Negotiable Instruments – Atty.
Joanne Ranada – CASE DIGESTS1
George A. Kauffman vs. PNB
GR No. 16454
September 29, 1921
FACTS: Kauffman was the president of a domestic corporation Philippine
Fiber&Produce Co. Of which company he held in his own right the entire issue
of capital stock. The board of directors of said company declared a dividend of
P100,000 from its surplus earning for the year 1917. Kauffman was entitled to
the sum of P98,000.
George B. Wicks, treasurer of the company presented himself in the exchange
department of PNB Manila and requested a telegraphic transfer of $45,000
should be made to Kauffman in New York City, upon account of the company.
PNB dispatched to its New York agency a cablegram:
Pay George A. Kauffman, New York, account Philippine Fiber Produce Co.,
$45,000. (Sgd.) PHILIPPINE NATIONAL BANK, Manila.
Bank’s representative in NY sent a cable message in reply suggesting the
advisability of withholding this money from Kauffman.
Wicks, cabled to Kauffman advising that $45,000 had been placed to his credit
in NY agency of PNB. Kauffman presented himself at the office of PNB NY. The
message from PNB directing the withholding of payment had been received in
NY, and payment was therefore refused.
Kauffman instituted this action in CFI Manila to recover said amount. The
judgement was infavor of Kauffman, PNB appealed.
ISSUE:
(1) Whether or not Negotiable Instruments Law is applicable.
(2) Whether Kauffman can maintain an action against the bank for the
nonperformance of said undertaking.
RULING: Before the provsions of the NIL can come into operation, there must
be a document in existence of the character described in section 1 of the Law;
and no rights properly speaking arise in respect to said instrument until it is
delivered.
In this case, the order was not payable “to order or to bearer,” as required in
subsection (d) of that Act.
The test to determine whether the interest of a third person in a contract is a
stipulation pour autrui or merely an incidental interest, is to rely upon the
intention of the parties as disclosed by their contract. If a third person claims
an enforcible interest in thecontract, the question must be settled by
determining whether the contracting partied desired to tender him such an
interest.
The right of Kauffman to maintain the present action is clear enough; for it is
undeniable that the bank’s promise to cause a definite sum of money to be
paid to the plaintiff in NYC is a stipulation in his favor.
A third person seeking to enforce compliance with a stipulation in his favor
must signify his acceptance before it has been revoked. In this case, Kauffman
clearly signified his acceptance to the bank by demanding payment; and
although PNB had already directed its NY agency to withhold payment when
the demand was made, the rights of Kauffman cannot be considered to as
there used, must be understood to imply revocation by the mutual consent of
the contracting parties, or at least by direction of the party purchasing the
exchange.
By selling a cable transfer of funds on a foreign country in ordinary course, a
bank incurs a simple contractual obligation, and cannot be considered as
holding the money which was paid for the transfer in the character of a
specific trust.
Cable transfers, therefore, mean a method of transmitting money by cable
wherein the seller engages that he has the balance at the point on which the
payment is ordered and that on receipt of the cable directing the transfer his
correspondent at such point will make payment to the beneficiary described in
the cable. All these transaction are matters of purchase and sale create no
trust relationship.
GSIS vs. CA & Mr&Mrs. Isabelo R. Racho
GR No. L-40824
February 23, 1989
FACTS: Spouses Racho, together with Sps. Lagasca executed a deed of
mortgage in favor of GSIS and subsequently, another deed of mortgage in
connection with 2 loans granted by GSIS. A parcel of land co-owned by them
was given as security under the 2 deeds. They also executed a promissory note
promising to pay GSIS jointly, severally and solidarily. Lagasca spouses
executed “Assumption of Mortgage” obligating themselves to assume
obligation to GSIS and to secure the release of mortgage covering that portion
of the land belonging to Sps. Racho which was mortgaged to GSIS.
Upon failure to comply with the conditions of the mortgage, GSIS
extrajudicially foreclosed the mortgage and caused the property to be sold at
public auction.
2 years after, Sps. Rancho filed a complaint against GSIS and Sps. Lagasca in CFI
praying that the foreclosure be declared null and void. They allege that they
signed the mortgage contracts not as sureties or guarantors for Sps. Lagasca
but they merely gave their common property to the said co-owners who solely
benefited by the loans of GSIS.
Trial court dismissed the complaint. CA reversed the decision. Hence, this
petition.
ISSUE: Whether the Mortgage deeds and the promisorry note executed are
negotiable instruments.
RULING: Section 29 of Act No. 2031, otherwise known as the Negotiable
Instruments Law, which provide that an accomodation party is one who has
signed an instrument as maker, drawer, acceptor of indorser without receiving
value therefore, but is held liable on the instrument to a holder for value
although the latter knew him to be only an accomodation party.
The promissory note, as well as the mortgage deeds subject of this case are
clearly not negotiable instruments/ these documents do not comply with the
fourth requisite to be considered as such under Section 1 of the Act No. 2031
because they are neither payable to order nor to bearer. The note is payable
to a specified party, the GSIS. Absent the aforesaid requisite, the provisions of
Act No. 2031 would not apply; governance shall be afforded, instead, by the
provisions of the Civil Code and special laws on mortgages.
Norberto Tibajia & Carmen Tibajia vs. CA & Eden Tan
GR No. 100290
June 04, 1993
FACTS: RTC Pasig rendered its decision in favor of Eden Tan, ordering the
Tibajia spouses to pay her. Eden Tan filed a motion for execution and the
garnished funds which by then were on deposit with the cashier of RTC Pasig.
Sps. Tibajia delivered to Deputy Sheriff the total money judgement in Cashier’s
Check and Cash.
Eden Tan refused to accept the payment made by Tibajia spouses and instead
insisted that the garnished funds deposited with the cashier of RTC Pasig.
Sps. Tibajia filed a motion to lift the writ of execution on the ground that the
judgement debt had already been paid. Motion was denied by the trial court.
Sps. Tibajia filed a petition in CA, however the appellate court dismissed the
petition.
ISSUE: Whether or not payment by means of check (even by cashier’s check) is
considered payment in legal tender.
RULING: A check, whether a manager’s check or ordinary check, is not a legal
tender, and an offer of a check in payment of a debt is not a valid tender of
payment and may be refused receipt by the obligee or creditor.
A check is not legal tender and that a creditor may validly refuse payment by
check, whether it be a manager’s cashier’s or personal check.
Philipine Airlines vs. CA
GR No. L-49188
January 30, 1990
FACTS: On 1967, Amelia Tan, under the name and style of Able Printing Press
commenced a complaint for damages before the Court of First Instance. CFI, in
1972, rendered judgment in favor of Tan against PAL.
PAL appealed to CA and its decision modified the trial courts decision. The
case was remanded to trial court for execution.
In 1977, Tan filed a motion praying for the issuance of a writ of execution of
the judgment rendered by the Court of Appeals.
In 1978, Tan moved for the issuance of an alias writ of execution stating that
the judgment rendered by the lower court, and affirmed with modification by
the Court of Appeals, remained unsatisfied.
PAL, filed an opposition to the motion for the issuance of an alias writ of
execution stating that it had already fully paid its obligation to plaintiff.
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS2
Amelia Tan filed a motion to withdraw "Motion for Partial Alias Writ of
Execution" with Substitute Motion for Alias Writ of Execution.
PAL received a copy of the first alias writ of execution issued, it then filed an
urgent motion to quash the alias writ of execution, and that judgment debt
had already been fully satisfied by the petitioner as evidenced by the cash
vouchers signed and receipted by the server of the writ of execution
PAL filed petition for certiorari.
ISSUE: Whether or not the payment made to the sheriff by check in his name
operate to satisfy the judgment debt?
RULING: Under the peculiar circumstances of this case, the payment to the
absconding sheriff by check in his name did not operate as a satisfaction of the
judgment debt.
In general, a payment, in order to be effective to discharge an obligation, must
be made to the proper person. Payment must be made to the obligee himself
or to an agent having authority, express or implied, to receive the particular
payment.
The theory is where payment is made to a person authorized and recognized
by the creditor, the payment to such a person so authorized is deemed
payment to the creditor. Under ordinary circumstances, payment by the
judgment debtor in the case at bar, to the sheriff should be valid payment to
extinguish the judgment debt.
There are circumstances in this case, however, which compel a different
conclusion.
The payment made by the petitioner to the absconding sheriff was not in cash
or legal tender but in checks. The checks were not payable to Amelia Tan or
Able Printing Press but to the absconding sheriff.
The payment of debts in money shall be made in the currency stipulated, and
if it is not possible to deliver such currency, then in the currency which is legal
tender in the Philippines.
The delivery of promissory notes payable to order, or bills of exchange or
other mercantile documents shall produce the effect of payment only when
they have been cashed, or when through the fault of the creditor they have
been impaired.
The acceptance by the sheriff of the petitioner's checks, in the case at bar,
does not, per se, operate as a discharge of the judgment debt.
Since a negotiable instrument is only a substitute for money and not money,
the delivery of such an instrument does not, by itself, operate as payment.
A check, whether a manager's check or ordinary cheek, is not legal tender, and
an offer of a check in payment of a debt is not a valid tender of payment and
may be refused receipt by the obligee or creditor. Mere delivery of checks
does not discharge the obligation under a judgment. The obligation is not
extinguished and remains suspended until the payment by commercial
document is actually realized.
RAUL SESBREÑO vs HON. COURT OF APPEALS, DELTA MOTORS
CORPORATION AND PILIPINAS BANK
G.R. No. 89252 May 24, 1993
FACTS:
Raul Sesbreno made a money market placement in the amount of P300,000
with PhilFinance, with a term of 32 days. PhilFinance issued to Sesbreno the
Certificate of Confirmation of Sale of a Delta Motor Corporation Promissory
Note (DMC PN No. 2731), the Certificate of Securities Delivery Receipt
indicating the sale of the Note with notation that said security was in the
custody of Pilipinas Bank, and postdated checks drawn against the Insular
Bank of Asia and America for P304,533.33 payable on 13 March 1981. The
checks were dishonored for having been drawn against insufficient funds.
Philfinance delivered to petitioner Denominated Custodian Receipt (DCR).
Petitioner approached Ms. Elizabeth de Villa of private respondent Pilipinas,
and handed her a demand letter informing the bank that his placement with
Philfinance in the amount reflected in the DCR had remained unpaid and
outstanding, and that he in effect was asking for the physical delivery of the
underlying promissory note. Petitioner then examined the original of the DMC
PN No. 2731 and found: that the security had been issued on 10 April 1980;
that it would mature on 6 April 1981; that it had a face value of P2,300,833.33,
with the Philfinance as “payee” and private respondent Delta Motors
Corporation (“Delta”) as “maker;” and that on face of the promissory note was
stamped “NON NEGOTIABLE.” Pilipinas did not deliver the Note, nor any
certificate of participation in respect thereof, to petitioner.
Petitioner later made similar demand letters again asking private respondent
Pilipinas for physical delivery of the original of DMC PN No. 2731.
Petitioner also made a written demand upon private respondent Delta for the
partial satisfaction of DMC PN No. 2731, explaining that Philfinance, as payee
thereof, had assigned to him said Note to the extent of P307,933.33. Delta,
however, denied any liability to petitioner on the promissory note.
As petitioner had failed to collect his investment and interest thereon, he filed
an action for damages against private respondents Delta and Pilipinas.
ISSUE:
WON DMC PN No. 2731 marked as non-negotiable may be assigned?
HELD:
YES. Only an instrument qualifying as a negotiable instrument under the
relevant statute may be negotiated either by indorsement thereof coupled
with delivery, or by delivery alone where the negotiable instrument is in
bearer form. A negotiable instrument may, however, instead of being
negotiated, also be assigned or transferred. The legal consequences of
negotiation as distinguished from assignment of a negotiable instrument are,
of course, different. A non-negotiable instrument may, obviously, not be
negotiated; but it may be assigned or transferred, absent an express
prohibition against assignment or transfer written in the face of the
instrument:
The words “not negotiable,” stamped on the face of the bill of lading, did not
destroy its assignability, but the sole effect was to exempt the bill from the
statutory provisions relative thereto, and a bill, though not negotiable, may be
transferred by assignment; the assignee taking subject to the equities between
the original parties. 12 (Emphasis added)
DMC PN No. 2731, while marked “non-negotiable,” was not at the same time
stamped “non-transferable” or “non-assignable.” It contained no stipulation
which prohibited Philfinance from assigning or transferring, in whole or in
part, that Note.
Philippine Education Co. vs. Soriano, L-22405, June 30, 1971
Facts:
Enrique Montinola sought to purchase from Manila Post Office ten
money orders of 200php each payable to E. P. Montinola. Montinola offered
to pay with the money orders with a private check. Private check was not
generally accepted in payment of money orders, the teller advised him to see
the Chief of the Money Order Division, but instead of doing so, Montinola
managed to leave the building without the knowledge of the teller. Upon the
disappearance of the unpaid money order, a message was sent to instruct all
banks that it must not pay for the money order stolen upon presentment. The
Bank of America received a copy of said notice. However, The Bank of America
received the money order and deposited it to the appellant’s account upon
clearance. Mauricio Soriano, Chief of the Money Order Division notified the
Bank of America that the money order deposited had been found to have
been irregularly issued and that, the amount it represented had been
deducted from the bank’s clearing account. The Bank of America debited
appellant’s account with the same account and give notice by mean of debit
memo.
Issue:
Whetherthe postal money order in question is a negotiable instrument
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS3
Held:
No. It is not disputed that the Philippine postal statutes were patterned after
similar statutes in force in United States. The Weight of authority in the United
States is that postal money orders are not negotiable instruments, the reason
being that in establishing and operating a postal money order system, the
government is not engaged in commercial transactions but merely exercises a
governmental power for the public benefit. Moreover, some of the restrictions
imposed upon money orders by postal laws and regulations are inconsistent
with the character of negotiable instruments. For instance, such laws and
regulations usually provide for not more than one endorsement; payment of
money orders may be withheld under a variety of circumstances.
Caltex Inc. v. Court of Appeals, G.R. No. 97753, August 10, 1992
Facts:
On various dates, Security Bank and Trust Company (SBTC), through
its Sucat Branch issued 280 certificates of time deposit (CTD) in favor of one
Angel dela Cruz who later lost them.
Date of Maturity FEB. 23, 1984 FEB 22, 1982, 19____
This is to Certify that B E A R E R has deposited in this Bank the sum of PESOS:
FOUR THOUSAND ONLY, SECURITY BANK SUCAT OFFICE P4,000& 00 CTS Pesos,
Philippine Currency, repayable to said depositor 731 days. after date, upon
presentation and surrender of this certificate, with interest at the rate
of 16% per cent per annum.
(Sgd. Illegible)
Caltex (Phils.) Inc. went to the SBTCSucat branch and presented for
verification the CTDs declared lost by Angel dela Cruz alleging that the same
were delivered to herein plaintiff “as security for purchases made with Caltex
Philippines, Inc.” by said depositor. SBTC rejected Caltex’s demand and claim.
Caltex sued SBTC but case was dismissed rationalizing that CTDs are non-
negotiable instruments.
Issue:
Whether Certificate of Time Deposit (CTD) is a negotiable instrument.
Held:
YES. The CTDs in question undoubtedly meet the requirements of the law for
negotiability under Section 1 of the Negotiable Instruments Law. 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. Here, if it was really the intention of respondent
bank to pay the amount to Angel de la Cruz only, it could have with facility so
expressed that fact in clear and categorical terms in the documents, instead of
having the word “BEARER” stamped on the space provided for the name of the
depositor in each CTD.
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.
Casabuena v. Court of Appeals, G.R. No. 115410, February 27, 1988
Facts:
To secure debt, spouses Urdaneta ceded their rights over the land through a
deed of assignment.
Issue:
Whether or not a deed of assignment transfer ownership of property to
assignee.
Held:
NO. The act of assignment could not have operated to efface liens or
restrictions burdening the right assigned, because an assignee cannot acquire
a greater right than that pertaining to the assignor. At most, an assignee can
only acquire rights duplicating those which his assignor is entitled by law to
exercise. In the case at bar, the Casabuenas merely stepped into Benin’s
shoes, who was not so much an owner as a mere assignee of the rights of her
debtors. Not having acquired any right over the land in question, it follows
that Benin conveyed nothing to defendants with respect to the property.
BDO vs. Equitable Banking Corp
G.R. No. 74917. January 20, 1988
Facts: Plaintiff through its Visa Card Department, drew six crossed
Manager's check payable to certain member establishments of Visa Card.
Subsequently, the Checks were deposited with the defendant 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 the
defendant sent the checks for clearing through the Philippine Clearing House
Corporation (PCHC). Accordingly, plaintiff paid the Checks; its clearing account
was debited for the value of the Checks and defendant's clearing account was
credited for the same amount,
Thereafter, plaintiff 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, plaintiff presented the
Checks directly to the defendant for the purpose of claiming reimbursement
from the latter. However,
defendant refused to accept such direct presentation and to reimburse the
plaintiff for the value of the Checks.
Issues:
(a) Whether or not BDO is estopped from claiming that checks under
consideration are non-negotiable instruments.
(b) Whether or not BDO can escape liability by reasons of forgery.
(c) What is a check.
Rulings:
(a) Yes. BDO having stamped its guarantee of “all prior endorsements and/or
lack of endorsements” 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.
(b) No. A commercial bank cannot escape the liability of an endorser of a
check and which may turn out to be a forged endorsement. If the instrument
involved is a check, the drawee cannot charge the account of the drawer if the
payee’s or indorser’s signature is forged. The drawee, in turn has the right of
recourse against the collecting bank.
The drawer owes no duty of diligence to the collecting bank, the law imposes a
duty of diligence on the collecting bank to scrutinize checks deposited with it
for the purpose of determining their genuineness and regularity. It is the
collecting bank that generally suffers the loss with regard to forged
indorsements because it had the duty to ascertain the genuineness of all
prior indorsements considering that the act of presenting the check for
payment to the drawee is an assertion that the party making the presentment
has done its duty to ascertain the genuineness of the indorsements.
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS4
(c) A check is a bill of exchange drawn on a bank payable on demand. Except
as herein otherwise provided, the provisions of this act applicable to a bill of
exchange payable on demand apply to a check. Checks are used between
banks and bankers and their customers and are designed to facilitate banking
operations. It is of the essence to be payable on demand, because the contract
between the banker and the customer is that the money is needed on
demand.
The Philippine Bank of Commerce vs. Aruego
G.R. Nos. L-25836-37 January 31, 1981
Facts: The complaint filed by Philippine Bank of Commerce contains twenty-
two (22) causes of action referring to twenty-two (22) transactions entered
into by the said Bank and Aruego on different dates, representing the cost of
the printing of "World Current Events," a periodical published by the
defendant. To facilitate the payment of the printing the defendant obtained a
credit accommodation from the plaintiff. Thus, for every printing of the
"World Current Events," the printer, Encal Press and Photo Engraving,
collected the cost of printing by drawing a draft against the plaintiff, said draft
being sent later to the defendant for acceptance. As an added security for the
payment of the amounts advanced to Encal Press and Photo-Engraving, the
plaintiff bank also required defendant Aruego to execute a trust receipt in
favor of said bank wherein said defendant undertook to hold in trust for
plaintiff the periodicals and to sell the same with the promise to turn over to
the plaintiff the proceeds of the sale of said publication to answer for the
payment of all obligations arising from the draft. The bank instituted an action
against Aruego to recover the cost of printing of the latter’s periodical.
Aruego however argues that he signed the supposed bills of exchange only as
an agent of the Philippine Education Foundation Company where he is
president.
Issues:
(a) WON Aruego is estopped from denying liability?
(b) Whether Aruego can be held liable by the petitioner although he signed
the supposed bills of exchange only as an agent of Philippine Education
Foundation Company.
Rulings:
(a) Yes. Nowhere has he disclosed that he was signing as a representative of
the Philippine Education Foundation Company. For failure to disclose his
principal, Aruego is personally liable for the drafts he accepted. An
accommodation party is one who has signed the instrument as maker, drawer,
indorser, without receiving value therefor and for the purpose of lending his
name to some other person. Such person is liable on the instrument to a
holder for value, notwithstanding such holder, at the time of the taking of the
instrument knew him to be only an accommodation party.
(b) The first defense of the defendant is that he signed the supposed bills of
exchange as an agent of the Philippine Education Foundation Company where
he is president. Section 20 of the Negotiable Instruments Law provides that
"Where the instrument contains or a person adds to his signature words
indicating that he signs for or on behalf of a principal or in a representative
capacity, he is not liable on the instrument if he was duly authorized; but the
mere addition of words describing him as an agent or as filing a representative
character, without disclosing his principal, does not exempt him from personal
liability."
He merely signed as follows: "JOSE ARUEGO (Acceptor) (SGD) JOSE ARGUEGO
For failure to disclose his principal, Aruego is personally liable for the drafts he
accepted.
Metropolitan Bank & Trust Company vs. Court of Appeals
G.R. No. 88866 February, 18, 1991
Facts:
In January 1979, a certain Eduardo Gomez opened an account with Golden
Savings and deposited over a period of two months 38 treasury warrants with
a total value of ₱1,755,228.37. They were all drawn by the Philippine Fish
Marketing Authority and purportedly signed by its General Manager and
counter-signed by its Auditor. Six of these were directly payable to Gomez
while the others appeared to have been indorsed by their respective payees,
followed by Gomez as second indorser.
On various dates, all these warrants were subsequently indorsed by Gloria
Castillo as Cashier of Golden Savings and deposited to its Savings Account No.
2498 in the Metrobank branch in Calapan, Mindoro. They were then sent for
clearing by the branch office to the principal office of Metrobank, which
forwarded them to the Bureau of Treasury for special clearing.
Weeks after the deposits, Gloria Castillo went to the Calapan branch several
times to ask whether the warrants had been cleared. Later, however,
"exasperated" over Gloria’s repeated inquiries and also as an accommodation
for a "valued client," the petitioner says it finally decided to allow Golden
Savings to withdraw from the proceeds of the warrants. In turn, Golden
Savings subsequently allowed Gomez to make withdrawals from his own
account, eventually collecting the total amount of ₱1,167,500.00 from the
proceeds of the apparently cleared warrants.
On July 21, 1979, Metrobank informed Golden Savings that 32 of the warrants
had been dishonored by the Bureau of Treasury on July 19, 1979, and
demanded the refund by Golden Savings of the amount it had previously
withdrawn, to make up the deficit in its account. The demand was rejected.
Metrobank then sued Golden Savings in the Regional Trial Court of Mindoro
which rendered a judgment in favor of the Golden Savings. Metrobank filed a
motion for reconsideration. The lower Court modified a part of its decision
which is still in favor of Golden Savings. Metrobank filed a petition for review.
Issues:
1.) Whether or not treasury warrants are negotiable instruments.
2.) Whether or not Metrobank can claim a refund from Golden
Savings.
Held:
1.) No. It is indicated that they are payable from a particular fund,
Fund 501.
SECTION 1. — Form of negotiable instruments. — An instrument to
be negotiable must conform to the following requirements:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum
certain in money;
(c) Must be payable on demand, or at a fixed or determinable
future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be
named or otherwise indicated therein with reasonable certainty.
As provided by Sec. 3 of NIL an unqualified order or promise to pay
is unconditional though coupled with: (1) an indication of a
particular fund out of which reimbursement is to be made or a
particular account to be debited with the amount; or (2) a
statement of the transaction which give rise to the instrument. But
an order to promise to pay out of particular fund is not
unconditional. The indication of Fund 501 as the source of the
payment to be made on the treasury warrants makes the order or
promise to pay “not conditional” and the warrants themselves non-
negotiable.
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS5
2.) No. The amount withdrawn must be charged not to Golden Savings
but to Metrobank, which must bear the consequences of its own
negligence. But the balance of P586,589.00 should be debited to
Golden Savings. Metrobank was indeed negligent in giving Golden
Savings the impression that the treasury warrants had been cleared
and that, consequently, it was safe to allow Gomez to withdraw the
proceeds thereof from his account with it. There was no reason
why it should not have waited until the treasury warrants had been
cleared.
Art. 1909. - The agent is responsible not only for fraud, but also for
negligence, which shall be judged 'with more or less rigor by the
courts, according to whether the agency was or was not for a
compensation.
Forgery cannot be presumed. It must be established by clear,
positive and convincing evidence. This was not done in the present
case.
Pay v. Palanca, G.R. No. L-29900, June 28, 1974
Facts:
The promissory note indicated payment “upon demand”. Petitioner relied on
this to mean that prescription would not lie unless there is demand from
them. The petition was filed fifteen years after its issuance.
Issue:
Whether or not a promissory note to be paid “upon demand” is immediately
due and demandable.
