SIAIN ENTERPRISES, vs. CUPERTINO REALTY CORP. and EDWIN R. CATACUTAN G.R. No.

170782 June 22, 2009 NACHURA, J.: Instrument: Promissory Note Drawer: Siain Enterprises, Inc Payee: Cupertino Realty Corp.

INC.

xxx In the case at bench, the mere assertion of Siain that they did not receive the Php160,000,000.00 loan without any evidence proving the same stands no ground vis--vis the well settled presumption that every negotiable instrument is deemed prima facie to have been issued for a valuable consideration, and which is binding to all the parties thereto. Engr. Jose Cayanan vs. North Star Internation Travel Inc. G.R. No. 172954 DRAWER: Engr. Cayanan PAYEE: North Star International Travel Inc. ISSUE: What is the presumption of consideration under Section 24? Under theNegotiable Instruments Law, it is presumed that every party to an instrument acquires the same for a consideration or for value. As petitioner alleged that there was no consideration for the issuance of the subject checks, it devolved upon him to present convincing evidence to overthrow the presumption and prove that the checks were in fact issued without valuable consideration. Petitioner has not presented any credible evidence to rebut the presumption, as well as North Stars assertion, that the checks were issued as payment for the US$85,000 petitioner owed. Notably, petitioner anchors his defense of lack of consideration on the fact that he did not personally receive the US$85,000 from Virginia. However, we note that in his pleadings, he never denied having instructed Virginia to remit the US$85,000 to View Sea Ventures. Evidently, Virginia sent the money upon the agreement that petitioner will give to North Star the peso equivalent of the amount remitted plus interest. FACTS: North Star International Travel Incorporated (North Star) is a corporation engaged in the travel agency business while petitioner is the owner/general manager of JEAC International Management and Contractor Services, a recruitment agency. Virginia Balagtas, the General Manager of North Star, in accommodation and upon the instruction of its client, petitioner herein, sent the amount of US$60,000 to View Sea Ventures Ltd., in Nigeria from her personal account in Citibank Makati. On March 29, 1994, Virginia again sent US$40,000 to View Sea Ventures by telegraphic transfer, with US$15,000 coming from petitioner. Likewise, on various dates, North Star extended credit to petitioner for the airplane tickets of his clients, with the total amount of such indebtedness under the credit extensions eventually reaching P510,035.47. To cover payment of the foregoing obligations, petitioner issued five checks to North Star When presented for payment, the checks were dishonored for insufficiency of funds while the other three checks were dishonored because of a stop payment order from petitioner. North Star, through its counsel, wrote petitioner informing him that the checks he issued had been dishonored. North Star demanded payment, but petitioner failed to settle his obligations. Hence, North Star instituted Criminal Case charging petitioner with violation BP 22, before the MTC. MTC found ENGR. CAYANAN GUILTY beyond reasonable doubt of Violation of BP22. RTC acquitted petitioner of the criminal charges. The RTC also held that there is no basis for the imposition of the civil liability on petitioner because the checks issued by the accused were presented beyond the period of NINETY (90) DAYS and therefore, there is no violation of the provision of Batas Pambansa Blg. 22 and the accused is not considered to have committed the offense. There being no offense committed, accused is not criminally liable and there would be no basis for the imposition of the civil liability arising from the offense. CA reversed the decision of the RTC insofar as the civil aspect is concerned and held petitioner civilly liable for the value of the subject checks. The CA ruled that although Cayanan was acquitted of the criminal charges, he may still be held civilly liable for the checks he issued since he never denied having issued the five postdated checks which were dishonored. Petitioner argues that the CA erred in holding him civilly liable to North Star for the value of the checks since North Star did not give any valuable consideration for the checks. He insists that the US$85,000 sent to View Sea Ventures was not sent for the account of North Star but for the account of Virginia as her investment. He points out that said amount was taken from Virginias personal dollar account in Citibank and not from North Stars corporate account. RULING: We have held that upon issuance of a check, in the absence of evidence to the contrary, it is presumed that the same was issued for valuable consideration which may consist either in some right, interest, profit or benefit accruing to the party who

FACTS: Siain Enterprises, Inc. (Siain) is engaged in the manufacturing and retailing/wholesaling business. On the other hand, Cupertino Realty Corp. (Cupertino) is engaged in the realty business. T On April 10, 1995, Siain executed a Real Estate Mortgage over its real properties in favor of Cupertino to secure the formers loan obligation to the latter in the amount of Php37,000,000.00. On several occasions thereafter, Siain made partial payments to in the total amount of Php7,985,039.08, thereby leaving a balance of Php29,014,960.92. On August 16, 1995, Siain and Cupertino executed an amendment of Real Estate Mortgage increasing the total loan covered by the aforesaid REM from Php37,000,000.00 to P197,000,000.00. This amendment to REM was executed preparatory to the promised release by Cupertino of additional loan proceeds to Siain in the total amount of Php160,000,000.00. However, despite the execution of the said amendment to REM and its subsequent registration with the Register of Deeds of Iloilo City and notwithstanding the clear agreement between the parties, Cupertino failed and refused to release the said additional amount for no apparent reason at all. On account of Cupertinos unfulfilled promises, Siain repeatedly demanded from Cupertino the release and/or delivery of the said Php160,000,000.00 to the former. However, Cupertino still failed and refused and continuously fails and refuses to release and/or deliver the Php160,000,000.00 to Siain. When Siain tendered payment of the amount of Php29,014,960.92 which is the remaining balance of the Php37,000,000.00 loan subject of the REM, in order to discharge the same, Cupertino unreasonably and unjustifiably refused acceptance thereof . Worst, unknown to Siain, Cupertino was already making arrangements for the extrajudicial sale of the mortgage properties even as Siain is more than willing to pay the Php29,014,960.92 ISSUES: 1) Was there as consideration for the issuance of the promissory note? 2) What is the presumption of consideration? 3) Is this presumption provided for in the Rules of Court? RULING: 1) Yes. All the loan documents presented for evidence, on their face, unequivocally declare petitioners indebtedness to Cupertino: received," ; 1. Promissory Note dated April 10, 1995, prefaced with a "[f]or value 2. Mortgage likewise dated April 10, 1995 executed by petitioner to secure its P37,000,000.00 loan obligation with Cupertino. 3. Amendment to Promissory Note for P37,000,000.00 dated April 12, 1995 which tentatively sets the interest rate at seventeen percent (17%) per annum. 4. Promissory Note dated August 16, 1995, likewise prefaced with "[f]or value received," and unconditionally promising to pay Cupertino P160,000,000.00; 5. Amendment of Real Estate Mortgage also dated August 16, 1995 with a recital that the mortgagor, herein petitioner, has increased its loan payable to the mortgagee, Cupertino, from P37,000,000.00 toP197,000,000.00. Unmistakably, from the foregoing chain of transactions, a presumption has arisen that the loan documents were supported by a consideration. 2) Section 24 of the Negotiable Instruments Law provides: SEC. 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 thereto for value. 3) Yes. Rule 131, Section 3 of the Rules of Court specifies that a disputable presumption is satisfactory if uncontradicted and not overcome by other evidence. Corollary thereto, paragraphs (r) and (s) thereof read: SEC. 3. Disputable presumptions. The following presumptions are satisfactory if uncontradicted, but may be contradicted and overcome by other evidence: xxxx (r) That there was sufficient consideration for a contract; (s) That a negotiable instrument was given or indorsed for a sufficient consideration;

makes the contract, or some forbearance, detriment, loss or some responsibility, to act, or labor, or service given, suffered or undertaken by the other side. Under theNegotiable Instruments Law, it is presumed that every party to an instrument acquires the same for a consideration or for value. As petitioner alleged that there was no consideration for the issuance of the subject checks, it devolved upon him to present convincing evidence to overthrow the presumption and prove that the checks were in fact issued without valuable consideration.[16] Sadly, however, petitioner has not presented any credible evidence to rebut the presumption, as well as North Stars assertion, that the checks were issued as payment for the US$85,000 petitioner owed. Notably, petitioner anchors his defense of lack of consideration on the fact that he did not personally receive the US$85,000 from Virginia. However, we note that in his pleadings, he never denied having instructed Virginia to remit the US$85,000 to View Sea Ventures. Evidently, Virginia sent the money upon the agreement that petitioner will give to North Star the peso equivalent of the amount remitted plus interest.

It was petitioner Bank who was accommodated by respondent Brondial when she executed the PN, thus, petitioner Bank cannot collect from respondent Brondial. (The one accommodated cannot go after the accommodation party. Ikaw na gani ang gi-accommodate, ikaw pa jud ang maningil. It is the payee who can go after said accommodation party for payment, not the party accommodated.) 5. A payee and a holder not in due course. It is also the intermediary used by the officers to perpetuate the fraud against Brondial. (Wa jud ko kabalo sa answer. Di nako makita sa case.) THIRD DIVISION G.R. No. 154740 April 16, 2008 HENRY DELA RAMA CO., petitioner, vs. ADMIRAL UNITED SAVINGS BANK, respondent. NACHURA, J. Instrument: Promissory note Issues: 1. What is the liability of an accomodation party under sec 29 of the NIL? 2. What is a promissory note? 3. Who proves payment? 4. Can stipulated interest rates be equitably reduced? 5. What is the basis of such reduction under the Civil Code? Facts: On February 28, 1983, Admiral United Savings Bank (ADMIRAL) extended a loan of P500,000.00 to petitioner Henry Dela Rama Co (Co), with Leocadio O. Isip (Isip) as co-maker. The loan was evidenced by Promissory Note dated February 28, 1983 and payable on or before February 23, 1984, with interest at the rate of 18% per annum and service charge of 10% per annum. The note also provided for liquidated damages at the rate of 3% per month plus incidental cost of collection and/or legal fees/cost, in the event of non-payment on due date. Co and Isip failed to pay the loan when it became due and demandable. Demands for payment were made by ADMIRAL, but these were not heeded. Consequently, ADMIRAL filed a collection case against Co and Isip with the RTC of Quezon City Co answered the complaint alleging that the promissory note was sham and frivolous; hence, void ab initio. He denied receiving any benefits from the loan transaction, claiming that ADMIRAL merely induced him into executing a promissory note. He also claimed that the obligations, if any, had been paid, waived or otherwise extinguished. Co allegedly ceded several vehicles to ADMIRAL, the value of which was more than enough to cover the alleged obligation. He added that there was condonation of debt and novation of the obligation. ADMIRAL was also guilty of laches in prosecuting the case. Finally, he argued that the case was prematurely filed and was not prosecuted against the real parties-in-interest. Pending resolution of the case, Isip died. Accordingly, he was dropped from the complaint. Co then filed a third party complaint against Metropolitan Rentals & Sales, Inc. (METRO RENT). He averred that the incorporators and officers of METRO RENT were the ones who prodded him in obtaining a loan of P500,000.00 from ADMIRAL. The proceeds of the loan were given to the directors and officers of METRO RENT, who assured him of prompt payment of the loan obligation. METRO RENT denied receiving the loan proceeds from Co. RTC dismissed the complaint on the ground that the obligation had already been paid or otherwise extinguished. It primarily relied on the release of mortgage executed by the officers of ADMIRAL, and on Cos testimony that METRO RENT already paid the loan. CA reversed the decision.It rejected Cos assertion that he merely acted as an accommodation party for METRO RENT, declaring that Cos liability under the note was apparent in his express, absolute and unconditional promise to pay the loan upon maturity. The CA further held that whatever agreement Co had with METRO RENT cannot bind ADMIRAL since there is no showing that the latter was aware of the agreement, let alone consented to it. Held: 1. An accommodation party who lends his name to enable the accommodated party to obtain credit or raise money is liable on the instrument to a holder for value even if he receives no part of the consideration.13 He assumes the obligation to the other party and binds himself to pay the note on its due date. By signing the note, Co thus became liable for the debt even if he had no direct personal interest in the obligation or did not receive any benefit therefrom. 2. In Sierra v. Court of Appeals, A promissory note is a solemn acknowledgment of a debt and a formal commitment to repay it on the date and under the conditions agreed upon by the borrower and the lender. A person who signs such an instrument is bound to honor it as a legitimate obligation duly assumed by him through the signature he affixes thereto as a token of his good faith. If he reneges on his promise without cause, he forfeits the sympathy and assistance of this Court and deserves instead its sharp repudiation. 3. Jurisprudence is replete with rulings that in civil cases, the party who alleges a fact has the burden of proving it. Burden of proof is the duty of a party to present evidence on the facts in issue necessary to prove the truth of his claim or defense by the amount of evidence required by law. Thus, a party who pleads payment as a defense has the burden of proving that such payment had, in fact, been made. When the plaintiff alleges nonpayment, still, the general rule is that the burden rests on the defendant to prove payment, rather than on the plaintiff to prove nonpayment.Co failed to discharge this burden.

