PUA VS TIONG & TENG
its presentation to the bank."
FACTS:
 Petitioner Pua filed a Complaint for a Sum of Money against respondent-
spouses and Caroline Teng. In the complaint, Pua prayed that defendants, pay
Pua the amount of PhP 8,500,000, covered by a check.
 During trial, petitioner Pua clarified that the PhP 8,500,000 check was given by
respondents to pay the loans they obtained from her under a compounded
interest agreement on various dates in 1988.
 Petitioner’s sister vouched for respondents’ ability to pay so she did not
require any collateral except post-dated checks bearing the borrowed amounts.
Respondent issued checks but all these checks were dishonored upon
presentment to the drawee bank.
 Respondents asked for more time to pay. When their financial condition turned
better, respondents asked for a computation of their loans which at the time
amounted to P13M. Both parties agreed that this be reduced to 8.5M.
Respondents issued a check bearing the reduced amount P8.5M to answer for
their obligation.
 In turn, respondents demanded the return of the 17 previously dishonored
checks. Petitioner, however, refused to return the bad checks and advised
respondents that she will do so only after the encashment of theP 8.5M check.
 The same check however, like the 17 checks, was also dishonored. Hence,
petitioner decided to file a complain to collect the money owed to her.
 RTC ruled in favor of the petitioner.
 RTC: The possession by petitioner of the checks signed by Caroline, under the
Negotiable Instruments Law, raises the presumption that they were issued and
delivered for a valuable consideration.
 CA set aside RTC’s decision. Held that the check in question was an incomplete
delivered instrument and that petitioner has failed to prove the existence of
respondents’ indebtedness to her.
ISSUE: W/N
 CA had discounted the value of the only hard pieces of evidence extant in the
present case—the checks issued by respondent Caroline in 1988 and 1996 that
were in the possession of, and presented in court by, petitioner.
 Pacheco vs CA: This Court has expressly recognized that a check "constitutes an
evidence of indebtedness" and is a veritable "proof of an obligation." Hence, it
can be used "in lieu of and for the same purpose as a promissory note."
 Lozano vs Martines: A check functions more than a promissory note since it not
only contains an undertaking to pay an amount of money but is an "order
addressed to a bank and partakes of a representation that the drawer has funds
on deposit against which the check is drawn, sufficient to ensure payment upon
 Section 24. Presumption of consideration. – Every negotiable instrument
is deemed prima facie to have been issued for a valuable consideration;
and every person whose signature appears thereon to have become a
party for value.
 Consequently, the 17 original checks, completed and delivered to petitioner, are
sufficient by themselves to prove the existence of the loan obligation of the
respondents to petitioner. Note that respondent Caroline had not denied the
genuineness of these checks. Instead, respondents argue that they were given
to various other persons and petitioner had simply collected all these 17 checks
from them in order to damage respondents’ reputation. This account is not only
incredible; it runs counter to human experience, as enshrined in Sec. 16 of the
NIL which provides that 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 proved."
YANG vs. CA
2003|Quisumbing
On December 22, 1987 [all these events happened on the same day], Yang and
respondent Chandiramani entered into an agreement where Chandiramani was
supposed to give Yang a PCIB manager’s check for P4.2M in exchange for two of Yang’s
managers checks worth P2.087M each payable to the order of respondent David (only
the cashier’s checks were payable to David). Both parties agreed that the difference of
P26,000 would be their profit to be divided equally between them.
 They also agreed that Yang would secure from FEBTC a dollar draft for
$200,000 payable to PCIB PCIB FCDU Account No. 4195-01165-2 (it was not
said in the case to whom this belonged to), which Chandiramani would exchange
for another dollar draft in the same amount to be issued by Hang Seng Bank
Ltd. of Hong Kong.
Yang procured the following:
a) Equitable Cashiers Check No. CCPS 14-009467 in the sum of P2,087,000.00, dated
December 22, 1987, payable to the order of Fernando David;
b) FEBTC Cashiers Check No. 287078, in the amount of P2,087,000.00, dated December
22, 1987, 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, dated December 22, 1987, payable to PCIB FCDU Account No. 4195-
01165- 2.
Around 1PM, Yang gave the cashiers checks and dollar drafts to her business
associate Liong to be delivered to Chandiramani by Liong’s messenger, Danilo Ranigo.
Ranigo will then meet with Chandiramani at Phil. Trust Bank where he would turn over
Yang’s cashiers checks and dollar draft to Chandiramani. Chandiramani will deliver to
Ranigo a PCIB manager’s check in the sum of P4.2M and a Hang Seng Bank dollar draft
for $200,000.
Chandiramani DID NOT appear in the Phil. Trust Bank and Ranigo claimed he
lost the two cashiers checks and the dollar draft. He reported this to Liong around 4PM
who told Yang and the loss was reported to the police.
Around 3PM or two hours after the meeting time, Chandiramani delivered to
David at China Bank Corp. in Pampanga cashiers checks worth P2.087M each. In
exchange, David gave him $360,0000 which Chandiramani deposited in the savings
account of his wife and mother who held a FCDU account in UCPB in Greenhills.
Chandiramani also deposited FEBTC dollar draft No. 4471 $200,000 in PCIB FCDU
Account No. 4195-01165-2 as per the agreement with Yang.