Held:
YES. Every obligation whose performance does not depend upon a future or
uncertain event, or upon a past event unknown to the parties, is demandable
at once (Art. 1179 of the New Civil Code). The obligation being due and
demandable in this case, it would appear that the filing of the suit after fifteen
years was much too late.
ANG TEK LIAN, petitioner, vs. THE COURT OF APPEALS, respondent
G.R. No. L-2516 September 25, 1950
Facts:
Ang Tek Lian drew the check upon the China Banking Corporation for the sum
of ₱4,000, payable to the order of "cash". He delivered it to Lee Hua Hong in
exchange for money which the latter handed in act. On the next business day,
the check was presented by Lee Hua Hong to the drawee bank for payment,
but it was dishonored for insufficiency of funds, the balance of the deposit of
Ang Tek Lian on both dates being ₱335 only. The Court of Appeals believed the
version of Lee Huan Hong who testified that "appellant went to his
(complainant's) office and asked him to exchange the check — which he
(appellant) then brought with him — with cash alleging that he needed badly
the sum of ₱4,000 represented by the check, but could not withdraw it from
the bank, it being then already closed; that despite repeated efforts to notify
him that the check had been dishonored by the bank, appellant could not be
located any-where, until he was summoned in the City Fiscal's Office in view of
the complaint for estafa filed in connection therewith; and that appellant has
not paid as yet the amount of the check, or any part thereof."
Issues:
1.) Whether or not a check payable to the order of “cash”is a check
payable to bearer.
2.) Whether or not a check payable to “cash” need to be indorsed.
Held:
1.) Yes. Under the Negotiable Instruments Law (sec. 9 [d], a check
drawn payable to the order of "cash" is a check payable to bearer.
A check payable to the order of cash is a bearer instrument. Where
a check is made payable to the order of "cash", the word cash
"does not purport to be the name of any person", and hence the
instrument is payable to bearer.
2.) No. The bank may pay it to the person presenting it for payment
without the drawer's indorsement. Of course, if the bank is not
sure of the bearer's identity or financial solvency, it has the right to
demand identification and /or assurance against possible
complications, — for instance, (a) forgery of drawer's signature, (b)
loss of the check by the rightful owner, (c) raising of the amount
payable, etc. The bank may therefore require, for its protection,
that the indorsement of the drawer — or of some other person
known to it — be obtained. But where the Bank is satisfied of the
identity and /or the economic standing of the bearer who tenders
the check for collection, it will pay the instrument without further
question; and it would incur no liability to the drawer in thus
acting. A check payable to bearer is authority for payment to
holder. Where a check is in the ordinary form, and is payable to
bearer, so that no indorsement is required, a bank, to which it is
presented for payment, need not have the holder identified, and is
not negligent in failing to do so.
LORETO D. DE LA VICTORIA, as City Fiscal of Mandaue City and in his
personal capacity as garnishee, petitioner,
vs.
HON. JOSE P. BURGOS, Presiding Judge, RTC, Br. XVII, Cebu City, and RAUL H.
SESBREÑO, respondents.
G.R. No. 111190 June 27, 1995
(2) Under IIIA6,IIIA8)
FACTS:
Raul Sebreño filed a complaint for damages against Fiscal
Bienvenido Mabanto Jr. of Cebu City. Sebreño won and he was awarded the
payment of damages. Judge Burgos ordered De La Victoria, custodian of the
paychecks of Mabanto, to hold the checks and convey them to Sebreño
instead. De La Victoria assailed the order as he said that the paychecks and the
amount thereon are not yet the property of Mabanto because they are not yet
delivered to him; that since there is no delivery of the checks to Mabanto, the
checks are still part of the public funds; and the checks due to the foregoing
cannot be the proper subject of garnishment.
Petitioner raises the following relevant issues: (1) whether a check still in the
hands of the maker or its duly authorized representative is owned by the
payee before physical delivery to the latter: and, (2) whether the salary check
of a government official or employee funded with public funds can be subject
to garnishment.
Petitioner reiterates his position that the salary checks were not owned by
Mabanto, Jr., because they were not yet delivered to him, and that petitioner
as garnishee has no legal obligation to hold and deliver them to the trial court
to be applied to Mabanto, Jr.’s judgment debt. The thesis of petitioner is that
the salary checks still formed part of public funds and therefore beyond the
reach of garnishment proceedings.
ISSUE:
Whether or not a negotiable instrument is incomplete and
revocable until delivery of the instrument.
HELD:
Yes. Under Section 16 of the Negotiable Instruments Law, every
contract on a negotiable instrument is incomplete and revocable
until delivery of the instrument for the purpose of giving effect thereto. As
ordinarily understood, delivery means the transfer of the possession of the
instrument by the maker or drawer with intent to transfer title to the payee
and recognize him as the holder thereof.
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS6
CONSOLIDATED PLYWOOD INDUSTRIES VS.IFC LEASING & ACCEPTANCE
CORP.
149 SCRA 448 (1987)
Facts:
Consolidated Plywood Industries Inc. (CPII) is a corporation
engaged in the logging business. It had for its program of logging activities the
opening of additional roads, and simultaneous logging operations along the
route of said roads. With this, it requires two more units of tractors to attain
its objective. Atlantic Gulf and Pacific Company of Manila’s sister company,
Industrial Products Marketing (IPM), offered to sell to CPII 2 "Used" Allis
Crawler Tractors. IPM assured CPII that the "Used" Allis Crawler Tractors which
were offered are fit for the job, and gave the corresponding warranty of 90
days performance of the machines and availability of parts. The president and
vice president of CPII, agreed to purchase on installment said 2 units of "Used"
Allis Crawler Tractors relying on IPM’s guarantee. They paid a down payment
of 210,000.00. After issuance of the sales invoice, the deed of sale with chattel
mortgage with promissory note was executed. Simultaneously with the
execution of the deed of sale with chattel mortgage with promissory note,
IPM, by means of a deed of assignment, assigned its rights and interest in the
chattel mortgage in favor of IFC Leasing and Acceptance Corporation.
Immediately thereafter, IPM delivered said 2 units of "Used “tractors to CPII's
jobsite as agreed upon. Eventually, one of the tractors broke down, 9 days
subsequent to the incident; the other tractor also broke down. IPM sent
mechanics to fix the tractors but was unable to do so as the units were not
serviceable. Due to this, the road building and simultaneous logging
operations were delayed. The Vice President of CPII advised IPM that the
payments of the installments as listed in the promissory note would likewise
be delayed until IPM completely fulfills its obligation under its warranty. Since
the tractors were no longer serviceable, the President asked IPM to pull out
the units and have them reconditioned, and thereafter to offer them for sale.
The proceeds were to be given to IFC Leasing and the excess, if any, to be
divided between IPM and CPII which offered to bear 1/2 of their conditioning
cost. No response to this letter was received by CPII and despite several
follow-up calls; IPM did nothing with regard to the request, until the complaint
in the case was filed by IFC Leasing against CPII. The trial court rendered
judgment, ordering CPII, et al. to pay jointly and severally in their official and
personal capacities the principal sum of P1, 093,798.71 with accrued interest.
CPII et al.'s motion for reconsideration was denied by the Intermediate
Appellate Court Hence, this case.
Issue:
Whether the promissory note in question is a negotiable
instrument?
Held:
The pertinent portion of the note provides that ""FORVALUE
RECEIVED, I/we jointly and severally promise to pay to the INDUSTRIAL
PRODUCTS MARKETING, the sum of ONEMILLION NINETY THREE THOUSAND
SEVEN HUNDRED EIGHTYNINE PESOS & 71/100 only (P1,093,789.71),
Philippine Currency, the said principal sum, to be payable in 24 monthly
installments starting July 15, 1978 and every 15th of the month thereafter
until fully paid." Considering that paragraph (d), Section 1 of the Negotiable
Instruments Law requires that a promissory note "must be payable to order or
bearer," it cannot be denied that the promissory note in question is nota
negotiable instrument. The instrument in order to be considered negotiable
must contain the so called "words of negotiability" ³ i.e., must be payable to
"order" or "bearer."These words serve as an expression of consent that the
instrument may be transferred. This consent is indispensable since a maker
assumes greater risk under a negotiable instrument than under a non-
negotiable one. Without the words "or order" or "to the order of," the
instrument is payable only to the person designated therein and is therefore
non-negotiable. Any subsequent purchaser thereof will not enjoy the
advantages of being a holder of a negotiable instrument, but will merely "step
into the shoes "of the person designated in the instrument and will thus be
open to all defenses available against the latter. Therefore, considering that
the subject promissory note is not a negotiable instrument, it follows that IFC
Leasing can never be a holder in due course but remains a mere assignee of
the note in question. Thus, CPII may raise against IFC Leasing all defenses
available to it as against IPM. This being so, there was no need for CPII to
implead IPM when it was sued by IFC Leasing because CPII's defenses apply to
both or either of them.
TRADERS ROYAL BANK V CA G.R. No. 93397 March 3, 1997
FACTS:
Filriters registered owner of Central Bank Certificate of Indebtedness (CBCI).
Filriters transferred it to Philfinance by one of its officers without
authorization from the company. Subsequently, Philfinance transferred same
CBCI to Traders Royal Bank (TRB) under a repurchase agreement. When
Philfinance failed to do so, The TRB tried to register in its name in the CBCI.
The Central Bank did not want to recognize the transfer.
Docketed as Civil Case No. 83-17966 in the Regional Trial Court of Manila,
Branch 32, the action was originally filed as a Petition for Mandamus 5 under
Rule 65 of the Rules of Court, to compel the Central Bank of the Philippines to
register the transfer of the subject CBCI to petitioner Traders Royal Bank
(TRB).
DECISION OF LOWER COURTS: * RTC: transfer is null and void. * CA: The
appellate court ruled that the subject CBCI is not a negotiable instrument.
Philfinance acquired no title or rights under CBCI No. D891 which it could
assign or transfer to Traders Royal Bank and which the latter can register with
the Central Bank. Thus, the transfer of the instrument from Philfinance to TRB
was merely an assignment, and is not governed by the negotiable instruments
law.
APPLICABLE LAWS:
Under section 1 of Act no. 2031 an instrument to be negotiable must conform
to the following requirements: (a) It must be in writing and signed by the
maker or drawer; (b) Must contain an unconditional promise or order to pay a
sum certain in money; (c) Must be payable on demand, or at a fixed or
determinable future time; (d) Must be payable to order or to bearer; and (e)
Where the instrument is addressed to a drawee, he must be named or
otherwise indicated therein with reasonable certainty.
Under section 3, Article V of Rules and Regulations Governing Central Bank
Certificates of Indebtedness states that the assignment of registered
certificates shall not be valid unless made at the office where the same have
been issued and registered or at the Securities Servicing Department, Central
Bank of the Philippines, and by the registered owner thereof, in person or by
his representative, duly authorized in writing. For this purpose, the transferee
may be designated as the representative of the registered owner.
ISSUES & RULING: 1. Whether the CBCI is negotiable instrument or not.
The pertinent portions of the subject CBCI read:
xxx xxx xxx
The Central Bank of the Philippines (the Bank) for value received, hereby
promises to pay bearer, of if this Certificate of indebtedness be registered, to
FILRITERS GUARANTY ASSURANCE CORPORATION, the registered owner
hereof, the principal sum of FIVE HUNDRED THOUSAND PESOS.
NO. The CBCI is not a negotiable instrument, since the instrument clearly
stated that it was payable to Filriters, and the certificate lacked the words of
negotiability which serve as an expression of consent that the instrument may
be transferred by negotiation.
Before the instruments become negotiable instruments, the instrument must
conform to the requirements under the Negotiable Instrument Law. Otherwise
instrument shall not bind the parties.
2. Whether the Assignment of registered certificate is valid or null and void.
IT'S NULL AND VOID. Obviously the Assignment of certificate from Filriters to
Philfinance was null and void. One of officers who signed the deed of
assignment in behalf of Filriters did not have the necessary written
authorization from the Board of Directors of Filriters. For lack of such authority
the assignment is considered null and void.
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS7
Clearly shown in the record is the fact that Philfinance's title over CBCI
is defective since it acquired the instrument from Filriters fictitiously.
Under 1409 of the Civil Code those contracts which are absolutely simulated
or fictitious are considered void and inexistent from the beginning.
Petitioner knew that Philfinance is not registered owner of the CBCI No. D891.
The fact that a non-owner was disposing of the registered CBCI owned by
another entity was a good reason for petitioner to verify of inquire as to the
title Philfinance to dispose to the CBCI.
OTHER NOTES:
1. the mere ownership by a single stockholder or by another corporation of all
or nearly all of the capital stock of a corporation is not of itself a sufficient
reason for disregarding the fiction of separate corporate personalities.
LIM v. CA (1995)
Facts:
Spouses Manuel and Rosita Lim (Spouses Lim – president and treasurer
respectively of Rigi Bilt Industries, Inc. which has been transacting business
with LINTON) were charged with 3 counts of Estafa and 7 counts of violation of
the Bouncing Checks Law/BP 22 for allegedly conspiring together, purchased
goods (100 pieces of mild steel plates worth Php51,815; 65 pieces of mild steel
plates worth P63,455; 2,600 “Z” purlins worth P241,800) from Linton
Commercial Company, Inc. (LINTON), and with deceit issued seven (7)
Consolidated Bank and Trust Company (SOLIDBANK) checks simultaneously
with the delivery therefor. When presented to SOLIDBANK for payment the
checks were dishonored for insufficiency of funds to cover the amounts and
despite repeated notice and demand, Spouses Lim failed and refused to pay
the checks or the value of the goods. Testimonies from William Yu Bin (Vpres
and Sales Manager of LINTON) and Salvador Alfonso (signature verifier of
SOLIDBANK) further strengthened the fact that the account did not have
sufficient funds. Manuel admitted to having issued seven (7) checks however
still denied that Rigi Bilt’s account had insufficient funds to cover the amounts
of the presenting the bank ledger showing a balance of P65,752.75.
Furthermore, he claimed that he ordered SOLIDBANK to stop payment
because the supplies delivered by LINTON were not in accordance with the
specifications in the purchase orders.
Trial Court held Spouses Lim guilty of Estafa and violation of BP 22.
CA acquitted Spouses Lim of Estafa because the checks were not made in
payment of an obligation contracted at the time of the issuance. However, CA
affirmed guilt of violation of BP 22.
Issue/s: Whether the prosecution failed to prove that any of the essential
elements of the crime punishable under B.P. Blg. 22 was committed within the
jurisdiction of the Regional Trial Court of Malabon.
Held/Ratio:
NO. The essential element in violating BP 22 of knowingly issuing a worthless
check is fulfilled. Section 1, par. 1, of BP 22 punishes “"[a]ny person who
makes or draws and issues any check to apply on account or for value,
knowing at the time of issue that he does not have sufficient funds in or credit
with the drawee bank for the payment of such check in full upon its
presentment, which check is subsequently dishonored by the drawee bank for
insufficiency of funds or credit or would have been dishonored for the same
reason had not the drawer, without any valid reason, ordered the bank to stop
payment . . ." Given that Spouses Lim had knowledge of the insufficiency of
their funds in SOLIDBANK at the time their checks were issued, then they
clearly violated the aforementioned Section in BP 22.
Under Sec. 191, NIL the term “issue” means the first delivery of the instrument
complete in form to a person who takes it as a holder. A “holder”, however,
refers to the payee or indorsee of a bill or note who is in possession of it or the
bearer therof. In the present case, the checks were actually issued and
delivered to LINTON in Balut, Navotas but the receipt of LINTON’s Collector
(received checks from Spouses Lim) of the checks is not what is contemplated
as he was not the person who could take the checks as “holder” and neither
can the Collector be considered an agent of LINTON for he was a mere
employee.
In addition, Spouses Lim did not overcome the prima facie evidence set down
in Sec. 2, BP 22 (The making, drawing and issuance of a check payment of
which is refused by the bank because of insufficient funds in or credit with
such bank, when presented within ninety (90) days from the date of the check,
shall be prima facie evidence of knowledge of such insufficiency of funds or
credit unless such maker or drawer pays the holder thereof the amount due
thereon, or makes arrangement for payment in full by the drawee of such
check within five (5) banking days after receiving notice that such check has
not been paid by the drawee.) and they also did not make arrangements to
pay SOLIDBANK within five (5) days after receiving notices that the checks had
not been paid.
CA decision AFFIRMED.
FACTS:
Spouses Lim were charged with estafa and violations of BP22 for allegedly
purchasing goods from Linton Commercial Corporation and issuing checks as
payment thereof. The checks when presented to the bank were dishonored
for insufficiency of funds or the payment for the checks has been stopped.
HELD:
It is settled that venue in criminal cases is a vital ingredient of jurisdiction. It
shall be where the crime or offense was committed or any one of the
essential ingredients thereof took place. In determining the proper venue for
these cases, the following are material facts—the checks were issued at the
place of business of Linton; they were delivered to Linton at the same place;
they were dishonored in Kalookan City; petitioners had knowledge of the
insufficiency of funds in their account.
Under Section 191 of the NIL, issue means the first delivery of the instrument
complete in its form to a person who takes it as holder. The term holder on
the other hand refers to the payee or indorsee of a bill or note who is in
possession of it or the bearer thereof. The important place to consider in the
consummation of a negotiable instrument is the place of delivery. Delivery is
the final act essential to its consummation as an obligation.
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, defendants-respondents.
Facts: Development Bank of Rizal filed a complaint for a sum of money against
respondents Sima Wei and/or Lee Kian Huat, Mary Cheng Uy, Samson Tung,
Asian Industrial Plastic Corporation and the Producers Bank of the Philippines
for: (a) enforce payment of the balance on a promissory note executed by
Wei; (b) and enforce payment of two checks executed by Sima Wei.
 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. 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 petitioner or to any of
its authorized representatives. Instead for these checks came into
the possession of respondent Lee Kian Huat, who deposited the
checks without the petitioner’s indorsement to the account of
respondent Plastic Corporation in Producers Bank which was
afterwards credited to Plastic Corporation’s account.
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS8
Issues raised in the case: whether petitioner Bank has a cause of action
against any or all of the defendants, in the alternative or otherwise.
Held: No cause of action against other defendant only against Sima Wei.
 A cause of action is defined as an act or omission of one party in
violation of the legal right or rights of another. The essential
elements are: (1) legal right of the plaintiff; (2) correlative
obligation of the defendant; and (3) an act or omission of the
defendant in violation of said legal right.
 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 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. Delivery of an
instrument means transfer of possession, actual or constructive,
from one person to another. Without 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.
 The allegations of the petitioner in the original complaint show that
the two (2) China Bank checks were not delivered to the payee.
Without the delivery of said checks to petitioner-payee, the former
did not acquire any right or interest therein and cannot therefore
assert any cause of action, founded on said checks, whether against
the drawer Sima Wei or against the Producers Bank or any of the
other respondents.
 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. Hence,
the case is REMANDED to the trial court for a trial on the merits.
G.R. No. L-2861 February 26, 1951
ENRIQUE P. MONTINOLA, plaintiff-appellant, vs. THE PHILIPPINE NATIONAL
BANK, ET AL., defendants-appellees.
Facts:
In April and May, 1942, Ubaldo D. Laya was the Provincial Treasurer of
Misamis Oriental. As such Provincial Treasurer he was ex officio agent of the
Philippine National Bank branch in the province. Mariano V. Ramos worked
under him as assistant agent in the bank branch aforementioned. In April of
that year 1942, the currency being used in Mindanao, particularly Misamis
Oriental and Lanao which had not yet been occupied by the Japanese invading
forces, was the emergency currency which had been issued since January,
1942 by the Mindanao Emergency Currency Board by authority of the late
President Quezon.
About April 26, 1942, thru the recommendation of Provincial Treasurer Laya,
his assistant agent M. V. Ramos was inducted into the United States Armed
Forces in the Far East (USAFFE) as disbursing officer of an army division. As
such disbursing officer, M. V. Ramos on April 30, 1942, went to the
neighboring Province Lanao to procure a cash advance in the amount of
P800,000 for the use of the USAFFE in Cagayan de Misamis. Pedro
Encarnacion, Provincial Treasurer of Lanao did not have that amount in cash.
So, he gave Ramos P300,000 in emergency notes and a check for P500,000. On
May 2, 1942 Ramos went to the office of Provincial Treasurer Laya at Misamis
Oriental to encash the check for P500,000 which he had received from the
Provincial Treasurer of Lanao. Laya did not have enough cash to cover the
check so he gave Ramos P400,000 in emergency notes and a check No. 1382
for P100,000 drawn on the Philippine National Bank. According to Laya he had
previously deposited P500,000 emergency notes in the Philippine National
Bank branch in Cebu and he expected to have the check issued by him cashed
in Cebu against said deposit.
About the last days of December, 1944 or the first days of January, 1945, M. V.
Ramos allegedly indorsed this check No. 1382 to Enrique P. Montinola. The
circumstances and conditions under which the negotiation or transfer was
made are in controversy.
According to Montinola's version, sometime in June, 1944, Ramos, needing
money with which to buy foodstuffs and medicine, offered to sell him the
check; to be sure that it was genuine and negotiable, Montinola, accompanied
by his agents and by Ramos himself, went to see President Carmona of the
Philippine National Bank in Manila about said check; that after examining it
President Carmona told him that it was negotiable but that he should not let
the Japanese catch him with it because possession of the same would indicate
that he was still waiting for the return of the Americans to the Philippines; that
he and Ramos finally agreed to the sale of the check for P850,000 Japanese
military notes, payable in installments; that of this amount, P450,000 was paid
to Ramos in Japanese military notes in five installments, and the balance of
P400,000 was paid in kind, namely, four bottles of sulphatia sole, each bottle
containing 1,000 tablets, and each tablet valued at P100; that upon payment
of the full price, M. V. Ramos duly indorsed the check to him.
Ramos in his turn told the court that the agreement between himself and
Montinola regarding the transfer of the check was that he was selling only
P30,000 of the check and for this reason, at the back of the document he
wrote in longhand the following:
“Pay to the order of Enrique P. Montinola P30,000 only. The balance to be
deposited in the Philippine National Bank to the credit of M. V. Ramos.”
Ramos further said that in exchange for this assignment of P30,000 Montinola
would pay him P90,000 in Japanese military notes but that Montinola gave
him only two checks of P20,000 and P25,000, leaving a balance unpaid of
P45,000. In this he was corroborated by Atty. Simeon Ramos Jr. who told the
court that the agreement between Ramos and Montinola was that the latter,
for the sale to him of P30,000 of the check, was to pay Ramos P90,000 in
Japanese military notes; that when the first check for P20,000 was issued by
Montinola, he (Simeon) prepared a document evidencing said payment of
P20,000; that when the second check for P25,000 was issued by Montinola, he
(Simeon) prepared another document with two copies, one for Montinola and
the other for Ramos, both signed by Montinola and M. V. Ramos, evidencing
said payment, with the understanding that the balance of P45,000 would be
paid in a few days.
Issue:
Whether or not there has been a negotiation of the negotiable instrument and
if such was the fact, is Montinola an indorsee?
Held:
No. The check was not legally negotiated within the meaning of the Negotiable
Instruments Law. Section 32 of the same law provides that "the indorsement
must be an indorsement of the entire instrument. An indorsement which
purports to transfer to the indorsee a part only of the amount payable, . . . (as
in this case) does not operate as a negotiation of the instrument." Montinola
may therefore not be regarded as an indorsee. At most he may be regarded
as a mere assignee of the P30,000 sold to him by Ramos, in which case, as
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS9
such assignee, he is subject to all defenses available to the drawer Provincial
Treasurer of Misamis Oriental and against Ramos.
We then have the following facts. The check issued by Laya in his capacity as
Provincial Treasurer of Misamis Oriental as drawer on the Philippine National
Bank as drawee. Ramos sold P30,000 of the check to Enrique P. Montinola for
P90,000 Japanese military notes, of which only P45,000 was paid by
Montinola. The writing made by Ramos at the back of the check was an
instruction to the bank to pay P30,000 to Montinola and to deposit the
balance to his (Ramos) credit. This writing was obliterated and in its place we
now have the supposed indorsement appearing on the back of the check.
G.R. No. L-39641 February 28, 1983
METROPOL (BACOLOD) FINANCING & INVESTMENT CORPORATION, plaintiff-
appellee,
vs. SAMBOK MOTORS COMPANY and NG SAMBOK SONS MOTORS CO., LTD.,
defendants-appellants.
