ENFORCEMENT OF LIABILTY

77. CRISOLOGO VS CA
Crisologo-Jose v. Court of Appeals [G.R. No. 80599. September 15, 1989]

FACTS

Petitioner avers that the accommodation party in this case is Mover Enterprises, Inc. and not private
respondent who merely signed the check in question in a representative capacity, that is, as vice-
president of said corporation, hence he is not liable thereon under the Negotiable Instruments Law.

ISSUE

Whether or not petitioner is not liable on the ground that he is simply acting as an agent of a corporation.

RULINGNO. An accommodation party is 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.

78. SALAS VS. CA

Facts:

Juanita Salas (Petitioner) bought a motor vehicle from the Violago Motor Sales Corporation (VMS) as
evidenced by a promissory note. This note was subsequently endorsed to Filinvest Finance & Leasing
Corporation (private respondent) which financed the purchase. Petitioner defaulted in her installments
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. This failure to pay prompted private respondent to
initiate an action for a sum of money against petitioner before the Regional Trial Court.

ISSUE:

WON VMS’ fraud in the conduct of its business, specifically in the delivery of a defective truck, would
release petitioner-maker from paying First Finance the amount stated in the note.

HELD:
No.

The note was a negotiable instrument and was validly negotiated to private respondent who is a holder
in due course and as such holds the instrument free from defenses available to prior parties among
themselves. This being so, petitioner cannot set up against respondent the defense of nullity of the
contract of sale between her and VMS.

79. PNB VS. CA (GR No. L-26001; Oct. 29, 1968)

FACTS: Agusto Lim deposited GSIS check no. 645915-B with respondent bank Philippine Commercial and
Industrial Bank, who in turn submitted said check to PNB, through Central Bank, for clearing which the
latter paid. Upon demand of GSIS that the signatures of its officers on the check were forged, PNB re-
credited the account of GSIS. PNB requested reimbursement from PCIB, the latter refused. Hence, the
present action.

ISSUE: WON prior acceptance before payment is required in the case of checks?

HELD: No. In general, "acceptance", in the sense in which this term is used in the Negotiable Instruments
Law is not required for checks, for the same are payable on demand. Indeed, "acceptance" and "payment"
are, within the purview of said Law, essentially different things, for the former is "a promise to perform an
act," whereas the latter is the "actual performance" thereof. In the words of the Law, "the acceptance of a
bill is the signification by the drawee of his assent to the order of the drawer," which, in the case of checks,
is the payment, on demand, of a given sum of money. Upon the other hand, actual payment of the amount
of a check implies not only an assent to said order of the drawer and a recognition of the drawer's
obligation to pay the aforementioned sum, but, also, a compliance with such obligation. Sec. 62 of the NIL
is applicable to a drawee who pays a bill without having previously accepted it.

80. ASSOCIATED BANK VS. CA

Facts:

The Province of Tarlac maintains a current account with the Philippine National Bank where the
provincial funds are deposited. A portion of the funds of the province is allocated to the Concepcion
Emergency Hospital. The allotment checks for said government hospital are drawn to the order of
"Concepcion Emergency Hospital”. It was later discovered that the hospital did not receive several
allotment checks drawn by the Province. After the checks were examined, it was learned that 30 checks
were encashed by one Fausto Pangilinan, with the Associated Bank acting as collecting bank. It turned out
that Fausto Pangilinan, who was the administrative officer and cashier of payee hospital, by forging the
signature of Dr. Adena Canlas chief of the payee hospital. All the checks bore the stamp of Associated Bank
which reads "All prior endorsements guaranteed ASSOCIATED BANK." The Provincial Treasurer sought to
recover from PNB various amounts debited from the current account of the Province. In turn, PNB
demanded reimbursement from the Associated Bank who refused to pay interposing the defense of
forgery.

ISSUE:

Whether or Not Associated Bank is secondarily liable apart from the forger

What are the obligation of the drawee bank (PNB)

HELD:

YES. The loss incurred by drawee bank PNB can be passed on to the collecting bank Associated Bank which
presented and indorsed the checks to it. Associated Bank can, in turn, hold the forger, Fausto Pangilinan,
liable. The drawee bank is not similarly situated as the collecting bank because the former makes no
warranty as to the genuineness of any indorsement. The drawee bank's duty is but to verify the
genuineness of the drawer's signature and not of the indorsement because the drawer is its client. A
collecting bank where a check is deposited and which indorses the check upon presentment with the
drawee bank, is such an indorser. So even if the indorsement on the check deposited by the bank's client is
forged, the collecting bank is bound by his warranties as an indorser and cannot set up the defense of
forgery as against the drawee bank. Only the person whose signature is forged and all parties before the
forgery may set such defense.

In cases involving checks with forged indorsements, such as the present petition, the chain of
liability does not end with the drawee bank. The drawee bank may not debit the account of the drawer but
may generally pass liability back through the collection chain to the party who took from the forger and, of
course, to the forger himself, if available. In other words, the drawee bank can seek reimbursement or a
return of the amount it paid from the presentor bank or person.Theoretically, the latter can demand
reimbursement from the person who indorsed the check to it and so on. The loss falls on the party who
took the check from the forger, or on the forger himself. In this case, the checks were indorsed by the
collecting bank (Associated Bank) to the drawee
bank (PNB). The former will necessarily be liable to the latter for the checks bearing forged indorsements.
If the forgery is that of the payee's or holder's indorsement, the collecting bank is held liable, without
prejudice to the latter proceeding against the forger.

Obligations of the drawee bank

However, a drawee bank has the duty to promptly inform the presentor of the forgery upon
discovery. If the drawee bank delays in informing the presentor of the forgery, thereby depriving said
presentor of the right to recover from the forger, the former is deemed negligent and can no longer
recover from the presentor.

Such bank also is under strict liability to pay the check to the order of the payee. The drawer’s
instructions are reflected on the face and by the terms of the check. Payment under a forged indorsement
is not to the drawer’s order. 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.

81. GREAT EASTERN LIFE INSURANCE CO. (GELIC) VS. HONGKONG & SHANGHAI BANKING CORP (HSBC)
and PNB (GR No. 18657; Aug. 23, 1922)

Facts: In May 1920, petitioner GELIC drew its check for P2,000 on HSBC 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 PNB where the
amount of the check was placed to his credit. After having paid the check, and on the next day, PNB
endorsed the check to HSBC which paid it and charged the amount of the check to the account of the
plaintiff. In the ordinary course of business, HSBC rendered a bank statement to GELIC showing that the
amount of the check was charged to its account, and no objection was then made to the statement. About
four (4) 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 PNB. With this
knowledge, the plaintiff promptly made a demand upon the HSBC that it should be given credit for the
amount of the forged check, which the bank refused to do, and GELIC commenced this action to recover
the P2,000 which was paid on the forged check. On the petition of HSBC, PNB was made defendant. The
former Bank denies any liability, but prays that, if a judgment should be rendered against it, in turn, it
should have like judgment against the latter Bank which denies all liability to either party. Upon the issues
being joined, a trial was had and judgment was rendered against

33 Cesar Nickolai F. Soriano Jr. Arellano University School of Law 2011-0303 NEGOTIABLE INSTRUMENTS
LAW (Act No. 2031) based on the book of Aquino and De Leon and Audio Lecture of Dean Sundiang. GELIC
and in favor HSBC and PNB from which GELIC appealed.

ISSUE: WON plaintiff GELIC can recover?