G.R. No. 146663.March 14, 2001; FIRST DIVISION; Resolution PERPETUAL SAVINGS BANK vs. BRONDIAL, et al. Instrument: Promissory Note Maker: Dolores Brondial Payee: Perpetual Savings Bank Facts The bank is suing Dolores Brondial for non-payment of a promissory note (valued P826,315.00) she allegedly executed in its favor. Brondial denied liability by claiming that she did not receive any consideration for the note. She avers that she only signed the note as condition to her appointment as Senior Manager of Perpetual Capital Investments & Finance Corp., an affiliate of petitioner Perpetual Savings Bank. It was eventually found by the RTC and CA that the loan purportedly applied by Brondial, secured by her PN, was actually a loan made by the other officers of the Bank from the Bank itself. These officers of PSB are: Danilo Natividad, President; Crisanto Norofla, Executive Vice-President; Zoilo Gabriel, Vice-President for Operations. It was Brondial who merely effected the transaction. When the check was delivered to her, said check was endorsed and deposited in the personal accounts of the officers of PSB in Metrobank. Then Natividad, the President of PSB, transferred the amount to PSBs account in Metrobank. Brondial did not receive a single centavo from the transaction. The RTC and CA ruled in favor of Brondial. The CA, in particular, ruled that petitioner Bank as holder of the check, is not a holder in due course and accordingly, not entitled to enforce or collect payment from the maker, Brondial, because of absence or lack of consideration. Issues 1. Is PSB a holder in due course? 2. Does the promissory note have consideration? 3. What is the effect of Section 28 of the NIL? 4. Is Brondial an accommodation partu under Section 29? 5. What is the role of PSB (the party accommodated) in this transaction? Held 1. PSB is not a holder in due course. It knew well enough that the PN issued by Brondial was without consideration since the loan she applied for was not for her consumption. PSBs officers were responsible for the loan. The proceeds of said loan were deposited to their accounts and were ultimately redeposited in petitioner PSBs account. 2. The PN did not have any consideration when it was issued by Brondial as purported security for the loan. She applied for the loan in behalf of the officers and the corporation. None of its proceeds was used by her for her consumption. Upon appreciation of the evidence presented by the parties, the RTC and CA found that respondent Brondial was not indebted to petitioner Bank because the amounts she purportedly received were returned to and received by petitioner Bank on the very day the checks were released. Respondent Brondial did not receive a single centavo from the loan. 3. The effect of Section 28, in this case, is that the bank cannot enforce or collect payment from the maker of the PN, respondent Brondial, because of absence or lack of consideration. Absence or lack of consideration is a valid defense against any person not a holder in due course. 4. Respondent Brondial is not liable as an "accommodation maker." Section 29 of the NIL defines the term as: x x x one who has signed the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person. Such a person is liable on the instrument to a holder for value, notwithstanding such holder, at the time of taking the instrument, knew him to be only an accommodation party.

4. yes. the court sustained the interest rate of 18% per annum for being fair and reasonable. However, equity dictates that we reduce the service charge, liquidated damages and attorneys fees awarded in favor of ADMIRAL. In L.M. Handicraft Manufacturing Corporation v. Court of Appeals, we held that a bank is only entitled to a maximum of 2% per annum service charge for amounts not over P500,000.00. We, therefore, modify the amount of service charge from 10% to 2%, or P10,000.00 per annum beginning February 28, 1984 until full payment of the loan obligation. As to the awards of liquidated damages and attorneys fees, we acknowledge that the law allows a party to recover liquidated damages and attorney's fees under a written agreement. The law also allows parties to a contract to stipulate on liquidated damages to be paid in case of breach. Nonetheless, courts are empowered to reduce such penalty if the same is iniquitous or unconscionable. 5. ART. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable. This sentiment is echoed in Article 2227 of the same Code: ART. 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably reduced if they are iniquitous or unconscionable. (Thus, this Court finds the award of liquidated damages and attorneys fees by the CA exorbitant. After all, liquidated damages and attorneys fees serve the same purpose, that is, as penalty for breach of contract.Accordingly, we reduce the liquidated damages to P150,000.00, and attorneys fees to 10% of the principal loan or P50,000.00) [G.R. No. 166405, August 06, 2008] CLAUDE P. BAUTISTA, PETITIONER, VS. AUTO PLUS TRADERS, INCORPORATED AND COURT OF APPEALS (TWENTY-FIRST DIVISION), RESPONDENTS. QUISUMBING, J.: DRAWER bautista as president and presiding officer DRAWEE Republic Planters Bank PAYEE auto plus traders, inc. Issue: 1. what is an accommodation party? 2. was bautista an accommodation party? 1. Under Section 29[9] of the Negotiable Instruments Law, an accommodation party is liable on the instrument to a holder for value. Section 29 of the Negotiable Instruments Law defines an accommodation party as a person "who has signed the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person." As gleaned from the text, an accommodation party is one who meets all the three requisites, viz: (1) he must be a party to the instrument, signing as maker, drawer, acceptor, or indorser; (2) he must not receive value therefor; and (3) he must sign for the purpose of lending his name or credit to some other person.[15] An accommodation party lends his name to enable the accommodated party to obtain credit or to raise money; he receives no part of the consideration for the instrument but assumes liability to the other party/ies thereto Likewise, contrary to private respondent's contentions, petitioner cannot be considered liable as an accommodation party for Check No. 58832..[16] The first two elements are present here, however there is insufficient evidence presented in the instant case to show the presence of the third requisite. All that the evidence shows is that petitioner signed Check No. 58832, which is drawn against his personal account. The said check,dated December 15, 2000, corresponds to the value of 24 sets of tires received by Cruiser Bus Lines and Transport Corporation on August 29, 2000.[17] There is no showing of when petitioner issued the check and in what capacity. In the absence of concrete evidence it cannot just be assumed that petitioner intended to lend his name to the corporation. Hence, petitioner cannot be considered as an accommodation party.

Petitioner pleaded not guilty. Trial on the merits ensued. After the presentation of the prosecution's evidence, petitioner filed a demurrer to evidence. On April 21, 2003, the MTCC granted the demurrer, thus: WHEREFORE, the demurrer to evidence is granted, premised on reasonable doubt as to the guilt of the accused. Cruiser Bus Line[s] and Transport Corporation, through the accused is directed to pay the complainant the sum of P248,700.00 representing the value of the two checks, with interest at the rate of 12% per annum to be computed from the time of the filing of these cases in Court, until the account is paid in full; ordering further Cruiser Bus Line[s] and Transport Corporation, through the accused, to reimburse complainant the expense representing filing fees amounting to P1,780.00 and costs of litigation which this Court hereby fixed at P5,000.00. Petitioner now comes before us, raising the sole issue of whether the Court of Appeals erred in upholding the RTC's ruling that petitioner, as an officer of the corporation, is personally and civilly liable to the private respondent for the value of the two checks.[8] Petitioner asserts that BP Blg. 22 merely pertains to the criminal liability of the accused and that the corporation, which has a separate personality from its officers, is solely liable for the value of the two checks. Private respondent counters that petitioner should be held personally liable for both checks. Private respondent alleged that petitioner issued two postdated checks: a personal check in his name for the amount of P151,200 and a corporation check under the account of Cruiser Bus Lines and Transport Corporation for the amount of P97,500. According to private respondent, petitioner, by issuing his check to cover the obligation of the corporation, became an accommodation party. Under Section 29[9] of the Negotiable Instruments Law, an accommodation party is liable on the instrument to a holder for value. Private respondent adds that petitioner should also be liable for the value of the corporation check because instituting another civil action against the corporation would result in multiplicity of suits and delay. A perusal of the two check return slips[11] in conjunction with the Current Account Statements[12] would show that the check for P151,200 was drawn against the current account of Claude Bautista while the check for P97,500 was drawn against the current account of Cruiser Bus Lines and Transport Corporation. Hence, we sustain the factual finding of the RTC. Juridical entities have personalities separate and distinct from its officers and the persons composing it.[13] Generally, the stockholders and officers are not personally liable for the obligations of the corporation except only when the veil of corporate fiction is being used as a cloak or cover for fraud or illegality, or to work injustice.[14]These situations, however, do not exist in this case. The evidence shows that it is Cruiser Bus Lines and Transport Corporation that has obligations to Auto Plus Traders, Inc. for tires. There is no agreement that petitioner shall be held liable for the corporation's obligations in his personal capacity. Hence, he cannot be held liable for the value of the two checks issued in payment for the corporation's obligation in the total amount of P248,700. Likewise, contrary to private respondent's contentions, petitioner cannot be considered liable as an accommodation party for Check No. 58832. Section 29 of the Negotiable Instruments Law defines an accommodation party as a person "who has signed the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person." As gleaned from the text, an accommodation party is one who meets all the three requisites, viz: (1) he must be a party to the instrument, signing as maker, drawer, acceptor, or indorser; (2) he must not receive value therefor; and (3) he must sign for the purpose of lending his name or credit to some other person. [15] An accommodation party lends his name to enable the accommodated party to obtain credit or to raise money; he receives no part of the consideration for the instrument but assumes liability to the other party/ies thereto.[16] The first two elements are present here, however there is insufficient evidence presented in the instant case to show the presence of the third requisite. All that the evidence shows is that petitioner signed Check No. 58832, which is drawn against his personal account. The said check,dated December 15, 2000, corresponds to the value of 24 sets of tires received by Cruiser Bus Lines and Transport Corporation on August 29, 2000.[17] There is no showing of when petitioner issued the check and in what capacity. In the absence of concrete evidence it cannot just be assumed that petitioner intended to lend his name to the corporation. Hence, petitioner cannot be considered as an accommodation party. Cruiser Bus Lines and Transport Corporation, however, remains liable for the checks especially since there is no evidence that the debts covered by the subject checks have been paid.

2.

The

antecedent

facts

are

as

follows:

Petitioner Claude P. Bautista, in his capacity as President and Presiding Officer of Cruiser Bus Lines and Transport Corporation, purchased various spare parts from private respondent Auto Plus Traders, Inc. and issued two postdated checks to cover his purchases. The checks were subsequently dishonored. Private respondent then executed an affidavit-complaint for violation of Batas Pambansa Blg. 22[3] against petitioner. Consequently, two Informations for violation of BP Blg. 22 were filed with the Municipal Trial Court in Cities (MTCC) of Davao City against the petitioner. These were docketed as Criminal Case Nos. 102,004-B-2001 and 102,005-B-2001.

THIRD DIVISION G.R. No. 168274 August 20, 2008

FAR EAST BANK & TRUST COMPANY, petitioner, vs. GOLD PALACE JEWELLERY CO., as represented by Judy L. Yang, Julie YangGo and Kho Soon Huat, respondent. NACHURA, J.: ISSUE: What is the nature of a collecting bank? Is the indosement of a holder (Gold Palace) to collecting Back (Far East) in the nature of a restrictive indorsement? Is this not indorsement under Section 66? Facts: The instant controversy traces its roots to a transaction consummated sometime in June 1998, when a foreigner, identified as Samuel Tagoe, purchased from the respondent Gold Palace Jewellery Co.'s (Gold Palace's) store at SM-North EDSA several pieces of jewelry valued at P258,000.00. In payment of the same, he offered Foreign Draft No. M-069670 issued by the United Overseas Bank (Malaysia) BHD Medan Pasar, Kuala Lumpur Branch (UOB), addressed to the Land Bank of the Philippines, Manila (LBP), and payable to the respondent company for P380,000.00. Before receiving the draft, respondent Judy Yang, the assistant general manager of Gold Palace, inquired from petitioner Far East Bank & Trust Company's (Far East's) SM North EDSA Branch, its neighbor mall tenant, the nature of the draft. The teller informed her that the same was similar to a manager's check, but advised her not to release the pieces of jewelry until the draft had been cleared. Following the bank's advice, Yang issued Cash Invoice No. 1609 to the foreigner, asked him to come back, and informed him that the pieces of jewelry would be released when the draft had already been cleared. Respondent Julie Yang-Go, the manager of Gold Palace, consequently deposited the draft in the company's account with the aforementioned Far East branch on June 2, 1998. When Far East, the collecting bank, presented the draft for clearing to LBP, the drawee bank, the latter cleared the same UOB's account with LBP was debited, and Gold Palace's account with Far East was credited with the amount stated in the draft. The foreigner eventually returned to respondent's store on June 6, 1998 to claim the purchased goods. After ascertaining that the draft had been cleared, respondent Yang released the pieces of jewelry to Samuel Tagoe; and because the amount in the draft was more than the value of the goods purchased, she issued, as his change, Far East Check No. 1730881 for P122,000.00. This check was later presented for encashment and was, in fact, paid by the said bank. On June 26, 1998, or after around three weeks, LBP informed Far East that the amount in Foreign Draft No. M-069670 had been materially altered from P300.00 to P380,000.00 and that it was returning the same. Attached to its official correspondence were Special Clearing Receipt No. 002593 and the duly notarized and consul-authenticated affidavit of a corporate officer of the drawer, UOB. It is noted at this point that the material alteration was discovered by UOB after LBP had informed it that its funds were being depleted following the encashment of the subject draft. Intending to debit the amount from respondent's account, Far East subsequently refunded the P380,000.00 earlier paid by LBP. Gold Palace, in the meantime, had already utilized portions of the amount. Thus, on July 20, 1998, as the outstanding balance of its account was already inadequate, Far East was able to debit onlyP168,053.36, but this was done without a prior written notice to the account holder. Far East only notified by phone the representatives of the respondent company. On August 12, 1998, petitioner demanded from respondents the payment of P211,946.64 or the difference between the amount in the materially altered draft and the amount debited from the respondent company's account. Because Gold Palace did not heed the demand, Far East consequently instituted Civil Case No. 99296 for sum of money and damages before the Regional Trial Court (RTC), Branch 64 of Makati City. In their Answer, respondents specifically denied the material allegations in the complaint and interposed as a defense that the complaint states no cause of actionthe subject foreign draft having been cleared and the respondent not being the party who made the material alteration. After trial on the merits, the RTC rendered its July 30, 2001 Decision in favor of Far East, ordering Gold Palace to pay the former P211,946.64 as actual damages.The trial court ruled that, on the basis of its warranties as a general indorser, Gold Palace was liable to Far East. On appeal, the CA, in the assailed March 15, 2005 Decision, reversed the ruling of the trial court and awarded respondents' counterclaim. It ruled in the main that Far East failed to undergo the proceedings on the protest of the foreign draft or to notify Gold Palace of the draft's dishonor; thus, Far East could not charge Gold Palace on its secondary liability as an indorser. The appellate court further ruled that the drawee bank had cleared the check, and its remedy should be against the party responsible for the alteration. Considering that, in this case, Gold Palace neither altered the draft nor knew of the alteration, it could not be held liable.

