Ang Tek Lian vs. Court of Appeals (PEMSLA), an association of PNB employees.

Rodriguez and
L-2516 September, 1950 PEMSLA are both clients of Philippine National Bank (PNB) Amelia
Bengzon, J.: Avenue Branch, Cebu City.

Facts: PEMSLA regularly granted loans to its members. Spouses

Ang Tek Lian knowing that he had no funds therefor, Rodriguez would rediscount the postdated checks issued to
drew a check upon China Banking Corporation payable to the members whenever the association was short of funds.
order of “cash”. He delivered it toLee Hua Hong in exchange for
money. The check was presented by Lee Hua hong to the drawee It was PEMSLA’s policy not to approve applications for loans of
bank for payment, but it w3as dishonored for insufficiency of members with outstanding debts. To subvert this policy, some
funds. With this, Ang Tek Lian was convicted of estafa. PEMSLA officers took out loans in the names of unknowing
members, without the knowledge or consent of the latter. The
Issue: PEMSLA issued checks for these loans in the name of the spouses
Whether or not the check issued by Ang Tek Lian that is and deposited to the Rodriguez account, while the spouses issued
payable to the order to “cash” and not have been indorsed by their personal checks (Rodriguez checks) in the name of the
Ang Tek Lian, making him not guilty for the crime of estafa. PEMSLA member.

Held: Meanwhile, the Rodriguez checks were deposited directly by

No.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.
Ang Tek Lian vs Court of Appeals
PEMSLA to its savings account without any indorsement from the
named payees. This irregularity made possible through the
facilitation of Palermo, treasurer of PEMSLA and bank teller in the
Branch.
For the period November 1998 to February 1999, the spouses
issued sixty nine checks, in the total amount of P2,345,804.00,
payable to forty seven individual payees.
When PNB found out about these fraudulent acts, it closed the
account of PEMSLA. As a result, the PEMSLA checks deposited by
the spouses were returned or dishonored for the reason “Account
Closed.” The corresponding Rodriguez checks, however, were
duly debited from the Rodriguez account. Thus, Rodriguez
incurred losses from the rediscounting transactions.

87 Phil. 383 – Mercantile Law – Negotiable Instruments Law – Rodriguez filed a civil complaint for the recovery of
Negotiable Instruments in General – Indorsement to “Cash” – PhP2,345,804.00. PNB, on the other hand, answered that the
Bearer Instrument checks, being payable to a “fictitious payee” under NIL, were
considered bearer instruments; thus, they are negotiable by
In 1946, Ang Tek Lian approached Lee Hua and asked him if he mere delivery.
could give him P4,000.00. He said that he meant to withdraw
from the bank but the bank’s already closed. In exchange, he ISSUE(S):
gave Lee Hua a check which is “payable to the order of ‘cash’”. (1) WON the Rodriguez checks were payable to order
The next day, Lee Hua presented the check for payment but it (2) WON spouses Rodriguez should bear the loss
was dishonored due to insufficiency of funds. Lee Hua eventually
sued Ang Tek Lian. In his defense, Ang Tek Lian argued that he RULING:
did not indorse the check to Lee Hua and that when the latter (1) The checks are payable to order.
accepted the check without Ang tek Lian’s indorsement, he had (2) Rodriguez spouses should not bear the loss. It is PNB,
done so fully aware of the risk he was running thereby. the drawee bank, who should bear the loss.

ISSUE: Whether or not Ang Tek Lian is correct. RATIO:

(1) A check that is payable to a specified payee is an order
HELD: No. Under the Negotiable Instruments Law (sec. 9 [d]), a instrument. However, under Section 9(c) of the NIL, a
check drawn payable to the order of “cash” is a check payable to check payable to a specified payee may nevertheless be
considered as a bearer instrument if it is payable to the
bearer hence a bearer instrument, and the bank may pay it to
order of a fictitious or non-existing person, and such fact
the person presenting it for payment without the drawer’s
is known to the person making it so payable.
indorsement. Where a check is made payable to the order of
‘cash’, the word “cash” does not purport to be the name of any
However, US jurisprudence yields that an actual, existing, and
person, and hence the instrument is payable to bearer. The
living payee may also be “fictitious” if the maker of the check did
drawee bank need not obtain any indorsement of the check, but
not intend for the payee to in fact receive the proceeds of the
may pay it to the person presenting it without any indorsement.
check.

