
increased from P1,000.00 to P91,000.00 and the date was changed from 24
November 1994 to 14 November 1994. Apparently, since the entries altered
were among those enumerated under Section 1 and 125, namely, the sum of
money payable and the date of the check, the instant controversy therefore
squarely falls within the purview of material alteration.
When the drawee bank pays a materially altered check, it violates the
terms of the check, as well as its duty to charge its client’s account only for
bona fide disbursements he had made. Since the drawee bank, in the instant
case, did not pay according to the original tenor of the instrument, as directed
by the drawer, then it has no right to claim reimbursement from the drawer,
much less, the right to deduct the erroneous payment it made from the
drawer’s account which it was expected to treat with utmost fidelity.

171
 MONTINOLA V. PNB
86 Phil 178, February 26, 1951
MONTEMAYOR, J.

FACTS:
Ramos, as a disbursing officer of an army division of the USAFE, made cash
advancements with the Provincial Treasurer of Lanao. In exchange, the
Provincial Treasurer of Lanao gave him a P500,000 check. Thereafter, Ramos
presented the check to Laya for encashment. Laya in his capacity as
Provincial Treasurer of Misamis Oriental as drawer, issued a check to Ramos in
the sum of P100,000, on the Philippines National Bank as drawee; the P400,000
value of the check was paid in military notes.
Ramos was unable to encash the said check for he was captured by the
Japanese. But after his release, he sold P30,000 of the check to Montinola for
P90,000 Japanese Military notes, of which only P45,000 was paid by the latter.
The writing made by Ramos at the back of the check was to the effect that he
was assigning only P30,000 of the value of the document with an instruction to
the bank to pay P30,000 to Montinola and to deposit the balance to Ramos’s
credit. This writing was, however, mysteriously obliterated and in its place, a
supposed indorsement appearing on the back of the check was made for the
whole amount of the check. At the time of the transfer of this check to
Montinola, the check was long overdue by about two and a half years.
Montinola instituted an action against the PNB and the Provincial
Treasurer of Misamis Oriental. There now appears on the face of said check the
words in parenthesis “Agent, Phil. National Bank” under the signature of Laya
purportedly showing that Laya issued the check as agent of the Philippine
National Bank.

ISSUE:
Whether or not the insertion of “Agent, Phil. National Bank” constitutes a
material alteration.

RULING:
The words “Agent, Phil. National Bank” now appearing on the face of
the check were added or placed in the instrument after it was issued by the
Provincial Treasurer Laya to Ramos. The check was issued only as Provincial
Treasurer and as an official of the Government, which was under obligation to
provide the USAFE with advance funds, and not as agent of the bank, which
had no such obligation. The addition of those words was made after the
check had been transferred by Ramos to Montinola. The insertion of the
words “Agent, Phil. National Bank,” which converts the bank from a mere
drawee to a drawer and therefore changes its liability, constitutes a material
alteration of the instrument without the consent of the parties liable thereon,
and so discharges the instrument.

172
ACCEPTANCE

PHILIPPINE NATIONAL BANK VS. THE COURT OF APPEALS AND PHILIPPINE

COMMERCIAL AND INDUSTRIAL BANK
G.R. NO. L-26001, October 29, 1968
CONCEPCION, CJ.

FACTS:
Augusto Lim deposited in his account with PCIB a GSIS Check in the sum of
P57,415, drawn against the PNB. The check as practiced was forwarded for
clearing through the Central Bank to PNB, which did not return the said check
and paid the amount to PCIB. This payment made was debited against the
account of GSIS in PNB. Later on, it was found that the amount was re-credited
from PNB for the reason of forged signatures of the officers. Then PNB
demanded from PCIB the refund of the amount.
The demand of PNB was dismissed by the CFI and CA. Allegedly,
Mariano Pulido by forging the signatures of the General Manager and Auditor
of GSIS; and later on indorsed it to Manuel Go; Go indorsed it to Augusto Lim,
who in turn deposited it to PCIB. Prior to this incident, GSIS have notified PNB
that the check had been lost, and requested that its payment be stopped.

ISSUE:
Whether or not clearing is not acceptance in contemplation of
negotiable instruments law.

RULING:
Acceptance is not required for checks, for the same are payable on
demand. Indeed, “acceptance” and “payment” are, within the purview of
said Law, essentially different things, for the former is “a promise to perform an
act,” whereas the latter is the “actual performance” thereof. In the words of
the Law, “the acceptance of a bill is the signification by the drawee of his
assent to the order of the drawer,” which, in the case of checks, is the payment,
on demand, of a given sum of money. Upon the other hand, actual payment
of the amount of a check implies not only an assent to said order of the drawer
and a recognition of the drawer’s obligation to pay the aforementioned sum,
but, also, a compliance with such obligation.

173
 PRUDENTIAL BANK VS. INTERMEDIATE APPELATE COURT, PHILIPPINE RAYON
MILLS INC. AND ANACLETO CHI
G.R. NO. 74886, December 8, 1992
DAVIDE, JR., J.

FACTS:
Philippine Rayon Mills, Inc.(PRMI) entered into a contract with Nissho Co.,
Ltd. Of Japan for the importation of textile machineries under a 5-year deferred
payment plan. To effect the payment, PRMI applied for a commercial letter of
credit with the Prudential Bank and Trust Company in favor of Nissho. Prudential
Bank opened Letter of Credit .Against this letter of credit, drafts were drawn
and issued by Nissho, which were all paid by the Prudential Bank. Two of the
original drafts were accepted by PRMI through its president, Anacleto R. Chi,
while the others were not. Upon the arrival of the machineries, the Prudential
Bank indorsed the shipping documents to the PRMI which accepted delivery
of the same wherein a trust receipt was executed which was signed by
Anacleto R. Chi in his capacity as President of PRMI company.
At the back of the trust receipt was printed a form to be accomplished
by 2 sureties, who were to be jointly and severally liable to the Prudential Bank
should the PRMI fail to pay. Chi argued that presentment for acceptance was
necessary to make PRMI liable. The trial court ruled that that presentment for
acceptance was an indispensable requisite for Philippine Rayon’s liability on
the drafts to attach.

ISSUE:
Whether or not presentment for acceptance was needed in order for
PRMI to be liable under the draft.

RULING:
No. Acceptance was not even necessary in the first place because the
drafts which were eventually issued were sight drafts. Even if these were not
sight drafts, thereby necessitating acceptance, it would be the Bank of
America and not Philippine Rayon which had to accept the same for the latter
was not the drawee. Presentment for acceptance is necessary only in the
cases expressly provided for in Section 143 of the Negotiable Instruments Law
(NIL).
In the instant case then, the drawee was necessarily the herein the Bank
of America. It was to the latter that the drafts were presented for payment.

174
 NEW PACIFIC TIMBER VS. SENERIS
101 SCRA 686, December 19, 1980
CONCEPCION JR., J.

FACTS:
Herein petitioner was the defendant in a complaint for collection of a sum
of money filed by the private respondent. On July 19, 1974, a compromise
judgment was rendered by the respondent Judge in accordance with an
amicable settlement entered into by the parties. For failure of the petitioner to
comply with his judgment obligation, the respondent Judge, issued an order
for the issuance of a writ of execution. Accordingly, writ of execution was
issued for the amount of P63,130.00 pursuant to which, the Ex Officio Sheriff
levied upon the following personal properties of the petitioner and set the
auction sale thereof on January 15, 1975. Prior to January 15, 1975, petitioner
deposited with the Clerk of CFI the sum of P63,130.00 for the payment of the
judgment obligation, consisting of the following. (1) P50,000.00 in Cashier’s
Checks No. S314361 dated January 3, 1975 of the Equitable Banking
Corporation; and (2) P13,130.00 in cash. The private respondent refused to
accept the check as well as the cash deposit. The respondent judge upheld
private respondent’s claim that he has the right to refuse payment by means
of a check, the respondent Judge citing Section 63 of the Central Bank Act,
and Article 1249 of the New Civil Code.
ISSUE:
Whether or not the private respondent can validly refuse acceptance
of the payment of the judgment obligation made by the petitioner which it
deposited before the date of the scheduled auction sale.

RULING:
No. It is to be emphasized in this connection that the check deposited
by the petitioner in the amount of P50.000.00 is not an ordinary check but a
Cashier’s Check of the Equitable Banking Corporation, a bank of good
standing and reputation. Where a check is certified by the bank on which it is
drawn, the certification is equivalent to acceptance. The object of certifying
a check, as regards both parties, is to enable the holder to use it as money.
When the holder procures the check to be certified, “the check operates as
an assignment of a part of the funds to the creditors”. The exception to the rule
enunciated under Section 63 of the Central Bank Act to the effect “that a
check which has been cleared and credited to the account of the creditor
shall be equivalent to a delivery to the creditor in cash in an amount equal to
the amount credited to his account” shall apply in this case. Petition was
granted ordering the private respondent to accept the sum of P63,130.00
under deposit as payment of the judgment obligation in his favor. “Considering
that the whole amount deposited by the petitioner consisting of Cashier’s
Check of P60,000.00 and P13,130.00 in cash covers the judgment obligation of
P63,000.00 as mentioned in the writ of execution, then.

175
 PRUDENTIAL BANK VS. INTERMEDIATE APPELATE COURT, PHILIPPINE RAYON
MILLS INC. AND ANACLETO CHI
G.R. NO. 74886, December 8, 1992
DAVIDE, JR., J.

FACTS:
Philippine Rayon Mills, Inc.(PRMI) entered into a contract with Nissho Co.,
Ltd. Of Japan for the importation of textile machineries under a 5-year deferred
payment plan. To effect the payment, PRMI applied for a commercial letter of
credit with the Prudential Bank and Trust Company in favor of Nissho. Prudential
Bank opened Letter of Credit .Against this letter of credit, drafts were drawn
and issued by Nissho, which were all paid by the Prudential Bank. Two of the
original drafts were accepted by PRMI through its president, Anacleto R. Chi,
while the others were not. Upon the arrival of the machineries, the Prudential
Bank indorsed the shipping documents to the PRMI which accepted delivery
of the same wherein a trust receipt was executed which was signed by
Anacleto R. Chi in his capacity as President of PRMI company.
At the back of the trust receipt was printed a form to be accomplished
by 2 sureties, who were to be jointly and severally liable to the Prudential Bank
should the PRMI fail to pay. Chi argued that presentment for acceptance was
necessary to make PRMI liable. The trial court ruled that that presentment for
acceptance was an indispensable requisite for Philippine Rayon’s liability on
the drafts to attach.

ISSUE:
Whether presentment for acceptance is required for Philippine Rayon’s to
become liable.

RULING:
NO. Through a letter of credit, the bank merely substitutes its own promise
to pay for one of its customers who in return promises to pay the bank the
amount of funds mentioned in the letter of credit plus credit or commitment
fees mutually agreed upon. In the instant case then, the drawee was
necessarily the herein petitioner. It was to the latter that the drafts were
presented for payment. In fact, there was 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).
In no other case is presentment for acceptance necessary in order to
render any party to the bill liable. Sight drafts do not require presentment for
acceptance. The acceptance of a bill is the signification by the drawee of his
assent to the order of the drawer; this may be done in writing by the drawee in
the bill itself, or in a separate instrument. The parties herein agree, and the trial
court explicitly ruled, that the subject, drafts are sight drafts.

176
PRESENTMENT FOR ACCEPTANCE

PRUDENTIAL BANK VS. INTERMEDIATE APPELATE COURT, PHILIPPINE RAYON

MILLS INC. AND ANACLETO CHI
G.R. NO. 74886, December 8, 1992
DAVIDE, JR., J.

FACTS:
Philippine Rayon Mills, Inc.(PRMI) entered into a contract with Nissho Co.,
Ltd. Of Japan for the importation of textile machineries under a 5-year deferred
payment plan. To effect the payment, PRMI applied for a commercial letter of
credit with the Prudential Bank and Trust Company in favor of Nissho. Prudential
Bank opened Letter of Credit .Against this letter of credit, drafts were drawn
and issued by Nissho, which were all paid by the Prudential Bank. Two of the
original drafts were accepted by PRMI through its president, Anacleto R. Chi,
while the others were not. Upon the arrival of the machineries, the Prudential
Bank indorsed the shipping documents to the PRMI which accepted delivery
of the same wherein a trust receipt was executed which was signed by
Anacleto R. Chi in his capacity as President of PRMI company.
At the back of the trust receipt was printed a form to be accomplished
by 2 sureties, who were to be jointly and severally liable to the Prudential Bank
should the PRMI fail to pay. Chi argued that presentment for acceptance was
necessary to make PRMI liable. The trial court ruled that that presentment for
acceptance was an indispensable requisite for Philippine Rayon’s liability on
the drafts to attach.

ISSUE:
Whether presentment for acceptance is required for Philippine Rayon’s to
become liable.

RULING:
NO. Presentment for acceptance is necessary only in the cases expressly
provided for in Section 143 of the Negotiable Instruments Law (NIL): Sec. 143.
When presentment for acceptance must be made.
Presentment for acceptance must be made:
(a) Where the bill is payable after sight, or in any other case, where
presentment for acceptance is necessary in order to fix the maturity of the
instrument; or
(b) Where the bill expressly stipulates that it shall be presented for
acceptance; or
I 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.

177
 MYRON C. PAPA VS. A.U. VALENCIA &CO., INC., [Link]
G.R. NO. 105188, January 23, 1998
KAPUNAN, J.

FACTS:
The case arose from a sale of a parcel of land allegedly made to private
respondent Penarroyo by petitioner acting as attorney-in-fact of Anne Butte.
The purchaser, through Valencia, made a check payment in the amount of
P40,000 and in cash, P5,000. Both were accepted by petitioner as evidenced
by various receipts. It appeared that the said property has already been
mortgaged to the bank previously together with other properties of Butte.
When Butte passed away, the private respondent Penarroyo now
demanded that the title to the property be conveyed to him, however the
bank refused. Hence, the filing of a suit for specific performance by private
respondents against the petitioner. The lower court ruled in favor of the private
respondents and ordered herein petitioner the conveyance or the property or
if not, its payment. The petitioner appealed the lower court’s decision alleging
that the sale was not consummated as he never encashed the check given
as part of the purchase price.

ISSUE:
Whether or not there was a valid sale of the subject property.

RULING:
Yes. While it is true that the delivery of check produces payment only
when encashed pursuant to Art. 1249 of the Civil Code, the rule is otherwise if
the debtor is prejudiced by the delay in presentment. In this case, the petitioner
now alleges that he did not present the check, ten years after the same was
paid to him as part of the purchase price of the property.
Check acceptance implied an undertaking of due diligence in
presenting it for payment. If the person who receives it sustains loss by want of
this diligence, this will operate as actual payment of the debt or obligation for
which the check was given. The debtor cannot now be held liable if non-
presentment of the check was through the fault of the creditor.

178
PROMISSORY NOTES

ASTRO ELECTRONICS CORP. AND PETER ROXAS VS. PHILIPPINE EXPORT AND
FOREIGN LOAN GUARANTEE CORPORATION
G.R. NO. 136729, September 23, 2003
AUSTRIA-MARTINEZ, J.

FACTS:

Respondent guaranteed the payment of 70% of petitioner corporation’s

loans on the condition that upon payment of said amount it shall be
proportionally subrogated to the rights of the original creditor. The loans were
secured by three promissory notes, each of which petitioner Roxas signed
twice-as president of petitioner corporation and in his personal capacity. For
their failure to pay their loan obligations, respondent filed against both
petitioners a complaint for sum of money.

ISSUE:

Whether or not petitioner Roxas should be jointly and severally liable.

RULING:

Yes. Under the Negotiable Instruments Law, persons who write their
names on the face of promissory notes are makers, promising that they will pay
to the order of the payee or any holder according to its tenor. Thus, even
without the phrase “personal capacity,” petitioner Roxas will still be primarily
liable as a joint and several debtors under the notes considering that his
intention to be liable as such is manifested by the fact that he affixed his
signature on each of the promissory notes twice which necessary would imply
that he is undertaking the obligation in two different capacities, official and
personal.

179
 JOSE L. PONCE DE LEON VS REHABILITATION FINANCE CORPORATION
GR NO L-24571, December 18, 1970
CONCEPCION, CJ.

FACTS:
Jose Ponce De Leon and Francisco Soriano requested for a loan from the
Rehabilitation Finance Corporation (RFC). The loan was secured by a parcel
of land owned by Soriano. A deed of mortgage was then executed as security
for the loan. Soriano and Ponce de Leon also executed a promissory note
payable in monthly installments. Part of the P495, 000.00 was used to pay off
the previous encumbrances amounting to P135, 000.00 on the property of
Soriano. The rest were released to Ponce de Leon in various amounts from
December 1951 to July 1952, still pursuant to the deed of mortgage. De Leon
and Soriano failed to pay their loan obligation. Consequently, RFC initiated a
foreclosure proceeding on the mortgaged property. According to RFC, the
monthly payments were supposed to be due in October 1952.
In his defense, Ponce de Leon insists that the amortizations never
became due. He also argued that on the face of the promissory note it was
written that the installments have “no fixed or determined dates of payment”.
Hence, the monthly payments were never due therefore the foreclosure is void.
He insists that the court should first determine the date of maturity of the loan.

ISSUE:
Whether Ponce de Leon’s loan is due and demandable despite the
absence of an express time for payment.

RULING:
YES. Although the date of maturity of the first installment was left blank,
the promissory note states that the “date of maturity was to be fixed as of the
date of the last release,” completing the delivery to the plaintiff of the sum lent
to him by the RFC.
In short, part of the sum of P495,000 had been delivered by the RFC to
the creditors of the plaintiff and Francisco Soriano, as agreed upon by them,
in payment of their outstanding obligations, and the balance of said sum of
P495,000 was turned over to the plaintiff, with the written authorization and
conformity of Francisco Soriano. This is borne out by the fact that, prior to the
institution of this case, plaintiff had not complained of failure of the RFC to fully
release the aforementioned sum of P495,000.00. Plaintiff claims the right to a
suspension of payment or an extension of the period to pay the RFC owing to
the typhoons that had lashed his sawmill in October and November 1952, thus
indicating clearly that the amount of the loan extended to him and Francisco
Soriano had then been fully released by the RFC three (3) months before
October 1952 and that the first installment under the promissory note was due
that month, as claimed by the RFC.

180
PEOPLE OF THE PHILIPPINES VS MARTIN L. ROMERO AND ERNESTO C. RODRIGUEZ
G.R. NO. 112985, April 12, 1999
PARDO, J.

FACTS:
Ernesto A. Ruiz (Ruiz) was a radio commentator of Radio DXRB. He came to
know the business of Surigao San Andres Industrial Development Corporation
(SAIDECOR), when he interviewed accused Romero and Rodriguez regarding
the corporation’s investment operations in Butuan City and Agusan del Norte.
Romero was the president and general manager of SAIDECOR, while
Rodriguez was the operations manager. Ruiz went to SAIDECOR office to make
an investment because he was promised that there is a return of 800% profit
within 21 days. After handing over the amount of P150, 000.00 to Rodriguez,
Ruiz received a postdated Butuan City Rural Bank check instead of the usual
redeemable coupon. The check indicated P1, 000, 200.00 as the amount in
words, but the amount in figures was for P1, 200, 000.00, as the return on the
investment. Complainant did not notice the discrepancy. When the check
was presented to the bank for payment on October 5, 1989, it was dishonored
for insufficiency of funds, as evidenced by the check return slip issued by the
bank.
The trial court convicted the accused for the crime of estafa. On appeal,
Romero testified that when he issued a check in the amount of P1, 200, 000.00
corresponding to the total of the P150, 000.00 investment and the 800% return
thereon, the corporation had a deposit of P14, 000, 000.00 at the time of the
issuance of the check and four million pesos P4,000, 000.00 at the time
SAIDECOR stopped operations.

ISSUE:
Whether the check was dishonored due to the discrepancy of the
amount in words and in figures.

RULING:
NO. Romero relies on the fact that there was a discrepancy between
the amount in words and the amount in figures in the check that was
dishonored. The amount in words was P1,000,200.00, while the amount in
figures was P1,200,000.00. It is admitted that the corporation had in the bank
P1,144,760.00 on September 28,1989, and P1,124,307.14 on April 2, 1990. The
check was presented for payment on October 5, 1989. The rule in the
Negotiable Instruments Law is that when there is ambiguity in the amount in
words and the amount in figures, it would be the amount in words that would
prevail. However, this rule of interpretation finds no application in the case. The
agreement was perfectly clear that at the end of twenty-one (21) days, the
investment of P150, 000.00 would become P1,200,000.00. Even if the trial court
admitted the stipulation of facts, it would not be favorable to accused-
appellant.