HELD: Yes. GELIC’s check was drawn on HSBC payable to the order of Melicor. In other words, GELIC
authorized and directed HSBC to pay Melicor, or his order, P2,000. It did not authorize or direct the bank to
pay the check to any other person than Melicor, or his order, and the testimony is undisputed that Melicor
never did part with his title or endorse the check, and never received any of its proceeds. Neither is GELIC
estopped or bound by the bank statement, which was made to it by the HSBC. This is not a case where the
GELIC's own signature was forged to one of it checks. In such a case, the plaintiff would have known of the
forgery, and it would have been its duty to have promptly notified the bank of any forged signature, and
any failure on its part would have released bank from any liability. That is not this case. Here, the forgery
was that of Melicor, who was the payee of the check, and the legal presumption is that the bank would not
honor the check without the genuine endorsement of Melicor. In other words, when GELIC received its
banks statement, it had a right to assume that Melicor had personally endorsed the check, and that,
otherwise, the bank would not have paid it. Sec. 23 of the NIL is square in point. The money was on deposit
in HSBC, and it had no legal right to pay it out to anyone except GELIC or its order. Here, GELIC ordered
HSBC 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 HSBC has no defense to this action. It is admitted that the PNB cashed the check upon a
forged signature, and placed the money to the credit of Maasim, who was a forger. That the PNB then
endorsed the check and forwarded it to HSBC by whom it was paid. PNB 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
endorsement was genuine before cashing the check. Its remedy is against Maasim to whom it paid the
money. The Supreme Court reversed the lower court's judgment, and entered another in favor of GELIC
and against HSBC for P2,000, with interest thereon from 8 November 1920, at the rate of 6% per annum,
and the costs of the action, and a corresponding judgment will be entered in favor of HSBC against PNB for
the same amount, together with the amount of its costs in the action.
Person Secondarily Liable When Instrument Dishonored

GR. L-40796 July 31, 1975

82. Republic Bank v. Mauricia T. Ebrada

FACTS: Ebrada encashed a back pay check dated Jan. 15, 1963 for P1,246.08 at the main office of the
Republic Bank. The check was issued by the Bureau of Treasury. The Bureau advised the bank that the
alleged indorsement by Martin Lorenzo at the dorsal portion of the check was a forgery because Lorenzo
has already died as of July 14, 1952. The Bureau requested the bank to refund the aforesaid amount.

To recover what it refunded to the Bureau, the bank made verbal and formal demands upon Ebrada for the
same amount. Ebrada refused. The bank sued Ebrada before the City Court of Manila. Ebrada alleged that
she was a holder in due course, or at least acquired her rights from a holder in due course and was
therefore entitled to the proceeds thereof. She also alleged that the bank was estopped or was so
negligent as not to be entitled to recover anything from her.

Ebrada later filed a 3rd party complaint against Adelaida Dominguez, who in turn filed a 4th party complaint
against Justin Tino. The dorsal portion bears the following signatures in this order: Martin Lorenzo; Ramon
R. Lorenzo; Delia Dominguez; and Mauricia Ebrada. Adelaida delivered the cash to Ebrada for encashment.
The Court ordered Ebrada to pay the bank the above amount, however any actions Ebrada may have
against Dominguez is reserved.

ISSUE: WON Ebrada is secondarily liable to pay the bank despite being a holder in due course.

HELD: Yes. Only the negotiation predicated on the forged indorsement that should be declared
inoperative. This means that the negotiation of the check in question from Martin Lorenzo, the original
payee, to Ramon R. Lorenzo, the 2nd indorser, should be declared of no effect, but the negotiation of the
aforesaid check from Ramon R. Lorenzo to Adelaida Dominguez, the 3rd indorser, and from Adelaida
Dominguez to Ebrada who did not know of the forgery, should be considered valid and enforceable,
barring any claim of forgery. Being the last indorser, however, Ebrada warrants that she has good title to
the check subject of this action.

The bank can recover from the holder [Ebrada] the money paid to the latter 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 extending only to holders in due course. Ebrada, upon
receiving the check in question from Dominguez, was duty-bound to ascertain whether the check in
question was genuine before presenting it to plaintiff Bank for payment.
83. PNB VS. QUIMPO (GR No. L-53194, March 14, 1988)

FACTS: Private Respondent Francisco Gozon went to the Caloocan City Branch of PNB with his friend
Ernesto Santos, who he left in the car while he transacted business in the bank. Santos saw that Gozon left
his checkbook, he took a check therefrom, filled it up for P5,000 and forged the signature of Gozon. Santos
was later on apprehended and admitted that he stole the check and encashed the same with the bank.
Gozon filed an action to recover the amount from the Bank which the court granted. Hence the petition.

ISSUE: WON Gozon who left his checkbook into hands of Santos was indeed the proximate cause of the
loss and thus precluded from setting up the defense of forgery?

HELD: No. 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). 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. The prime duty of the 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.
Obviously, petitioner was negligent in encashing said forged check without carefully examining the
signature which shows marked variation from the genuine signature of private respondent. The act of the
plaintiff in leaving his checkbook in the car cannot be considered negligence sufficient to excuse the
defendant bank from its own negligence. Santos could not have been expected to know that Santos, a long
time classmate and friend, would remove a check from his checkbook.
84. NATIVIDAD GEMPESAW VS. CA

GR No. 92244; Feb. 9, 1993

Facts: Natividad Gempesaw issued checks, prepared by her bookkeeper, a total of 82 checks in favor of
several supplies. Most of the checks are for amounts in excess of actual obligations as shown in their
corresponding invoices. It was only after the lapse of more than 2 years did she discovered the fraudulent
manipulations of her bookkeeper. It was also learned that the indorsements of the payee were forged, and
the checks were brought to the chief accountant of Philippine Bank of Commerce (the Drawee Bank,
Buendia Branch) who deposited them in the accounts of Alfredo Romero and Benito Lam. Gempesaw
made demand upon the bank to credit the amount charged due the checks. The bank refused. Hence, the
present action.

ISSUE: Who shall bear the loss resulting from the forged indorsements?

HELD: As a rule, a drawee bank who has paid a check on which an indorsement has been forged cannot
charge the drawer’s account for the amount of said check. An exception to the rule is where the drawer is
guilty of such negligence which causes the bank to honor such checks. Gempesaw did not exercise
prudence in taking steps that a careful and prudent businessman would take in circumstances to discover
discrepancies in her account. Her negligence was the proximate cause of her loss, and under Section 23 of
the Negotiable Instruments Law, is precluded from using forgery as a defense. On the other hand, the
banking rule banning acceptance of checks for deposit or cash payment with more than one indorsement
unless cleared by some bank officials, does not invalidate the instrument; neither does it invalidate the
negotiation or transfer of said checks. The only kind of indorsement which stops the further negotiation
of an instrument is a restrictive indorsement which prohibits the further negotiation thereof, pursuant
to Section 36 of the Negotiable Instruments Law. In light of any case not provided for in the Act that is to
be governed by the provisions of existing legislation, pursuant to Section 196 of the Negotiable
Instruments Law, the bank may be held liable for damages in accordance with Article 1170 of the Civil
Code. The drawee bank, in its failure to discover the fraud committed by its employee and in contravention
banking rules in allowing a chief accountant to deposit the checks bearing second indorsements, was
adjudged liable to share the loss with Gempesaw on a 50:50 ratio.
85. PCI Bank vs CA

Facts: Ford drew and issued a crossed check in favor of the Commissioner of Internal Revenue (CIR) as
payment of its percentage or manufacturer’s sales taxes. The check was deposited with Philippine
Commercial International Bank (PCIBank) and was subsequently cleared by Central Bank. Upon
presentment with Citibank, the proceeds were paid to PCIBank. Later, Ford drew another Citibank Check
of P6,311,591.73, representing the payment of percentage tax for the first quarter of 1979 payable to the
CIR. Both checks were "crossed checks" and contain two diagonal lines on its upper corner between, which
were written the words "payable to the payee's account only." The checks never reached the payee, CIR.
As far as the BIR is concerned, the said two BIR Revenue Tax Receipts were considered "fake and spurious"
and forced Ford to pay the BIR anew, while he filed an action against Citibank and PCIBank for recovery.