 Meanwhile, Yang told FEBTC and Equitable to stop payment on the instruments
as she believed they were lost. The banks did not do so as PCIB lifted the stop
payment order because they found out that David asked about the genuineness
of the cashiers checks, thus reactivating all checks and the dollar draft, enabling
the holder of PCIB FCDU Account No. 4195-01165-2 to receive $200,000,
however the exchange consideration for the dollar draft was not given to Yang.
[basically, may agreement sina Yang and Chandiramani that Chandiramani will give the
checks to David who transacted with Chandiramani. PEro sinabi ng messenger nawala niya
so Yang wanted to stop the payment pero she found out that the checks were already
received by David pero nawawala parin yung dollar draft. So now she’s accusing them of
trying to swindle her for trying to make her believe na nawala lahat so they wouldn't have
to pay her the exchange for the dollar draft. She believes that the $360,000 David paid
Chandiramani is a cut from the earnings and his prize for helping him swindle her.]
Yang filed (1) Complaint for Injunction and Damages against Equitable,
Chandiramani and David to return P2.087M, (2) Complaint for Injunction and Damages
w/ WPI against FEBTC, PCIB, Chandiramani and David to return P2.087M.
 Both parties agreed to invest the money to be awarded in Treasury Bills and the
1 2
Meaning it cannot be encashed
proceeds of which will go to the winner of the case
RTC: In favor of respondents saying that David was a holder in due course for the reason
that the cashier’s checks were complete on their face when they were negotiated to him.
They were not overdue, he took them in good faith for value ($200,000 (idk where this
came from pero the case said earlier $360k) for the two cashier’s checks were given to
Chandiramani), had no notice of any infirmity in the checks or defect in the title of the
drawer. Moreover, he asked the manager of China Bank to inquire as to the genuineness
of the cashier’s checks. Moreover, the stop payment order on the FEBTC checks were
lifted upon his inquiry at the head office which informed FEBTC that the checks were not
lost but they reached the payee, David. David had no knowledge of what transpired
between Yang and Chandiramani, all he knew was that the checks were issued to
Chandiramani with whom he had a transaction. To mandate that each holder inquire
about every aspect on how the instrument came about will unduly impede commercial
transactions, although negotiable instruments do not constitute legal tender, they
often take the place of money as a means of payment. The mere fact that David and
Chandiramani knew one another for a long time is not sufficient to establish that they
connived with each other to defraud Yang. There was no concrete proof presented by
Yang to support her theory.
Yang argued that David is not a holder in due course as while he was the payee,
he failed to inquire from Chandaramani how he got the checks. Thus since he did not
inquire, it cannot be said that David was unaware of any defect or infirmity in the title of
Chandiramani to the checks at the time of their negotiation. As the checks were crossed, 1
David should have followed Bataan Cigar vs. CA (1994), he should have been on guard
that the checks were issued for a definite purpose and should have inquired to see that
he received the checks pursuant to the purpose. Moreover, there is no showing that
David gave Chandiramani any consideration of value in exchange for the checks.
ISSUES:
1. W/N the checks were issued by Yang to Chandaramani
2. W/N respondents swindled Yang
HELD:
Every holder of a negotiable instrument is deemed prima facie a holder in
due course under Sec. 242. The holder, under Sec. 191 of the NIL, means a payee or
Presumption of consideration. - Every negotiable instrument is deemed prima facie to have
been issued for a valuable consideration; and every person whose signature appears thereon to
have become a party thereto for value.
endorsee of a bill or note, who is in possession of it, or the bearer thereof. In order
to not be rebutted, it is vital that David must have taken possession of the checks in
accordance with Sec. 523.
CAB: David is the payee of the checks; thus he is presumed to be a holder in due course.
There was nothing in the checks, especially as they are in the nature of cahiers checks,
wherein he could have suspected that something is amiss.
There is a presumption under Sec. 24 that every party to an instrument
acquired the same for a consideration. Thus, Yang has the burden of proof to prove
otherwise. She did not support her allegation and in fact the lower courts found that
David gave Chandiramani $360,000 as consideration.
Yang also fails to point any circumstance which should have put David on
inquiry. He was not privy to the transaction between Yang and Chandiramani, he only
dealt with Chandiramani. The evidence shows that Chandiramani DID deliver the checks
as per agreement. David even verified the manager of the bank to verify from FEBTC and
Equitable as to the genuineness of the checks and only accepted them when he was
assured of such. At that time, he was not aware of any stop payment order. Thus, he 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.
Yang belatedly raised the issue that the checks were crossed and pursuant to
Bataan Cigar & Cigarette Factory vs. CA that in accepting the cross checks and paying
cash for them, despite the warning of the crossing, the subsequent holder could not be
considered in good faith and thus, not a holder in due course. The NIL is silent as to
crossed checks, although the Code of Commerce refers to such. However, judicial notice
was taken that the practice that a check with two parallel lines in the upper left hand
corner means that it could only be deposited and not converted into cash. The effects of
crossing a check, thus, relates to the mode of payment, meaning that the drawer had
intended the check for deposit only by the rightful person, the payee indicated therein.