181
 PERLA COMPANIA DE SEGUROS, INC. VS COURT OF APPEALS
GR NO. 96452, May 7, 1992
NOCON, J.

FACTS:
Private respondents spouses Herminio and Evelyn Lim executed a
promissory note in favor of Supercars, Inc. payable in monthly installments
according to the schedule of payment indicated in said note, and secured
by a chattel mortgage over a brand new red Ford Laser, which is registered
under the name of private respondent Herminio Lim and insured with the
petitioner Perla Compania de Seguros, Inc. (Perla). Supercars, Inc., with notice
to private respondents spouses, assigned to petitioner FCP Credit Corporation
(FCP) its rights, title and interest on said promissory note and chattel mortgage
as shown by the Deed of Assignment. On November 9, 1982, said vehicle was
carnapped while parked at the back of Broadway Centrum along N. Domingo
Street, Quezon City. Private respondent filed a claim for loss with the petitioner
Perla but said claim was denied on the ground that Evelyn Lim, who was using
the vehicle before it was carnapped, was in possession of an expired driver’s
license which is in violation of the authorized driver clause of the insurance
policy. Private respondents requested from petitioner FCP for a suspension of
payment. Perla, however, denied private respondents’ claim. Consequently,
petitioner FCP demanded that private respondents pay the whole balance of
the promissory note or to return the vehicle but the latter refused. Private
respondents appealed the same to the Court of Appeals, which reversed said
decision.

ISSUE:
Whether or not the loss of the collateral exempted the debtor from his
admitted obligations under the promissory note.

RULING:
No. Private respondents are not relieved of their obligation to pay the
former the installments due on the promissory note on account of the loss of
the automobile.
The chattel mortgage constituted over the automobile is merely an
accessory contract to the promissory note. Being the principal contract, the
promissory note is unaffected by whatever befalls the subject matter of the
accessory contract. Therefore, the unpaid balance on the promissory note
should be paid, and not just the installments due and payable before the
automobile was carnapped.
To rule otherwise would render car insurance practically a sham since
an insurance company can easily escape liability by citing restrictions which
are not applicable or germane to the claim, thereby reducing indemnity to a
shadow. Private respondents are not relieved of their obligation to pay the
former the installments due on the promissory note on account of the loss of
the automobile.

182
PHILIPPINE NATIONAL BANK VS. CONCEPCION MINING COMPANY, INC. ET. AL
G.R. NO. L-16968, July 31, 1962
LABRADOR, J.

FACTS:
The present action was instituted by PNB to recover from the defendants
the face of a promissory note. Upon the filing of the complaint the defendants
presented their answer in which they allege that the co-maker the promissory
note Don Vicente L. Legarda died on February 24, 1946 and his estate is in the
process of judicial determination in a Special Proceedings case. On the basis
of this allegation it is prayed, as a special defense, that the estate of said
deceased Vicente L. Legarda be included as party-defendant. The court in its
decision ruled that the inclusion of said defendant is unnecessary and
immaterial, in accordance with the provisions of Article 1216 of the Civil Code
and section 17 (g) of the Negotiable Instruments Law.

ISSUE:
Whether the estate of Legarda should be included in the suit since
Legarda is a co-maker of the promissory note

RULING:
Yes. SEC. 17. Construction where instrument is ambiguous. — Where the
language of the instrument is ambiguous or there are omissions therein, the
following rules of construction apply: “Where an instrument containing the
word “I promise to pay” is signed by two or more persons, they are deemed to
be jointly and severally liable thereon”.
In view of the above quoted provisions, and as the promissory note was
executed jointly and severally by the same parties, namely, Concepcion
Mining Company, Inc. and Vicente L. Legarda and Jose S. Sarte, the payee of
the promissory note had the right to hold any one or any two of the signers of
the promissory note responsible for the payment of the amount of the note.

183
CHECKS: DEFINITION

BPI CARD CORPORATION VS. COURT OF APPEALS

296 SCRA 260, 1998
KAPUNAN, J.
FACTS:
Ricardo Marasigan private respondent is complimentary member of BPI
Express Card Corporation (BECC). It was stated in their contract that non-
payment of due bill automatically suspends his credit card. Due to professional
and personal reasons he defaulted in payment. Instead of automatically
suspending the credit card BPI Express and Marasigan made arrangement that
Private respondent Marasigan should pay immediately in “cash” his obligations.
However, instead of paying in cash Marasigan paid in postdated check. With
the belief that he already settled his obligations, using the credit card he
treated his colleagues at Café Adriatico using his credit card which was
denied by the café. Felt embarrassed he filed in court for damages. BPI
claimed on the other hand that Marasigan violated their arrangement when
he did not pay in cash.

ISSUE:
Whether the payment through a postdated check extinguishes
Marasigan’s obligation payable in cash as provided in their arrangement with
BPI.

RULING:
No. Clearly, the purpose of the arrangement between the parties was
for the immediate payment of the private respondent’s outstanding account,
in order that his credit card would not be suspended.
As agreed upon by the parties, on the following day, private respondent
did issue a check for P15, 000. However, the check was postdated 15
December 1989. Settled is the doctrine that a check is only a substitute for
money and not money, the delivery of such an instrument does not, by itself
operate as payment. This is especially true in the case of a postdated check.
Thus, the issuance by the private respondent of the postdated check was not
effective payment. It did not comply with his obligation under the
arrangement with Miss Lorenzo. Petitioner Corporation was therefore justified
in suspending his credit card.

184
CHECKS: KINDS

ASSOCIATED BANK AND CONRADO CRUZ VS HON. COURT OF APPEALS, AND

MERLE V. REYES
G.R. NO. 89802, May 7, 1992
CRUZ, J.

FACTS:
The private respondent is engaged in the business of ready-to-wear
garments under the firm name “Melissa’s RTW.” She deals with, among other
customers, Robinson’s Department Store, Payless Department Store, Rempson
Department Store, and the Corona Bazaar. These companies issued in
payment of their respective accounts crossed checks payable to Melissa’s
RTW. When she went to these companies to collect on what she thought were
still unpaid accounts, she was informed of the issuance of the above-listed
crossed checks. However, further inquiry revealed that the said checks had
been deposited with the Associated Bank and subsequently paid by it to one
Rafael Sayson which is clearly not the payee in the said crossed- check.

ISSUE:
Whether the private respondent Merle Reyes has a cause of action
against the petitioners Bank and Cruz for their encashment and payment to
another person of certain crossed checks issued in her favor

RULING:
YES. Under accepted banking practice, crossing a check is done by
writing two parallel lines diagonally on the left top portion of the checks. The
crossing is special where the name of a bank or a business institution is written
between the two parallel lines, which mean that the drawee should pay only
with the intervention of that company. The crossing is general where the words
written between the two parallel lines are “and Co.” or “for payee’s account
only,” as in the case at bar. This means that the drawee bank should not
encash the check but merely accept it for deposit.
The effects therefore of crossing a check relate to the mode of its
presentment for payment. Under Sec. 72 of the Negotiable Instruments Law,
presentment for payment, to be sufficient, must be made by the holder or by
some person authorized to receive payment on his behalf. Who the holder or
authorized person is depends on the instruction stated on the face of the
check. The six checks in the case at bar had been crossed and issued “for
payee’s account only”, this could only signify that the drawers had intended
the same for deposit only by the person indicated, to wit, Melissa’s RTW and
not to anyone else such as Rafael Sayson, hence the bank is liable.

185
 BATAAN CIGAR VS. CA
230 SCRA 643, March 3, 1994
NOCON, J.

FACTS:
Petitioner, Bataan Cigar & Cigarette Factory, Inc. (BCCFI), a corporation
involved in the manufacturing of cigarettes, engaged one of its suppliers, King
Tim Pua George (George King), to deliver tobacco leaf. In consideration
thereof, BCCFI issued crossed checks post dated sometime in March 1979.
Relying on the supplier’s representation that he would complete delivery within
three months petitioner agreed to purchase additional bales of tobacco
leaves, despite the supplier’s failure to deliver in accordance with their earlier
agreement. Again petitioner issued post dated crossed payable sometime in
September 1979.
During these times, George King was simultaneously dealing with private
respondent SIHI. In as much as George King failed to deliver, BCCFI issued a
stop payment order on all checks payable to the former. SIHI instituted the
present case, naming only BCCFI as party defendant. The trial court
pronounced SIHI as having a valid claim being a holder in due course. It further
said that the non-inclusion of King Tim Pua George as party defendant is
immaterial in this case, since he, as payee, is not an indispensable party.

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

RULING:
No. The Negotiable Instruments Law states what constitutes a holder in
due course and that every holder is deemed prima facie a holder in due
course. However, when it is shown that the title of any person who has
negotiated the instrument was defective, the burden is on the holder to prove
that he or some person under whom he claims, acquired the title as holder in
due course. Hence, respondent can collect from the immediate indorser, in
this case, George King.
As a preliminary, a check is defined by law as a bill of exchange drawn
on a bank payable on demand. The popular variety of checks include the
memorandum check, cashier’s check, traveler’s check and crossed check.
Crossed check is one where two parallel lines are drawn across its face or
across a corner thereof. It may be crossed generally or specially. A check is
crossed specially when the name of a particular banker or a company is
written between the parallel lines drawn. It is crossed generally when only the
words “and company” are written or nothing is written at all between the
parallel lines. It may be issued so that presentment can be made only by a
bank. In order to preserve the credit worthiness of checks, jurisprudence has
pronounced that crossing of a check should have the following effects: (a) the
check may not be encashed but only deposited in.

186
 BPI VS. CA
512 SCRA 620, January 25, 2007
AZCUNA, J.

FACTS:
A.A. Salazar Construction and Engineering Services filed an action for a
sum of money with damages against herein petitioner Bank of the Philippine
Islands (BPI). The complaint was later amended by substituting the name of
Annabelle A. Salazar as the real party in interest in place of A.A. Salazar
Construction and Engineering Services. Private respondent Salazar prayed for
the recovery of the amount debited by petitioner BPI from her account.
Petitioner BPI, in its answer, alleged that Julio R. Templonuevo, third-party
defendant and herein also a private respondent, demanded from the former
payment of the amount representing the aggregate value of three (3) checks,
which were allegedly payable to him, but which were deposited with the
petitioner bank to private respondent Salazar’s account without his knowledge
and corresponding endorsement. Accepting that Templonuevo’s claim was a
valid one, petitioner BPI froze Account No. 0201-0588-48 of A.A. Salazar and
Construction and Engineering Services, instead of Account No. 0203-1187-67
where the checks were deposited, since this account was already closed by
private respondent Salazar or had an insufficient balance.

ISSUE:
Whether or not respondent is entitled to the proceeds of the checks
even without prior indorsement.

RULING:
No. Section 49 of the Negotiable Instruments Law contemplates a
situation whereby the payee or indorsee delivers a negotiable instrument for
value without indorsing it. If instruments payable to named payees or to their
order have not been indorsed in blank, only such payees or their indorsees can
be holders and entitled to receive payment in their own right.
The presumption under Section 131(s) of the Rules of Court stating that a
negotiable instrument was given for a sufficient consideration will not inure to
the benefit of Salazar because the term “given” does not pertain merely to a
transfer of physical possession of the instrument. The phrase “given or indorsed”
in the context of a negotiable instrument refers to the manner in which such
instrument may be negotiated. Negotiable instruments are negotiated by
“transfer to one person or another in such a manner as to constitute the
transferee the holder thereof. If payable to bearer it is negotiated by delivery.
If payable to order it is negotiated by the indorsement completed by delivery.”
The present case involves checks payable to order. Not being a payee or
indorsee of the checks, private respondent Salazar could not be a holder
thereof.

187
 BPI VS. CIR
496 SCRA 601, July 27, 2006
CHICO-NAZARIO, J.

FACTS:
Petitioner Bank of the Philippine Islands (BPI) sold to the Central Bank of the
Philippines (now Bangko Sentral ng Pilipinas) U.S. dollars for P 1,608,541,900.00.
BPI instructed, by cable, its correspondent bank in New York to transfer U.S.
dollars deposited in BPI’s account therein to the Federal Reserve Bank in New
York for credit to the Central Bank’s account therein. Thereafter, the Federal
Reserve Bank sent to the Central Bank confirmation that such funds had been
credited to its account and the Central Bank promptly transferred to the
petitioner’s account in the Philippines the corresponding amount in Philippine
pesos. In 1988, respondent CIR ordered an investigation to be made on BPI’s
sale of foreign currency. As a result thereof, the CIR issued a pre-assessment
notice informing BPI that in accordance with Section 195 (now Section 182) of
the NIRC, BPI was liable for documentary stamp tax at the rate of P 0.30 per P
Total tax liability was assessed at P 200.00 on all foreign exchange sold to the
Central Bank. 3,016,316.06, which consists of a documentary stamp tax liability
of P2,412,812.85, a 25% surcharge of P 603,203.21, and a compromise penalty
of P 300.00.

ISSUE:
Whether or not the transactions covered is a bill of exchange liable for
DST.

RULING:
Yes. A definition of a “bill of exchange” is provided by Section 39 of
Regulations No. 26, the rules governing documentary taxes promulgated by
the Bureau of Internal Revenue (BIR) in 1924. Section 129 of the same law
classifies bills of exchange as inland and foreign, the distinction is laid down by
where the bills are drawn and paid. Thus, a “foreign bill of exchange” may be
drawn outside the Philippines, payable outside the Philippines, or both drawn
and payable outside of the Philippines.
A bill of exchange and a letter of credit may differ as to their negotiability,
and as to who owns the funds used for the payment at the time payment is
made. However, in both bills of exchange and letters of credit, a person orders
another to pay money to a third person.
Section 195 (now Section 182) of the NIRC covers foreign bills of
exchange, letters of credit, and orders of payment for money, drawn in
Philippines, but payable outside the Philippines. From this enumeration, two
common elements need to be present: (1) drawing the instrument or ordering
a drawee, within the Philippines; and (2) ordering that drawee to pay another
person a specified amount of money outside the Philippines. What is being
taxed is the facility that allows a party to draw the draft or make the order to
pay within the Philippines and have the payment made in another country.

188
 CITYTRUST BANKING CORPORATION VS. IAC
232 SCRA 559, May 27, 1994
BERSAMIN, J.

FACTS:
Emme Herrero, businesswoman, made regular deposits with Citytrust
Banking Corporation 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 Herrero’s
fault that her checks were dishonored, for he inaccurately wrote his account
number in the deposit slip. The lower court dismissed the complaint for lack of
merit. On appeal, 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.

RULING:
Yes, even if it is true that there was error on the account number stated
in the deposit slip, it, 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 one’s 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.

189
 DOMAGSANG VS CA
347 SCRA 75, December 5, 2000
VITUG, J.

FACTS:
Ignacio Garcia gave petitioner a loan. Petitioner issued and delivered 18
postdated checks. When the checks were drawn, all were dishonored due the
account being closed. Garcia supposedly wrote a letter to demand. Petitioner
contends that he did not receive a demand letter and the checks were not
issued as payment but as evidence of indebtedness. The lower court
convicted petitioner.

ISSUE:
Whether verbal notice is enough for conviction of petitioner.

RULING:
No. The Supreme Court said that verbal notice is not enough as written
notice of dishonor should be received by petitioner to convict him. A mere oral
notice or demand to pay would appear to be insufficient for conviction under
the law. The spirit of the law is not only for the person to be punished but also
to be duly notified of the checks dishonor. The supposed letter of demand was
not given weight because prosecution failed to formally offer it as evidence.
The SC acquitted petitioner but ordered her to pay the amount plus
interest.

190
 EQUITABLE PCI BANK VS. ROWENA ONG
502 SCRA 119, September 15, 2006
CHICO-NAZARIO, J

FACTS:
Warliza Sarande deposited in her account at Philippine Commercial
International (PCI) Bank a PCI Bank TCBT Check of P225,000.00. On
December 5 1991, upon inquiry by Serande at PCI Bank on whether the TCBT
Check had been cleared, she received an affirmative answer. Relying on this
assurance, she issued 2 checks drawn against the proceeds of TCBT Check.
On the same day, Ong presented to PCI Bank requesting PCI Bank to convert
the proceeds into a manager’s check, which the PCI Bank obliged.
Ong deposited PCI Bank Manager’s Check in her account with
Equitable Banking Corporation. On December 9 1991, she received a check
return-slip informing her that PCI Bank had stopped the payment of the check
on the ground of irregular issuance. Despite several demands made, it was
refused. Ong was constrained to file a Complaint for sum of money, damages
and attorney’s fees against PCI Bank.

ISSUE:
Whether or not Ong can hold PCI liable.

RULING:
Yes. By admitting it committed an error, clearing the check of Sarande
and issuing in favor of Ong not just any check but a manager’s check for that
matter, PCI Bank’s liability is fixed. Equitable PCI as drawee bank is bound on
the instrument upon certification and it is immaterial to such liability in favor of
Ong who is a holder in due course whether the drawer Warliza Sarande had
funds or not with the Equitable PCI Bank.
Defendant-bank had certified plaintiff’s PCIB Check No. 073661 and
since certification is equivalent to acceptance, defendant-bank as drawee
bank is bound on the instrument upon certification and it is immaterial to such
liability in favor of the plaintiff who is a holder in due course whether the drawer
Warliza Sarande had funds or not with the defendant-bank (Security vs. State
Bank, 154 N.W. 282) or the drawer was indebted to the bank for more than the
amount of the check as the certifying bank has all the liabilities under Sec. 62
of the Negotiable Instruments Law which refers to liability of acceptor.

191
 EQUITABLE BANKING CORPORATION VS. SPECIAL STEEL PRODUCTS, INC.
672 SCRA 212, June 13, 2012
DEL CASTILLO, J.

FACTS:
In 1975, Liberato Casals, majority stockholder of Casville Enterprises, went
to buy two garrett skidders (bulldozers) from Edward J. Nell Company
amounting to P970,000.00. To pay the bulldozers, Casals agreed to open a
letter of credit with the Equitable Banking Corporation. Pursuant to this, Nell
Company shipped one of the bulldozers to Casville. Meanwile, Casville
advised Nell Company that in order for the letter of credit to be opened,
Casville needs to deposit P427,300.00 with Equitable Bank, and that since
Casville is a little short, it requested Nell Company to pay the deposit in the
meantime.
Nell Company agreed and so it eventually sent a check in the amount
of P427,300.00. The check read: Pay to the EQUITABLE BANKING CORPORATION
Order of A/C OF CASVILLE ENTERPRISES, INC. Nell Company sent the check to
Casville so that it would be the latter who could send it to Equitable Bank to
cover the deposit in lieu of the letter of credit. Casals received the check, he
went to Equitable Bank, and the teller received the check. However, the teller,
instead of applying the amount as deposit in lieu of the letter of credit, credited
the check to Casville’s account with Equitable Bank. Casals later withdrew all
the P427,300.00 and appropriated it to himself.

ISSUE:
Whether or not Equitable Bank is liable to cover for the loss.

RULING:
No. The subject check was equivocal and patently ambiguous. Reading
on the wordings of the check, the payee thereon ceased to be indicated with
reasonable certainty in contravention of Section 8 of the Negotiable
Instruments Law. As worded, it could be accepted as deposit to the account
of the party named after the symbols “A/C,” or payable to the Bank as trustee,
or as an agent, for Casville Enterprises, Inc., with the latter being the ultimate
beneficiary. That ambiguity is to be taken contra proferentem that is,
construed against Nell Company who caused the ambiguity and could have
also avoided it by the exercise of a little more care. Thus, Article 1377 of the
Civil Code, provides:
Art. 1377. The interpretation of obscure words or stipulations in a contract
shall not favor the party who caused the obscurity.

192
 MACALALAG V. PEOPLE
511 SCRA 401, December 20, 2006
CHICO-NAZARIO, J.

FACTS:
Petitioner Theresa Macalalag obtained loans from Grace Estrella (Estrella),
each in the amount of P100,000.00, each bearing an interest of 10% per month.
Macalalag consistently paid the interests starting 30 August 1995. Finding the
interest rates so burdensome, Macalalag requested Estrella for a reduction of
the same to which the latter agreed. On 16 April 1996 and 1 May 1996,
Macalalag executed Acknowledgment/Affirmation Receipts promising to pay
Estrella the face value of the loans in the total amount of P200,000.00 within
two months from the date of its execution plus 6% interest per month for each
loan. As security for the payment of the aforesaid loans, Macalalag issued two
Philippine National Bank (PNB) Checks. However, when Estrella presented said
checks for payment with the drawee bank, the same were dishonored for the
reason that the account against which the same was drawn was already
closed. Estrella sent a notice of dishonor and demand to make good the said
checks to Macalalag, but the latter failed to do so.
Hence, Estrella filed two criminal complaints for Violation of Batas
Pambansa Blg. 22 where she was found guilty. On appeal to the RTC, the
decision was affirmed with modification that petitioner is only convicted of one
count of violation of BP Blg 22. The CA reversed the decision.

ISSUE:
Whether Macalalag had already paid her obligations to Estrella.