RTC: Mr. Godofredo Rivera was employed by FORD as its General Ledger Accountant. He prepared the
check for payment to the BIR. Instead, of delivering to the payee, he gave it to Remberto Castro, a co-
conspirator who was a pro-manager of PCIB. Castro opened a Checking Account in the name of a fictitious
person "Reynaldo Reyes" with connivance of Dulay, assistant manager of PCIB. Castro deposited a
worthless Bank of America Check in exactly the same amount as the first FORD check while this worthless
check was coursed through PCIB's main office enroute to the Central Bank for clearing, replaced this
worthless check with Ford's and accordingly tampered the accompanying documents to cover the
replacement. As a result, Ford's check was cleared by CITIBANK, and the fictitious deposit account of
'Reynaldo Reyes' was credited at the PCIB. RTC found Citibank liable and absolved PCIB.

Issue: WON petitioner Ford the right to recover from the collecting bank (PCIBank) and the drawee bank
(Citibank) the value of the checks intended as payment to the Commissioner of Internal Revenue.

Ruling: YES. The mere fact that the forgery was committed by a drawer-payors confidential employee or
agent, who by virtue of his position had unusual facilities for perpetrating the fraud and imposing the
forged paper upon the bank, does NOT entitle the bank to shift the loss to the drawer-payor, in the
absence of some circumstance raising estoppel against the drawer. This rule likewise applies to the checks
fraudulently negotiated or diverted by the confidential employees who hold them in their possession.

In this case, there was no evidence presented confirming the conscious participation of PCIBank in
the embezzlement. As a general rule, however, a banking corporation is liable for the wrongful or tortuous
acts and declarations of its officers or agents within the course and scope of their employment. A bank will
be held liable for the negligence of its officers or agents when acting within the course and scope of their
employment. It may be liable for the tortuous acts of its officers even as regards that species of tort of
which malice is an essential element. In this case, we find a situation where the PCIBank appears also to be
the victim of the scheme hatched by a syndicate in which its own management employees had
participated.

A bank holding out its officers and agents as worthy of confidence will not be permitted to profit by
the frauds these officers or agents were enabled to perpetrate in the apparent course of their
employment; nor will it be permitted to shirk its responsibility for such frauds, even though no benefit may
accrue to the bank therefrom. For the general rule is that a bank is liable for the fraudulent acts or
representations of an officer or agent acting within the course and apparent scope of his employment or
authority. And if an officer or employee of a bank, in his official capacity, receives money to satisfy an
evidence of indebtedness lodged with his bank for collection, the bank is liable for his misappropriation of
such sum. Citibank must likewise answer for the damages incurred by Ford on Citibank Checks, because of
the contractual relationship existing between the two. Citibank, as the drawee bank breached its
contractual obligation with Ford and such degree of culpability contributed to the damage caused to the
latter. PCI Bank and Citibank are thus liable for and must share the loss, on a fifty-fifty ratio.

86. PAPA vs AU VALENCIA

FACTS

A.U. Valencia and Co., Inc. filed for specific performance against herein petitioner Myron C. Papa, in
his capacity as administrator a Testate Estate.

The complaint alleged thatPapa, acting as attorney-in-fact of Angela M. Butte (dead), sold to
respondent Pearroyo, through respondent Valencia, a parcel of land, that prior to the alleged sale, the said
property had been mortgaged to Associated Citizens Bank and after the sale was made, the bank refused
to release it unless and until all the mortgaged properties were also redeemed.

The complaint further alleged that respondents Valencia and Pearroyo discovered that the mortgage
rights of the bank had been assigned to one Tomas L. Parpana (now deceased), as special administrator of
the Estate of Ramon Papa, Jr since then, herein petitioner had been collecting monthly rentals knowing
knowing of the sale, refused and failed to deliver the title to the property.

On petitioners claim that he cannot be held personally liable as he had acted merely as attorney-in-
fact of the owner, Angela M. Butte.

Petitioner alleges among others that the sale was never consummated as he did not encash the check
given by respondents Valencia and Pearroyo in payment of the full purchase price of the subject lot
ISSUE: Whether or not Papa should be liable

RULING: YES

It is an undisputed fact that respondents Valencia and Pearroyo had given petitioner Myron C. Papa
cash, in payment of the purchase price of the subject lot. Petitioner himself admits having received said
amounts, and having issued receipts therefor. Petitioners assertion that he never encashed the aforesaid
check is not subtantiated and is at odds with his statement in his answer that he can no longer recall the
transaction which is supposed to have happened 10 years ago. After more than ten (10) years from the
payment in part by cash and in part by check, the presumption is that the check had been encashed.

Granting that petitioner had never encashed the check, his failure to do so for more than 10 years
undoubtedly resulted in the impairment of the check through his unreasonable and unexplained delay.

While it is true that the delivery of a check produces the effect of payment only when it is cashed,
pursuant to Art. 1249 of the Civil Code, the rule is otherwise if the debtor is prejudiced by the creditors
unreasonable delay in presentment. The acceptance of a check implies an undertaking of due diligence in
presenting it for payment, and if he from whom it is received sustains loss by want of such diligence, it will
be held to operate as actual payment of the debt or obligation for which it was given. It has, likewise, been
held that if no presentment is made at all, the drawer cannot be held liable irrespective of loss or
injury unless presentment is otherwise excused. This is in harmony with Article 1249 of the Civil Code
under which payment by way of check or other negotiable instrument is conditioned on its being cashed,
except when through the fault of the creditor, the instrument is impaired. The payee of a check would be a
creditor under this provision and if its non-payment is caused by his negligence, payment will be deemed
effected and the obligation for which the check was given as conditional payment will be discharged.
87. FAR EAST REALTY INVESTMENT INC., vs. COURT OF APPEALS, DY HIAN TAT, SIY CHEE and GAW SUY
AN [G.R. No. L36549, October 5, 1988]

FACTS: Respondent Dy Hian Tat, Siy Chee and Gaw Suy An sought the extension of an accommodation loan
from petitioner Far East Realty Investment which the former will use to further their business.
Respondents promised to pay, jointly and severally, in one month time. To insure payment, respondents
delivered to Far East Realty Investment a China Bank Check drawn by Dy Hian Tat issued on September 13,
1960, and signed by them at the back of said check, with the assurance that after one month from
September 13, 1960, the said check would be redeemed by respondents by paying cash or the said check
can be presented for payment on or immediately after one month. The loan was actually extended but
when the check was presented for payment on March 5, 1964, it was dishonored—the account on which it
is drawn has long been closed.

The trial court held in favor of petitioner but this was reversed by the CA by ruling that the said check
wasn’t presented within reasonable time and after its issuance. Petitioner contends that presentment for
payment and notice of dishonor are not necessary as when funds are insufficient to meet a check, the
drawer is liable, whether such presentment and notice be totally omitted or merely delayed.

ISSUE: WON presentment for payment and notice of dishonor of the questioned check were made within
reasonable time?