However, the facts are not in all fours as in the case, the crossed checks there were
negotiated and sold at a discount by the payee but here the payee simply deposited them
into his account.
 In this case, the purpose behind the crossing was satisfied by the payee as he
directly deposited it
It is clear that the petitioner, in including David as a party in these proceedings, is
barking up the wrong tree. It is apparent that David had no dealings with the petitioner
and was not privy to the agreement of the latter with Chandiramani. Moreover, any loss
3
What constitutes 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 it before it was overdue, and without notice that it has been
which the petitioner incurred was apparently due to the acts or omissions of
Chandiramani, and hence, her recourse should have been against him and not against
David. Thus, damages should be awarded to David.
DENIED.
RSAT
Metrobank vs. PBCOM (2007)
Digest maker: Clar
SUMMARY: PMC sold 4 Metrobank checks to Filipinas Orient, and, in exchange, Filipinas
Orient issued 4 PBCOM crossed checks to PMC with the statement, "for payee's account
only." PMC President (Yu Kio) deposited the 4 PBCom crossed checks into his Metrobank
and Solid accounts. The 4 Metrobank checks were dishonored. Filipinas Orient demanded
PMC to return PBCOM checks but PMC refused. So Filipinas Orient sued PMC & PBCom.
PMC & PBCOM say that Metrobank and Solidbank (as collecting banks) should be liable.
RTC & CA held Metrobank & Solidbank liable. SC affirmed. The checks deposited to
Metrobank & Solidbank are CROSSED CHECKS ISSUED FOR PAYEE'S ACCOUNT ONLY
(This means that the checks are for deposit only in the account of the named payee).
Despite this, the banks accepted the checks from PMC President Yu Kio and indorsed them.
Hence, they became liable as indorsers.
 Pipe Master Corporation (PMC), through its President Yu Kio, applied for check
discounting with Filipinas Orient, which was granted.
o Tan Juan Lian (VP of PMC) executed in favor of Filipinas Orient a continuing
guaranty (that he shall pay at maturity all evidence of indebtedness of PMC,
not exceeding P1M)
 Under the check discounting agreement, PMC (through Pres. Yu Kio) sold 4
Metrobankchecks amounting to P1M to Filipinas Orient
o In exchange for these 4 Metrobank checks, Filipinas Orient issued to PMC 4
Philippine Bank of Communications (PBCom) crossed checks totaling
P964,303.62, payable to PMC with the statement, “for payee’s account only.”
o Pres. Yu Kio indorsed and deposited 3 checks (P721,596.95) in his
Metrobank personal account and 1 check (P242,706.667) in his Solid Bank
personal account
previously dishonored, if such was the fact; (c) That he took it in good faith and for value;
 When Filipinas Orient presented the 4 Metrobank checks for encashment, these were
dishonored.
 PMC refused to pay Filipinas Orient because it claimed it never received the proceeds
of the PBCom checks, as the proceeds were delivered to the wrong party who is not
the payee, Pres. Yu Kio
 Filipinas Orient demanded that PBCom restore to Filipinas Orient’s account the value
of the PBCom checks.
 PBCom sought reimbursement from Metro Bank and Solid Bank, being the collecting
banks, but they refused to do so.
 So Filipinas Orient filed a complaint for a sum of money against PMC, VP Tan Juan
Lian, and/or PBCom with RTC Manila
o PBCom filed 3rd party complaints against Metrobank and Solid Bank (the
collecting banks)
 PMC and Tan Juan Lian's Answer: Pres. Yu Kio was not authorized to indorse PMC's
checks in his personal capacity.
o Also filed a crossclaim against Metrobank and Solidbank, claiming the banks
were negligent in allowing Yu Kio to deposit the PBCom checks in his
account.
 PBCom (drawee bank)'s Answer: in clearing the checks, it relied on the express
guarantee made by Metrobank and Solidbank that the checks were validly indorsed.
 RTC held Metrobank and Solidbank liable for the value of the checks.
 CA affirmed.
 Hence, this petition for review on certiorari by Metrobank and Solidbank. Argument:
o PMC, VP Tan Juan Lian and/or PBCOM should be liable to Filipinas Orient
for the value of the checks.
Whether Metro Bank and Solid Bank are liable to Filipinas Orient for accepting the
PBCom crossed checks payable to PMC – YES
 A check is defined by law as a bill of exchange drawn on a bank payable on demand.
 The NIL is silent with respect to crossed checks, BUT this Court has taken judicial
cognizance of the practice that a check with two parallel lines on the upper left
hand corner means that it could only be deposited and not converted into cash.
 The crossing of a check with the phrase Payees Account Only is a warning that the
check should be deposited in the account of the payee. It is the collecting bank which
is bound to scrutinize the check and to know its depositors before it can make the
clearing indorsement, all prior indorsements and/or lack of indorsement guaranteed.
 CASE AT BAR:
o Metrobank and Solidbank have the obligation to ensure that the PBCom
checks were deposited in accordance with the instructions stated in the
checks.
o The 4 PBCom checks had been crossed and issued for payees account
only. This means that the drawer (Filipinas Orient) intended the same for
deposit only by the payee, PMC. The effect of crossing a check means that
the drawer had intended the check for deposit only by the rightful
person, i.e., the payee named therein (PMC)
o But Metrobank and Solidbank accommodated Yu Kio and accepted the
crossed checks. They stamped at the back thereof that all prior
indorsements and/or lack of indorsements are guaranteed. In so doing, they
became general endorsers.