RULING:
No. Despite notice of dishonor, petitioner Macalalag failed to pay the
full face value of the second check issued.
Only a full payment of the face value of the second check at the time
of its presentment or during the five-day grace period could have exonerated
her from criminal liability. A contrary interpretation would defeat the purpose
of Batas Pambansa Blg. 22, that of safeguarding the interest of the banking
system and the legitimate public checking account user, as the drawer could
very well have himself exonerated by the mere expediency of paying a
minimal fraction of the face value of the check.
Neither could petitioner Macalalag’s subsequent payment of
P199,837.98 during the pendency of the cases against her before the MTCC
result in freeing her from criminal liability because the same had already
attached after the check was dishonored. Said subsequent payments can
only affect her civil, not criminal, liability. A subsequent payment by the
accused would not obliterate the criminal liability theretofore already incurred.

193
 PAPA v. A.U. VALENCIA AND CO., INC.
284 SCRA 653, January 23, 1998
KAPUNAN, J.

FACTS:
A.U. Valencia and Felix Penarroyo filed a complaint for specific
performance against Myron Papa in his capacity as administrator of the
Testate Estate of Angela Butte. Papa sold to Penarroyo a parcel of land; prior
to the sale of the said land, the lot was mortgaged to the Associated Banking
Corporation which refused to release it until all the other mortgaged properties
of Butte were also redeemed. Penarroyo then caused the annotation on the
title of the lot his rights and interests over the property. The trial court rendered
a decision in favor of Penarroyo and Valencia.
Upon Appeal to the CA, Papa alleged that the sale was never
“consummated” as he did not encash the check paid by Penarroyo. He
maintained that the payment made was only in the amount of P5,000.00 in
cash as earnest money. This appeal was however dismissed.

ISSUE:
Whether the sale was consummated.

RULING:
[Link] It is an undisputed fact that respondents Valencia and Peñ arroyo
had given petitioner Myron C. Papa the amounts of Five Thousand Pesos
(P5,000.00) in cash on 24 May 1973, and Forty Thousand Pesos (P40,000.00) in
check on 15 June 1973, in payment of the purchase price of the subject lot.
Papa himself admits having received said amounts, and having issued receipts
therefor. Papa’s assertion that he never encashed the aforesaid check is not
substantiated and is at odds with his statement in his answer that “he can no
longer recall the transaction which is supposed to have happened 10 years
ago.” After more than ten (10) years from the payment in party by cash and in
part by check, the presumption is that the check had been encashed. As
already stated, he even waived the presentation of oral evidence.
Granting that petitioner had never encashed the check, his failure to do
so for more than ten (10) years undoubtedly resulted in the impairment of the
check through his unreasonable and unexplained delay.

194
 PEOPLE VS. NITAFAN
G.R. NO. 75954, October 22, 1992
BELLOSILLO, J.

FACTS:
Private respondent K.T. Lim was charge for violating BP22. He however
claimed that the check he issued was a memorandum check which was in the
nature of a promissory note, perforce, civil in nature.

ISSUE:
Whether a memorandum check issued postdated in partial payment of
a pre-existing obligation is within the coverage of B.P. 22

RULING:
YES. A memorandum check is in the form of an ordinary check, with the
word “memorandum”, “memo” or “mem” written across its face, signifying
that the maker or drawer engages to pay the bona fide holder absolutely,
without any condition concerning its presentment. Such a check is an
evidence of debt against the drawer, and although may not be intended to
be presented, has the same effect as an ordinary check, and if passed to the
third person, will be valid in his hands like any other check.
From the above definition, it is clear that a memorandum check, which
is in the form of an ordinary check, is still drawn on a bank and should therefore
be distinguished from a promissory note, which is but a mere promise to pay. If
private respondent seeks to equate memorandum check with promissory note,
as he does to skirt the provisions of B.P. 22, he could very well have issued a
promissory note, and this would be have exempted him form the coverage of
the law. In the business community a promissory note, certainly, has less impact
and persuadability than a check.
Verily, a memorandum check comes within the meaning of Sec. 185 of
the Negotiable Instruments Law which defines a check as “a bill of exchange
drawn on a bank payable on demand.” A check is also defined as “[a] written
order or request to a bank or persons carrying on the business of banking, by a
party having money in their hands, desiring them to pay, on presentment, to a
person therein named or bearer, or to such person or order, a named sum of
money. Another definition of check is that is “a draft drawn upon a bank and
payable on demand, signed by the maker or drawer, containing an
unconditional promise to pay a sum certain in money to the order of the
payee.”
A memorandum check must therefore fall within the ambit of B.P. 22
which does not distinguish but merely provides that “any person who makes or
draws and issues any check knowing at the time of issue that he does not have
sufficient funds in or credit with the drawee bank which check is subsequently
dishonored shall be punished by imprisonment.” Ubi lex no distinguit nec nos
distinguere debemus.

195
 PHILIPPINE COMMERCIAL INTERNATIONAL BANK VS. BALMACEDA
G.R. NO. 158143, September 21, 2011
BRION, J.

FACTS:
PCIB filed an action for recovery of sum of money with damages before
the RTC against Antonio Balmaceda, the Branch Manager of its Sta. Cruz,
Manila branch. In its complaint, PCIB alleged that between 1991 and 1993,
Balmaceda, by taking advantage of his position as branch manager,
fraudulently obtained and encashed 31 Managers checks in the total amount
of Ten Million Seven Hundred Eighty-Two Thousand One Hundred Fifty Pesos
(P10,782,150.00).
It was subsequently found by the court that indeed Balmaceda is liable
through his fraudulent acts.

ISSUE:
Whether there is concurrent negligence on the part of the Bank PCIB
and its employees in encashing the cross checks.

RULING:
YES. Another telling indicator of PCIBs negligence is the fact that it
allowed Balmaceda to encash the Manager’s checks that were plainly
crossed checks. A crossed check is one where two parallel lines are drawn
across its face or across its corner. Based on jurisprudence, the crossing of a
check has the following effects: (a) the check may not be encashed but only
deposited in the bank; (b) the check may be negotiated only once to the one
who has an account with the bank; and (c) the act of crossing the check
serves as a warning to the holder that the check has been issued for a definite
purpose and he must inquire if he received the check pursuant to this purpose;
otherwise, he is not a holder in due course. In other words, the crossing of a
check is a warning that the check should be deposited only in the account of
the payee. When a check is crossed, it is the duty of the collecting bank to
ascertain that the check is only deposited to the payees account. In complete
disregard of this duty, PCIBs systems allowed Balmaceda to encash 26
Managers checks which were all crossed checks, or checks payable to the
payees account only.
The General Banking Law of 2000 requires of banks the highest standards
of integrity and performance. The banking business is impressed with public
interest. Of paramount importance is the trust and confidence of the public in
general in the banking industry. Consequently, the diligence required of banks
is more than that of a Roman pater familias or a good father of a family. The
highest degree of diligence is expected.

196
 SINCERE VILLANUEVA VS. MARLYN NITE
496 SCRA 459, July 25, 2006
CORONA, J.

FACTS:
Marlyn Nite took out a loan of P409,000 from Sincere Villanueva. Nite issued
an Asian Bank Corporation (ABC) check worth P325,500. The check was
dishonored due to material alteration. Then, through Nite’s representative, she
remitted P235,000 to Villanueva as partial payment. The other balance was to
be paid on a much later date. A few days later, Villanueva filed an action for
a sum of money and damages against ABC for the full amount of the
dishonored check. The RTC ruled in his favor but when Nite was to withdraw
money from her account, she was unable to do so because the RTC had
ordered ABC to pay Villanueva the P325,000 check. ABC then remitted to the
sheriff the check which Villanueva received. Nite filed a petition to seek to
annul the RTC’s decision. The CA held in favor Nite and was ordered to pay
Nite a sum of money for extrinsic fraud.

ISSUE:
Whether the receipt of the check was legal.

RULING:
The SC ruled in favor of Nite and that Villanueva was fraudulent. The SC
pointed out Villanueva’s action of having to file his complaint against the bank
days after he received the P235,000 payment. By filing a complaint against the
bank and Nite not impleaded within, it shows his intent to prevent her from
opposing his action.
Still, the RTC decision was to be annulled because as the NIL provides,
the drawee cannot be held liable unless he accepts the check. There was no
privity between ABC and Villanueva.

197
 STATE INVESTMENT HOUSE VS. IAC
175 SCRA 310, July 13, 1989
BELLOSILLO, J.

FACTS:
Spouses Chua (private respondents) gave 3 cross checks to New Sikatuna
Wood Industries due to the conditional loan requested by the latter. However,
before the happening of this condition to perfect the contract of loan, New
Sikatuna entered to a check rediscounting agreement with herein petitioner
State Investment House which includes the 3 subject cross checks.
These cross checks when presented was dishonored for insufficiency of
funds. Petitioner filed before the court for its payment. Spouses Chua then filed
a third party complaint against New Sikatuna.

ISSUE:
Whether State Investment House is a holder in due course of the 3 cross
checks it acquired in a rediscounting agreement issued in the name of New
Sikatuna Wood Industry as payee

RULING:
NO. Relying on the ruling in Ocampo v. Gatchalian, the Intermediate
Appellate Court (now Court of Appeals), correctly elucidated that the effects
of crossing a check are: the check may not be encashed but only deposited
in the bank; the check may be negotiated only once to one who has an
account with a bank; and the act of crossing the check serves as a warning
to the holder that the check has been issued for a definite purpose so that he
must inquire if he has received the check pursuant to that purpose, otherwise
he is not a holder in due course.
The three subject checks in the case at bar had been crossed generally
and issued payable to New Sikatuna Wood Industries, Inc. which could only
mean that the drawer had intended the same for deposit only by the rightful
person, i.e., the payee named therein. Apparently, it was not the payee who
presented the same for payment and therefore, there was no proper
presentment, and the liability did not attach to the drawer. Thus, in the
absence of due presentment, the drawer did not become liable.
Consequently, no right of recourse is available to petitioner against the drawer
of the subject checks, private respondent wife, considering that petitioner is
not the proper party authorized to make presentment of the checks in question.

198
 TAN VS. COURT OF APPEALS
G.R. NO. 108555, December 20, 1994
KAPUNAN, J.

FACTS:
Ramon Tan to avoid the risk of carrying cash enroute to Manila secured a
cashier’s check from Philippine Commercial Industrial Bank (PCIB) Puerto
Prinsesa Branch in the amount of P30,000 payable to his order. When in Manila
he deposited the check in his account with RCBC Binondo. Relying on the
common knowledge that a cashier’s check was as good as cash, that the
usual banking practice that local checks are cleared within three (3) working
days and regional checks within seven (7) working days, and the fact that the
cashier’s check was accepted, petitioner issued two (2) personal checks to
specific persons but was later dishonored.
Tan then filed for damages. RCBC claimed that the failure to pay was
due to the wrong deposit slip used by Tan when it presented the cashier’s
check. Further, RCBC insists that immediate payment without awaiting
clearance of a cashier’s check is discretionary with the bank to whom the
check is presented and such being the case, its refusal to immediately pay the
cashier’s check in this case is not to be equated with negligence on its part.

ISSUE:
Whether RCBC may be held liable for its failure to credit the deposited
cashier’s check.

RULING:
YES. 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. The basis of the perception being
confidence. Any practice that destroys that confidence will impair the
usefulness of the check as a currency substitute and create havoc in trade
circles and the banking community.
Now, what was presented for deposit in the instant cases was not just an
ordinary check but a cashier’s check payable to the account of the depositor
himself. A cashier’s check is a primary obligation of the issuing bank and
accepted in advance by its mere issuance. By its very nature, a cashier’s
check is the bank’s order to pay drawn upon itself, committing in effect its total
resources, integrity and honor behind the check. A cashier’s check by its
peculiar character and general use in the commercial world is regarded
substantially to be as good as the money which it represents. In this case,
therefore, PCIB by issuing the check created an unconditional credit in favor
of any collecting bank.

199
 TEDDY G. PABUGAIS VS. DAVE SAHIJIWANI
G.R. NO. 156846, February 23, 2004
YNARES-SANTIAGO, J.

FACTS:
Petitioner Pabugais and respondent Sahijwani entered a conditional
contract of sale. There is a stipulation that the failure of petitioner to deliver the
required documents to respondent would mean the return of the P600,000 plus
18% per annum option/reservation fee initially paid by respondent to petitioner.
Subsequently, indeed petitioner failed to deliver the documents triggering the
return of the P600,000 reservation fee paid by respondent plus 18% interest.
Petitioner then delivered checks corresponding to this amount to
respondent. However, respondent did not accept this on the claim that the
amount tendered was insufficient to cover the obligation. Petitioner then
consigned the amount to court. Respondent then questions the validity of the
consignation.

ISSUE:
Whether consignation is proper after the creditor respondent failed to
accept payment through check on account of its alleged insufficiency

RULING:
YES. The issues to be resolved in the instant case concerns one of the
important requisites of consignation, i.e, the existence of a valid tender of
payment. As testified by the counsel for respondent, the reasons why his client
did not accept petitioners tender of payment were (1) the check mentioned
in the August 5, 1994 letter of petitioner manifesting that he is settling the
obligation was not attached to the said letter; and (2) the amount tendered
was insufficient to cover the obligation.
It is obvious that the reason for respondents non-acceptance of the
tender of payment was the alleged insufficiency thereof and not because the
said check was not tendered to respondent, or because it was in the form of
managers check. While it is true that in general, a manager’s check is not legal
tender, the creditor has the option of refusing or accepting it. Payment in
check by the debtor may be acceptable as valid, if no prompt objection to
said payment is made. Consequently, petitioners tender of payment in the
form of managers check is valid.

200
CHECKS: Presentment for Payment

ROMAN CATHOLIC BISHOP OF MALOLOS, INC. v. INTERMEDIATE APPELLATE

COURT, and ROBES-FRANCISCO REALTY AND DEVELOPMENT CORPORATION
G.R. No. 72110, November 16, 1990
SARMIENTO, J.
FACTS:

A contract over the land was executed between the Roman Catholic
Bishop of Malolos as vendor and the private respondent through its then
president, Mr. Carlos F. Robes, as vendee, stipulating for a down payment of
P23,930 and the balance of P100,000 plus 12% interest per annum to be paid
within four (4) years from execution of the contract. The contract likewise
provides for cancellation, forfeiture of previous payments, and re-conveyance
of the land in case of failure to pay within the period. After the expiration of
the stipulated period for payment, Atty. Adalia Francisco, new president of the
company, wrote the formal request that her company be allowed to pay the
principal amount of P100,000 in 3 equal installments of 6 months each with the
first installment and the accrued interest of P24,000 to be paid immediately
upon approval of the said request. The petitioner formally denied the request
of private respondent but granted a grace period of five (5) days from the
receipt of the denial to pay the total balance of P124,000. The private
respondent wrote the petitioner requesting an extension of 30 days from said
date to fully settle its account but this was still denied. Consequently, Atty.
Francisco wrote a letter directly addressed to the petitioner, protesting the
alleged refusal of the latter to accept tender of payment made by the former
on the last day of the grace period. But the private respondent demanded the
execution of a deed of absolute sale over the land in question.
ISSUE:
Is there a valid tender of payment by issuance of a certified check?
RULING:
No. Tender of payment involves a positive and unconditional act by the
obligor of offering legal tender currency as payment to the 201oluti for the
former’s obligation and demanding that the latter accept the same. Thus,
tender of payment cannot be presumed by a mere inference from
surrounding circumstances. At most, sufficiency of available funds is only
affirmative of the capacity or ability of the obligor to fulfill his part of the
bargain. In the case of Philippine Airlines v. Court of Appeals, it was held that
since a negotiable instrument is only a substitute for money and not money,
the delivery of such an instrument does not, by itself, operate as payment. A
check, whether a manager’s check or ordinary check, is not legal tender, and
an offer of a check in payment of a debt is not a valid tender of payment and
may be refused receipt by the 201oluti or creditor. Hence, the decision of
the IAC is hereby SET ASIDE and ANNULLED and the decision of the trial court
favoring the petitioner is REINSTATED.

201
 FAR EAST BANK & TRUST COMPANY v. DIAZ REALTY INC.

G.R. No. 138588, August 23, 2001

PANGANIBAN, J.

FACTS:

Diaz and Company obtained a loan from Pacific Banking Corporation in

1974 in the amount of P720,000 at 12% interest per annum which was increased
thereafter. The said loan was secured with a real estate mortgage over two
parcels of land owned by Diaz Realty, herein respondent. Subsequently, the
loan account was purchased by the petitioner Far East Bank (FEBTC). Two years
after, Diaz Realty through its President inquired about its obligation and upon
learning of the outstanding obligation, it tendered payment in the form of an
Interbank check in the amount of P1,450,000 in order to avoid the further
imposition of interests. The payment was with a notation for the full settlement
of the obligation. FEBTC accepted the check but it alleged in its defense that
it was merely a deposit. When FEBTC refused to release the mortgage, Diaz
Realty filed a suit. The lower court ruled that there was a valid tender of
payment and ordered FEBTC to cancel the mortgage. Upon appeal, the
appellate court affirmed the decision.

ISSUE:

Is there a valid tender of payment to extinguish the obligation?

RULING:

Yes. Although jurisprudence tells us that a check is not a legal tender and
a creditor may validly refuse it, this dictum does not prevent a creditor from
accepting a check as payment. Herein, FEBTC accepted the check and the
same was cleared. A tender of payment is the definitive act of of offering the
creditor what is due him or her, together with the demand that he accepts it.
More important is that there must be a concurrence of intent, ability and
capability to make good such offer, and must be absolute and must cover the
amount due. The acts of Diaz Realty manifest its intent, ability and capability.
Hence, there was a valid tender of payment. Meanwhile, the transfer of credit
from Pacific Bank to FEBTC did not involve an effective novation but an
assignment of credit. As such, FEBTC has the right to collect the full value of the
credit from Diaz Realty subject to the conditions of the promissory note
previously executed.

202
ALFARO FORTUNADO, EDITH FORTUNADO, NESTOR FORTUNADO and RAMON A.
GONZALES v. COURT OF APPEALS, BASILISA CAMPANO, as City Sheriff of Iligan
City, REGISTER OF DEEDS, Iligan City, ANGEL L. BAUTISTA and NATIONAL STEEL
CORPORATION

G.R. No. 78556, April 25, 1991

CRUZ, J.

FACTS:

The RTC of Quezon City 2 rendered a judgment ordering Angel Bautista to

pay damages to Alfaro Fortunado. Pursuant thereto, Basilisa Campano, City
Sheriff of Iligan City, levied upon two parcels of land in the name of Bautista.
The second lot had already been purchased by National Steel Corporation,
but had not yet been registered in its name. The lots were sold at public auction
to the petitioners as the only bidder. NSC gave notice to the sheriff of its
intention to redeem the lots. NSC issued to the sheriff a PNB check as the
redemption price. Bautista sent the sheriff a letter bearing NSC’s conformity in
which he availed himself of NSC’s check, which was sufficient to cover the full
redemption price for both lots. The sheriff acknowledged receipt of the check
as redemption money for the two parcels of land and issued a certificate of
redemption in favor of NSC and Bautista. The counsel of the petitioners told the
sheriff that he was rejecting the check because it was not legal tender and
was not intended for payment but merely for deposit. They requested the
sheriff to issue a final deed of sale over the two lots and deliver the same to
them on the ground that there is no valid redemption. When the request was
not granted, the petitioners filed with the respondent court a petition for
mandamus. They contended that the check issued by NSC, not being legal
tender, could not be considered payment of the redemption price.
ISSUE:
Is the redemption valid through the issuance of a check?

RULING:
Yes. Redemption is not rendered invalid by the fact that the said officer
accepted a check for the amount necessary to make the redemption instead
of requiring payment in money. If he had seen fit to do so, the officer could
have required payment to be made in lawful money, and he undoubtedly, in
accepting a check, placed himself in a position where he could be liable to
the purchaser at the public auction if any damage had been suffered by the
latter as a result of the medium in which payment was made. But this cannot
affect the validity of the payment. Further, a check may be used for the
exercise of the right of redemption, the same being a right and not an
obligation. The tender of a check is sufficient to compel redemption but is not
in itself a payment that relieves the redemptioner from his liability to pay the
redemption price. In other words, while private respondents properly exercised
their right of redemption, they remain liable, of course, for the payment of the
redemption price.

203
THE INTERNATIONAL CORPORATE BANK (now UNION BANK OF THE PHILIPPINES)
v. SPS. FRANCIS S. GUECO and MA. LUZ E. GUECO
G.R. No. 141968, February 12, 2001
KAPUNAN, J.

FACTS:

Spouses Gueco obtained a loan from International Corporate Bank to

purchase a Nissan car. Spouses executed promissory notes which were
payable in monthly installments and chattel mortgage over the car to serve
as security. Spouses defaulted in payment of installments, thus the car was
ordered to be returned to the bank. However, after some negotiations and
computation, spouses and the bank just agreed that the amount be
lowered.

