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3. New Pacific Timber v. Seneris, et al. G.R. No. L-41764 December 19, 1980
Facts: Petitioner is the defendant in a complaint for collection of a sum of money filed by
private respondent Richard A Tong. A compromise jugdment was rendered by the respondent
judge Seneris in accordance with an amicable settlement entered into by the parties.
However, petitioner failed to comply with the judgment obligation, thus an order was issued
for a writ of execution, causing petitioner's personal properties to be levied upon. Prior to the
auction sale, petitioner deposited with the clerk of court in his capacity as Ex-Oicio Sheriff
the amount of P63,130.00 for the payment of the judgment obligation, consisting of
P50,000.00 in Cashier's Check No. S-314361, dated January 3, 1975 and P13,130.00 in cash.
Private respondent refused to accept the check and the cash deposit. Albeit the numerous
postponements of the auction sale due to attempts of settling the matter, the auction sale
pushed through and the properties were sold to the private respondent as the highest bidder in
the amount of P50,000.00. The Ex-Officio Sheriff declared a deficiency of P13,130.00.
Thereafter, the Ex-Officio Sheriff issued a "Sheriff's Certificate of Sale" in favor of the
private respondent for the total amount of P50,000.00 only. Subsequently, petitioner filed an
ex-parte motion for issuance of certificate of satisfaction of judgment but was later denied by
the respondent Judge.
Issue: Whether the private respondent can validly refuse acceptance of the payment of the
judgment obligation made by the petitioner consisting of P50,000.00 in Cashier's Check and
P13,130.00 in cash.
Held: No. It is to be emphasized that the check deposited by the petitioner in the amount of
P50,000.00 is not an ordinary check but a Cashier's Check of the Equitable Banking
Corporation, a bank of good standing and reputation. As testified to by the Ex-Officio Sheriff
with whom it has been deposited, it is a certified crossed check. It is a well-known and
accepted practice in the business sector that a Cashier's Check is deemed as cash. Moreover,
since the said check had been certified by the drawee bank, by the certification, the funds
represented by the check are transferred from the credit of the maker to that of the payee or
holder, and for all intents and purposes, the latter becomes the depositor of the drawee bank,
with rights and duties of one in such situation. Where a check is certified by the bank on
which it is drawn, the certification is equivalent to acceptance.
Said certification "implies that the check is drawn upon sufficient funds in the hands of the
drawee, that they have been set apart for its satisfaction, and that they shall be so applied
whenever the check is presented for payment. It is an understanding that the check is good
then, and shall continue good, and this agreement is as binding on the bank as its notes in
circulation, a certificate of deposit payable to the order of the depositor, or any other
obligation it can assume. The object of certifying a check, as regards both parties, is to enable
the holder to use it as money." When the holder procures the check to be certified, "the check
operates as an assignment of a part of the funds to the creditors." Hence, the exception to the

rule enunciated under Section 63 of the Central Bank Act to the effect "that a check which has
been cleared and credited to the account of the creditor shall be equivalent to a delivery to the
creditor in cash in an amount equal to the amount credited to his account" shall apply in this
case. Considering that the whole amount deposited by the petitioner consisting of Cashier's
Check of P50,000.00 and P13,130.00 in cash covers the judgment obligation of P63,000.00
as mentioned in the writ of execution, then, We see no valid reason for the private respondent
to have refused acceptance of the payment of the obligation in his favor. The
auction sale, therefore, was uncalled for. Furthermore, it appears that the Cashier's Check was
even withdrawn by the petitioner and replaced with cash in the corresponding amount of
P50,000.00 pursuant to an agreement entered into by the parties at the instance of the
respondent Judge. However, the private respondent still refused to receive the same.
Obviously, the private respondent is more interested in the levied properties than in the mere
satisfaction of the judgment obligation. Thus, petitioner's motion for the issuance of a
certificate of satisfaction of judgment is clearly meritorious and the respondent Judge gravely
abused his discretion in not granting the same under the circumstances.
FACTS: The property subject matter of the contract consists of a parcel of land in the
Province of Bulacan, issued and registered in the name of the petitioner which it sold to the
private respondent.
On July 7, 1971, the subject contract over the land in question was executed between the
petitioner as vendor and the private respondent through its then president, Mr. Carlos F.
Robes, as vendee, stipulating for a downpayment of P23,930.00 and the balance of
P100,000.00 plus 12% interest per annum to be paid within 4 years from execution of the
contract. The contract likewise provides for cancellation, forfeiture of previous payments, and
reconveyance of the land in question in case the private respondent would fail to complete
payment within the said period.
After the expiration of the stipulated period for payment, Atty. Adalia Francisco (president of
the company who bought land) wrote the petitioner a formal request that her company be
allowed to pay the principal amount of P100,000.00 in 3 equal installments of 6 months each
with the first installment and the accrued interest of P24,000.00 to be paid immediately upon
approval of the said request.
The petitioner formally denied the said request of the private respondent, but granted the
latter a grace period of 5 days from the receipt of the denial to pay the total balance of
P124,000.00. The private respondent wrote the petitioner requesting an extension of 30 days
from said date to fully settle its account but this was still denied.
Consequently, Atty. Francisco wrote a letter to the petitioner, protesting the alleged refusal of
the latter to accept tender of payment made by the former on the last day of the grace period.
But the private respondent demanded the execution of a deed of absolute sale over the land in
question. Atty. Fernandez, wrote a reply to the private respondent stating the refusal of his