RULING: 1. What is the nature of a collecting bank? was not discussed in the case. 2. Is the indosement of a holder (Gold Palace) to collecting Back (Far East) in the nature of a restrictive indorsement? Yes. Far East cannot invoke the warranty of the payee/depositor who indorsed the instrument for collection to shift the burden it brought upon itself. This is precisely because the said indorsement is only for purposes of collection which, under Section 36 of the NIL, is a restrictive indorsement. It did not in any way transfer the title of the instrument to the collecting bank. Far East did not own the draft, it merely presented it for payment. 3. Is this not indorsement under Section 66? No. Considering that the warranties of a general indorser as provided in Section 66 of the NIL are based upon a transfer of title and are available only to holders in due course, these warranties did not attach to the indorsement for deposit and collection made by Gold Palace to Far East. Without any legal right to do so, the collecting bank, therefore, could not debit respondent's account for the amount it refunded to the drawee bank. Metropolitan Bank and Trust Company (formerly Asianbank Corporation), petitioner vs. BA Finance Corporation and Malayan Insurance Co., Inc., respondents GR. No. 179952 December 4, 2009 First Division (C.J. Puno, Justices Carpio-Morales, Leonardo-De Castro, Bersamin and Villarama, Jr.) Instrument: Check Drawer: Malayan Insurance Drawee: China Bank Collecting Bank: Metrobank formerly Asianbank Payee: BA Finance / Lamberto Bitanga Facts: Lamberto Bitanga (Bitanga) obtained from BA Finance Corporation (BA Finance) a P329,280 loan. To secure the loan he mortgaged his car to BA Finance. BA Finance on its part required Bitanga to insure the car against loss or damage by accident, fire, and theft for a period of one year in an amount not less than the outstanding balance of mortgage obligations and that all loss, if any, under such policy or policies, will be payable to BA Finance as the mortgagee, its assigns as its interest may appear. Bitanga thus had the mortgaged car insured by Malayan Insurance Co., Inc. (Malayan Insurance). The car was stolen. On Bitangas claim, Malayan Insurance issued a check payable to the order of B.A. Finance Corporation and Lamberto Bitanga for P224,500, drawn against China Banking Corporation (China Bank). The check was crossed with the notation For Deposit Payees Account Only. Without the indorsement or authority of his co-payee BA Finance, Bitanga deposited the check to his account with the Asianbank Corporation (Asianbank), now merged with Metropolitan Bank and Trust Company (Metrobank). withdrew the entire proceeds of the check. In the meantime, Bitangas loan became past due, but despite demands, he failed to settle it. BA Finance eventually learned of the loss of the car and of Malayan Insurances issuance of a crossed check payable to it and Bitanga, and of Bitangas depositing it in his account at Asianbank and withdrawing the entire proceeds thereof. BA Finance thereupon demanded the payment of the value of the check from Asianbank1[7] but to no avail, prompting it to file a complaint before the Regional Trial Court (RTC) of Makati for sum of money and damages against Asianbank and Bitanga subsequently

Bitanga, alleging that, inter alia, it is entitled to the entire proceeds of the check. It also filed a third party complaint against Malayan Insurance. The RTC ruled in favor of BA Finance and held Asianbank and Bitanga solidarily liable for the full amount of the check. A favorable ruling was also rendered on Malayan Insurance holding that Malayan was not privy to the contract between BA Finance and Bitanga and noting that it is the policy of Malayan to issue checks to both the insured and the financing company. The CA affirmed the trial courts decision. Hence the appeal to the SC where Asianbank now Metrobank argues that it is only liable to BA Finance for only one half of the amount covered by the check. Issue: 1. What is Section 41 of the NIL? 2. What is the effect of payment based on a forged indorsement? 3. What is the effect of a collecting bank being the last indorser? Held: 1.Section 41 of the Negotiable Instruments Law provides: Where an instrument is payable to the order of two or more payees or indorsees who are not partners, all must indorse unless the one indorsing has authority to indorse for the others. Bitanga alone endorsed the crossed check, and Asianbank allowed the deposit and release of the proceeds thereof, despite the absence of authority of Bitangas co-payee BA Finance to endorse it on its behalf.2[25] 2.The payment of an instrument over a missing indorsement is the equivalent of payment on a forged indorsement or an unauthorized indorsement in itself in the case of joint payees. Clearly, Asianbank, through its employee, was negligent when it allowed the deposit of the crossed check, despite the lone endorsement of Bitanga, ostensibly ignoring the fact that the check did not, it bears repeating, carry the indorsement of BA Finance. As has been repeatedly emphasized, the banking business is imbued with public interest such that the highest degree of diligence and highest standards of integrity and performance are expected of banks in order to maintain the trust and confidence of the public in general in the banking sector. Undoubtedly, BA Finance has a cause of action against Asianbank. The provisions of the Negotiable Instruments Law and underlying jurisprudential teachings on the black-letter law provide definitive justification for Asianbanks full liability on the value of the check. 3.To be sure, a collecting bank, Asianbank in this case, where a check is deposited and which indorses the check upon presentment with the drawee bank, is an indorser. This is because in indorsing a check to the drawee bank, a collecting bank stamps the back of the check with the phrase all prior endorsements and/or lack of endorsement guaranteed and, for all intents and purposes, treats the check as a negotiable instrument, hence, the subject check. Asianbank, as the collecting bank or last indorser, generally suffers the loss because it has the duty to ascertain the genuineness of all prior indorsements considering that the act of presenting the check for payment to the drawee is an assertion that the party making the presentment has done its duty to ascertain the genuineness of prior indorsements. assumes the warranty of an indorser. Without Asianbanks warranty, the drawee bank (China Bank in this case) would not have paid the value of

Accordingly, one who credits the proceeds of a check to the account of the indorsing payee is liable in conversion to the non-indorsing payee for the entire amount of the check. ALLIED BANKING CORPORATION, petitioner, vs. COURT OF APPEALS and BANK OF THE PHILIPPINE ISLANDS, INC., respondents. G.R. No. 123871 August 31, 1998 PANGANIBAN, J.: Instrument: Checks Drawer: Hyatt Terraces Drawee: Allied Banking Corp Payee: Meszellen Commodities Services Inc. Collecting Bank: Commercial Bank and Trust Company (later, BPI) FACTS: Hyatt Terraces Baguio issued two crossed checks drawn against Allied Banking Corp. (ALLIED) in favor of appellee Meszellen Commodities Services, Inc. (MESZELLEN). Said checks were deposited with the now defunct Commercial Bank and Trust Company (COMTRUST). Upon receipt of the above checks, COMTRUST stamped at the back thereof the warranty "All prior endorsements and/or lack of endorsements guaranteed." After the checks were cleared through the Philippine Clearing House Corporation (PCHC), ALLIED paid the proceeds of said checks to COMTRUST as the collecting bank. On March 17, 1981, the payee, MESZELLEN, sued the drawee, ALLIED, for damages which it allegedly suffered when the value[s] of the checks were paid not to it but to some other person. Almost ten years later, before the defendant could finish presenting its evidence, it filed a third party complaint against Bank of the Philippine Islands (BPI) as successor-in-interest of COMTRUST, for reimbursement in the event that it would be adjudged liable in the main case to pay MESZELLEN. BPI filed a motion to dismiss said third party complaint grounded on the following: 1) that the court ha[d] no jurisdiction over the nature of the action; and 2) that the cause of action of the third party plaintiff ha[d] already prescribed. More over, private respondent argues that the trial court had no authority to admit a third-party claim that was filed by one bank against another and involved a check cleared through the Philippine Clearing House Corporation (PCHC). ISSUES: 1) What is the mandatory recourse to the PCHC? 2) What is the exhaustion of arbitral authority of the PCHC in cases involving checks cleared under PCHC before recourse to a 3rd party complaint? RULING 1) The Clearing House Rules and Regulations, in part, states: Sec. 38 Arbitration Any dispute or controversy between two or more clearing participants involving any check/item cleared thru PCHC shall be submitted to the Arbitration Committee, upon written complaint of any involved participant by filing the same with the PCHC serving the same upon the other party or parties, who shall within fifteen (15) days after receipt thereof file with the Arbitration Committee its written answer to such written complaint and also within the same period serve the same upon the complaining participant, . . . 2) Under the rules and regulations of the Philippine Clearing House Corporation (PCHC), the mere act of participation of the parties concerned in its operations in effect amounts to a manifestation of agreement by the parties to abide by its rules and regulations. As a consequence of such participation, a party cannot invoke the jurisdiction of the courts over disputes and controversies which fall under the PCHC Rules and Regulations without first going through the arbitration processes laid out by the body.

Therefore, a third-party complaint of one bank against another involving a check cleared through the PCHC is unavailing, unless the third-party claimant has first exhausted the arbitral authority of the PCHC Arbitration Committee and obtained a decision from said body adverse to its claim. "Pursuant to its function involving the clearing of checks and other clearing items, the PCHC has adopted rules and regulations designed to provide member banks with a procedure whereby disputes involving the clearance of checks and other negotiable instruments undergo a process of arbitration prior to submission to the courts below. This procedure not only ensures a uniformity of rulings relating to factual disputes involving checks and other negotiable instruments but also provides a mechanism for settling minor disputes among participating and member banks which would otherwise go directly to the trial courts."

We defer to the primary authority of PCHC over the present dispute, because its technical expertise in this field enables it to better resolve questions of this nature. This is not prejudicial to the interest of any party, since primary recourse to the PCHC does not preclude an appeal to the regional trial courts on questions of law. Bank of the Philippine Islands vs. Gregorio Roxas G.R. No. 157833 DRAWER: Spouses Cawili and BPI for managers check PAYEE: Greg Roxas DRAWEE: BPI ISSUES: Is Roxas a holder in due course? Yes. The fact that it was Rodrigo who purchased the cashiers check from petitioner will not affect respondents status as a holder for value since the check was delivered to him as payment for the vegetable oil he sold to spouses Cawili. Verily, the Court of Appeals did not err in concluding that respondent is a holder in due course of the cashiers check. What constitutes value? SEC. 25. Value, what constitutes. Value is any consideration sufficient to support a simple contract. An antecedent or pre-existing debt constitutes value; and is deemed as such whether the instrument is payable on demand or at a future time. FACTS: Gregorio C. Roxas, respondent, is a trader. He delivered stocks of vegetable oil to spouses Rodrigo and Marissa Cawili. As payment therefor, spouses Cawili issued a personal check in the amount of P348,805.50. However, when Roxas tried to encash the check, it was dishonored by the drawee bank. Spouses Cawili then assured him that they would replace the bounced check with a cashiers check from the Bank of the Philippine Islands (BPI), petitioner. Respondent and Rodrigo Cawili went to BPIs branch at Shaw Boulevard,Mandaluyong City where Elma Capistrano, the branch manager, personally attended to them. Upon Elmas instructions, Lita Sagun, the bank teller, prepared BPI Cashiers Check No. 14428 in the amount of P348,805.50, drawn against the account of Marissa Cawili, payable to Roxas. Rodrigo then handed the check to Roxas in the presence of Elma. The following day, Roxas returned to BPIs branch at Shaw Boulevard to encash the cashiers check but it was dishonored. Elma informed him that Marissas account was closed on that date. Despite Roxas insistence, the bank officers refused to encash the check and tried to retrieve it from respondent. He then called his lawyer who advised him to deposit the check in his (Roxas) account at Citytrust, Ortigas Avenue. However, the check was dishonored on the ground Account Closed. Roxas filed with the Regional Trial Court, Branch 263, Pasig City a complaint for sum of money against BPI, docketed as Civil Case No. 63663. Roxas prayed that BPI be ordered to pay the amount of the check, damages and cost of the suit. BPI specifically denied the allegations in the complaint, claiming that it issued the check by mistake in good faith; that its dishonor was due to lack of consideration; and that Roxas remedy was to sue Rodrigo Cawili who purchased the check. As a counterclaim, BPI prayed that Roxas be ordered to pay attorneys fees and expenses of litigation. RTC ordered Bank of the Philippine Islands, to pay Roxas. On appeal, the Court of Appeals, in its Decision, affirmed the trial courts judgment. Hence, this petition.

(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 person negotiating it. As a general rule, under the above provision, every holder is presumed prima facie to be a holder in due course. One who claims otherwise has the onus probandi to prove that one or more of the conditions required to constitute a holder in due course are lacking. In this case, petitioner contends that the element of value is not present, therefore, respondent could not be a holder in due course. Petitioners contention lacks merit. Section 25 of the same law states: SEC. 25. Value, what constitutes. Value is any consideration sufficient to support a simple contract. An antecedent or pre-existing debt constitutes value; and is deemed as such whether the instrument is payable on demand or at a future time. Here, there is no dispute that respondent received Rodrigo Cawilis cashiers check as payment for the formers vegetable oil. The fact that it was Rodrigo who purchased the cashiers check from petitioner will not affect respondents status as a holder for value since the check was delivered to him as payment for the vegetable oil he sold to spouses Cawili. Verily, the Court of Appeals did not err in concluding that respondent is a holder in due course of the cashiers check. Furthermore, it bears emphasis that the disputed check is a cashiers check. InInternational Corporate Bank v. Spouses Gueco this Court held that a cashiers check is really the banks own check and may be treated as a promissory note with the bank as the maker. The check becomes the primary obligation of the bank which issues it and constitutes a written promise to pay upon demand. InNew Pacific Timber & Supply Co. Inc. v. Seeris this Court took judicial notice of the well-known and accepted practice in the business sector that a cashiers check is deemed as cash. This is because the mere issuance of a cashiers check is considered acceptance thereof. In view of the above pronouncements, petitioner bank became liable to respondent from the moment it issued the cashiers check. Having been accepted by respondent, subject to no condition whatsoever, petitioner should have paid the same upon presentment by the former. G.R. No. 158262. July 21, 2008. SECOND DIVISION; VELASCO, JR., J SPS. PEDRO AND FLORENCIA VIOLAGO vs. BA FINANCE CORPORATION and AVELINO VIOLAGO Instrument: Promissory Notes Maker: Spouses Violago Payee: Violago Motor Sales Corporation (VMSC); endorsed thereafter to BA Finance Facts Avelino Violago, a cousin of Pedro Violago and President of VMSC, sold a car to the spouses. As payment scheme, they agreed that the spouses would pay the down payment and the balance will be financed by BA Finance. BA would pay VMSC while the spouses would pay BA Finance. To secure this arrangement, the spouses executed a PN and a chattel mortgage over the car, in favor of VMSC.Thereafter, VMSC endorsed the PN without recourse to BA Finance. After receiving the amount of P209,601 from BA Finance, VMSC executed a Deed of Assignment of its rights and interests under the PN and chattel mortgage in favor of BA Finance. The spouses eventually discovered that the car they purchased was already sold to a certain Esmeraldo Violago, another cousin of Avelino. Despite repeated demands from VMSA and Avelino, the car was never delivered to the spouses. Since VMSC failed to deliver the car, the spouses did not pay any monthly amortization to BA Finance. BA Finance filed a complaint for Replevin with Damages against the spouses before the RTC. The spouses filed their Answer before the RTC, alleging that they never received the vehicle from VMSC; BA Finance was not a holder in due course under Section 59 of the Negotiable Instruments Law (NIL); and the recourse of BA Finance should be against VMSC. The Violago spouses also filed a Third Party Complaint against Avelino praying that he be held liable to them in the event that they be held liable to BA Finance, as well as for damages. In the meantime, Esmeraldo (the current possessor of the car) conveyed the same to Jose V. Olvido. Jose executed a Chattel Mortgage over the vehicle in favor of one Generoso Lopez as security for a loan covered by a promissory note. This promissory note was later endorsed to BA Finance, Cebu City branch. The RTC ruled in favor of BA Finance and against the Violago spouses. It also declared that the spouses are entitled to be indemnified by Avelino. On appeal, the CA modified the decision of the RTC by absolving Avelino from indemnifying the spouses. Issues 1. Was BA Finance a holder in due course? 2. What is it that prevails, the NIL on Holder in Due Course or Article 1318 of the Civil Code on vitiated consent?