Dr. Gueco delivered a manager’s check in the amount of P150, 000.00 but
the car was not released because of his refusal to sign the Joint Motion to
Dismiss. The bank insisted that the Joint Motion to Dismiss is a standard
operating procedure to effect a compromise and to preclude future filing of
claims or suits for damages. Gueco spouses filed an action against the bank
for fraud, failing to inform them regarding Joint Motion to Dismiss during the
meeting and for not releasing the car if they do not sign the said motion. Also,
by the time the case was instituted, the check had become stale in the hands
of the bank.

ISSUE:

Should the bank be faulted for failure to present for payment the
manager’s check?

RULING:

No. A check must be presented for payment within a reasonable time after
its issue. In the case at bar, however, the check involved is not an ordinary bill
of exchange but a manager’s check. A manager’s check is one drawn by the
banks manager upon the bank itself. It is a bill of exchange drawn by the
cashier of a bank upon the bank itself, and accepted in advance by the act
of its issuance. It is really the banks own check and may be treated as a
promissory note with the bank as a maker. The check becomes the primary
obligation of the bank which issues it and constitutes its written promise to pay
upon demand. The mere issuance of it is considered an acceptance thereof.
If treated as promissory note, the drawer would be the maker and in which
case the holder need not prove presentment for payment or present the bill to
the drawee for acceptance. In the case at bar, there is no doubt that the bank
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 its part.

204
 NEW PACIFIC TIMBER & SUPPLY COMPANY, INC. v. HON. ALBERTO V. SENERIS,
RICARDO A. TONG and EX-OFFICIO SHERIFF HAKIM S. ABDULWAHID

G.R. No. L-41764, December 19, 1980

CONCEPCION JR., J.

FACTS:

In a complaint for a collection of sum of money, New Pacific Timber failed

to comply with his judgment obligation in an amicable settlement with the
private respondent. Thus a writ of execution was issued pursuant to which, New
Pacific Timber’s properties were levied and was held for auction. Prior to the
auction, New Pacific Timber deposited with the Clerk of Court, CFI, in his
capacity as Ex-Officio Sheriff, the sum for the payment of the judgment
obligation. Private respondent refused to accept the check as well as the cash
deposit and requested the scheduled auction sale. Hon. Seneris sustained the
contention of the private respondent. New Pacific Timber questioned the order
of the judge for denying his motion for issuance of certificate of satisfaction of
judgment.

ISSUE:

Is there a valid refusal to accept the payment of the judgment obligation

made by New Pacific Timber?

RULING:
No, there is no valid refusal. A cashier’s check of the Equitable Bank
Corporation is not an ordinary check. It is a well-known and accepted practice
in the business sector that a Cashier’s Check is deemed as cash. Where a
check is certified by the bank on which it is drawn, the certification is
equivalent to acceptance. By the certification of drawee bank, the funds
represented by the check are transferred from the credit of the maker to that
of the payee or holder, and for all intents and purposes, the latter becomes
the depositor of the drawee bank. Said certification implies that the check is
drawn upon sufficient funds in the hands of the drawee that they have been
set apart for its satisfaction, that they shall be so applied whenever the check
is presented for payment. The object of certifying a check, as regards to both
parties, is to enable the holder to use it as money. When the holder procures
the check to be certified, the check operates as an assignment of a part of
the funds to the creditors. Certification of a check is an exception to the rule
enunciated under Sec 63 of the CB Act. Considering that the whole amount
deposited by the petitioner consisting of Cashier’s Check of P50, 000.00 and
P13, 130.00 in cash covers the judgment obligation of P63,000.00 as mentioned
in the writ of execution, then, we see no valid reason for the private respondent
to have refused acceptance of the payment of the obligation in his favor.

205
 PHILIPPINE AIRLINES, INC v. HON. COURT OF APPEALS, HON. JUDGE RICARDO
D. GALANO, Court of First Instance of Manila, Branch XIII, JAIME K. DEL
ROSARIO, Deputy Sheriff, Court of First Instance, Manila, and AMELIA TAN
G.R. No. L-49188, January 30, 1990
GUTIERREZ, JR., J.

FACTS:

Amelia Tan commenced a complaint for damages before the CFI against
Philippine Airlines, Inc.(PAL). CFI rendered a judgment in favor of Tan. PAL filed
its appeal with the CA, and the CA affirmed the judgment of the lower court
with the modification that PAL is condemned to pay the sum of P25, 000.00 as
damages. Judgment became final and executory. The trial court upon the
motion of Amelia Tan issued an order of execution with the corresponding writ
in favor of Tan. Said writ was duly referred to Deputy Sheriff Reyes for
enforcement.

Four months later, Amelia Tan moved for the issuance of an alias writ of
execution, stating that the judgment remained unsatisfied. PAL opposed the
motion, stating that it had already fully paid its obligation through the issuance
of checks payable to the deputy sheriff who later did not appear with his return
and instead absconded. PAL filed an urgent motion to quash the alias writ of
execution stating that no return of the writ had as yet been made by Deputy
Sheriff Reyes and that judgment debt had already been fully satisfied by the
former as evidenced by the cash vouchers signed and received by the
executing sheriff.

ISSUE:

Is the payment made in checks to the sheriff and under his name a valid
payment to extinguish judgment of debt of PAL?

RULING:

No. Article 1249 of the Civil Code provides: “The payment of debts in
money shall be made in the currency stipulated, and if it is not possible to
deliver such currency, then in the currency which is legal tender in the
Philippines”. Unless authorized to do so by law or by consent of the 206oluti,
a public officer has no authority to accept anything other than money in
payment of an obligation under a judgment being executed. Strictly speaking,
the acceptance by the sheriff of the petitioner’s checks does not, per se,
operate as a discharge of the judgment of debt. A check, whether manager’s
check or ordinary check, is not legal tender, and an offer of a check in
payment of a debt is not a valid tender or payment and may be refused
receipt by the creditor. Hence, the obligation is not extinguished.

206
 SECURITY BANK AND TRUST COMPANY v. RIZAL COMMERCIAL BANKING
CORPORATION (RCBC)

G.R. No. 170984, January 30, 2009

QUISUMBING, Acting C.J.

FACTS:
Security Bank and Trust Company (SBTC) issued a managers check for P8
million, payable to CASH, as proceeds of the loan granted to Guidon
Construction and Development Corporation (GCDC). On the same day, the
P8-million check, along with other checks, was deposited by Continental
Manufacturing Corporation (CMC) in its Current Account with RCBC.
Immediately, RCBC honored the P8-million check and allowed CMC to
withdraw the same. On the next banking day, GCDC issued a Stop Payment
Order to SBTC, claiming that the check was released to a third party by mistake.
Consequently, SBTC dishonored and returned the manager’s check to RCBC.
Thereafter, the check was returned back and forth between the two banks,
resulting in automatic debits and credits in each banks clearing balance.
RCBC filed a complaint for damages against SBTC. RCBC avers that the
manager’s check issued by SBTC is substantially as good as the money it
represents because by its peculiar character, its issuance has the effect of an
advance acceptance. RCBC claims that it is a holder in due course when it
credited the P8-million manager’s check to CMC’s account. On the other
hand, SBTC contends that RCBC violated Monetary Board Resolution No. 2202
of the Central Bank mandating all banks to verify the genuineness and validity
of all checks before allowing drawings of the same. SBTC insists that RCBC
should bear the consequences of allowing CMC to withdraw the amount of
the check before it was cleared.

ISSUE:

Is SBTC liable on its manager’s check?

RULING:
Yes. The questioned check issued by SBTC is not just an ordinary check but
a manager’s check. A manager’s check is one drawn by a bank’s manager
upon the bank itself. It stands on the same footing as a certified check, which
is deemed to have been accepted by the bank that certified it. As the bank’s
own check, a manager’s check becomes the primary obligation of the bank
and is accepted in advance by the act of its issuance. In this case, RCBC, in
immediately crediting the amount of P8 million to CMCs account, relied on the
integrity and honor of the check as it is regarded in commercial transactions.
Where the questioned check, which was payable to Cash, appeared regular
on its face, and the bank found nothing unusual in the transaction, as the
drawer usually issued checks in big amounts made payable to cash, RCBC
cannot be faulted in paying the value of the questioned check. SBTC cannot
escape liability by invoking Monetary Board Resolution No. 2202.

207
 NORBERTO TIBAJIA, JR. and CARMEN TIBAJIA v. THE HONORABLE COURT OF
APPEALS and EDEN TAN

G.R. No. 100290, June 4, 1993

PADILLA, J.

FACTS:

A suit for collection of sum of money was ruled in favor of Eden Tan and
against the spouses Norberto Jr. and Carmen Tibajia. After the decision was
made final, Tan filed a motion for execution and levied upon the garnished
funds which were deposited by the spouses with the cashier of the Regional
Trial Court of Pasig. The spouses, however, delivered to the deputy sheriff the
total money judgment in the form of Cashier’s Check (P262,750) and Cash
(P135,733.70). Tan refused the payment and insisted upon the garnished funds
to satisfy the judgment obligation.

The spouses filed a motion to lift the writ of execution on the ground that
the judgment debt had already been paid. The motion was denied.

ISSUE:

Is the payment by means of a cashier’s check considered payment in

legal tender?

RULING:

No. A check, whether a manager’s check or ordinary check, is not legal

tender, and an offer of a check in payment of a debt is not a valid tender of
payment and may be refused receipt by the 208oluti or creditor. A check is
not legal tender and that a creditor may validly refuse payment by check,
whether it be a manager’s, cashier’s or personal check.

The Supreme Court stressed that, “We are not, by this decision, sanctioning
the use of a check for the payment of obligations over the objection of the
creditor.”

208
CHECKS: Presentment for Payment – Time

THE INTERNATIONAL CORPORATE BANK (now UNION BANK OF THE PHILIPPINES)

v. SPS. FRANCIS S. GUECO and MA. LUZ E. GUECO

G.R. No. 141968, February 12, 2001

KAPUNAN, J.
FACTS:
The respondents Gueco Spouses obtained a loan from petitioner
International Corporate Bank to purchase a car. In consideration thereof, the
Spouses executed promissory notes which were payable in monthly
installments and chattel mortgage over the car to serve as security for the
notes. The Spouses defaulted in payment of installments. Consequently, the
Bank filed a civil action for “Sum of Money with Prayer for a Writ of Replevin”
before the MeTC of Pasay, City. Desi Tomas, the Bank’s Assistant Vice
President demanded payment of the amount of P184,000.00 which represents
the unpaid balance for the car loan. After some negotiations and
computation, the amount was lowered to P154,000.00 which amount was
further reduced after a renegotiation to P 150,000.00. Dr. Gueco delivered a
manager’s check representing the reduced amount of P150,000.00. However,
since Dr. Gueco refused to sign the joint motion to dismiss, he was made to
execute a statement to the effect that he was withholding the payment of the
check. Subsequently, in a letter addressed to the bank, Dr. Gueco instructed
the bank to disregard the hold order letter and demanded the immediate
release of his car, to which the former replied that the condition of signing the
joint motion to dismiss must be satisfied and that they had kept the check
which could be claimed by Dr. Gueco anytime. While the controversy
continues, it appears from the pleadings that said check has not been en-
cashed and become stale.
ISSUE:
Should the bank bear the loss because the check had become stale due
to the failure of presentment?
RULING:
No. A stale check is one which has not been presented for payment within
a reasonable time after its issue. It is valueless. In the case at bar, however, the
check involved is not an ordinary bill of exchange but a manager’s check. A
manager’s check is one drawn by the bank’s manager upon the bank itself. It
is similar to a cashier’s check both as to effect and use. A cashier’s check is a
check of the bank’s cashier on his own or another check. In effect, it is a bill of
exchange drawn by the cashier of a bank upon the bank itself, and accepted
in advance by the act of its issuance. It is really the bank’s own check and may
be treated as a promissory note with the bank as a maker. The check becomes
the primary obligation of the bank which issues it and constitutes its written
promise to pay upon demand. The mere issuance of it is considered an
acceptance thereof. If treated as promissory note, the drawer would be the
maker and in which case the holder need not prove presentment for payment
or present the bill to the drawee for acceptance.

209
CHECKS: Presentment for Payment – Effect of Delay

THE INTERNATIONAL CORPORATE BANK (now UNION BANK OF THE PHILIPPINES)

v. SPS. FRANCIS S. GUECO and MA. LUZ E. GUECO

G.R. No. 141968, February 12, 2001

KAPUNAN, J.
FACTS:

The respondents Gueco Spouses obtained a loan from petitioner

International Corporate Bank to purchase a car. In consideration thereof, the
Spouses executed promissory notes which were payable in monthly
installments and chattel mortgage over the car to serve as security for the
notes. The Spouses defaulted in payment of installments. Consequently, the
Bank filed a civil action for “Sum of Money with Prayer for a Writ of Replevin”
before the MeTC of Pasay, City. Desi Tomas, the Bank’s Assistant Vice
President demanded payment of the amount of P184,000.00 which represents
the unpaid balance for the car loan. After some negotiations and
computation, the amount was lowered to P154,000.00 which amount was
further reduced after a renegotiation to P 150,000.00. Dr. Gueco delivered a
manager’s check representing the reduced amount of P150,000.00. However,
since Dr. Gueco refused to sign the joint motion to dismiss, he was made to
execute a statement to the effect that he was withholding the payment of the
check. Subsequently, in a letter addressed to the bank, Dr. Gueco instructed
the bank to disregard the hold order letter and demanded the immediate
release of his car, to which the former replied that the condition of signing the
joint motion to dismiss must be satisfied and that they had kept the check
which could be claimed by Dr. Gueco anytime. While the controversy
continues, it appears from the pleadings that said check has not been en-
cashed and become stale.
ISSUE:
Did the check in question become stale due to the delay in presentment?
RULING:
No. In the case at bar, 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 delay. Failure to present
on time, thus, does not totally wipe out all liability. In fact, the legal situation
amounts to an acknowledgment of liability in the sum stated in the check. In
this case, the Gueco spouses have not alleged, much less shown that they or
the bank which issued the manager’s check has suffered damage or loss
caused by the delay or non-presentment. Definitely, the original obligation to
pay certainly has not been erased. It has been held that, if the check had
become stale, it becomes imperative that the circumstances that caused its
non-presentment be determined. In the case at bar, there is no doubt that the
petitioner bank held on the check and refused to encash the same.
CHECKS

210
BATAAN CIGAR AND CIGARETTE FACTORY, INC. v. THE COURT OF APPEALS and
STATE INVESTMENT HOUSE, INC.
G.R. No. 93048, March 3, 1994
NOCON, J.
FACTS:

Bataan Cigar & Cigarette Factory, Inc. (BCCFI), engaged with King Tim Pua
George, to deliver 2,000 bales of tobacco leaf. BCCFI issued post dated
crossed checks in exchange. Trusting King’s words, BCCFI issued another post-
dated cross check for another purchase of tobacco leaves. During these time,
King was dealing with State Investment House Inc. (SIHI). On two separate
occasions, King sold the post-dated cross checks to SIHI that was drawn by
BCCFI in favor of King. Because King failed to deliver the leaves, BCFI issued a
stop payment to all the checks, including those sold to SIHI. The RTC held that
SIHI had a valid claim of being a holder in due course and to collect the checks
issued by BCCFI.

ISSUE:

Is SIHI, a second indorser, a holder of crossed checks, is a holder in due

course, to be able to collect from the drawer, BCCFI?

RULING:

No. SIHI is not a holder in due course. It does not mean however, that
respondent could not recover from the checks. As a preliminary, a check is
defined by law as a bill of exchange drawn on a bank payable on demand.
There are a variety of checks, the more popular of which are the
memorandum check, cashier’s check, traveler’s check and crossed check.
Crossed check is one where two parallel lines are drawn across its face or
across a corner thereof. It may be crossed generally or specially. A check is
crossed specially when the name of a particular banker or a company is
written between the parallel lines drawn. It is crossed generally when only the
words “and company” are written or nothing is written at all between the
parallel lines. It may be issued so that presentment can be made only by a
bank. In order to preserve the credit worthiness of checks, jurisprudence has
pronounced that crossing of a check should have the following effects: (a) it
cannot be en-cashed but only deposited in a bank; (b) it can only be
negotiated on its respective bank once; (c) it serves as a warning to the holder
that it has been issued for a definite purpose thus making SIHI not a holder in
due course.

211
 EQUITABLE PCI BANK (the Banking Entity into which Philippine Commercial
International Bank was merged) v. ROWENA ONG

G.R. No. 156207, September 15, 2006

CHICO-NAZARIO, J.

FACTS:

Warliza Sarande deposited in her account at Philippine Commercial

International Bank a check in the amount of P225,000.00. Sarande was then
informed that said check has been cleared. Relying on such assurance, she
issued two (2) checks where one was issued to respondent Rowena Ong owing
to a business transaction. The latter then requested PCI Bank to convert the
proceeds thereof into a manager’s check, which the PCI Bank obliged. When
Ong deposited the manager’s check in her account with Equitable Banking
Corporation, she received a check return-slip informing her that PCI Bank had
stopped the payment of the said check on the ground of irregular issuance.
Ong then filed a complaint for sum of money against herein petitioner.
Petitioner countered that the check was returned as the account against
which it was drawn was already closed.

ISSUE:

Is petitioner Bank liable to pay the questioned check?

RULING:

Yes. By admitting it committed an error, clearing the manager’s check of

Sarande and issuing in favor of Ong not just any check but a manager’s check
for that matter, PCI Bank’s liability is fixed. Since the Bank had certified that
check, such certification is equivalent to acceptance and petitioner bank as
drawee bank is bound on the instrument upon certification and it is immaterial
to such liability in favor of the plaintiff who is a holder in due course whether
the drawer had funds or not with the defendant-bank or the drawer was
indebted to the bank for more than the amount of the check. Therefore, when
the aforementioned check was endorsed and presented by the plaintiff and
certified to and accepted by defendant-bank in the purchase of PCIB
Manager’s Check No. 1983 in the amount ofP132,000.00, there was a valid
consideration. Moreover, what Ong obtained from PCI Bank was not just any
ordinary check but a manager’s check. A manager’s check is an order of the
bank to pay, drawn upon itself, committing in effect its total resources, integrity
and honor behind its issuance. By its peculiar character and general use in
commerce, a manager’s check is regarded substantially to be as good as the
money it represents. A manager’s check stands on the same footing as a
certified check. The effect of certification is found in Section 187, Negotiable
Instruments Law. Thereof, PCI Bank assumed the liabilities of an acceptor under
Section 62 of the Negotiable Instruments Law.

212
 NEW PACIFIC TIMBER & SUPPLY COMPANY, INC. v. HON. ALBERTO V. SENERIS,
RICARDO A. TONG and EX-OFFICIO SHERIFF HAKIM S. ABDULWAHID

G.R. No. L-41764, December 19, 1980

CONCEPCION JR., J.

FACTS:

In a case for collection of sum of money filed by Ricardo Tong against New
Pacific Timber, a compromise judgment was rendered against the latter. For its
failure to comply with judgment obligation, a writ of execution was issued for
the amount of P63,130.00 pursuant to which, the Ex-Officio Sheriff levied on the
personal properties of the petitioner.

Before the date of the auction sale, petitioner deposited with the Clerk of
Court in his capacity as the Ex-Officio Sheriff P50,000.00 in Cashier’s Check of
the Equitable Banking Corporation and P13,130.00 in cash. Private respondent
refused to accept the check and the cash and requested for the auction sale
to proceed. The properties were sold for P50,000.00 to the highest bidder with
a deficiency of P13,130.00.

New Pacific subsequently filed an ex-parte motion for issuance of

certificate of satisfaction of judgment which was denied by the respondent
Judge. Hence this present this petition, alleging that the respondent Judge
abused his discretion in not granting the requested motion for the reason that
the judgment obligation was fully satisfied before the auction sale with the
deposit made by the petitioner to the Ex-Officio Sheriff.

ISSUE:
Can the respondent validly refuse acceptance of the payment of the
judgment obligation in cashier’s check which it deposited with the sheriff
before the date of the scheduled auction sale?

RULING:

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

the petitioner in the amount of P50, 000.00 is not an ordinary check but a
Cashier’s Check of the Equitable Banking Corporation, a bank of good
standing and reputation. As testified to by the Ex-Officio Sheriff with whom it
has been deposited, it is a certified crossed check. It is a well-known and
accepted practice in the business sector that a Cashier’s Check is deemed as
cash. Moreover, since the said check had been certified by the drawee bank,
by the certification, the funds represented by the check are transferred from
the credit of the maker to that of the payee or holder, and for all intents and
purposes, the latter becomes the depositor of the drawee bank, with rights
and duties of one in such situation.

213
MYRON C. PAPA, Administrator of the Testate Estate of Angela M. Butte v. A.U.
VALENCIA and CO. INC., FELIX PEÑARROYO, SPS. ARSENIO B. REYES &
AMANDA SANTOS, and DELFIN JAO

G.R. No. 105188, January 23, 1998

KAPUNAN, J.