client to execute the deed of absolute sale so the petitioner cancelled the contract and
considered all previous payments forfeited and the land as ipso facto reconveyed.
The trial court considered as fatal the failure of Atty. Francisco to present in court the
certified personal check allegedly tendered as payment or, at least, its xerox copy, or even
bank records thereof.
Not satisfied with the said decision, the private respondent appealed to the IAC. The IAC
reversed the decision of the trial court. The IAC, in finding that the private respondent had
sufficient available funds, ipso facto concluded that the latter had tendered payment.
ISSUES: (1) Whether or not the finding of the IAC that Atty. Francisco had sufficient
available funds did tender payment for the said obligation. (2) Whether or not an offer of a
check is a valid tender of payment of an obligation under a contract which stipulates that the
consideration of the sale is in Philippine Currency.
HELD: (1) NO, the finding that the private respondent had sufficient available funds on or
before the grace period for the payment of its obligation does not constitute proof of tender of
payment by the respondent for its obligation within the said period. Tender of payment
involves a positive and unconditional act by the obligor of offering legal tender currency as
payment to the obligee for the formers obligation and demanding that the latter accept the
same. Thus, tender of payment cannot be presumed by a mere inference from surrounding
circumstances. At most, sufficiency of available funds is only affirmative of the capacity or
ability of the obligor to fulfill his part of the bargain.
(2) NO, the case of the private respondent still cannot succeed in view of the fact that the
latter used a certified personal check which is not legal tender nor the currency stipulated, and
therefore, can not constitute valid tender of payment. The first paragraph of Art. 1249 of the
Civil Code provides that "the payment of debts in money shall be made in the currency
stipulated, and if it is not possible to deliver such currency, then in the currency which is legal
tender in the Philippines.
In the recent case of Philippine Airlines v. Court of Appeals: Since a negotiable instrument is
only a substitute for money and not money, the delivery of such an instrument does not, by
itself, operate as payment. A check, whether a managers check or ordinary check, is not legal
tender, and an offer of a check in payment of a debt is not a valid tender of payment and may
be refused receipt by the obligee or creditor.
Hence, where the tender of payment by the private respondent was not valid for failure to
comply with the requisite payment in legal tender or currency stipulated within the grace
period and as such, was validly refused receipt by the petitioner, the subsequent consignation
did not operate to discharge the former from its obligation to the latter.
6. Traders Royal Bank vs Court of Appeals
Facts: Defendant Filriters is the registered owner of Central Bank Certificate of Indebtedness
(CBCI) No. D891. Under a deed of assignment dated November 27, 1971, Filriters
transferred said certificate to Philippine Underwriters Finance Corporation (Philfinance).