Facts:
On April 15, 1969 Dr. Javier Villaruel executed a promissory note in favor of Ng
Sambok Sons Motors Co., Ltd., in the amount of P15,939.00 payable in twelve
(12) equal monthly installments, beginning May 18, 1969, with interest at the
rate of one percent per month. It is further provided that in case on non-
payment of any of the installments, the total principal sum then remaining
unpaid shall become due and payable with an additional interest equal to
twenty-five percent of the total amount due.
On the same date, Sambok Motors Company (hereinafter referred to as
Sambok), a sister company of Ng Sambok Sons Motors Co., Ltd., and under the
same management as the former, negotiated and indorsed the note in favor of
plaintiff Metropol Financing & Investment Corporation with the following
indorsement:
“Pay to the order of Metropol Bacolod Financing & Investment Corporation
with recourse. Notice of Demand; Dishonor; Protest; and Presentment are
hereby waived.
SAMBOK MOTORS CO. (BACOLOD)
By: RODOLFO G. NONILLO Asst. General Manager”
The maker, Dr. Villaruel defaulted in the payment of his installments when
they became due, so on October 30, 1969 plaintiff formally presented the
promissory note for payment to the maker.Dr. Villaruel failed to pay the
promissory note as demanded, hence plaintiff notified Sambok, as indorsee of
said note, of the fact that the same has been dishonored and demanded
payment. Sambok refused to pay.
It argues that by adding the words "with recourse" in the indorsement of the
note, it becomes a qualified indorser that being a qualified indorser, it does
not warrant that if said note is dishonored by the maker on presentment, it
will pay the amount to the holder; that it only warrants the following pursuant
to Section 65 of the Negotiable Instruments Law: (a) that the instrument is
genuine and in all respects what it purports to be; (b) that he has a good title
to it; (c) that all prior parties 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.
Issue:
Whether or not Sambok Motors Company is a qualified indorsee and hence
not liable to in case of non-payment of the maker?
Held:
It is liable.
A qualified indorsement constitutes the indorser a mere assignor of the title to
the instrument. It may be made by adding to the indorser's signature the
words "without recourse" or any words of similar import.
"Recourse" means resort to a person who is secondarily liable after the default
of the person who is primarily liable. 3 Appellant, by indorsing the note "with
recourse" does not make itself a qualified indorser but a general indorser who
is secondarily liable, because by such indorsement, it agreed that if Dr.
Villaruel fails to pay the note, plaintiff-appellee can go after said appellant.
The effect of such indorsement is that the note was indorsed without
qualification. A person who indorses without qualification engages that on due
presentment, the note shall be accepted or paid, or both as the case may be,
and that if it be dishonored, he will pay the amount thereof to the holder.
Appellant Sambok's intention of indorsing the note without qualification is
made even more apparent by the fact that the notice of demand, dishonor,
protest and presentment were an waived. The words added by said appellant
do not limit his liability, but rather confirm his obligation as a general indorser.
NATIVIDAD GEMPESAW, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and PHILIPPINE BANK OF
COMMUNICATIONS, respondents.
G.R. No. 92244 February 9, 1993
(4) (Under IIIB,IIIF,IIIH,VD)
FACTS:
Petioner, Natividad Gempesaw entrusted to her bookkeeper, Alicia
Galang, the preparation of checks about to be issued in the course of her
business transactions. From 1984 to 1986, 82 checks amounting to
P1,208,606.89, were prepared and were supposed to be delivered to
Gempesaw’s clients as payees named thereon. However, through Galang,
these checks were never delivered to the supposed payees. Instead, the
checks were fraudulently indorsed to Alfredo Romero and Benito Lam.
ISSUE:
Whether or not the bank should is mandated by law to refund the
money lost due to forged indorsements.
HELD:
No, the bank is not mandated to refund the money. As a rule, a
drawee bank (in this case the Philippine Bank of Communications) who has
paid a check on which an indorsement has been forged cannot charge the
drawer’s (Gempesaw’s) account for the amount of said check. An exception to
this rule is where the drawer is guilty of such negligence which causes the
bank to honor such a check or checks. If a check is stolen from the payee, it is
quite obvious that the drawer cannot possibly discover the forged
indorsement by mere examination of his cancelled check. A different situation
arises where the indorsement was forged by an employee or agent of the
drawer,or done with the active participation of the latter.
The negligence of a depositor which will prevent recovery of an unauthorized
payment is based on failure of the depositor to act as a prudent businessman
would under the circumstances. In the case at bar, Gempesaw relied implicitly
upon the honesty and loyalty of Galang, and did not even verify the accuracy
of amounts of the checks she signed against the invoices attached thereto.
Furthermore, although she regularly received her bank statements, she
apparently did not carefully examine the same nor the check stubs and the
returned checks,and did not compare them with the same invoices.
Otherwise, she could have easily discovered the discrepancies between the
checks and the documents serving as bases for the checks. With such
discovery, the subsequent forgeries would not have been accomplished. It was
not until two years after Galang commenced her fraudulent scheme that
Gempesaw discovered that eighty-two (82) checks were wrongfully charged to
her account, at which she notified the Philippine Bank of Communications.
BIBIANO V. BAÑAS, JR., petitioner, vs. COURT OF APPEALS, AQUILINO T.
LARIN, RODOLFO TUAZON AND PROCOPIO TALON, G.R. No. 102967
February 10, 2000
FACTS:
On February 20, 1976, petitioner, Bibiano V. Bañas Jr. sold to Ayala Investment
Corporation (AYALA), 128,265 square meters of land located at Bayanan,
Muntinlupa, for two million, three hundred eight thousand, seven hundred
seventy (P2,308,770.00) pesos. The Deed of Sale provided that upon the
signing of the contract AYALA shall pay four hundred sixty-one thousand,
seven hundred fifty-four (P461,754.00) pesos. The balance of one million,
eight hundred forty-seven thousand and sixteen (P1,847,016.00) pesos was to
be paid in four equal consecutive annual installments, with twelve (12%)
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS10
percent interest per annum on the outstanding balance. AYALA issued one
promissory note covering four equal annual installments. Each periodic
payment of P461,754.00 pesos shall be payable starting on February 20, 1977,
and every year thereafter, or until February 20, 1980.
The same day, petitioner discounted the promissory note with AYALA, for its
face value of P1,847,016.00, evidenced by a Deed of Assignment signed by the
petitioner and AYALA. AYALA issued nine (9) checks to petitioner, all dated
February 20, 1976, drawn against Bank of the Philippine Islands with the
uniform amount of two hundred five thousand, two hundred twenty-four
(P205,224.00) pesos.
In his 1976 Income Tax Return, petitioner reported the P461,754 initial
payment as income from disposition of capital asset.
On April 11, 1978, then Revenue Director Mauro Calaguio authorized the
examination of the books and records of petitioner for the year 1976. They
discovered that petitioner had no outstanding receivable from the 1976 land
sale to AYALA and concluded that the sale was cash and the entire profit
should have been taxable in 1976 since the income was wholly derived in
1976.
Issue: WON the promissory note should be declared as a cash transaction for
purposes of taxation?
Held:
YES. As a general rule, the whole profit accruing from a sale of property is
taxable as income in the year the sale is made. But, if not all of the sale price is
received during such year, and a statute provides that income shall be taxable
in the year in which it is "received," the profit from an installment sale is to be
apportioned between or among the years in which such installments are paid
and received. Sec. 43 and Sec. 175 says that among the entities who may use
the above-mentioned installment method is a seller of real property who
disposes his property on installment, provided that the initial payment does
not exceed 25% of the selling price. They also state what may be regarded as
installment payment and what constitutes initial payment. Initial payment
means the payment received in cash or property excluding evidences of
indebtedness due and payable in subsequent years, like promissory notes or
mortgages, given of the purchaser during the taxable year of sale. Initial
payment does not include amounts received by the vendor in the year of sale
from the disposition to a third person of notes given by the vendee as part of
the purchase price which are due and payable in subsequent years. Such
disposition or discounting of receivable is material only as to the computation
of the initial payment. If the initial payment is within 25% of total contract
price, exclusive of the proceeds of discounted notes, the sale qualifies as an
installment sale, otherwise it is a deferred sale. Although the proceed of a
discounted promissory note is not considered part of the initial payment, it is
still taxable income for the year it was converted into cash. The subsequent
payments or liquidation of certificates of indebtedness is reported using the
installment method in computing the proportionate income to be returned,
during the respective year it was realized. Non-dealer sales of real or personal
property may be reported as income under the installment method provided
that the obligation is still outstanding at the close of that year. If the seller
disposes the entire installment obligation by discounting the bill or the
promissory note, he necessarily must report the balance of the income from
the discounting not only income from the initial installment payment. Where
an installment obligation is discounted at a bank or finance company, a
taxable disposition results, even if the seller guarantees its payment, continues
to collect on the installment obligation, or handles repossession of
merchandise in case of default. Thus, by analogy, all the more would a taxable
disposition result when the discounting of the promissory note is done by the
seller himself. Clearly, the indebtedness of the buyer is discharged, while the
seller acquires money for the settlement of his receivables. Logically then, the
income should be reported at the time of the actual gain. For income tax
purposes, income is an actual gain or an actual increase of wealth. Although
the proceeds of a discounted promissory note is not considered initial
payment, still it must be included as taxable income on the year it was
converted to cash. When petitioner had the promissory notes covering the
succeeding installment payments of the land issued by AYALA, discounted by
AYALA itself, on the same day of the sale, he lost entitlement to report the sale
as a sale on installment since, a taxable disposition resulted and petitioner was
required by law to report in his returns the income derived from the
discounting.
According to Section 25 of the NIL- Value is any consideration sufficient to
support a simple contract. An antecedent or pre-existing debt constitutes
value; and is deemed such whether the instrument is payable on demand or at
a determinable future time.
The proceed of the discounted promissory note is taxable income as it was
converted to cash on the taxable year.
CHAN WAN, plaintiff-appellant, vs. TAN KIM and CHEN SO, defendants-
appellees G.R. No. L-15380 September 30, 1960
Facts :
Checks payable to "cash or bearer" and drawn by defendant Tan Kim (the
other defendant is her husband) upon the Equitable Banking Corporation,
were all presented for payment by Chan Wan to the drawee bank, but they
"were all dishonored and returned to him unpaid due to insufficient funds
and/or causes attributable to the drawer."
At the hearing of the case, in the Manila court of first instance, defendants 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.
Issue: WON plaintiff Chan Wan is a holder in due course?
Held:
No. 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. Inasmuch as Chan Wan
did present them for payment himself — the Manila court said — there was
no proper presentment, and the liability did not attach to the drawer.
Nevertheless it is found on the back of the check that it was presented to the
bank but was returned due to lack of funds by the drawee. Naturally and
rightly, the lower court held him not to be a holder in due course under the
circumstances, since he knew, upon taking them up, that the checks had
already been dishonored.
Sec. 52. What constitute a holder in due course.
- A holder in due course is a holder who has taken the instrument
under the following conditions:
(a.) That it is complete and regular upon its face;
(b.) That he became the holder of ist before it was overdue, and
without notice that it had been previously dishonored, if such was the fact;
(c.) That he took it in good faith and for value;
(d.) That at the time it was negotiated to him he had no notice of any
infirmity in the instrument or defect in the title of the person negotiating it.
Chan Wan is not a holder in due course as she has knowledge that the check
was previously dishonored.
ATRIUM MANAGEMENT VS. CA
G.R. No. 109491. February 28, 2001
FACTS:
 Hi-Cement Corporation through its corporate signatories, Lourdes M. de
Leon (Teasurer) and Antonio de las Alas (Chairman) issued four (4) checks
in favor of E.T. Henry and Co. Inc., as payee.
 E.T. Henry and Co., Inc., in turn, endorsed the four checks to petitioner
Atrium Management Corporation for valuable consideration.
 Upon presentment for payment, the drawee bank dishonored all four
checks for the common reason payment stopped. Atrium Management
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS11
Corporation filed with the Regional Trial Court, Manila an action for
collection of the proceeds of four postdated checks in the total amount of
P2 million.
Trial Court
During trial, Atrium and Hi-Cement presented their own witnesses:
Atrium witness:
Carlos C. Syquia testified that Enrique Tan of E.T. Henry approached
Atrium for financial assistance, offering to discount four RCBC
checks issued by Hi-Cement in favor of E.T. Henry. Atrium agreed
to discount the checks provided that Hi-Cements confirms that
checks represented payment for petroleum products it purchased
from E.T. Henry. Lourdes de Leon signed a letter confirming the
same.
Hi-Cement witness:
Ms. Erlinda Yap testified that E.T. Henry offered to give Hi-Cement
a loan which the subject checks would secure as collateral.
The trial court rendered a decision ordering Lourdes M. de Leon, her husband
Rafael de Leon, E.T. Henry and Co., Inc. and Hi-Cement Corporation to pay
petitioner Atrium, jointly and severally, the amount of P2 million
corresponding to the value of the four checks.
Court of Appeals
Lourdes M. de Leon submitted that the trial court erred in ruling that she was
solidarilly liable with Hi-Cement for the amount of the check. Also, that the
trial court erred in ruling that Atrium was an ordinary holder, not a holder in
due course of the rediscounted checks
Hi-Cement on its part submitted that the trial court erred in ruling that even if
Hi-Cement did not authorize the issuance of the checks, it could still be held
liable for the checks. And assuming that the checks were issued with its
authorization, the same was without any consideration, which is a defense
against a holder in due course and that the liability shall be borne alone by E.T.
Henry
The Court of Appeals absolved Hi-Cement Corporation from liability and
dismissing the complaint as against it, and ruled that:
(1) Lourdes M. de Leon was not authorized to issue the subject checks in favor
of E.T. Henry, Inc.;
(2) The issuance of the subject checks by Lourdes M. de Leon and the late
Antonio de las Alas constituted ultra vires acts;
(3) The subject checks were not issued for valuable consideration.
ISSUE: Whether Atrium was not a holder in due course and for value
SC RULING: The Negotiable Instruments Law, Section 52 defines a holder in
due course, thus:
A holder in due course is a holder who has taken the instrument under the
following conditions:
a) That it is complete and regular upon its face;
b) That he became the holder of it before it was overdue, and without
notice that it had been previously dishonored, if such was the fact;
c) That he took it in good faith and for value;
d) That at the time it was negotiated to him he had no notice of any
infirmity in the instrument or defect in the title of the person
negotiating it.
The checks were crossed checks and specifically indorsed for deposit to
payees account only. From the beginning, Atrium was aware of the fact
that the checks were all for deposit only to payees account, meaning
E.T. Henry. Clearly, then, Atrium could not be considered a holder in
due course.
However, it does not follow as a legal proposition that simply because
petitioner Atrium was not a holder in due course for having taken the
instruments in question with notice that the same was for deposit only to the
account of payee E.T. Henry that it was altogether precluded from recovering
on the instrument. The Negotiable Instruments Law does not provide that a
holder not in due course can not recover on the instrument.
The disadvantage (of Atrium) in not being a holder in due course is that
the negotiable instrument is subject to defenses as if it were non-negotiable.
Decision of CA is affirmed.
MARCELO A. MESINA v. CA
GR No. L-70145, Nov 13, 1986
FACTS:
 Respondent Jose Go, on December 29, 1983, purchased from Associated
Bank Cashier's Check No. 011302 for P800,000.00. Unfortunately, Jose Go
left said check on the top of the desk of the bank manager when he left
the bank. The bank manager entrusted the check for safekeeping to a
bank official, a certain Albert Uy, who had then a visitor in the person of
Alexander Lim. Uy had to answer a phone call on a nearby telephone after
which he proceeded to the men's room. When he returned to his desk,
his visitor Lim was already gone. When Jose Go inquired for his cashier's
check from Albert Uy, the check was not in his folder and nowhere to be
found. The latter advised Jose Go to go to the bank to accomplish a "STOP
PAYMENT"order, which suggestion Jose Go immediately followed. He also
executed an affidavit of loss. Albert Uy went to the police to report the
loss of the check, pointing to the person of Alexander Lim as the one who
could shed light on it.
 The records of the police show that Associated Bank received the lost
check for clearing. The check was immediately dishonored Payment
Stopped" stamped on it. However, the same was again returned to
Associated Bank and for the second time it was dishonored. Respondent
Associated Bank received a letter, from a certain Atty. Lorenzo Navarro
demanding payment on the cashier's check in question, which was being
held by his client, whose name he refused to disclose, and threatened to
sue, if payment is not made.
 Unsure of what to do on the matter, respondent Associated Bank filed an
action for Interpleader naming as respondent, Jose Go and one John Doe,
Atty. Navarro's then unnamed client. On even date, respondent bank
received summons and copy of the complaint for damages of a certain
Marcelo A. Mesina from the Regional Trial Court (RTC) of Caloocan. The
bank then substituted Marcelo A. Mesina for John Doe.
 When Marcelo Mesina was asked how he came to possess the check, he
said it was paid to him by Alexander Lim in a "certain transaction" but
refused to elucidate further. An information for theft was instituted
against Alexander Lim and the corresponding warrant for his arrest was
issued which up to the date of the filing of this instant petition remains
unserved because of Alexander Lim's successful evasion thereof.
Who between Marcelo Mesina and Jose Go is entitled to payment of
Associated Bank's Cashier's Check No.CC-011302?
Trial Court
In the interpleader, judgment was rendered ordering plaintiff Associate
Bank to replace Cashier's Check No. 011302 in favor of Jose Go or its cash
equivalent with legal rate of interest from date of complaint, and with
costs of suit against the latter.
Petitioner Mesina filed a petition for certiorari with preliminary injunction with
IAC to set aside the order of respondent court.
IAC: Dismissed Mesina’s petition for certiorari and preliminary injunction.
Petitioner Marcelo Mesina, among other issues alleges that the IAC erred in
ruling that a cashier's check can be countermanded even in the hands of a
holder in due course.
ISSUE: Whether Marcelo Mesina is a holder in due course.
SC RULING: No. Petitioner failed to substantiate his claim that he is a holder in
due course and for consideration or value as shown by the established facts of
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS12
the case. Admittedly, petitioner became the holder of the cashier's check as
endorsed by Alexander Lim who stole the check. He refused to say how and
why it was passed to him. He had therefore notice of the defect of his title
over the check from the start. The holder of a cashier's check who is not a
holder in due course cannot enforce such check against the issuing bank which
dishonors the same. If a payee of a cashier's check obtained it from the issuing
bank by fraud, or if there is some other reason why the payee is not entitled to
collect the check, the respondent bank would, of course, have the right to
refuse payment of the check when presented by the payee, since respondent
bank was aware of the facts surrounding the loss of the check in question.
The check in question suffers from the infirmity of not having been properly
negotiated and for value by Jose Go who is the real owner of said instrument.
VICENTE R. DE OCAMPO v. ANITA GATCHALIAN
GR No. L-15126, Nov 30, 1961
FACTS:
Anita C. Gatchalian who was then interested in looking for a car was shown
and offered a car by Manuel Gonzales. He represented to defendant Anita
that he was duly authorized by the owner of the car, Ocampo Clinic, to look for
a buyer of said car and to negotiate for and accomplish said sale. Finding the
price of the car quoted by Manuel Gonzales to her satisfaction, she requested
Manuel Gonzales to bring the car the day following together with the
certificate of registration of the car, so that her husband would be able to see
same.
Manuel Gonzales advised her that the owner of the car will not be willing to
give the certificate of registration unless there is a showing that the party
interested in the purchase of said car is ready and willing to make such
purchase. He requested Anita to give him, a check which will be shown to the
owner as evidence of buyer's good faith in the intention to purchase the said
car. He says that the check is for his safekeeping only and to be returned to
her the following day when he brings the car and the certificate of registration.
Relying on the representations of Manuel Gonzales, Anita drew and issued a
check, and was issued a receipt therefor. The following day, however, Manuel
Gonzales failed to appear. Anita issued a 'Stop Payment Order’ with the
drawee bank.
What happened to Manuel and the check?
Manuel delivered the check to the Ocampo Clinic in payment of the fees and
expenses arising from the hospitalization and release of his wife, Metilda
Gonzales. Vicente Ocampo accepted said check, applied P441.75 thereof to
payment of said hospitalization fees and gave Manuel P158.25, representing
the balance on the amount of the said check.
Vicente Ocampo filed a case for estafa against Manuel after learning that the
check was under a Stop Payment Order. – The complaint was subsequently
dropped. Vicente then filed an action is for the recovery of the value of a
check for P600, against Manuel Gonzales and Anita Gatchalian
Trial Court:
Sentencing the defendants to pay the plaintiff the sum of P600, with legal
interest from September 10, 1953 until paid, and to pay the costs.
Contention of defendants Manuel and Anita during appeal:
In their appeal defendants-appellants contend that the check is not a
negotiable instrument, under the facts and circumstances stated in the
stipulation of facts, and that plaintiff is not a holder in due course. It is also
claimed that the plaintiff-appellee is not a holder in due course because it
acquired the check with notice of defect in the title of the holder, Manuel
Gonzales, and because under the circumstances stated in the stipulation of
facts there were circumstances that brought suspicion about Gonzales'
possession and negotiation, which circumstances should have placed the
plaintiff-appellee under the duty to inquire into the title of the holder.
ISSUE:Whether the plaintiff-appellee Vicente may be considered as a holder in
due course.
SC RULING: No, Vicente is not a holder in due course.
Section 52 (c) provides that a holder in due course is one who takes the
instrument "in good faith and for value;" Section 59, "that every holder is
deemed prima facie to be a holder in due course;" and Section 52 (d), that in
order that one may be a holder in due course it is necessary that "at the time
the instrument was negotiated to him "he had no notice of any * * * defect in
the title of the person negotiating it;" and lastly Section 59, that every holder
is deemed prima facie to be a holder in due course.
In the case at bar the rule that a possessor of the instrument is prima facie a
holder in due course does not apply because there was a defect in the title of
the holder (Manuel Gonzales), because the instrument is not payable to him
or to bearer. On the other hand, the stipulation of facts indicated by the
appellants in their brief, like the fact that the drawer had no account' with the
payee; that the holder did not show or tell the payee why he had the check in
his possession and why he was using it for the payment of his own personal
account show that holder's title was defective or suspicious, to say the least.
As holder's title was defective or suspicious, it cannot be stated that the payee
acquired the check without knowledge of said defect in holder's title, and for
this reason the presumption that it is a holder in due course or that it acquired
the instrument in good faith does not exist. And having presented no evidence
that it acquired the check in good faith, it (payee) cannot be considered as a
holder in due course. In other words, under the circumstances of the case,
instead of the presumption that payee was a holder in good faith, the fact is
that it acquired possession of the instrument under circumstances that should
have put it to inquiry as to the title of the holder who negotiated the check to
it. The burden was, therefore, placed upon it to show that notwithstanding the
suspicious circumstances, it acquired the check in actual good faith.
"It comes to this then: When the case has taken such shape that the plaintiff is
called upon to prove himself a holder in due course to be entitled to recover,
he is required to establish the conditions entitling him to standing as such,
including good faith in taking the instrument. It devolves upon him to disclose
the facts and circumstances attending the transfer, from which good or bad
faith in the transaction may be inferred."
In the case at bar as the payee acquired the check under circumstances which
should have put it to inquiry, why the holder had the check and used it to pay
his own personal account, the duty devolved upon it, plaintiff-appellee, to
prove that it actually acquired said check in good faith. The stipulation of facts
contains no statement of such good faith, hence plaintiff payee has not proved
that it acquired the check in good faith and may not be deemed a holder in
due course thereof.
The Decision appealed is reversed and the defendants are absolved from the
complaint.
CELY YANG vs. HON. COURT OF APPEALS, PHILIPPINE COMMERCIAL
INTERNATIONAL BANK, FAR EAST BANK & TRUST CO., EQUITABLEBANKING
CORPORATION,PREMCHANDIRAMANI and FERNANDO DAVID, G.R. No.
138074. August 15, 2003
FACTS:
Cely Yang and private respondent Prem Chandiramani entered into an
agreement whereby the latter was to give Yang a PCIB managers check in the
amount of P4.2 million in exchange for two of Yangs managers checks, each in
the amount of P2.087 million, both payable to the order of private respondent
Fernando David. Yang and Chandiramani agreed that the difference of
P26,000.00 in the exchange would be their profit to be divided equally
between them.
Yang and Chandiramani also further agreed that the Yang would secure from
FEBTC a dollar draft in the amount of US$200,000.00, payable to PCIB FCDU
Account No. 4195-01165-2, which Chandiramani would exchange for another
dollar draft in the same amount to be issued by Hang Seng Bank Ltd. of Hong
Kong.
Accordingly, Yang procured the following:
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS13
a) Equitable Cashiers Check in the sum of P2,087,000.00, payable to the order
of Fernando David;
b) FEBTC Cashiers in the amount of P2,087,000.00, likewise payable to the
order of Fernando David; and
c) FEBTC Dollar Draft No. 4771, drawn on Chemical Bank, New York, in the
amount of US$200,000.00, payable to PCIB FCDU Account No. 4195-01165-2.