FACTS:
A.U. Valencia and Felix Penarroyo filed a complaint for specific
performance against Myron Papa in his capacity as administrator of the
Testate Estate of Angela Butte. Papa sold to Penarroyo a parcel of land; prior
to the sale of the said land, the lot was mortgaged to the Associated Banking
Corporation which refused to release it until all the other mortgaged
properties of Butte were also redeemed. Penarroyo then caused the
annotation on the title of the lot his rights and interests over the property. The
trial court rendered a decision in favor of Penarroyo and Valencia. Upon
Appeal to the CA, Papa alleged that the sale was never “consummated” as
he did not encash the check paid by Penarroyo. Hed maintained that the
payment made was only in the amount of P5,000.00 in cash as earnest
money. This appeal was however dismissed.
ISSUE:
Was the sale consummated?
RULING:
Yes. It is an undisputed fact that Valencia and Peñarroyo had given Papa
the amounts in cash and in check as payment of the purchase price of the
subject lot. Papa himself admits having received said amounts, and having
issued receipts therefor. Granting that petitioner had never encashed the
check, his failure to do so for more than ten (10) years undoubtedly resulted in
the impairment of the check through his unreasonable and unexplained delay.
While it is true that the delivery of a check produces the effect of payment only
when it is cashed, pursuant to Art. 1249 of the Civil Code, the rule is otherwise
if the debtor is prejudiced by the creditor’s unreasonable delay in presentment.
It has been held that if no presentment is made at all, the drawer cannot be
held liable irrespective of loss or injury unless presentment is otherwise excused.
This is in harmony with Article 1249 of the Civil Code under which payment by
way of check or other negotiable instrument is conditioned on its being cashed,
except when through the fault of the creditor, the instrument is impaired. The
payee of a check would be a creditor under this provision and if its no-
payment is caused by his negligence, payment will be deemed effected and
the obligation for which the check was given as conditional payment will be
discharged. Considering that respondents Valencia and Peñ arroyo had
fulfilled their part of the contract of sale by delivering the payment of the
purchase price, said respondents, therefore, had the right to compel petitioner
to deliver to them the owner’s duplicate of TCT No. 28993 of Angela M. Butte
and the peaceful possession and enjoyment of the lot in question.

214
 PHILIPPINE NATIONAL BANK v. THE NATIONAL CITY BANK OF NEW YORK, and
MOTOR SERVICE COMPANY, INC.,

G.R. No. L-43596, October 31, 1936

RECTO, J.

FACTS:
On 7 and 9 April 1933, unknown persons negotiated with defendant Motor
Service Company, Inc. (MSCI) checks in payment for automobile tires
purchased from them alleging to have been issued by the manager and
Treasurer of Pangasinan Transportation Co. Inc. (PTCI), J.L. Klar against PNB in
favor of International Auto Repair Shop for P144.50 and P215.75. Said checks
were indorsed by MSCI believing that the signatures of J.L. Klar were genuine.
MSCI indorsed said checks for deposit at the National City Bank of New York
(NCBNY) and was credited with the respective amounts thereof. Said checks
were then cleared and PNB credited NCBNY for the same amounts. PNB later
found out that the alleged signatures of J.L. Klar were forged and thereafter
informed MSCI of such and demanded for the reimbursement of the amounts
credited to their account through NCBNY, to which both defendants refused.
PTCI likewise objected to have the proceeds deducted from their deposit.
ISSUE:
Can PNB recover from NCBNY the value of the checks on which the
signatures of the drawer was forged?
RULING:
Yes. A check is a bill of exchange payable on demand and only the rules
governing bills of exchanges payable on demand are applicable to it. In view
of the fact that acceptance is a step necessary insofar as negotiable
instruments are concerned, it follows that the provisions relative to
acceptance are without application to checks. Acceptance implies
subsequent negotiation of the instrument, which is not true in the case of
checks because from the moment it is paid, it is withdrawn from circulation.
When the drawee banks cashes or pays a check, the cycle of negotiation is
terminated and it is illogical thereafter to speak of subsequent holders who can
invoke the warrant against the drawee. Further, in determining the relative
rights of a drawee who under a mistake of fact, has paid, a holder who has
received such payment, upon a check to which the name of the drawer has
been forged, it is only fair to consider the question of diligence and negligence
of the parties in respect thereto. The responsibility of the drawee who pays a
forged check, for the genuineness of the drawer’s signature is absolute only
in favor of one who has not, by his own fault or negligence, contributed to the
success of the fraud or to mislead the drawee. According to the undisputed
facts, NCBNY in purchasing the papers in question from unknown persons
without making any inquiry as to the identity and authority of said persons
negotiating and indorsing them, acted negligently and contributed to the
constructive loss of PNB in failing to detect the forgery.

215
 SECURITY BANK AND TRUST COMPANY v. RIZAL COMMERCIAL BANKING
CORPORATION

G.R. No. 170984, January 30, 2009

QUISUMBING, Acting C.J.

FACTS:

Security Bank and Trust Company (SBTC) issued a manager’s check for 8
million pesos, payable to cash, as proceeds of the loan granted to Guidon
Construction Development Corporation (GCDC). On the same day, the same
check was deposited by Continental Manufacturing Corporation (CMC) in its
current account with Rizal Commercial Banking Corporation (RCBC). RCBC
immediately honoured the 8 million pesos check and allowed CMC to
withdraw the same. The next day, GCDC issued a stop payment order to SBTC
claiming that the check was released to a third party by mistake.
Consequently, SBTC dishonoured and returned the manager’s check to RCBC.
Thereafter, the check was returned back and forth between the two banks
resulting in automatic debits and credits in each banks’ clearing balance.
RCBC then filed a complaint for damages against SBTC. RCBC claims it is a
holder in due course. SBTC contended that all banks are mandated to verify
the genuineness and validity of all checks before allowing drawings of the
same. Thus RCBC should bear the consequences.

ISSUE:

Is SBTC liable on the manager’s check it issued?

RULING:

YES. It must be noted that the questioned check issued by SBTC is not just
an ordinary check but a manager’s check. A manager’s check is one drawn
by a bank’s manager upon the bank itself. It stands on the same footing as a
certified check, which is deemed to have been accepted by the bank that
certified it. As the bank’s own check, a manager’s check becomes the primary
obligation of the bank and is accepted in advance by the act of its issuance.

SBTC cannot escape liability by invoking Monetary Board Resolution No.

2202 dated December 21, 1979, prohibiting drawings against uncollected
deposits. SBTC’s liability as drawer remains the same – by drawing the
instrument, it admits the existence of the payee and his then capacity to
indorse; and engages that on due presentment, the instrument will be
accepted, or paid, or both, according to its tenor.

216
 STATE INVESTMENT HOUSE v. INTERMEDIATE APPELLATE COURT, ANITA PEÑA
CHUA and HARRIS CHUA
G.R. No. 72764, July 13, 1989
FERNAN, C.J.

FACTS:
Spouses Chua (private respondents) gave three (3) cross checks to New
Sikatuna Wood Industries due to the conditional loan requested by the latter.
However, before the happening of this condition to perfect the contract of
loan, New Sikatuna entered to a check re-discounting agreement with herein
petitioner State Investment House which includes the 3 subject cross checks.
These cross checks when presented was dishonored for insufficiency of funds.
Petitioner filed before the court for its payment. Spouses Chua then filed a third
party complaint against New Sikatuna.
ISSUE:
Is State Investment House a holder in due course of the 3 cross checks it
acquired in a re-discounting agreement issued in the name of New Sikatuna
Wood Industry as payee?
RULING:
No. Relying on the ruling in Ocampo v. Gatchalian, the Intermediate
Appellate Court, correctly elucidated that the effects of crossing a check are:
the check may not be en-cashed but only deposited in the bank; the check
may be negotiated only once to one who has an account with a bank; and
the act of crossing the check serves as a warning to the holder that the check
has been issued for a definite purpose so that he must inquire if he has received
the check pursuant to that purpose, otherwise he is not a holder in due course.
Further, as the CA said: “It results therefore that when appellee re-discounted
the check knowing that it was a crossed check he was knowingly violating the
avowed intention of crossing the check. Furthermore, his failure to inquire from
the holder, party defendant New Sikatuna Wood Industries, Inc., the purpose
for which the three checks were cross despite the warning of the crossing,
prevents him from being considered in good faith and thus he is not a holder
in due course. Being not a holder in due course, plaintiff is subject to personal
defenses, such as lack of consideration between appellants and New Sikatuna
Wood Industries.” The three subject checks in the case at bar had been
crossed generally and issued payable to New Sikatuna Wood Industries, Inc.
which could only mean that the drawer had intended the same for deposit
only by the rightful person, i.e., the payee named therein. Apparently, it was
not the payee who presented the same for payment and therefore, there was
no proper presentment, and the liability did not attach to the drawer. Thus, in
the absence of due presentment, the drawer did not become liable.
Consequently, no right of recourse is available to petitioner against the drawer
of the subject checks, private respondent wife, considering that petitioner is
not the proper party authorized to make presentment of the checks in question.

217
 STELCO MARKETING CORPORATION v. HON. COURT OF APPEALS and
STEELWELD CORPORATION OF THE PHILIPPINES, INC.
G.R. No. 96160, June 17, 1992
NARVASA, C.J.

FACTS:
Stelco Marketing Corporation sold structural steel bars to RYL Construction
Inc. RYL gave Stelco’s “sister corporation,” Armstrong Industries, a
MetroBank check from Steelweld Corporation. The check was issued by
Steelweld’s President to Romeo Lim, President of RYL, by way of
accommodation, as a guaranty and not in payment of an obligation.
When Armstrong deposited the check at its bank, it was dishonored because
it was drawn against insufficient funds. When so deposited, the check bore
two indorsements, i.e. RYL and Armstrong. Subsequently, Stelco filed a civil
case against RYL and Steelweld to recover the value of the steel products.

ISSUE:
May Stelco be considered a holder of the check for value?

RULING:
What the record shows is that: (1) the STEELWELD company check in
question was given by its president to R.Y. Lim; (2) it was given only by way of
accommodation, to be “used as collateral for another obligation;” (3) in
breach of the agreement, however, R.Y. Lim indorsed the check to Armstrong
in payment of an obligation; (4) Armstrong deposited the check to its account,
after indorsing it; (5) the check was dishonored. The record does not show any
intervention or participation by STELCO in any manner or form whatsoever in
these transactions, or any communication of any sort between STEELWELD and
STELCO, or between either of them and Armstrong Industries, at any time
before the dishonor of the check.

The record does show that after the check had been deposited and
dishonored, STELCO came into possession of it in some way, and was able,
several years after the dishonor of the check, to give it in evidence at the trial
of the civil case it had instituted against the drawers of the check (Limson and
Torres) and RYL. But, as already pointed out, possession of a negotiable
instrument after presentment and dishonor, or payment, is utterly
inconsequential; it does not make the possessor a holder for value within the
meaning of the law; it gives rise to no liability on the part of the maker or drawer
and indorsers.

It is clear from the relevant circumstances that STELCO cannot be deemed

a holder of the check for value. It does not meet two of the essential requisites
prescribed by the statute. It did not become “the holder of it before it was
overdue, and without notice that it had been previously dishonored,” and it
did not take the check “in good faith and for value.”

218
 SINCERE Z. VILLANUEVA v. MARLYN P. NITE
G.R. No. 148211, July 25, 2006
CORONA, J.

FACTS:

Marlyn Nite took out a loan of P409,000 from Sincere Villanueva. Nite issued
an Asian Bank Corporation (ABC) check worth P325,500. The check was
dishonored due to material alteration. Then, throughNite’s representative, she
remitted P235,000 to Villanueva as partial payment. The other balance was to
be paid on a much later date.

A few days later, Villanueva filed an action for a sum of money and
damages against ABC for the full amount of the dishonored check. The RTC
ruled in his favor but when Nite was to withdraw money from her account, she
was unable to do so because the RTC had ordered ABC to pay Villanueva the
P325,000 check.

ABC then remitted to the sheriff the check which Villanueva received. Nite
filed a petition to seek to annul the RTC’s decision. The CA held in favor Nite
and was ordered to pay Nite a sum of money for extrinsic fraud.

ISSUE:

Does Villanueva has a course of action against ABC?

RULING:

No, Villanueva cannot sue ABC.

Section 185of the Negotiable Instruments Law provides that “A check is a

bill of exchange drawn on a bank payable on demand. Except as herein
otherwise provided, the provisions of this Act applicable to a bill of exchange
payable on demand apply to a check.”

Section 189 of the Negotiable Instruments law provides that “A check of

itself does not operate as an assignment of any part of the funds to the credit
of the drawer with the bank, and the bank is not liable to the holder, unless
and until it accepts or certifies the check.”

Invoking Sections 185 and 189 of the Negotiable Instruments Law, if a bank
refuses to pay a check, the payee-holder cannot sue the bank. The payee
should instead sue the holder who might in turn sue the bank. There is no
privity of contract that exists between the drawee-bank and the payee.

219
LETTERS OF CREDIT

PRUDENTIAL BANK v. INTERMEDIATE APPELLATE COURT, PHILIPPINE RAYON

MILLS, INC. and ANACLETO R. CHI
G.R. No. 74886, December 8, 1992
DAVIDE, JR., J.

FACTS:

Philippine Rayon Mills, Inc. (PRMI) entered into a contract with Nissho Co.,
Ltd. Of Japan for the importation of textile machineries under a five-year
deferred payment. To effect payment for said machineries, PRMI applied for 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
Nissho, which were all paid by the Prudential Bank through its correspondent
in Japan, the Bank of Tokyo, Ltd. As indicated on their faces, two of these drafts
were accepted by PRMI through its president, Anacleto R. Chi, while the others
were not. PRMI was able to take delivery of the textile machineries and
installed the same at its factory site. When the obligation of PRMI arising from
the letter of credit and the trust receipt remained unpaid and unliquidated, an
action for the collection was filed against PRMI and Anacleto R. Chi. Chi
argued that presentment for acceptance was necessary to make PRMI liable.
The trial court ruled that that presentment for acceptance was an
indispensable requisite for Philippine Rayon’s liability on the drafts to attach.
Intermediate Appellate Court also ruled that with regard to the ten drafts
which were not presented and accepted, no valid demand for payment can
be made.

ISSUE:

Is presentment for acceptance of the drafts indispensable to make

Philippine Rayon liable thereon?

RULING:
No. A letter of credit is defined as an engagement by a bank or other
person made at the request of a customer that the issuer will honor drafts or
other demands for payment upon compliance with the conditions specified
in the credit. Through a letter of credit, the bank merely substitutes its own
promise to pay for one of its customers who in return promises to pay the
bank the amount of funds mentioned in the letter of credit plus credit or
commitment fees mutually agreed upon. In the instant case then, the
drawee was necessarily the herein petitioner. It was to the latter that the
drafts were presented for payment. In fact, there was 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. Obviously then, sight drafts do not
require presentment for acceptance.

220
 BANK OF AMERICA, NT & SA v. COURT OF APPEALS, INTER-RESIN INDUSTRIAL
CORPORATION, FRANCISCO TRAJANO, JOHN DOE AND JANE DOE
G.R. No. 105395, December 10, 1993
VITUG, J.

FACTS:
Bank of America, NT & SA, Manila, received an Irrevocable Letter of Credit
issued by Bank of Ayudhya for the account of General Chemicals, Ltd., to
cover the sale of plastic ropes and agricultural files with Inter-Resin Industrial
Corporation as beneficiary. Inter-Resin sought to make a partial availment
under the letter of credit by submitting to Bank of America invoices, covering
the shipment of 24,000 bales of polyethylene rope to General Chemicals the
packing list, export declaration and bill of lading. Then, Bank of America issued
to Inter-Resin a Cashier’s Check. The Bank of America wrote Bank of Ayudhya
stating the availment under the letter of credit and sought the corresponding
reimbursement. The Bank of Ayudhya declared the letter of credit fraudulent
and Bank of America stopped the processing of Inter-Resin’s documents.
Sensing a fraud, Bank of America sought the assistance of the National Bureau
of Investigation. NBI discovered that the vans exported by Inter-Resin did not
contain ropes but plastic strips, wrappers, rags and waste materials. Bank of
America sued Inter-Resin for the recovery of the amount on partial availment
of letter of credit.
ISSUE:
Did Bank of America warrant the genuineness and authenticity of the letter
of credit and act merely as an advising bank or as a confirming bank
RULING:
Bank of America has only been an advising, not confirming bank, and this
much is clearly evident, among other things, by the provisions of the letter of
credit itself, the bank’s letter of advice, its request for payment of advising fee,
and the admission of Inter-Resin that it has paid the same. Bank of America has
asked Inter-Resin to submit documents required by the letter of credit and
eventually has paid the proceeds, did not obviously make it a confirming bank.
The fact that the draft required by the letter of credit is to be drawn under the
account of General Chemicals only means the same had to be presented to
Bank of Ayudhya for payment. The letter of credit is an engagement of the
issuing bank, not the advising bank, to pay the draft. As an advising or notifying
bank, Bank of America did not incur any obligation more than just notifying
Inter-Resin of the letter of credit issued in its favor, let alone to confirm the letter
of credit. Inter-Resin itself cannot claim to have been all that free from fault. As
the seller, the issuance of the letter of credit should have obviously been a
great concern to it. In the ordinary course of business, the perfection of
contract precedes the issuance of a letter of credit. As advising bank, Bank of
America is bound only to check the “apparent authenticity” of the letter of
credit, which it did.

221
 CHARLES LEE, CHUA SIOK SUY, MARIANO SIO, ALFONSO YAP, RICHARD
VELASCO and ALFONSO CO v. COURT OF APPEALS and PHILIPPINE BANK OF
COMMUNICATIONS
G.R. No. 117913; G.R. NO. 117914, February 1, 2002
DE LEON, JR., J.

FACTS:
Charles Lee, as President of MICO wrote private respondent Philippine Bank
of Communications (PBCom) requesting for a grant of a discounting
loan/credit line in the sum of P3,000,000.00 for the purpose of carrying out
MICO’s line of business as well as to maintain its volume of business. On the
same day, Charles Lee requested for another discounting loan/credit line of
P3,000,000.00 from PBCom for the purpose of opening letters of credit and trust
receipts. Another loan of P1,000,000.00 was availed of by MICO from PBCom
which was likewise later on renewed. Charles Lee, Chua Siok Suy, Mariano Sio,
Alfonso Yap and Richard Velasco, in their personal capacities executed a
Surety Agreement in favor of PBCom whereby the petitioners jointly and
severally, guaranteed the prompt payment on due dates or at maturity of
overdrafts, promissory notes, discounts, drafts, letters of credit, bills of exchange,
trust receipts, and other obligations of every kind and nature, for which MICO
may be held accountable by PBCom. Charles Lee, in his capacity as
president of MICO, wrote PBCom and applied for an additional loan in the sum
of P4,000,000.00. Upon approval of the said application for loan, MICO availed
of the additional loan of P4,000,000.00. To secure the trust receipts transactions,
MICO and Lee executed a real estate mortgage in favor of PBCOM over
several properties it owns. Upon maturity of all credit availments obtained by
MICO from PBCom, the latter made a demand for payment. For failure of
petitioner MICO to pay the obligations incurred despite repeated demands,
PBCom extrajudicially foreclosed MICO’s real estate mortgage and sold the
said mortgaged properties in a public auction sale.
ISSUE:
Are the subject letters of credit negotiable instruments?
RULING:
No, the subject letters of credit are not negotiable instruments. Negotiable
instruments which are meant to be substitutes for money, must conform to the
following requisites to be considered as such a) it must be in writing; b) it must
be signed by the maker or drawer; c) it must contain an unconditional promise
or order to pay a sum certain in money; d) it must be payable on demand or
at a fixed determinable future time; e) it must be payable to order or bearer;
and f) where it is a bill of exchange, the drawee must be named or otherwise
indicated with reasonable certainty. Negotiable instruments include
promissory notes, bills of exchange and checks. Letters of credit and trust
receipts are, however, not negotiable instruments. But drafts issued in
connection with letters of credit are negotiable instruments.

222
 METROPOLITAN WATERWORKS AND SEWERAGE SYSTEM v. HON. REYNALDO B.
DAWAY, in his capacity as Presiding Judge of the Regional Trial Court of
Quezon City, Branch 90 and Maynilad Water Services, Inc.
G.R. No. 160732, June 21, 2004
AZCUNA, J.