Petitioner ascribes to the Court of Appeals the following errors: (1) in finding that respondent is a holder in due course; and (2) in holding that it (petitioner) is liable to respondent for the amount of the cashiers check. Section 52 of the Negotiable Instruments Law provides: SEC. 52. 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 had been previously dishonored, if such was the fact; (c) That he took it in good faith and for value;

3. Held 1.

What is the effect of a holder in due course? BA Finance was a holder in due course.

Section 52. 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 had been previously dishonored, if such was the fact; (c) That he took it in good faith and for value; (d) That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it. The law presumes that a holder of a negotiable instrument is a holder thereof in due course. BA Finance meets all the foregoing requisites: On its face, (a) the Promissory Note, is complete and regular; (b) the Promissory Note was endorsed by the VMSC in favor of BA Finance; (c) BA Finance, when it accepted the Note, acted in good faith and for value; (d) BA Finance was never informed, before and at the time the Promissory Note was endorsed to it, that the vehicle sold to the spouses was not delivered to the latter and that VMSC had already previously sold the vehicle to Esmeraldo Violago. Although Jose Olvido mortgaged the vehicle to Generoso Lopez, who assigned his rights to the BA Finance Corporation (Cebu Branch), the same occurred only much later when VMSC assigned its rights over the "Chattel Mortgage" by the spouses to the BA Finance. Hence, BA Finance was a holder in due course. 2. The NIL prevails over the Civil Code in this case. The spouses argue that Article 1318 of the Civil Code should be applied since their consent was vitiated by fraud, and, thus, the promissory note does not carry any legal effect despite its negotiation. They are wrong. The promissory note is clearly negotiable. The CA was correct in finding all the requisites under Section 1 of the NIL of a negotiable instrument present: a. It is in writing; signed by the Violago spouses; b. has an unconditional promise to pay a certain amount, i.e., PhP209,601, c. on specific dates in the future which could be determined from the terms of the note; d. made payable to the order of VMSC; and names the drawees with certainty. e. The indorsement by VMSC to BA Finance appears likewise to be valid and regular. Thus, the provisions of the NIL are controlling. 3. In the hands of one not a holder in due course, a negotiable instrument is subject to the same defenses as if it were non-negotiable. A holder in due course, however, holds the instrument free from any defect of title of prior parties and from defenses available to prior parties among themselves, and may enforce payment of the instrument for the full amount thereof. Since BA Finance is a holder in due course, petitioners cannot raise the defense of non-delivery of the object and nullity of the sale against the corporation. The NIL considers every negotiable instrument prima facie to have been issued for a valuable consideration. It has been held that a party holding an instrument may enforce payment of the instrument for the full amount thereof. As such, the maker cannot set up the defense of nullity of the contract of sale. Thus, petitioners are liable to respondent corporation for the payment of the amount stated in the instrument. Ruling: The CA ruling is set aside and the RTC ruling, holding Avelino responsible, is reinstated. The SC applied the doctrine of piercing the veil of corporate fiction in this case. Avelino clearly defrauded the spouses. His actions were the proximate cause of petitioners' loss. He cannot now hide behind the separate corporate personality of VMSC to escape from liability for the amount adjudged by the trial court in favor of petitioners. SECOND DIVISION G.R. No. 165339 August 23, 2010 EQUITABLE PCI BANK, vs ARCELITO B. TAN PERALTA, J.: Instrument: check Issues 1. Is the drawee bank that allowed payment of a postdated check before its due date that caused the dishonor of the drawer's other issued checks liable to the drawer for damages? 2. What is the meaning of a drawee bank? 3. What is the liability of a drawee bank? Facts Respondent Arcelito B.Tan maintained a current and savings account with Philippine Commercial International Bank (PCIB), now petitioner Equitable PCI Bank. On May 13, 1992, respondent issued PCIB Check No. 275100 postdated May 30, 1992 in the amount of P34,588.72 in favor of Sulpicio Lines, Inc. As of May 14, 1992, respondent's balance with petitioner was P35,147.59. On May 14, 1992, Sulpicio Lines, Inc. deposited the aforesaid check to its account with Solid Bank, Carbon Branch, Cebu City. After clearing, the amount of the check was immediately debited

by petitioner from respondent's account thereby leaving him with a balance of only P558.87. Meanwhile, respondent issued three checks from May 9 to May 16, 1992. When presented for payment,they were dishonored for being drawn against insufficient funds. As a result of the dishonor of Check Nos. 275080 and 275097 which were payable to ASELCO and ANECO, respectively, the electric power supply for the two mini-sawmills owned and operated by respondent, located in Talacogon, Agusan del Sur; and in Golden Ribbon, Butuan City, was cut off on June 1, 1992 and May 28, 1992, respectively, and it was restored only on July 20 and August 24, 1992, respectively. Due to the foregoing, respondent filed with the Regional Trial Court (RTC) of Cebu City a complaint against petitioner, praying for payment of losses consisting of unrealized income in the amount of P1,864,500.00. He also prayed for payment of moral damages, exemplary damages, attorney's fees and litigation expenses. RTC dismissed the complaint. The CA reversed the decision and directed petitioner to pay respondent the sum of P1,864,500.00 as actual damages. Held 1.in the absence of competent proof on the actual damages suffered, respondent is entitled to temperate damages. Under Article 2224 of the Civil Code of the Philippines, temperate or moderate damages, which are more than nominal but less than compensatory damages, may be recovered when the court finds that some pecuniary loss has been suffered but its amount cannot, from the nature of the case, be proved with certainty. It is apparent that respondent suffered pecuniary loss. The negligence of petitioner triggered the disconnection of his electrical supply, which temporarily halted his business operations and the consequent loss of business opportunity. However, due to the insufficiency of evidence before Us, We cannot place its amount with certainty. Article 2216 of the Civil Code instructs that assessment of damages is left to the discretion of the court according to the circumstances of each case. Under the circumstances, the sum of P50,000.00 as temperate damages is reasonable. In Philippine National Bank v. Court of Appeals, the Court held that a bank is under obligation to treat the accounts of its depositors with meticulous care whether such account consists only of a few hundred pesos or of millions of pesos. Responsibility arising from negligence in the performance of every kind of obligation is demandable. While petitioner's negligence in that case may not have been attended with malice and bad faith, the banks' negligence caused respondent to suffer mental anguish, serious anxiety, embarrassment and humiliation. In said case, We ruled that respondent therein was entitled to recover reasonable moral damages. The law allows the grant of exemplary damages to set an example for the public good. The banking system has become an indispensable institution in the modern world and plays a vital role in the economic life of every civilized society. Whether as mere passive entities for the safekeeping and saving of money or as active instruments of business and commerce, banks have attained an ubiquitous presence among the people, who have come to regard them with respect and even gratitude and most of all, confidence. For this reason, banks should guard against injury attributable to negligence or bad faith on its part. Petitioner, having failed in this respect, the award of exemplary damages in the amount of P50,000.00 is in order. 2. The bank on which the check is drawn, known as the drawee bank. 3. The drawee bank is under strict liability to pay to the order of the payee in accordance with the drawers instructions as reflected on the face and by the terms of the check. Thus, payment made before the date specified by the drawer is clearly against the drawee bank's duty to its client. SECOND DIVISION G.R. No. 175381 February 26, 2008 SVENDSEN, petitioner,

JAMES vs. PEOPLE OF THE PHILIPPINES, respondent. CARPIO MORALES, J.:

ISSUES: Are the notice of dishonor required under BP 22, and how is it made? Are unconscionable interest rates still allowed even when the Usury Law was already repealed? What is absence on consideration under Sec 24? FACTS: In October 1997, Cristina Reyes (Cristina) extended a loan to petitioner in the amount of P200,000, to bear interest at 10% a month. After petitioner had partially paid his obligation, he failed to settle the balance thereof which had reached P380,000 inclusive of interest. Cristina thus filed a collection suit against petitioner, which was eventually settled when petitioner paid herP200,000 and issued in her favor an International Exchange Bank check postdated February 2, 1999 (the check) in the amount of P160,000 representing interest. The check was co-signed by one Wilhelm Bolton.

When the check was presented for payment on February 9, 1999, it was dishonored for having been Drawn Against Insufficient Funds (DAIF). Cristina, through counsel, thus sent a letter to petitioner by registered mail informing him that the check was dishonored by the drawee bank, and demanding that he make it good within five (5) days from receipt thereof. No settlement having been made by petitioner, Cristina filed a complaint dated March 1, 1999 against him and his co-signatory to the check, Bolton, for violation of B.P. Blg. 22 before the City Prosecutors Office of Manila. No counter-affidavit was submitted by petitioner and his co-respondent. An Information dated April 13, 1999 for violation of B.P. Blg. No. 22 was thus filed on April 29, 1999 before the MeTC of Manila against the two, the accusatory portion of which reads: That sometime in December 1998 the said accused did then and there willfully, unlawfully, and feloniously and jointly make or draw and issue to CRISTINA C. REYES to apply on account or for value INTERNATIONAL EXCHANGE BANK check no. 0000009118 dated February 2, 1999 payable to CRISTINA REYES in the amount of P160,000.00 said accused well knowing that at the time of issue she/he/they did not have sufficient funds and/or credit with the drawee bank for payment of such check in full upon its presentment, which check after having been deposited in the City of Manila, Philippines, and upon being presented for payment within ninety (90) days from the date thereof was subsequently dishonored by the drawee bank for INSUFFICIENCY OF FUNDS and despite receipt of notice of such dishonor, said accused failed to pay said CRISTINA C. REYES the amount of the check or to make arrangement for full payment of the same within five (5) banking days after receiving said notice. CONTRARY TO LAW. Bolton having remained at large, the trial court never acquired jurisdiction over his person. By Judgment of December 17, 2003, Branch 5 of the Manila MeTC found petitioner guilty as charged. As priorly stated, the RTC affirmed the MeTC judgment and the Court of Appeals denied petitioners appeal. RULINGS: 1. Are the notice of dishonor required under BP 22, and how is it made? YES. In recent cases, we had the occasion to emphasize that not only must there be a written notice of dishonor or demand letters actually received by the drawer of a dishonored check, but there must also be proof of receipt thereof that is properly authenticated, and not mere registered receipt and/or return receipt. Thus, as held in Domagsang vs. Court of Appeals, while Section 2 of B.P. 22 indeed does not state that the notice of dishonor be in writing, this must be taken in conjunction 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. In our view, both the spirit and letter of the Bouncing Checks Law require for the act to be punished thereunder not only that the accused issued a check that is dishonored, but also that the accused has actually been notified in writing of the fact of dishonor. This is consistent with the rule that penal statues must be construed strictly against the state and liberally in favor of the accused. In fine, the failure of the prosecution to prove the existence and receipt by petitioner of the requisite written notice of dishonor and that he was given at least five banking days within which to settle his account constitutes sufficient ground for his acquittal.13 (Italics in the original; emphasis and underscoring supplied) The evidence for the prosecution failed to prove the second element. While the registry receipt, which is said to cover the letter-notice of dishonor and of demand sent to petitioner, was presented, there is no proof that he or a duly authorized agent received the same. Receipts for registered letters including return receipts do not themselves prove receipt; they must be properly authenticated to serve as proof of receipt of the letters. 2. Are unconscionable interest rates still allowed even when the Usury Law was already repealed? No. While the Usury Law ceiling on interest rates was lifted by Central Bank Circular No. 905, nothing therein grants lenders carte blanche to raise interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their assets. Stipulations authorizing such interest are contra bonos mores, if not against

the law. They are, under Article 140921 of the New Civil Code, inexistent and void from the beginning. The interest rate of 10% per month agreed upon by the parties in this case being clearly excessive, iniquitous and unconscionable cannot thus be sustained. In Macalalag v. People, Dio v. Jardines, and in Cuaton v. Salud, this Court, finding the 10% per month interest rate to be unconscionable, reduced it to 12% per annum. And in other cases where the interest rates stipulated were even less than that involved herein, the Court equitably reduced them. 3. What is absence on consideration under Sec 24? was not discussed in the case. Section 24 of the Negotiable Instruments Law provides that "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." It was incumbent then on petitioner to prove that the check was not for a valuable consideration. This he failed to discharge. JUDE JOBY LOPEZ, PETITIONER, V.S. PEOPLE OF THE PHILIPPINES RESPONDENT [G.R. No. 166810, June 26, 2008]

