GONZALES v.
RCBC
FACTS:
 Gonzales was an employee of RCBC as New Accounts Clerk in the Retail
Banking Department at its Head Office.
 A foreign check in the amount of $7,500 was drawn by Dr. Don Zapanta of the
Ade Medical Group of Los Angeles, California, against the drawee bank
Wilshire Center Bank, N.A., of Los Angeles, California, U.S.A.
o Check payable to Gonzales’ mother, defendant Eva Alviar. Alviar
then endorsed this check.
 RCBC gives special accommodations to its employees to receive the check’s
value without awaiting the clearing period, Gonzales presented the foreign
check to Olivia Gomez, the RCBC’s Head of Retail Banking.
 After examining this, Olivia Gomez requested Gonzales to endorse it
which she did.
 Olivia Gomez then acquiesced to the early encashment of the check and
signed the check but indicated thereon her authority of "up to ₱17,500.00
only".
 Afterwards, Olivia Gomez directed Gonzales to present the check to RCBC
employee Carlos Ramos and procure his signature. After inspecting the
check, Carlos Ramos also signed it with an "ok" annotation.
 After getting the said signatures Gonzales presented the check to Rolando
Zornosa, Supervisor of the Remittance section of the Foreign Department of
the RCBC Head Office, who after scrutinizing the entries and signatures
therein authorized its encashment. Gonzales then received its peso
equivalent of ₱155,270.85.
 RCBC then tried to collect the amount of the check with the drawee bank but
on two occasions dishonored the check because of "END. IRREG" or irregular
indorsement. RCBC again sent the check to the drawee bank, but this time
the check was returned due to "account closed".
 Unable to collect, RCBC demanded from Gonzales the payment of the peso
equivalent of the check that she received. She agreed that payment be done
through salary deduction. – she resigned (only paid for around P12k)
 RCBC sent a demand letter to Alviar for the payment of her obligation but she
never responded.
ISSUE: W/N RCBC can hold prior endorsers Alviar and Gonzales liable on the
instrument - NO
 The check was dishonored because of "End. Irregular," i.e., an irregular
endorsement. It is absolutely undeniable that only the signature of Olivia
Gomez, an RCBC employee, was a qualified endorsement because of the
phrase "up to ₱17,500.00 only." The Court agrees with the petitioner that the
foreign drawee bank would not have dishonored the check had it not been for
this signature of Gomez with the same phrase written by her.
 A subsequent party which caused the defect in the instrument cannot have
any recourse against any of the prior endorsers in good faith. Eva Alviar’s and
the petitioner’s liability to subsequent holders of the foreign check is governed
by the Negotiable Instruments Law Sec 66.
 And, in addition, he engages that, on due presentment, it shall be accepted or
paid, or both, as the case may be, according to its tenor, and that if it be
dishonored and the necessary proceedings on dishonor be duly taken, he will
pay the amount thereof to the holder, or to any subsequent indorser who may
be compelled to pay it.
 Under Section 66, the warranties for which Alviar and Gonzales are liable as
general endorsers in favor of subsequent endorsers extend only to the state
of the instrument at the time of their endorsements, specifically, that the
instrument is genuine and in all respects what it purports to be; that they
have good title thereto; that all prior parties had capacity to contract;
and that the instrument, at the time of their endorsements, is valid and
subsisting.
 This provision, however, cannot be used by the party which introduced a
defect on the instrument, such as respondent RCBC in this case, which
qualifiedly endorsed the same, to hold prior endorsers liable on the instrument
because it results in the absurd situation whereby a subsequent party may
render an instrument useless and inutile and let innocent parties bear the loss
while he himself gets away scot-free.
 The holder or subsequent endorser who tries to claim under the instrument
which had been dishonored for "irregular endorsement" must not be the
irregular endorser himself who gave cause for the dishonor. Otherwise, a clear
injustice results when any subsequent party to the instrument may simply
make the instrument defective and later claim from prior endorsers who have
no knowledge or participation in causing or introducing said defect to the
instrument, which thereby caused its dishonor.
 RCBC, which caused the dishonor of the check upon presentment to the
drawee bank, through the qualified endorsement of its employee, Olivia
Gomez, cannot hold prior endorsers, Alviar and Gonzales in this case, liable
on the instrument.
MBTC (formerly Asianbank) v BA Finance
Facts:
 Lamberto Bitanga obtained from resp BA Finance a loan worth Php 329,280.
To secure this, he mortgaged his car to respondent BA Finance. Said
mortgage contained the ff. stipulation:
o The MORTGAGOR covenants and agrees that he/it will cause the
property(ies) hereinabove mortgaged to be insured against loss or
damage by accident, theft and fire for a period of one year from
date hereof with an insurance company or companies acceptable to
the MORTGAGEE in an amount not less than the outstanding
balance of mortgage obligations and that he/it will make all loss, if
any, under such policy or policies, payable to the MORTGAGEE or
its assigns as its interest may appear .