Yang gave the cashiers checks and dollar drafts to her business associate,
Albert Liong, to be delivered to Chandiramani by Liongs messenger, Danilo
Ranigo. Ranigo was to meet Chandiramani at Philippine Trust Bank, Ayala
Avenue, Makati City where he would turn over Yang’s cashiers checks and
dollar draft to Chandiramani who, in turn, would deliver to Ranigo a PCIB
managers check in the sum of P4.2 million and a Hang Seng Bank dollar draft
for US$200,000.00 in exchange.
Ranigo reported that Chandiramani did not appear at the rendezvous he
allegedly lost the checks and drafts. The loss was then reported to the police.
 It transpired, however, that the checks and the dollar draft were
not lost, for Chandiramani was able to get hold of said instruments,
without delivering the exchange consideration consisting of the
PCIB managers check and the Hang Seng Bank dollar draft.
 Chandiramani delivered the checks to respondent Fernando David
at China Banking Corporation branch in San Fernando City,
Pampanga. In exchange, Chandiramani got US$360,000.00 from
David, which Chandiramani deposited in the savings account of his
wife and his mother, who held FCDU Account with the United
Coconut Planters Bank branch in Greenhills, San Juan, Metro
Manila.
 Chandiramani also deposited FEBTC Dollar Draft No. 4771, drawn
upon the Chemical Bank, New York for US$200,000.00 in PCIB FCDU
Account No. 4195-01165-2 on the same date.
Meanwhile, Yang requested FEBTC and Equitable to stop payment on the
instruments she believed to be lost. Both banks complied with her request,
but upon the representation of PCIB, FEBTC subsequently lifted the stop
payment order on FEBTC Dollar Draft No. 4771, thus enabling the holder of
PCIB FCDU Account No. 4195-01165-2 to receive the amount of
US$200,000.00.
Thus Yang filed a complaint against Equitable, FEBTC, PCIB, Chandiramani and
David, with the RTC of Pasay City.
RTC:
Fernando David is entitled to the proceeds of the two (2) cashiers checks The
complaint against Far East Bank and Trust Company (FEBTC), Philippine
Commercial International Bank (PCIB) and Equitable Banking Corporation
(EBC) is dismissed.
The evidence shows that defendant David was a holder in due course for the
reason that the cashiers checks were complete on their face when they were
negotiated to him. They were not yet overdue when he became the holder
thereof and he had no notice that said checks were previously dishonored; he
took the cashiers checks in good faith and for value. He parted some
$200,000.00 for the two (2) cashiers checks which were given by
Chandiramani; he had also no notice of any infirmity in the cashiers checks or
defect in the title of the drawer. As a matter of fact, he asked the manager of
the China Banking Corporation to inquire as to the genuineness of the cashiers
checks.
CA: Affirmed the judgement of the RTC.
Yany’s (petitioner’s) arguments:
Petitioner challenges David’ss status as a holder in due course based on two
arguments: (1) the lack of proof to show that David tendered any valuable
consideration for the disputed checks; and (2) Davids failure to inquire from
Chandiramani as to how the latter acquired possession of the checks, thus
resulting in Davids intentional ignorance tantamount to bad faith.
ISSUE: Whether the Court of Appeals erred in holding that respondent
Fernando David to be a holder in due course
SC RULING: The Trial Court and the CA are correct in holding David a holder in
due course.
Every holder of a negotiable instrument is deemed prima facie a holder in due
course. However, this presumption arises only in favor of a person who is a
holder as defined in Section 191 of the Negotiable Instruments Law, meaning a
payee or indorsee of a bill or note, who is in possession of it, or the bearer
thereof.
It is not disputed that David was the payee of the checks in question. The
weight of authority sustains the view that a payee may be a holder in due
course. Hence, the presumption that he is a prima facie holder in due course
applies in his favor.
However, said presumption may be rebutted. Hence, what is vital to the
resolution of this issue is whether David took possession of the checks under
the conditions provided for in Section 52 of the Negotiable Instruments Law.
All the requisites provided for in Section 52 must concur in Davids case,
otherwise he cannot be deemed a holder in due course.
(1) Both the trial court and the appellate court found that David did not
receive the checks gratis, but instead gave Chandiramani US$360,000.00 as
consideration for the said instruments.
(2) Chandiramani and David had a separate dealing in which it was precisely
Chandiramanis duty to deliver the checks to David as payee.
(3) Petitioner Yang also admits that David took the step of asking the manager
of his bank to verify from FEBTC and Equitable as to the genuineness of the
checks and only accepted the same after being assured that there was nothing
wrong with said checks.
(4) At that time, David was not aware of any stop payment order.
Under these circumstances, David thus had no obligation to ascertain from
Chandiramani what the nature of the latters title to the checks was, if any, or
the nature of his possession.
This David is not guilty of gross neglect amounting to legal absence of good
faith, absent any showing that there was something amiss about
Chandiramanis acquisition or possession of the checks.
David did not close his eyes deliberately to the nature or the particulars of a
fraud allegedly committed by Chandiramani upon the petitioner, absent any
knowledge on his part that the action in taking the instruments amounted to
bad faith.
STELCO MARKETING CORPORATION VS. CA
210 SCRA 51
June 17, 1992
FACTS:
STELCO Marketing Corporation sold structural steel bars to RYL Construction
Inc. RYL gave Stelco’s “sister corporation,” Armstrong Industries, a Metrobank
check from Steelweld Corporation.
The check was issued by Steelweld’s president to Romeo Lim (President of
RYL) by way of accommodation, as a guaranty and not in payment of an
obligation. When Armstrong deposited the check at its bank, it was
dishonored because it was drawn against insufficient funds. When so
deposited, the check bore two (2) indorsements, i.e. RYL and Armstrong.
Subsequently, Stelco filed a case against RYL and Steelweld to recover the
value of the steel products.
ISSUE:
Whether STELCO became a holder in due course of the said check, a bearer
instrument within the contemplation of the Negotiable Instruments Law

HELD:
NO.
It never did. There is no evidence whatever that STELCO's possession of Check
765380 ever dated back to any time before the instrument's presentment and
dishonor. There is no evidence whatsoever that the check was ever given to it
or indorsed to it in any manner or form in payment of an obligation or as
security for an obligation, or for any other purpose before it was presented for
payment.
On the contrary, STELCO never became a holder for value and that "nowhere
in the check itself does the name of STELCO Marketing appear as payee,
indorsee or depositor thereof."
What the record shows is that:
a. the STEELWELD company check in question was given by its president
to R.Y. Lim;
b. it was given only by way of accommodation, to be "used as collateral
for another obligation;"
c. in breach of the agreement, however, R.Y. Lim indorsed the check to
Armstrong in payment of an obligation;
d. Armstrong deposited the check to its account, after indorsing it;
e. the check was dishonored. The record does not show any
intervention or participation by STELCO in any manner or form
whatsoever in these transactions, or any communication of any sort
between STEELWELD and STELCO, or between either of them and
Armstrong Industries, at any time before the dishonor of the check.
The record does show that after the check had been deposited and
dishonored, STELCO came into possession of it in some way, and was able,
several years after the dishonor of the check, to give it in evidence at the trial
of the civil case it had instituted against the drawers of the check (Limson and
Torres) and RYL. Possession of a negotiable instrument after presentment and
dishonor, or payment, is utterly inconsequential; it does not make the
possessor a holder for value within the meaning of the law; it gives rise to no
liability on the part of the maker or drawer and indorsers. It is clear from the
relevant circumstances that STELCO cannot be deemed a holder of the check
for value. It does not meet two of the essential requisites prescribed by the
statute. It did not become "the holder of it before it was overdue, and without
notice that it had been previously dishonored," and it did not take the check
"in good faith and for value." Neither is there any evidence whatever that
Armstrong Industries, to whom R.Y. Lim negotiated the check, accepted the
instrument and attempted to encash it in behalf, and as agent of STELCO.
On the contrary, the indications are that Armstrong was really the intended
payee of the check and was the party injured by its dishonor; it was after all its
representative (a Mr. Young) who instituted the criminal prosecution of the
drawers, Limson and Torres, albeit unsuccessfully.
JUANITA SALAS VS COURT OF APPEALS
GR No. 76788 / 181 SCRA 296
January 22, 1990 (Fernan, C.J.)
FACTS:
On February 6, 1980, Juanita Salas bought a motor vehicle from the
Violago Motor Sales Corporation (VMS) for P58,138.20 as evidenced by a
promissory note, which contained an unconditional promise to pay the
amount of P58,138.20 payable at a fixed or determinable future time which is
P1,614.95 monthly for 36 months due and payable on the 21st day of each
month starting March 21, 1980 thru and inclusive of Feb. 21, 1983. This note
Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS14
was indorsed to Filinvest Finance & Leasing Corporation which financed the
purchase.
Salas defaulted in her installments beginning May 21, 1980
allegedly due to a discrepancy in the engine and chassis numbers of the
vehicle delivered to her and those indicated in the sales invoice, certificate of
registration and deed of chattel mortgage, which fact she discovered when the
vehicle figured in an accident on May 9, 1980.
This failure to pay prompted Filinvest to initiate a case for a sum of
money against Salas before the RTC of San Fernando, Pampanga. RTC ruled in
favor of Filinvest.
Salas appealed the decision to the CA imputing fraud, bad faith and
misrepresentation against VMS for having delivered a different vehicle.
However, CA affirmed RTC’s decision.
ISSUE:
WON the promissory note in question is a negotiable instrument
which will bar completely all the available defenses of Salas against Filinvest.
HELD:
Yes. Salas’ claim against Filinvest is a promissory note which bears
all the earmarks of negotiability, having complied with the requisities under
the law as follows: [a] in writing and signed by the maker, Juanita Salas; [b]
contains an unconditional promise to pay the amount of P58,138.20; [c]
payable at a fixed and determinable future time which is P1,614.95 monthly
for 36 months due and payable on the 21st day of each month starting March
21, 1980 thru and inclusive of Feb. 21, 1983; [d] payable to Violago Motor
Sales Corp., or order and as such, [e] drawee is named or indicated with
certainty.
There appears to be no question that Filinvest is a holder in due
course, having taken the instrument under the following conditions: [a] it is
complete and regular upon its face; [b] it became the holder thereof before it
was overdue, and without notice that it had previously been dishonored; [c]
took the same in good faith and for value; and [d] when it was negotiated to
Filinvest, the latter had no notice of any infirmity in the instrument or defect in
the title of VMS Corporation.
Filinvest holds the instrument free from any defect of title of prior
parties, and free from defenses available to prior parties among themselves,
and may enforce payment of the instrument for the full amount thereof. This
being so, Salas cannot set up against Filinvest the defense of nullity of the
contract of sale between her and VMS.
STATE INVESTMENT HOUSE VS. CA
175 SCRA 311
July 13, 1989
FACTS:
NewSikatuna Wood Industries, Inc. requested for a loan from Chua. The latter
agreed to grant the same subject to the condition that the former should wait
until December 1980 when he would have the money. In view of this agreement,
private respondent Chua issued three (3) "crossed checks" payable to New
Sikatuna Wood Industries, Inc. all postdated December 22, 1980.
Subsequently, New Sikatuna entered into an agreement with herein petitioner
State Investment House, Inc. whereby New Sikatuna assigned and discounted
with petitioner eleven (11) postdated checks including the three (3) postdated
checks issued by Chua. The checks, however, were dishonored by reason of
"insufficient funds", "stop payment" and "account closed", respectively.
Petitioner claims that despite demands on Chua to make good said checks, the
latter failed to pay the same necessitating the former to file an action for
collection. When the CA reversed the trial court ruling favoring State Investment
House, the latter elevated the issue before the SC.
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS15
ISSUE:
Whether petitioner is a holder in due course as to entitle it to proceed against
private respondents for the amount stated in the dishonored crossed checks
HELD:
NO.
The Court of Appeals correctlyelucidated that the effects of crossing a check are:
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.
It results therefore that when State Investment House rediscounted the check
knowing that it was a crossed check he was knowingly violating the avowed
intention of crossing the check.
Furthermore, his failure to inquire from the holder, party defendant New
Sikatuna Wood Industries, Inc., the purpose for which the three checks were
cross despite the warning of the crossing, prevents him from being considered
in good faith and thus he is not a holder in due course.
Beingnot a holder in due course, plaintiff is subject to personal defenses, such
as lack of consideration between appellants and New Sikatuna Wood
Industries.
Note that under the facts the checkswere postdated and issued only as a loan to
New Sikatuna Wood Industries, Inc. if and when deposits were made to back up
the checks. Such deposits were not made; hence no loan was made, hence, the
three checks are without consideration (Sec. 28, Negotiable Instruments Law).
EULALIO PRUDENCIO VS COURT OF APPEALS
GR No. L-34539 / 143 SCRA 7
July 14, 1986 (Gutierrez, Jr, J.)
FACTS:
The Prudencios are the registered owners of a parcel of land
located in Sampaloc, Manila. On October 7, 1954, the property was mortgaged
by the Prudencios to the PNB to guarantee a loan of P1,000 extended to one
Domingo Prudencio.
Sometime in 1955, the Concepcion & Tamayo Construction
Company, had a pending contract with the Bureau of Public Works, for the
construction of the municipal building in Puerto Princesa in the amount of
P36,800 and said company needed funds for the construction, Jose Toribio,
Prudencio’s relative, and atty-in-fact of the company, approached the
Prudencios asking them to mortgage their property to secure the load on
P10,000 which the company was negotiating with the PNB.
The Prudencios signed on December 23, 1955 the ‘Amendment of
Real Estate Mortgage’, mortgaging their said property to PNB to guaranty a
loan of P10,000 extended to the Company. The terms and conditions of the
original mortgage for P1,000 were made integral part of the new mortgage for
P10,000. The promissory note covering the loan of P10,000 dated December
29, 1955, maturing on April 27, 1956 was signed by Jose Toribio, as atty-in-fact
of the company, and by the Prudencios. The Prudencios also signed the
portion of the promissory note indicating that they are requesting the PNB to
issue the check covering the loan to the company. On the same day, Toribio
also executed the ‘Deed of Assignment’ assigning all payments to be made by
the Bureau to the company on account of the contract for the construction in
favor of PNB. The Bureau’s last request for P5,000 on June 20, 1956, however,
was denied by the PNB because since the loan was already overdue as of April
28, 1956, the remaining balance of the contract price should be applied to the
loan.
The company abandoned the work and the Bureau rescinded the
construction contract and assumed the work of completing the building. On
November 14, 1958, the Prudencios wrote the PNB contending that since the
PNB authorized payments to the company instead of on account of the loan
guaranteed by the mortgage there was a change in the conditions of the
contract without the knowledge of the Prudencios, which entitled them to
cancel their mortgage contract.
Failing to have the mortgage cancelled, the Prudencios filed this
action against PNB seeking for it’s cancellation. The trial court denied. The CA
affirmed the decision of the trial court.
ISSUE:
1. WON PNB is a holder in due course
2. WON PNB can be considered a holder for value under Sec 29 of
the NIL such that the petitioners must be necessarily barred from setting up
the defense of want of consideration or some other personal defenses which
may be set up against a party who is not a holder in due course.
HELD:
1. No, PNB is not a holder in due course.
Although as a general rule, a payee may be considered a holder in
due course we think that such a rule cannot apply with respect to the
respondent PNB. Not only was PNB an immediate party or in privy to the
promissory note, that is, it had dealt directly with the petitioners knowing fully
well that the latter only signed as accommodation makers but more
important, it was the Deed of Assignment executed by the Construction
Company in favor of PNB which principally moved the petitioners to sign the
promissory note also in favor of PNB. Petitioners were made to believe and on
that belief entered into the agreement that no other conditions would alter
the terms thereof and yet, PNB altered the same. The Deed of Assignment
specifically provided that Jose F. Toribio, on behalf of the Company, "have
assigned, transferred and conveyed and by these presents, do assign, transfer
and convey unto the said Philippine National Bank, its successors and assigns
all payments to be received from the Bureau of Public Works on account of
contract for the construction of the Puerto Princesa Municipal Building in
Palawan, involving the total amount of P 36,000.00" and that "This assignment
shall be irrevocable and subject to the terms and conditions of the promissory
note and or any other kind of documents which the Philippine National Bank
have required or may require the assignor to execute to evidence the above-
mentioned obligation."
2. No, PNB cannot be considered a holder for value under Sec 29 of
the NIL.
Since the court ruled that the PNB is not a holder in due course, the
petitioners can validly set up their personal defense of release from the real
estate mortgage against PNB. The latter, in authorizing the third payment to
the Company after the promissory note became due, in effect, extended the
term of the payment of the note without the consent of the accommodation
makers who stand as sureties to the accommodated party and to all other
parties who are not holders in due course or who do not derive their right
from the same, including PNB.
CHARLES A. FOSSUM vs. FERNANDEZ HERMANOS
March 28, 1923GR No. 19461
FACTS:
On February 10, 1920, Charles A. Fossum, acting as an agent of the American
Iron Products Company, Inc., procured an order from Fernandez Hermanos, a
general commercial partnership, to deliver to said firm a tail shaft, to be
installed on the ship Romulus, then operated by Hermanos, as manager of La
Compañía Marítima.
It was stipulated that said tail shaft would be in accordance with the
specifications contained in a blueprint which had been placed in the hands of
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS16
Fossum on or about December 18, 1919. The shaft was shipped from New
York in 1920 and arrived in Manila in January, 1921.
Meanwhile the American Iron Products Company, Inc., had drawn a time draft,
at sixty days, upon Hermanos, for the purchase price of the shaft, in the
amount of $2,250, and payable to the Philippine National Bank (PNB). In due
course the draft was presented to Hermanos for acceptance, and was
accepted by said firm on December 15, 1920, according to its tenor.
Upon discovering that the shaft was not able to comply with the
specifications, Hermanos refused to pay the draft, and it remained for a time,
dishonored in the hands of PNB in Manila. Later the bank indorsed the draft in
blank, without consideration, and delivered it to Charles A. Fossum, who
thereupon instituted the present action to recover the amount covered by the
draft.
ISSUE:
Whether or not Charles A. Fossum is a holder in due course?
HELD:
NO. In the first place, Fossum is a party to the contract which supplied the
consideration for the draft, albeit he there acted in a representative capacity.
In the second place, he procured the
instrument to be indorsed by the bank and delivered to himself without the
payment of value, after it was overdue, and with full notice that, as between
the original parties, the consideration had completely failed.
The presumption expressed in section 59 of the Negotiable Instruments Law,
to the effect that every holder is deemed prima facie to be a holder in due
course, arises only in favor of a person who is a holder in the sense defined in
section 191 of
the same Law, that is, a payee or indorsee who is in possession of the draft, or
the bearer thereof. There is no presumption that a person through whose
hands an instrument has passed was a
holder in due course.
If this action had been instituted by the bank itself, the presumption that the
bank was a holder in due course would have arisen from the tenor of the draft
and the fact that it was in the bank's possession; but when the instrument
passed out of the possession of the bank and into the possession of the
present
plaintiff, no presumption arises as to the character in which the bank held the
paper. The bank's relation to the instrument became past history when it
delivered the document to the plaintiff; and it was incumbent upon the
plaintiff in this action to show that the bank had in fact acquired the
instrument for value and under such conditions as would constitute it a holder
in due course.
JAI -ALAI vs. BPI August 6, 1975 GR No. L-29432
FACTS:
From April 2, 1959 to May 18, 1959, ten checks with a total face value of
P8,030.58 were deposited by the petitioner, Jai-Alai Corporation of the
Philippines, in its current account with the respondent bank, Bank of the
Philippine Islands (BPI). The particulars of these checks are as follows:
1. Five checks drawn by the Delta Engineering Service upon the Pacific
Banking Corporation and payable to the Inter-Island Gas Service,
Inc. or order.
2. Two checks drawn by the Enrique Cortiz & Co. upon the Pacific
Banking Corporation and payable to the Inter-Island Gas Service,
Inc. or bearer.
3. One check drawn by the Luzon Tinsmith & Company upon the
China Banking Corporation and payable to the Inter-Island Gas
Service, Inc. or bearer.
4. Two checks drawn by the Roxas Manufacturing, Inc. upon the
Philippine National Bank and payable to the Inter-Island Gas
Service, Inc. or order.
All the foregoing checks were acquired by the petitioner from one Antonio J.
Ramirez, a sales agent of the Inter-Island Gas and a regular bettor at jai-alai
games.
Inter-Island Gas discovered that all the indorsements made on the checks
purportedly by its cashiers, Santiago Amplayo and Vicenta Mucor (who were
merely authorized to deposit checks issued payable to the said company) as
well as the rubberstamp impression thereon reading “Inter-Island Gas Service,
Inc.,” were forgeries. In due time, the Inter-Island Gas advised all the parties
concerned about the forgeries, and filed a criminal complaint against Ramirez
with the Office of the City Fiscal of
Manila.
BPI, as the collecting bank, debited the petitioner’s current account and
forwarded to the latter the checks containing the forged indorsements, which
the petitioner refused to accept.
On October 8, 1959 the petitioner drew against its current account with the
respondent bank a check for P135,000 payable to the order of the Mariano
Olondriz y Cia. in payment of certain shares of stock. The check was, however,
dishonored by the respondent as its records showed that as of October 8,
1959 the current account of the petitioner, after netting out the value of the
checks P8,030.58) with the forged indorsements, had a balance of only
P128,257.65.
The petitioner then filed a complaint against the respondent with the Court of
First Instance of Manila but it was dismissed by the trial court, as well by the
Court of Appeals.
ISSUE:
Whether or not the BPI had the right to debit from petitioner’s current
account the value of the checks with the forged endorsements?
HELD:
YES. BPI acted within legal bounds when it debited the petitioner’s account.
When the petitioner deposited the checks with the respondent, the nature of
the relationship created at that stage was one of agency, that is, the bank was
to collect from the drawees of the checks the corresponding proceeds. It is
true that the respondent had already collected the proceeds of the checks
when it debited the petitioner’s account, so that following the rule in Gullas
vs. Philippine National Bank it might be argued that the relationship between
the parties had become that of creditor and debtor as to preclude the
respondent
from using the petitioner’s funds to make payments not authorized by the
latter. Nonetheless no creditor-debtor relationship was created between the
parties.
Under Section 23 of the Negotiable Instruments Law (Act 2031), a forged
signature in a negotiable instrument is wholly
inoperative and no right to discharge it or enforce its payment can be acquired
through or under the forged signature except against a party who cannot
invoke the forgery, it stands to reason, upon the facts of record, that the
respondent, as a collecting bank which indorsed the checks to the drawee-
banks
for clearing, should be liable to the latter for reimbursement, for, as found by
the court a quo and by the appellate court, the indorsements on the checks
had been forged prior to their delivery to the petitioner. In legal
contemplation, therefore, the
payments made by the drawee-banks to the respondent on account of the
said checks were ineffective; and, such being the case, the relationship of
creditor and debtor between the petitioner and the respondent had not been
validly effected, the checks not having been properly and legitimately
converted into cash.
In Great Eastern Life Ins. Co. vs. Hongkong &Shanghai Bank, the Court ruled
that it is the obligation of the collecting bank to reimburse the drawee-bank
the value of the checks subsequently found to contain the forged indorsement
of the payee. The reason is that the bank with which the check was deposited
has no right to pay the sum stated therein to the forger “or anyone else upon
a forged signature.” “It was its duty to know,” said the Court, “that [the
payee’s] endorsement was genuine before cashing the check.” The petitioner
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS17
must in turn shoulder the loss of the amounts which the respondent, as its
collecting agent, had to reimburse to the drawee-banks.
At all events, under Section 67 of the Negotiable Instruments Law, “Where a
person places his indorsement on an instrument negotiable by delivery he
incurs all the liability of an indorser,” and under Section 66 of the same statute
a general indorser warrants that the instrument “is genuine and in all respects
what it purports to be.” Considering that the petitioner indorsed the said
checks when it deposited them with the respondent, the petitioner as an
indorser guaranteed the genuineness of all prior indorsements thereon. The
respondent which relied upon the petitioner’s warranty should not be held
liable for the resulting loss. This conclusion applied similarly to an uncrossed
bearer instrument, for under Section 65 of the Negotiable Instrument Law.
“Every
person negotiating an instrument by delivery. . .warrants (a) That the
instrument is genuine and in all respects what it purports to be.” Under that
same section this warranty “extends in favor of no holder other than the
immediate transferee,” which, in the case at bar, would be the respondent.