FIRST DIVISION (LEONARDO-DE CASTRO, J.) Instrument: Check Drawer: Jude Joby G. Lopez Drawee: Development Bank of the Philippines Payee: Efren Albes Facts:

Jude Joby G. Lopez was convicted of the RTC of Sorsogon of Estafa under Article 315 par. 2(d) of the Revised Penal Code. It was on October 6, 1998 when Efren Albes filed a complaint against Lopez after the latter issued DBP check no. 0859279 in the amount of P20,000 knowing fully well that at the time of issue, Lopez did not have sufficient fund and /or his account was already closed with the drawee bank and that upon presentment of the check for payment the same was dishonored and refused payment by DBP. Despite repeated demands by Albes, Lopez refused to pay. The CA affirmed the decision of the RTC. Lopez appealed to the SC contending that DBP did not issue him a notice of dishonor of the check which according to him resulted to the failure of the prosecution to establish deceit. Lopez argued that no prima facie evidence of guilt would arise if there is no proof as to the date of the receipt by the drawer of the said notice since there would be no way of reckoning the crucial 3-day period from receipt of the notice of dishonor of the check within which the amount necessary to cover the check may be done as provided by par. 2(d) of the Revised Penal Code as amended. Issue: 1.What is the effect of failure to receive notice of dishonor? 2.What is the effect of Section 114 (d) of the NIL? Held: 1. Lopez can still be convicted of estafa. Even if Art 315 par. 2 (d) of the Revised Penal Code, as amended by R.A. 4885 penalizes estafa when committed as follows: Par. 2. By means of the following false pretenses or fraudulent acts executed prior to xxx or simultaneously with the commission of the fraud:

d) By postdating a check, or issuing a check in payment of an obligation when the offender had no funds in the bank, or his funds deposited therein were not sufficient to cover the amount of the check. The failure of the drawer of the check to deposit the amount necessary to cover his check within three (3) days from receipt of notice from the bank and/or payee or holder that said check has been dishonored for lack or insufficiency of funds shall be prima facie evidence of deceit constituting false pretense or fraudulent act. By settled jurisprudence, the elements of the crime of estafa, as defined in the above quoted provision of law, are as follows: (1) the offender has postdated or issued a check in payment of an obligation contracted at the time of the postdating or issuance; (2) at the time of postdating or issuance of said check, the offender has no funds in the bank or the funds deposited are not sufficient to cover the amount of the check; and (3) the payee has been defrauded. Damage and deceit are essential elements of the offense and must be established with satisfactory proof to warrant conviction, while the false pretense or fraudulent act must be committed prior to, or simultaneous with, the issuance of the bad check. The drawer of the dishonored check is given three days from receipt of the notice of dishonor to cover the amount of the check, otherwise, a prima facie presumption of deceit arises.

from Daewoo Corporation of Seoul, Korea (the supplier), which was agreed upon by the parties to amount to P10 Million Pesos. MTT thus issued five checks postdated August, September, October, November, and December 1990 each for P716,666.66 and another check in January 1991 for P716,666.70 or in the total amount of P4,300,000. PCIB thereupon issued the Usance LC in favor of the supplier, which was to mature in October 1991. The tourist buses arrived in October 1990 and were delivered to MTT, covered by Trust Receipts with PCIB as entruster and MTT as entrustee. Of the six checks that MTT issued to PCIB, the first five representing a total amount of P3,583,333 were cleared but not the last one dated January 1991. PCIB soon demanded settlement of this dishonored check from MTT. MTT thus issued 14 postdated checks of P198,428.42, payable every 15 days, the first to start on February 28, 1991. Of the 14 checks, only the first five were honored, the proceeds of which totaled P992,142.10. The other nine, those dated May 15, 1991 et seq. in the total amount of P1,785,855.78, were dishonored - the subject of the nine informations at bar MTT, having suffered financial reverses, availed of provision No. 7 of the Trust Receipt reading. 7. In the event the Entrustee defaults in his/its obligations or breaches or fails to comply with the terms and conditions of this Trust Receipt, or upon default in, breach of or noncompliance with the obligation evidenced by Annex A hereof or the agreement under which the Entruster issued the letter of credit under the terms of which the Trust Property was purchased ("events of default"), the Entruster may cancel this trust, and thereupon take possession of the Trust Property and/or such proceeds as may then have been realized therefrom, and have the goods sold and the proceeds of such sale applied, in accordance with the provisions of Section 7 of the Trust Receipts Law. Nonetheless, PCIB proceed with filing a case against MTT and latter was adjudged to be guilty of nine counts of BP 22. ISSUES: 1) 2) 3) 4) 5) What is the element of knowledge of insufficient fund in BP 22? How does BP 22 create the presumption of knowledge? What is the remedy for the person liable to escape liability? Was payment maid when buses were surrendered? Does payment obliterate criminal liability?

However, the receipt by the drawer of the notice of dishonor is not an element of the offense. The presumption or prima facie evidence of guilt only dispenses with the presentation of evidence of deceit if such notification is received and the drawer of the check failed to deposit the amount necessary to cover his check within three (3) days from receipt of the notice of dishonor of the check. The presumption indulged in by law does not preclude the presentation of other evidence to prove deceit. It is not disputed by Lopez that, as found by the CA, Ables "called" up Lopez to inform him of the dishonor of the check. Moreover, when Lopez issued the check in question on March 23, 1998, he knew that his current account with the DBP was a closed account as early as January 27, 1998.

The absence of proof as to receipt of the written notice of dishonor notwithstanding, the evidence shows that Lopez had actual notice of the dishonor of the check because he was verbally notified by the Albes and notice whether written or verbal was a surplusage and totally unnecessary considering that almost two (2) months before the issuance of the check, Lopezs current account was already closed. Under these circumstances, the notice of dishonor would have served no useful purpose as no deposit could be made in a closed bank account. (Note Sec 89 of NIL: To whom notice of dishonor must be given- Except as herein otherwise provided, when a negotiable instrument has been dishonored by non-acceptance or non-payment, notice of dishonor must be given to the drawer and each indorser, and any drawer or indorser to whom such notice is not given is discharged.)

RULING: 1) The elements of violation of BP 22 are:

1.

The accused makes, draws or issues any check to apply to account or for value; The accused knows at the time of the issuance that he or she does not have sufficient funds in, or credit with, the drawee bank for the payment of the check in full upon its presentment; and

2.

3. The check is subsequently dishonored by the drawee bank for insufficiency of funds or credit, or it would have been dishonored for the same reason had not the drawer, without any valid reason, ordered the bank to stop payment. Respecting the second element of the crime, the prosecution must prove that the accused knew, at the time of issuance, that he does not have sufficient funds or credit for the full payment of the check upon its presentment. 2) The element of "knowledge" involves a state of mind that obviously would be difficult to establish, hence, the statute creates a prima facie presumption of knowledge on the insufficiency of funds or credit coincidental with the attendance of the two other elements. In order to create such presumption, it must be shown that the drawer or maker received a notice of dishonor and, within five banking days thereafter, failed to satisfy the amount of the check or arrange for its payment. The above-quoted provision creates a presumption juris tantum that the second element prima facie exists when the first and third elements of the offense are present 3) It is provided by law that the making, drawing and issuance of a check payment of which is refused by the drawee because of insufficient funds in or credit with such bank, when presented within ninety (90) days from the date of the check, shall be prima facieevidence of knowledge of such insufficiency of funds or credit unless such maker or drawer pays the holder thereof the amount due thereon, or makes arrangements for payment in full by the drawee of such check

3.

Since Lopez's bank account was already closed even before the issuance of the subject check, he had no right to expect or require the drawee bank to honor his check. By virtue of Sec. 114 (d), Lopez is not entitled to be given a notice of dishonor.

MARCIANO TAN, PETITIONER, VS. PHILIPPINE COMMERCIAL INTERNATIONAL BANK, RESPONDENT. G.R. No. 152666, April 23, 2008

CARPIO MORALES, J.: Instrument: Check Drawer: Master Tours and Travel Drawee: not indicated Payee: PCIB FACTS: Master Tours and Travel (MTT), of which petitioner was executive vice-president, applied for a 360-day Usance Letter of Credit (LC) with respondent Philippine Commercial International Bank (PCIB) for the importation of four tourist buses with

within five (5) banking days after receiving notice that such check has not been paid by the drawee. Therefore, The presumption is not conclusive, as it may be rebutted by full payment. If the maker or drawer pays, or makes arrangement with the drawee bank for the payment of the amount due within the five-day period from notice of the dishonor, he or she may no longer be indicted for such violation. It is a complete defense that would lie regardless of the strength of the evidence presented by the prosecution. 4) Yes. There was payment when the buses were surrenderd. In the present case, PCIB already exacted its proverbial pound of flesh by receiving and keeping in possession the four buses-trust properties surrendered by petitioner in about mid 1991 and March 1992 pursuant to Section 7 of the Trust Receipts Law, the estimated value of which was "about P6.6 million." It thus appears that the total amount of the dishonored checks - P1,785,855.75 -, the undisputed claim of petitioner of a mistaken agreement to pay the exchange differential (which the same checks represented) aside, was more than fully satisfied prior to the transmittal and receipt of the July 9, 1992 letter of demand 5) Yes. The payment made through the surrender of the buses obliterated MTTs criminal liability. It is a general rule that only a full payment at the time of its presentment orduring the five-day grace period could exonerate one from criminal liability under B.P. Blg. 22 and that subsequent payments can only affect the civil, but not the criminal, liability. In the case at bar, MTT was able to pay for the dishonored checks even prior to the transmittal and receipt of the letter of demand. Therefore, in keeping with jurisprudence, the Court then considers such payment of the dishonored checks to have obliterated the criminal liability of petitioner. ANAMER SALAZAR vs. J.Y. BROTHERS MARKETING CORPORATION G.R. No. 171998 DRAWER: Nena Timario INDORSER: SALAZAR PAYEE: J.Y. BROTHERS ISSUES: How are instruments discharged under Section 119(d) in relation to Article 1231(6) of the Civil Code? SECTION 119. Instrument; how discharged. A negotiable instrument is discharged: (a) By payment in due course by or on behalf of the principal debtor; (b) By payment in due course by the party accommodated, where the instrument is made or accepted for his accommodation; (c) By the intentional cancellation thereof by the holder; (d) By any other act which will discharge a simple contract for the payment of money; (e) When the principal debtor becomes the holder of the instrument at or after maturity in his own right. (Emphasis ours) And, under Article 1231 of the Civil Code, obligations are extinguished: xxxx (6) By novation. What are the elements of Novation? Novation is done by the substitution or change of the obligation by a subsequent one which extinguishes the first, either by changing the object or principal conditions, or by substituting the person of the debtor, or by subrogating a third person in the rights of the creditor. Novation may: Either be extinctive or modificatory, much being dependent on the nature of the change and the intention of the parties. Extinctive novation is never presumed; there must be an express intention to novate; in cases where it is implied, the acts of the parties must clearly demonstrate their intent to dissolve the old obligation as the moving consideration for the emergence of the new one. Implied novation necessitates that the incompatibility between the old and new obligation be total on every point such that the old obligation is completely superceded by the new one. The test of incompatibility is whether they can stand together, each one having an independent existence; if they cannot and are irreconcilable, the subsequent obligation would also extinguish the first. An extinctive novation would thus have the twin effects of, first, extinguishing an existing obligation and, second, creating a new one in its stead. This kind of novation presupposes a confluence of four essential requisites: (1) a previous valid obligation, (2) an agreement of all parties concerned to a new contract, (3) the extinguishment of the old obligation, and (4) the birth of a valid new obligation. Novation is merely modificatory where the change brought about by any subsequent agreement is merely incidental to the main obligation (e.g., a change in interest rates or an extension of time to pay; in this instance, the new agreement will not have the effect of October 20, 2010