Subsequently, Philfinance transferred CBCI No. D891, which was still registered in the name
of Filriters, to appellant Traders Royal Bank (TRB). The transfer was made under a
repurchase agreement dated February 4, 1981, granting Philfinance the right to repurchase the
instrument on or before April 27, 1981. When Philfinance failed to buy back the note on
maturity date, it executed a deed of assignment, dated April 27, 1981, already conveying to
appellant TRB all its right and the title to said certificate.
Armed with the deed of assignment, TRB then sought the transfer and registration of CBCI
No. D891 in its name before the Security and Servicing Department of the Central Bank
(CB). Central Bank, however, refused to effect the transfer and registration in view of an
adverse claim filed by defendant Filriters. It was found that the transfer by Filriters of the
certificate to Philfinance was made by one of its officers without authorization from the
Left with no other recourse, TRB filed a special civil action for mandamus against the Central
Bank in the Regional Trial Court of Manila. The suit, however, was subsequently treated by
the lower court as a case of interpleader when CB prayed in its amended answer that Filriters
be impleaded as a respondent and the court adjudge which of them is entitled to the
ownership of CBCI No. D891.
RTC: transfer is null and void.
CA: In the appellate court, petitioner argued that the subject CBCI was a negotiable
instrument, and having acquired the said certificate from Philfinance as a holder in due
course, its possession of the same is thus free from any defect of title of prior parties and
from any defense available to prior parties among themselves, and it may thus, enforce
payment of the instrument for the full amount thereof against all parties liable thereon.
CA ruled that the subject CBCI is not a negotiable instrument. Philfinance acquired no title or
rights under CBCI No. D891 which it could assign or transfer to Traders Royal Bank and
which the latter can register with the Central Bank. Thus, the transfer of the instrument from
Philfinance to TRB was merely an assignment, and is not governed by the negotiable
instruments law
Important Doctrines re: Negotiable Instruments
The CBCI is not a negotiable instrument, since the instrument clearly stated that it was
payable to Filriters, the registered owner, whose name was inscribed thereon, and that the
certificate lacked the words of negotiability which serve as an expression of consent that the
instrument may be transferred by negotiation.
Obviously, the assignment of the certificate from Filriters to Philfinance was fictitious,
having made without consideration, and did not conform to Central Bank Circular No. 769,
series of 1980, better known as the "Rules and Regulations Governing Central Bank
Certificates of Indebtedness", which provided that any "assignment of registered certificates
shall not be valid unless made . . . by the registered owner thereof in person or by his
representative duly authorized in writing."
Petitioner's claimed interest has no basis, since it was derived from Philfinance whose interest
was inexistent, having acquired the certificate through simulation. What happened was

Philfinance merely borrowed CBCI No. D891 from Filriters, a sister corporation, to
guarantee its financing operations.
In the case at bar, Alfredo O. Banaria, who signed the deed of assignment purportedly for and
on behalf of Filriters, did not have the necessary written authorization from the Board of
Directors of Filriters to act for the latter. For lack of such authority, the assignment did not
therefore bind Filriters and violated as the same time Central Bank Circular No. 769 which
has the force and effect of a law, resulting in the nullity of the transfer.
In sum, Philfinance acquired no title or rights under CBCI No. D891 which it could assign or
transfer to Traders Royal Bank and which the latter can register with the Central Bank.
The appellate court correctly ruled that the subject CBCI is not a negotiable instrument,
stating that:As worded, the instrument provides a promise "to pay Filriters Guaranty
Assurance Corporation, the registered owner hereof." Very clearly, the instrument is payable
only to Filriters, the registered owner, whose name is inscribed thereon. It lacks the words
ofnegotiability which should have served as an expression of consent that the instrumentmay
be transferred by negotiation.
A reading of the subject CBCI indicates that the same is payable to FILRITERS
GUARANTY ASSURANCE CORPORATION, and to no one else, thus, discounting the
petitioner's submission that the same is a negotiable instrument, and that it is a holder in due
course of the certificate.
The language of negotiability which characterizes a negotiable paper as a credit instrument is
its freedom to circulate as a substitute for money. Hence, freedom of negotiability is the
touchtone relating to the protection of holders in due course, and the freedom of negotiability
is the foundation for the protection which the law throws around a holder in due course (11
Am. Jur. 2d, 32). This freedom in negotiability is totally absent in a certificate indebtedness
as it merely to pay a sum of money to a specified person or entity for a period of time.
In February 1983, Rene Naybe took out a loan from Philippine Bank of Communications
(PBC) in the amount of P50k. For that he executed a promissory note in the same amount.
Naybe was able to convince Baldomero Inciong, Jr. and Gregorio Pantanosas to co-sign with
him as co-makers. The promissory note went due and it was left unpaid. PBC demanded
payment from the three but still no payment was made. PBC then sue the three but PBC later
released Pantanosas from its obligations. Naybe left for Saudi Arabia hence cant be issued
summons and the complaint against him was subsequently dropped. Inciong was left to face
the suit. He argued that that since the complaint against Naybe was dropped, and that
Pantanosas was released from his obligations, he too should have been released.
Whether or not petitioner should be held liable