In the case at bar, PNB failed to present sufficient evidence to

PNB vs Rodriguez and Rodriguez
PHILIPPINE NATIONAL BANK, petitioner, vs
ERLANDO T. RODRIGUEZ and NORMA RODRIGUEZ, respondents.
GR No. 170325 September 26, 2008
FACTS:
Spouses Rodriguez are engaged in the informal lending business.
In line with their business, they had a discounting arrangement
with the Philnabank Employees Savings and Loan Association
defeat the claim of respondents-spouses that the named payees
were the intended recipients of the checks’ proceeds. The bank
failed to satisfy a requisite condition of a fictitious-payee situation
– that the maker of the check intended for the payee to have no
interest in the transaction.
(2) PNB was remiss in its duty as the drawee bank. PNB, as
the drawee bank, had the responsibility to ascertain the
regularity of the indorsements, and the genuineness of
the signatures on the checks before accepting them for
 deposit. PNB was obligated to pay the checks in strict order where it is drawn payable to the order of a specified person
accordance with the instructions of the drawers. or to him or his order. It may be drawn payable to the order of –

Lastly, PNB was negligent in the selection and supervision of its
employees. The trustworthiness of bank employees is
indispensable to maintain the stability of the banking industry.
Thus, banks are enjoined to be extra vigilant in the management
and supervision of their employees.
(a) A payee who is not maker, drawer, or drawee; or
(b) The drawer or maker; or
(c) The drawee; or
(d) Two or more payees jointly; or
(e) One or some of several payees; or
(f) The holder of an office for the time being.

Where the instrument is payable to order, the payee must be

PNB vs. RODRIGUEZ
named or otherwise indicated therein with reasonable certainty.
G.R. No. 170325
SEC. 9.When payable to bearer. – The instrument is payable to
FACTS:
bearer –
Spouses Erlando and Norma Rodriguez were clients of Philippine
National Bank (PNB) in Cebu City. They maintained savings and
(a) When it is expressed to be so payable; or
demand/checking accounts. The spouses were engaged in the
(b) When it is payable to a person named therein or bearer; or
informal lending business. they had a discounting arrangement
(c) When it is payable to the order of a fictitious or non-existing
with the Philnabank Employees Savings and Loan Association
person, and such fact is known to the person making it so
(PEMSLA), an association of PNB employees. PEMSLA was
payable; or
likewise a client of PNB Amelia Avenue Branch. The association
(d) When the name of the payee does not purport to be the
maintained current and savings accounts with petitioner
name of any person; or
bank.PEMSLA regularly granted loans to its members. Spouses
Rodriguez would rediscount the postdated checks issued to (e) Where the only or last indorsement is an indorsement in
members whenever the association was short of funds. As was blank.
customary, the spouses would replace the postdated checks with
their own checks issued in the name of the members. It was However, there is a commercial bad faith exception to the
PEMSLA’s policy not to approve applications for loans of members fictitious-payee rule. A showing of commercial bad faith on the
with outstanding debts. part of the drawee bank, or any transferee of the check for that
matter, will work to strip it of this defense. The exception will
To subvert this policy, some PEMSLA officers devised a scheme cause it to bear the loss. Commercial bad faith is present if the
to obtain additional loans despite their outstanding loan accounts. transferee of the check acts dishonestly, and is a party to the
They took out loans in the names of unknowing members, fraudulent scheme.In the instant case, the Rodriguez checks
without the knowledge or consent of the latter. The PEMSLA were payable to specified payees. It is unrefuted that the 69
checks issued for these loans were then given to the spouses for checks were payable to specific persons. Likewise, it is
rediscounting. The officers carried this out by forging the uncontroverted that the payees were actual, existing, and living
indorsement of the named payees in the checks. In return, the persons who were members of PEMSLA that had a rediscounting
spouses issued their personal checks (Rodriguez checks) in the arrangement with spouses Rodriguez.
name of the members and delivered the checks to an officer of
PEMSLA. The PEMSLA checks, on the other hand, were deposited For the fictitious-payee rule to be available as a defense, PNB
by the spouses to their account.Meanwhile, the Rodriguez checks must show that the makers did not intend for the named payees
were deposited directly by PEMSLA to its savings account without to be part of the transaction involving the checks. At most, the
any indorsement from the named payees. This was an irregular bank’s thesis shows that the payees did not have knowledge of
procedure made possible through the facilitation of Edmundo the existence of the checks. This lack of knowledge on the part of
Palermo, Jr., treasurer of PEMSLA and bank teller in the PNB the payees, however, was not tantamount to a lack of intention
Branch. on the part of spouses that the payees would not receive the
checks’ proceeds. Considering that spouses were transacting with
the spouses issued sixty nine (69) checks, in the total amount of PEMSLA and not the individual payees, it is understandable that
P2,345,804.00. These were payable to forty seven (47) individual they relied on the information given by the officers of PEMSLA
payees who were all members of PEMSLA.PNB eventually found that the payees would be receiving the checks.
out about these fraudulent acts. To put a stop to this scheme,
PNB closed the current account of PEMSLA. As a result, the Verily, the subject checks are presumed order instruments
PEMSLA checks deposited by the spouses were returned or because PNB failed to present sufficient evidence to defeat the
claim of the spouses that the named payees were the intended
dishonored for the reason “Account Closed.” The corresponding
recipients of the checks’ proceeds. The bank failed to satisfy a
Rodriguez checks, however, were deposited as usual to the
requisite condition of a fictitious-payee situation – that the maker
PEMSLA savings account. The amounts were duly debited from
of the check intended for the payee to have no interest in the
the Rodriguez account. Thus, because the PEMSLA checks given
transaction. Because of a failure to show that the payees were
as payment were returned, spouses Rodriguez incurred losses
“fictitious” in its broader sense, the fictitious-payee rule does not
from the rediscounting transactions.
apply. Thus, the checks are to be deemed payable to order.
Consequently, the drawee bank bears the loss. Plus, it does not
Issue
dispute the fact that its teller or tellers accepted the 69 checks
The issues may be compressed to whether the subject checks are
for deposit to the PEMSLA account even without any indorsement
payable to order or to bearer and who bears the loss?
from the named payees. It bears stressing that order instruments
can only be negotiated with a valid indorsement.
Held
This Court has recognized the unique public interest possessed by
As a rule, when the payee is fictitious or not intended to be the
the banking industry and the need for the people to have full
true recipient of the proceeds, the check is considered as a
bearer instrument. A check is “a bill of exchange drawn on a trust and confidence in their banks. For this reason, banks are
bank payable on demand.” It is either an order or a bearer minded to treat their customer’s accounts with utmost care,
instrument. Sections 8 and 9 of the NIL states: confidence, and honesty. In a checking transaction, the drawee
bank has the duty to verify the genuineness of the signature of
SEC. 8. When payable to order. – The instrument is payable to the drawer and to pay the check strictly in accordance with the
drawer’s instructions, i.e., to the named payee in the check. It
should charge to the drawer’s accounts only the payables Such warrants of attorney are void as against public policy. They
authorized by the latter. Otherwise, the drawee will be violating enlarge the field for fraud, the promissor bargains away his right
the instructions of the drawer and it shall be liable for the amount to a day in court, and it strikes down the right of appeal accorded
charged to the drawer’s account. by statute. It might be the source of abuse and oppression, and
make the courts involuntary parties thereto.
In the case at bar, spouses were the bank’s depositors. The
checks were drawn against spouses’ accounts. PNB, as the
drawee bank, had the responsibility to ascertain the regularity of
the indorsements, and the genuineness of the signatures on the
checks before accepting them for deposit. Lastly, PNB was
obligated to pay the checks in strict accordance with the
instructions of the drawers. Petitioner miserably failed to
discharge this burden. Moreover, PNB was negligent in the
selection and supervision of its employees. The trustworthiness of
bank employees is indispensable to maintain the stability of the
banking industry. Thus, banks are enjoined to be extra vigilant in
the management and supervision of their employees. Banks
handle daily transactions involving millions of pesos. By the very
nature of their work the degree of responsibility, care and
trustworthiness expected of their employees and officials is far
greater than those of ordinary clerks and employees. For obvious
reasons, the banks are expected to exercise the highest degree
of diligence in the selection and supervision of their employees