Philippine National Bank vs. Picornell
September 26, 1922
46 Phil 716
FACTS:
Bartolome Picornell, following the instruction of Hyndman, Tavera & Ventura,
bought in Cebu 1,735 bales of tobacco. Picornell also obtained from the
branch of the National Bank in Cebu the sum of P39,529.83, the value of the
tobacco, together with his commission of 1 real per quintal, having, in turn,
drawn the bill of exchange.
"No. 2-A. CEBU, 28 febrero, 1920. For P39,529.83
"At treinta (30) days sight please pay this first of exchange (second unpaid) to
the order of Philippine National Bank treinta y nueve mil quinientos
veintinueve pesos con 83/100. Value received.
"To Sres. HYNDMAN, TAVERA Y VENTURA,
"Calle Soler 26 y 28.
(Sgd.) "B. PICORNELL"
This instrument was delivered to the branch of the National Bank in Cebu,
together with the invoice and bill of lading of the tobacco, which was shipped
in the boat Don Ildefonso, on February 27, 1920, consigned to Hyndman,
Tavera & Ventura at Manila. The invoice and bill of lading were delivered to
the National Bank with the understanding that the bank should not deliver
them to Hyndman, Tavera & Ventura except upon payment of the bill; which
condition was expressed by the well-known formula "D/P" (documents for
[against] payment).
The central office of the National Bank in Manila received the bill and the
aforesaid documents. On March 3, 1920, National Bank presented the bill to
Hyndman, Tavera & Ventura, who
accepted it.
Upon the arrival of tobaccos in Manila, Hyndman, Tavera & Ventura
proceeded to the examination of the same which was deposited in their
warehouses. Bartolome Picornell was notified that a certain portion of
tobacco received was of no use and was damaged.
The bill was extended for thirty days (May 2, 1920) at the request of Picornell
which was re-accepted by Pardo de Tavera, successor to Hyndman, Tavera &
Ventura. On May 2, 1920, the bill was not paid and on the 4th of the same
month, Hyndman, Tavera & Ventura sent a letter to the plaintiff bank refusing
to pay draft no. 2 owing to noncompliance of the contract by the drawer.
The bank protested the bill, took possession of the tobacco, and had it
appraised on the 12th of the same month, its value having been fixed at
P28,790.72. The bank then brought this action for the recovery of the value of
the bill of exchange and about September 1921, the tobaccos were sold for
P6,708.82.
ISSUES:
Whether or not the drawee-acceptor is liable to the payee?
What is the liability of the drawer?
HELD:
YES. The drawee, the Hyndman, Tavera & Ventura company, or its successors,
J. Pardo de Tavera, accepted the bill and is primarily liable for the value of the
negotiable instrument, while the drawer, Bartolome Picornell, is secondarily
liable.
The Hyndman, Tavera & Ventura company cannot escape liability in view of
section 28 of the Negotiable Instruments Law. "* * * The drawee by
acceptance becomes liable to the payee or his indorsee, and also to the
drawer himself. But the drawer and acceptor are the immediate parties to the
consideration, and if the acceptance be without consideration, the drawer
cannot recover of the acceptor. The payee holds a different relation; he is a
stranger to the transaction between the drawer and the acceptor, and is,
therefore, in a legal sense a remote party. In a suit by him against the
acceptor, the question as to the consideration between the drawer and the
acceptor cannot be inquired into. The payee or holder gives value to the
drawer, and if he is ignorant of the equities between the drawer and the
acceptor, he is in the position of a bona fide indorsee. Hence, it is no defense
to a suit against the acceptor of a draft which has been discounted, and upon
which money has been advanced by the plaintiff, that the draft was accepted
for the accommodation of the drawer. ** *" (3 R. C. L., pp. 1143, 1144, par.
358.)
As to Bartolome Picornell, he warranted, as drawer of the bill, that it would be
accepted upon proper presentment and paid in due course, and as it was not
paid, he became liable to the payment of its value to the holder thereof, which
is the plaintiff bank. (Sec. 61, Negotiable Instruments Law.)
Philippine National Bank vs. Court of Appeals
October 29, 1968
GR No. L-26001 (25 SCRA 693)
FACTS:
On or about January 15, 1962, one Augusto Lim deposited in his current
account with Philippine Commercial and Industrial Bank (PCIB) branch at Padre
Faura, Manila, GSIS Check No. 645915-B, in the sum of P57,415.00.
Thereupon, PCIB stamped the following on the back of the check: "All prior
indorsements and/or Lack of Endorsement Guaranteed, Philippine Commercial
and Industrial Bank," Padre Faura Branch, Manila.
On the same date, the PCIB sent the check to the PNB, for clearance, through
the Central Bank. The amount of check was paid to PCIB and was debited
against the account of the GSIS in the PNB.
Over two (2) months before, or on November 13, 1961, the GSIS had notified
the PNB, which acknowledged receipt of the notice, that said check had been
lost, and. accordingly, requested that its payment be stopped.
On January 31, 1962, upon demand from the GSIS, said sum of
P57,415.00 was re-credited to the latter's account, because the signatures of
its officers on the check were forged. On February 2, 1962, the PNB demanded
from the PCIB the refund of said sum, which the PCIB refused to do. Hence,
the present action against the PCIB, which was dismissed by the Court of First
Instance of Manila, whose decision was, in turn, affirmed by the Court of
Appeals.
ISSUE:
Whether or not PNB can recover the amount of P57,415.00 from PCIB?
HELD:
NO. The question whether or not the indorsements have been falsified is
immaterial to the PNB's liability as a drawee, or to its right to recover from the
PCIB, for, as against the drawee, the indorsement of an intermediate bank
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS18
does not guarantee the signature of the drawer, since the forgery of the
indorsement is not the cause of the loss.
With respect to the warranty on the back of the check, the PCIB guaranteed
only "all prior indorsements", not the authenticity of the signatures of the
officers of the GSIS who signed on its behalf, because the GSIS is not an
indorser of the check, but its drawer. Upon payment by the PNB, as drawee,
the check ceased to be a negotiable instrument, and became a mere voucher
or proof of payment.
Assuming that the PCIB had been guilty of negligence in not discovering that
the check was forged, it is undeniable that the PNB had also been guilty of a
greater degree of negligence, because it had a previous and formal notice
from the GSIS that the check had been lost, with the request that payment
thereof be -stopped. Thus, by not returning the check to the PCIB, by thereby
indicating that the PNB had found nothing wrong with the check and would
honor the same, and by actually paying its amount to the PCIB, the PNB
induced the latter, not only to believe that the check was genuine and good in
every respect, but, also, to pay its amount to Augusto Lim. The PNB was,
therefore, the primary or proximate cause of the loss, and, hence, may not
recover from the PCIB.
Lastly, Section 62 of Act No. 2031 provides:
“The acceptor by accepting the instrument engages that he will pay it
according to the tenor of his acceptance and admits:
(a) The existence of the drawer, the genuineness of his signature, and his
capacity and authority to draw the instrument; and
(b) The existence of the payee and his then capacity to indorse."
The prevailing view is that the same rule applies in the case of a drawee who
pays a bill without having previously accepted it.
Ang Tiong v. Ting, G.R. No. L-26767, Feb. 22, 1968
Facts:
Defendant Lorenzo Ting issued PBCOM check K-81618, for the sum of P4000
payable to cash or bearer, to Plaintiff Ang Tiong. With defendant Felipe Ang’s
signature (indorsement in blank) at the back, it was received by Tiong and
presented to PBCOM for payment, but was dishonored. Tiong made written
demands to Ting and Ang, but when these were ignored he filed an action for
collection with the MTC for P4000 plus P500 attorney’s fees, and won. Ang
appealed to the CFI, which directed him to pay P4000 plus legal interest plus
P400 attorney's fees instead, so he elevated the case to the CA, which certified
it to the SC because the issues raised are purely of law.
Issue: [General Indorser] Did the court err in considering him a general
indorser under NIL 29, rather than an accommodation party?
Held: No, he is a general indorser
Ratio:
● The SC paraphrased NIL 29: the accommodation party is liable to a
holder for value as if the contract was not for accommodation. It is
not a valid defense that the accommodation party did not receive
any valuable consideration. Nor is it correct to say that the holder
for value is not a holder in due course merely because at the time
he acquired the instrument, he knew the indorser was only an
accommodation party.
PEOPLE OF THE PHILIPPINES, plaintiff-appellee,
vs.
JULIA MANIEGO, accused-appellant.
G.R. No. L-30910
February 27, 1987
FACTS:
Julia Maniego was an indorser of several checks drawn by her sister, Milagros
Pamintuan, which weredishonored after they had been exchange with cash
belonging to the Government, then in the official custodyof Lt. Rizalino Ubay.
Ubay, Pamintuan and Maniego were indicted for the crime of malversation.
Ubay andManiego were arraigned, while Pamintuan fled to the United States.
Ubay was found guilty while Maniegowas acquitted. Both, however, were
ordered to pay in solidum the amount of P57,434.50 to the
government.Maniego appealed.
ISSUES:
(A) Parties who are liable; Indosers; General Indorser
(B) Parties who are liable; Indosers; Order of Liability
Whether Julia Maniego is liable as indorser?
HELD:
YES, A mere indorser is also liable on account of the dishonor of the checks
indorsed by her. (A) Under the law, the holder or last indorsee of a negotiable
instrument has the right to "enforce payment of the instrument for the full
amount thereof against all parties liable thereon." Among the "parties liable
thereon" is an indorser of the instrument i.e. .., "a person placing his signature
upon an instrument otherwise than as maker, drawer, or acceptor unless he
clearly indicates by appropriate words his intention to be bound in some other
capacity." (B) Such an indorser "who indorses without qualification," inter alia
"engages that on due presentment, (the instrument) shall be accepted or paid,
or both, as the case may be, according to its order, and that if it be dis-
honored 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."
Clark v. Sellner, G.R. No. L-16477, Nov. 22, 1921
Facts:
George Sellner, along with two others, signed a note in favor of R.N. Clark,
promising jointly and separately to pay P12000 plus interest after six months,
but it was not paid when due. Sellner claims, among others, that he is not
liable, being an accommodation party, since the note was not negotiated.
Issue: [Liability of Accommodation Party] Is Sellner liable as an
accommodation party?
Held: Yes, but his situation is more like a joint surety than that of an
accommodation party
Ratio:
● By putting his signature on the note, he lent his name to the other
co-signers and assumed the same liability they have in relation to
the creditor.
● Sellner contends that he has no liability because he did not receive
anything a part of the transaction.
○ Definition of “without receiving value therefore” under
NIL 29 means “without receiving value by virtue of the
instrument” rather than payment for the use of his
name.
○ If a sum of money was received by virtue of the note, it
is immaterial to the creditor whether one of the signers
received payment for the use of his name as guarantor
Crisologo-Jose v. CA, G.R. No. 80599, Sept. 15, 1989
Facts:
Atty. Oscar Benares, president of Mover Enterprises, was to issue a check on
behalf of the company to accommodate their clients, Spouses Ong, and
payable to Ernestina Crisologo-Jose in consideration of her quitclaim over a
property sold by the GSIS to the Ongs; the check was to be payable upon
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS19
approval of the GSIS of their compromise agreement. The check was supposed
to be signed by Benares and the company treasurer, but since the latter was
unavailable at the time, he pressured vice-president Ricardo Santos to sign
instead. When the compromise agreement fell through, the Ongs issued
another check signed by Santos and Benares, but it was dishonored as well.
Crisologo-Jose filed an action against the company as accommodation party,
Issue: [Liability of Accommodation Party] Can the company be held liable as an
accommodation party?
Held: No, the signatories are personally liable.
Ratio:
● Corporations cannot indorse as accommodation parties because it
is ultra vires.
○ XPN: Corporate officers are only able to indorse in the
name of the company as accommodation party if they
are specifically authorized to do so and if it is a
legitimate company concern.
○ Officers like the vice-president have no power to indorse
on behalf of the company if not authorized, hence their
signatures hold themselves personally liable for the
instrument.
● One who takes an instrument knowing that a corporation is an
accommodation party cannot recover from that corporation.
○ However, recourse here is to hold signatories personally
liable, rather than absolve them.
PNB v. Maza, G.R. No. L-24224, Nov. 3, 1925
Facts:
PNB sued Ramon Maza and Francisco Mecenas for non-payment of five
promissory notes. The CFI found in favor of PNB and held the two liable for the
full payment plus interest,but they appealed on the ground that the notes
were sent to them by Enrique Echaus in blank, which the latter requested they
sign so that he could negotiate them to PNB, and that they received no value
therefrom, hence Echaus is the real party-in-interest and they are only
accommodation parties.
Issue: [Liability of Accommodation Party] Are Maza and Mecenas liable?
Held: Yes
Ratio:
● SC: It is fundamental that an instrument given without
consideration does not create any obligation at law or in equity in
favor of the payee; however, to fasten liability upon an
accommodation maker, it is not necessary that any consideration
should move to him.
○ The consideration which supports the promise of the
accommodation maker is that parted with by the person
taking the note and received by the person
accommodated.
● [Obiter dictum] When accommodation parties make payment to
the holder of the notes, they have the right to sue the
accommodated party for reimbursement, since the relation
between them is in effect that of principal and sureties.
FERNANDO MAULIN, ET. AL. VS ANTONIO G. SERRANO GR. NO. L-8844
DECEMBER 16, 1914
FACTS:
This is an appeal from a judgment of the Court of the First Instance of the City
of Manila in favor of the plaintiff for the sum of P3,000 with interest at the
rate of 1½ per month.
The action was brought by the plaintiff, Fernando Maulin upon the contract of
indorsement alleged to have been made in his favor by the defendant,
Antonio Serrano upon a promissory note.
Thus, in a parol evidence presented in the trial, it showed that the defendant
was a broker doing business in Manila which consisted in looking up and
ascertaining persons who had money to loan, as well as those who desired to
borrow money and acting as a “median,” who negotiates a loan between the
two. According to the method in the said transaction, the broker delivers the
money personally to the borrower, takes note in his own name and
immediately transfers it by indorsement to the lender.
ISSUE:
Whether or not, Serrano is an accommodation indorser.
RULING:
The accommodation to which reference is made in the section quoted is not
one to the person who takes the note (the payee or indorsee), but one to the
maker or indorser of the note. It is true that in the case at bar, it was an
accommodation described in the law, but rather, a mere favor to him and one
which in no way bound Serrano. In cases of accommodation indorsement, the
indorse rakes the indorsement for the accommodation of the maker for the
purpose of securing the payment of the note – that is, he lend his name to the
maker, not to the holder.
There is no contradiction of the evidence offered by the defense and received
provisionally by the court. Accepting it as true, the judgment must be
reversed.
The judgment appealed from is reversed and the complaint dismissed on the
merits.
ATRIUM MANAGEMNT CORPORATION VS COURT OF APPEALS, ET. AL. GR.
NO. 109491 FEBRUARY 28, 2001
FACTS:
Before is an appeal from the decision of the Court of Appeals ruling that Hi-
Cement Corporation is not liable for four checks amounting to P2 million
issued to E.T. Henry Co. and discounted to Atrium Management Corporation.
Petitioner filed with the Regional Trial Court of Manila an action for collection
of the proceeds of four postdated checks in the total amount of P2 million. Hi-
Cement through its corporate signatories, issued checks in favor of E.T. Henry
and Co.; as payee, the latter endorsed the four checks to the petitioner for
valuable consideration. Upon presentment for payment the drawee bank
dishonored all four checks for the common reason payment stopped. Atrium,
thus instituted this action after its demand for payment of the value of the
checks was denied.
The RTC rendered a decision ordering the respondents (Lourdes M. de Leon
and husband, E.T. Henry and Co. and Hi-Cement Corporation) to pay
petitioner, jointly and severally, the amount of P2 million plus interest and
attorney’s fee.
The CA modified the decision, absolving Hi-Cement Corporation from liability
and dismissing the complaint as against it.
ISSUES:
1. Whether or not the issuance of the questioned checks as an ultra
vires act.
2. Whether or not Atrium was a holder in due course and or value.
RULING:
1. The court finds that there was no sufficient evidence to show that such is
the case. However, our view that there is basis to rule that the act of
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS20
issuing the checks was well within the ambit of a valid corporate act, for
it was for securing a loan to finance the activities of the corporation,
hence not an ultra vires act.
An ultra vires act is one committed outside the object for which a
corporation is created as defined by the law of its organization and
therefore beyond the power conferred upon it by law.
2. A holder in due course is a holder who has taken the instrument under
the following conditions:
a. That it is complete and regular upon its face;
b. That he became the holder of it was overdue and without notice
that it had been previously dishonored, if such was the fact;
c. That he took it in good faith and for value;
d. That tat the time it was negotiated to him, he had no notice of any
infirmity in the instrument or defect in the title of the person
negotiating it.
The Negotiable Instruments Law does not provided that a holder in due course
can not recover o the instrument.
The disadvantage of Atrium in not being a holder in due course is that the
negotiable instrument is subject to defenses as if it were non-negotiable. One
such defense is absence or failure of consideration.
The petition is hereby denied.
ERNESTINA CRISOLOGO-JOSE, petitioner,
vs.
COURT OF APPEALS and RICARDO S. SANTOS, JR. in his own behalf and as
Vice-President for Sales of Mover Enterprises, Inc., respondents.
G.R. No. 80599
September 15, 1989
FACTS:
Plaintiff Ricardo S. Santos, Jr. was the vice-president of Mover Enterprises, Inc.
in-charge of marketing and sales; and the president of the said corporation
was Atty. Oscar Z. Benares. Atty. Benares, in accommodation of his clients, the
spouses Jaime and Clarita Ong, issued check against Traders Royal Bank,
payable to defendant Ernestina Crisologo-Jose. Since the check was under the
account of Mover Enterprises, Inc., the same was to be signed by its president,
Atty. Oscar Z. Benares, and the treasurer of the said corporation. However,
since at that time, the treasurer of Mover Enterprises was not available, Atty.
Benares prevailed upon the plaintiff, Ricardo S. Santos, Jr., to sign the
aforesaid check. The check was issued to defendant Ernestina Crisologo-Jose
in consideration of the waiver or quitclaim by said defendant over a certain
property which the Government Service Insurance System (GSIS) agreed to sell
to the spouses Jaime and Clarita Ong, with the understanding that upon
approval by the GSIS of the compromise agreement with the spouses Ong, the
check will be encashed accordingly. Since the compromise agreement was not
approved within the expected period of time, the aforesaid check was
replaced by Atty. Benares. This replacement check was also signed by Atty.
Oscar Z. Benares and by the plaintiff Ricardo S. Santos, Jr. When defendant
deposited this replacement check with her account at Family Savings Bank,
Mayon Branch, it was dishonored for insufficiency of funds. The petitioner
filed an action against the corporation for accommodation party.
ISSUES:
(A) IIIF – Real Defenses; Minority and Ultra Vires Act
Whether the Corporation can be held as an Accommodation Party?
HELD:
No. Accommodation party liable on the instrument to a holder for value,
although such holder at the time of taking the instrument knew him to be only
an accommodation party, does not include nor apply to corporations which
are accommodation parties. This is because the issue or indorsement of
negotiable paper by a corporation without consideration and for the
accommodation of another is ultra vires. Hence, one who has taken the
instrument with knowledge of the accommodation nature thereof cannot
recover against a corporation where it is only an accommodation party. If the
form of the instrument, or the nature of the transaction, is such as to charge
the indorsee with knowledge that the issue or indorsement of the instrument
by the corporation is for the accommodation of another, he cannot recover
against the corporation thereon.
(B) IIIH – Liability of the person secondarily liable when instrument is
dishonored
Whether Atty. Benares can be held liable?
HELD:
YES, By way of exception, an officer or agent of a corporation shall have the
power to execute or indorse a negotiable paper in the name of the
corporation for the accommodation of a third person only if specifically
authorized to do so. Corollarily, corporate officers, such as the president and
vice-president, have no power to execute for mere accommodation a
negotiable instrument of the corporation for their individual debts or
transactions arising from or in relation to matters in which the corporation has
no legitimate concern. Since such accommodation paper cannot thus be
enforced against the corporation, especially since it is not involved in any
aspect of the corporate business or operations, the inescapable conclusion in
law and in logic is that the signatories thereof shall be personally liable
therefor, as well as the consequences arising from their acts in connection
therewith.
ASSOCIATED BANK VS HONORABLE COURT OF APPEALS, PROVINCE OF
TARLAC AND PHILIPPINE NATIONAL BANK GR. NO. 107382 AND GR. NO.
107612 JANUARY 31, 1996 AND JANUARY 31, 1996, respectively
FACTS:
This is a consolidated petition for review assailing the decision of the Court of
Appeals.
The province of Tarlac maintains an account with the Philippine National Bank
(Tarlac Branch) where the provincial funds are deposited.
A portion of the said funds is allocated to the Concepcion Emergency Hospital.
However, upon post-audit by the Provincial Auditor, it was discovered that the
hospital did not receive several allotment checks drawn by the province. After
re-examination, ot was also learned that 30 checks were encashed by Fausto
Pangilinan, Administrative Officer and Cashier of the hospital.
Pangilinan was able to withdraw the money by forging the signature of Dr.
Adena Canlas, Chief of the hospital.
The lower court rendered a decision ordering the following:
1. PNB to pay the province of Tarlac of P203,300 with legal interest;
2. Associated Bank to reimburse the PNB of P203,300 with legal
interest; and
3. Associated Bank’s complaint against Canlas and Pangilinan were
dismissed for lack of cause of action and lack of jurisdiction,
respectively.
The CA affirmed the decision, in toto.
ISSUE:
Whether or not the CA erred in affirming the lower court’s decision, with
respect to the checks payable to the order of Concepcion Emergency Hospital
or its Chief, as well as the liabilities of the parties.
RULING:
Checks having forged insdorsements should be differentiated from forged
checks or checks bearing forged signature of the drawer.
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 is forged was never a party and never
consented to the contract which allegedly gave rise to the 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.
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS21
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.
Where the instrument is payable to order at the time of forgery, the signature
of its rightful holder is essential to transfer title to the same instrument. When
the holder’s indorsement is forged, all parties prior to the forgery may raise
the real defense of forgery against all parties subsequent.
Thus, due to the negligence of the Province of Tarlac in releasing the checks to
an unauthorized person (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 contributed to the loss amounting to P203,300 and shall be liable
to the PNB for 50%. In effect the Province of Tarlac can only rev\cover 50% of
the P203,300 from PNB.
The collecting bank, Associated Bank, shall be liable to PNB for 50% of the
P203,300. It is liable on its warranties as indorser of the checks which were
deposited by Pangilinan, having guaranteed the genuineness of all prior
indorsements, including that of the Chief of the payee hospital, Canlas.
Associated Bank was also remiss in its duty to ascertain the genuineness of the
payee’s endorsement.
REPUBLIC BANK VS.MAURICIA T. EBRADA GR. NO. L-40796 JULY 31, 1975
FACTS:
An appeal on a question of law of the decision of the court of the First
Instance of Manila.
Defendant Maurici Ebrada encashed a checked at the main office of the
plaintiff, Republic Bank at Escolta, Manila. The aid check was issued by the
Bureau of Treasury. However, plaintiff was later advised by the bureau that
the alleged indorsement was a forgery. The former then refunded the amount
to the latter.
Meanwhile, upon verbal and formal demands for the payment of refund,
Ebrada refused to pay. Thus, Republic Bank sued the defendant.
ISSUE:
Whether or not the Republic Bank may recover from Ebrada.
RULING:
Where a check has several indorsements on it, it was held that only the
negotiation based on the forged signature which is inoperative. Applying the
case before us, it can be safely concluded that it is only the negotiation
predicated on the forged indorsement that should be declared inoperative.
It was also held that the drawee can recover from the holder the money paid
to him on a forged instrument. It is not supposed to be its duty to ascertain
whether the signatures of the payee or indorsers are genuine or not. This is
because the indorser is supposed to warrant to the drawee that the signatures
of the payee and previous indorsers are genuine, warranty not exceeding only
to the holders in due course.
Similarly, the defendant-appellant, was duty-bound to ascertain whether the
check in question was genuine before presenting it to the plaintiff bank for
payment. Her failure to do so makes her liable for the loss and the plaintiff
bank may recover from her the money she received for the check.
With the foregoing doctrine, we are to concede that the plaintiff bank should
suffer the loss when it paid the amount of the check in question to defendant-
appellant, but it has the remedy to recover from the latter the amount it paid
her. Although the defendant-appellant to whom the plaintiff bank paid the
check was not proven to be the author of he supposed forgery, yet as last
indorser, she is warranted that she has god title to it even if in fact, she did not
have ait because the payee of the check was already dead 11 years before the
check was issued.
The judgment appealed is hereby affirmed in toto.