Yes. Inciong is considering himself as a guarantor in the promissory note. And he was basing
his argument on Article 2080 of the Civil Code which provides that guarantors are released
from their obligations if the creditors shall release their debtors. It is to be noted however that
Inciong did not sign the promissory note as a guarantor. He signed it as a solidary co-maker.
A guarantor who binds himself in solidum with the principal debtor does not become a
solidary co-debtor to all intents and purposes. Because the promissory note involved in this
case expressly states that the three signatories therein are jointly and severally liable, any one,
some or all of them may be proceeded against for the entire obligation. The choice is left to
the solidary creditor (PBC) to determine against whom he will enforce collection.
Consequently, the dismissal of the case against Pontanosas may not be deemed as having
discharged Inciong from liability as well. As regards Naybe, suffice it to say that the court
never acquired jurisdiction over him. Inciong, therefore, may only have recourse against his
co-makers, as provided by law. Petition for review on certiorari is DENIED.
8. Philippines National Bank vs. Erlando T. Rodriguez, et al. G.R. No. 170325,
September 26, 2008
A bank that regularly processes checks that are neither payable to the customer nor duly
indorsed by the payee is apparently grossly negligent in its operations. This Court has
recognized the unique public interest possessed by the banking industry and the need for the
people to have full trust and confidence in their banks. For this reason, banks are minded to
treat their customers accounts with utmost care, confidence, and honesty. In a checking
transaction, the drawee bank has the duty to verify the genuineness of the signature of the
drawer and to pay the check strictly in accordance with the drawers instructions, i.e., to the
named payee in the check.
Facts: Spouses Rodriguez maintained a savings and demand/checking accounts with
petitioners Philippines National Bank (PNB). They were engaged in the informal lending
business and had a discounting arrangement with the Philnabank Employees Savings and
Loan Association (PEMSLA), an association of PNB employees, which likewise maintained
current and savings accounts with petitioner bank. PEMSLA regularly granted loans to its
members. Spouses Rodriguez would rediscount the postdated checks issued to members
whenever the association was short of funds. As was customary, the spouses would replace
the postdated checks with their own checks issued in the name of the members.
It was PEMSLAs policy not to approve applications for loans of members with outstanding
debts. To subvert this policy, some PEMSLA officers devised a scheme to obtain additional
loans despite their outstanding loan accounts. They took out loans in the names of unknowing
members, without the knowledge or consent of the latter. The PEMSLA checks issued for
these loans were then given to the spouses for rediscounting. The officers carried this out by
forging the indorsement of the named payees in the checks. In return, the spouses issued their
personal checks (Rodriguez checks) in the name of the members and delivered the checks to

an officer of PEMSLA. The PEMSLA checks, on the other hand, were deposited by the
spouses to their account. Meanwhile, the Rodriguez checks were deposited directly by
PEMSLA to its savings account without any indorsement from the named payees. This usual
irregular procedure is made possible through the facilitation of Edmundo Palermo, Jr.,
treasurer of PEMSLA and bank teller in the PNB Branch.
The spouses issued 69 checks, in the total amount of P2,345,804.00, payable to 47 members
of PEMSLA. After finding out such fraudulent act, PNB closed the current account of
PEMSLA. As a result, the PEMSLA checks deposited by the spouses were returned or
dishonored for the reason Account Closed. The corresponding Rodriguez checks, however,
were deposited as usual to the PEMSLA savings account. The amounts were duly debited
from the Rodriguez account. Thus, because the PEMSLA checks given as payment were
returned, spouses Rodriguez incurred losses from the rediscounting transactions. Spouses
Rodriguez sued PEMSLA and PNB. They contended that because PNB credited the checks to
the PEMSLA account even without indorsements, PNB violated its contractual obligation to
them as depositors. PNB paid the wrong payees, hence, it should bear the loss. Trial court
ruled in favor of spouses and ordered PNB to pay. CA affirmed the decision. Hence this
Issue: Whether or not PNB can be made liable to pay the amount of checks which were
deposited to the PEMSLA savings account.
Held: A bank that regularly processes checks that are neither payable to the customer nor
duly indorsed by the payee is apparently grossly negligent in its operations. This Court has
recognized the unique public interest possessed by the banking industry and the need for the
people to have full trust and confidence in their banks. For this reason, banks are minded to
treat their customers accounts with utmost care, confidence, and honesty. In a checking
transaction, the drawee bank has the duty to verify the genuineness of the signature of the
drawer and to pay the check strictly in accordance with the drawers instructions, i.e., to the
named payee in the check. It should charge to the drawers accounts only the payables
authorized by the latter. Otherwise, the drawee will be violating the instructions of the drawer
and it shall be liable for the amount charged to the drawers account. Rodriguez checks are
payable to order since the bank failed to prove that the named payees therein are fictitious.
Hence, the fictitious-payee rule which will make the instrument payable to bearer does not
apply. PNB accepted the 69 checks for deposit to the PEMSLA account even without any
indorsement from the named payees. It bears stressing that order instruments can only be
negotiated with a valid indorsement.
9. CALTEX V. CA (1992)
Defendant Security Bank and Trust Company issued 280 certificates of times deposit (CTDs)
in favour of Angel dela Cruz who deposited with defendant the amount of P2,000,000. Angel
dela Cruz delivered the said CTDs to plaintiff Caltex (Phils.) Inc. in connection with the
former's purchase of fuel products from the latter. Angel dela Cruz informed Mr.Tiangco the

