TITLE

FACTS

ISSUE

HELD

STATE
INVESTMENT
HOUSE, INC., petitioner,
vs.
COURT OF APPEALS and
NORA
B.
MOULIC, respondents.

Private respondent Nora B. Moulic issued to Corazon

Victoriano, as security for pieces of jewelry to be sold on
commission, two (2) post-dated Equitable Banking
Corporation checks in the amount of Fifty Thousand
Pesos (P50,000.00) each, one dated 30 August 1979 and
the other, 30 September 1979. Thereafter, the payee
negotiated the checks to petitioner State Investment
House. Inc. (STATE).

Whether or not
respondent
is
liable on the
checks
issued
merely
as
security to a
holder in due
course.

Yes. The respondent is liable. The issued checks are

negotiable instruments.
Culled from the foregoing, a prima facie presumption
exists that the holder of a negotiable instrument is a
holder in due course. Consequently, the burden of proving
that STATE is not a holder in due course lies in the person
who disputes the presumption. In this regard, MOULIC
failed.
The evidence clearly shows that: (a) on their faces the
post-dated checks were complete and regular: (b)
petitioner bought these checks from the payee, Corazon
Victoriano, before their due dates; (c) petitioner took these
checks in good faith and for value, albeit at a discounted
price; and, (d) petitioner was never informed nor made
aware that these checks were merely issued to payee as
security and not for value.
Consequently, STATE is indeed a holder in due course.
As such, it holds the instruments free from any defect of
title of prior parties, and from defenses available to prior
parties among themselves; STATE may, therefore,
enforce full payment of the checks.
MOULIC cannot set up against STATE the defense
that there was failure or absence of consideration. MOULIC
can only invoke this defense against STATE if it was privy
to the purpose for which they were issued and therefore is
not a holder in due course.
In addition, the Negotiable Instruments Law
was enacted for the purpose of facilitating, not
hindering or hampering transactions in commercial
paper. Thus, the said statute should not be
tampered with haphazardly or lightly. Nor should it
be brushed aside in order to meet the necessities in
a single case.
The drawing and negotiation of a check have certain
effects aside from the transfer of title or the incurring of
liability in regard to the instrument by the transferor. The
holder who takes the negotiated paper makes a contract
with the parties on the face of the instrument. There is an
implied representation that funds or credit are available for
the payment of the instrument in the bank upon which it is
drawn. Consequently, the withdrawal of the money from
the drawee bank to avoid liability on the checks cannot

PARTIES
Petitioners
A- STATE INVESTMENT
HOUSE, INC
Respondents

MOULIC failed to sell the pieces of jewelry, so she

returned them to the payee before maturity of the
checks. The checks, however, could no longer be
retrieved as they had already been negotiated.
Consequently, before their maturity dates, MOULIC
withdrew her funds from the drawee bank.
Upon presentment for payment, the checks were
dishonored for insufficiency of funds. Petitioner sued
respondent for its non payment of the checks she issued.
Respondent avers that she should not be liable for she
issued the checks merely as security for the pieces of
jewelry, and it was not intended to be negotiated.

B- NORA B. MOULIC

prejudice the rights of holders in due course. In the instant

case, such withdrawal renders the drawer, Nora B. Moulic,
liable to STATE, a holder in due course of the checks.

TITLE

ISSUE

FACTS

G.R. No. L-56169 June Petitioner Travel-On. Inc. ("Travel-On") is a travel agency
selling airline tickets on commission basis for and in
26, 1992
TRAVEL-ON,
INC., petitioner,
vs.
COURT OF APPEALS and
ARTURO S.

Whether or not
is
behalf of different airline companies. Private respondent respondent
to
a
Arturo S. Miranda had a revolving credit line with liable
petitioner. He procured tickets from petitioner on behalf holder for value
of airline passengers and derived commissions
issuing
a
therefrom. Petitioner sold and delivered various airline in
tickets to respondent at a total price of P278,201.57; that postdated
to settle said account, private respondent paid various
amounts in cash and in kind, and thereafter issued six checks

HELD
YES. Respondent is liable. The Court finds that the
checks are the all important evidence of petitioner's case;
that these checks clearly established private respondent's
indebtedness to petitioner; that private respondent was
liable thereunder.
It is important to stress that a 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

MIRANDA, respondents

postdated checks amounting to P115,000.00 which

were all dishonored by the drawee banks.
Travel-On filed suit before the Court of First Instance of
Manila to collect on six checks issued by private
respondent. Travel-On further alleged that in March
1972, private respondent made another payment of
P10,000.00 reducing his indebtedness to P105,000.00.
The writ of attachment was granted by the court a quo.

PARTIES

Petitioners
A- TRAVEL-ON, INC
Respondents

although it is
merely
for
accommodation
.

The fact that all the checks issued by private

respondent to petitioner were presented for payment by
the latter would lead to no other conclusion than that
these checks were intended for encashment. There is
nothing in the checks themselves (or in any other
document for that matter) that states otherwise.

In his answer, private respondent admitted having had

transactions with Travel-On during the period stipulated
in the complaint. Private respondent, however, claimed
that he had already fully paid and even overpaid his
obligations and that refunds were in fact due to him. He
argued that he had issued the postdated checks for
purposes of accommodation, as he had in the past
accorded similar favors to petitioner. During the
proceedings, private respondent contested several
tickets alleged to have been erroneously debited to his
account. He claimed reimbursement of his alleged over
payments, plus litigation expenses, and exemplary and
moral damages by reason of the allegedly improper
attachment of his properties.

We are unable to accept the Court of Appeals'

conclusion that the checks here involved were issued for
"accommodation"
and
that
accordingly
private
respondent maker of those checks was not liable thereon
to petitioner payee of those checks. In the first place, while
the
Negotiable
Instruments
Law
does refer
to
accommodation transactions, no such transaction was
here shown.
In the case at bar, Travel-On was payee of all six
checks, it presented these checks for payment at the
drawee bank but the checks bounced. Travel-On obviously
was not an accommodated party; it realized no value on
the checks which bounced.
Thus, we believe and so hold that private
respondent must be held liable on the six checks
here involved. Those checks in themselves
constituted evidence of indebtedness of private
respondent, evidence not successfully overturned or
rebutted by private respondent.

B- ARTURO S. MIRANDA

TITLE

to have become a party thereto for value. Thus, the

mere introduction of the instrument sued on in
evidence prima
facie entitles
the
plaintiff
to
recovery. Further, the rule is quite settled that a
negotiable instrument is presumed to have been
given or indorsed for a sufficient consideration
unless otherwise contradicted and overcome by
other competent evidence.

FACTS

ISSUE
3

HELD

G.R. No. L-15380

September 30, 1960
CHAN WAN, plaintiffappellant,
vs.
TAN KIM and CHEN
SO, defendants-appellees.
PARTIES

Petitioners
A- CHAN WAN
Respondents
B- TAN KIM
C- CHEN SO

Petitioner presented for payment to the drawee

bank eleven checks payable to "cash or bearer" which
were drawn by defendant Tan Kim upon the Equitable
Banking Corporation; but they "were all dishonored
and returned to him unpaid due to insufficient funds
and/or causes attributable to the drawer."
At the hearing of the case, in the Manila court of
first instance, the plaintiff did not take the witness stand.
His attorney, however, testified only to identify the
checks plus the letters of demand upon defendants.
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".
In view of such circumstances, the court declined
to order payment for two principal reasons: (a) plaintiff
failed to prove he was a holder in due course, and (b) the
checks being crossed checks should not have been
deposited instead with the bank mentioned in the
crossing.
Eight of the checks here in question bear across
their face two parallel transverse lines between which
these words are written: non-negotiable China
Banking Corporation. These checks have, therefore,
been crossed specially to the China Banking Corporation,
and should have been presented for payment by China
Banking, and not by Chan Wan.
Nevertheless, on the backs of the checks,
endorsements which apparently show they had been
deposited with the China Banking Corporation and were,
by the latter, presented to the drawee bank for
collection. And then as the drawee has no fund, it was
dishonored. Consequently, Chan Wan got hold of this
dishonored check. Thus, apparently, he was not a holder
in due course.

Whether or not
the
petitioner
has a right to
collect on the
eleven
commercial
documents
considering he
is not a holder
in due course.