extinguishing the first but would merely supplement it or supplant some but not all of its provisions.) FACTS: J.Y. Brothers Marketing (J.Y. Bros., for short) is a corporation engaged in the business of selling sugar, rice and other commodities. On October 15, 1996, Anamer Salazar, a freelance sales agent, was approached by Isagani Calleja and Jess Kallos, if she knew a supplier of rice. Answering in the positive, Salazar accompanied the two to J.Y. Bros. As a consequence, Salazar with Calleja and Kallos procured from J. Y. Bros. 300 cavans of rice worthP214,000.00. As payment, Salazar negotiated and indorsed to J.Y. Bros. Prudential Bank Check No. 067481 dated October 15, 1996 issued by Nena Jaucian Timario in the amount of P214,000.00 with the assurance that the check is good as cash. On that assurance, J.Y. Bros. parted with 300 cavans of rice to Salazar. However, upon presentment, the check was dishonored due to "closed account." Informed of the dishonor of the check, Calleja, Kallos and Salazar delivered to J.Y. Bros. a replacement cross Solid Bank Check No. PA365704 dated October 29, 1996 again issued by Nena Jaucian Timario in the amount ofP214,000.00 but which, just the same, bounced due to insufficient funds. When despite the demand letter dated February 27, 1997, Salazar failed to settle the amount due J.Y. Bros., the latter charged Salazar and Timario with the crime of estafa before the RTC. RTC dismissed the case against Anamer D. Salazar, Nena Jaucian Timario. Let an alias (bench) warrant of arrest without expiry dated issue for her apprehension, and fix the amount of the bail bond for her provisional liberty at 59,000.00 pesos. The RTC found that the Prudential Bank check drawn by Timario for the amount of P214,000.00 was payable to the order of respondent, and such check was a negotiable order instrument; that petitioner was not the payee appearing in the check, but respondent who had not endorsed the check, much less delivered it to petitioner. It then found that petitioners liability should be limited to the allegation in the amended information that "she endorsed and negotiated said check," and since she had never been the holder of the check, petitioner's signing of her name on the face of the dorsal side of the check did not produce the technical effect of an indorsement arising from negotiation. The RTC ruled that after the Prudential Bank check was dishonored, it was replaced by a Solid Bank check which, however, was also subsequently dishonored; that since the Solid Bank check was a crossed check, which meant that such check was only for deposit in payees account, a condition that rendered such check non-negotiable, the substitution of a nonnegotiable Solid Bank check for a negotiable Prudential Bank check was an essential change which had the effect of discharging from the obligation whoever may be the endorser of the negotiable check. The RTC concluded that the absence of negotiability rendered nugatory the obligation arising from the technical act of indorsing a check and, thus, had the effect of novation; and that the ultimate effect of such substitution was to extinguish the obligation arising from the issuance of the Prudential Bank check. CA found that petitioner indorsed the Prudential Bank check, which was later replaced by a Solid Bank check issued by Timario, also indorsed by petitioner as payment for the 300 cavans of rice bought from respondent. The CA, applying Sections 63, 66 and 29 of the Negotiable Instruments Law, found that petitioner was considered an indorser of the checks paid to respondent and considered her as an accommodation indorser, who was liable on the instrument to a holder for value, notwithstanding that such holder at the time of the taking of the instrument knew her only to be an accommodation party. Salazar contends that the issuance of the Solid Bank check and the acceptance thereof by the respondent, in replacement of the dishonored Prudential Bank check, amounted to novation that discharged the latter check; that respondent's acceptance of the Solid Bank check, notwithstanding its eventual dishonor by the drawee bank, had the effect of erasing whatever criminal responsibility, under Article 315 of the Revised Penal Code, the drawer or indorser of the Prudential Bank check would have incurred in the issuance thereof in the amount of P214,000.00; and that a check is a contract which is susceptible to a novation just like any other contract. RULING: We find no merit in this petition. Petitioner's claim that respondent's acceptance of the Solid Bank check which replaced the dishonoured Prudential bank check resulted to novation which discharged the latter check is unmeritorious. The obligation to pay a sum of money is not novated by an instrument that expressly recognizes the old, changes only the terms of payment, adds other obligations not incompatible with the old ones or the new contract merely supplements the old one. There are only two ways which indicate the presence of novation and thereby produce the effect of extinguishing an obligation by another which substitutes the same. First, novation must be explicitly stated and declared in unequivocal terms as novation is never presumed. Secondly, the old and the new obligations must be incompatible on every point. The test of incompatibility is whether or not the two obligations can stand together, each one having its independent existence. If they cannot, they are incompatible and the latter obligation novates the first. In the

instant case, there was no express agreement that BA Finance's acceptance of the SBTC check will discharge Nyco from liability. Neither is there incompatibility because both checks were given precisely to terminate a single obligation arising from Nyco's sale of credit to BA Finance. As novation speaks of two distinct obligations, such is inapplicable to this case. In this case, respondents acceptance of the Solid Bank check, which replaced the dishonored Prudential Bank check, did not result to novation as there was no express agreement to establish that petitioner was already discharged from his liability to pay respondent the amount of P214,000.00 as payment for the 300 bags of rice. As we said, novation is never presumed, there must be an express intention to novate. In fact, when the Solid Bank check was delivered to respondent, the same was also indorsed by petitioner which shows petitioners recognition of the existing obligation to respondent to pay P214,000.00 subject of the replaced Prudential Bank check. Moreover, respondents acceptance of the Solid Bank check did not result to any incompatibility, since the two checks Prudential and Solid Bank checks were precisely for the purpose of paying the amount of P214,000.00,i.e., the credit obtained from the purchase of the 300 bags of rice from respondent. Indeed, there was no substantial change in the object or principal condition of the obligation of petitioner as the indorser of the check to pay the amount of P214,000.00. It would appear that respondent accepted the Solid Bank check to give petitioner the chance to pay her obligation. Petitioner also contends that the acceptance of the Solid Bank check, a nonnegotiable check being a crossed check, which replaced the dishonored Prudential Bank check, a negotiable check, is a new obligation in lieu of the old obligation arising from the issuance of the Prudential Bank check, since there was an essential change in the circumstance of each check. . Among the different types of checks issued by a drawer is the crossed check. The Negotiable Instruments Law is silent with respect to crossed checks, although the Code of Commerce makes reference to such instruments. We have 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 could not be converted into cash. Thus, the effect of crossing a check relates to the mode of payment, meaning that the drawer had intended the check for deposit only by the rightful person, i.e., the payee named therein. The change in the mode of paying the obligation was not a change in any of the objects or principal condition of the contract for novation to take place. Considering that when the Solid Bank check, which replaced the Prudential Bank check, was presented for payment, the same was again dishonored; thus, the obligation which was secured by the Prudential Bank check was not extinguished and the Prudential Bank check was not discharged. Thus, we found no reversible error committed by the CA in holding petitioner liable as an accommodation indorser for the payment of the dishonored Prudential Bank check. G.R. No. 129910. September 5, 2006. THIRD DIVISION; CARPIO, J THE INTERNATIONAL CORPORATE BANK, INC., vs. COURT OF APPEALS and PHILIPPINE NATIONAL BANK Instrument: (15) Checks Drawer: Ministry of Education and Culture Drawee: PNB Payees: Trade Factors, Inc, Romero D. Palmares, Antonio Lisan, Golden City Trading, Red Arrow Trading, Ace Enterprises, Inc, Wintrade Marketing, ABC Trading, Inc, Golden Enterprises Facts The Ministry of Education and Culture issued 15 checks drawn against PNB which ICB accepted for deposit on various dates. After 24 hours from submission of the checks to PNB for clearing, ICB paid the value of the checks and allowed the withdrawals of the deposits. However, PNB returned all the checks to ICB without clearing them on the ground that they were materially altered. The alterations in the checks were made on their serial numbers. Thus, ICB instituted an action for collection of sums of money against PNB to recover the value of the checks. The RTC dismissed the complaint holding that PNB cannot be faulted for the delay in clearing the checks considering the ingenuity in which the alterations were effected. The trial court observed that there was no attempt from ICB to verify the status of the checks before it paid the value of the checks or allowed withdrawal of the deposits. Since the immediate cause of ICBs loss was the lack of caution of its personnel, the trial court held that ICB is not entitled to recover the value of the checks from PNB. On appeal, the CA reversed the ruling of the RTC. It held that although banking practice has it that the presumption of clearance is conclusive when it comes to the application of the 24-hour clearing period, the same principle may not be applied to the 24-hour period vis-a-vis material alterations to the extent that the drawee bank which returns materially altered checks within 24 hours after discovery would be conclusively relieved of any liability thereon. The drawee bank could still be held liable in certain instances. Even if the return of the check/s in question is done within 24 hours after discovery if it can be shown that the drawee bank had been patently negligent in the performance of its verification function. On MFR by PNB, the CA reversed itself. It held that its prior Decision failed to appreciate that the rule on the return of altered checks within 24 hours from the discovery of the alteration had been duly passed by the Central Bank and accepted by the members of the banking system. Until the rule is repealed or amended, the rule has to be applied. Issues 1. What is a material alteration?

2. Held

Were the checks materially altered?

1. An alteration is said to be material if it alters the effect of the instrument. It means an unauthorized change in an instrument that purports to modify in any respect the obligation of a party or an unauthorized addition of words or numbers or other change to an incomplete instrument relating to the obligation of a party. In other words, a material alteration is one which changes the items which are required to be stated under Section 1 of the NIL. Material alterations are provided for under Sections 124 and 125 of the NIL, to wit: SEC. 124. Alteration of instrument; effect of. Where a negotiable instrument is materially altered without the assent of all parties liable thereon, it is avoided, except as against a party who has himself made, authorized, or assented to the alteration and subsequent indorsers. But when an instrument has been materially altered and is in the hands of a holder in due course, not a party to the alteration, he may enforce payment thereof according to its original tenor. SEC. 125. What constitutes a material alteration. Any alteration which changes: (a) The date; (b) The sum payable, either for principal or interest; (c) The time or place of payment; (d) The number or the relations of the parties; (e) The medium or currency in which payment is to be made; or which adds a place of payment where no place of payment is specified, or any other change or addition which alters the effect of the instrument in any respect, is a material alteration. 2. The checks were NOT materially altered for an alteration of a Serial Number is Not Material. In his book entitled "Pandect of Commercial Law and Jurisprudence," Justice Jose C. Vitug opines that "an innocent alteration (generally, changes on items other than those required to be stated under Sec. 1, N.I.L.) and spoliation (alterations done by a stranger) will not avoid the instrument, but the holder may enforce it only according to its original tenor. The case at the bench is unique in the sense that what was altered is the serial number of the check in question, an item which, it can readily be observed, is not an essential requisite for negotiability under Section 1 of the Negotiable Instruments Law. The aforementioned alteration did not change the relations between the parties. The name of the drawer and the drawee were not altered. The intended payee was the same. The sum of money due to the payee remained the same The check's serial number is not the sole indication of its origin. As succinctly found by the CA, the name of the government agency which issued the subject check was prominently printed therein. The check's issuer was therefore sufficiently identified, rendering the referral to the serial number redundant and inconsequential. PNB, thus cannot refuse to accept the check in question on the ground that the serial number was altered, the same being an immaterial or innocent one. Ruling Thus, PNB is liable to ICB for the value of the checks, with legal interest from the time of filing of the complaint until full payment. FIRST DIVISION G.R. No. 154469 December 6, 2006 METROPOLITAN BANK AND TRUST COMPANY, petitioners, vs. RENATO D. CABILZO, respondent. CHICO-NAZARIO, J.: Instrument: Check Issues: 1. What is material alteration? 2. What is the effect of payment made under a materially altered instrument? 3. What is the doctrine of equitable estoppel? 4. What is the degree of diligence required of a bank? Facts On 12 November 1994, Cabilzo issued a Metrobank Check No. 985988, payable to "CASH" and postdated on 24 November 1994 in the amount of One Thousand Pesos (P1,000.00). The check was drawn against Cabilzos Account with Metrobank Pasong Tamo Branch under Current Account No. 618044873-3 and was paid by Cabilzo to a certain Mr. Marquez, as his sales commission. Subsequently, the check was presented to Westmont Bank for payment. Westmont Bank, in turn, indorsed the check to Metrobank for appropriate clearing. After the entries thereon were examined, including the availability of funds and the authenticity of the signature of the drawer, Metrobank cleared the check for encashment in accordance with the Philippine Clearing House Corporation (PCHC) Rules. On 16 November 1994, Cabilzos representative was at Metrobank Pasong Tamo Branch to make some transaction when he was asked by a bank personnel if Cabilzo had issued a check in the amount of P91,000.00 to which the former replied in the negative. On the afternoon of the same date, Cabilzo himself called Metrobank to reiterate that he did not issue a check in the amount of P91,000.00 and requested that the questioned check be returned to him for verification, to which Metrobank complied.

Upon receipt of the check, Cabilzo discovered that Metrobank Check No. 985988 which he issued on 12 November 1994 in the amount of P1,000.00 was altered to P91,000.00 and the date 24 November 1994 was changed to 14 November 1994. Hence, Cabilzo demanded that Metrobank re-credit the amount of P91,000.00 to his account. Metrobank, however, refused reasoning that it has to refer the matter first to its Legal Division for appropriate action. Repeated verbal demands followed but Metrobank still failed to re-credit the amount of P91,000.00 to Cabilzos account. Consequently, Cabilzo instituted a civil action for damages against Metrobank. Metrobank claimed that as a collecting bank and the last indorser, Westmont Bank should be held liable for the value of the check. Westmont Bank indorsed the check as the an unqualified indorser, by virtue of which it assumed the liability of a general indorser, and thus, among others, warranted that the instrument is genuine and in all respect what it purports to be. In addition, Metrobank, in turn, claimed that Cabilzo was partly responsible in leaving spaces on the check, which, made the fraudulent insertion of the amount and figures thereon, possible. On account of his negligence in the preparation and issuance of the check, which according to Metrobank, was the proximate cause of the loss, Cabilzo cannot thereafter claim indemnity by virtue of the doctrine of equitable estoppel. RTC in favor of Cablizo. The CA rendered decision similarly finding Metrobank liable for the amount of the check, without prejudice, however, to the outcome of the case between Metrobank and Westmont Bank which was pending before another tribunal. Held 1. An alteration is said to be material if it changes the effect of the instrument. It means that an unauthorized change in an instrument that purports to modify in any respect the obligation of a party or an unauthorized addition of words or numbers or other change to an incomplete instrument relating to the obligation of a party. In other words, a material alteration is one which changes the items which are required to be stated under Section 1 of the Negotiable Instruments Law. 2. Section 124. Alteration of instrument; effect of. Where a negotiable instrument is materially altered without the assent of all parties liable thereon, it is avoided, except as against a party who has himself made, authorized, and assented to the alteration and subsequent indorsers. But when the instrument has been materially altered and is in the hands of a holder in due course not a party to the alteration, he may enforce the payment thereof according to its original tenor. Indubitably, Cabilzo was not the one who made nor authorized the alteration. Neither did he assent to the alteration by his express or implied acts. There is no showing that he failed to exercise such reasonable degree of diligence required of a prudent man which could have otherwise prevented the loss. As correctly ruled by the appellate court, Cabilzo was never remiss in the preparation and issuance of the check, and there were no indicia of evidence that would prove otherwise. Indeed, Cabilzo placed asterisks before and after the amount in words and figures in order to forewarn the subsequent holders that nothing follows before and after the amount indicated other than the one specified between the asterisks. 3. The doctrine of equitable estoppel states that when one of the two innocent persons, each guiltless of any intentional or moral wrong, must suffer a loss, it must be borne by the one whose erroneous conduct, either by omission or commission, was the cause of injury. Metrobanks reliance on this dictum, is misplaced. For one, Metrobanks representation that it is an innocent party is flimsy and evidently, misleading. At the same time, Metrobank cannot asseverate that Cabilzo was negligent and this negligence was the proximate cause of the loss in the absence of even a scintilla proof to buttress such claim. Negligence is not presumed but must be proven by the one who alleges it. 4. The point is that as a business affected with public interest and because of the nature of its functions, the bank is under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship. The appropriate degree of diligence required of a bank must be a high degree of diligence, if not the utmost diligence. In the present case, it is obvious that Metrobank was remiss in that duty and violated that relationship. (When the drawee bank pays a materially altered check, it violates the terms of the check, as well as its duty to charge its clients account only for bona fide disbursements he had made. Since the drawee bank, in the instant case, did not pay according to the original tenor of the instrument, as directed by the drawer, then it has no right to claim reimbursement from the drawer, much less, the right to deduct the erroneous payment it made from the drawers account which it was expected to treat with utmost fidelity.)