defendants branch manager that he lost all the CTDs. As advised, Angel dela Cruz executed
and delivered the required Affidavit of Loss.
Angel dela Cruz negotiated and obtained a loan from defendant bank in the amount of
P875,000.00. He executed a notarized Deed of Assignment of Time Deposit, and that he
surrenders to defendant bank full control of the indicated time deposits from and after date of
the assignment and further authorizes said bank to pre-terminate, set-off and apply the said
time deposits to the payment of whatever amount or amounts may be due on the loan upon its
Mr.Aranas, Credit Manager of plaintiff Caltex (Phils.) Inc., went to the defendant bank and
presented for verification the CTDs declared lost by Angel dela Cruz alleging that the same
were delivered to plaintiff as security for purchases made with Caltex Philippines, Inc. by
dela Cruz.
Defendant bank received a letter from plaintiff formally informing it of its possession of the
CTDs in question and of its decision to pre-terminate the same.Defendant bank rejected the
plaintiff's demand and claim for payment of the value of the CTDs. The loan of Angel dela
Cruz with the defendant bank matured and fell due, so the latter set-off and applied the time
deposits in question to the payment of the matured loan.
Plaintiff filed the instant complaint, praying that defendant bank be ordered to pay it the
aggregate value of the certificates of time deposit of P1,120,000.00 plus accrued interest and
compounded interest.Trial Court dismissed the complaint.
Sample text of the certificates of time deposit:
6778 Ayala Ave., Makati No. 90101
Metro Manila, Philippines
Rate 16%
Date of Maturity FEB. 23, 1984 FEB 22, 1982, 19____
This is to Certify that B E A R E R has deposited in this Bank the sum of PESOS: FOUR
Philippine Currency, repayable to said depositor 731 days. after date, upon presentation and
surrender of this certificate, with interest at the rate of 16% per cent per annum.
(Sgd. Illegible) (Sgd. Illegible)
Court of Appeals affirmed the lower court and ruled that the CTDs are not negotiable
instruments because while the word bearer appears, it manifests with clarity that they are