PNB’s tellers and officers, in violation of banking rules of

procedure, permitted the invalid deposits of checks to the
PEMSLA account. Indeed, when it is the gross negligence of the
bank employees that caused the loss, the bank should be held
liable. A bank that has been remiss in its duty must suffer the
consequences of its negligence. Being issued to named payees,
PNB was duty-bound by law and by banking rules and procedure
to require that the checks be properly indorsed before accepting
them for deposit and payment. In fine, PNB should be held
liable for the amounts of the checks.

PHILIPPINE NATIONAL BANK, plaintiff-appellee,

vs.
MANILA OIL REFINING & BY-PRODUCTS COMPANY,
INC., defendant-appellant.

FACTS:
Manila Oil Refining & By-Products Company, Inc., executed and
delivered to the Philippine National Bank, a written instrument
promising to pay to the order of the latter P61,000.00 and
stipulating that in case the note be not paid at maturity, it
authorizes any attorney in the Philippine Islands to appear in its
name and confess judgment for the above sum with interest, cost
of suit and attorney's fees of ten (10) per cent 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.

The Manila Oil Refining and By-Products Company, Inc. failed to

pay. The Philippine National Bank brought action. An attorney
associated with the Philippine National Bank entered his
appearance in representation of Manila Oil Refining & By-Products
Company, Inc, and filed a motion confessing judgment.

ISSUE:
Is the provision in a promissory note which authorizes any
attorney to appear and confess judgment thereon in case the
same be not paid at maturity valid.

HELD:
Warrants of attorney to confess judgment are not authorized nor
contemplated by our law. The provisions in notes authorizing
attorneys to appear and confess judgments against makers
should not be recognized in this jurisdiction by implication and
should only be considered as valid when given express legislative
sanction.