HELD: NO. Where the instrument is not payable on demand, presentment must be made on the day it falls
due. Where it is payable on demand, presentment must be made within a reasonable time after issue,
except that in the case of a bill of exchange, presentment for payment will be sufficient if made within a
reasonable time after the last negotiation thereof.

"Reasonable time" has been defined as so much time as is necessary under the circumstances for a
reasonable prudent and diligent man to do, conveniently, what the contract or duty requires should be
done, having a regard for the rights and possibility of loss, if any, to the other party. In the instant case, the
check in question was issued on September 13, 1960, but was presented to the drawee bank only on
March 5, 1964, and dishonored on the same date. After dishonor by the drawee bank, a formal notice of
dishonor was made by the petitioner through a letter dated April 27, 1968. Under these circumstances, the
petitioner undoubtedly failed to exercise prudence and diligence on what he ought to do as required by
law. The petitioner likewise failed to show any justification for the unreasonable delay. Notice may be
given as soon as instrument has been dishonored and unless delay is excused must be given within the
time fixed by law
88. 88. McGuire vs Province of Samar [G.R. No. L-8155. October 23, 1956.]

Facts: While the province of Samar was still occupied by Japanese military forces, a check was issued by
said province to Paulino M. Santos (then the postmaster of Borongan) for the sum of P25,000, drawn
against the Philippine National Bank Cebu Branch. The payee negotiated the check with James McGuire, an
American citizen and resident of the municipality of Borongan. 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.

James McGuire wrote letters to the Bureau of Posts seeking payment of the check, which were in turn
referred to the PNB. As of this date the province of Samar still had a deposit of P84,287.47 in the PNB. PNB
requested James McGuire to present the check to the provincial treasurer and the provincial auditor for
certification. Before the check could be certified by the authorities concerned as being in order and
entitled to priority of payment, the province of Samar, withdraw the amount of P83,504.07, leaving a
balance of only P743.43. In the meantime, James McGuire transferred his rights to the check to the herein
Plaintiffs who, unable to cash it.

Issue: WON defendants herein are solidarily liable to pay the check.

Ruling: No.The obligation of the Appellant bank is merely subsidiary. An implied acceptance of the check
by the Appellant bank was thereby created. 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 Appellant did not thereby mean to assume the obligation of paying the check and holding sufficient
deposit of the drawer for the purpose. Even so, Appellant’s resulting obligation is merely subsidiary, the
province of Samar being primarily liable to pay the check.

89. 89. ASIA BANKING VS. JAVIER

(GR No. L - 19051; April 4, 1923) –

FACTS: Salvador Chaves drew two checks against PNB in favor of La Insular. This check was indorsed by the
limited partners of La Insular, and then deposited by Chaves in his current account with the plaintiff, Asia
Banking Corporation. The amount represented by both checks was used by Chaves after they were
deposited in the plaintiff bank, by drawing checks on the plaintiff. Subsequently these checks were
presented by the plaintiff to the Philippine National Bank for payment, but the latter refused to pay on the
ground that the drawer, Chaves, had no funds therein. The lower court sentenced the defendant, as
indorser, to pay the plaintiff, hence, this petition.

ISSUE: WON defendant’s liability can be enforced?

HELD: No. 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. There is no proof in the record
tending to show that plaintiff gave any notice whatsoever to the defendant that the checks in question had
been dishonored, and there it has not established its cause of action. Hence, petition was granted.

90. 90. GULLAS VS PNB (GR. NO. L-43191; NOV. 13, 1935)

FACTS: The Treasurer of the United States issued a warrant in the amount of $361 payable to Francisco
Bacos. Petitioner and Pedro Lopez signed as endorsers of this check. Thereupon it was cashed by PNB.
Subsequently the treasurer warrant was dishonored by the Insular Treasurer. At that time, Gullas has an
outstanding balance of P509 with PNB and had issued certain checks before he left his residence for
Manila. The bank on learning of the dishonor of the treasury warrant sent notices by mail to Gullas which
could not delivered to him because he is not in Manila.

In view of this, the bank applied the outstanding balances of Gullas’ current account with the PNB for the
payment of the check. On the return of Gullas, notice of dishonor was received and the unpaid balance of
the US Treasury was paid by him. As a result of this, the checks issued by him before he left for Manila
were not paid because of lack of funds standing to his credit in the bank.

ISSUE: WON PNB has the right to apply a deposit to the debt of the depositor to the bank?

HELD: No. The NIL contains provisions establishing the liability of a general indorser and giving the
procedure for a notice of dishonor. The general indorser engages that if he be dishonored and the
necessary proceedings of dishonor be duly taken, he will pay the amount to the holder. The 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 to set off the deposits in its hands for the payment of
any indebtedness to it on the part of the depositor. In the case at bar, though this right to set off exist, the
remedy was not properly enforced because prior to the mailing of the 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.

91. NYCO SALES CORP v BA FINANCE

FACTS:

NYCO Sales Corp extended a credit accommodation to the Fernandez Brothers. The brothers, acting in
behalf of Sanshell Corp, discounted a BPI check for P60,000 with NYCO, which then indorsed the said check
to BA Finance accompanied by a Deed of Assignment. BA Finance, in turn, released the funds,which were
used by the brothers. The BPI check was dishonored. The brothers issued a substitute check,which was also
dishonored. Now BA Finance goes after NYCO, which disclaims liability.

ISSUE:

W/N NYCO, as the assignor, is liable for breach of warranties.

HELD:

YES. The assignor (NYCO) warrants both the existence and legality of the credit, as well as the solvency of
the debtor. If there is a breach of any of the2 warranties, the assignor is liable to the assignee. That being
the case, NYCO cannot evade liability. So long as the credit remains unpaid, the assignor remains liable
notwithstanding failure to give notice of dishonor that is because the liability of NYCO stems form the
assignment, not on the checks alone.

92. Great Asian Sales vs. Court of Appeals

Facts:

Great Asian is engaged in the business of buying and selling general merchandise, in particular household
appliances. On March 17, 1981, the board of directors of Great Asian approved a resolution authorizing its
Treasurer and General Manager, Arsenio Lim Piat, Jr. ("Arsenio" for brevity) to secure a loan from Bancasia
in an amount not to exceed P1.0 million.

Tan Chong Lin signed a Surety Agreement in favor of Bancasia to guarantee, solidarily, the debts of Great
Asian to Bancasia. Great Asian, through its Treasurer and General Manager Arsenio, signed four (4) Deeds
of Assignment of Receivables ("Deeds of Assignment" for brevity), assigning to Bancasia fifteen (15)
postdated checks.

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".

Bancasia sent by personal delivery a letter dated June 16, 1982 to Tan Chong Lin, notifying him 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 June 23, 1982, Bancasia filed a complaint for collection of a sum of money against Great Asian and Tan
Chong Lin. Bancasia impleaded Tan Chong Lin because of the Surety Agreements he signed in favor of
Bancasia.

Issue: Whether or not Tan Chong Lim is liable for the amount of the checks

Ruling:

Yes. Tan Chong Lin, the President of Great Asian, is being sued in his personal capacity based on the Surety
Agreements he signed wherein he solidarily held himself liable with Great Asian for the payment of its
debts to Bancasia. The Surety Agreements contain the following common condition:

"Upon failure of the Principal to pay at maturity, with or without demand, any of the obligations above
mentioned, or in case of the Principal’s failure promptly to respond to any other lawful demand made by
the Creditor, its successors, administrators or assigns, both the Principal and the Surety/ies shall be
considered in default and the Surety/ies agree/s to pay jointly and severally to the Creditor all outstanding
obligations of the Principal, whether due or not due, and whether held by the Creditor as Principal or
agent, and it is agreed that a certified statement by the Creditor as to the amount due from the Principal
shall be accepted by the Surety/ies as correct and final for all legal intents and purposes."