payable, not to whoever purports to be the "bearer" but only to the specified person indicated
therein, the depositor.
Whether the CTDs are negotiable instruments.
Whether petitioner (plaintiff) can rightfully recover on the CTDs.
Yes.The documents provide that the amounts deposited shall be repayable to the
depositor. And who, according to the document, is the depositor? It is the "bearer." The
documents do not say that the depositor is Angel de la Cruz and that the amounts deposited
are repayable specifically to him. Rather, the amounts are to be repayable to the bearer of the
documents or, for that matter, whosoever may be the bearer at the time of presentment.
If it was really the intention of respondent bank to pay the amount to Angel de la Cruz only, it
could have with facility so expressed that fact in clear and categorical terms in the
documents, instead of having the word "BEARER" stamped on the space provided for the
name of the depositor in each CTD. On the wordings of the documents, therefore, the
amounts deposited are repayable to whoever may be the bearer thereof. Thus, petitioner's
aforesaid witness merely declared that Angel de la Cruz is the depositor "insofar as the bank
is concerned," but obviously other parties not privy to the transaction between them would
not be in a position to know that the depositor is not the bearer stated in the CTDs. Hence, the
situation would require any party dealing with the CTDs to go behind the plain import of
what is written thereon to unravel the agreement of the parties thereto through facts aliunde.
No. Unfortunately for petitioner, although the CTDs are bearer instruments, a valid
negotiation thereof for the true purpose and agreement between it and De la Cruz, as
ultimately ascertained, requires both delivery and indorsement. The CTDs were in reality
delivered to it only as a security for De la Cruz' purchases of its fuel products. CTDs were
only delivered but not indorsed. There was no negotiation in the sense of a transfer of the
legal title to the CTDs in favor of petitioner in which situation, for obvious reasons, mere
delivery of the bearer CTDs would have sufficed.
Where the holder has a lien on the instrument arising from contract, he is deemed a holder for
value to the extent of his lien. As such holder of collateral security, he would be a pledgee as
required. But petitioner failed to produce any document evidencing any contract of pledge or
guarantee agreement between it and Angel de la Cruz, hence did not legally vest in petitioner
any right effective against and binding upon respondent bank.
Respondent Bartolome V. Puzon, Jr., (Puzon) owner of Bartenmyk Enterprises, was a dealer
of beer products of petitioner San Miguel Corporation (SMC) for Paranaque City. Puzon
purchased SMC products on credit. To ensure payment and as a business practice, SMC
required him to issue postdated checks equivalent to the value of the products purchased on

credit before the same were released to him. Said checks were returned to Puzon when the
transactions covered by these checks were paid or settled in full.
On December 31, 2000, Puzon purchased products on credit amounting to P11,820,327 for
which he issued, and gave to SMC, Bank of the Philippine Islands (BPI) Check Nos. 27904
(forP309,500.00) and 27903 (for P11,510,827.00) to cover the said transaction.
On January 23, 2001, Puzon, together with his accountant, visited the SMC Sales Office in
Paranaque City to reconcile his account with SMC. During that visit Puzon allegedly
requested to see BPI Check No. 17657. However, when he got hold of BPI Check No. 27903
which was attached to a bond paper together with BPI Check No. 17657 he allegedly
immediately left the office with his accountant, bringing the checks with them.
SMC sent a letter to Puzon on March 6, 2001 demanding the return of the said checks. Puzon
ignored the demand hence SMC filed a complaint against him for theft with the City
Prosecutors Office of Paranaque City.
Rulings of the Prosecutor and the Secretary of Department of Justice (DOJ): The
investigating prosecutor, Elizabeth Yu Guray found that the relationship between [SMC] and
[Puzon] appears to be one of credit or creditor-debtor relationship. The problem lies in the
reconciliation of accounts and the non-payment of beer empties which cannot give rise to a
criminal prosecution for theft.
Was there probable cause for theft?
None. One of the essential elements of theft is the taking of a personal property belonging to
Art. 308. Who are liable for theft. - Theft is committed by any person who, with intent to gain
but without violence against, or intimidation of persons nor force upon things, shall take
personal property of another without the latters consent.
A such, it is necessary to ascertain whether the ownership of the checks were transferred to
SMC. If SMC owns the checks, then there is probable cause for theft, otherwise, there is
According to the Sec. 12 of the NIL, the person to whom an instrument is delivered acquires
the title to it.
Sec. 12. Antedated and postdated The instrument is not invalid for the reason only that it is
antedated or postdated, provided this is not done for an illegal or fraudulent purpose. The
person to whom an instrument so dated is delivered acquires the title thereto as of the date of
delivery. (Underscoring supplied.)
The delivery mentioned in Sec. 12 must be read in conjunction with Sec. 16 of the NIL which
says that the delivery must be for the purpose of giving eect to the instrument. Since the
checks were given merely as security and not as payment for the credit, then the checks were
not delivered so as to give eect to them. As such, ownership was not transferred to SMC.

Hence, the checks that Puzon allegedly took were not properties belonging to another.
Consequently, there is no probable cause for theft.

begins with I, We, or Either of us promise to pay, when signed by two or more persons =
solidarily liable

11. Astro Electronic Corp. vs. Philguarantee

Astro was granted several loans by the Philippine Trust Company (Philtrust) amounting P3M
w/ interest and secured by 3 promissory notes:
December 14, 1981: P600,000.00
December 14, 1981: P400,000.00
August 27, 1981: P2,000,000.00

Subrogation is the transfer of all the rights of the creditor to a third person, who substitutes
him in all his rights