YES. It does not follow as a legal

proposition, that simply because he was not a
holder in due course Chan Wan could not
recover on the checks. The Negotiable
Instruments Law does not provide that a
holder who is not a holder in due course, may
not in any case, recover on the instrument.
If B purchases an overdue negotiable
promissory note signed by A, he is not a holder
in due course; but he may recover from A, if the
latter has no valid excuse for refusing payment.
The only disadvantage of holder who is not
a holder in due course is that the
negotiable instrument is subject to
defense as if it were non- negotiable.
Tan Kim admitted on cross-examination
either that the checks had been issued as
evidence of debts to Pinong and Muy, and/or
that they had been issued in payment of shoes
which Pinong had promised to make for her.
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.

TITLE
LEODEGARIO
BAYANI, petitioner
,
vs. PEOPLE
OF
THE
PHILIPPINES, resp
ondent.
PARTIES

FACTS

ISSUE

HELD

Alicia Rubia went to the grocery store of

Dolores Evangelista in Candelaria, Quezon, and asked
the latter to rediscount Philippine Savings Bank
(PSBank) Check in the amount of P55,000.00. The check
was drawn by Leodegario Bayani against his account
with the PSBank and postdated August 29, 1992. Rubia
told Evangelista that Bayani asked her to rediscount
the check for him because he needed the money.
Evangelista agreed to rediscount the check. After Rubia
endorsed the check, Evangelista gave her the amount
ofP55,000.00.
However, when Evangelista deposited the check in

Whether or not
petitioner
is
liable
for
issuing
the
checks
although it was
not issued for
valuable
consideration,
as
it
was

Yes. Petitioner is liable. Petitioner cannot use

as defense want of valuable consideration
against a person who is a holder in due course.

SECTION 28. Effect of want of consideration.

Absence or failure of consideration is a matter of
defense as against any person not a holder in due
course; and partial failure of consideration is a
defensepro tanto, whether the failure is an
ascertained and liquidated amount or otherwise.

Petitioners
A- LEODEGARIO BAYANI
Respondents
B- PEOPLE OF THE
PHILIPPINES

TITLE
G.R. No. 105836 March
7, 1994
SPOUSES GEORGE
MORAN and LIBRADA P.
MORAN, petitioners,
vs.
THE HON. COURT OF
APPEALS and
CITYTRUST BANKING

her account with the Far East Bank & Trust Company
on September 11, 1992, it was dishonored by the drawee
bank for the reason that on September 1, 1992, Bayani
closed his account with the PSBank. The reason for the
dishonor of the check was stamped at its dorsal
portion. As ofAugust 27, 1992, the balance of Bayanis
account with the bank was P2,414.96.
Evangelista then informed Rubia of the dishonor of
the check and demanded the return of her P55,000.00.
Rubia replied that she was only requested by Bayani to
have the check rediscounted and advised Evangelista to
see him. When Evangelista talked to Bayani, she was
told that Rubia borrowed the check from him.
Thereafter, Evangelista, Rubia, Bayani and his wife,
Aniceta, had a conference in the office of Atty. Emmanuel
Velasco, Evangelistas lawyer. Later, in the Office of the
Barangay Captain Nestor Baera, Evangelista showed
Bayani a photocopy of the dishonored check and
demanded payment thereof. Bayani and Aniceta, on one
hand, and Rubia, on the other, pointed to each other and
denied liability thereon. Aniceta told Rubia that she
should be the one to pay since the P55,000.00 was with
her, but the latter insisted that the said amount was in
payment of the pieces of jewelry Aniceta purchased from
her. Upon
Atty.
Velascos
prodding,
Evangelista
suggested Bayani and Rubio to pay P25,000.00 each.
Still, Bayani and Rubia pointed to the other as the one
solely liable for the amount of the check. Rubia reminded
Aniceta that she was given the check as payment of the
pieces of jewelry Aniceta bought from her.

Evangelista is a holder of the check in

allegedly
borrowed from due course. The evidence on record shows that
Evangelista
rediscounted
the
check
and
him.

gave P55,000.00 to Rubia after the latter endorsed

the same. Under Section 28 of the Negotiable
Instruments Law (NIL), absence or failure of
consideration is a matter of defense only as against
any person not a holder in due course.
Moreover, Section 24 of the NIL provides
the presumption of consideration.
SECTION 24. Presumption of consideration.
Every negotiable instrument is deemed prima
facie to have been issued for a valuable
consideration; and every person whose signature
appears thereon to have become a party thereto for
value.
Such presumption cannot be overcome by the
petitioners bare denial of receipt of the amount
of P55,000.00 from Rubia. Indubitably, it follows that
there was a presumption of consideration
between petitioner and Rubia for issuing the check.

FACTS

ISSUE

HELD

Petitioner spouses George and Librada Moran are

the owners of the Wack-Wack Petron gasoline
station. They regularly purchased bulk fuel and other
related products from Petrophil Corporation on cash
on delivery (COD) basis. Orders for bulk fuel and other
related products were made by telephone and
payments were effected by personal checks upon
delivery.
Petitioners maintained three joint accounts, namely
one current account and two savings accounts with

Whether or not
the respondent
bank is liable
for dishonoring
the
checks
drawn by the
Petitioners
in
favor
of
Petrophil
in

No. Respondent Bank is not liable. Petitioner

had no reason to complain, for they alone were at fault.
A drawer must remember his responsibilities every time he
issues a check. He must personally keep track of his
available balance in the bank and not rely on the bank to
notify him of the necessity to fund certain check she
previously issued. A check, as distinguished from an
ordinary bill of exchange, is supposed to be drawn against
a previous deposit of funds for it is ordinarily
intended for immediately payment.

CORPORATION, responde
nts.

PARTIES

Petitioners
A- SPOUSES GEORGE
MORAN and LIBRADA P.
MORAN
Respondents
B- CITYTRUST BANKING
CORPORATION

TITLE

Citytrust Banking Corporation. The two savings account

was covered by a pre-authorized transfer (PAT)
agreement. It is intended for automatic transfer of funds
from the savings account whenever the current account
is not sufficient to pay withdrawals.

relation to the
PAT agreement.

On December 12, 1983, petitioners, through

Librada Moran, drew a check for P50,576.00 payable to
Petrophil Corporation. The next day, December 13,
1983, petitioners, again through Librada Moran, issued
another check in the amount of P56,090.00 in favor of
the same corporation. The total sum of the two checks
was P106,666.00.

A bank is under no obligation to make part

payment on a check, up to only the amount of the
drawer's funds, where the check is drawn for an
amount larger than what the drawer has on deposit.
Such a practice of paying checks in part has never
existed.

On December 14, 1983, Petrophil Corporation

deposited the two aforementioned checks to its account
with the Pandacan branch of the Philippine National Bank
(PNB), the collecting bank. In turn, PNB, Pandacan branch
presented them for clearing with the Philippine Clearing
House Corporation in the afternoon of the same day. The
records show that on December 14, 1983, Current
Account had a zero balance, while Savings Account
No. 1037001372 (covered by the PAT) had an available
balance
of
P26,104.30 and Savings Account No. 1037002387 had
an available balance of P43,268.39.
It was clear that the savings accounts were not
sufficient to cover the two checks earlier issued. It was
only on Dec. 15 that the Morans deposited money in
the bank sufficient to pay the two checks. Thus, petrophil
refused to deliver fuel on credit basis because the two
checks they had previously issued were dishonored upon
presentment for payment.

FACTS

On the above premises which irresistibly commend

themselves to our acceptance, we find no cogent and
sufficient to award actual, moral, or exemplary damages to
petitioners. Although we take judicial notice of the fact that
there is a fiduciary relationship between a bank and its
depositors, as well as the extent of diligence expected of it
in handling the accounts entrusted to its care, the bank
may not be held responsible for such damages in
the absence of fraud, bad faith, malice, or wanton
attitude.

ISSUE
7

The bank could not be faulted for not accepting

either of the two checks. The first check issued was in the
amount of P50,576.00, while the second one was for
P56,090.00. Savings Account No. 1307001372 then had a
balance of only P26,104.30. This being the case, Citytrust
could not be expected to accept for payment either one of
the two checks nor partially honor one check.