HELD: 1. At this juncture, we must stress that obligations arising from contracts have the force of law between the parties and should be complied with in good faith.11 Nothing can stop the parties from establishing stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy.12 Here, Art. 2047 of the New Civil Code is pertinent. Art. 2047 states, Art. 2047. By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so. If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I of this Book shall be observed. In such case the contract is called a suretyship. In this case, the Letters of Guaranty and Surety clearly show that respondents undertook and bound themselves as guarantors and surety to pay the full amount of the export bill. Respondents claim that the petitioner did not protest13 upon dishonor of the export bill by Chekiang First Bank, Ltd. According to respondents, since there was no protest made upon dishonor of the export bill, all of them, as indorsers were discharged under Section 152 of the Negotiable Instruments Law. Section 152 of the Negotiable Instruments Law pertaining to indorsers, relied on by respondents, is not pertinent to this case. There are well-defined distinctions between the contract of an indorser and that of a guarantor/surety of a commercial paper, which is what is involved in this case. The contract of indorsement is primarily that of transfer, while the contract of guaranty is that of personal security.14 The liability of a guarantor/surety is broader than that of an indorser. Unless the bill is promptly presented for payment at maturity and due notice of dishonor given to the indorser within a reasonable time, he will be discharged from liability thereon.15 On the other hand, except where required by the provisions of the contract of suretyship, a demand or notice of default is not required to fix the surety's liability.16 He cannot complain that the creditor has not notified him in the absence of a special agreement to that effect in the contract of suretyship.17 Therefore, no protest on the export bill is necessary to charge all the respondents jointly and severally liable with G.G. Sportswear since the respondents held themselves liable upon demand in case the instrument was dishonored and on the surety, they even waived notice of dishonor as stipulated in their Letters of Guarantee. As to respondent Alcron, it is bound by the Letter of Guaranty executed by its representative Hans-Joachim Schloer. As to the other respondents, not to be overlooked is the fact that, the "Suretyship Agreement" they executed, expressly contemplated a solidary obligation, providing as it did that " the sureties hereby guaranteejointly and severally the punctual payment of any and all such credit accommodations, instruments, loans, which is/are now or may hereafter become due or owing by the borrower".18 It is a cardinal rule that if the terms of a contract are clear and leave no doubt as to the intention of the contracting parties, the literal meaning of its stipulation shall control.19 In the present case, there can be no mistaking about respondents' intent, as sureties, to be jointly and severally obligated with respondent G.G. Sportswear. SECOND DIVISION G.R. No. 152071 May 8, 2009 PHILIPPINES, Petitioner,

PRODUCERS BANK OF THE vs. EXCELSA INDUSTRIES, INC., Respondent. TINGA, J.:

ALLIED BANKING CORPORATION, vs.COURT OF APPEALS, G.G. SPORTSWEAR MANUFACTURING CORPORATION, NARI GIDWANI, SPOUSES LETICIA AND LEON DE VILLA AND ALCRON INTERNATIONAL LTD., G.R. No. 125851, July 11, 2006, Drawer: GGS Payee: ALLIED Drawee: Chekiang First Bank Ltd Issue: 1.Can respondents, in their capacity as guarantors and surety, be held jointly and severally liable under the Letters of Guaranty and Surety, in the absence of protest on the bill in accordance with Section 152 of the NIL

ISSUE: What is the effect of failure to comply with Section 89 and 152 of the NIL on the liability of respondent when he signed a separate undertaking and promised to pay on demand the full amount of draft? FACTS: Respondent Excelsa Industries, Inc. is a manufacturer and exporter of fuel products, particularly charcoal briquettes, as an alternative fuel source. Sometime in January 1987, respondent applied for a packing credit line or a credit export advance with petitioner Producers Bank of the Philippines, a banking institution duly organized and existing under Philippines laws. The application was supported by Letter of Credit No. M3411610NS2970 dated 14 October 1986. Kwang Ju Bank, Ltd. of Seoul, Korea issued the letter of credit through its correspondent bank, the Bank of the Philippine Islands, in the amount of US$23,000.00 for the account of Shin Sung Commercial Co., Ltd., also located in Seoul, Korea. T.L. World Development Corporation was the original beneficiary

of the letter of credit. On 05 December 1986, for value received, T.L. World transferred to respondent all its rights and obligations under the said letter of credit. Petitioner approved respondents application for a packing credit line in the amount of P300,000.00, of which about P96,000.00 in principal remained outstanding. Respondent executed the corresponding promissory notes evidencing the indebtedness. Prior to the application for the packing credit line, respondent had obtained a loan from petitioner in the form of a bill discounted and secured credit accommodation in the amount of P200,000.00, of which P110,000.00 was outstanding at the time of the approval of the packing credit line. The loan was secured by a real estate mortgage dated 05 December 1986 over respondents properties. Significantly, the real estate mortgage contained the following clause: For and in consideration of those certain loans, overdraft and/or other credit accommodations on this date obtained from the MORTGAGEE, and to secure the payment of the same, the principal of all of which is hereby fixed at FIVE HUNDRED THOUSAND PESOS ONLY (P500,000.00) Pesos, Philippine Currency, as well as those that the MORTGAGEE may hereafter extend to the MORTGAGOR, including interest and expenses or any other obligation owing to the MORTGAGEE, the MORTGAGOR does hereby transfer and convey by way of mortgage unto the MORTGAGEE, its successors or assigns, the parcel(s) of land which is/are described in the list inserted on the back of this document, and/or appended hereto, together with all the buildings and improvements now existing or which may hereafter be erected or constructed thereon, of which the MORTGAGOR declares that he/it is the absolute owner, free from all liens and encumbrances. On 17 March 1987, respondent presented for negotiation to petitioner drafts drawn under the letter of credit and the corresponding export documents in consideration for its drawings in the amounts of US$5,739.76 and US$4,585.79. Petitioner purchased the drafts and export documents by paying respondent the peso equivalent of the drawings. The purchase was subject to the conditions laid down in two separate undertakings by respondent dated 17 March 1987 and 10 April 1987. On 24 April 1987, Kwang Ju Bank, Ltd. notified petitioner through cable that the Korean buyer refused to pay respondents export documents on account of typographical discrepancies. Kwang Ju Bank, Ltd. returned to petitioner the export documents. Upon learning about the Korean importers non-payment, respondent sent petitioner a letter dated 27 July 1987, informing the latter that respondent had brought the matter before the Korea Trade Court and that it was ready to liquidate its past due account with petitioner. Respondent sent another letter dated 08 September 1987, reiterating the same assurance. In a letter 05 October 1987, Kwang Ju Bank, Ltd. informed petitioner that it would be returning the export documents on account of the nonacceptance by the importer. Petitioner demanded from respondent the payment of the peso equivalent of the export documents, plus interest and other charges, and also of the other due and unpaid loans. Due to respondents failure to heed the demand, petitioner moved for the extrajudicial foreclosure on the real estate mortgage over respondents properties. On 12 June 1989, petitioner executed an affidavit of consolidation over the foreclosed properties after respondent failed to redeem the same. As a result, the Register of Deeds of Marikina issued new certificates of title in the name of petitioner. On 17 November 1989, respondent instituted an action for the annulment of the extrajudicial foreclosure with prayer for preliminary injunction and damages against petitioner and the Register of Deeds of Marikina. On 18 December 1997, the RTC rendered a decision upholding the validity of the extrajudicial foreclosure. The RTC held that petitioner, whose obligation consisted only of receiving, and not of collecting, the export proceeds for the purpose of converting into Philippine currency and remitting the same to respondent, cannot be considered as respondents agent. The RTC also held that petitioner cannot be presumed to have received the export proceeds, considering that respondent executed undertakings warranting that the drafts and accompanying documents were genuine and accurately represented the facts stated therein and would be accepted and paid in accordance with their tenor. Furthermore, the RTC concluded that petitioner had no obligation to return the export documents and respondent could not expect their return prior to the payment of the export advances because the drafts and export documents were the evidence that respondent received export advances from petitioner. The RTC also found that by its admission, respondent had other loan obligations obtained from petitioner which were due and demandable; hence, petitioner correctly exercised its right to foreclose the real estate mortgage, which provided that the same secured the payment of not only the loans already obtained but also the export advances.

On 30 May 2001, the Court of Appeals rendered the assailed decision, reversing the RTCs decision. ISSUE: What is the effect of failure to comply with Section 89 and 152 of the NIL on the liability of respondent when he signed a separate undertaking and promised to pay on demand the full amount of draft? RULING: Much of the discussion has revolved around who should be liable for the dishonor of the draft and export documents. In the two undertakings executed by respondent as a condition for the negotiation of the drafts, respondent held itself liable if the drafts were not accepted. The two undertakings signed by respondent are similarly-worded and contained respondents express warranties, to wit: In consideration of your negotiating the above described draft(s), we hereby warrant that the said draft(s) and accompanying documents thereon are valid, genuine and accurately represent the facts stated therein, and that such draft(s) will be accepted and paid in accordance with its/their tenor. We further undertake and agree, jointly and severally, to defend and hold you free and harmless from any and all actions, claims and demands whatsoever, and to pay on demand all damages actual or compensatory including attorneys fees, costs and other awards or be adjudged to pay, in case of suit, which you may suffer arising from, by reason, or on account of your negotiating the above draft(s) because of the following discrepancies or reasons or any other discrepancy or reason whatever. We hereby undertake to pay on demand the full amount of the above draft(s) or any unpaid balance thereof, the Philippine perso equivalent converted at the prevailing selling rate (or selling rate prevailing at the date you negotiate our draft, whichever is higher) allowed by the Central Bank with interest at the rate prevailing today from the date of negotiation, plus all charges and expenses whatsoever incurred in connection therewith. You shall neither be obliged to contest or dispute any refusal to accept or to pay the whole or any part of the above draft(s), nor proceed in any way against the drawee, the issuing bank or any endorser thereof, before making a demand on us for the payment of the whole or any unpaid balance of the draft(s).(Emphasis supplied) In Velasquez v. Solidbank Corporation, where the drawer therein also executed a separate letter of undertaking in consideration for the banks negotiation of its sight drafts, the Court held that the drawer can still be made liable under the letter of undertaking even if he is discharged due to the banks failure to protest the nonacceptance of the drafts. The Court explained, thus: Petitioner, however, can still be made liable under the letter of undertaking. It bears stressing that it is a separate contract from the sight draft. The liability of petitioner under the letter of undertaking is direct and primary. It is independent from his liability under the sight draft. Liability subsists on it even if the sight draft was dishonored for non-acceptance or non-payment. Respondent agreed to purchase the draft and credit petitioner its value upon the undertaking that he will reimburse the amount in case the sight draft is dishonored. The bank would certainly not have agreed to grant petitioner an advance export payment were it not for the letter of undertaking. The consideration for the letter of undertaking was petitioners promise to pay respondent the value of the sight draft if it was dishonored for any reason by the Bank of Seoul. Thus, notwithstanding petitioners alleged failure to comply with the requirements of notice of dishonor and protest under Sections 89 and 152, respectively, of the Negotiable Instruments Law, respondent may not escape its liability under the separate undertakings, where respondent promised to pay on demand the full amount of the drafts. SALVADOR O. ECHANO, JR.,petitioner vs. LIBERTY TOLEDO, respondent G.R. No. 173930 September 15, 2010 Second Division (Justices Carpio, Velasco, Jr., Peralta, Bersamin and Abad) Instrument: Check Drawer: Medical Center Trading Corporation Drawee: Not mentioned in the case Payee: City Treasurer of Manila Facts: Liberty M. Toledo , City Treasurer of the City of Manila filed charges of grave misconduct and conduct prejudicial to the service against Salvado Echano, Liza Perez, Rogelio Reyes, and a certain John Doe with the Office of the Ombudsman. The Office of the Ombudsman dropped the charges against Perez and referred the case to the Office of the Court Administrator. The controversy stemmed when on August 8, 2000 Laurence V. Taguinod of the Medical Center Trading Corporation verified with the Office of the City Treasurer of Manila the authenticity of their 1st Quarter 2000 Municipal License Receipt. He claimed that he entrusted a January 18, 2000 managers check for P55,205.36 to Rogelio S. Reyes (Reyes), an officer of the City Treasurers Business License