Indisputably, Tan Chong Lin explicitly and unconditionally bound himself to pay Bancasia, solidarily with
Great Asian, if the drawers of the checks fail to pay on due date. The condition on which Tan Chong Lin’s
obligation hinged had happened. As surety, Tan Chong Lin automatically became liable for the entire
obligation to the same extent as Great Asian.

Article 1207 of the Civil Code provides, "xxx There is a solidary liability only when the obligation expressly
so states, or when the law or nature of the obligation requires solidarity." The stipulations in the Surety
Agreements undeniably mandate the solidary liability of Tan Chong Lin with Great Asian. Moreover, the
stipulations in the Surety Agreements are sufficiently broad, expressly encompassing "all the notes, drafts,
bills of exchange, overdraft and other obligations of every kind which the PRINCIPAL may now or may
hereafter owe the Creditor". Consequently, Tan Chong Lin must be held solidarily liable with Great Asian
for the nonpayment of the fifteen dishonored checks, including penalty and attorney’s fees in accordance
with the Deeds of Assignment.
93. LUIS WONG VS. CA

(G.R. No. 117857; February 2, 2001)

FACTS: Petitioner Wong was an agent of Limtong Press. Inc. (LPI). LPI would print sample calendars, then
give them to agents to present to customers. The agents would get the purchase orders of customers and
forward them to LPI. After printing the calendars, LPI would ship the calendars directly to the customers.
Thereafter, the agents would come around to collect the payments. Petitioner, however, had a history of
unremitted collections, which he duly acknowledged in a confirmation receipt he co-signed with his wife.
Hence, petitioner’s customers were required to issue post-dated checks before LPI would accept their
purchase orders. Wong issued six (6) postdated checks 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
petitioner’s unremitted. Before the maturity of the checks, petitioner prevailed upon LPI not to deposit the

checks and promised to replace them within 30 days. However, petitioner reneged on his promise. LPI
deposited the checks with Rizal Commercial Banking Corporation (RCBC) which were returned because the
account was closed. Despite receipt of the notice of dishonor, petitioner failed to make arrangements for
payment within five (5) banking days so he was charged with violation of BP 22.

ISSUE: What constitutes REASONABLE TIME for checks?

HELD: Contrary to petitioner’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 the notice thereof. That the
check must be deposited within ninety (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 petitioner 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 six (6)
months,23 or 180 days. Private respondent herein deposited the checks 157 days after the date of the
check. Hence, said checks cannot be considered stale. Only the presumption of knowledge of insufficiency
of funds was lost, but such knowledge could still be proven by direct or circumstantial evidence. As found
by the trial court, private respondent did not deposit the checks because of the reassurance of petitioner
that he would issue new checks. Upon his failure to do so, LPI was constrained to deposit the said checks.
After the checks were dishonored, petitioner was duly notified of such fact but failed to make
arrangements for full payment within five (5) banking days thereof. There is, on record, sufficient evidence
that petitioner had knowledge of the insufficiency of his funds in or credit with the drawee bank at the
time of issuance of the checks. And despite petitioner’s insistent plea of innocence, we find no error in the
respondent court’s affirmance of his conviction by the trial court for violations of the Bouncing Checks Law.

DISCHARGE OF INSTRUMENTS

94.

CHECKS

95. BANCO DE ORO SAVINGS VS. EQUITABLE BANKING CORP. (GR No. 74917, Jan. 20, 1988)

Facts:

Manager's checks (Checks) having an aggregate amount of P45,982.23 and payable to certain member
establishments of Visa Card. Subsequently, the Checks were deposited with the defendant (respondent
Equitable) to the credit of its depositor (Aida Trencio’s account). Following normal procedures, and after
stamping at the back of the Checks the usual endorsements (All prior and/or lack of endorsement
guaranteed), Equitable sent the checks for clearing through the Philippine Clearing House Corporation
(PCHC). Accordingly, BDO 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, BDO discovered that the
endorsements appearing at the back of the Checks, 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, it presented the Checks directly to 4 Cesar Nickolai F. Soriano Jr. Arellano University
School of Law 2011-0303 NEGOTIABLE INSTRUMENTS LAW (Act No. 2031) based on the book of Aquino
and De Leon and Audio Lecture of Dean Sundiang Equitable for the purpose of claiming reimbursement
from the latter. However, Equitable refused to do so. After an exhaustive investigation and hearing, the
Arbiter rendered a decision in favor of BDO and against Equitable ordering the PCHC to debit the clearing
account of the defendant (E), and to credit the clearing account of the plaintiff (B) of the foregoing amount
with interest at the rate of 12% per annum from date of the complaint. The Board of Directors of the PCHC
affirmed the decision of the Arbiter. Hence this petition.

ISSUE 1: Were the subject checks nonnegotiable and if not, does it fall under the ambit of the power of the
PCHC? OR Does the PCHC has jurisdiction over the controversy involved in view of petitioner’s claim that
the subject matter of the case (the Checks) was not negotiable.

HELD: Yes. As provided in the articles of incorporation of PCHC, its operation extend to "clearing checks
and other clearing items." No doubt transactions on non-negotiable checks are within the ambit of its
jurisdiction. The term check as used in the said Articles of Incorporation of PCHC can only connote checks
in general use in commercial and business activities. It cannot be conceived to be limited to negotiable
checks only. 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. Further, the participation of the two
banks, petitioner and private respondent, in the clearing operations of PCHC is a manifestation of their
submission to its jurisdiction.

ISSUE 2: How does principle of estoppel apply?

HELD:

Petitioner is estopped from raising the defense of nonnegotiability of the checks in question. It
stamped its guarantee on the back of the checks and subsequently presented these checks for clearing and
it was on the basis of these endorsements by the petitioner that the proceeds were credited in its clearing
account. The principle of estoppel effectively prevents the defendant from denying liability for any
damages sustained by the plaintiff which, relying upon an action or declaration of the defendant, paid on
the Checks. The same principle of estoppel effectively prevents the defendant from denying the existence
of the Checks. The petitioner by its own acts and representation cannot now deny liability because it
assumed the liabilities of an endorser by stamping its guarantee at the back of the checks. The petitioner
having stamped its guarantee of "all prior endorsements and/or lack of endorsements" (Exh. A-2 to F-2) is
now estopped from claiming that the checks under consideration are not negotiable instruments. The
checks were accepted for deposit by the petitioner stamping thereon its guarantee, in order that it can
clear the said checks with the respondent bank. By such deliberate and positive attitude of the petitioner it
has for all legal intents and purposes treated the said cheeks as negotiable instruments and accordingly
assumed the warranty of the endorser when it stamped its guarantee of prior endorsements at the back of
the checks. It led the said respondent to believe that it was acting as endorser of the checks and on the
strength of this guarantee said respondent cleared the checks in question and credited the account of the
petitioner. Petitioner is now barred from taking an opposite posture by claiming that the disputed checks
are not negotiable instrument.
96. 96. REPUBLIC OF THE PHILIPPINES vs. PHILIPPINE NATIONAL BANK, ET AL.,

FACTS:

Republic of the Philippines filed an escheat proceeding pursuant to RA 3936 over dormant deposits or
unclaimed balances in various banks including First National City Bank of New York.