HELD

EUMELIA R. MITRA,
- versus PEOPLE OF
THE PHILIPPINES and
FELICISIMO S. TARCELO,

PARTIES

Petitioners
A- EUMELIA R. MITRA
Respondents
B- FELICISIMO S.
TARCELO

TITLE

Petitioner Eumelia R. Mitra (Mitra) was

the Treasurer, and Florencio L. Cabrera, Jr.
(now deceased) was the President, of Lucky
Nine Credit Corporation(LNCC), a corporation
engaged in money lending activities.

Whether or not
petitioner is
liable to private
respondent for
issuing the
checks.

Yes. Petitioner is liable.

A check is a negotiable instrument that
serves as a substitute for money and as a
convenient form of payment in financial
transactions and obligations. The use of checks
as payment allows commercial and banking
transactions to proceed without the actual
handling of money, thus, doing away with the
need to physically count bills and coins
whenever payment is made. It permits
commercial and banking transactions to be
carried out quickly and efficiently. But the
convenience afforded by checks is damaged by
unfunded
checks
that
adversely
affect
confidence in our commercial and banking
activities, and ultimately injure public interest.

ISSUE

HELD

Between 1996 and 1999, private

respondent invested money in LNCC. As the
usual
practice
in
money
placement
transactions, Tarcelo issued checks equivalent
to the amounts he invested plus the interest
on his investments. The following checks,
signed by Mitra and Cabrera, were issued by
LNCC to Tarcelo.
When Tarcelo presented these checks for
payment, they were dishonored for the reason
account closed. Tarcelo made several oral
demands on LNCC for the payment of these
checks but he was frustrated. Constrained, in
2002, he caused the filing of seven
informations for violation of Batas Pambansa
Blg. 22 (BP 22) in the total amount
of P925,000.00
with
the
MTCC
in Batangas City.

FACTS
8

[G.R. No.
141968. February 12,
2001]
THE INTERNATIONAL
CORPORATE BANK (now
UNION BANK OF THE
PHILIPPINES), petitioner,
vs. SPS. FRANCIS S.
GUECO and MA. LUZ E.
GUECO, respondents.

PARTIES

Whether or not
there
was
a
valid tender of
payment in the
delivery of the
managers
check to the
The
Spouses
defaulted
in
payment
of petitioner,
installments. Consequently, the Bank filed the case
although
the
Sum of Money with Prayer for a Writ of Replevin before
latter
did
not
the Metropolitan Trial Court. As a result of the nonpayment of the reduced amount, the car was detained sign the joint
inside the banks compound.
motion
to
The respondents Gueco Spouses obtained a loan
from petitioner International Corporate Bank (now
Union Bank of the Philippines) to purchase a car a
Nissan Sentra 1600 4DR, 1989 Model. In consideration
thereof, the Spouses executed promissory notes which
were payable in monthly installments and chattel
mortgage over the car to serve as security for the notes.

No. There was no valid tender of payment. Thus, the

obligation to pay has not been extinguished.
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
because of the controversy surrounding the signing
of the joint motion to dismiss. We see no bad faith or
negligence in this position taken by the Bank.
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
must be presented for payment within a reasonable time

Petitioners
A- UNION BANK OF THE
PHILIPPINES

Respondents
B- SPS. FRANCIS S. GUECO
and MA. LUZ E. GUECO

On August 29, 1995, Dr. Gueco delivered a

managers 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.

dismiss.

After several demand letters and meetings with

bank representatives, the respondents Gueco spouses
initiated a civil action for damages before the
Metropolitan Trial Court of Quezon City. The Metropolitan
Trial Court dismissed the complaint for lack of merit. On
appeal to the Regional Trial Court, the decision of the
Metropolitan Trial Court was reversed. In its decision, the
RTC held that there was a meeting of the minds between
the parties as to the reduction of the amount of
indebtedness and the release of the car but said
agreement did not include the signing of the joint motion
to dismiss as a condition sine qua non for the effectivity
of the compromise.
Respondents would make us hold that petitioner
should return the car or its value and that the latter,
because of its own negligence, should suffer the loss
occasioned by the fact that the check had become
stale. It is their position that delivery of the managers
check produced the effect of payment and, thus,
petitioner was negligent in opting not to deposit or use
said check.

TITLE

FACTS

ISSUE

10

after its issue, and in determining what is a reasonable

time, regard is to be had to the nature of the instrument,
the usage of trade or business with respect to such
instruments, and the facts of the particular case. The test
is whether the payee employed such diligence as a
prudent man exercises in his own affairs. This is
because the nature and theory behind the use of a
check points to its immediate use and payability.
In the case at bar, however, the check involved is
not an ordinary bill of exchange but a managers check. A
managers check is one drawn by the banks manager
upon the bank itself. It is similar to a cashiers check both
as to effect and use. A cashiers check is a check of the
banks 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 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.
Thus, 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 managers check has suffered damage or loss
caused by the delay or non-presentment. Definitely, the
original obligation to pay certainly has not been erased.

HELD

G.R. No. 85419 March 9, 1993

DEVELOPMENT BANK OF
RIZAL, plaintiff-petitioner,
vs.
SIMA WEI and/or LEE KIAN
HUAT, MARY CHENG UY,
SAMSON TUNG, ASIAN
INDUSTRIAL PLASTIC
CORPORATION and
PRODUCERS BANK OF THE
PHILIPPINES, defendantsrespondents.

PARTIES

In consideration for a loan extended by

petitioner Bank to respondent Sima Wei,
the latter executed and delivered to the
former a promissory note, engaging to pay the
petitioner Bank 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 on
the note, leaving a balance of P1,032,450.02.
On November 18, 1983, Sima Wei issued two
crossed checks payable to petitioner Bank
drawn against China Banking Corporation,

11

Whether or not
petitioner
Bank
has a cause of
action against
any or all of the
defendants, in
the alternative
or otherwise.

Petitioner bank has a cause of action only against

respondent Sima Wei.
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. However, the mere
fact that he has done these does not give rise to any
liability on his part, until and unless the check is
delivered to the payee or his representative.
A negotiable instrument, of which a check is, is not
only a written evidence of a contract right but is also a

Petitioners
A- DEVELOPMENT BANK OF
RIZAL

Respondents
B- SIMA WEI
C- LEE KIAN HUAT, MARY
CHENG UY, SAMSON TUNG
D- ASIAN INDUSTRIAL
PLASTIC CORPORATION
D- PRODUCERS BANK OF THE
PHILIPPINES

TITLE

for the amount of P550,000.00 and for the

amount of P500,000.00.
The 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 petitionerpayee
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, to the Producers
Bank. Cheng Uy, Branch Manager 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 as aforestated.

FACTS

species of property. Just as a deed to a piece of land must

be delivered in order to convey title to the grantee, so
must a negotiable instrument be delivered to the payee in
order to evidence its existence as a binding contract.
Section 16 of the Negotiable Instruments Law,
which governs checks, provides in part: 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.
3
Delivery of an instrument means transfer of possession,
actual
or
constructive,
from
one
person
to
another. 4Without the initial delivery of the instrument from
the drawer to the payee, there can be no liability on the
instrument. Moreover, such delivery must be intended to
give effect to the instrument.
Notwithstanding the above, it does not necessarily
follow that the drawer Sima Wei is freed from liability to
petitioner Bank under the loan evidenced by the
promissory note agreed to by her. Her allegation that she
has paid the balance of her loan with the two checks
payable to petitioner Bank has no merit for, as We have
earlier explained, these checks were never delivered to
petitioner Bank. And even granting, without admitting, that
there was delivery to petitioner Bank, the delivery of
checks in payment of an obligation does not constitute
payment unless they are cashed or their value is impaired
through the fault of the creditor. None of these exceptions
were alleged by respondent Sima Wei.
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.

ISSUE

12

HELD

G.R. No.
117857
February 2,
2001
LUIS S. WONG, petitioner,
vs.
COURT OF APPEALS and
PEOPLE OF THE
PHILIPPINES, respondents.
PARTIES

Petitioners
A- LUIS S. WONG
Respondents
B- PEOPLE OF THE
PHILIPPINES

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 calendars,
LPI would ship the calendars directly to the
customers. Thereafter, the agents would come
around to collect the payments.
Petitioner, however, had a history of
unremitted
collections,
which
he
duly
acknowledged in a confirmation receipt he cosigned with his wife. Hence, petitioners customers
were required to issue postdated checks before
LPI would accept their purchase orders.
In early December 1985, 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 petitioners unremitted collections for 1984
amounting to P18,077.07.3 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, on June 5, 1986, 157 days after the date of
the check, LPI deposited the checks with Rizal
Commercial Banking Corporation (RCBC). The
checks were returned for the reason "account
closed." The dishonor of the checks was evidenced
by the RCBC return slip.
On June 20, 1986, complainant through
counsel notified the petitioner of the dishonor.
Petitioner failed to make arrangements for

13

Whether or not
the
checks
issued
by
petitioner
became stale.