 Section 66 NIL: an endorser warrants that the instrument is
genuine and in all respects what it purports to be; that he has a
good title to it; that all prior parties had capacity to contract; and
that the instrument is at the time of his indorsement valid and
subsisting.
o As endorsers, Metrobank and Solidbank cannot deny liability.
 Associated Bank v. CA: the collecting bank or last endorser
generally suffers the loss because it has the duty to ascertain the
genuineness of all prior indorsements and is privy to the depositor
who negotiated the check.
o PBCom (drawee bank) cannot be held liable since it mainly relied on the
express guarantee made by the collecting banks (Metrobank and Solidbank)
of all prior indorsements.
o Evidently, Metrobank and Solidbank disregarded established banking rules
and procedures. They were negligent in accepting the checks and allowing
the transaction to push through. Hence, they are liable.
 The law imposes on the collecting bank the duty to diligently scrutinize the checks
deposited with it for the purpose of determining their genuineness and
regularity. The collecting bank, being primarily engaged in banking, holds itself out to
the public as the expert on this field, and the law thus holds it to a high standard of
conduct.
 Since the negligence of Metrobank and Solidbank was the direct cause of the
misappropriation of the checks, they should bear and answer for Filipinas Orient's
loss, without prejudice to their filing of an appropriate action against Yu Kio.
PETITION DENIED. CA AFFIRMED.
HI CEMENT V INSULAR
September 28, 2007 l CORONA, J.
Facts:
 Petitioners Enrique Tan and Lilia Tan (spouses Tan) were the controlling
stockholders of E.T. Henry & Co., Inc. (E.T. Henry), a company engaged in the
business of processing and distributing bunker fuel.
o Among E.T. Henry's customers were petitioner Hi-Cement
Corporation (Hi-Cement), Riverside Mills Corporation (Riverside) and
Kanebo Cosmetics Philippines, Inc. (Kanebo). For their purchases,
these corporations issued postdated checks to E.T. Henry.
 In 1979, respondent Insular Bank of Asia and America (now Equitable PCI-
Bank) granted E.T. Henry a credit facility known as Purchase of Short Term
Receivables.
 o Through this arrangement, E.T. Henry was able to encash, with pre-
deducted interest, the postdated checks of its clients. In other words,
E.T. Henry and respondent were into re-discounting of checks.
o For every transaction, respondent required E.T. Henry to execute a
promissory note and a deed of assignment bearing the conformity of
the client to the re-discounting.
 From 1979 to 1981, E.T. Henry was able to re-discount its clients' checks (with
deeds of assignment) with respondent.
 However, in February 1981, 20 checks of Hi-Cement (which were crossed and
which bore the restriction deposit to payees account only) were dishonored. So
were the checks of Riverside and Kanebo.
 Respondent filed a complaint for sum of money in the the CFI of Rizal against
E.T. Henry, the spouses Tan, Hi-Cement, Riverside and Kanebo.
 Hi-Cement filed its answer alleging, among others, that:
o (1) its general manager and treasurer were not authorized to issue the
postdated crossed checks in E.T. Henry's favor;
o (2) the deed of assignment purportedly executed by Hi-Cement
assigning them to respondent only bore the conformity of its treasurer
and
o (3) respondent was not a holder in due course as it should not have
discounted them for being crossed checks.
 In their answer, E.T. Henry and the spouses Tan claimed that the drawers of
the postdated checks failed to honor them due to the adverse economic
conditions prevailing at the time respondent presented them for payment;
Issue #1: W/N Hi-Cements GM and Treasurer has the authority to issue the postdated
crossed checks? YES
 Hi-Cement authorized its general manager and treasurer to issue the subject
postdated crossed checks and it was already estopped from denying such
authority since it never objected to the signatories' issuance of all previous
checks to E.T. Henry which the latter, in turn, was able to re-discount with
respondent.
 However, respondent could not be considered a holder in due course.
Issue #2: W/N the respondent bank is a holder in due course?
 Absent any of the elements set forth in Section 524,
the holder is not a holder in
due course. In the case at bar, the last two requirements were not met.
 In Bataan Cigar and Cigarette Factory, Inc. (BCCF) v. CA, we held that the holder
of crossed checks was not a holder in due course. In order to preserve the credit
worthiness of checks, jurisprudence has pronounced that crossing of a check
should have the following effects:
(a) the check may not be encashed but only deposited in the bank;
4A holder in due course is a holder who has taken the instrument under the following conditions: (a) it is
complete and regular on its face; (b) he became the holder of it before it was overdue, and without
notice that it has previously been dishonored, if such was the fact; (c) he took it in good faith and for
(b) the check may be negotiated only once to one who has an account
with a bank [and];
(c) the act of crossing the checks serves as 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.
 In Atrium Management Corporation v. CA, where E.T. Henry, Hi-Cement and its
treasurer again engaged in a legal scuffle over four postdated crossed checks, we
held that Atrium was not a holder in due course. The checks were crossed 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.