In its answer the First National City Bank of New York claims that, while it admits that various savings
deposits, pre-war inactive accounts, and sundry accounts contained in its report submitted to the
Treasurer of the Philippines pursuant to Act No. 3936, totalling more than P100,000.00, which remained
dormant for 10 years or more, are subject to escheat however, it has inadvertently included in said report
certain items amounting to P18,589.89 which, properly speaking, are not credits or deposits within the
contemplation of Act No. 3936. Hence, it prayed that said items be not included in the claim of plaintiff.

Issue: W/N demand drafts be included as part of unclaimed balance or deposits to be escheated.

Ruling:

No. A demand draft is a bill of exchange payable on demand, as such, it is an open letter request from,
and 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 specified therein. In fact, the term “draft” is often used, and is the common
term, for all “bills of exchange”. And the two words are used indiscriminately.

A bill of exchange, within the meaning of NIL 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 (Sec. 127). In fact, our law
requires that they be presented either for acceptance or for payment within a reasonable time after their
issuance or after their last negotiation (Sec. 71), failure of which will discharge the drawer from liability or
to the extent of the loss caused by the delay (Sec. 186). A demand draft is very different from a cashier’s or
manager’s check, contrary to appellant’s pretense, for it has been held that the latter is a primary
obligation of the bank which issues it and constitutes its written promise to pay upon demand. In In Re
Bank of the United States (277 NYS 96, 100), a cashier’s check has been characterized as follows:

“A cashier's check issued by a bank, however, is not an ordinary draft. The latter is a bill of
exchange payable demand. It is an order upon a third party purporting to be drawn upon a deposit of
funds. A cashier's check is of a very different character. It is the primary obligation of the bank which issues
it (Nissenbaum v. State, 38 Ga. App. 253, S.E. 776) and constitutes its written promise to pay upon demand
(Steinmetz v. Schultz, 59 S.D. 603, 241 N.W. 734)…”
97. NEW PACIFIC TIMBER & SUPPLY CO. INC. VS. SENERIS

10 SCRA 686

FACTS: Petitioner, New Pacific Timber & Supply Co. Inc. was the defendant in a complaint for collection of
money filed by private respondent, Ricardo A. Tong. In this complaint, respondent Judge rendered a
compromise judgment based on the amicable settlement entered by the parties wherein petitioner will
pay to private respondent P54,500.00 at 6% interest per annum and P6,000.00 as attorney’s fee of which
P5,000.00 has been paid. Upon failure of the petitioner to pay the judgment obligation, a writ of execution
worth P63,130.00 was issued levied on the personal properties of the petitioner. Before the date of the
auction sale, petitioner deposited with the Clerk of Court in his capacity as the Ex-Officio Sheriff P50,000.00
in Cashier’s Check of the Equitable Banking Corporation and P13,130.00 in cash for a total of

P63,130.00. Private respondent refused to accept the check and the cash and requested for the auction
sale to proceed. The properties were sold for P50,000.00 to the highest bidder with a deficiency of
P13,130.00. Petitioner subsequently filed an ex-parte motion for issuance of certificate of satisfaction of
judgment which was denied by the respondent Judge. Hence this present petition, alleging that the
respondent Judge capriciously and whimsically abused his discretion in not granting the requested motion
for the reason that the judgment obligation was fully satisfied before the auction sale with the deposit
made by the petitioner to the Ex-Officio Sheriff. In upholding the refusal of the private respondent

to accept the check, the respondent Judge 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. In sustaining the contention of the private respondent to refuse the acceptance of the cash, the
respondent Judge 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: Can the check be considered a valid payment of the judgment obligation?

RULING: Yes. It is to be emphasized that 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

98. 98. PNB vs National City Bank of New York

An unknown person or persons negotiated with defendant Motor Service Company, Inc., the checks
marked as Exhibits A and A-1, in payment for automobile tires purchased from said defendant's stores,
purporting to have been issued by the "Pangasinan Transp Transportation Co., Inc. by J. L. Klar, Manager
and Treasurer", against the Philippine National Bank and in favor of the International Auto Repair Shop.
Said checks were indorsed by said unknown persons in the manner indicated at the back thereof, the
Motor Service Co., Inc., believing at the time that the signature of J. L. Klar, Manager and Treasurer of the
Pangasinan Transportation Co., Inc., on both checks were genuine.

The checks were then indorsed for deposit by the defendant Motor Service Company, Inc, at the National
City Bank of New York and the former was accordingly credited with the amounts thereof.
The Philippine National Bank then found out that the purported signatures of J. L. Klar, as Manager and
Treasurer of the Pangasinan Transportation Company, Inc were forged when so informed by the said
Company, and it accordingly demanded from the defendants the reimbursement of the amounts.

Issue: W/N law or business practice prevents the presentation of checks for acceptance before they are
paid.
Ruling: No.

Section 187, which provides that "where a check is certified by the bank on which it is drawn, the
certification is equivalent to an acceptance", and it is then that the warranty under section 62 exists

That if a drawee bank pays a forged check which was previously accepted or certified by the said bank it
cannot recover from a holder who did not participate in the forgery and did not have actual notice thereof

The purpose of procuring a check to be certified is to impart strength and credit to the paper by obtaining
an acknowledgment from the certifying bank that the drawer has funds therein sufficient to cover the
check and securing the engagement of the bank that the check will be paid upon presentation.
When a check is certified, it ceases to possess the character, or to perform the functions, of a check, and
represents so much money on deposit, payable to the holder on demand. The check becomes a basis of
credit — an easy mode of passing money from hand to hand, and answers the purposes of money.

99. ASSOCIATED BANK VS CA

208 SCRA 465

GR No. 89802; May 7, 1992

FACTS:

Merle Reyes was engaged in the RTW business and held transactions with different department stores. She
was about to collect payments from the department stores when she was informed that the payments had
already been made, through crossed checks issued in her business’ name and the same were deposited
with the bank. The bank consequently allowed its transfer to Sayson who later encashed the checks. This
prompted Reyes to sue the bank and its manager for the return of money. The trial and appellate court
ruled in her favor.

ISSUE:
Whether or not Private Respondent Reyes, doing business under the name and style Melissa’s RWT, has a
cause of action against petitioners Associated Bank for their encashment and payment to another person
of certain crossed checks issued in her favor?

RULING:
Yes. Under accepted banking practice, crossing a check is done by writing two parallel lines diagonally on
the left top portion of the checks. The crossing is special where the name of a bank or a business institution
is written between the two parallel lines, which means that the drawee should pay only with the
intervention of that company. The crossing is general where the words written between the two parallel
lines are "and Co." or "for payee's account only," as in the case at bar. This means that the drawee bank
should not encash the check but merely accept it for deposit.

In State Investment House Inc vs. IAC (supra, p. 19), the Court declared the effects of crossing a check. The
effects therefore of crossing a check relate to the mode of its presentment for payment. Under Sec. 72 of
the Negotiable Instruments Law, presentment for payment, to be sufficient, must be made by the holder
or by some person authorized to receive payment on his behalf. Who the holder or authorized person is
depends on the instruction stated on the face of the check. The six checks in the case at bar had been
crossed and issued "for payee's account only." This could only signify that the drawers had intended the
same for deposit only by the person indicated, to wit, Melissa's RTW. There being no evidence that the
crossed checks were actually received by the private respondent, she would have a right of action against
the drawer companies, which in turn could go against their respective drawee banks, which in turn could
sue the herein petitioner as collecting bank. In a similar situation, it was held that, to simplify proceedings,
the payee of the illegally encashed checks should be allowed to recover directly from the bank responsible
for such encashment regardless of whether or not the checks were actually delivered to the payee.