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. Only the
presumption of knowledge of insufficiency of
funds was lost if not presented for payment
within 90 days after the date of the check. But
such knowledge could still be proven by direct
or circumstantial evidence.

payment within five (5) banking days.

On November 6, 1987, petitioner was
charged with three (3) counts of violation of B.P.
Blg. 22 under three separate Informations for the
three checks amounting to P5,500.00, P3,375.00,
and P6,410.00.

TITLE
[G.R. No. 112214. June
18, 1998]
SECURITY BANK &
TRUST
COMPANY, petitioner,
vs. COURT OF APPEALS,
CRISPULO IKE
ARBOLEDA, and
AMADOR

FACTS

ISSUE

Petitioner
filed
an
action
against
private
respondents for the recovery of a sum of money with
damages and preliminary attachment. It alleged that
sometime in 1983, A.T. Diaz Realty, through Anita
Diaz, bought from Ricardo Lorenzo his undivided share
in a parcel of land which he owned in common with
Servando
Solomon. In
connection
with
this
transaction, Diaz issued a check for P60,000.00 in the
name of Ricardo Lorenzos agent, private respondent
Crispulo Arboleda. The check, dated November 7,
1983, was to be drawn against the current account of

14

Whether or not
petitioner Bank
has a right to
collect
money
from
private
respondent
Arboleda
considering he

HELD
No. There was no contractual relation
created between petitioner and private
respondent as a result of the payment by
the former of the amount of the
check. Petitioner simply paid the check for and
in behalf of Anita Diaz. Therefore, the question
whether private respondent Crispulo Arboleda
has a right to keep the proceeds of the check is
very relevant to this action brought to recover
the amount.

LIBONGCO,respondents.

PARTIES

Petitioners
A- SECURITY BANK &
TRUST COMPANY
Respondents
B- CRISPULO IKE
ARBOLEDA
C- AMADOR LIBONGCO

A.T. Diaz Realty in the Marikina branch of the Security

Bank and Trust Co. (SBTC). According to Diaz, the money
was part of the purchase price of the land. It was to be
used to pay the capital gains tax on the transaction and
to reimburse Solomon for payments he had made for
delinquent real estate taxes on the land. In return,
Solomon would deliver to Diaz the title to the land.
On November 8, 1983, Solomon informed Diaz that,
as he had not yet been reimbursed by private
respondent, he could not deliver to Diaz the title to the
land. Diaz decided to reimburse Solomon and to pay the
capital gains tax herself. Consequently, she issued two
more checks, one for P20,000.00, in the name of
Solomon for the reimbursement, and another one
for P40,000.00, payable to bearer, for the payment of the
tax. Thereafter, on the same date, she ordered
petitioner to stop payment on the check. Diaz allegedly
advised private respondent of the order and requested
the return of the check to her.

denies
owing
Indeed, even if petitioner is considered
any obligation
to DIAZ, drawer to have paid Anita Diaz in behalf of Arboleda, its
right to recover from Arboleda would be only to
.
the extent that the payment benefitted
Who are the Arboleda, because the payment (recrediting)
was
made
without
the
consent
of
real parties to
Arboleda. Since Arboleda denies owing any
the
collection obligation to Diaz, petitioner cannot ask
of payment of for reimbursement. Art. 1236 of the Civil
the check?
Code.
Whether petitioner is liable to Anita Diaz for
cashing the check after it had been ordered not
to pay is a matter between them. By
restoring the amount it had paid to the account
of A.T. Diaz Realty, petitioner merely stepped
into the shoes of the drawer. Consequently, its
present action is subject to the defenses which
private respondent Arboleda might raise had
this action been instituted by Anita Diaz.

Instead of returning the check to Diaz, however,

private respondent encashed it on November 24,
1983. For their part, employees of petitioner bank failed
to notice that the check was the subject of a stop
payment order and allowed private respondent to encash
it. The error was discovered only the next day, November
25, 1983. Petitioner recredited the amount (P60,000.00)
of the check to A.T. Diaz Realtys account.
Bank officials went to see respondent Arboleda to
ask for the return of the amount of P60,000.00. But they
were told the money had been turned over to Amador
Libongco. When asked by bank officials, Libongco did
not deny receipt of the money, but said he would return
it provided Diaz showed him the receipt for payment of
the capital gains tax.
As Diaz failed to show receipts, Arboleda and
Libongco refused to return the money. Petitioner,
therefore, filed the instant suit.

TITLE

FACTS

ISSUE
15

HELD

TRADERS ROYAL BANK, petitioner,

vs.
RADIO PHILIPPINES NETWORK,
INC.,
INTERCONTINENTAL
BROADCASTING CORPORATION
and
BANAHAW BROADCASTING
CORPORATION,
through the BOARD OF
ADMINISTRATORS,
and SECURITY BANK AND TRUST
COMPANY

PARTIES

Petitioners
A-

TRADERS ROYAL BANK(TRB)

Bvs.
Respondents

The Bureau of Internal Revenue (BIR) assessed

Radio Philippines Network (RPN), Intercontinental
Broadcasting Corporation (IBC), and Banahaw
Broadcasting Corporation (BBC) of their tax
obligations for the taxable years 1978 to 1983.
Mrs. Lourdes C. Vera, respondents comptroller,
sent a letter to the BIR requesting settlement of
respondents tax obligations.
The BIR granted the request and accordingly,
respondents purchased from Traders Royal Bank (TRB)
three (3) managers checks to be used as payment for
their tax liabilities.
TRB, through Aida Nuez, TRB Branch Manager at
Broadcast City Branch, turned over the checks to Mrs.
Vera who was supposed to deliver the same to the BIR
in payment of respondents taxes.
Later, the BIR again assessed respondents for their tax
liabilities for the years 1979-82. It was then they
discovered that the three (3) managers checks intended
as payment for their taxes were never delivered nor paid
to the BIR by Mrs. Vera. Instead, the checks were
presented for payment by unknown persons to
respondent Security Bank and Trust Company
(SBTC), as shown by the clearing code stamped on the
reverse sides of the checks.

C-

RADIO PHILIPPINES
NETWORK, INC

D-

INTERCONTINENTAL
BROADCASTING CORPORATION
E- BANAHAW BROADCASTING
CORPORATION
F- BOARD OF ADMINISTRATORS,
and SECURITY BANK AND TRUST
COMPANY

Meanwhile, for failure of the respondents to settle their

obligations, the BIR issued warrants of levy, distraint and
garnishment against them. Thus, they were constrained
to enter into a compromise and paid BIR P18,962,225.25
in settlement of their unpaid deficiency taxes.
Thereafter, respondents sent letters to petitioner,
demanding that the amounts covered by the checks be
reimbursed or credited to their account. The petitioner
refused, hence, the instant suit.

16

whether or not
petitioner
TRB
should be held
solely
liable
when it paid the
amount of the
managers
checks
in
question
to
a
person
other
than the payee
indicated on the
face
of
the
check,
the
Bureau
of
Internal
Revenue.

YES. TRB should be held solely liable.

"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."5 Consequently, if a bank pays a forged check,
it must be considered as paying out of its funds and
cannot charge the amount so paid to the account of
the depositor.
Petitioner ought to have known that, where a check
is drawn payable to the order of one person and is
presented for payment by another and purports upon its
face to have been duly indorsed by the payee of the check,
it is the primary duty of petitioner to know that the
check was duly indorsed by the original payee and,
where it pays the amount of the check to a third person
who has forged the signature of the payee, the loss falls
upon petitioner who cashed the check. Its only
remedy is against the person to whom it paid the
money.
It should be noted further that one of the subject
checks was crossed. The crossing of one of the subject
checks should have put petitioner on guard; it was
duty-bound to ascertain the indorsers title to the
check or the nature of his possession. Petitioner
should have known the effects of a crossed check: (a) the
check may not be encashed but only deposited in the
bank; (b) the check may be negotiated only once to one
who has an account with a bank and (c) the act of crossing
the check serves as a warning to the holder that the check
has been issued for a definite purpose so that he must
inquire if he has received the check pursuant to that
purpose, otherwise, he is not a holder in due course.
By encashing in favor of unknown persons checks
which were on their face payable to the BIR, a government
agency which can only act only through its agents,
petitioner did so at its peril and must suffer the

consequences of the unauthorized or wrongful

endorsement. In this light, petitioner TRB cannot
exculpate itself from liability by claiming that respondent
networks were themselves negligent.