FACTS:
MWSS entered into a Concession Agreement with Maynilad for twenty-
year period to manage, operate, repair, decommission and refurbish the
existing MWSS water delivery and sewerage services. Maynilad was required
to put up a security acceptable to MWSS. In compliance, Maynilad arranged
for a three-year facility led by Citicorp International Limited, for the issuance
of an Irrevocable Standby Letter of Credit in the amount of US$120,000,000 in
favor of MWSS. Maynilad requested MWSS for a mechanism to recover the
losses it had allegedly incurred. Failing to get what it desired, Maynilad issued
a Force Majeure Notice and unilaterally suspended the payment of the
concession fees. Thereafter, the parties entered into a Memorandum of
Agreement wherein Maynilad was allowed to recover foreign exchange
losses. Maynilad again filed another Force Majeure Notice which but to no
avail. This resulted in the amendment of the Concession Agreement.
However, Maynilad served upon MWSS a Notice of Event of Termination,
claiming that MWSS failed to comply with its obligations. In relation to such,
Maynilad is required to pay the concession fees that had fallen due. MWSS,
thereafter, notified Citicorp International Limited, as agent for the
participating banks, that it was drawing on the Irrevocable Standby Letter of
Credit and thereby demanded payment.
ISSUE:
Is the obligation of Maynilad and the banks solidary in nature?
RULING:
Yes. The terms of the Irrevocable Standby Letter of Credit do not show that
the obligations of the banks are not solidary with those of Maynilad. On the
contrary, it is issued at the request of and for the account of Maynilad Water
Services, Inc., in favor of the Metropolitan Waterworks and Sewerage System,
as a bond for the full and prompt performance of the obligations by the
concessionaire under the Concession Agreement and herein MWSS is
authorized by the banks to draw on it by the simple act of delivering to the
agent a written certification substantially in the form Annex B of the Letter of
Credit. Taking into consideration our own rulings on the nature of letters of
credit and the customs and usage developed over the years in the banking
and commercial practice of letters of credit, we hold that except when a letter
of credit specifically stipulates otherwise, the obligation of the banks issuing
letters of credit are solidary with that of the person or entity requesting for its
issuance, the same being a direct, primary, absolute and definite undertaking
to pay the beneficiary upon the presentation of the set of documents required
therein.

223
KENG HUA PAPER PRODUCTS CO. INC. v. COURT OF APPEALS; REGIONAL TRIAL
COURT OF MANILA, BR. 21; and SEA-LAND SERVICE, INC.
G.R. No. 116863, February 12, 1998
PANGANIBAN, J.

FACTS:
Plaintiff is a foreign shipping corporation licensed to do business in the
Philippines. On June 29, 1982, the carrier, Private Respondent Sea-land Service,
Inc., received at its Hong Kong terminal a sealed container containing seventy-
six bales of “unsorted waste paper” for shipment to consignee, Petitioner Keng
Hua Paper Products, Co. in Manila. The shipment was covered by a bill of
lading which the consignee received immediately after arrival but it refused to
accept the shipment because the merchandise was in excess of 10 metric tons.
The shipment was discharged at the Manila International Container Port.
However, the consignee failed to discharge the shipment from the container
during the grace period despite notices of arrival. The shipment remained
inside the shipper’s container for four hundred eighty-one (481) days – from the
moment the grace period expired until the time when the shipment was
unloaded from the container. During the 481-day period, demurrage charges
accrued. Meanwhile, the shipper demanded payment but the consignee
refused to settle its obligation.
ISSUE:
Is a bill of lading separate and independent from other letter of credit
transactions?
RULING:
Yes. In a letter of credit, there are three distinct and independent contracts:
(1) the contract of sale between the buyer and the seller, (2) the contract of
the buyer with the issuing bank, and (3) the letter of credit proper in which the
bank promises to pay the seller pursuant to the terms and conditions stated
therein. Few things are more clearly settled in law than that the three contracts
which make up the letter of credit arrangement are to be maintained in a
state of perpetual separation. A transaction involving the purchase of goods
may also require, apart from a letter of credit, a contract of transportation
specially when the seller and the buyer are not in the same locale or country,
and the goods purchased have to be transported to the latter. Hence, the
contract of carriage, as stipulated in the bill of lading in the present case, must
be treated independently of the contract of sale between the seller and the
buyer, and the contract for the issuance of a letter of credit between the buyer
and the issuing bank. As the bank cannot be expected to look beyond the
documents presented to it by the seller pursuant to the letter of credit, neither
can the carrier be expected to go beyond the representations of the shipper
in the bill of lading and to verify their accuracy I the commercial invoice and
the letter of credit. Thus, the discrepancy between the amount of goods
indicated in the invoice and the amount in the bill of lading cannot negate
petitioners obligation to private respondent arising from the contract of
transportation.

224
BANK OF THE PHILIPPINE ISLANDS v. DE RENY FABRIC INDUSTRIES, INC., AURORA
T. TUYO and AURORA CARCERENY alias AURORA C. GONZALES
G.R. No. L-24821, October 16, 1970
CASTRO, J.

FACTS:

De Reny Fabric Industries (De Reny) purchased dyestuffs in a contract of

sale of good from their foreign supplier, J.B. Distributing company. In order to
cover for the payments, De Reny applied for four commercial letters of credit
before Bank of Philippine Islands (BPI). In pursuance to banking procedures and
the approval of the application of De Reny, BPI issued four (4) irrevocable
commercial letters of credit addressed to its bank in the US with the authority
to negotiate with J.B Distributing Company. As each shipment arrived in the
Philippines, De Reny made partial payments to the bank. However it was
discontinued, when it was established by chemical test conducted by
National Science Development Board, that the goods arrived were colored
chalk instead of dyestuff. De Reny also refused to take possession of said goods
which caused them to be deposited with a bonded warehouse, hence the
filing of complaint by BPI against De Reny. Defendant argues that it was the
duty of the correspondent bank of BPI in US to insure that the goods shipped
und the L/C conformed with the items appearing therein. With its failure, the
bank does not have a cause of action against De Reny for the defective
delivery of the goods.
ISSUE:

Is De Reny liable under the Letter of Credit?

RULING:

Yes. There is a stipulation that the bank will not be liable for any defect in
the goods, any delay in the delivery, or any difference to the quantity or quality.
But even without any stipulation, De Reny cannot shift the burden of loss to BPI
because of a violation on the contract of sale between J.B. Distributing
Company. It was incontrovertibly proven by the Bank during the trial that banks,
in providing financing in international business transactions such as those
entered into by the defendant corporation, do not deal with the property to
be exported or shipped to the importer, but deal only with documents.

The existence of a custom in international banking and financing circles

negating any duty on the part of a bank to verify whether what has been
described in letters of credits or drafts or shipping documents actually tallies
with what was loaded aboard ship, having been positively proven as a fact,
the defendants are bound by this established usage. Hence the Bank cannot
be held liable. The courts ordered De Reny to pay their debt accrued on the
Letter of Credit and the Bonded Warehouse with interest.

225
TRANSFIELD PHILIPPINES, INC. v. LUZON HYDRO CORPORATION, AUSTRALIA and
NEW ZEALAND BANKING GROUP LIMITED and SECURITY BANK CORPORATION
G.R. No. 146717, November 22, 2004
TINGA, J.

FACTS:

Transfield Philippines (Transfield) entered into a turn-key contract with Luzon

Hydro Corp. (LHC).Under the contract, Transfield were to construct a hydro-
electric plants in Benguet and Ilocos. Transfield was given the sole responsibility
for the design, construction, commissioning, testing and completion of the
Project. The contract provides for a period for which the project is to be
completed and also allows for the extension of the period provided that the
extension is based on justifiable grounds such as fortuitous event. In order to
guarantee performance by Transfield, two stand-by letters of credit were
required to be opened. During the construction of the plant, Transfield
requested for extension of time citing typhoon and various disputes delaying
the construction. LHC did not give due course to the extension of the period
prayed for but referred the matter to arbitration committee. Because of the
delay in the construction of the plant, LHC called on the stand-by letters of
credit. However, the demand was objected by Transfield on the ground that
there is still pending arbitration on their request for extension of time.

ISSUE:

Is the independence principle applicable in the case?

RULING:
Yes. In commercial transactions, a letter of credit serves to reduce the risk
of nonpayment of the purchase price under the contract for the sale of goods.
However, credits are also used in non-sale settings where they serve to reduce
the risk of nonperformance. This is the standby type, wherein the credit is
payable upon certification of a party’s nonperformance of the agreement.
The independence principle assures the seller or the beneficiary of prompt
payment independent of any breach of the main contract and precludes the
issuing bank from determining whether the main contract is actually
accomplished or not. The independence principle liberates the issuing bank
from the duty of ascertaining compliance by the parties in the main contract.
As the principles nomenclature clearly suggests, the obligation under the letter
of credit is independent of the related and originating contract. In the instant
case, the right of LHC to call on the Securities was contractually rooted and
subject to the express stipulations in the Turnkey Contract. A careful perusal of
the Turnkey Contract reveals the intention of the parties to make the Securities
answerable for the liquidated damages occasioned by any delay on the part
of petitioner. Thus, even without the use of the independence principle, the
Turnkey Contract itself bestows upon LHC the right to call on the Securities in
the event of default.

226
 LAND BANK OF THE PHILIPPINES v. MONET’S EXPORT AND MANUFACTURING
CORPORATION, SPOUSES VICENTE V. TAGLE, SR. and MA. CONSUELO G. TAGLE
G.R. No. 161865, March 10, 2005
YNARES-SANTIAGO, J.

FACTS:
Land Bank and Monet’s executed an Export Packing Credit Line
Agreement in which Monet was given a credit line in the amount of P250,000,
secured by the proceeds of its export letters of credit. The credit line
agreement was renewed and amended several times until it was increased to
P5,000,000.00. Owing to the continued failure and refusal of Monet,
notwithstanding repeated demands to pay its indebtedness to Land Bank, a
complaint for collection of sum of money with prayer for preliminary
attachment was filed by Land Bank. Monet and the Tagle spouses filed their
answer and alleged that Land Bank failed and refused to collect the
receivables on their export letter of credit against Wishbone Trading Company
of Hong Kong, while it made unauthorized payments on their import letter of
credit to Beautilike (H.K.) Ltd.
ISSUE:
Does Land Bank, as the issuing bank in the Beautilike transaction involving
an import letter of credit, only deal with documents and it is not involved in the
contract between the parties?
RULING:
Yes. The relationship between the beneficiary and the issuer of a letter of
credit is not strictly contractual, because both privity and a meeting of the
minds are lacking. Thus, upon receipt by Land Bank of the documents of title
which conform with what the letter of credit requires, it is duty bound to pay
the seller, as it did in this case. In Transfield Philippines, Inc. v. Luzon Hydro
Corporation, et al., we held that the engagement of the issuing bank is to pay
the seller or beneficiary of the credit once the draft and the required
documents are presented to it. The so-called independence principle assures
the seller or the beneficiary of prompt payment independent of any breach
of the main contract and precludes the issuing bank from determining whether
the main contract is actually accomplished or not. For, if the letter of credit is
drawable only after the settlement of any dispute on the main contract
entered into by the applicant of the said letter of credit and the beneficiary,
then there would be no practical and beneficial use for letters of credit in
commercial transactions.

Thus, no fault or acts of mismanagement can be attributed to Land Bank

relative to Monets import letter of credit. Its actions find solid footing on the
legal principles and jurisprudence earlier discussed. Consequently, it was error
for the trial court and for the Court of Appeals to grant opportunity losses to
the respondents on this account.

227
 FEATI BANK & TRUST COMPANY (now CITYTRUST BANKING CORPORATION) v.
THE COURT OF APPEALS, and BERNARDO E. VILLALUZ
G.R. No. 94209, April 30, 1991
GUTIERREZ, JR., J.

FACTS:
Bernardo E. Villaluz agreed to sell to Axel Christiansen lauan logs. The
consignee, Hanmi Trade Development, Ltd. Made arrangements with the
Security Pacific National Bank of Los Angeles, California to issue Irrevocable
Letter of Credit in favor of Villaluz. The letter of credit was mailed to the Feati
Bank and Trust Company with the instruction that it be accompanied by
specific documents. However, one of the needed documents- certification by
Christiansen, was not presented. As such, Feati Bank refused to advance the
payment on the letter of credit. Since the demands by the private respondent
for Christiansen to execute the certification proved futile, Villaluz, instituted an
action for mandamus and specific performance against Christiansen and the
Feati Bank.
ISSUE:

Is the correspondent bank liable under the letter of credit despite non-
compliance by the beneficiary with the terms thereof?

RULING:

No. In commercial transactions involving letters of credit, the documents

tendered must strictly conform to the terms of the letter of credit. Under the
Uniform Customs and Practice for Documentary Credit, the bank may only
negotiate, accept or pay, if the documents tendered to it are on their face in
accordance with the terms and conditions of the documentary credit. The
absence of any document required in the documentary credit justifies the
refusal by the correspondent bank to negotiate, accept or pay the beneficiary,
as it is not its obligation to look beyond the documents. It merely has to rely on
the completeness of the documents tendered by the beneficiary. In
commercial transactions involving letters of credit, the functions assumed by a
correspondent bank are classified according to the obligations taken up by it.
The correspondent bank may be called a notifying bank, a negotiating bank,
or a confirming bank. In case of a notifying bank, the correspondent bank
assumes no liability except to notify and/or transmit to the beneficiary the
existence of the letter of credit. Since the petitioner was only a notifying bank,
its responsibility was solely to notify and/or transmit the documentary of credit
to the private respondent and its obligation ends there. At the most, when the
petitioner extended the loan to the private respondent, it assumed the
character of a negotiating bank. Even then, the petitioner will still not be liable,
for a negotiating bank before negotiation has no contractual relationship with
the seller. Whether therefore the petitioner is a notifying bank or a negotiating
bank, it cannot be held liable.

228
 THE HONGKONG & SHANGHAI BANKING CORPORATION, LIMITED v.
NATIONAL STEEL CORPORATION and CITYTRUST BANKING CORPORATION
(NOW BANK OF THE PHILIPPINE ISLANDS)
G.R. No. 183486, February 24, 2016
JARDELEZA, J.

FACTS:
Respondent National Steel Corporation entered into an Export Sales
Contract with Klockner East Asia Limited on October 12, 1993. NSC sold 1,200
metric tons of prime cold rolled coils to Klockner under FOB ST Iligan terms. In
accordance with the requirements in the Contract, Klockner applied for an
irrevocable letter of credit with HSBC in favor of NSC as the beneficiary in the
amount of US$468,000. On October 22, 1993, HSBC issued an irrevocable and
onsight letter of credit no. HKH 239409 (the Letter of Credit) in favor of NSC. The
Letter of Credit stated that it is governed by UCP 400. Under UCP 400, HSBC as
the issuing bank, has the obligation to immediately pay NSC upon presentment
of the documents listed in the Letter of Credit. The Letter of Credit was
amended twice to reflect changes in the terms of delivery. The cargo arrived
in Hongkong on November 25, 1993. NSC coursed the collection of its payment
from Klockner through CityTrust Banking Corporation. NSC had earlier obtained
a loan from CityTrust secured by the proceeds of the Letter of Credit issued by
HSBC. Klockner persisted in its refusal to pay. Thus, HSBC returned the
documents to CityTrust. In a letter accompanying the returned documents,
HSBC stated that it considered itself discharged of its duty under the
transaction. In response, CityTrust stated that it is “no longer possible for
beneficiary to wait for you to get paid by applicant.” Disagreeing with HSBC’s
position, CityTrust insisted that HSBC should pay it in accordance with the terms
of the Letter of Credit which it issued on October 22, 1993. Meanwhile, NSC
sent a letter to HSBC where it, for the first time, demanded payment under the
Letter of Credit.
ISSUE:
Who among the parties bears the liability to pay the amount stated in the
Letter of Credit?
RULING:
One of the obligations of an agent is to carry out the agency in accordance
with the instructions of the principal. HSBC persistently communicated with
CityTrust and consistently repeated that it will proceed with collection under
URC 322. At no point did CityTrust correct HSBC or seek clarification from NSC.
In insisting upon its course of action, CityTrust failed to act in accordance with
the instructions given by NSC, its principal. Nevertheless while this Court
recognizes that CityTrust committed a breach of its obligation to NSC, this
carries no implications on the clear liability of HSBC. HSBC had a separate
obligation that it failed to perform by reason of acts independent of CityTrust’s
breach of its obligation under its contract of agency. If CityTrust has incurred
any liability, it is to its principal NSC. However, NSC has not raised any claim
against CityTrust at any point in these proceedings.

229
 NATIONAL COMMERCIAL BANK OF SAUDI ARABIA v. COURT OF APPEALS and
PHILIPPINE BANKING CORPORATION
G.R. No. 124267, January 31, 2003
CARPIO MORALES, J.

FACTS:

Petitioner National Commercial Bank of Saudi Arabia (NCBSA) filed a case

against respondent Philippine Banking Corporation (PBC) to recover the
duplicate payment of the proceeds of a letter of credit issued by NCBSA in
view of the fact that both the head office and Makati branch of PBC collected
the proceeds of the letter of credit.

NCBSA called for the strict application of the rules of procedure to prevent
any more delay in the disposition of the case, which has been pending for
more than seventeen years. On the other hand, the defense of prescription
was invoked by the defendant claiming that 230 olution indebiti cases
prescribe in six years and, therefore, when NCBSA filed its complaint nine years
after the cause of action arose, it had prescribed.

The Regional Trial Court of Makati ruled in favor of NCBSA. PBC filed a
Motion for Reconsideration. NCBSA filed a Manifestation pointing out that
PBC’s Motion for Reconsideration did not contain any notice of hearing. The
trial court struck from the records of the case PBC’s Motion for Reconsideration
of its decision and granted NCBSA’s Motion for Writ of [Link] Appeal,
the CA stated that to deny the MR is too harsh an application of procedural
rules especially so when petitioner has filed a motion to set the motion for
reconsideration for hearing and had furnished private respondent a copy of
the motion, a fact which is not denied by the latter.
ISSUE:

Is the claim filed by the petitioner arising from letters of credit already
barred by prescription?

RULING:

No. Under the law, the prescriptive period for filing an action based on
written contract is 10 years. In this case, PBC and NCBSA were bound by their
contract, the letter of credit, under which NCBSA obliged itself to pay PBC,
subject to compliance by the latter with certain conditions provided therein.
As such, the cause of action was based on a contract, and the prescriptive
period is ten years and not six years.

Courts are not permitted to apply the doctrine of laches earlier than the
expiration of time limited for the commencement of action of law. Therefore,
the claim of petitioner has not yet prescribed.

230
TRUST RECEIPTS LAW

DEVELOPMENT BANK OF THE PHILIPPINES v. PRUDENTIAL BANK

G.R. No. 143772, November 22, 2005
CORONA, J.
FACTS:
Lirag Textile Mills, Inc. (Litex) opened a Letter of Credit with Prudential Bank
for importation of machineries and equipment. These were released to Litex
under covering “trust receipts” it executed in favor of Prudential Bank. Later,
DBP granted a loan to Litex. Litex executed a REM and chattel mortgages
which includes the machineries and equipment covered by the “trust receipts.”
Prudential Bank notified DBP of its claim covered by the “trust receipts” and
that it was the absolute and juridical owner of the said items and they were
thus not part of the mortgaged assets that could be legally ceded to DBP.
However, DBP still foreclosed the properties and was sold subject properties.
Thus, Prudential Bank filed a complaint for a sum of money with damages
against DBP with RTC. Both the lower courts ruled in favor of Prudential Bank. It
applied the provisions of PD 115 and held that ownership over the contested
articles belonged to Prudential Bank as entrustor, not to Litex.
ISSUE:
Is the transaction between Litex and Prudential Bank were trust receipt
transactions within the meaning of PD 115, thus, cannot be the subject of a
mortgage contract?
RULING:
Yes. In a trust receipt transaction, the goods are released by the entruster
to the entrustee on the latter’s execution and delivery to the entruster of a trust
receipt. Here, the articles were not released to Litex to be sold. Nor was the
transfer of possession intended to be a preliminary step for the said goods to
be ultimately or subsequently sold. Thus, the articles were owned by Prudential
Bank and they were only held by Litex in trust. While it was allowed to sell the
items, Litex had no authority to dispose of them or any part thereof or their
proceeds through conditional sale, pledge or any other means. Article 2085 (2)
of the Civil Code requires that, in a contract of pledge or mortgage, the
pledgor or mortgagor should be the absolute owner of the thing. Litex had
neither absolute ownership, free disposal nor the authority to freely dispose of
the articles. Litex could not have subjected them to a chattel mortgage. Their
inclusion in the mortgage was void and had no legal effect. There being no
valid mortgage, there could also be no valid foreclosure or valid auction sale.
Hence, Litex could not transfer a right that it did not have over the disputed
items. Corollarily, DBP could not acquire a right greater than what its
predecessor-in-interest had. DBP merely stepped into the shoes of Litex as
trustee of the imported articles with an obligation to pay their value or to return
them on Prudential Bank’s demand. By its failure to pay or return them despite
Prudential Bank’s repeated demands and by selling them to Lyon without
Prudential Bank’s knowledge and conformity, DBP became a trustee ex
maleficio.

231
 ALFREDO CHING v. THE SECRETARY OF JUSTICE, ASST. CITY PROSECUTOR
ECILYN BURGOS-VILLAVERT, JUDGE EDGARDO SUDIAM of the Regional Trial
Court, Manila, Branch 52; RIZAL COMMERCIAL BANKING CORP. and THE
PEOPLE OF THE PHILIPPINES
G. R. No. 164317, February 6, 2006
CALLEJO, SR., J.