100. BATAAN CIGAR AND CIGARETTE FACTORY (BCCFI) VS. CA

(GR No. 93048; March 3, 1994)

FACTS:

BCCF, a corporation involved in the manufacturing of cigarettes, issued to King Tim Pua George (George
King) post-dated crossed checks for the delivery tobacco leaves. George King later on sold at a discount the
subject checks to State Investment House, Inc. ( SIHI). In as much as George King failed to deliver the bales
of tobacco leaves as agreed, despite petitioner’s demand, BCCFI issued a stop payment order on all checks
payable to George King. Efforts of SIHI to collect from BCCFI having failed, it instituted the present case,
naming only BCCFI as party defendant. The trial court pronounced SIHI as having a valid claim being a
holder in due course. It further said that the non-inclusion of King Tim Pua George as party defendant is
immaterial in this case, since he, as payee, is not an indispensable party. Unable to collect, SIHI instituted
an action to recover from herein petitioner and was granted relief by the trial court and later on upheld by
the CA. Hence, the present petition.

ISSUE:

Whether or not SIHI, a second indorser, a holder of crossed checks, a holder in due course
HELD:

No. Sec. 52 of the Negotiable Instruments Law (NIL) states what constitutes a holder in due course, thus:

Sec. 52 – 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.

Jurisprudence has pronounced that crossing a check should have 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; (c) and 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. It is settled
that crossing the checks should put the holder on inquiry and upon him devolves the duty to ascertain the
indorser’s 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, contrary to Sec. 52(c) of the NIL. In the
present case, BCCFIs defense in

stopping payment is as good to SIHI as it is to George King. Because, really, the checks were issued with the
intention that George King would supply BCCFI with the bales of tobacco leaf. There being failure of
consideration, SIHI is not a holder in due course. Consequently, BCCFI cannot be obliged to pay the checks.

101. NATIVIDAD GEMPESAW VS. CA

Facts:

Natividad Gempesaw issued checks, prepared by her bookkeeper, a total of 82 checks in favor of several
supplies. Most of the checks for amounts in excess of actual obligations as shown in their corresponding
invoices. It was only after the lapse of more than 2 years did she discovered the fraudulent manipulations
of her bookkeeper. It was also learned that the indorsements of the payee were forged, and the checks
were brought to the chief accountant of Philippine Bank of Commerce (the Drawee Bank, Buendia Branch)
who deposited them in the accounts of Alfredo Romero and Benito Lam. Gempesaw made demand upon
the bank to credit the amount charged due the checks. The bank refused. Hence, the present action.

ISSUE:

WON crossed check can be presented for payment.

Held:

NO.

Issuing a crossed check imposes no obligation on the drawee not honor such a check. It is more of a
warning to the holder that the check cannot be presented to the drawee bank for payment in cash.
Instead, the check can only be deposited with the payee’s bank which in turn must present it for payment
against the drawee bank in the course of normal banking transactions between banks. The crossed check
cannot be presented for payment but it can only be deposited and the drawee bank may only pay to
another bank in the payee’s or indorser’s account.

102. STATE INVESTMENT HOUSE VS. CA

FACTS: New Sikatuna 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
aforementioned 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.

ISSUE: WON petitioner is a holder in due course as to entitle it to proceed against private respondents
Chua for the amount stated in the dishonored checks?
HELD: The Intermediate Appellate Court (now Court of Appeals), correctly elucidated that the effects of
crossing a check are: the check may not be encashed but only deposited in the bank; the check may be
negotiated only once to one who has an account with a bank; and 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. Being not 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 checks were 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).
103. People v Nitafan

Facts:

Accused K.T. Lim a.k.a Mariano Lim, herein Private Respondent, was charged before Respondent
Court with violation of B.P. 22 in an Information alleging that he drew and issued to one Fatima Cortez
Sasaki a check in the amount of Php143,000.00, well knowing, however, that at the time of issue, he did
not have sufficient funds with the drawee bank – the reason for the latter to dishonor the subject check.
Respondent Lim, despite receipt of notice of such dishonor, failed to pay Sasaki the amount of said check

On 18 July 1986, private respondent moved to quash the Information of 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 natureS. PR also Cited
U.S. v. Isham, private respondent contended 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 memorandum of indebtedness and, should be sued upon in a civil action. Consequently, herein
Respondent Judge Nitafan, 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.

ISSUE: Whether or not the parameters of a concept of check under B.P. 22 include all checks, specifically,
memorandum check issued postdated in partial payment of a pre-existing obligation

HELD: YES. 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. Such a check is an evidence of debt
against the drawer, and although may not be intended to be presented, has the same effect as an ordinary
check, and if passed to the third person, will be valid in his hands like any other check. From the above
definition, 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 be have exempted
him form 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 . . . which check is
subsequently dishonored . . . shall be punished by imprisonment. Verily, a memorandum check comes
within the meaning of Sec. 185 of the Negotiable Instruments Law which defines a check as “a bill of
exchange drawn on a bank payable on demand.” A check is also defined as “[a] written order or request to
a bank or persons carrying on the business of banking, by a party having money in their hands, desiring
them to pay, on presentment, to a person therein named or bearer, or to such person or order, a named
sum of money.”

A memorandum check, upon presentment, is generally accepted by the bank. Hence, it does not
matter whether the check issued is in the nature of a memorandum as evidence of indebtedness or
whether it was issued in partial fulfillment of a pre-existing obligation, for what the law punishes is the
issuance itself of a bouncing check and not the purpose for which it was issued nor the terms and
conditions relating to its issuance. The mere act of issuing a worthless check, whether as a deposit, as a
guarantee, or even as an evidence of a pre-existing debt, is malum prohibitum.

104. SPOUSES MORAN AND LIBRADA MORAN VS. CA

FACTS:
Spouses George and Librada Moran are the owners of the Wack-Wack Petron gasoline station. They
regularly purchased bulk fuel and other related products from Petrophil Corporation on cash on
delivery (COD) basis. Petitioners maintained 3 joint accounts, namely 1 current account and 2 savings
accounts with the Shaw Boulevard branch of Citytrust Banking Corporation.
December 12, 1983: Librada Moran drew a check for P50,576.00 payable to Petrophil Corporation
December 13, 1983: Librada Moran, issued another check in the amount of P56,090.00 in favor of the
same corporation

December 15 or 16, 1983: George Moran was informed by his wife Librada, that Petrophil refused to
deliver their orders on a credit basis because the 2 checks they had previously issued were dishonored
upon presentment for payment due to "insufficiency of funds."
The non-delivery of gasoline forced them to temporarily stop business operations, allegedly causing
them to suffer loss of earnings.
George Moran, furious and upset, demanded an explanation from Raul Diaz, the branch manager.
Failing to get a sufficient explanation, he talked to a certain Villareal, a bank officer, who allegedly told
him that Amy Belen Ragodo, the customer service officer, had committed a "grave error".
 May or June, 1984: George Moran learned from Constancio Magno, credit manager of Petrophil, that
the he received on January 4, 1984 from Citytrust, through Diaz, a letter dated December 16, 1983,
notifying them that the 2 checks were "inadvertently dishonored . . . due to operational error."
July 24, 1984: Moran, through counsel, wrote Citytrust claiming that the bank's dishonor of the checks
caused them besmirched business and personal reputation, shame and anxiety, hence they were
contemplating the filing of the necessary legal actions unless the bank issued a certification clearing
their name and paid them P1,000,000.00 as moral damages