 Bitanga thus had the car insured by Malayan Insurance Co., which issued a
policy containing this stipulation:
o Loss, if any shall be payable to BA FINANCE CORP. as its interest
may appear. It is hereby expressly understood that this policy or
any renewal thereof, shall not be cancelled without prior notification
and conformity by BA FINANCE CORPORATION.
  The car was stolen, therefore the insurance company issued a check
payable to the order of BA Finance AND Bitanga drawn against China
Banking Corp. It contained a notation For Deposit Account only.
 Without the indorsement of BA Finance, Bitanga deposited the check to his
account with Asianbank.
 In the meantime, Bitanga’s loan became past due, and despite demands, he
failed to settle it.
 BA Finance then found out about the abovementioned events and
demanded the payment of the value of the check from Asianbank. Hence, it
filed a complaint before the RTC of Makati for sum of money and damages
against Asianbank and Bitanga.
 RTC: Malayan is not privy to the contract between BA Finance and Bitanga,
and cannot be faulted for issuing the check payable to both BA Finance and
Bitanga. Asianbank was negligent in allowing Bitanga to deposit the check to
his account and withdraw the proceeds thereof, without the indorsement of
the co-payee, BA Finance.
 CA: Affirmed the RTC decision. Hence,the present petition for review on
certiorari.
Issues and Held:
 WoN petitioner was negligent in allowing the deposit of the crossed check-
YES
o Sec 41 of the NIL: Where an instrument is payable to the order of
two or more payees or indorsees who are not partners, all must
indorse unless the one indorsing has authority to indorse for the
others. (emphasis and underscoring supplied)
o Petitioner: It followed normal banking procedure.
o SC: The petitioner was negligent in allowing the deposit and
release of the proceeds of the crossed check despite the absence
of authority of Bitangas’ co-payee BA Finance to endorse it on its
behalf. In addition, petitioner dismissed the employee who allowed
the deposit of the check in Bitangas account.
o Petitioner: Associated Bank v. CA cannot be applied because there
is no forgery or unauthorized indorsement in the instant case, unlike
in Associated Bank.
o SC: It applies, since the payment of an instrument over a missing
indorsement is the equivalent of payment on a forged indorsement
or an unauthorized indorsement in itself in the case of joint payees.
o As has been repeatedly emphasized, the banking business is
imbued with public interest such that the highest degree of diligence
and highest standards of integrity and performance are expected of
banks in order to maintain the trust and confidence of the public in
general in the banking sector.
 WoN petitioner is liable to BA Finance for the full value of the check- YES.
o Petitioner: Its liability should only be ½ the amount covered by the
check as there is no indication that Bitanga and BA Finance are
solidary creditors to thus make them presumptively joint creditors
under the CC.
o SC: NIL and jurisprudence provide definitive justification for
petitioners’ full liability on the value of the check.
o In this case, petitioner is an indorser. As the collecting bank or last
indorser, it generally suffers the loss because it has 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 prior indorsements.
o Accordingly, one who credits the proceeds of a check to the
account of the indorsing payee is liable in conversion to the non-
indorsing payee for the entire amount of the check.
o Articles 1207 and 1208 of the Civil Code cannot be applied to the
present case as these are completely irrelevant. The obligation is
merely reflected in the instrument and whether the payees would
jointly share in the proceeds or not is beside the point.
o Moreover, granting petitioners appeal for partial liability would run
counter to the existing principles on the liabilities of parties on
negotiable instruments, particularly on Section 68 of the Negotiable
Instruments Law which instructs that joint payees who indorse are
deemed to indorse jointly and severally.
 WoN the exemplary damages awarded by the RTC run counter to Art. 2232
of the CC- NO.
o Petitioner: There is no finding that it acted in a wanton, fraudulent,
reckless, oppressive, or malevolent manner.
o SC: To reiterate, petitioner’s liability is based not on contract or
quasi-contract but on quasi-delict since there is no pre-existing
contractual relation between the parties. Article 2231 of the Civil
Code, which provides that in quasi-delict, exemplary damages may
be granted if the defendant acted with gross negligence, thus
applies.
*However, court lowered the interest from 12% per annum to 6% per annum
computed from the date of extrajudicial demand until finality of judgment. The
obligation in this case did not arise out of a loan or forbearance of money, goods, or
credit.
Ruling:
Affirmed with modification.
PEOPLE V. PUA TIONG TENG | Holder in Due Course, p. 124

Summary: Pua filed a complaint for sum of money against respondent spouses,
because several checks issued by the latter as payment for a loan were dishonored
upon presentment. Respondents denied obtaining a loan from Pua. CA ruled in favor
of respondents, giving credence to respondents’ defense that the checks were issued
for other people, not for petitioner Pua.
The Court ruled that since respondent had not denied the genuineness of these checks,
Sec. 16 of the NIL applies: when an instrument is no longer in the possession of the
person who signed it and it is complete in its terms, a valid and intentional delivery by
him is presumed until the contrary is proven.