METROPOLITAN WATERWORKS AND SEWERAGE SYSTEM (MWSS),
petitioner, vs. COURT OF APPEALS, HON. PERCIVAL LOPEZ, AYALA
CORPORATION and AYALA LAND, INC., respondents.
G.R. No. 126000. October 7, 1998
FACTS:
Metropolitan Waterworks and Sewerage System (MWSS) is a Government-
owned and controlled corporation (GOCC) and successor-in- interest of the
defunct NWSA.
The authorized signature for PNB Account No. 6 were those of MWSS
treasurer Jose Sanchez, its auditor Pedro Aguilar, and its acting General
Manager Victor L. Recio. Specimen signatures were submitted by the MWSS to
and on file with the PNB. By special arrangement with the PNB, the MWSS
used personalized checks in drawing from this account printed for MWSS by its
printer, F. Mesina Enterprises.
March, April and May 1969: 23 checks were prepared, processed, issued and
released by NWSA, all of which were paid and cleared by PNB and debited by
PNB against NWSA Account No. 6 deposited by the fictitious payees Raul
Dizon, Arturo Sison and Antonio Mendoza in their respective current accounts
with the Philippine Commercial and Industrial Bank (PCIB) and Philippine Bank
of Commerce (PBC).
At the time of their presentation to PNB these checks bear the standard
indorsement which reads 'all prior indorsement and/or lack of endorsement
guaranteed. NWSA filed against PNB before the Court of First Instance. Then,
PNB also filed a third party complaint against the negotiating banks PBC and
PCIB on the ground that they failed to ascertain the identity of the payees and
their title to the checks which were deposited in the respective new accounts
of the payees with them. The Court of First Instance favored MWSS.
The Court of Appeals reversed and favored PNB.
ISSUE:
1. Whether MWSS can claim against PNB.
2. Whether PNB should restore the said amount.
HELD:
1. No. Every negotiable instrument is deemed prima facie to have
been issued for valuable consideration and every person whose
signature appears thereon to have become a party thereto for
value. Gross negligence in the printing of its personalized checks -
MWSS failed to:
a. give its printer, Mesina Enterprises, specific instructions
relative to the safekeeping and disposition of excess forms,
check vouchers, and safety papers
b. retrieve from its printer all spoiled check forms
c. provide any control regarding the paper used in the printing
of said checks
d. furnish the respondent drawee bank with samples of
typewriting, cheek writing, and print used by its printer in the
printing of its checks and of the inks and pens used in signing
the same
e. send a representative to the printing office during the printing
of said checks
f. to reconcile the bank statements with its own records
2. No. MWSS is precluded from setting up the defense of forgery.
SEC. 23. FORGED SIGNATURE; EFFECT OF.- When the
signature is forged or made without 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
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS22
right is precluded from setting up the forgery or want of
authority.
It has been proven that MWSS has been negligent in supervising
the printing of its personalized checks. It failed to provide security
measures and coordinate the same with PNB. Further, the
signatures in the forged checks appear to be genuine as reported
by the National Bureau of Investigation so much so that the MWSS
itself cannot tell the difference between the forged signature and
the genuine one. The records likewise show that MWSS failed to
provide appropriate security measures over its own records
thereby laying confidential records open to unauthorized persons.
Even if the twenty-three (23) checks in question are considered
forgeries, considering the MWSS’s gross negligence, it is barred
from setting up the defense of forgery under Section 23 of the
Negotiable Instruments Law.
The Supreme Court further emphasized that forgery cannot be
presumed. It must be established by clear, positive, and convincing
evidence. This was not done in the present case.
WHEREFORE, in view of the foregoing, the consolidated petitions are hereby
DENIED.
SO ORDERED.
BANK OF AMERICA NT & SA, petitioner vs. PHILIPPINE RACING CLUB,
respondents
G.R. No. 150228. July 30, 2009
FACTS:
Plaintiff-appellee PRCI is a domestic corporation which maintains several
accounts with different banks in the Metro Manila area. Among the accounts
maintained was Current Account No. 58891-012 with defendant-appellant BA
(Paseo de Roxas Branch). The authorized joint signatories with respect to said
Current Account were plaintiff-appellees President (Antonia Reyes) and Vice
President for Finance (Gregorio Reyes).
On or about the 2nd week of December 1988, the President and Vice
President of plaintiff-appellee corporation were scheduled to go out of the
country in connection with the corporations business. In order not to disrupt
operations in their absence, they pre-signed several checks relating to Current
Account No. 58891-012. The intention was to insure continuity of plaintiff-
appellees operations by making available cash/money especially to settle
obligations that might become due. These checks were entrusted to the
accountant with instruction to make use of the same as the need arose. The
internal arrangement was, in the event there was need to make use of the
checks, the accountant would prepare the corresponding voucher and
thereafter complete the entries on the pre-signed checks.
It turned out that on December 16, 1988, a John Doe presented to defendant-
appellant bank for encashment a couple of plaintiff-appellee corporations
checks (Nos. 401116 and 401117) with the indicated value of P110,000.00
each. It is admitted that these 2 checks were among those presigned by
plaintiff-appellee corporations authorized signatories.
The two (2) checks had similar entries with similar infirmities and irregularities.
On the space where the name of the payee should be indicated (Pay To The
Order Of) the following 2-line entries were instead typewritten: on the upper
line was the word CASH while the lower line had the following typewritten
words, viz: ONE HUNDRED TEN THOUSAND PESOS ONLY. Despite the highly
irregular entries on the face of the checks, defendant-appellant bank, without
as much as verifying and/or confirming the legitimacy of the checks
considering the substantial amount involved and the obvious infirmity/defect
of the checks on their faces, encashed said checks. A verification process, even
by was of a telephone call to PRCI office, would have taken less than ten (10)
minutes. But this was not done by BA. Investigation conducted by plaintiff-
appellee corporation yielded the fact that there was no transaction involving
PRCI that call for the payment of P220,000.00 to anyone. The checks appeared
to have come into the hands of an employee of PRCI (one Clarita Mesina who
was subsequently criminally charged for qualified theft) who eventually
completed without authority the entries on the pre-signed checks. PRCIs
demand for defendant-appellant to pay fell on deaf ears. Hence, the
complaint.
Petitioner contended that since the instrument is incomplete but delivered or
complete but undelivered, it could validly presume upon presentation of the
checks, that the party who filled up the blanks had authority and that a valid
and intentional delivery to the party presenting the checks had taken place
and the proximate cause of the encashment was the respondent’s negligent
practice of delivering pre-signed check to its accountant.
ISSUE:
Whether the petitioner can be held liable for negligence and thus should pay
damages to Philippine Racing Club.
HELD:
It appears that both parties are held to be at fault but the bank has the last
clear chance to prevent the fraudulent encashment hence it is the one
foremost liable. The court held that the petitioner is liable for 60% of the total
amount of damages while PRC should shoulder 40% of the said amount.
There was no dispute that the signatures in the checks are genuine but the
presence of irregularities on the face of the check should have alerted the
bank to exercise caution before the encashment. It is well-settled that banks
are in the business impressed with public interest that they are duty bound to
protect their clients and their deposits at all times. They must treat the
accounts of these clients with meticulousness and a highest degree of care
considering the fiduciary nature of their relationship.
The diligence required of banks are more than that of a good father of a
family. The PRC officers' practice of pre-signing checks is a seriously negligent
and highly risky behavior which makes them also contributor to the loss. It's
own negligence must therefore mitigate the petitioner's liability. Moreover,
the person who stole the checks is also an employee of the plaintiff, a clerk in
its accounting department at that. As the employer, PRC supposedly should
have control and supervision over its own employees.
WHEREFORE, the Decision of the Court of Appeals dated July 16, 2001 and its
Resolution dated September 28, 2001 are AFFIRMED with the following
MODIFICATIONS: (a) petitioner Bank of America NT & SA shall pay to
respondent Philippine Racing Club sixty percent (60%) of the sum of Two
Hundred Twenty Thousand Pesos (P220,000.00) with legal interest as awarded
by the trial court and (b) the awards of attorneys fees and litigation expenses
in favor of respondent are deleted. Proportionate costs.SO ORDERED.
SAMSUNG CONSTRUCTION COMPANY PHILIPPINES, INC., petitioner, vs. FAR
EAST BANK AND TRUST COMPANY AND COURT OF
APPEALS, respondents.
[G.R. No. 129015. August 13, 2004]
FACTS: Samsung maintained a current account with FEBTC at the latter’s Bel-
Air, Makati branch.2 The sole signatory to Samsung Construction’s account was
Jong Kyu Lee (“Jong”),3 while the checks remained in the custody of the
company’s accountant, Kyu Yong Lee (“Kyu”)4
On 19 March 1992, a certain Roberto Gonzaga presented for payment FEBTC
Check No. 432100 to the bank’s branch in BelAir, Makati.payable to cash and
drawn against Samsung Construction’s current account, was in the amount of
Nine Hundred Ninety Nine Thousand Five Hundred Pesos (P999,500.00).
After several efforts by FEBTC bank tellers to check the genuineness of the
signature in the check, and after confirming from Jose Sempio who was said to
be known to the bank as employee of Samsung, the check was accepted and
payment was made.
Upon examining that a check had been encashed against the bank balance
without he preparing such check, Kyu perused the checkbook and found that
the last blank check was missing.7 He then informed Jong who later went to
the bank and learned that his signature was forged by Sempio.
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS23
Samsung Construction, through counsel, demanded that FEBTC credit to it the
amount that was debited.
Issue: WON Samsung can recover from FETBC.
Ruling:
Yes.
The general rule is to the effect that a forged signature is “wholly inoperative,”
and payment made “through or under such signature” is ineffectual or does
not discharge the instrument. If payment is made, the drawee cannot charge it
to the drawer’s account. The traditional justification for the result is that the
drawee is in a superior position to detect a forgery because he has the maker’s
signature and is expected to know and compare it.
The forged signature may so closely resemble the genuine as to defy detection
by the depositor himself. And yet, if a bank pays the check, it is paying out its
own money and not the depositor’s.
The forgery may be committed by a trusted employee or confidential agent.
The bank still must bear the loss. Even in a case where the forged check was
drawn by the depositor’s partner, the loss was placed upon the bank.
PHILIPPINE NATIONAL BANK petitioner, vs.
HON. ROMULO S. QUIMPO, Presiding Judge, Court of First Instance of Rizal,
Branch XIV, and FRANCISCO S. GOZON II, respondents G.R. No. L-53194
March 14, 1988
Facts:
Upon complaint of private respondent, Francisco Gozon II, Ernesto Santos was
apprehended by the police authorities for stealing the check of Gozon, forging
his signature and encashing the same with the Bank. In a complaint of
recovery filed before the CFI of Rizal Gozon asked the amount debted be
returned on his account. CFI of Rizal ruled in favor Gozon ordering thereby
PNB to return the amount debited against the plaintiff.
Unsatisfied with the ruling the PNB filed petition for review on certiorari in this
Court raising the sole legal issue that — THE ACT OF RESPONDENT FRANCISCO
GOZON, II IN PUTTING HIS CHECK BOOK CONTAINING THE CHECK IN
QUESTION INTO THE HANDS OF ERNESTO SANTOS WAS INDEED THE
PROXIMATE CAUSE OF THE LOSS, THEREBY PRECLUDING HIM FROM SETTING
UP THE DEFENSE OF FORGERY OR WANT 0F AUTHORITY UNDER SECTION 23
OF THE NEGOTIABLE INSTRUMENTS LAW, ACT NO. 3201
Issue:
1.) WON the forged signature is operative?
2.) WON the plaintiff should proceed against Santos before suing PNB?
Held:
1. No. under Sec. 23 of the Negotiable Instruments Law –When a
signature is forged or made without the authority of the person whose
signature it purports to be, it is wholly inoperative, and no right to retain the
instrument, or to give a discharge therefor, or to enforce payment thereof
against any party thereto, can be acquired through or under such signature,
unless the party against whom it is sought to enforce such right is precluded
from setting up the forgery or want of authority. The present case is a forgery
of the maker’s signature hence inoperative.
2. No. The bank being secondarily liable warrants immediate
recourse.
A bank is bound to know the signatures of its customers; and if it pays a forged
check, it must be considered as making the payment out of its own funds, and
cannot ordinarily change the amount so paid to the account of the depositor
whose name was forged' (San Carlos Milling Co. vs. Bank of the P.I., 59 Phil.
59). This rule is absolutely necessary to the circulation of drafts and checks,
and is based upon the presumed negligence of the drawee in failing to meet
its obligation to know the signature of its correspondent. ... There is nothing
inequitable in such a rule. If the paper comes to the drawee in the regular
course of business, and he, having the opportunity ascertaining its character,
pronounces it to be valid and pays it, it is not only a question of payment
under mistake, but payment in neglect of duty which the commercial law
places upon him, and the result of his negligence must rest upon him (12 ALR
1901, citing many cases found in I Agbayani, supra).
The prime duty of a bank is to ascertain the genuineness of the signature of
the drawer or the depositor on the check being encashed. It is expected to
use reasonable business prudence in accepting and cashing a check presented
to it.
WESTMONT BANK (formerly ASSOCIATED BANKING CORP.), petitioner,
vs. EUGENE ONG, respondent.
G.R. No. 132560. January 30, 2002
FACTS:
Eugene Ong maintained a current account with Westmont Bank.
Sometime in May 1976, he sold certain shares of stocks through Island
Securities Corporation. To pay Ong, Island Securities purchased two (2) Pacific
Banking Corporation managers checks,[2][2] both dated May 4, 1976, issued in
the name of Eugene Ong as payee. Before Ong could get hold of the checks,
his friend Paciano Tanlimco got hold of them, forged Ongs signature and
deposited these with petitioner. Even though Ongs specimen signature was on
file, petitioner accepted and credited both checks to the account of Tanlimco,
without verifying the signature indorsements appearing at the back
thereof. Tanlimco then immediately withdrew the money and absconded.
Ong first sought the help of Tanlimcos family to recover the amount then later
reported the incident to the Central Bank, both efforts proved futile. Ong then
went demanded in his complaint that petitioner pay the value of the two
checks from the bank on whose gross negligence he imputed his loss.
Issue: WON Ong can still recover from Westmont Bank
Ruling:
Yes.
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.
Since the signature of the payee, in the case at bar, was forged to make
it appear that he had made an indorsement in favor of the forger, such
signature should be deemed as inoperative and ineffectual. Petitioner, as the
collecting bank, grossly erred in making payment by virtue of said forged
signature. The payee, herein respondent, should therefore be allowed to
recover from the collecting bank.
Ilusorio v CA
GR #139130, 27 November 2002
FACTS:
Ramon Ilusorio is a prominent businessman who was the Managing Director of
Multinational Investment Bancorporation and the Chairman and/or President
of several other corporations. As he was managing 20 corporations and
traveling in and out of the country, he entrusted his credit cards, checkbook
with blank checks to his secretary, Katherine Eugenio.
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS24
Between the dates 5 September 1980 and 23 January 1981, Eugenio encashed
and deposited to her personal account about seventeen checks drawn against
Ilusorio’s account at the Manila Banking Corporation with an aggregate
amount of P119,634.34. Ilusorio did not bother checking his accounts until a
partner apprised him of Eugenio using his credit cards. Ilusorio terminated
Eugenio’s employment and filed a complaint of estafa and falsification of
documents against her on the basis that the checks’ signatures were forged.
ISSUE:
Whether or not the forged checks should be considered inoperative
HELD:
No. While Ilusorio contends that under Section 23 of the NIL that forged
checks are held inoperative and that the bank has no authority to pay the said
checks, the rule does provide for an exception, namely: unless the party
against whom it is sought to enforce such right is precluded from setting up
the forgery or want of authority. In this case, such exception applies. The
petitioner Ilusorio is precluded from setting up the forgery, assuming there is
forgery, due to his own negligence in entrusting to his secretary his credit
cards and checkbook including the verification of his statements of account.
Traders Royal Bank v RPN
GR #138510, 10 October 2002
FACTS:
On 15 April 1985, the Bureau of Internal Revenue (BIR) assessed Radio
Philippines Network (RPN), Intercontinental Broadcasting Corporation (IBC),
and Banahaw Broadcasting Corporation (BBC) of their tax obligations.
In paying their taxes from the petitioner bank, Mrs. Vera, the network’s
comptroller engaged into a settlement with the BIR. BIR granted the request
for settlement and the networks purchased managers checks from Traders
Royal Bank (TRB).
The checks were supposed to be turned over to Mrs. Vera, but instead was
presented for payment by unknown persons to a personal account in Security
Bank. The BIR issued a levy, distraint, and garnishment against the three
networks.
Traders Royal Bank sent letters demanding to be reimbursed which the
networks refused. An action was filed wherein it was decided that the
networks should be reimbursed for the amounts of the checks by petitioner
bank and the latter in turn, must be reimbursed by Security Bank. In the
appellate court, it was held that TRB should be the only bank liable.
ISSUE:
Whether or not Traders Royal Bank should be the only bank liable
HELD:
Yes. In the instant case, the 3 checks were payable to the BIR. However, that
said checks were never delivered or paid to the BIR but were in fact presented
for payment by some unknown persons who, in order to receive payment
therefor, forged the name of the payee.
It is the primary duty of TRB to know that the check was duly indorsed by the
original payee. It should be further noted that one of the checks was a crossed
check. The crossing of the check should have put petitioner on guard; it was
duty-bound to ascertain the indorser’s title to the check or the nature of his
possession. In paying the amount of the check to a third person who forged
the signature in the check, the loss falls upon the petitioner who cashed the
check. Its only remedy is against the person to whom it paid the money.
Since TRB did not pay the rightful holder or other person or entity entitled to
receive payment, it has no right to reimbursement. Petitioner TRB was remiss
in its duty and obligation, and must therefore suffer the consequences of its
own negligence and disregard of established banking rules and procedures.
BPI vs. CA
GR #102383, 26 November 1992
FACTS:
On 9 October 1981 someone impersonated herself as Eligia Fernando who
wanted to pre-terminate her placement in the money market with the bank.
Reginaldo Estaquio, a dealer trainee, received the call and told her that the
“trading time” for the week was over. The next week, Estaquio conveyed the
pre-termination request, however, he did not verify whether he talked to the
real Eligia Fernando. He relied to the early conversation the week prior and he
proceeded with processing the termination. Thereafter, the caller gave
instructions that the checks will be picked up by her niece, Rosemarie
Fernando, rather than delivering the checks to her office. The dispatcher failed
to get the promissory note evidencing the placement. The impersonator
opened an account with the bank, deposited the checks, then withdrew the
amounts.
The real Eligia appeared to roll-over her placement upon the maturity and
denied pre-terminating her money market placements, and that she never
received the proceeds. This prompted BPI to surrender the checks to China
Banking Corporation (CBC) on the alleged forgery of payee’s indorsements.
ISSUE:
Whether or not the banks were negligent which should be held responsible.
HELD:
YES. Both banks, BPI and CBC were negligent in the selection and supervision
of their employees resulting in the encashment of the forged checks by an
impostor. Both banks were not able to overcome the presumption of
negligence in the selection and supervision of their employees.
The general rule is that since the payee’s indorsement has been forged, the
instrument is wholly inoperative. However, on this case, the issue in this case
is as to who between the parties should bear the loss in the payment of the
forged checks.
It is held that the acts of the employees of BPI were tainted with more
negligence if not criminal than the acts of CBC. First, the act of disclosing
information about the money market placement over the phone is a violation
of the General Banking Law. Second, there was failure on BPI’s part to
compare the signatures during the termination of the placement, opening of a
new account with the specimen signature in file of Fernando. Third, there was
failure to ask the surrender of the promissory note evidencing the placement.
While the acts of BPI was the proximate cause to the loss. Nevertheless, the
negligence of the employees of CBC should be taken also into consideration as
they closed their eyes to the suspicious large amount withdrawals made over
the counter as well as the opening of the account.
PNB v CA (1996) (input)
Montinola v PNB
88 Phil 198, 26 February 1951
FACTS:
In May 1942, Ubaldo Laya, a provincial treasurer of Misamis Oriental issued a
P100,000.00 Philippine National Bank (PNB) check to Mariano Ramos. The said
check was to be used by Ramos, as disbursing officer of the US forces at that
time, for military purposes. Before Ramos can encash the check, he was made
a prisoner of war by the invading Japanese forces. When he got free in
December 1944, he needed some cash for himself and so he went to a certain
Enrique Montinola and made arrangements.
On the back of the check, Ramos wrote:
Pay to the order of Enrique P. Montinola P30,000 only. The balance
to be deposited in the Philippine National Bank to the credit of M.
V. Ramos.
Later, Montinola sought to have the check encashed but PNB dishonored the
check. It appears that there was an insertion made. Under the signature of
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS25
Laya, the words “Agent, Philippine National Bank” was inserted, thus making it
appear that Laya disbursed the check as an agent of PNB and not as provincial
treasurer of Misamis Oriental, which at that time, a provincial treasurer is an
ex officio agent of the government’s bank.
ISSUE:
Whether or not the material alteration discharges the instrument
HELD: Yes. The insertion of the words "Agent, Phil. National Bank" which
converts the bank from a mere drawee to a drawer and therefore changes its
liability, constitutes a material alteration of the instrument without the
consent of the parties liable thereon, and so discharges the instrument,
pursuant to Section 124 of the Negotiable Instruments Law.
At any rate, even assuming that there is proper negotiation, Montinola can no
longer encash said check because when he sought to have it encashed in
January 1945, it is already stale there being two and half years passing since its
time of issuance.
PCIB v CA (input)
Papa v AU Valencia
G.R. No. L-18657 August 23, 1922
THE GREAT EASTERN LIFE INSURANCE CO., plaintiff-appellant, vs. HONGKONG
& SHANGHAI BANKING CORPORATION and PHILIPPINE NATIONAL BANK,
defendants-appellees.
Facts:
May 3, 1920, the plaintiff drew its check for P2,000 on the Hongkong and
Shanghai Banking Corporation with whom it had an account, payable to the
order of Lazaro Melicor. E. M. Maasim fraudulently obtained possession of the
check, forged Melicor's signature, as an endorser, and then personally
endorsed and presented it to the Philippine National Bank where the amount
of the check was placed to his credit. After having paid the check, and on the
next day, the Philippine national Bank endorsed the check to the Hongkong
and Shanghai Banking Corporation which paid it and charged the amount of
the check to the account of the plaintiff. In the ordinary course of business,
the Hongkong Shanghai Banking Corporation rendered a bank statement to
the plaintiff showing that the amount of the check was charged to its account,
and no objection was then made to the statement. About four months after
the check was charged to the account of the plaintiff, it developed that Lazaro
Melicor, to whom the check was made payable, had never received it, and
that his signature, as an endorser, was forged by Maasim, who presented and
deposited it to his private account in the Philippine National Bank. With this
knowledge, the plaintiff promptly made a demand upon the Hongkong and
Shanghai Banking Corporation that it should be given credit for the amount of
the forged check, which the bank refused to do, and the plaintiff commenced
this action to recover the P2,000 which was paid on the forged check.
Lower court ruled against the plaintiff and in favor of the banks absolving
them in their liability despite the forgery.
Issue:
1. Whether or not the banks are absolved from their liability to repay
the plaintiff despite the said forgery?
2. If not, what would then be the liability of PNB?
Held:
1. The judgment of the lower court is reversed, and one will be
entered here in favor of the plaintiff and against the Hongkong and
Shanghai Banking Corporation for the P2,000, with interest thereon
from November 8, 1920 at the rate of 6 per cent per annum, and
the costs of this action.
2. A corresponding judgment will be entered in favor of the
Hongkong Shanghai Banking Corporation against the Philippine
National Bank for the same amount, together with the amount of
its costs in this action.
Ratio:
Section 23 of Act No. 2031, known as the Negotiable Instruments Law, says:
“When a signature is forged or made without the authority of the person
whose signature it purports to be, it is wholly inoperative, and no right to
retain the instrument, or to give a discharge therefor, or to enforce payment
thereof against any party thereto, can be acquired through or under such
signature, unless the party against whom it is sought to enforce such right is
precluded from setting up the forgery or want of authority.”
The money was on deposit in the Shanghai Bank, and it had no legal right to
pay it out to anyone except the plaintiff or its order.
Here, the plaintiff ordered the Shanghai Bank to pay the P2,000 to Melicor,
and the money was actually paid to Maasim and was never paid to Melicor,
and he never paid to Melicor, and he never personally endorsed the check, or
authorized any one to endorse it for him, and the alleged endorsement was a
forgery. Hence, upon the undisputed facts, it must follow that the Shanghai
Bank has no defense to this action.