 ITC: respondent's claim that it acted in good faith when it accepted and
discounted Hi-Cements postdated crossed checks from E.T. Henry (as payee
therein) fails to convince us. Good faith becomes inconsequential amidst proof of
respondent's grossly negligent conduct in dealing with the subject checks.
 Respondent was all too aware that subject checks were crossed and bore
restrictions that they were for deposit to payee's account only; hence, they could
not be further negotiated to it. The records likewise reveal that respondent
completely disregarded a telling sign of irregularity in the re discounting of the
checks when the general manager did not acquiesce to it as only the treasurer's
signature appeared on the deed of assignment. As a banking institution, it
behooved respondent to act with extraordinary diligence
in every transaction. Its business is impressed with public interest, thus, it was
not expected to be careless and negligent, specially so where the checks it dealt
with were crossed.
 In Bataan Cigar and Cigarette Factory, Inc., we ruled that it is then settled that
crossing of checks should put the holder on inquiry and upon him devolves
the duty to ascertain the indorsers title to the check or the nature of his
possession. Failing in this respect, the holder is declared guilty of gross
negligence amounting to legal absence of good faith and as the holder of the
check is not a holder in due course.
Issue #3: W/N Hi-Cement can still be made liable for the checks? NO
 We made it clear that the NIL does not absolutely bar a holder who is not a holder
in due course from recovering on the checks.
 It may recover from the party who indorsed/encashed the checks if the latter has
no valid excuse for refusing payment.
 IN THE CASE AT BAR, there was no doubt that it was E.T. Henry that re-
discounted Hi-Cement's checks and received their value from respondent. Since
E.T. Henry had no justification to refuse payment, it should pay respondent.
value and (d) 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.
Issue #4: W/N Hi- Cement is solidarily liable for the face value of Riverside’s and Kanebo’s
checks? NO

 Hi-Cement could not also be made solidarily liable with Riverside and Kanebo for
the face value of their checks. Hi-Cement had nothing to do with the checks of
these two corporations.
 The language of the trial court decision's dispositive portion reveals that
the fallo was for each corporation to be liable solidarily with E.T. Henry
and/or the spouses Tan for the respective values of their checks.
 Furthermore, solidary liability cannot be presumed but must be established by
law or contract. Neither is present here.
 At any rate, the issue has become moot in view of our ruling that Hi-Cement is
not liable for the checks.

Ruling: WHEREFORE, the assailed decision of the Court of Appeals in CA-G.R. CV No.
31600 is hereby AFFIRMED with MODIFICATION.

Dino vs Judal-Loot
J. Carpio | April 19, 2010
 A syndicate, one of whose members posed an owner of several parcels of land in
Canjulao, Lapu-Lapu City, approached petitioner and induced him to lend the
group P3,000,000.00 to be secured by a real estate mortgage on the properties.
o A woman pretending to be Vivencia Ompok Consing, even offered to execute a
Deed of Absolute Sale covering the properties, instead of the usual mortgage
contract
 Petitioner thus issued 3 Metrobank checks totaling 3,000,000 one of which is
postdated February 1993 in the amount of P1,000,000.00 payable to Vivencia Ompok
Consing and/or Fe Lobitana.
 Petitioner then discovered that the documents involving the properties covered
rights over government properties. He thus advised Metrobank to stop payment of
the checks.
o However, only one payment was stopped. The other two checks were already
encashed by the payees.
 Lobitana negotiated and indorsed the check to respondents in exchang for cash in the
sum of P948,000, which respondents borrowed from Metrobank and charged against
their credit line.
 Before respondents accepted the check, they first inquired from the drawee bank,
Metrobank, Cebu-Mabolo Branch which is also their depositary bank, if the
subject check was sufficiently funded, to which Metrobank answered in the
positive.
o However, when they deposited the check with the Cebu-Mabolo Branch, it was
dishonored [PAYMENT STOPPED]
 Respondents thus filed a collection suit against petitioner and Lobitana before the
trial court.
o They contend that they are holders in due course and for value of the Metrobank
check and they had no prior information concerning the transactions of the
parties.
o They also contend that on the face of the check, no condition or limitation was
imposed.
 The trial court ruled in favor of respondents  they are HDC.
 Only petitioner filed an appeal with the CA
o The CA affirmed the TC.
 Hence this petition.
W/N respondents are holders in due course - NO
 Section 52 of the Negotiable Instruments Law 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 has 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.
 In the case of a crossed check, as in this case, the following principles must
additionally be considered: A crossed check (a) may not be encashed but
only deposited in the bank; (b) may be negotiated only once to one who has
an account with a bank; and (c) warns the holder that it has been issued for
a definite purpose so that the holder thereof must inquire if he has received
the check pursuant to that purpose; otherwise, he is not a holder in due
course
 As such, respondents had the duty to ascertain that the indorser’s
(Lobitana) title to the check or the nature of her possession.
 Respondent’s verification fom Metrobank does not amount to
determination of Lobitanas title to the check.