TITLE

FACTS

ISSUE

HELD

G.R. No. 97753 August

10, 1992
CALTEX (PHILIPPINES),
INC., petitioner,
vs.
COURT OF APPEALS and
SECURITY BANK AND
TRUST
COMPANY, respondents.

On various dates, respondent , a commercial

banking institution, issued 280 certificates of time
deposit (CTDs) in favor of one Angel dela Cruz who
deposited with the bank the aggregate amount of
P1,120,000.00. Angel dela Cruz delivered the said
certificates of time (CTDs) to Caltex in connection with
his purchase of fuel products from the latter.

1. Whether or
not
subject
certificates
of
deposit
are
non-negotiable.

1. YES. CTDs are negotiable instruments. We disagree with

these findings and conclusions, and hereby hold that the
CTDs in question are negotiable instruments.

Angel dela Cruz informed Mr. Timoteo Tiangco,

that he lost all the certificates of time deposit in dispute.
Mr. Tiangco advised said depositor to execute and

17

2.
The
next
query
is
whether Caltex
can
rightfully

The CTDs in question undoubtedly meet the

requirements of the law for negotiability. The parties' bone
of contention is with regard to requisite (d) set forth above.
It is noted that Mr. Timoteo P. Tiangco, Security Bank's
Branch Manager way back in 1982, testified in open court
that the depositor reffered to in the CTDs is no other
than Mr. Angel de la Cruz. After trial, the court a

PARTIES

Petitioners
A- CALTEX
(PHILIPPINES), INC.
Respondents
B- SECURITY BANK AND
TRUST COMPANY

submit a notarized Affidavit of Loss, as required by the

bank's procedure, if he desired replacement of said lost
CTDs. On the basis of said affidavit of loss, 280
replacement CTDs were issued in favor of said depositor.
On March 25, 1982, Angel dela Cruz negotiated and
obtained a loan from respondent bank in the amount
of P875,000.00. Sometime in November, 1982, Mr.
Aranas, Credit Manager of Caltex, went to respondent
bank and presented for verification the CTDs declared
lost by Angel dela Cruz alleging that the same were
delivered to Caltex "as security for purchases made
with Caltex Philippines, Inc." by said depositor.
On November 26, 1982, respondent 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.
On December 8, 1982, Caltex was requested by
respondent bank to furnish the former "a copy of the
document evidencing the guarantee agreement with Mr.
Angel dela Cruz" as well as "the details of Mr. Angel dela
Cruz" obligation against which plaintiff proposed to apply
the time deposits. No copy of the requested
documents was furnished by Caltex.
Accordingly, respondent bank rejected the
plaintiff's demand and claim for payment of the value of
the CTDs in a letter dated February 7, 1983.
In April 1983, the loan of Angel dela Cruz with
respondent 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, Caltex filed the instant
complaint, praying that respondent bank be ordered
to pay it the aggregate value of the certificates of time
deposit of P1,120,000.00 plus accrued interest and
compounded interest therein at 16% per annum, moral

18

recover on the
quo rendered
CTDs.

its

decision

dismissing

the

instant

complaint.

On this score, the accepted rule is that the

negotiability or non-negotiability of an instrument is
determined from the writing, that is, from the face
of the instrument itself. In the construction of a bill
or note, the intention of the parties is to control, if
it can be legally ascertained. While the writing may be
read in the light of surrounding circumstances in order to
more perfectly understand the intent and meaning of the
parties, yet as they have constituted the writing to be the
only outward and visible expression of their meaning, no
other words are to be added to it or substituted in its
stead. The duty of the court in such case is to
ascertain, not what the parties may have secretly
intended as contradistinguished from what their
words express, but what is the meaning of the
words they have used. What the parties meant must
be determined by what they said.
Contrary to what respondent court held, the CTDs are
negotiable instruments. The documents provide that
the amounts deposited shall be repayable to the
depositor. And who, according to the document, is the
depositor? It is the "bearer." The documents do not say
that the depositor is Angel de la Cruz and that the amounts
deposited are repayable specifically to him. Rather, the
amounts are to be repayable to the bearer of the
documents or, for that matter, whosoever may be
the bearer at the time of presentment.
2. NO. Petitioner cannot rightfully recover on the CTDs.
The records reveal that Angel de la Cruz, whom petitioner
chose not to implead in this suit for reasons of its own,
delivered the CTDs amounting to P1,120,000.00 to
petitioner without informing respondent bank thereof at
any time. Unfortunately for petitioner, although the
CTDs are bearer instruments, a valid negotiation
thereof for the true purpose and agreement
between it and De la Cruz, as ultimately ascertained,

REQUIRES BOTH DELIVERY AND INDORSEMENT. For, although

and exemplary damages as well as attorney's fees.

petitioner seeks to deflect this fact, the CTDs were in

reality delivered to it as a security for De la Cruz'
purchases of its fuel products. Any doubt as to whether the
CTDs were delivered as payment for the fuel products or
as a security has been dissipated and resolved in favor
of the latter by petitioner's own authorized and
responsible representative himself.

19

TITLE

FACTS

ISSUE

HELD

G.R. No. 93073

December 21, 1992
REPUBLIC PLANTERS
BANK, petitioner,
vs.
COURT OF APPEALS and
FERMIN
CANLAS, respondents.

From the records, these facts are established:

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,
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. In the promissory notes, the name
Worldwide Garment Manufacturing, Inc. was
apparently rubber stamped above the signatures of
defendant and private respondent.
On December 20, 1982, Worldwide Garment
Manufacturing, Inc. noted to change its corporate
name to Pinch Manufacturing Corporation.
On February 5, 1982, petitioner bank filed a complaint
for the recovery of sums of money covered among
others, by the nine promissory notes with interest
thereon, plus attorney's fees and penalty charges.
Defendants Pinch Manufacturing Corporation
and Shozo Yamaguchi did not file an Amended Answer
and failed to appear at the scheduled pre-trial
conference despite due notice. Only private respondent
Fermin Canlas filed an Amended Answer wherein he,
denied having issued the promissory notes in question
since according to him, he was not an officer of Pinch
Manufacturing Corporation, but instead of Worldwide
Garment Manufacturing, Inc., and that when he issued
said promissory notes in behalf of Worldwide Garment
Manufacturing, Inc., the same were in blank, the
typewritten entries not appearing therein prior to
the time he affixed his signature.

Whether
private
respondent
Fermin Canlas
is
solidarily
liable with the
other
defendants,
namely
Pinch
Manufacturing
Corporation
and
Shozo
Yamaguchi, on
the
nine
promissory
notes

YES. We hold that private respondent Fermin

Canlas is solidarily liable on each of the
promissory notes bearing his signature for the
following reasons:

PARTIES

Petitioners
A- REPUBLIC PLANTERS
BANK
Respondents
B- FERMIN CANLAS

The promissory notes are negotiable

instruments and must be governed by the
Negotiable Instruments Law. 2
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. An instrument
which begins" with "I" ,We" , or "Either of us"
promise to, pay, when SIGNED BY TWO OR MORE
PERSONS, makes them solidarily liable.
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

20

promise to pay to the order of Republic Planters

Bank.

TITLE

FACTS

ISSUE

HELD

G.R. No. 107382/G.R. No.

107612
January 31,
1996
ASSOCIATED
BANK, petitioner,
vs.
HON. COURT OF APPEALS,
PROVINCE OF TARLAC and
PHILIPPINE NATIONAL
BANK, respondents.

The Province of Tarlac maintains a current account with

the Philippine National Bank (PNB) where the
provincial funds are deposited. Checks issued by the
Province are signed by the Provincial Treasurer and
countersigned by the Provincial Auditor or the Secretary
of the Sangguniang Bayan.