It is admitted that the Philippine National Bank cashed the check upon a
forged signature, and placed the money to the credit of Maasim, who was a
forger. That the Philippine National Bank then endorsed the check and
forwarded it to the Shanghai Bank by whom it was paid. The Philippine
National Bank had no license or authority to pay the money to Maasim or
anyone else upon a forge signature. It was its legal duty to know that Melicor's
endorsment was genuine before cashing the check. Its remedy is against
Maasim to whom it paid the money.
Quirino Logging v CA (input)
Republic v Ebrada
Far East Realty v CA
VIOLET MCGUIRE SUMACAD, ET AL., PLAINTIFFS-APPELLEES, VS.
THE PROVINCE OF SAMAR, ET AL., DEFENDANTS; THE PHILIPPINE NATIONAL
BANK, DEFENDANT-APPELLANT.
G.R. NO.L-8155. OCTOBER 23, 1956.
FACTS:
a check was issued by Province of Samar to Paulino M. Santos (Postmaster of
Borongan), and drawn against the Philippine National Bank Cebu Branch. The
payee negotiated the check with James McGuire. James McGuire presented
the check to the municipal treasurer of Borongan for payment, but the latter
(who merely noted it) was not able or did not choose to pay the
same. McGuire was referred by the Bureau of Post to the PNB. PNB requested
the Bureau of Posts to furnish it with copies of the check. James McGuire again
requested the Bureau of Posts to expedite compliance with the requirement
of the Philippine National Bank. Before the check could be certified by the
authorities, the province of Samar withdrew the money from PNB. ames
McGuire transferred his rights to the check to the herein Plaintiffs who, unable
to cash it.
ISSUE: Whether or not PNB is liable for the check
RULING:
Partially yes, because PNB is subsidiary liable to the check.
PNB did not issue the check and was merely called upon to pay the check upon
being presented for encashment and when the funds for the purpose were
available. The relationship of PNB and the province of Samar was that of
debtor and creditor, the debtor being without power to inquire into the
obligation of his creditor unless it had an interest in the same. PNB cannot be
held solidarily liable, the province of Samar being the drawee of the check
shall be primarily liable to pay the same.
However, there was an implied acceptable of the check by the PNB. The
request by the Appellant bank from the Bureau of Posts for photostatic copies
of the check and the subsequent requirement by it for its presentation by
James McGuire to the provincial treasurer and the provincial auditor for
certification, would be an empty gesture if the PNB did not thereby mean to
assume the obligation of paying the check and holding sufficient deposit of the
drawer for the purpose. PNB resulting obligation is merely subsidiary, the
province of Samar being primarily liable to pay the check.
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS26
ASIAN BANKING CORPORATION, plaintiff-appellee, vs. JUAN JAVIER, limited
copartnership, defendant-appellant.
G.R. No. L-19051, April 4, 1923
FACTS:
Salvador B. Chaves drew a check on the Philippine National Bank in favor of La
Insular. This check was indorsed by the limited partners of La Insular, and then
deposited by Salvador B. Chaves in his current account with the plaintiff, Asia
Banking Corporation. Then, Chaves drew another check from PNB, in favor of
La Insular, and was endorsed and deposited by Chaves in Asian Banking Corp.
Both checks were used by Chaves after they were deposited in the Asian
Banking Corporation. Subsequently the checks in dispute were presented by
ABC to the PNB for payment, but the latter refused to pay on the ground that
Chaves had no funds therein.
ISSUE: Whether or not Juan Javier is liable for the checks.
RULING:
No, the liability of Juan Javier as an indorser never arose.
Section 89 of the Negotiable Instruments Law (Act No. 2031) provides that,
when a negotiable instrument is dishonored for non-acceptance or non-
payment, notice thereof must be given to the drawer and each of the
indorsers, and those who are not notified shall be discharged from liability,
except where this act provides otherwise. According to this, the indorsers are
not liable unless they are notified that the document was dishonored. Then,
under the general principle of the law of procedure, it will be incumbent upon
the plaintiff, who seeks to enforce the defendant's liability upon these checks
as indorser, to establish said liability by proving that notice was given to the
defendant within the time, and in the manner, required by the law that the
checks in question had been dishonored. If these facts are not proven, the
plaintiff has not sufficiently established the defendant's liability.
PAULINO GULLAS, plaintiff-appellant,
vs.
THE PHILIPPINE NATIONAL BANK, defendant-appellant.
G.R. No. L-43191, November 13, 1935
FACTS:
Treasurer of the United States for the United States Veterans Bureau issued a
Warrant, payable to the order of Francisco Sabectoria Bacos. Paulino Gullas
and Pedro Lopez signed as endorsers of this check. Thereupon it was cashed
by the Philippine National Bank. Subsequently the treasury warrant was
dishonored by the Insular Treasurer.
The bank on learning of the dishonor of the treasury warrant sent notices by
mail to Mr. Gullas which could not be delivered to him at that time because he
was in Manila. When Upon receipt of the notice of dishonor and the
unbalance of the United States Treasury, Gullas immediately paid it.
ISSUE: Whether or not an award should be granted to Gullas.
RULING:
Yes, the because Gullas was merely an indorser and had issued the check in
good faith.
Negotiable Instruments Law contains provisions establishing the liability of a
general indorser and giving the procedure for a notice of dishonor. The
general indorser of negotiable instrument engages that if he be dishonored
and the, necessary proceedings of dishonor be duly taken, he will pay the
amount thereof to the holder. (Negotiable Instruments Law, sec. 66.) In this
connection, it has been held a long line of authorities that notice of dishonor is
in order to charge all indorser and that the right of action against him does not
accrue until the notice is given.
As a general rule, a bank has a right of set off of the deposits in its hands for
the payment of any indebtedness to it on the part of a depositor.
With respect to the deposit of Gullas, PNB had a right to set off.
It is undeniable that prior to the mailing of notice of dishonor, and without
waiting for any action by Gullas, the bank made use of the money standing in
his account to make good for the treasury warrant. At this point recall that
Gullas was merely an indorser and had issued in good faith.
As to a depositor who has funds sufficient to meet payment of a check drawn
by him in favor of a third party, it has been held that he has a right of action
against the bank for its refusal to pay such a check in the absence of notice to
him that the bank has applied the funds so deposited in extinguishment of
past due claims held against him.
NYCO SALES CORPORATION, petitioner,
vs.
BA FINANCE CORPORATION, JUDGE ROSALIO A. DE LEON, respondents.
G.R. No. 71694, August 16, 1991
FACTS:
Nyco Sales Corporation (hereinafter referred to as Nyco) whose president and
general manager is Rufino Yao, is engaged in the business of selling
construction materials.
Santiago and Renato Fernandez (Fernandezes), both acting in behalf of
Sanshell Corporation, approached Rufino Yao for credit accommodation. They
requested Nyco, thru Yao, to grant Sanshell discounting privileges which Nyco
had with BA Finance Corporation. Fernandezes went to Yao for the purpose of
discounting Sanshell's post-dated check which was a BPI-Davao Branch
The said check was payable to Nyco. Following the discounting process agreed
upon, Nyco, thru Yao, endorsed the check in favor of BA Finance. Thereafter,
BA Finance issued a check payable to Nyco which endorsed it in favor of
Sanshell. Sanshell then made use of and/or negotiated the check.
Accompanying the exchange of checks was a Deed of Assignment executed by
Nyco in favor of BA Finance with the conformity of Sanshell.
The BPI check, however, was dishonored by the drawee bank upon
presentment for payment. BA Finance immediately reported the matter to the
Fernandezes who thereupon issued a substitute check.
Nyco and the Fernandezes failed to settle the obligation with BA Finance, thus
prompting the latter to institute an action in court
ISSUE:Whether or not the assignor is liable to its assignee for its dishonored
checks.
RULING:
Yes, assignor-vendor is liable for the invalidity of whatever he as signed to the
assignee-vendee. According to Article 1628 of the Civil Code, the assignor-
vendor warrants both the credit itself (its existence and legality) and the
person of the debtor (his solvency), if so stipulated.
Nyco executed a deed of assignment in favor of BA Finance with Sanshell
Corporation as the debtor-obligor. Nyco is liable to pay the amount
represented in the said checks.
Nyco's pretension that it had not been notified of the fact of dishonor is belied
not only by the formal demand letter but also by the findings of the trial court
that Rufino Yao of Nyco and the Fernandez Brothers of Sanshell had frequent
contacts before, during and after the dishonor. The dishonor of an assigned
check simply stresses its liability and the failure to give a notice of dishonor
will not discharge it from such liability. This is because the cause of action
stems from the breach of the warranties embodied in the Deed of Assignment,
and not from the dishonoring of the check alone.
Great Asian Sales Center Corporation vs. Court of Appeals
GR No. 105774, April 25, 2002
FACTS:
On March 17, 1981, the board of directors of Great Asian Sales
Center Corporation (Great Asian) approved a resolution authorizing its
Treasurer and General Manager, Arsenio Lim Piat, Jr. (Arsenio) to secure a loan
from Bancasia Finance and Investment Corporation (Bancasia) in an amount
not to exceed P1 million. On February 10, 1982, a second resolution was
approved to secure a discounting line with Bancasia in an amount not
exceeding P2 million, also designating Arsenio as the authorized signatory to
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS27
sign all instruments. Tan Chong Lin signed two surety agreements in favor of
Bancasia to guarantee, solidarily, the debts of Great Asian to Bancasia.
Great Asian, through Arsenio, signed four Deeds of Assignment of
Receivables assigning to Bancasia fifteen post-dated checks. However, the
drawee banks dishonored the fifteen checks on maturity when deposited for
collection by Bancasia, with any of the following as reason for the dishonor:
“account closed,” “payment stopped,” “account under garnishment,” and
“insufficiency of funds.” The total amount of the fifteen dishonored checks is
P1,042,005.00. Subsequently, Bancasia notified Tan Chong Lin of the dishonor
of the fifteen checks and demanding payment from him. Neither Great Asian
nor Tan Chong Lin paid Bancasia the dishonored checks.
On May 21, 1982, Great Asian filed with the Court of First Instance
of Manila a petition for insolvency and listing Bancasia as one of the creditors.
On June 23, 1982, Bancasia filed a complaint for collection of a sum of money
against Great Asian and Tan Chong Lin. In its answer, Great Asian denied the
allegations claiming that there was already a pending insolvency proceeding,
although Great Asian subsequently withdrew its petition for voluntary
insolvency. Great Asian futher raised the alleged lack of authority of Arsenio to
sign the Deeds of Assignment as well as the absence of consideration and
consent of all the parties to the Surety Agreements signed by Tan Chong Lin.
The trial court ruled in favor of Bancasia, that Great Asian
sufficiently established an existing liability to plaintiff by way of financing
accommodation as aforementioned in its Schedule and Inventory of Liabilities
and Creditors attached to its Verified Petition for Insolvency. On appeal, the
Court of Appeals sustained the decision of the lower court, deleting only the
award of attorney’s fees.
ISSUE:
Whether or not Great Asian is liable to Bancasia when the drawee
banks dishonored the checks.
HELD:
Yes. As endorsee of Great Asian, Bancasia had the option to
proceed against Great Asian under the Negotiable Instruments Law. However,
Bancasia sued Great Asian for breach of contract under the Civil Code, a right
that Bnacasia had under the express with recourse stipulation in the Deeds of
Assignment. Great Asian, after paying Bancasia, is subrogated back as creditor
of the receivables. Great Asian can then proceed against the drawers who
issued the dishonored checks. Even if Bancasia failed to give timely notice of
dishonor, there would be no prejudice whatever to Great Asian.
Under the Negotiable Instruments Law, notice of dishonor is not
required if the drawer has no right to expect or require the bank to honor the
check, or if the drawer has countermanded payment. In the instant case, all
the checks were dishonored for any of the following reasons: “account
closed,” “account under garnishment,” “insufficiency of funds,” or “payment
stopped.” In the first three instances, the three drawers had no right to expect
or require the bank to honor the checks, and in the last instance, the drawers
had countermanded payment.
Under common law, delay in notice of dishonor, where such notice
is required, discharges the drawer only to the extent of the loss caused by the
delay. This rule finds application in this jurisdiction pursuant to Section 196 of
the Negotiable Instruments Law which states, “Any case not provided for in
this Act shall be governed by the provisions of existing legislation, or in default
thereof, by the rules of the Law Merchant.” Under Section 186 of the
Negotiable Instruments Law, delay in the presentment of checks discharges
the drawer. However, Section 186 refers only to delay in presentment of
checks but is silent on delay in giving notice of dishonor.
Luis S. Wong vs. Court of Appeals
G.R. No. 117857, February 2, 2001
FACTS:
Luis S. 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. Wong, however, had a history of
unremitted collections, which he duly acknowledged in a confirmation receipt
he co-signed with his wife. Hence, Wong's customers were required to issue
postdated checks before LPI would accept their purchase orders.
In early December 1985, Wong issued 6 postdated checks which
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 Wong's unremitted collections for 1984.
Before the maturity of the checks, Wong prevailed upon LPI not to deposit the
checks and promised to replace them within 30 days. However, Wong reneged
on his promise. Hence, on 5 June 1986, 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 20 June 1986, LPI through counsel notified Wong of the
dishonor. Wong failed to make arrangements for payment within 5 banking
days.
On 6 November 1987, Wong was charged with 3 counts of
violation of BP 22 under three separate Informations for the three checks
amounting to P5,500.00, P3,375.00, and P6,410.00. Upon arraignment, Wong
pleaded not guilty. The trial court issued its decision, finding Wong guilty
beyond reasonable doubt of the offense of Violations of Section 1 of BP 22 in 3
Counts and sentencing Wong to serve an imprisonment of 4 months for each
count; to pay Limtong the sums of P5,500.00, P6,410.00 and P3,375.00
together with the legal rate of interest from the time of the filing of the
criminal charges in Court and pay the costs. Wong appealed his conviction to
the Court of Appeals but it affirmed the trial court's decision in toto. Wong
filed the petition for review on certiorari.
ISSUE:
Whether or not the presumption of knowledge of lack of funds
under Section 2 of BP 22 should not apply to Wong, as he avers that LPI
deposited the checks 157 days after the maturity date, and that he should not
be expected to keep his bank account active and funded beyond the 90-day
period.
HELD:
Contrary to Wong's assertions, nowhere in said provision does the
law require a maker to maintain funds in his bank account for only 90 days.
Rather, the clear import of the law is to establish a prima facie presumption of
knowledge of such insufficiency of funds under the following conditions (1)
presentment within 90 days from date of the check, and (2) the dishonor of
the check and failure of the maker to make arrangements for payment in full
within 5 banking days after notice thereof. That the check must be deposited
within 90 days is simply one of the conditions for the prima facie presumption
of knowledge of lack of funds to arise. It is not an element of the offense.
Neither does it discharge Wong from his duty to maintain sufficient funds in
the account within a reasonable time thereof.
Under Section 186 of the Negotiable Instruments Law, "a check
must be presented for payment within a reasonable time after its issue or the
drawer will be discharged from liability thereon to the extent of the loss
caused by the delay." By current banking practice, a check becomes stale after
more than 6 months, or 180 days. LPI deposited the checks 157 days after the
date of the check. Hence said checks cannot be considered stale. Only the
presumption of knowledge of insufficiency of funds was lost, but such
knowledge could still be proven by direct or circumstantial evidence.
State Investment House, Inc. vs. Court of Appeals
G.R. No. 101163, January 11, 1993
FACTS:
Nora B. Moulic (Moulic) issued to Corazon Victoriano, as security
for pieces of jewelry to be sold on commission, 2 post-dated Equitable Banking
Corporation checks in the amount of P50,000 each, one dated August 30, 1979
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS28
and the other, September 30, 1979. Thereafter, the payee negotiated the
checks to the State Investment House Inc. (SIHI). 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. On December 20, 1979, SIHI
allegedly notified Moulic of the dishonor of the checks and requested that it
be paid in cash instead, although Moulic avers that no such notice was given
to her.
On October 6, 1983, SIHI sued to recover the value of the checks
plus attorney's fees and expenses of litigation. In her Answer, Moulic contends
that she incurred no obligation on the checks because the jewelry was never
sold and the checks were negotiated without her knowledge and consent. She
also instituted a Third-Party Complaint against Corazon Victoriano, who later
assumed full responsibility for the checks. The trial court dismissed the
Complaint as well as the Third-Party Complaint, and ordered SIHI to pay
Moulic P3,000.00 for attorney's fees. SIHI elevated the order of dismissal to
the Court of Appeals, but the appellate court affirmed the trial court’s decision
on the ground that the Notice of Dishonor to Moulic was made beyond the
period prescribed by the Negotiable Instruments Law and that even if SIHI did
serve such notice on Moulic within the reglementary period it would be of no
consequence as the checks should never have been presented for payment.
ISSUE:
Whether or not the alleged issuance of the post-dated checks as
security is a ground for the discharge of the instrument as against a holder in
due course.
HELD:
Section 119 of the Negotiable Instruments Law outlined the
grounds in which an instrument is discharged. The provision states that "A
negotiable instrument is discharged: (a) By payment in due course by or on
behalf of the princiWhether the post-dated checks, issued as security, is a
ground for the discharge of the instrument as against a holder in due course.
pal debtor; (b) By payment in due course by the party accommodated, where
the instrument is made or accepted for his accommodation; (c) By the
intentional cancellation thereof by the holder; (d) By any other act which will
discharge a simple contract for the payment of money; (e) When the principal
debtor becomes the holder of the instrument at or after maturity in his own
right." Obviously, Moulic may only invoke paragraphs (c) and (d) as possible
grounds for the discharge of the instrument. But, the intentional cancellation
contemplated under paragraph (c) is that cancellation effected by destroying
the instrument either by tearing it up, burning it, or writing the word
"cancelled" on the instrument. The act of destroying the instrument must also
be made by the holder of the instrument intentionally. Since Moulic failed to
get back possession of the post-dated checks, the intentional cancellation of
the said checks is altogether impossible. On the other hand, the acts which will
discharge a simple contract for the payment of money under paragraph (d) are
determined by other existing legislations since Section 119 does not specify
what these acts are, e.g., Art. 1231 of the Civil Code which enumerates the
modes of extinguishing obligations. Again, none of the modes outlined therein
is applicable in the instant case as Section 119 contemplates of a situation
where the holder of the instrument is the creditor while its drawer is the
debtor. Herein, the payee, Corazon Victoriano, was no longer Moulic's creditor
at the time the jewelry was returned. Correspondingly, Moulic may not
unilaterally discharge herself from her liability by the mere expediency of
withdrawing her funds from the drawee bank. She is thus liable as she has no
legal basis to excuse herself from liability on her checks to a holder in due
course.
Republic of the Philippines vs. Philippine National Bank
G.R. No. L-16106, December 30, 1961
FACTS:
On September 25, 1957, the Republic of the Philippines (RP) filed
before the Court of First Instance of Manila a complaint for escheat of certain
unclaimed bank deposits balances under the provisions of Act No. 3936
against several banks, among them the First National City Bank of New York
(FNCB). It was prayed that all credits and deposits held by defendant banks in
favor of persons known to be dead or who have not made further deposits or
withdrawals during the period of 10 years or more be escheated to the RP by
ordering defendant banks to deposit them to its credit with the Treasurer of
the Philippines. In its answer, FNCB claims that it has inadvertently included in
its report certain items which were not credits or deposits within the
contemplation of Act No. 3936 and prayed that said items be not included in
the claim of plaintiff.
The court a quo rendered judgment holding that cashier’s or
manager’s checks and demand drafts as those which defendants wants
excluded from the complaint come within the purview of Act No. 3936, but
not the telegraphic transfer payment orders which are of different category.
But after a motion to reconsider was filed by defendant, the court a quo
changed its view and held that even said demand drafts do not come within
the purview of said Act. The Plaintiff appealed claiming that under Section 1 of
the Act, “unclaimed balances” include credits or deposits of money, bullion,
security or other evidence of indebtedness of any kind, and interest thereon
with banks.
ISSUE:
Whether or not demand drafts and telegraphic orders come within
the meaning of the term “credits” or “deposits” employed in the law.
HELD:
The term “credit” in its usual meaning is a sum credited on the
books of a company to a person who appears to be entitled to it. It
presupposes a creditor-debtor relationship, and may be said to imply ability,
by reason of property or estates to make a promised payment. It is the
correlative debt or indebtedness, and that which is due to any person as
distinguished from that which he asks.
A demand draft is a bill of exchange payable on demand.
Considered as a bill of exchange, a draft is said to be an order by, one person
on another to pay a sum of money therein mentioned to a third person, on
demand or at a future time therein specified. As a matter of fact, the term
draft is often used, and is the common term, for all bills of exchange. And the
words “draft” and “bill of exchange” are used indiscriminately. A bill of
exchange within the meaning of our Negotiable Instruments Law does not
operate as an assignment of funds in the hands of the drawee who is not liable
on the instrument until he accepts it. With regard to drafts or bills of exchange
there is need that they be presented either for acceptance or for payment
within a reasonable time after their issuance or after last negotiation thereof
as the case may be. Failure to make such presentment will discharge the
drawer from liability or to the extent of the loss caused by the delay.
A cashier’s or manager’s check is a primary obligation of the bank
which issues it and constitutes its written promise to pay upon demand.
In a telegraphic payment order, being a transaction for the
establishment of a telegraphic or cable transfer the agreement to remit
creates a contractual obligation and has been termed a purchase and sale
transaction. The purchaser of a telegraphic transfer upon making payment
completes the transaction insofar as he is concerned though insofar as the
remitting bank is concerned the contract is executor until the credit is
established.
New Pacific Timber vs. Judge Seneris (G.R. No. L-41764 December 19, 1980)
FACTS:
Ricardo A. Tong filed a complaint for collection of money against
New Pacific Timber & Supply Co. Inc. Parties entered into an amicable
settlement stating that, petitioner (NPTSCI) will pay to private respondent
(Tong) P54,500.00 at 6% interest per annum and P6,000.00 as attorney's fee of
which P5,000.00 has been paid. From this, Judge Seneris rendered a
compromise judgment. However, petitioner failed to pay the judgment
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS29
obligation, hence, a writ of execution worth ₱63,130.00 was issued levied on
its personal properties. Before the date of the auction sale, petitioner
deposited with the Clerk of Court in his capacity as the Ex-Officio Sheriff
₱50,000.00 in Cashier's Check of the Equitable Banking Corporation and
₱13,130.00 in cash for a total of P63,130.00. However, Tong refused to accept
the check and the cash and requested for the auction sale to proceed. The
properties were sold for only ₱50,000.00 to the highest bidder with a
deficiency of ₱13,130.00.
Petitioner filed an ex-parte motion for issuance of certificate of
satisfaction of judgment which Judge Seneris denied. He cited Article 1249 of
the New Civil Code which provides that payments of debts shall be made in
the currency which is the legal tender of the Philippines and Section 63 of the
Central Bank Act which provides that checks representing deposit money do
not have legal tender power. He also cited Article 1248 of the New Civil Code
which provides that creditor cannot be compelled to accept partial payment
unless there is an express stipulation to the contrary.
ISSUE: Whether a check can be considered a valid payment of a judgment
obligation
RULING:
YES. It is a well-known and accepted practice in the business sector
that a Cashier's Check is deemed cash. Moreover, since the check has been
certified by the drawee bank, this certification implies that the check is
sufficiently funded in the drawee bank and the funds will be applied whenever
the check is presented for payment. The object of certifying a check is to
enable the holder to use it as money. When the holder procures the check to
be certified, it operates as an assignment of a part of the funds to the
creditors. Hence, the exception provided in Section 63 of the Central Bank Act
which states that checks which have been cleared and credited to the account
of the creditor shall be equivalent to a delivery to the creditor in cash the
amount equal to that which is credited to his account. The Cashier's Check and
the cash are valid payment of the obligation of the petitioner. The private
respondent has no valid reason to refuse the acceptance of the check and cash
as full payment of the obligation.
PNB vs. National City Bank of New York
Facts:
Unknown persons claiming to be associated with Pangasinan
Transportation Company paid checks to Motor Services Company as part of an
agreement in payment for tires, and the latter believed the signatures on the
check were genuine. Said checks were later deposited in the company’s
account in National City Bank of New York (NCBNY) and were cleared. The PNB
then credited the NCBNY the amounts in the checks. Later, PNB discovered
that the signatures in the check were forged. It then demanded
reimbursement of the amount it credited to NCBNY.
Issue: Whether acceptance is the same as payment
Ruling:
No. A check is a bill of exchange payable on demand and only the
rules governing bills of exchange payable on demand are applicable to it,
according to section 185 of the Negotiable Instruments Law.Acceptance is a
step unnecessary for bills of exchange payable on demand (Sec.