 Failing in this respect, respondents are guilty of gross negligence
amounting to legal absence of good faith,
 In this case, there is no question that the payees of the check, Lobitana or
Consing, were not the ones who presented the check for payment. Lobitana
negotiated and indorsed the check to respondents in exchange
for P948,000.00. It was respondents who presented the subject check for
payment; It was not the payee who presented the check for payment; and
thus, there was no proper presentment. As a result, liability did not attach
to the drawer. Accordingly, no right of recourse is available to respondents
against the drawer of the check, petitioner herein, since respondents are
not the proper party authorized to make presentment of the subject check.
W/N Respondents can recover on the check –Yes
 However, the fact that respondents are not holders in due course does
not automatically mean that they cannot recover on the check.
 The NIL does not provide that a holder who is not a holder in due
course may not in any case recover on the instrument. The only
disadvantage of a holder who is not in due course is that the negotiable
instrument is subject to defenses as if it were non-negotiable
o Among such defenses is the absence or failure of
consideration, which petitioner sufficiently established in
this case
 Respondents can collect from the immediate indorser,[21] in this case
Lobitana.
 GO VS. METROPOLITAN BANK AND TRUST, CO.
G.R. No. 168842 | Nachura | August 11, 2010 | Page 153
FACTS
 Petitioner Go was doing business under Hope Pharmacy which sells medicine
and pharmaceutical products in the Cebu City. He employed Ma. Teresa Chua as
his pharmacist and trustee/caretaker and Glyndah Tabañag who took care of the
receipts and invoices and assisted Chua in making deposits for petitioner’s
accounts.
 Petitioner filed two separate cases before the RTC of Cebu.
 The 1st civil case (Civil Case No. CEB-9713) was filed by petitioner against Chua
and Tabañag for a sum of money with preliminary attachment.
o Petitioner claimed that there were unauthorized deposits and
encashments made by Chua and Tabañag in the total amount of
P109,433.30.
 The 2nd civil case (Civil Case No. CEB-9866) was filed by petitioner for a sum of
money with damages against herein respondent Metropolitan Bank and Trust
Company (Metrobank) and Chua.
o Petitioner averred that there were thirty-two (32) checks with Hope
Pharmacy as payee, for varying sums, amounting to
P1,492,595.06, that were not endorsed by him but were deposited
under the personal account of Chua with respondent bank.
o Petitioner claimed that the said checks were crossed checks payable
to Hope Pharmacy only; and that without the participation and
connivance of respondent bank, the checks could not have been
accepted for deposit to any other account, except petitioners
account.
 RTC: dismissed both complaints and ordered Metrobank to pay Vicente
Go/Hope Pharmacy P50,000.00 as moral damages and attorney’s fees and
litigation expenses in the aggregate sum of P25,000. It ruled that:
o FEBTC Check No. 251111 in the amount of P22,635 payable to cash,
was drawn by Loy Libron in payment of her purchases of medicines
which Ma. Teresa Chua was selling side by side with the medicines of
the Hope Pharmacy, for which she was granted permission by
petitioner Go.
o RCBC Check Nos. 294519 and 330958 were checks belonging to
petitioner Vicente Go payable to cash; these checks were replacements
of the sums earlier advanced by Ma. Teresa Chua, but which were
deposited in the account of Vicente Go with RCBC;
o Check No. PCIB 005374 drawn by Elizabeth Enriquez payable to Hope
Pharmacy/Cash in the amount of P6,798.30 was admittedly encashed
by the defendant, Glyndah Tabañag. As per instruction by Vicente Go,
Glyndah requested the drawer to insert the word Cash, so that she
could encash the same with PCIB, to meet the Hope Pharmacy’s
overdraft.
o The trial court absolved Chua in CEB-9866 because of the finding that
the subject checks in CEB-9866 were payments of petitioner for his
loans or borrowings from the parents of Ma. Teresa Chua, through Ma.
Teresa, who was given the total discretion by petitioner to transfer
money from the offices of Hope Pharmacy to pay the advances and
obligations of the drugstore.
o While the trial court exonerated Chua in CEB-9866, it however
declared respondent bank liable for being negligent in allowing
the deposit of crossed checks without the proper indorsement.
 CA: affirmed.
 GO: MBTC should be held accountable for the entire amount of the checks
because it accepted the checks for deposit under Chua’s account despite the fact
that the checks were crossed and that the payee named therein was not Chua.
 MBTC: Go is not entitled to reimbursement of the total sum of P1,492,595.06
from either Maria Teresa Chua or respondent bank because petitioner was not
damaged thereby.
ISSUE #1: W/N MBTC SHOULD BE HELD LIABLE FOR FOR ALLOWING THE DEPOSIT
OF CROSSED CHECKS (WHICH WERE ISSUED IN FAVOR OF AND PAYABLE TO GO)
WITHOUT BEING INDORSED BY GO TO THE ACCOUNT OF CHUA - YES
 A check is a bill of exchange drawn on a bank payable on demand. A crossed
check is one where two parallel lines are drawn across its face or across the
corner thereof. It may be crossed generally or specially.
 A check is crossed specially when the name of a particular banker or a company
is written between the parallel lines drawn. It is crossed generally when only the
words "and company" are written or nothing is written at all between the
parallel lines, as in this case. It may be issued so that presentment can be made
only by a bank.