Where
thirty
checks bearing
forged
endorsements
are paid, who
bears the loss,
the drawer, the
drawee bank or
the
collecting
bank?

A forged signature, whether it be that of the drawer

or the payee, is wholly inoperative and no one can
gain title to the instrument through it. A person
whose signature to an instrument was forged was
never a party and never consented to the contract
which allegedly gave rise to such instrument.
Section 23 does not avoid the instrument but only
the forged signature. Thus, a forged indorsement
does not operate as the payee's indorsement.

A portion of the funds of the province is allocated to the

Concepcion Emergency Hospital. The allotment checks
for said government hospital are drawn to the order of
"Concepcion Emergency Hospital, Concepcion,

21

The exception to the general rule in Section 23 is

PARTIES
Tarlac" or "The Chief, Concepcion Emergency
Hospital, Concepcion, Tarlac." The checks are
released by the Office of the Provincial Treasurer and
received for the hospital by its administrative officer and
cashier.

where "a party against whom it is sought to enforce a right

is precluded from setting up the forgery or want of
authority." Parties who warrant or admit the
genuineness of the signature in question AND those
who, by their acts, silence or negligence are
estopped from setting up the defense of forgery, are
precluded from using this defense. Indorsers, persons
negotiating
by
delivery
and
acceptors
are
warrantors of the genuineness of the signatures on
the instrument.
Example: if the drawee bank can prove a failure by the
customer/drawer to exercise ordinary care that substantially contributed
to the making of the forged signature, the drawer is precluded from
asserting the forgery.
If at the same time the drawee bank was also
negligent to the point of substantially contributing to the
loss, then such loss from the forgery can be apportioned
between the negligent drawer and the negligent
bank.
In BEARER INSTRUMENTS, the signature of the payee or
holder is unnecessary to pass title to the instrument.
Hence, when the indorsement is a forgery, only the
person whose signature is forged can raise the
defense of forgery against a holder in due
course. @@@@
The checks involved in this case are ORDER
INSTRUMENTS, hence, the following discussion is made with
reference to the effects of a forged indorsement on an
instrument payable to order.
### Where the instrument is payable to order at the time
of the forgery, such as the checks in this case, the
signature of its rightful holder (here, the payee
hospital) is essential to transfer title to the same
instrument. When the holder's indorsement is forged, all
parties prior to the forgery may raise the real defense of forgery against

22

In January 1981, the books of account of the Provincial

Treasurer were post-audited by the Provincial Auditor. It
was then discovered that the hospital did not receive
several allotment checks drawn by the Province.
On February 19, 1981, the Provincial Treasurer requested
the manager of the PNB to return all of its cleared checks
which were issued from 1977 to 1980 in order to verify
the regularity of their encashment. After the checks were
examined, the Provincial Treasurer learned that 30
checks amounting to P203,300.00 were encashed by one
Fausto Pangilinan, with the Associated Bank acting
as collecting bank.
It turned out that Fausto Pangilinan, who was the
administrative officer and cashier of payee hospital until
his retirement on February 28, 1978, collected the
questioned checks from the office of the Provincial
Treasurer. Pangilinan sought to encash the first
check with Associated Bank. However, the manager of
Associated Bank refused and suggested that Pangilinan
deposit the check in his personal savings account with
the same bank. Pangilinan was able to withdraw the
money when the check was cleared and paid by the
drawee bank, PNB.
After forging the signature of Dr. Adena Canlas who
was chief of the payee hospital, Pangilinan followed the
same procedure for the second check, in the amount of
P5,000.00, as well as for twenty-eight other checks of
various amounts and on various dates. All the checks
bore the stamp of Associated Bank which reads "All prior
endorsements guaranteed ASSOCIATED BANK."
On February 26, 1981, the Provincial Treasurer wrote the
manager of the PNB seeking the restoration of the
various amounts debited from the current account of the
Province. 9
In turn, the PNB manager demanded reimbursement

23

all parties subsequent thereto.

An indorser of an order instrument warrants
"that the instrument is genuine and in all respects what it
purports to be; that he has a good title to it; that all prior
parties had capacity to contract; and that the instrument is
at the time of his indorsement valid and subsisting." He
cannot interpose the defense that signatures prior to him
are forged. A collecting bank where a check is
deposited and which indorses the check upon
presentment with the drawee bank, is such an
indorser. So even if the indorsement on the check
deposited by the banks's client is forged, the collecting
bank is bound by his warranties as an indorser and
cannot set up the defense of forgery as against the
drawee bank.
The bank on which a check is drawn, known as the drawee
bank, is under strict liability to pay the check to the order
of the payee. The drawer's instructions are reflected on the
face and by the terms of the check. Payment under a
forged indorsement is not to the drawer's order. The
general rule then is that the drawee bank may not
debit the drawer's account and is not entitled to
indemnification from the drawer. 25 The risk of loss
must perforce fall on the drawee bank.
In cases involving a forged check, where the drawer's
signature is forged, the drawer can recover from the
drawee bank. No drawee bank has a right to pay a forged
check. If it does, it shall have to recredit the amount of the
check to the account of the drawer. The liability chain ends
with the drawee bank whose responsibility it is to know the
drawer's signature since the latter is its customer.
In cases involving checks with forged indorsements, such as
the present petition, the chain of liability does not end with
the drawee bank. The drawee bank may not debit the
account of the drawer but may generally pass liability back
through the collection chain to the party who took from the
forger and, of course, to the forger himself, if

from the Associated Bank on May 15, 1981.

10

available.

As both banks resisted payment, the Province of Tarlac

brought suit against PNB which, in turn, impleaded
Associated Bank as third-party defendant. The latter then
filed a fourth-party complaint against Adena Canlas and
Fausto Pangilinan. 11

28

IN OTHER WORDS, THE DRAWEE BANK CAN SEEK

REIMBURSEMENT OR A RETURN OF THE AMOUNT IT PAID FROM THE
PRESENTOR BANK OR PERSON. 29 Theoretically, the latter can
demand reimbursement from the person who indorsed the
check to it and so on. The loss falls on the party who took
the check from the forger, or on the forger himself.
In this case, the checks were indorsed by the
collecting bank (Associated Bank) to the drawee
bank (PNB). The former will necessarily be liable to
the
latter
for
the
checks
bearing
forged
indorsements. If the forgery is that of the payee's or
holder's indorsement, the collecting bank is held
liable, without prejudice to the latter proceeding
against the forger.
Since a forged indorsement is inoperative, the collecting bank had no
right to be paid by the drawee bank. The former must necessarily return
the money paid by the latter because it was paid wrongfully.
More importantly, by reason of the statutory warranty of a
general indorser in section 66 of the Negotiable
Instruments Law, a collecting bank which indorses a check
bearing a forged indorsement and presents it to the
drawee bank guarantees all prior indorsements, including
the forged indorsement. It warrants that the instrument is
genuine, and that it is valid and subsisting at the time of
his indorsement. Because the indorsement is a forgery, the
collecting bank commits a breach of this warranty and will
be accountable to the drawee bank. This liability scheme
operates without regard to fault on the part of the
collecting/presenting bank. Even if the latter bank was not
negligent, it would still be liable to the drawee bank
because of its indorsement.
Applying these rules to the case at bench, PNB, the drawee
bank, cannot debit the current account of the Province of
Tarlac because it paid checks which bore forged
indorsements. However, if the Province of Tarlac as drawer
was negligent to the point of substantially contributing to
the loss, then the drawee bank PNB can charge its

24

account. If both drawee bank-PNB and drawer-Province of

Tarlac were negligent, the loss should be properly
apportioned between them.
The loss incurred by drawee bank-PNB can be passed on to
the collecting bank-Associated Bank which presented and
indorsed the checks to it. Associated Bank can, in turn,
hold the forger, Fausto Pangilinan, liable.
If PNB negligently delayed in informing Associated Bank of
the forgery, thus depriving the latter of the opportunity to
recover from the forger, it forfeits its right to
reimbursement and will be made to bear the loss.
After careful examination of the records, the Court
finds that the Province of Tarlac was equally negligent
and should, therefore, share the burden of loss from
the checks bearing a forged indorsement.
The drawee bank PNB also breached its duty to pay
only according to the terms of the check. Hence, it
cannot escape liability and should also bear part of
the loss.
As earlier stated, PNB can recover from the collecting bank. The
situation in the case at bench is analogous to the above
case, for it was not the payee who deposited the checks
with the collecting bank. Here, the checks were all payable
to Concepcion Emergency Hospital but it was Fausto
Pangilinan who deposited the checks in his personal
savings account.
A bank is not required to accept all the checks negotiated
to it. It is within the bank's discretion to receive a check for
no banking institution would consciously or deliberately
accept a check bearing a forged indorsement. When a
check is deposited with the collecting bank, it takes
a risk on its depositor. It is only logical that this
bank be held accountable for checks deposited by
its customers.