143).Acceptance implies, subsequent negotiation of the instrument. From the
moment a check is paid it is withdrawn from circulation. The payment of a
check does not include or imply its acceptance in the sense that this word is
used in Section 62 of the Negotiable Instruments Law. Payment (in checks) is a
final act which extinguishes a bill while acceptance (in certified checks) is a
promise to pay in the future and it continues the life of the bill.
ASSOCIATED BANK vs. CA
FACTS:
The Province of Tarlac was disbursing funds to Concepcion
Emergency Hospital via checks drawn against its account with the Philippine
National Bank (PNB). These checks were drawn payable to the order of
Concepcion Emergency Hospital. Fausto Pangilinan was the cashier of
Concepcion Emergency Hospital in Tarlac until his retirement in 1978. He used
to handle checks issued by the provincial government of Tarlac to the said
hospital. However, after his retirement, the provincial government still
delivered checks to him until its discovery of this irregularity in 1981. By
forging the signature of the chief payee of the hospital (Dr. Adena Canlas),
Pangilinan was able to deposit 30 checks amounting to ₱203,000.00 to his
account with the Associated Bank. When the province of Tarlac discovered this
irregularity, it demanded PNB to reimburse the said amount. PNB in turn
demanded Associated Bank to reimburse said amount. PNB averred that
Associated Bank is liable to reimburse because of its indorsement borne on
the face of the checks: “All prior endorsements guaranteed ASSOCIATED
BANK.”
ISSUE: What are the liabilities of each party?
HELD: Since the checks involved in this case are order instruments, both banks
are liable in the following:
Associated Bank
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 (the payee hospital) is essential to transfer title to
the same instrument. When the holder’s indorsement is forged, all
parties prior to the forgery may raise the real defense of forgery
against all parties subsequent thereto.
A collecting bank (Associated Bank) where a check is
deposited and which indorses the check upon presentment with
the drawee bank (PNB), is such an indorser. So even if the
indorsement on the check deposited by the banks’s client is forged,
Associated Bank is bound by its warranties as an indorser and
cannot set up the defense of forgery as against the PNB.
However, If it can be shown that the drawee bank (PNB)
unreasonably delayed in notifying the collecting bank (Associated
Bank) of the fact of the forgery so much so that the latter can no
longer collect reimbursement from the depositor-forger.
PNB
The drawee bank (PNB), is under strict liability to pay
the check to the order of the payee (Provincial Government of
Tarlac). Payment under a forged indorsement is not to the drawer’s
order. When the drawee bank pays a person other than the payee,
it does not comply with the terms of the check and violates its duty
to charge its customer’s (the drawer) account only for properly
payable items. Since the drawee bank did not pay a holder or other
person entitled to receive payment, it has no right to
reimbursement from the drawer. The general rule then is that the
drawee bank may not debit the drawer’s account and is not
entitled to indemnification from the drawer. The risk of loss must
perforce fall on the drawee bank.
However,if the drawee bank (PNB) can prove a failure by
the customer/drawer (Tarlac Province) to exercise ordinary care
that substantially contributed to the making of the forged
signature, the drawer is precluded from asserting the forgery.
In sum, by reason of Associated Bank’s indorsement and warranties
of prior indorsements as a party after the forgery, it is liable to refund the
amount to PNB. The Province of Tarlac can ask reimbursement from PNB
because the Province is a party prior to the forgery. Hence, the instrument is
inoperative. HOWEVER, it has been proven that the Provincial Government of
Tarlac has been negligent in issuing the checks especially when it continued to
deliver the checks to Pangilinan even when he already retired. Due to this
contributory negligence, PNB is only ordered to pay 50% of the amount or half
of ₱203,000.
BUT THEN AGAIN, since PNB can pass its loss to Associated Bank (by reason of
Associated Bank’s warranties), PNB can ask the 50% reimbursement from
Associated Bank and Associated Bank can ask reimbursement from Pangilinan.
BATAAN CIGAR vs. CA
FACTS:
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS30
Bataan Cigar & Cigarette Factory, Inc. (BCCFI), engaged with King
Tim Pua George, to deliver 2,000 bales of tobacco leaf. BCCFI issued post
dated crossed checks in exchange. Trusting King's words, BCCFI issued another
post-dated crossed check for another purchase of tobacco leaves. During
these times, King was dealing with State Investment House Inc.. On two
separate occasions, King sold the post-dated crossed checks to SIHI, that was
drawn by BCCFI in favor of King. Because King failed to deliver the leaves, BCFI
issued a stop payment to all the checks, including those sold to SIHI. SIHI then
failing to claim, filed a claim against BCCFI. The RTC ruled that SIHI is a holder
in due course and can collect the checks issued by BCCFI.
ISSUE: Whether SIHI is a holder in due course.
RULING:
The SC held that SIHI is not a holder in due course. The purpose of
crossed checks is to avoid the bouncing or encashing of forged checks. Cross
checks have the following effects: it cannot be encashed but only deposited in
a bank; it can only be negotiated on its respective bank once; it serves as a
warning to the holder that it has been issued for a definite purpose, thus
making SIHI not a holder in due course. However, SIHI can still collect from the
immediate indorser, George King.
STATE INVESTMENT HOUSE v. IAC, GR No. 72764, 1989-07-13
Facts:
New Sikatuna Wood Industries, Inc. requested for a loan from private
respondent Harris Chua. The latter agreed to grant the same subject to the
condition that the former should wait until December 1980 when he would
have the money.
In view of this agreement, private respondent-wife, Anita Peña Chua issued
three (3) crossed checks payable to New Sikatuna Wood Industries, Inc. all
postdated December 22, 1980. The total value of the three (3) postdated
checks amounted to P299,450.00.
Subsequently, New Sikatuna Wood Industries, Inc. entered into an agreement
with herein petitioner State Investment House, Inc. whereby for and in
consideration of the sum of P1,047,402.91 under a deed of sale, the former
assigned and discounted with petitioner... eleven (11) postdated checks
including the aforementioned three (3) postdated checks issued by herein
private respondent-wife Anita Peña Chua to New Sikatuna Wood Industries,
Inc.
When the three checks issued by private respondent Anita Peña Chua were
allegedly deposited by petitioner, these checks were dishonored by reason of
"insufficient funds", "stop payment" and "account closed", respectively.
Petitioner claims that despite demands on private respondent Anita Peña to
make good said checks, the latter failed to pay the same necessitating the
former to file an action for collection against the latter and her husband Harris
Chua
Private respondents-defendants filed a third party complaint against New
Sikatuna Wood Industries, Inc. for reimbursement and indemnification in the
event that they be held liable to petitioner-plaintiff. For failure of third party
defendant to... answer the third party complaint despite due service of
summons, the latter was declared in default.
RTC ruled against herein private respondents-spouses While CA re versed such
decision.
Petitioner submits that at the time of the negotiation and endorsement of the
checks in question by New Sikatuna Wood Industries, it had no knowledge of
the transaction and/or arrangement made between the latter and private
respondents.
Issue:
Whether or not petitioner is a holder in due course as to entitle it to proceed
against private respondents for the amount stated in the dishonored checks.
Ruling:
No. CA is affirmed.
State Investment is not a holder in due course and cannot allege that it had no
knowledge of the transaction between New Sikatuna and Chua because the
Checks were crossed checks. When it rediscounted such knowing that those
were crossed checks, it was knowingly violating the avowed intention of
crossing the checks. Its failure to inquire the purpose of the crossed checks
prevents him from being in good faith, thus is not a holder in due course.
The three subject checks in the case at bar had been crossed generally and
issued payable to New Sikatuna Wood Industries, Inc. which could only mean
that the drawer had intended the same for deposit only by the rightful person,
i.e., the payee named... therein. Apparently, it was not the payee who
presented the same for payment and therefore, there was no proper
presentment, and the liability did not attach to the drawer. Thus, in the
absence of due presentment, the drawer did not become... liable.
Consequently, no right of recourse is available to petitioner against the drawer
of the subject checks, private respondent wife, considering that petitioner is
not the proper party authorized to make presentment of the... checks in
question.
PEOPLE v. DAVID G. NITAFAN, GR No. 75954, 1992-10-22
Facts:
Private respondent K.T. Lim was charged before respondent court with
violation of B.P. 22
On 18 July 1986, private respondent moved to quash the Information on the
ground that the facts charged did not constitute a felony as B.P. 22 was
unconstitutional and that the check he issued was a memorandum check
which was in the nature of a promissory note, perforce,... civil in nature. On 1
September 1986, respondent judge, ruling that B.P. 22 on which the
Information was based was unconstitutional, issued the questioned Order
quashing the Information. Hence, this petition for review on certiorari filed by
the Solicitor General in... behalf of the government.
Private respondent contends that although a memorandum check may not
differ in form and appearance from an ordinary check, such a check is given by
the drawer to the payee more... in the nature of a memorandum of
indebtedness and, as such, partakes of the nature of a promissory note, and
should be sued upon in a civil action.
Issues:
Whether a memorandum check issued post-dated in partial payment of a pre-
existing obligation is within the coverage of B.P. 22
Ruling:
We are not persuaded.
A memorandum check is in the form of an ordinary check, with the word
"memorandum", "memo" or "mem" written across its face, signifying that the
maker or drawer engages to pay the bona fide holder absolutely, without any
condition concerning its... presentment.[6] Such a check is an evidence of debt
against the drawer, and although may not be intended to be presented,[7] has
the same effect as an ordinary... check,[8] and if passed to a third person, will
be valid in his hands like any other check.
It is clear that a memorandum check, which is in the form of an ordinary
check, is still drawn on a bank and should therefore be distinguished from a
promissory note, which is but a mere promise to pay. If private respondent
seeks to equate... memorandum check with promissory note, as he does, to
skirt the provisions of B.P. 22, he could very well have issued a promissory
note, and this would have exempted him from the coverage of the law. In the
business community, a promissory note, certainly, has less impact and...
persuadability than a check.
A memorandum check must therefore fall within the ambit of B.P. 22 which
does not distinguish but merely provides that "[a]ny person who makes or
draws and issues any check knowing at the... time of issue that he does not
have sufficient funds in or credit with the drawee bank x x x which check is
subsequently dishonored x x x shall be punished by imprisonment x x x x" Ubi
lex non distinguit nec nos distinguere debemus.
a memorandum check may carry with it the understanding that it is not to be
presented at the bank but will be redeemed by the maker himself when the
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS31
loan falls due. This understanding may be manifested by writing across the
check "Memorandum", "Memo"... or "Mem". However, with the promulgation
of B.P. 22, such understanding or private arrangement may no longer prevail
to exempt it from penal sanction imposed by the law. To require that the
agreement surrounding the issuance of checks be first looked into and
thereafter exempt... such issuance from the punitive provisions of B.P. 22 on
the basis of such agreement or understanding would frustrate the very
purpose for which the law was enacted - to stem the proliferation of unfunded
checks. After having effectively reduced the incidence of worthless checks...
changing hands, the country will once again experience the limitless
circulation of bouncing checks in the guise of memorandum checks if such
checks will be considered exempt from the operation of B.P. 22.
SPS. GEORGE MORAN AND LIBRADA P. MORAN v. CA, GR No. 105836, 1994-
03-07
Facts:
Petitioner spouses George and Librada Moran are the owners of the Wack-
Wack Petron gasoline station located at Shaw Boulevard, corner Old Wack-
Wack Road, Mandaluyong, Metro Manila. 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.
Petitioner spouses Moran maintained three joint accounts with respondent
Citytrust Banking Corporation. As a special privilege to the Morans, a pre-
authorized transfer (PAT) agreement was entered into by the parties. The PAT
letter-agreement contained the following provisions: (1) xxx “the checks would
be honored if the savings account has sufficient balance to cover the
overdraft; xxx (3) that the bank has the right to refuse to effect transfer of
funds at their sole and absolute option and discretion; (4) Citytrust is free and
harmless for any and all omissions or oversight in executing this automatic
transfer of funds.” On December 12, 1983, petitioners, through Librada
Moran, drew a check payable to Petrophil Corporation. The next day,
petitioners issued another check in favor of the same corporation. Later, the
bank dishonored the checks due to “insufficiency of funds”. As a result,
Petrophil refused to deliver the orders of petitioners on a credit. The non-
delivery of gasoline forced petitioners to temporarily stop business operations.
Petitioners wrote Citytrust claiming the dishonor of the checks caused them
besmirched business and personal reputation, shame and anxiety. Hence, they
were contemplating filing legal actions, unless the bank clears their name and
paid for moral damages. The trial court dismissed the complaint. The CA
affirmed
Issues:
Whether or not petitioners had sufficient funds in their accounts when the
bank dishonored the checks in question
Ruling:
It is clear that the available balance on December 14, 1983 was used by the
bank in determining whether or not there was sufficient cash deposited to
fund the two checks, although what was... stamped on the dorsal side of the
two checks in question was "DAIF/12-15-83," since December 15, 1983 was
the actual date when the, checks were processed. As earlier stated, when
petitioners' checks were dishonored due to insufficiency of funds, the
available balance of Savings
Account No. 1037001372, which was the subject of the PAT agreement, was
not enough to cover either of the two checks. On December 14, 1983, when
PNB, Pandacan branch presented the checks for collection, the available
balance for Savings Account No. 1037001372, to repeat, was... only
P26,104.30 while Current Account No. 37-0006-7 had no available balance. It
was only on December 15, 1983 at around ten o'clock in the morning that the
necessary funds were deposited, which unfortunately was too late to prevent
the dishonor of the checks.
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 checks he 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
immediate payment.
HONGKONG v. CECILIA DIEZ CATALAN, GR No. 159590, 2004-10-18
Facts:
respondent filed before the RTC, a complaint for a sum of money with
damages against petitioner HSBANK... due to HSBANK's alleged wanton refusal
to pay her the value of five HSBANK checks issued by Frederick Arthur
Thomson
(Thomson) amounting to HK$3,200,000.00.
The checks when deposited were returned by HSBANK purportedly for reason
of "payment stopped" pending confirmation, despite the fact that the checks
were duly funded. On March 18, 1997, Thomson wrote a letter to a certain
Ricky Sousa[7] of HSBANK confirming... the checks he issued to Catalan and
requesting that all his checks be cleared. On March 20, 1997, Thomson wrote
another letter to Sousa of HSBANK requesting an advice in writing to be sent
to the Philippine National Bank, through the fastest means, that the checks he
previously... issued to Catalan were already cleared. Thereafter, Catalan
demanded that HSBANK make good the checks issued by Thomson.
Subsequently, Thomson died and Catalan forwarded her demand to HSBC
TRUSTEE. Catalan sent photocopies of the returned checks to HSBC TRUSTEE.
Not satisfied, HSBC TRUSTEE... through deceit and trickery, required Catalan,
as a condition for the acceptance of the checks, to submit the original copies
of the returned checks, purportedly, to hasten payment of her claim. HSBC
TRUSTEE succeeded in its calculated deception because on April 21, 1999,...
Catalan and her former counsel went to Hongkong at their own expense to
personally deliver the originals of the returned checks to the officers of HSBC
TRUSTEE, anxious of receiving the money value of the checks but HSBC
TRUSTEE despite receipt of the original checks, refused to... pay Catalan's
claim.
The unsuspecting Catalan left the originals of the checks with HSBC TRUSTEE
and was given only an acknowledgment... receipt. Catalan made several
demands and after several more follow ups, on August 16, 1999, Phoenix Lam,
Senior Vice President of HSBC TRUSTEE, in obvious disregard of her valid claim,
informed Catalan that her claim is disapproved. No reason or explanation
whatsoever was made... why her claim was disapproved, neither were the
checks returned to her. Catalan appealed for fairness and understanding, in
the hope that HSBC TRUSTEE would act fairly and justly on her claim but these
demands were met by a stonewall of silence
HSBANK claims that Catalan has no cause of action because under Section 189
of the Negotiable Instruments Law, "a check of itself does not operate as an
assignment of any part of the funds to the credit of the drawer with the bank,
and the bank is not liable to the holder unless... and until it accepts or certifies
it."
Issues:
Issue: Whether or not the claim has no cause of action under Sec 189 of NIL.
Ruling:
We are convinced that the allegations therein are in the nature of an action
based on tort under Article 19 of the Civil Code. It is evident that Catalan is
suing HSBANK and HSBC TRUSTEE for unjustified and... willful refusal to pay
the value of the checks.
HSBANK is not being sued on the value of the check itself but for how it acted
in relation to Catalan's claim for payment despite the repeated directives of
the drawer Thomson to recognize the check the latter issued. Catalan may...
have prayed that she be paid the value of the checks but it is axiomatic that
what determines the nature of an action, as well as which court has
jurisdiction over it, are the allegations of the complaint, irrespective of
whether or not the plaintiff is entitled to recover upon... all or some of the
claims asserted therein.
MARCELO A. MESINA VS. INTERMEDIATE APPELLATE COURT
G.R. NO. 70145 NOVEMBER 13, 1986, 145 SCRA 497
FACTS:
Jose Go maintains an account with Associated Bank. He needed to transfer
P800,000.00 from Associated Bank to another bank but he realized that he
does not want to be carrying that cash so he bought a cashier’s check from
Associated Bank worth P800,000.00. Associated Bank then issued the check
but Jose Go forgot to get the check so it was left on top of the desk of the bank
manager. The bank manager, when he found the check, entrusted it to Albert
Uy for the later to safe keep it. The check was however stolen from Uy by a
certain Alexander Lim.
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS32
Jose Go learned that the check was stolen so he made a stop payment order
against the check. Meanwhile, Associated Bank received the subject check
from Prudential Bank for clearing.
Apparently, the check was presented by a certain Marcelo Mesina for
payment. Associated Bank dishonored the check.
When asked how Mesina got hold of the check, he merely stated that Alfredo
Lim, who’s already at large, paid the check to him for “a certain transaction”.
ISSUE:
Whether or not Mesina is a holder in due course.
HELD:
No. Admittedly, Mesina became the holder of the cashier’s check as endorsed
by Alexander Lim who stole the check. Mesina however refused to say how
and why it was passed to him. Mesina had therefore notice of the defect of his
title over the check from the start. The holder of a cashier’s check who is not a
holder in due course cannot enforce such check against the issuing bank which
dishonors the same. The check in question suffers from the infirmity of not
having been properly negotiated and for value by Jose Go who is the real
owner of said instrument
**A person who became the holder of a cashier's check as endorsed by the
person who stole it and who refused to say how and why it was passed to him
is not a holder in due course.
JOSEPHINE DOMAGSANG VS. CA AND THE PEOPLE
G.R. NO. 139292. DECEMBER 5, 2000
FACTS:
Petitioner approached Ignacio Garcia, an Assistant Vice President of
METROBANK, to ask for financial assistance. Garcia accommodated petitioner
and gave the latter a loan in the sum of P573,800.00. In exchange, petitioner
issued and delivered to the complainant 18 postdated checks for the
repayment of the loan. When the checks were, in time, deposited, the
instruments were all dishonored by the drawee bank for this reason:
“Account closed.” The complainant demanded payment allegedly by calling up
petitioner at her office. Failing to receive any payment for the value of the
dishonored checks, the complainant referred the matter to his lawyer who
supposedly wrote petitioner a letter of demand but that the latter ignored the
demand.(Note: the said demand letter was not presented as evidence)Hence,
18 cases for the violation of BP 22 were filed against Domagsang.
RTC Ruling as affirmed by CA:
Petitioner was convicted by the Regional Trial Court of Makati of having
violated Anti-Bouncing Check Law, on eighteen (18) counts, and sentenced her
to suffer the penalty of One (1) Year imprisonment for each count. The
judgment, when appealed to the Court of Appeals was affirmed in toto by the
appellate court. A petition for certiorari was filed by petitioner to SC.
Defense raised by Domagsang:
There was no proper written letter of demand served upon her person, thus
she must not be charged for the violation of BP 22. According to Domagsang,
even if she was informed of the dishonour by Garcia through a telephone call,
the same is not sufficient to convict her.
ISSUE:
Whether or not lack of written letter of demand is a ground for acquittal from
the criminal violation of BP 22.
SC RULING:
The SC ruled in the positive.
Ratio / Doctrine:
To secure conviction for the vilation of BP 22, the prosecution must establish
the fact that the check was dishonoured AND that the accused has been
notified in writing of the fact of dishonour.
While, indeed, Section 2 of B.P. 22 does not state that the notice of dishonor
be in writing, taken in conjunction, however, with Section 3 of the law, i.e.,
"that where there are no sufficient funds in or credit with such drawee bank,
such fact shall always be explicitly stated in the notice of dishonor or refusal,"
a mere oral notice or demand to pay would appear to be insufficient for
conviction under the law.
The Court is convinced that both the spirit and letter of the Bouncing Checks
Law would require for the act to be punished thereunder not onlythat the
accused issued a check that is dishonored, but thatlikewise the accused has
actually been notified in writing of the fact of dishonour.
Evidently, the appellate court did not give weight and credence to the
assertion that a demand letter was sent by a counsel of the complainant
because of the failure of the prosecution to formally offer it in evidence.
Courts are bound to consider as part of the evidence only those which are
formally offered,for judges must base their findings strictly on the evidence
submitted by the parties at the trial. Without the written notice of dishonor,
there can be no basis, considering what has heretofore been said, for
establishing the presence of "actual knowledge of insufficiency of funds.
Related Doctrine:
There is no prima facie presumption of the knowledge of dishonour in BP 22,
thus notice of dishonour (written) is required to secure conviction.
The law enumerates the elements of the crime to be :
(1) the making, drawing and issuance of any check to apply for account
or for value;
(2) the knowledge of the maker, drawer, or issuer that at the time of
issue he does not have sufficient funds in or credit with the drawee
bank for the payment of the check in full upon its presentment; and
(3) the subsequent dishonor of the check by the drawee bank for
insufficiency of funds or credit or dishonor for the same reason had
not the drawer, without any valid cause, ordered the bank to stop
payment.
There is deemed to be a prima facie evidence of knowledge on the part of the
maker, drawer or issuer of insufficiency of funds in or credit with the drawee
bank of the check issued if the dishonored check is presented within 90 days
from the date of the check and the maker or drawer fails to pay thereon or to
make arrangement with the drawee bank for that purpose.
The statute has created the prima facie presumption evidently because
"knowledge" which involves a state of mind would be difficult to establish. The
presumption does not hold, however, when the maker, drawer or issuer of the
check pays the holder thereof the amount due thereon or makes arrangement
for payment in full by the drawee bank of such check within 5 banking days
after receiving notice that such check has not been paid by the drawee bank.
It has been observed that the State, under this statute, actually offers the
violator a compromise by allowing him to perform some act which operates to
preempt the criminal action, and if he opts to perform it the action is abated.
This was also compared to certain laws allowing illegal possessors of firearms a
certain period of time to surrender the illegally possessed firearms to the
Government, without incurring any criminal liability. In this light, the full
payment of the amount appearing in the check within five banking days from
notice of dishonor is a complete defense. The absence of a notice of dishonor
necessarily deprives an accused an opportunity to preclude a criminal
prosecution. Accordingly, procedural due process clearly enjoins that a
notice of dishonor be actually served on petitioner. Petitioner has a right to
demand – and the basic postulates of fairness require – that the notice of
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS33

dishonor be actually sent to and received by her to afford her the

opportunity to avert prosecution under B.P. Blg. 22.

RAMOS V. COURT OF APPEALS

[G.R. NO.L-64129-31. NOVEMBER 18, 1991]
FACTS:
Petitioner, as acting bank manager, allowed withdrawals on uncleared checks
deposited into the accounts of her co-accused. Petitioner repeatedly granted
accommodations in at least fourteen (14) instances and despite her
knowledge that prior checks deposited by her co-accused turned out to be
unfunded.

ISSUE:
Whether or not petitioner is engaged in “check kiting” which amounts to
estafa with unfaithfulness or abuse of confidence.

RULING:
YES. The act of utilizing the float status of uncleared checks constitutes “check
kiting”. Check kiting is the deliberate issuance of a check for which there
is not sufficient cash to pay the stated amount. The mechanics of
this fraud scheme are as follows:
1. Write a check for which there is not sufficient cash in the
payer's account.
2. Create a checking account at a different bank.
3. Deposit the fraudulent check in the checking account that was
just opened.
4. Withdraw the funds from the new checking account.
The crime committed by the accused was estafa with unfaithfulness or abuse
of confidence under Article 315 subparagraph 1 (b) of the Revised Penal Code.
In this case, petitioner acted maliciously or in bad faith by assuming to dispose
the money of the bank as if it were her own, thereby committing conversion
and a clear breach of trust. She performed an indispensable act necessary to
enable her and her co-accused to accomplish the criminal purpose they had in
mind.