Facts:
 Pua filed a complaint for a sum of money against respondent spouses Benito
Lo Bon Tiong and Caroline Siok Ching Teng. He asked for the amount of Php
8.5M covered by a check.
o The check was given by respondents to pay the loans they obtained
from her under a compounded interest agreement on various dates
in 1988.
o Since petitioner’s sister Lilian vouched for the spouses’ ability to pay,
she immediately acceded and lent money without requiring any
collateral except post-dated checks bearing the borrowed amounts.
o In all, respondent spouses issued 17 checks for Php 1,975,000.
These were all dishonored upon presentment to the drawee bank.
o When petitioner demanded payment, respondents asked for more
time because of their financial difficulties. Pua obliged, but reminded
respondent to pay from time to time.
o When they were ready to pay, they asked for a computation of their
total indebtedness. Pua found that it totaled Php 13,218,544.20.
Respondents asked for a reduction, and Pua obliged, wanting to be
paid as soon as possible. She reduced it to Php 8.5M.
o Respondents delivered an Asiatrust check bearing the reduced
amount with the assurance that the check was good. They asked that
the 17 dishonored checks be returned. Petitioner refused, saying that
she will only return them after the encashment of the Asiatrust check.
However, it was also dishonored.
 Respondents’ defense:
o Denied obtaining a loan from petitioner. They actually forged a
partnership that operated a mahjong business with petitioner’s sister
Lilian, with her to serve as capitalist and Caroline to act as the
cashier.
o Caroline agreed to use her personal checks to pay for the operational
expenses. Since she was not always around, she left Lilian with 5
pre-signed and consecutively numbered checks on the condition that
they will only be used for the business and in no circumstance will
the amount of the checks exceed Php 5,000.
o The two had a falling out which resulted in the dissolution of the
partnership. In the haste, Caroline forgot about the 5 pre-signed
checks. She only remembered when Lilian’s husband filed a
complaint for sum of money for the amounts in the checks against
her.
o Caroline categorically denied having completed the Asiatrust check,
as she had no checkwriter (the check was completed using one) and
always used her own handwriting.
o She could not have loaned the money with her husband since they
had been separated in fact for nearly 10 years. Benito corroborated
this statement, claiming that he had never met Pua.
o Also, that the 17 checks previously dishonored were intended for
different people. The complaint is designed to allow Lillian to recover
her losses in the foreign exchange business she had with Caroline in
the 1980s.
 RTC ruled in favor of the petitioner: The possession by respondent of the
checks signed by Caroline, under the NIL, raises the presumption that they
were issued and delivered for a valuable consideration. Asked the
respondents to pay the principal amount only since the interest was not
expressly stipulated.
 CA set aside the RTC decision: Asiatrust check was an incomplete delivered
instrument and that petitioner failed to prove the existence of respondents’
indebtedness.
 Hence, the petition for review on certiorari filed by Pua.
Issues and Held:
 WoN the CA erred in dismissing the petition- YES.
o CA: Petitioner failed to prove the respondents’ indebtedness.
o SC: In a suit for recovery of sum of money, the creditor has the
burden of proof to show that defendant had not paid her the amount
of the contracted loan. However, where the creditor possesses and
submits in evidence an instrument showing the indebtedness, a
presumption that the credit has not been satisfied arises in her favor.
Thus, the defendant is, required to overcome the said presumption
and present evidence to prove the fact of payment so that no
judgment will be entered against him.
o As per Pacheco v CA, Lozano v Martinez, Lim v Mindanao Wines
and Liquour Galleria: a check constitutes an evidence of
indebtedness and is a veritable proof of an obligation.
o CA: Gave credence to Caroline’s testimony that the 17 original
checks were for various other persons and petitioner had simply
collected them to damage her reputation. Found that petitioner failed
to establish for whose accounts they were deposited to.
o SC: Caroline had not denied the genuineness of these checks.
Hence, Sec. 16 of the NIL applies: when an instrument is no longer
in the possession of the person who signed it and it is complete in its
terms, a valid and intentional delivery by him is presumed until the
contrary is proven. Further, it was shown that the return slips were
deposited either in petitioner’s account or in the account of her
brother, Ricardo Yulo.
 o CA: Gave credence to respondents’ accounts with respect to the
Asiatrust check, saying that it is buttressed by their defense in the
civil case filed by Lilian’s husband, where they were ultimately
exculpated.
o SC: While they were exculpated, the SC sustained the factual
findings of the appellate court in the civil case finding respondents
civilly liable to pay the amount of the checks. The decision also
categorically debunked the same defense.

Ruling:

 Respondents ordered jointly and solidarily to pay the principal amount.

o Jointly and solidarily: Without any evidence to the contrary, it is
presumed that the proceeds of the loan redounded to the benefit of
the family.
o Principal amount: Interest was not stipulated in writing.