25

The Court finds as reasonable, the proportionate

sharing of fifty percent - fifty percent (50%-50%).
Due to the negligence of the Province of Tarlac in
releasing the checks to an unauthorized person (Fausto
Pangilinan), in allowing the retired hospital cashier to
receive the checks for the payee hospital for a period close
to three years and in not properly ascertaining why the
retired hospital cashier was collecting checks for the payee
hospital in addition to the hospital's real cashier,
respondent Province contributed to the loss amounting to
P203,300.00 and shall be liable to the PNB for fifty (50%)
percent thereof. In effect, the Province of Tarlac can
only recover fifty percent (50%) of P203,300.00
from PNB.
The collecting bank, Associated Bank, shall be liable
to PNB for fifty (50%) percent of P203,300.00. It is
liable on its warranties as indorser of the checks which
were deposited by Fausto Pangilinan, having guaranteed
the genuineness of all prior indorsements, including that of
the chief of the payee hospital, Dr. Adena Canlas.
Associated Bank was also remiss in its duty to ascertain
the genuineness of the payee's indorsement.

TITLE
G.R. No. 129015
August 13, 2004
SAMSUNG CONSTRUCTION
COMPANY PHILIPPINES,
INC., petitioner,
vs.
FAR EAST BANK AND TRUST
COMPANY AND COURT OF
APPEALS, respondents.

FACTS

ISSUE

HELD

Samsung Construction Company Philippines, Inc.

("Samsung Construction") maintained a current account
with Far East Bank and Trust Company 1 ("FEBTC").2 The
sole signatory to Samsung Constructions account was
Jong Kyu Lee ("Jong"), its Project Manager,3 while the
checks remained in the custody of the companys
accountant, Kyu Yong Lee ("Kyu").4
On 19 March 1992, a certain Roberto Gonzaga
presented for payment FEBTC Check No. 432100 to the
banks branch in Bel-Air, Makati. The check, payable to

if a bank pays
out on a forged
check, is it
liable to
reimburse the
drawer from
whose account
the funds were

YES. Section 23 of the Negotiable Instruments

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

26

PARTIES

Petitioners
A- SAMSUNG CONSTRUCTION
COMPANY PHILIPPINES, INC

Respondents
C- FAR EAST BANK AND
TRUST COMPANY

D-

cash and drawn against Samsung Constructions current

account, was in the amount of (P999,500.00). The bank
teller, Cleofe Justiani, first checked the balance of
Samsung Constructions account. After ascertaining
there were enough funds to cover the check, 5 she
compared the signature appearing on the check with the
specimen signature of Jong as contained in the specimen
signature card with the bank. After comparing the two
signatures, Justiani was satisfied as to the authenticity of
the signature appearing on the check. She then asked
Gonzaga to submit proof of his identity, and the latter
presented three (3) identification cards. 6
At the same time, Justiani forwarded the check to the
branch Senior Assistant Cashier Gemma Velez, as it was
bank policy that two bank branch officers approve
checks exceeding One Hundred Thousand Pesos, for
payment or encashment. Velez likewise counterchecked
the signature on the check as against that on the
signature card. He too concluded that the check was
indeed signed by Jong. Velez then forwarded the check
and signature card to Shirley Syfu, another bank
officer, for approval. Syfu then noticed that Jose Sempio
III ("Sempio"), the assistant accountant of Samsung
Construction, was also in the bank. Sempio was wellknown to Syfu and the other bank officers, he being the
assistant accountant of Samsung Construction. Syfu
showed the check to Sempio, who vouched for the
genuineness of Jongs signature. Confirming the identity
of Gonzaga, Sempio said that the check was for the
purchase of equipment for Samsung Construction.
Satisfied with the genuineness of the signature of Jong,
Syfu authorized the banks encashment of the check to
Gonzaga.
The following day, the accountant of Samsung
Construction, Kyu, examined the balance of the bank
account and discovered that a check in the amount of
(P999,500.00) had been encashed. Aware that he had
not prepared such a check for Jongs signature, Kyu
perused the checkbook and found that the last blank
check was missing.7 He reported the matter to Jong, who
then proceeded to the bank. Jong learned of the
encashment of the check, and realized that his signature
had been forged. The Bank Manager reputedly told Jong
that he would be reimbursed for the amount of the

27

paid out?
Whether
Samsung
Construction
was guilty of
negligence; its
employee
commiting the
forgery.

The traditional justification for the result is that the

drawee is in a superior position to detect a forgery
because he has the makers signature and is expected to
know and compare it.22
Under Section 23 of the Negotiable Instruments
Law, forgery is a real or absolute defense by the
party whose signature is forged.26 On the premise that
Jongs 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.
Forgeries often deceive the eye of the most cautious
experts; and when a bank has been so deceived, it is a
harsh rule which compels it to suffer although no one has
suffered by its being deceived. 27 The forgery may be so
near like the genuine as to defy detection by the depositor
himself, and yet the bank is liable to the depositor if it
pays the check.
The crucial fact in question is whether or not
the check was forged, not whether the bank could
have detected the forgery. The latter issue becomes
relevant only if there is need to weigh the
comparative negligence between the bank and the
party whose signature was forged.
We recognize that Section 23 of the Negotiable
Instruments Law bars a party from setting up the defense
of forgery if it is guilty of negligence.52 Yet, we are
unable to conclude that Samsung Construction was 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 partys negligence was the cause for the
forgery. Employers do not possess the preternatural gift
of cognition as to the evil that may lurk within the hearts
and minds of their employees.

check.8

TITLE

FACTS

ISSUE

HELD

G.R. No. 74917 January 20,

1988
BANCO DE ORO SAVINGS AND
MORTGAGE BANK, petitioner,
vs.
EQUITABLE BANKING
CORPORATION, PHILIPPINE
CLEARING HOUSE
CORPORATION, AND
REGIONAL TRIAL COURT OF
QUEZON CITY, BRANCH XCII
(92),

It appears that some time in March, April, May and

August 1983, A through its Visa Card Department,
drew six crossed Manager's check
having an
aggregate amount of (P45,982.23) Pesos and
payable to certain member establishments of Visa
Card. Subsequently, the Checks were deposited
with C to the credit of its depositor, a certain Aida
Trencio.
Following normal procedures, and after stamping at
the back of the Checks the usual endorsements.
All prior and/or lack of endorsement guaranteed

Was the
petitioner bank
negligent and
thus
responsible for
any undue
payment?

Yes. petitioner is estopped from raising the defense

of non-negotiability of the checks in question. It
stamped its guarantee on the back of the checks and
subsequently presented these checks for clearing and it
was on the basis of these endorsements by the petitioner
that the proceeds were credited in its clearing account.
The petitioner by its own acts and representation
can not now deny liability because it assumed the
liabilities of an endorser by stamping its guarantee at the
back of the checks.
The petitioner having stamped its guarantee of "all

28

PARTIES

Petitioners
A- BANCO DE ORO SAVINGS
AND MORTGAGE BANK

Respondents
C- EQUITABLE BANKING
CORPORATION

C sent the checks for clearing through the

Philippine
Clearing
House
Corporation
(PCHC). Accordingly, A paid the Checks; its
clearing account was debited for the value of the
Checks and C's clearing account was credited for
the same amount,
Thereafter, A discovered that the endorsements
appearing at the back of the Checks and purporting
to be that of the payees were forged and/or
unauthorized or otherwise belong to persons
other than the payees.
Pursuant to the PCHC Clearing Rules and
Regulations, A presented the Checks directly to C
for the purpose of claiming reimbursement from
the latter. However, C refused to accept such direct
presentation and to reimburse A for the value of
the Checks; hence, this case.

prior endorsements and/or lack of endorsements" (Exh. A-2

to F-2) is now estopped from claiming that the checks
under consideration are not negotiable instruments. The
checks were accepted for deposit by the petitioner
stamping thereon its guarantee, in order that it can clear
the said checks with the respondent bank. By such
deliberate and positive attitude of the petitioner it has for
all legal intents and purposes treated the said cheeks as
negotiable instruments and accordingly assumed the
warranty of the endorser when it stamped its guarantee of
prior endorsements at the back of the checks. It led the
said respondent to believe that it was acting as endorser of
the checks and on the strength of this guarantee said
respondent cleared the checks in question and credited
the account of the petitioner. Petitioner is now barred from
taking an opposite posture by claiming that the disputed
checks are not negotiable instrument.
A commercial bank cannot escape the liability of an
endorser of a check and which may turn out to be a forged
endorsement. Whenever any bank treats the signature at
the back of the checks as endorsements and thus logically
guarantees the same as such there can be no doubt
said bank has considered the checks as negotiable.