 In order to preserve the credit worthiness of checks, jurisprudence has
pronounced that crossing of a check has the following effects:
(a) the check may not be encashed but only deposited in the bank;
(b) the check may be negotiated only once to one who has an account
with a bank; and
(c) the act of crossing the check serves as warning to the holder
that the check has been issued for a definite purpose so that he
must inquire if he has received the check pursuant to that
purpose, otherwise, he is not a holder in due course.
 The Court has taken judicial cognizance of the practice that a check with two
parallel lines in the upper left-hand corner means that it could only
be deposited and not converted into cash.
 IN THIS CASE, there is no dispute that the subject 32 checks with the total
amount of P1,492,595.06 were crossed checks with petitioner as the
named payee.
 o Respondent bank should not be held liable for the entire amount of the
checks considering that the checks were given to Chua as payments by
petitioner for loans obtained from the parents of Chua. Thus, petitioner
suffered no pecuniary loss in the deposit of the checks to the account of
Chua.
 HOWEVER, the Court affirmed the finding of the RTC that respondent bank was
negligent in permitting the deposit and encashment of the crossed checks
without the proper indorsement.
o An indorsement is necessary for the proper negotiation of checks
specially if the payee named therein or holder thereof is not the one
depositing or encashing it. Knowing fully well that the subject checks
were crossed, that the payee was not the holder and that the checks
contained no indorsement, respondent bank should have taken
reasonable steps in order to determine the validity of the
representations made by Chua.
o Respondent bank was amiss in its duty as an agent of the payee.
Prudence dictates that respondent bank should not have merely relied
on the assurances given by Chua.
 Respondent’s OIC Jonathan Davis also testified that he allowed Ma. Teresa Chua
to deposit the checks because it was a privilege given to valued customers since
this arrangement went on for about three years, without any complaint from Mr.
Go/Hope Pharmacy.
o The law imposes a duty of extraordinary diligence on the collecting
bank to scrutinize checks deposited with it, for the purpose of
determining their genuineness and regularity. The fact that this
arrangement had been practiced for three years without Mr. Go/Hope
Pharmacy raising any objection does not detract from the duty of the
bank to exercise extraordinary diligence.
CA AFFIRMED.
EQUITABLE BANKING CORPORATION v. SPECIAL STEEL PRODUCTS
G.R. No. 175350 | June 13, 2012 | Del Castillo, J.
FACTS:
• Special Steel Products, Inc. (SSPI) sold welding electrodes to International Copra Export
Corporation (Interco), as evidenced sales invoices, with an interest rate of 36% per
annum in case of delay.
• In payment for the welding electrodes, Interco issued 3 checks payable to the order of
SSPI on July 10, 16, and 29, 1991. Each check was crossed with the notation "account
payee only" and was drawn against Equitable. The records do not identify the signatory
for these checks, or explain how Uy, Interco’s purchasing officer, came into possession
of these checks.
• The records only disclose that Uy presented each crossed check to Equitable on the day
of its issuance and claimed that he had good title and demanded the deposit of the checks
in his personal accounts.
• Equitable acceded to his demands on the assumption that Uy, as the son-in-law of
Interco’s majority stockholder, was acting pursuant to Interco’s orders. The bank also
relied on Uy’s status as a valued client. Thus, Equitable accepted the checks for deposit
in Uy’s personal accounts and stamped "ALL PRIOR ENDORSEMENT AND/OR LACK OF
ENDORSEMENT GUARANTEED" on their dorsal portion. Uy promptly withdrew the
proceeds of the checks.
• In October 1991, SSPI reminded Interco of the payment amounting to P985,234.98, and
again on January 14, 1992. SSPI explained that it needed the money but Interco replied
that it had already issued the 3 checks payable to it. SSPI denied receipt of these checks.
• SSPI requested information from Equitable regarding the checks but the bank refused to
give any information invoking the confidentiality of deposits. Eventually, however, they
found out about Uy’s scheme.
• On June 30 (23 months after the issuance of the checks), Interco finally paid the value of
the 3 checks to SSPI, plus a portion of the accrued interests. Interco refused to pay the
entire accrued interest on the ground that it was not responsible for the delay. Thus,
there was a balance in interest income.
• SSPI and its president, Pardo, filed a complaint for damages case with application for a
writ of preliminary attachment against Uy and Equitable Bank, which alleged that the 3
crossed checks, all payable to the order of SSPI and with the notation "account payee
only," could be deposited and encashed by SSPI only. However, due to Uy’s fraudulent
representations, and Equitable’s indispensable connivance or gross negligence, the
restrictive nature of the checks was ignored and the checks were deposited in Uy’s
account. Thus, the plaintiffs prayed for an award of actual damages consisting of the
unrealized interest income. Pardo claimed ₱3M as moral damages. They also prayed for
exemplary damages and attorney’s fees.
• The RTC granted their application and issued the writ but this was eventually discharged
by a counterbond.
• Equitable then argued for the dismissal of the complaint for lack of cause of action. It
maintained that interest income is due only when it is expressly stipulated in writing.