FACTS:

In 1980, Philippine Blooming Mills, Inc., through petitioner, applied with the
Rizal Commercial Banking Corporation for the issuance of commercial letters
of credit to finance its importation of assorted goods. Respondent bank
approved the application, and irrevocable letters of credit were issued in favor
of petitioner. The goods were purchased and delivered in trust to PBMI.
Petitioner signed 13 trust receipts as surety, acknowledging delivery of the
goods. When the trust receipts matured, petitioner failed to return the goods
to respondent bank, or to return their value amounting to ₱6,940,280.66 despite
demands. Thus, the bank filed a criminal complaint for estafa against petitioner.

ISSUE:
Can petitioner be held liable for acts performed pursuant to his function in
the Corporation?

RULING:
Yes. The transaction between petitioner and respondent bank falls under
the trust receipt transactions envisaged in P.D. No. 115. The Court rules that
although petitioner signed the trust receipts merely as Senior Vice-President of
PBMI and had no physical possession of the goods, he cannot avoid
prosecution for violation of P.D. No. 115. It must be stressed that P.D. No. 115,
as a matter of public policy, the failure of person to turn over the proceeds of
the sale of the goods covered by a trust receipt or to return said goods, if not
sold, is a public nuisance to be abated by the imposition of penal sanctions.
The crime defined in P.D. No. 115 is malum prohibitum but is classified as estafa
under paragraph 1(b), Article 315 of the Revised Penal Code, or estafa with
abuse of confidence. It may be committed by a corporation or other juridical
entity or by natural persons.

Though the entrustee is a corporation, nevertheless, the law specifically

makes the officers, employees or other officers or persons responsible for the
offense, without prejudice to the civil liabilities of such corporation and/or
board of directors, officers, or other officials or employees responsible for the
offense. The rationale is that such officers or employees are vested with the
authority and responsibility to devise means necessary to ensure compliance
with the law and, if they fail to do so, are held criminally accountable; thus,
they have a responsible share in the violations of the law.

232
LANDL & COMPANY (PHIL.) INC., PERCIVAL G. LLABAN and MANUEL P. LUCENTE
v. METROPOLITAN BANK & TRUST COMPANY
G.R. No. 159622, July 30, 2004
YNARES-SANTIAGO, J.

FACTS:
Landl Co opened Commercial Letter of Credit No. 4998 with respondent
bank, in the amount of US$19,606.77, which was equivalent to P218,733.92 in
Philippine currency at the time the transaction was consummated. The letter
of credit was opened to purchase various welding rods and electrodes from
Perma Alloys, Inc., New York, U.S.A., As an additional security, and as a
condition for the approval of petitioner corporation’s application for the
opening of the commercial letter of credit, respondent bank required
petitioners Percival G. Llaban and Manuel P. Lucente to execute a Continuing
Suretyship Agreement to the extent of P400,000.00. Upon arrival of the goods
in the Philippines, petitioner corporation took possession and custody thereof.
On the maturity date of the trust receipt, petitioner corporation defaulted in
the payment of its obligation to respondent bank and failed to turn over the
goods to the latter. The goods were sold for P30,000.00 to respondent bank as
the highest bidder. The proceeds of the auction sale were insufficient to
completely satisfy petitioners’ outstanding obligation to respondent bank,
notwithstanding the application of the time deposit account of petitioner
Lucente. Accordingly, respondent bank demanded that petitioners pay the
remaining balance of their obligation. After petitioners failed to do so,
respondent bank instituted the instant case to collect the said deficiency.
ISSUE:
Does possession by the bank of the goods under the trust receipts not bar
collection of the loan?
RULING:
Thus, in Abad v. Court of Appeals, it was ruled that: A letter of credit-trust
receipt arrangement is endowed with its own distinctive features and
characteristics. Under that set-up, a bank extends a loan covered by the letter
of credit, with the trust receipt as security for the loan. In other words, the
transaction involves a loan feature represented by the letter of credit, and a
security feature which is in the covering trust receipt. A trust receipt, therefore,
is a security agreement, pursuant to which a bank acquires a “security interest”
in the goods. It secures an indebtedness and there can be no such thing as
security interest that secures no obligation. The Trust Receipts Law was enacted
to safeguard commercial transactions and to offer an additional layer of
security to the lending bank. Trust receipts are indispensable contracts in
international and domestic business transactions. The prevalent use of trust
receipts, the danger of their misuse and/or misappropriation of the goods or
proceeds realized from the sale of goods, documents or instruments held in
trust for entruster banks, and the need for regulation of trust receipt
transactions to safeguard the rights and enforce the obligations of the parties
involved are the main thrusts of the Trust Receipts Law.

233
 THE PEOPLE OF THE PHILIPPINES v. BEN CUEVO
G.R. No. L-27607, May 7, 1981
AQUINO, J.

FACTS:
In this case, respondent Cuevo was charged with estafa when he
feloniously defrauded Prudential Bank and Trust Company when he received
in trust from the bank a merchandise of 1000 bags of grind yellow corn and
1000 bags of palay specified in a trust receipt covered by a Letter of Credit
executed by him in favor of Prudential Bank to be sold by him under the express
obligation to account the merchandise and turn over to the bank the
proceeds of the sale. But Cuevo failed to do so even after repeated demands
were made upon him and had intentionally defrauded the bank when he used
the proceeds to his own personal use and benefit which caused damages to
Prudential Bank. The lower court decided that the contract covered by a
trust receipt is merely a secured loan where the borrower is allowed to dispose
of the collateral, whereas, in a deposit the depositary is not empowered to
dispose of the property deposited. Hence, the lower court concluded that the
violation of the provisions of the trust receipt gives rise to a civil action and not
to a criminal prosecution for estafa.
ISSUE:
Is the contract between Cuevo and Prudential Bank and Trust Company
covered by Article 315(l) (b)?
RULING:

Yes. Even if the accused did not receive the merchandise for deposit, he
is, nevertheless, covered by article 315(l) (b) because after receiving the price
of the sale, he did not deliver the money to the bank or, if he did not sell the
merchandise, he did not return it to the bank. Thus, it was held that where,
notwithstanding repeated oral and written demands by the bank, the
petitioner had failed either to turn over to the said bank the proceeds of the
sale of the goods, or to return said goods if they were not sold, the petitioner is
guilty of estafa under article 315(l) (b). In this connection, it is relevant to state
that Presidential Decree No. 115, the Trust Receipts Law, regulating trust
receipts transactions, was issued on January 29, 1973. Section 13 of the decree
provides that “the failure of an entrustee to turn over the proceeds of the sale
of the goods, documents or instruments covered by a trust receipt to the extent
of the amount owing to the entruster or as appears in the trust receipt or to
return said goods, documents or instruments if they were not sold or disposed
of in accordance with the terms of the trust receipt shall constitute the crime
of estafa, punishable under the provisions” of article 315 of the Revised Penal
Code. The enactment of the said penal provision is confirmatory of existing
jurisprudence and should not be construed as meaning that, heretofore, the
misappropriation of the proceeds of a sale made under a trust receipt was not
punishable under article 315.

234
MELVIN COLINARES and LORDINO VELOSO v. HONORABLE COURT OF APPEALS,
and THE PEOPLE OF THE PHILIPPINES
G.R. No. 90828, September 5, 2000
DAVIDE, JR., C.J.
FACTS:

In 1978 Melvin Colinares and Lordino were contracted for a consideration

of Php. 40, 000 by the Carmelite Sisters of Cagayan de Oro city to renovate the
latter’s convent ot Camaman-an, Cagayan de Oro City. Colinares applied for
a commercial letter of credit with the PBC, Cagayan de Oro branch in favour
of CM Builders Centre. PBC approved the letter of credit for Php. 22, 398.80 to
cover the full invoice value of the goods. Petitioners signed a trust receipt as
security. PBC debited Php.6, 720 from petitioners marginal deposit as partial
payment of the loan. PBC wrote to petitioners demanding that the amount to
be paid within seven days from notice. Instead of complying with PBC’s
demand, Veloso confessed that they lost Php. 19, 195.83 in the Carmelite
Monastery Project and requested for a grace period to settle the account.
Petitioners proposed that the terms of payment of the loan be modified until
the account is fully paid. Pending approval of the proposal, petitioners paid
Php. 1000 to PBC and thereafter Php. 500 but PBC continued to demand
payment for the balance. Petitioners were then charged with the violation of
P.D, No. 115, Trust Receipt Law in relation to Article 315 of the Revised Penal
Code.
ISSUE:
Is the transaction of Colinares within the scope of the0Law on Trust
Receipts?
RULING:

No. The transaction intended by the parties was a simple loan, not a trust
receipt agreement. Petitioners received the merchandise from CM Builders
Centre and on that day, ownership of the merchandise was already
transferred to petitioners who were to use the materials for their construction
project. It was only a day later that they went to the bank to apply for loan to
pay for the merchandise. This situation belies what normally obtains in a pure
trust receipt transaction where goods are owned by the bank and only
released to the importer in trust subsequent to the grant of the loan. The bank
acquires a security interest in the goods as a holder of a security title for the
advances it had made to the entrustee. The ownership of the merchandise
continues to be vested in the person who had advanced payment until he has
been paid in full. To secure that the bank shall be paid, it takes full title to the
goods at the very beginning and continues to hold that title as his
indispensable security until the goods are sold and the vendee is called upon
to pay for them; hence, the importer has never owned the goods and is not
able to deliver possession. In a certain manner, trust receipt partake of the
nature of a conditional sale where the importer becomes absolute owner of
the imported merchandise imported or purchased.

235
 ROSARIO TEXTILE MILLS CORPORATION and EDILBERTO YUJUICO v. HOME
BANKERS SAVINGS AND TRUST COMPANY
G.R. No. 137232, June 29, 2005
SANDOVAL-GUTIERREZ, J.

FACTS:
Rosario Textile Mills Corporation (RTMC) applied from Home Bankers Savings
& Trust Co. for an Omnibus Credit Line for P10 million. The bank approved
RTMC’s credit line but for only P8 million. The bank notified RTMC of the grant
of the said loan thru a letter which contains terms and conditions conformed
by RTMC thru Edilberto V. Yujuico. Yujuico signed a Surety Agreement in favor
of the bank, in which he bound himself jointly and severally with RTMC for the
payment of all RTMC’s indebtedness to the bank. RTMC availed of the credit
line by making numerous drawdowns, each drawdown being covered by a
separate promissory note and trust receipt. RTMC, represented by Yujuico,
executed in favor of the bank a total of eleven (11) promissory notes. Despite
the lapse of the respective due dates under the promissory notes and
notwithstanding the bank’s demand letters, RTMC failed to pay its loans.
Hence, the bank filed a complaint for sum of money against RTMC and Yujuico.
On the other hand, RTMC and Yujuico claimed that although the grant of the
credit line and the execution of the suretyship agreement are admitted, the
bank gave assurance that the suretyship agreement was merely a formality
under which Yujuico will not be personally liable; that the importation of raw
materials under the credit line was with a grant of option to them to turn-over
to the bank the imported raw materials should these fail to meet their
manufacturing requirements. RTMC offered to make such turn-over since the
imported materials did not conform to the required specifications. However,
the bank refused to accept the same, until the materials were destroyed by a
fire which gutted down RTMC’s premises. He theorized that when RTMC
imported the raw materials needed for its manufacture, using the credit line, it
was merely acting on behalf of the bank, the true owner of the goods by virtue
of the trust receipts.
ISSUE:
Are RMTC and Yujuico correct in contending that the bank is the owner of
the materials pursuant to trust receipts, hence, the bank should bear the loss?
RULING:
No. The principal transaction between petitioner RTMC and the bank is a
contract of loan. Petitioners’ stance conveniently ignores the true nature of its
transaction with the bank. In banking and commerce, a credit line is “that
amount of money or merchandise which a banker, merchant, or supplier
agrees to supply to a person on credit and generally agreed to in advance.”
It is the fixed limit of credit granted by a bank, retailer, or credit card issuer to
a customer, to the full extent of which the latter may avail himself of his dealings
with the former but which he must not exceed and is usually intended to cover
a series of transactions.

236
 CEFERINA SAMO v. THE PEOPLE OF THE PHILIPPINES, ET AL.
G.R. Nos. L-17603-04, May 31, 1962
DIZON, J.

FACTS:

Prior to the two transactions in question, the complainant Bank of the

Philippine Islands had been extending credit facilities to petitioner in relation to
petitioner’s business. To facilitate the importation of 1487 cartons of tins of
squids valued and 889 cartons of canned Rosebowl sardines, petitioner
opened in 1954 two letters of credit with petitioner bank. Upon the arrival of
the goods the bank advanced or paid the balances due in order that the
goods could be released, and required petitioner to execute two trust receipts
in its favor as a condition for the turning over of their possession to her. On July
petitioner executed the two trust receipts wherein she acknowledged having
received in trust from the bank the aforementioned goods and obligated
herself to hold them in trust for the latter. The document authorized her to sell
the goods for the account of the bank, under the obligation to remit to the
latter the proceeds of the sale to return them, if not sold.

Petitioner having failed to account for the goods and the proceeds thereof
despite repeated oral and written demands by the bank, Criminal Cases for
estafa were instituted against petitioner. However after the filing of said cases,
petitioner made partial payments to her obligation. After trial, the Court of First
Instance convicted petitioner. On appeal, the Court of Appeals affirmed the
conviction.

ISSUE:

Is the petitioner liable for estafa in violation of the conditions in the trust
receipts?

RULING:
Yes. The Court reiterated its previous decision and stated that upon the
issue whether a party who fails to comply with the terms of a trust receipt
executed by him, particularly to make payment of his obligation thereunder,
such could be prosecuted for estafa. Such failure would be a good ground for
prosecution.

The execution of the two trusts receipts were undisputed. Accordingly,

petitioner had failed either to turn over to the latter the proceeds of the sale
of the goods covered by the trust receipts, or to return said goods, if they were
not sold as provided by the conditions in the trust receipts. As such the Court
found the petitioner guilty of estafa. Accordingly, the fact that there were
subsequent partial payments by the petitioner does not alter the situation.
Payment does not extinguish criminal liability for estafa.

237
 STATE INVESTMENT HOUSE, INC. v. COURT OF APPEALS and NORA B. MOULIC
G.R. No. 101163, January 11, 1993
BELLOSILLO, J.

FACTS:

Respondent Moulic issued 2 Php 50,000.00 each post-dated Equitable Bank

checks to Corazon Victoriano with the maturity dates of August 30 and
September 30, 1979 as security for the latter’s jewelry to be sold on commission.
Corazon then negotiated the checks to petitioner. However, after failing to sell
the pieces of jewelry, Moulic returned them before the maturity of the said
checks, but they could not be retrieved as they were with petitioner, and that,
Moulic also withdrew her funds before the said maturity dates. When
petitioner presented the checks for payment, they were dishonored for
insufficiency of funds. It sent a notice of dishonor to Moulic on December 20,
1979, and subsequently sued her on October 6, 1983.

ISSUE:

Is failure to give a notice of dishonor fatal to petitioner’s case?

RULING:

No. The non-issuance of the notice of dishonor is not fatal to the case.
Under Sec. 114:

Sec. 114. When notice need not be given to drawer. — Notice of dishonor
is not required to be given to the drawer in the following cases: (a) Where the
drawer and the drawee are the same person; (b) When the drawee is a
fictitious person or a person not having capacity to contract; (c) When the
drawer is the person to whom the instrument is presented for payment: (d)
Where the drawer has no right to expect or require that the drawee or
acceptor will honor the instrument; (e) Where the drawer had countermanded
payment.

Such issuance is not necessary. By withdrawing her funds from the bank
after failing to retrieve the checks, she singlehandedly dishonored the 2 checks
with her knowledge, thus, a notice of dishonor is not necessary. The issuance
of checks sends an implied representation that there are available funds in the
issuer’s account, and by withdrawing the funds to avoid liability of the checks
cannot prejudice holders in due course.

Thus, respondent is liable to petitioner for the amount of the checks plus
attorney’s fees.

238
 ANTHONY L. NG v. PEOPLE OF THE PHILIPPINES
G.R. No. 173905, April 23, 2010
VELASCO, JR.
FACTS:
Anthony Ng was engaged in the business of building and fabricating
telecommunication towers under the trade name Capitol Blacksmith and
Builders. Petitioner applied for a credit line of Php 3,000,000 with Asia trust. In
support of Asia trusts credit investigation, petitioner voluntarily submitted the
following documents: (1) the contracts he had with Islacom, Smart, and
Infocom; (2) the list of projects wherein he was commissioned by the said
telecommunication companies to build several steel towers; and (3) the
collectible amounts he has with the said companies. Asiatrust approved
petitioner’s loan application. Petitioner was then required to sign several
documents, among which are the Credit Line Agreement, Application and
Agreement for Irrevocable L/C, Trust Receipt Agreements, and Promissory
Notes. Though the Promissory Notes had maturity dates, the two Trust Receipt
Agreements did not bear any maturity dates. After petitioner received the
goods, consisting of chemicals and metal plates from his suppliers, he utilized
them to fabricate the communication towers ordered from him by his clients.
As petitioner realized difficulty in collecting from his client Islacom, he failed to
pay his loan to Asiatrust. Asiatrust’s representative appraiser, reported that
approximately 97% of the subject goods of the Trust Receipts were sold-out
and that only 3% of the goods remained. Efforts towards a settlement failed to
be reached. Asiatrust Account Officer filed a Complaint-Affidavit for Estafa, as
defined and penalized under Art. 315, par. 1(b) of the RPC in relation to Sec. 3,
PD 115 or the Trust Receipts Law.
ISSUE:
is the transaction between petitioner and Asiatrust a trust receipt
transaction?
RULING:
No. A trust receipt transaction is one where the entrustee has the obligation
to deliver to the entruster the price of the sale, or if the merchandise is not sold,
to return the merchandise to the entruster. There are, therefore, two obligations
in a trust receipt transaction: the first refers to money received under the
obligation involving the duty to turn it over (entregarla) to the owner of the
merchandise sold, while the second refers to the merchandise received under
the obligation to return it (devolvera) to the owner. Petitioner is correct that
there was no misappropriation or conversion on his part, because his liability
for the amount of the goods subject of the trust receipts arises and becomes
due only upon receipt of the proceeds of the sale and not prior to the receipt
of the full price of the goods. PD 115 provides that an entrustee is only liable for
Estafa when he fails to turn over the proceeds of the sale of the goods covered
by a trust receipt to the extent of the amount owing to the entruster or as
appears in the trust receipt in accordance with the terms of the trust receipt.

239
METROPOLITAN BANK & TRUST COMPANY v. HON. SECRETARY OF JUSTICE RAUL
M. GONZALES, OLIVER T. YAO and DIANA T. YAO
G.R. No. 180165, April 7, 2009
CHICO-NAZARIO, J.

FACTS:
Petitioner is a banking institution duly authorized to engage in the banking
business under Philippine laws. Private respondents were the duly authorized
representatives of Visaland Inc. (Visaland), likewise a domestic corporation
engaged in the real estate development business. In order to finance the
importation of materials necessary for the operations of its sister company, Titan
Ikeda Construction and Development Corporation (TICDC), private
respondents, on behalf of Visaland, applied with petitioner for 24 letters of
credit, the aggregate amount of which reached the sum of P68,749,487.96.
Simultaneous with the issuance of the letters of credit, private respondents
signed trust receipts in favor of metrobank. Private respondents bound
themselves to sell the goods covered by the letters of credit and to remit the
proceeds to petitioner, if sold, or to return the goods, if not sold, on or before
their agreed maturity dates. When the trust receipts matured, private
respondents failed to return the goods to petitioner, or to return their value
amounting to P68,749,487.96 despite demand. Thus, petitioner filed a criminal
complaint for estafa against Visaland and private respondents with the Office
of the City Prosecutor of Manila (City Prosecutor).
ISSUE:

Does probable cause exists for the prosecution of private respondents for
the crime of estafa in relation to P.D. 115?
RULING:

Yes. That private respondents did not sell the goods under the trust receipt
but allowed it to be used by their sister company is of no moment. The offense
punished under Presidential Decree No. 115 is in the nature of malum
prohibitum. A mere failure to deliver the proceeds of the sale or the goods, if
not sold, constitutes a criminal offense that causes prejudice not only to
another, but more to the public interest. Even more incredible is the contention
of private respondents that they did not give much significance to the
documents they signed, considering the enormous value of the transaction
involved. Thus, it is highly improbable to mistake trust receipt documents for a
contract of loan when the heading thereon printed in bold and legible letters
reads: “Trust Receipts.” We are not prejudging this case on the merits. However,
by merely glancing at the documents submitted by petitioner entitled “Trust
Receipts” and the arguments advanced by private respondents, we are
convinced that there is probable cause to file the case and to hold them for
trial. All told, the evidentiary measure for the propriety of filing criminal charges
has been reduced and liberalized to a mere probable cause.