D- PHILIPPINE CLEARING
HOUSE CORPORATION

TITLE
ALLIED
BANKING
CORPORATION
vs.
LIM SIO WAN,
METROPOLITAN
BANK AND TRUST CO and
PRODUCERS BANK

FACTS

ISSUE

HELD

Respondent Lim Sio Wan deposited with petitioner

Allied Banking Corporation (Allied) a money market
placement of PhP 1,152,597.35 for a term of 31 days
to mature on December 15, 1983.

Whether Allied
is solely liable
to Lim Sio Wan.

As to the liability of the parties, we find that Allied is liable

to Lim Sio Wan. Fundamental and familiar is the doctrine
that the relationship between a bank and a client is one of
debtor-creditor. We cannot, however, say outright that
Allied is solely liable to Lim Sio Wan.

On December 5, 1983, a person claiming to be

Lim Sio Wan called up Cristina So, an officer of Allied,
and instructed the latter to pre-terminate Lim Sio Wans
money market placement, to issue a managers check
representing the proceeds of the placement, and to give

29

Section 66. Liability of general indorser.Every indorser

who indorses without qualification, warrants to all
subsequent holders in due course;

PARTIES

a)
The
matters
and
things
mentioned
in
subdivisions (a), (b) and (c) of the next preceding
section; and

Later, Santos arrived at the bank and signed the

application form for a managers check to be
issued. The bank issued Managers Check No. 035669
for PhP 1,158,648.49, representing the proceeds of Lim
Sio Wans money market placement in the name of Lim
Sio Wan, as payee. The check was cross-checked For
Payees Account Only and given to Santos.

b)
That the instrument is at the time of his indorsement
valid and subsisting;

Thereafter, the managers check was deposited in

the account of Filipinas Cement Corporation (FCC) at
respondent Metropolitan Bank and Trust Co.
(Metrobank), with the forged signature of Lim Sio
Wan as indorser.

Petitioners
A-

the check to one Deborah Dee Santos who would pick

up the check. Lim Sio Wan described the appearance
of Santos so that So could easily identify her.

ALLIED

BANKING
CORPORATION

Respondents
C- LIM SIO WAN
D- METROPOLITAN
BANK AND TRUST CO
E- PRODUCERS BANK

Earlier, on September 21, 1983, FCC had

deposited a money market placement for PhP 2 million
with respondent Producers Bank. Santos was the
money market trader assigned to handle FCCs account.
The placement matured on October 25, 1983 and was
rolled-over
until December
5,
1983. When
the
placement matured, FCC demanded the payment of
the proceeds of the placement. On December 5,
1983, the same date that So received the phone call
instructing her to pre-terminate Lim Sio Wans
placement, the managers check in the name of Lim Sio
Wan was deposited in the account of FCC, purportedly
representing the proceeds of FCCs money market
placement with Producers Bank.[17] In other words, the
Allied check was deposited with Metrobank in the
account of FCC as Producers Banks payment of its
obligation to FCC.
To clear the check and in compliance with the
requirements
of the Philippine Clearing House
Corporation (PCHC) Rules and Regulations, Metrobank
stamped a guaranty on the check, which
reads: All prior endorsements and/or lack of
endorsement guaranteed.

30

And in addition, he engages that on due presentment, it

shall be accepted or paid, or both, as the case may be
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.
Section 65. Warranty where negotiation by delivery, so
forth.Every person negotiating an instrument by delivery
or by a qualified indorsement, warrants:
a)
That the instrument is genuine and in all
respects what it purports to be;
b)
That he has a good title of it;
c)
That all prior parties had capacity to contract;
d)
That he has no knowledge of any fact which would
impair the validity of the instrument or render it valueless.
But when the negotiation is by delivery only, the warranty
extends in favor of no holder other than the immediate
transferee.
The provisions of subdivision (c) of this section do not
apply to persons negotiating public or corporation
securities, other than bills and notes. (Emphasis supplied.)
The warranty that the instrument is genuine and in
all respects what it purports to be covers all the defects in
the instrument affecting the validity thereof, including a
forged indorsement. Thus, the last indorser will be liable
for the amount indicated in the negotiable instrument even
if a previous indorsement was forged. We held in a line of
cases that a collecting bank which indorses a check
bearing a forged indorsement and presents it to the
drawee bank guarantees all prior indorsements, including
the forged indorsement itself, and ultimately should be

The check was sent to Allied through the

PCHC. Upon the presentment of the check, Allied
funded the check even without checking the
authenticity
of
Lim
Sio
Wans
purported
indorsement. Thus, the amount on the face of the
check was credited to the account of FCC.]
On December 9, 1983, Lim Sio Wan deposited with
Allied a second money market placement to mature
on January 9, 1984.[20]
On December 14, 1983, upon the maturity
date of the first money market placement, Lim Sio
Wan went to Allied to withdraw it. She was then
informed that the placement had been preterminated upon her instructions. She denied
giving any instructions and receiving the proceeds
thereof. She desisted from further complaints
when she was assured by the banks manager that
her money would be recovered.
When Lim Sio Wans second placement matured
on January 9, 1984, So called Lim Sio Wan to ask for the
latters instructions on the second placement. Lim Sio
Wan instructed So to roll-over the placement for another
30 days. On January 24, 1984, Lim Sio Wan, realizing
that the promise that her money would be recovered
would not materialize, sent a demand letter to Allied
asking
for
the
payment
of
the
first
placement. Allied refused to pay Lim Sio Wan,
claiming that the latter had authorized the pretermination of the placement and its subsequent
release to Santos.
Consequently, Lim Sio Wan filed with the RTC a
Complaint against Allied to recover the proceeds of her
first money market placement. Sometime in February
1984, she withdrew her second placement from Allied.
Allied filed a third party complaint against
Metrobank and Santos. In turn, Metrobank filed a
fourth party complaint against FCC. FCC for its
part filed a fifth party complaint against Producers
Bank. Summonses were duly served upon all the parties
except for Santos, who was no longer connected with

31

held liable therefor.[48]

However, this general rule is subject to exceptions.
One such exception is when the issuance of the check
itself was attended with negligence. Thus, in the cases
cited above where the collecting bank is generally held
liable, in two of the cases where the checks were
negligently issued, this Court held the institution issuing
the check just as liable as or more liable than the
collecting bank.
In isolated cases where the checks were deposited in
an account other than that of the payees on the strength
of forged indorsements, we held the collecting bank solely
liable for the whole amount of the checks involved for
having indorsed the same. In Republic Bank v. Ebrada,
[49]
the check was properly issued by the Bureau of
Treasury. While in Banco de Oro Savings and Mortgage
Bank (Banco de Oro) v. Equitable Banking Corporation,
[50]
Banco de Oro admittedly issued the checks in the name
of the correct payees. And in Traders Royal Bank v. Radio
Philippines Network, Inc.,[51] the checks were issued at the
request of Radio Philippines Network, Inc. from Traders
Royal Bank.

Producers Bank.[30]
On May 15, 1984, or more than six (6) months
after funding the check, Allied informed Metrobank
that the signature on the check was forged. [31] Thus,
Metrobank withheld the amount represented by the
check from FCC. Later on, Metrobank agreed to release
the amount to FCC after the latter executed an
Undertaking, promising to indemnify Metrobank in case it
was made to reimburse the amount.

32

33

34

35