Division in payment of his companys business tax. Reyes photocopied the check and signed the photocopy as proof that he received it. He also issued the subject receipt. After investigation, Liberty M. Toledo, the City Treasurer of Manila, discovered that the receipt was spurious since its validation imprint was copied from the official validation imprint of a Municipal License Receipt issued to Co Siu Kheng. She also found that the City did not receive the managers check nor was it deposited to its account with the Land Bank of the Philippines-YMCA Branch. As it turned out Liza E. Perez (Perez), a stenographer in the Office of the Clerk of Court, Regional Trial Court (RTC) of Manila, deposited the check in her personal account with the Land Bank-Taft Avenue Branch. The dorsal portion of the check showed Perezs signature and a signature of an unidentified person who was supposedly the first endorser. The deposit was approved by petitioner Salvador O. Echano, Jr. (Echano), Acting Branch Cashier of the Land Bank-Taft Avenue Branch. Echano denied the allegations contending that he was unaware that Perez had been able to deposit in her accounts second endorsed checks that were payable to the City of Manila. The Ombudsman found Echano and Reyes guilty of the charges. On appeal the CA affirmed the decision of the Ombudsman. Hence the appeal to the SC by Echano. Issue: 1.What is the effect of a crossed check? 2.What is a managers check? Held: 1. A crossed check has the effect of limiting the payment of the check to payees account only. In the case at bar, Medical Center Trading Corporation intended it to be deposited to the account of the payee only, namely, the City Treasurer of Manila. 2. A managers check is one drawn by the banks manager upon the bank itself. It is like a cashiers check and certified check both as to effect and use, which, in the commercial world, is regarded substantially to be as good as the money it represents. The mere fact that a managers check does not bear the payees signature at the back does not negate deposit thereof in payees account. It is in effect a bill of exchange drawn by the manager of the bank upon the bank itself, committing its total resources, integrity and honor behind the check. It is a primary obligation of the issuing bank and accepted in advance by the act of its issuance. Hence it is not subject to countermand by the payee after indorsement and has the same legal effect as a certificate of deposit or a certified check. It is really the banks own check and may be treated as a promissory note with the bank as the maker and therefore, the holder need not prove presentment for payment or present the bill to the drawee for acceptance. It operates as an assignment of funds represented by the check to the credit of the payee or holder. A managers check issued on request of a depositor is the substantial equivalent of a certified check and the deposit represented by the check passes to the credit of the checkholder who is therefore, a depositor to the amount. It is payable either to the person who purchases the check from the bank, or to the person who is to cash it. (Note: the meaning of managers check is not being discussed in the case. This definition is taken from the NIL book. A managers check is the same as a cashiers check). PHILIPPINE COMMERCIAL INTERNATIONAL BANK vs. ANTONIO B. BALMACEDA and ROLANDO N. RAMOS G.R. No. 158143, September 21, 2011 BRION, J.: Instrument: Checks FACTS: On September 10, 1993, PCIB filed an action for recovery of sum of money with damages before the RTC against Antonio Balmaceda, the Branch Manager of its Sta. Cruz, Manila branch. In its complaint, PCIB alleged that between 1991 and 1993, Balmaceda, by taking advantage of his position as branch manager, fraudulently obtained and encashed 31 Managers checks in the total amount of Ten Million Seven Hundred Eighty Two Thousand One Hundred Fifty Pesos (P10,782,150.00). It is imperative to note that 26 of these checks are crossed checks. Both the RTC and the CA found Balmaceda guilty. ISSUE: What is a crossed check? RULING: A crossed check is one where two parallel lines are drawn across its face or across its corner. Based on jurisprudence, the 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 the one who has an account with the bank; and (c) the act of crossing the check serves as a warning to the holder that the check has been issued for a definite purpose and he must inquire if he received the check pursuant to this purpose; otherwise, he is not a holder in due course. In other words, the crossing of a check is a warning that the check should be deposited only in the account of the payee. When a check is crossed, it is the duty of the collecting bank to ascertain that the check is only deposited to the payees account. In the case at bar, PCIBs systems allowed Balmaceda to encash 26 Managers checks which were all crossed checks, or checks payable to the payees account only. This made the court to decide that Balmacedas guilt in taking advantage of his authority and position as the branch manager to commit these acts, this circumstance cannot be used to excuse the manner the Bank through its employees handled its clients bank accounts and thereby ignored established bank procedures at the branch managers mere order. This lapse is made all the more glaring by Balmacedas repetition of his modus operandi 33 more times in a period of over one year by the Banks own estimation. With this kind of record, blame must be imputed on the Bank itself and its systems, not solely on the weakness or lapses of individual employees. Therfore, the cost of the proceeding were adjudged against PCIB. SPOUSES PNP DIRECTOR ELISEO D. DELA PAZ (Ret.) and MARIA FE C. DELA PAZ vs. SENATE COMMITTEE ON FOREIGN RELATIONS and the SENATE SERGEANT-AT-ARMS JOSE BALAJADIA, JR. G.R. No. 184849 February 13, 2009

ISSUE: Effect of Article 14(2) of the United Nations Convent5ion against corruption as well as Article 17(1) and (2) of the United Nations Convention against Transnational Organized Crime on movement of cash and appropriate negotiable instruments? Philippines is a state-party to the United Nations Convention Against Corruption and the United Nations Convention Against Transnational Organized Crime. The two conventions contain provisions dealing with the movement of considerable foreign currency across borders.6 The Moscow incident would reflect on our countrys compliance with the obligations required of state-parties under these conventions. Thus, the respondent Committee can properly inquire into this matter, particularly as to the source and purpose of the funds discovered in Moscow as this would involve the Philippines commitments under these conventions. FACTS: On October 6, 2008, a Philippine delegation of eight (8) senior Philippine National Police (PNP) officers arrived in Moscow, Russia to attend the 77th General Assembly Session of the International Criminal Police Organization (ICPO)INTERPOL in St. Petersburg from October 6-10, 2008. With the delegation was Gen. Dela Paz, then comptroller and special disbursing officer of the PNP. Gen. Dela Paz, however, was to retire from the PNP on October 9, 2008. On October 11, 2008, Gen. Dela Paz was apprehended by the local authorities at the Moscow airport departure area for failure to declare in written form the 105,000 found in his luggage. In addition, he was also found to have in his possession 45,000 euros (roughly equivalent to P2,970,000.00). Petitioners were detained in Moscow for questioning. After a few days, Gen. Dela Paz and the PNP delegation were allowed to return to the Philippines, but the Russian government confiscated the euros. Gen. Dela Paz arrived in Manila, a few days after Mrs. Dela Paz. Awaiting them were subpoenae earlier issued by respondent Committee for the investigation it was to conduct on the Moscow incident. Petitioners argue that respondent Committee is devoid of any jurisdiction to investigate the Moscow incident as the matter does not involve state to state relations as provided in paragraph 12, Section 13, Rule 10 of the Senate Rules of Procedure (Senate Rules). They further claim that respondent Committee violated the same Senate Rules when it issued the warrant of arrest without the required signatures of the majority of the members of respondent Committee. They likewise assail the very same Senate Rules because the same were not published as required by the Constitution, and thus, cannot be used as the basis of any investigation involving them relative to the Moscow incident. RULING: The petition must inevitably fail.

The matter affects Philippine international obligations. We take judicial notice of the fact that the Philippines is a state-party to the United Nations Convention Against Corruption and the United Nations Convention Against Transnational Organized Crime. The two conventions contain provisions dealing with the movement of considerable foreign currency across borders. The Moscow incident would reflect on our countrys compliance with the obligations required of state-parties under these conventions. Thus, the respondent Committee can properly inquire into this matter, particularly as to the source and purpose of the funds discovered in Moscow as this would involve the Philippines commitments under these conventions. Pursuant to paragraph 36, Section 13, Rule 10 of the Senate Rules, the Blue Ribbon Committee may conduct investigations on all matters relating to malfeasance, misfeasance and nonfeasance in office by officers and employees of the government, its branches, agencies, subdivisions and instrumentalities, and on any matter of public interest on its own initiative or brought to its attention by any of its members. It is, thus, beyond cavil that the Blue Ribbon Committee can investigate Gen. Dela Paz, a retired PNP general and member of the official PNP delegation to the INTERPOL Conference in Russia, who had with him millions which may have been sourced from public funds. The arrest order issued against the petitioners has been rendered ineffectual. In the legislative inquiry held on November 15, 2008, jointly by the respondent Committee and the Senate Blue Ribbon Committee, Gen. Dela Paz voluntarily appeared and answered the questions propounded by the Committee members. Having submitted himself to the jurisdiction of the Senate Committees, there was no longer any necessity to implement the order of arrest. Furthermore, in the same hearing, Senator Santiago granted the motion of Gen. Dela Paz to dispense with the presence of Mrs. Dela Paz for humanitarian considerations.9 Consequently, the order for her arrest was effectively withdrawn. G.R. No. 169889. September 29, 2009. SPOUSES SIMON YAP AND MILAGROS GUEVARRA vs. FIRST e-BANK CORPORATION (previously known as PDCP DEVELOPMENT BANK, INC.) Instrument: Check Drawer: Sammy Yap Drawee: Not stated Payee: PDCP Facts Sammy Yap obtained a P2 million loan from PDCP Development Bank. As security, Sammy's parents, petitioners Simon Yap and Milagros Guevarra, executed a thirdparty mortgage on their land and warehouse. Sammy issued a promissory note and six postdated checks in favor of PDCP as additional securities for the loan. When Sammy defaulted on the payment of his loan, PDCP presented the six checks to the drawee bank but the said checks were dishonored. This prompted PDCP to file a complaint against Sammy for six counts of violation of BP 22. Thereafter, PDCP filed an application for extrajudicial foreclosure of mortgage on the property of petitioners which served as principal security for Sammy's loan. Later however, on motion of Sammy and without objection from the public prosecutor and PDCP, the BP 22 cases were provisionally dismissed. Pursuant to the petition of PDCP for extrajudicial foreclosure, the extrajudicial sale was set and the publication requirements were complied with. Petitioners filed in the RTC a complaint for injunction (with prayer for the issuance of a temporary restraining order/preliminary injunction) against PDCP seeking to stop the foreclosure sale on the ground that PDCP waived its right to foreclose the mortgage on their property when it filed the BP 22 cases against Sammy. The RTC ruled in favor of petitioners. It held that PDCP had three options when Sammy defaulted in the payment of his loan: enforcement of the promissory note in a collection case, enforcement of the checks under the Negotiable Instruments Law and/or BP 22, or foreclosure of mortgage. The remedies were alternative and the choice of one excluded the others. Thus, PDCP was deemed to have waived its right to foreclose on the property of petitioners when it elected to sue Sammy for violation of BP 22. This was reversed by the CA, holding that PDCP was not barred from exercising its right to foreclose on the property of petitioners despite suing Sammy for violation of BP 22. The purpose of BP 22 was to punish the act of issuing a worthless check, not to force a debtor to pay his debt. In this petition, petitioners argue that, when Sammy was sued for six counts of violation of BP 22, PDCP should have been deemed to have simultaneously filed for collection of the amount represented by the checks. The civil aspect of the case was naturally an action for collection of Sammy's obligation to PDCP. PDCP clearly elected a remedy. PDCP should not be allowed to pursue another, like foreclosure of mortgage. Issue What is the effect of Circular 57-97 now Rule 111 section 1 (b) on criminal actions involving violations of BP 22 and its corresponding civil action?

Held The effect of the circular, as embedded into the Rules, is that the private complainant in a BP 22 case cannot opt to file the civil case necessarily arising from the BP 22 case nor reserve the same. Pertinent portions of Circular 57-97 provide: 1. The criminal action for violation of [BP] 22 shall be deemed to necessarily include the corresponding civil action, and no reservation to file such civil action separately shall be allowed or recognized. x x x Also, under Section 1 (b), Rule 111 of the Rules of Court: Section 1. Institution of criminal and civil actions. . . . (b) The criminal action for violation of [BP] 22 shall be deemed to include the corresponding civil action. No reservation to file such civil action separately shall be allowed. x x x Sad to say, Circular 57-97 (and Section 1 (b), Rule 111 of the Rules of Court) was not yet in force when PDCP sued Sammy for violation of BP 22 and when it filed a petition for extrajudicial foreclosure on the mortgaged property of petitioners on February 8, 1993 and May 3, 1993, respectively. Thus, prior to the effectivity of Circular 57-97, the alternative remedies of foreclosure of mortgage and collection suit were not barred even if a suit for BP 22 had been filed earlier, unless a judgment of conviction had already been rendered in the BP 22 case finding the accused debtor criminally liable and ordering him to pay the amount of the check(s). In this case, no judgment of conviction (which could have declared the criminal and civil liability of Sammy) was rendered because Sammy moved for the provisional dismissal of the case. Hence, PDCP could have still foreclosed on the mortgage or filed a collection suit. Second, it is undisputed that the BP 22 cases were provisionally dismissed at Sammy's instance. In other words, PDCP was prevented from recovering the whole amount by Sammy himself. To bar PDCP from foreclosing on petitioners' property for the balance of the indebtedness would be to penalize PDCP for the act of Sammy. That would not only be illogical and absurd but would also violate elementary rules of justice and fair play. In sum, PDCP has not yet effectively availed of and fully exhausted its remedy. A creditor's principal purpose in suing the debtor for BP 22 is to be able to collect his debt. It is not so much that the debtor should be imprisoned for issuing a bad check; this is so specially because a conviction for BP 22 does not necessarily result in imprisonment. Thus, we state the rule at present. If the debtor fails (or unjustly refuses) to pay his debt when it falls due and the debt is secured by a mortgage and by a check, the creditor has three options against the debtor and the exercise of one will bar the exercise of the others. He may pursue either of the three but not all or a combination of them. First, the creditor may file a collection suit against the debtor. This will open up all the properties of the debtor to attachment and execution, even the mortgaged property itself. Second, the creditor may opt to foreclose on the mortgaged property. In case the debt is not fully satisfied, he may sue the debtor for deficiency judgment (not a collection case for the whole indebtedness), in which case, all the properties of the debtor, other than the mortgaged property, are again opened up for the satisfaction of the deficiency. Lastly, the creditor may opt to sue the debtor for violation of BP 22 if the checks securing the obligation bounce. Circular 57-97 and Section 1 (b), Rule 111 of the Rules of Court both provide that the criminal action for violation of BP 22 shall be deemed to necessarily include the corresponding civil action, i.e., a collection suit. No reservation to file such civil action separately shall be allowed or recognized.