240
 PILIPINAS BANK v. ALFREDO T. ONG and LEONCIA LIM
G.R. No. 133176, August 8, 2002
SANDOVAL-GUTIERREZ, J.
FACTS:

Baliwag Mahogany Corporation (BMC), through its president, respondent

Alfredo T. Ong, applied for a domestic commercial letter of credit with
petitioner Pilipinas Bank to finance the purchase of about 100,000 board feet
of “Air Dried, Dark Red Lauan” sawn lumber. The bank approved the
application and issued Letter of Credit in the amount of P3,500,000.00. To
secure payment of the amount, BMC, through respondent Ong, executed two
(2) trust receipts providing inter alia that it shall turn over the proceeds of the
goods to the bank, if sold, or return the goods, if unsold, upon maturity. On due
dates, BMC failed to comply with the trust receipt agreement prompting it to
file a petition for rehabilitation and declaration of a state of suspension of
payments with the Securities and Exchange Commission informing its creditors,
which was later granted. SEC also issued an order creating a Management
Committee wherein the bank is represented. The Committee shall, among
others, undertake the management of BMC, take custody and control of all its
existing assets and liabilities, study, review and evaluate its operation and/or
the feasibility of its being restructured. BMC and a consortium of 14 of its
creditor banks entered into MOA rescheduling the payment of BMC’s existing
debts. However, BMC and respondent Ong defaulted in the payment of their
obligations under the rescheduled payment scheme provided in the MOA.
ISSUE:
Can the respondents be held liable for violation of the Trust Receipts Law?
RULING:

No. Mere failure to deliver the proceeds of the sale or the goods, if not sold,
constitutes violation of PD No. 115. However, what is being punished by the law
is the dishonesty and abuse of confidence in the handling of money or goods
to the prejudice of another regardless of whether the latter is the owner. In this
case, neither dishonesty nor abuse of confidence can be attributed to
respondents. It bears emphasis that when petitioner bank made a demand
upon BMC on to comply with its obligations under the trust receipts, the latter
was already under the control of the Management Committee created by the
SEC in its Order. The Management Committee took custody of all BMC’s assets
and liabilities, including the red lauan lumber subject of the trust receipts, and
authorized their use in the ordinary course of business operations. Clearly, it was
the Management Committee which could settle BMC’s obligations. Indeed,
what is automatically terminated in case BMC failed to comply with the
conditions under the MOA is not the MOA itself but merely the obligation of the
lender (the bank) to reschedule the existing credits. Moreover, the execution
of the MOA extinguished respondents’ obligation under the trust receipts.
Respondents’ liability, if any, would only be civil in nature.

241
 JOSE ANTONIO U. GONZALEZ v. HONGKONG & SHANGHAI BANKING
CORPORATION
G. R. No. 164904, October 19, 2007
CHICO-NAZARIO, J.

FACTS:
Petitioner Gonzalez, in behalf of Mondragon Leisure and Resorts
Corporation (MLRC), acknowledged receipt of various golfing equipments
and assorted Walt Disney items, and signed the corresponding two Trust
Receipt agreements both in favor of respondent Hongkong & Shanghai
Banking Corporation (HSBC). When the due dates of subject Trust Receipts
came and went without word from MLRC, respondent HSBC demanded from
MLRC the turnover of the proceeds of the sale of the assorted goods covered
by the Trust Receipts or the return of said goods. Despite demand, however,
MLRC failed to return the assorted goods or their value. Consequently, Felipe,
for respondent HSBC, filed a criminal complaint for estafa for violation of PD
115 Trust Receipts Law against the petitioner.

Petitioner Gonzalez argued that he cannot be held criminally responsible

for alleged violation of the Trust Receipts subject hereof. The aforesaid
transactions, while reportedly denominated as Trust Receipts were not really
intended by the parties to be trust receipt transaction within the purview of P.D.
115. At best, they are loan transactions, for which the respondent cannot be
held criminally liable.
ISSUE:

Is the transaction a Trust Receipt?

RULING:

Yes. In the case at bar, petitioner Gonzalez is charged by respondent HSBC

with violating Presidential Decree No. 115. Section 4 of the Trust Receipts Law
defines a trust receipt transaction. In general, a trust receipt transaction
imposes upon the entrustee the obligation to deliver to the entruster the price
of the sale, or if the merchandise is not sold, to return the same to the entruster.
There are thus two obligations in a trust receipt transaction: the first, refers to
money received under the obligation involving the duty to turn it over
(entregarla) to the owner of the merchandise sold, while the second refers to
merchandise received under the obligation to return it (devolvera) to the
owner. A violation of any of these undertakings constitutes estafa defined
under Art. 315(1)(b) of the Revised Penal Code, as provided by Sec. 13 of
Presidential Decree 115. Petitioner Gonzalez is charged with failing to turn over
to the Bank a single centavo of the proceeds of the sale of the (assorted)
goods covered by the Trust Receipts, or to return any of the assorted goods.
Hence, petitioner Gonzalez is liable for violation of PD 115.

242
 SPOUSES QUIRINO V. DELA CRUZ and GLORIA DELA CRUZ v. PLANTERS
PRODUCTS, INC.
G.R. No. 158649, February 18, 2013
BERSAMIN, J.

FACTS:
Spouses Quirino V. Dela Cruz and Gloria Dela Cruz, petitioners herein,
operated the Barangay Agricultural Supply, an agricultural supply store in
Aliaga, Nueva Ecija engaged in the distribution and sale of fertilizers and
agricultural chemical products, among others. At the time material to the case,
Quirino, a lawyer, was the Municipal Mayor of Aliaga, Nueva Ecija. On March
23, 1978, Gloria applied for and was granted by respondent Planters Products,
Inc. (PPI) a regular credit line of P200,000.00 for a 60-day term, with trust receipts
as collaterals. Quirino and Gloria submitted a list of their assets in support of her
credit application for participation in the Special Credit Scheme (SCS) of PPI.
On August 28, 1978, Gloria signed in the presence of the PPI distribution
officer/assistant sales representative two documents labeled “Trust
Receipt/Special Credit Scheme,” indicating the invoice number, quantity,
value, and names of the agricultural inputs (i.e., fertilizer or agricultural
chemicals) she received “upon the trust” of PPI. Gloria thereby subscribed to
specific undertakings.
ISSUE:
Is the contract entered into between Sps. Dela Cruz and Planter’s Products,
Inc. one of a Trust Receipt transaction?

RULING:

No, in all Trust Receipt transactions, both obligations on the part of the
entrustee exist in the alternative- the return of the proceeds of the sale or the
return of the goods, whether raw or processed. More so, when both parties
enter into an agreement knowing that the return of the goods subject of the
Trust Receipt is not possible even without any fault on the part of the entrustee,
it is not a Trust Receipt transaction penalized under Sec. 13, P.D. 115.
Furthermore, when the only obligation actually agreed upon by the parties
would be the return of the proceeds of the sale transaction, this becomes a
mere loan, where the borrower is obligated to pay the bank the amount spent
for the purchase of the goods. Finally, in this case, the contract, its label
notwithstanding, was not a trust receipt transaction in legal contemplation or
within the purview of the Trust Receipts Law (Presidential Decree No. 115) such
that its breach would render Gloria criminally liable for estafa. Under Section 4
of the Trust Receipts Law, the sale of goods by a person in the business of selling
goods for profit who, at the outset of the transaction, has, as against the buyer,
general property rights in such goods, or who sells the goods to the buyer on
credit, retaining title or other interest as security for the payment of the
purchase price, does not constitute a trust receipt transaction and is outside
the purview and coverage of the law.

243
 TRANSPACIFIC BATTERY, CORPORATION and MICHAEL G. SAY v. SECURITY
BANK & TRUST CO.
G.R. No. 173565; G.R. No. 173607, May 8, 2009
TINGA, J.

FACTS:

Transpacific, represented by its officers, Michael G. Say, Josephine G. Say

and Myrna Magpantay, entered into a Credit Line Agreement with the Security
Bank to facilitate the importation and/or purchases of certain merchandise,
goods and supplies for its business. The Bank issued the corresponding Letter of
Credit to Transpacific. Transpacific then executed and delivered to the
Security Bank, as entrustor nine trust receipt agreements for the release of the
imported merchandise and supplies in its favor. The said officers bind
themselves to be solidarily liable with Transpacific to the Bank for the value of
the merchandise and supplies covered by the trust receipts. Under the terms
of the trust receipts, the entrustees agreed to hold the goods, merchandise
and supplies, as well as the proceeds of the sale and collection thereof, in trust
for the Bank for the payment of petitioners acceptance, bank commissions
and charges, and/or any other indebtedness of Officers of the Transpacific to
the Security Bank, and deliver the same to the Bank upon maturity date of said
trust receipts. On the maturity dates of the trust receipts, officers of the
transpacific failed to make good of their debt. The officers of transpacific
and the Security Bank executed a letter-agreement restructuring the former’s
obligation to accommodate the entrustees and give them a longer period to
pay. Despite of this they still failed to pay.
ISSUE:
Is the obligation under the trust receipts novated by the restructuring
agreement?
RULING:
NO. There is no express novation since the restructuring agreement does
not state in clear terms that the obligation under the trust receipts is
extinguished and in lieu thereof the restructuring agreement will be substituted.
Neither is there an implied novation since the restructuring agreement is not
incompatible with the trust receipt transactions. The restructuring agreement
even recognizes the obligation due under the trust receipts when it required
payment of all interest and other charges prior to restructuring.

There was even a proviso under the agreement that the amount due is
subject to the joint and solidary liability of Spouses Miguel and Mary Say and
Michael Go Say. The old obligation continues to subsist subject to the
modifications agreed upon by the parties. The circumstance that motivated
the parties to enter into a restructuring agreement was the failure of petitioners
to account for the goods received in trust and/or deliver the proceeds thereof.

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 PHILIPPINE NATIONAL BANK v. LILIAN S. SORIANO
G.R. No. 164051, October 3, 2012
PEREZ, J.

FACTS:
PNB extended a credit facility in the form of a Floor Stock Line (FSL) to Lisam
Enterprises, Inc. (LISAM) Soriano is the chairman and president of LISAM, she is
also the authorized signatory in all LISAM’s Transactions with PNB. The proceeds
of which were credited to its current account with PNB. For each availment,
LISAM through Soriano executed 52 trust receipts, with the duty to turn-over the
proceeds of the sale thereof to PNB. Afterwards, despite several formal
demands, respondent Soriano failed and refused to turn over the said amount
to the prejudice of PNB. When her husband Leandro A. Soriano, Jr. was still alive,
LISAM submitted proposals to PNB for the restructuring of all of LISAM’s credit
facilities. Subsequently a letter was sent to LISAM informing PNB’s lack of
objection to LISAM’s proposal of restructuring all its obligations and “Full
waiver of penalty charges on RCL, FSL (which is the Floor Stock Line on which
the trust receipts are availments) and Time Loan and that the FSL and the
availments thereon allegedly secured by Trust Receipts, therefore, was
already converted into, and included in , an Omnibus Line of ₱106 million
on September 22, 1998, which was actually a Revolving Credit Line.

PNB maintained that Soriano’s criminal liability under the trust receipts and
that while it is true that said restructuring was approved, the same was never
implemented because LISAM failed to comply with the conditions of approval
such as the payment of the interest and other charges and the submission of
the title of the 283 sq. m. of vacant residential lot.

ISSUE:
Did the restructuring of LISAM’s loan account extinguished Soriano’s
criminal liability?

RULING:
No. The Restructuring of LISAM’s loan account did not extinguished
Soriano’s criminal liability. To begin with, the purported restructuring of the loan
agreement did not constitute novation. Novation is never presumed, without
a written contract stating in unequivocal terms that the parties were novating
the original loan agreement, thus undoubtedly eliminating an express novation.

The court examined whether the Floor Stock Line is incompatible with the
purported restructured Omnibus Line. Incompatibility must be essential in
nature and not merely accidental. The incompatibility must take place in any
of the essential elements of the obligation, such as its object, cause or principal
conditions thereof; otherwise, the change would be merely modificatory in
nature and insufficient to extinguish the original obligation.

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WAREHOUSE RECEIPTS LAW

TELENGTAN BROTHERS & SONS, INC. (LA SUERTE CIGAR & CIGARETTE) v. THE
COURT OF APPEALS, KAWASAKI KISHEN KAISHA, LTD. And SMITH, BELL & CO.,
INC.
G.R. No. 110581, September 21, 1994
MENDOZA, J.
FACTS:
Petitioner is a domestic corporation while US Lines is a foreign corporation
engaged in overseas shipping. It was made applicable that consignees who
fail to take delivery of their containerized cargo within the 10-day free period
are liable to pay demurrage charges. On June 22, 1981, US Lines filed a suit
against petitioner seeking payment of demurrage charges plus interest and
damages. Petitioner incurred P94,000 which the latter refused to pay despite
repeated demands. Petitioner disclaims liability alleging that it has never
entered into a contract nor signed an agreement to be bound by it. RTC
ruled that petitioner is liable to respondent and all be computed as of the
date of payment in accordance with Article 1250 of the Civil Code. CA
affirmed the decision.

ISSUE:

Is petitioner liable for the demurrage charges?

RULING:

The Supreme Court found as erroneous the trial court’s decision as affirmed
the Court of Appeals. The Court holds that there has been an extraordinary
inflation within the meaning of Article 1250 of the Civil Code. There is no reason
for ordering the payment of an obligation in an amount different from what
has been agreed upon because of the purported supervention of an
extraordinary inflation.

The assailed decision is affirmed with modification that the order for re-
computation as of the date of payment in accordance with the provisions of
Article 1250 of New Civil Code is deleted.

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 PHILIPPINE TRUST COMPANY, as assignee of Salvador Hermanos v. PHILIPPINE
NATIONAL BANK
G.R. No. L-16483, December 7, 1921
JOHNS, J.
FACTS:

Salvador Hermanos was a copartnership and during the month of January,

1919, executed to the defendant eight promissory notes aggregating P156, 000,
payable on demand, and each secured by a warehouse receipt, issued by
the firm of Nieva, Ruiz and Company. Each note recites that it is payable on
demand after date, for value received, and that the firm has deposited with
the said bank as collateral security for the payment of this note, or any note
given in extension or renewal thereof, as well as for the payment of any other
liability or liabilities. The note then specifies the number of the quedan and the
amount of copra in piculs, and states that the quedan was issued by Nieva,
Ruiz and Company. On February 10, 1919, the firm of Salvador Hermanos
withdrew from the defendant bank, by and with its consent, warehouse
receipts Nos. 33, 36, and 39 above described, which the bank was holding as
collateral security for each of the three 18,000-peso notes amounting to
P54,000. On April 21, 1919, Salvador Hermanos filed a petition of insolvency.
On September 13, 1919, the assignee made a demand upon the bank for
the surrender and delivery of the property.
ISSUE:
Who is the lawful owner of the properties indicated in the receipts?
RULING:
The Court held that the PNB is the lawful owner of the properties indicated
in the receipts. The Warehouse Receipt was delivered to and held by the bank,
and the warehouseman recognized the bank as the owner of the property.
Legally speaking, the owner of the warehouse receipts was the owner of the
property described in them, and the quedans were given as collateral to
secure promissory notes, which, for value received, were executed to the bank.
The execution of the promissory notes and the pledging of the warehouse
receipts, as collateral, and the describing of them in the notes, and the manual
delivery of the warehouse receipt itself carries with it not only the title, but the
legal possession of the property. The Court concluded that as to the property
described in the warehouse receipts, which were pledged, as collateral, in
January, 1919, to secure the eight respective promissory notes, both the title
and the possession of that property were delivered to and vested in the
defendant bank in January, 1919.
Accordingly the Court held that in January, 1919, the bank became and
remained the owner of the five quedans Nos. 30, 35, 38, 41 and 42; that they
were in form negotiable, and that, as such owner, it was legally entitled to the
possession and control of the property therein described at the time the
insolvency petition was filed and had a right to sell it and apply the proceeds
of the sale to its promissory notes.

247
 In the matter of the involuntary insolvency of Umberto de Poli. BANK OF THE
PHILIPPINE ISLANDS, ET AL. v. J.R. HERRIDGE, assignee of the insolvent estate of
U. de Poli, BOWRING and CO., C.T. BOWRING and CO., LTD., and T.R. YANGCO
G.R. Nos. L-21000, 21002-21004, and 21006, December 20, 1924
OSTRAND, J.
FACTS:
The insolvent Umberto de Poli was for several years engaged on an
extensive scale in the exportation of Manila hemp, maguey and other
products of the country. In order to finance his commercial operations De Poli
established credits with some of the leading banking institutions doing business
in Manila. De Poli opened a current account credit with the bank against
which he drew his checks in payment of the products bought by him for
exportation. Upon the purchase, the products were stored in one of his
warehouses and warehouse receipts issued therefor which were endorsed by
him to the bank as security for the payment of his credit in the account current.
On December 8, 1920, De Poli was declared insolvent. Among the property
taken over the assignee was the merchandise stored in the various warehouses
of the insolvent. This merchandise consisted principally of hemp, maguey and
tobacco. The various banks holding warehouse receipts issued by De Poli claim
ownership of this merchandise under their respective receipts, whereas the
other creditors of the insolvent maintain that the warehouse receipts are not
negotiable, On July 20, 1921, the banks, who claim preference under the
warehouse receipts, entered into an agreement. The stipulation, in essence,
sets forth the division of the products in the warehouse based on each of the
bank’s warehouse receipts. Protests were presented by the unsecured
creditors to the adjudication. The trial court held that the receipts in question
were valid negotiable warehouse receipts.

ISSUE:

Are the warehouse receipts negotiable?

RULING:

Yes, a warehouseman who deposited merchandise in his own warehouse,

issued a warehouse receipts therefore and thereafter negotiated the receipts
by endorsement. The receipt recites that the goods were deposited “pororden”
of the depositor, the warehouseman, but contained no statement that the
goods were to be delivered to the bearer of the receipts or to a specified
person. It is in the form of a warehouse receipts and was not mark
“nonnegotiable”. Therefore the receipts was negotiable warehouse receipts
and the words “pororden” must be construed to mean “to the order”. Further,
the Court concluded that the receipt was styled “Quedan” and contains all
the requisites of a warehouse receipt as prescribed by law

248
PHILIPPINE NATIONAL BANK v. HON. MARCELINO L. SAYO, JR., in his capacity
as Presiding Judge of the Regional Trial Court of Manila (Branch 45), NOAH’S
ARK SUGAR REFINERY, ALBERTO T. LOOYUKO, JIMMY T. GO and WILSON T. GO
G.R. No. 129918, July 9, 1998
DAVIDE, JR., J.

FACTS:
In accordance with the Warehouse Receipts Law, Noah’s Ark Sugar
Refinery issued on several dates Warehouse Receipts (quedans) covering
sugar deposited by Rosa Sy, RNS Merchandising, and St. Therese
Merchandising. The receipts are substantially in the form, and contain the terms,
prescribed for negotiable warehouse receipts by Section 2 of the law.
Subsequently, Warehouse Receipts were negotiated and endorsed to Luis T.
Ramos and to Cresencia K. Zoleta. Ramos and Zoleta then used the quedans
as security for two loan agreements — one for P15.6 million and the other for
P23.5 million — obtained by them from the PNB. They endorsed the
aforementioned quedans to PNB. After the decision in G.R. No. 119231 (PNB v.
Se) became final and executory, various incidents took place before the trial
court. Noah’s Ark and its officers filed a Motion for Execution of Defendants’
Lien as Warehouseman pursuant to SC’s decision which was opposed by PNB.
The RTC, this time presided Hon. Marcelino L. Sayo Jr., granted the Motion for
Execution. PNB was immediately served with a Writ of Execution for the amount
of P662,548,611.50. PNB thus filed an Urgent Motion seeking the deferment of
the enforcement of the Writ of Execution. Nevertheless, the Sheriff levied on
execution several properties of PNB. The said bank also filed a MR with Urgent
Prayer for Quashal of Writ of Execution. After several exchanges of motions,
Judge Sayo denied with finality for lack of merit the motions filed by PNB.
ISSUE:
Does the loss of warehouseman’s lien extinguishes the obligation of PNB to
pay storage fees and charges?
RULING:

No. The warehouseman is entitled to the warehouseman’s lien that

attaches to the goods that may be invoked against anyone who claims a right
of possession thereon. In this case, the lien was lost when the respondents
refused to deliver the goods, which were not anchored to a valid excuse (i.e.
non satisfaction of warehousemean’s lien) but on an adverse claim of
ownership. However, the loss of Warehouseman’s lien does not necessarily
mean the extinguishment of the obligation to pay the Warehouseman’s fees
and charges, which continues to be a personal liability of the owners, PNB in
this case. However, such fees and charges have ceased to accrue from the
date of the rejection by Noah’s Ark to heed the lawful demand for the release
of the goods. While PNB is entitled to the stocks of sugar as the endorsee of the
quedans, delivery to it shall be effected only upon payment of the storage
fees.

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