Moreover, SSPI’s acceptance of Interco’s payment on the sales invoices is a waiver or
extinction of SSPI’s cause of action based on the 3 checks. Equitable further argued that
it is not liable to SSPI because it accepted the 3 crossed checks in good faith; that due to
Uy’s close relations with the drawer of the checks, the bank had basis to assume that the
drawer authorized Uy to countermand the original order stated in the check. Since only
Uy is responsible for the fraudulent conversion of the checks, he should reimburse
Equitable for any amounts that it may be made liable to plaintiffs.
• Uy answered that the checks were negotiated to him; that he is a holder for value of the
checks and that he has a good title thereto. He did not, however, explain how he obtained
the checks, from whom he obtained his title, and the value for which he received them.
• The RTC clarified that SSPI’s cause of action against Uy and Equitable is for quasi-delict.
Equitable was negligent in permitting Uy to deposit the checks in his account without
verifying Uy’s right to endorse the crossed checks. Uy’s conversion of the checks and
Equitable’s negligence make them liable to compensate SSPI for the actual damage it
sustained, which consists of the income that SSPI failed to realize during the delay. The
RTC then equated this unrealized income with the interest income that SSPI failed to
collect from Interco. The CA affirmed.
ISSUE: WON SSPI has a cause of action against Equitable for quasi-delict - YES
RATIO:
• SSPI’s cause of action is not based on the 3 checks. SSPI does not ask Equitable or Uy to
deliver to it the proceeds of the checks as the rightful payee. SSPI does not assert a right RATIO:
based on the undelivered checks or for breach of contract. Instead, it asserts a cause of • The bank argues that it was Uy who was enriched by the entire scheme and should
action based on quasi-delict. A quasi-delict is an act or omission, there being fault or reimburse Equitable for whatever amounts the Court might order it to pay in damages
negligence, which causes damage to another. to SSPI, and the Court agrees. There is unjust enrichment when (1) a person is unjustly
• The checks that Interco issued in favor of SSPI were all crossed, made payable to SSPI’s benefited, and (2) such benefit is derived at the expense of or with damages to another.
order, and contained the notation "account payee only." This creates a reasonable • In the instant case, the fraudulent scheme concocted by Uy allowed him to improperly
expectation that the payee alone would receive the proceeds of the checks and that receive the proceeds of the three crossed checks and enjoy the profits from these
diversion of the checks would be averted. This expectation arises from the accepted proceeds during the entire time that it was withheld from SSPI. Equitable, through its
banking practice that crossed checks are intended for deposit in the named payee’s gross negligence and mislaid trust on Uy, became an unwitting instrument in Uy’s
account only and no other. At the very least, the nature of crossed checks should place a scheme. Equitable’s fault renders it solidarily liable with Uy, insofar as respondents are
bank on notice that it should exercise more caution or expend more than a cursory concerned. Nevertheless, as between Equitable and Uy, Equitable should be allowed to
inquiry, to ascertain whether the payee on the check has authorized the holder to deposit recover from Uy whatever amounts Equitable may be made to pay under the judgment.
the same in a different account. It is clear that Equitable did not profit in Uy’s scheme.
• Since the banking business is impressed with public interest, the trust and confidence of
the public in it is of paramount importance. Consequently, the highest degree of diligence
is expected, and high standards of integrity and performance are required of it. Equitable JJ: Why is the collecting bank liable to the payee? For there to be a tort, there should be
did not observe the required degree of diligence expected of a banking institution under a duty. Collecting bank owes no duty to the payee. Interco should sue EBC for breach of
the existing factual circumstances. contract.
• The fact that a person, other than the named payee of the crossed check, was presenting
it for deposit should have put the bank on guard. It should have verified if the payee
(SSPI) authorized the holder (Uy) to present the same in its behalf, or indorsed it to him.
Equitable contends that its knowledge that Uy is the son-in-law of the majority
stockholder of the drawer, Interco, made it safe to assume that the drawer authorized
Uy to countermand the order appearing on the check. In other words, Equitable
theorizes that Interco reconsidered its original order and decided to give the proceeds
of the checks to Uy. That the bank arrived at this conclusion without anything on the face
of the checks to support it is demonstrative of its lack of caution. It is troubling that
Equitable proceeded with the transaction based only on its knowledge that Uy had close
relations with Interco. The bank did not even make inquiries with the drawer and their
valued client, Interco, to verify Uy’s representation.

ISSUE: WON interest income at the stipulated rate may be recovered - NO

RATIO:
• SSPI agreed that the delay was not Interco’s fault, but that of the defendants’, as such,
Interco is not in delay (at least not after issuance of the checks) and the stipulated
interest payments in their contract did not become operational. If Interco is not liable to
pay for the 36% per annum interest rate, then SSPI did not lose that income.
• More importantly, the provisions of a contract generally take effect only among the
parties, their assigns and heirs. SSPI cannot invoke the contractual stipulation on interest
payments against Equitable because it is neither a party to the contract, nor an assignee
or an heir to the contracting parties.
• Still, it is clear that defendants’ actions deprived SSPI of the present use of its money for
a period of 2 years. SSPI is therefore entitled to obtain from the tortfeasors the profits
that it failed to obtain and should recover interest at the legal rate of 6% per annum, this
being an award for damages based on quasi-delict and not for a loan or forbearance of
money.

ISSUE: WON Uy should reimburse Equitable for whatever amounts the Court might order
it to pay in damages to SSPI - YES