W/N: Spouses Moran can sue Citytrust for damages for negligence

HELD: NO.
 Spouses Moran had no reason to complain, for they alone were at fault.
 A drawer must remember his responsibilities every time he issues a check. He must personally keep
track of his available balance in the bank and not rely on the bank to notify him of the necessity to fund
certain check she previously issued
 letter was sent by respondent bank to Petrophil explaining that the dishonor of the checks was due to
"operational error." - NOT an admission of guilt
 bank may not be held responsible for such damages in the absence of fraud, bad faith, malice, or
wanton attitude

Doctrine: The relationship between the bank and the depositor is that of a debtor and creditor. By virtue
of the contract of deposit between them, the banker agrees to pay checks drawn by the depositor
provided that said depositor has money in the hands of the bank. Hence, where the bank possesses
funds of a depositor, it is bound to honor his checks to the extent of the amount of his deposits. The
failure of the bank to pay the check when the deposit is sufficient, entitles the drawer to substantial
damages without any proof of actual damages. Conversely, a bank is not liable for its refusal to pay a
check on account of insufficient funds, notwithstanding the fact that a deposit may be made later in the
day.

This relationship between the drawer and the drawee bank makes the drawee bank liable to the drawer
in case of wrongful dishonor of checks. A drawee bank who wrongfully dishonors a check is not liable to
the payee for lack of privity but it is liable to the drawer because of breach of contract.
Relationship between Payee, Drawer, Drawee

GR. 92244 Feb. 9, 1993

105. Natividad Gempesaw v. CA

FACTS: Petitioner filed a complaint against respondent drawee bank, PBC for recovery of the money value
of 82 checks charged against petitioner’s account w/ the PBC on the ground that payees’ indorsements
were forgeries. RTC Caloocan dismissed the complaint and PBC’s counterclaim. CA affirmed RTC decision
because Gempesaw’s negligence was the proximate cause of the loss.

Petitioner owns 4 grocery stores in Caloocan City. To facilitate payment of debts to her suppliers,
petitioner draws checks against her checking account with the respondent Philippine Bank of
Communications (PBC) as drawee. A bookkeeper prepares the checks and she signs it.

Petitioner signed each and every check without bothering to verify the accuracy of the checks against the
corresponding invoices because she reposed full and implicit trust and confidence on her bookkeeper [her
employee for 8 years]. The issuance and delivery of the checks to the payees named therein were left to
the bookkeeper. Petitioner admitted that she did not make any verification as to whether or not the
checks were delivered to their respective payees. Although the respondent drawee Bank notified her of all
checks presented to and paid by the bank, petitioner did not verify the correctness of the returned
checks, much less check if the payees actually received the checks in payment for the supplies she
received. A total of 82 checks in favor of several suppliers. These checks were all presented by the
indorsees as holders thereof to, and honored by, the respondent drawee Bank.

All the checks issued were crossed checks. Aside from the daily notice given to the petitioner by the
respondent drawee Bank, the latter also furnished her with a monthly statement of her transactions,
attaching thereto all the cancelled checks she had issued and which were debited against her current
account. Petitioner found out about the fraudulent manipulations of her bookkeeper more than 2 years
later.

ISSUE: WON PBC is liable to share the loss with Gempesaw.

HELD: Yes. There is no question that there is a contractual relation between petitioner as depositor
(obligee) and the respondent drawee bank as the obligor. In the performance of its obligation, the drawee
bank is bound by its internal banking rules and regulations which form part of any contract it enters into
with any of its depositors. When it violated its internal rules that second endorsements are not to be
accepted without the approval of its branch managers and it did accept the same upon the mere approval
of Boon, a chief accountant, it contravened the tenor of its obligation at the very least, if it were not
actually guilty of fraud or negligence.
Furthermore, the fact that the respondent drawee Bank did not discover the irregularity with respect to
the acceptance of checks with second indorsement for deposit even without the approval of the branch
manager despite periodic inspection conducted by a team of auditors from the main office constitutes
negligence on the part of the bank in carrying out its obligations to its depositors.

SC holds that banking business is so impressed with public interest where the trust and confidence of the
public in general is of paramount importance such that the appropriate standard of diligence must be a
high degree of diligence, if not the utmost diligence. PBC cannot claim it exercised such a degree of
diligence that is required of it. Its liability as obligor is not merely vicarious but primary wherein the
defense of exercise of due diligence in the selection and supervision of its employees is of no moment.

The fact that petitioner's negligence was found to be the proximate cause of her loss does not preclude her
from recovering damages.

106. HSBC INTERNATIONAL TRUSTEE LIMITED vs. CECILIA DIEZ CATALAN (G.R. No. 159590 & 15959;
October 18, 2004)

FACTS: Frederick Arthur Thomson drew 5 checks payable to Catalan in the total amount of HK$3.2 million.
Catalan presented these checks to HSBC. The checks were dishonored for having insufficient funds.
Thomson demanded that the checks be made good because he, in fact, had sufficient funds. Catalan
knowing that Thomson had communicated with the Bank, asked HSBC Bank to clear the checks and pay her
the said amount. HSBC did not heed her. Thomson died but Catalan was not paid yet. The account was
transferred to HSBC [Trustee]. Catalan then requested Trustee to pay her. They still refused and even
asked her to submit back to them the original checks for verification. Catalan and her lawyer went to
Hongkong on their own expense to personally submit the checks. They still were not honored, leading
Catalan to file a suit against HSBC to collect her HK$3.2M.

ISSUE: Whether or not Catalan has a cause of action under sec. 189?

HELD: No. Although they may sue the drawee based on tort under Art. 19 of the Civil Code. HSBC 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.
107. MARCELO MESINA VS. CA

G.R. No. 70145 November 13, 1986

Facts: Jose Go purchased from Associated Bank a cashier's check for P800,000.00. Unfortunately, he 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. While Uy went to the men's room, the
check was stolen by his visitor in the person of Alexander Lim. Upon discovering that the check was lost,
Jose Go accomplished a "STOP PAYMENT" order. Two days later, Associated Bank received the lost check
for clearing from Prudential Bank. After dishonoring the same check twice, Associated Bank received
summons and copy of a complaint for damages of Marcelo Mesina who was in possession of the lost check
and is demanding payment. Petitioner claims that a cashier's check cannot be countermanded in the hands
of a holder in due course.

ISSUE: WON petitioner can collect on the stolen check on the ground that he is a holder in due course?

HELD: 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 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. 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

108. Domagsang vs CA

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 will acquit her from the criminal violation.

Ruling: Yes. 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 only that the accused issued a check that is dishonored, but that likewise the
accused has actually been notified in writing of the fact of dishonour.

Doctrine: To secure the conviction in BP 22, a WRITTEN NOTICE of dishonour is required. The law does not
presume that the offender knows of the FACT OF DISHONOR from merely making an instrument without
value. As such, the accused is still entitled to notice of such dishonour.

109. RAMOS vs CA

FACTS

Ramos, as acting bank manager of Famly Savings Bank, was accused of estafa as she allowed withdrawals
of uncleared checks deposited into the accounts of her co-accused. Subsequently, they were dishonored.
Petitioner repeatedly granted accommodations and despite her knowledge that prior checks deposited by
her co-accused turned out to be unfunded.
ISSUE : Whether or not such acts are considered estafa

RULING: YES

Her acts constitute that she conspired and cooperated with the co-accused to defraud the bank and allow
the withdrawals. They are equivalent to unfaithfulness or abuse of confidence penalized under the Revised
Penal Code