Roxas signed twice the promissory notes as President of Astro in his personal capacity.
Roxas also signed a Continuing Surety ship Agreement in favor of Philtrust Bank, as
President of Astro and as surety. Philguarantee, with the consent of Astro, guaranteed in favor
of Philtrust the payment of 70% of Astros loan, subject to the condition that upon payment by
Philguanrantee, it shall be proportionally subrogated to the rights of Philtrust against Astro.
Upon Astros failure to pay, Philguarantee paid 70% of the guaranteed loan to Philtrust.
Subsequently, Philguarantee filed against Astro and Roxas a complaint for sum of money
with the RTC. Roxas: alleged that he merely signed the same in blank and the phrases in his
personal capacity and in his official capacity were fraudulently inserted without his
RTC: favored Philguarantee holding Astro and Roxas jointly and severally liable if Roxas
really intended to sign the instruments merely in his capacity as President of Astro, then he
should have signed only once. CA affirmed RTC

Philguarantee has all the right to proceed against petitioner, it is subrogated to the rights of
Philtrust to demand for and collect payment from both Roxas and Astro since it already paid
the value of 70% of roxas and Astro Electronics Corp.s loan obligation
Roxas acquiescence is not necessary for subrogation to take place because the instant case is
one of the legal subrogation that occurs by operation of law, and without need of the debtors
Philguarantee, as guarantor, became the transferee of all the rights of Philtrust as against
Roxas and Astro because the guarantor who pays is subrogated by virtue thereof to all the
rights which the creditor had against the debtor
CANLAS G.R. No. 93073 December 21, 1992
This is an appeal by way of a Petition for Review on Certiorari from the decision of the Court
of Appeals which affirmed the decision of the lower court except that it completely absolved
FerminCanlas from liability under the promissory notes and reduced the award for damages
and attorney's fees.

ISSUE: W/N Roxas should be jointly and severally liable with Astro
HELD: YES. CA affirmed
Under the Negotiable Instruments Law, persons who write their names on the face of
promissory notes are makers, promising that they will pay to the order of the payee or any
holder according to its tenor.
Even without the phrase personal capacity, Roxas will still be primarily liable as a joint and
several debtor under the notes considering that his intention to be liable as such is manifested
by the fact that he affixed his signature on each of the promissory notes twice which
necessarily would imply that he is undertaking the obligation in 2 different capacities, official
and personal.
3 promissory notes uniformly provide: FOR VALUE RECEIVED, I/We jointly, severally and
solidarily, promise to pay to PHILTRUST BANK or order...

Defendant Yamaguchi and private respondent Fermin Canlas were
President/Chief Operating Officer and Treasurer respectively, of Worldwide Garment
Manufacturing, Inc. By virtue of Board Resolution, defendant Shozo Yamaguchi and private
respondent FerminCanlas were authorized to apply for credit facilities with the petitioner
Republic Planters Bank in the forms of export advances and letters of credit/trust receipts
accommodations. Petitioner bank issued nine promissory notes.
Later on, Worldwide Garment Manufacturing, Inc. noted to change its corporate name to
Pinch Manufacturing Corporation. Then, petitioner bank filed a complaint for the recovery of
sums of money covered among others, by the nine promissory notes with interest thereon,
etc. Only private respondent FerminCanlas filed an Amended Answer wherein he, denied
having issued the promissory notes in question since according to him, he was not an officer
of Pinch Manufacturing Corporation, but instead of Worldwide Garment Manufacturing, Inc.,
and that when he issued said promissory notes in behalf of Worldwide Garment
Manufacturing, Inc., the same were in blank, the typewritten entries not appearing therein
prior to the time he affixed his signature.

ISSUE: Whether private respondent FerminCanlas is solidarily liable with the other
defendants, namely Pinch Manufacturing Corporation and Shozo Yamaguchi, on the nine
promissory notes
YES, On the following reasons:
The promissory motes are negotiable instruments and must be governed by the Negotiable
Instruments Law.
Under the Negotiable lnstruments Law, persons who write their names on the face of
promissory notes are makers and are liable as such. 3 By signing the notes, the maker
promises to pay to the order of the payee or any holder4 according to the tenor thereof. 5
Based on the above provisions of law, there is no denying that private respondent
FerminCanlas is one of the co-makers of the promissory notes. As such, he cannot escape
liability arising therefrom.
Where an instrument containing the words "I promise to pay" is signed by two or more
persons, they are deemed to be jointly and severally liable thereon. 6 An instrument which
begins" with "I" ,We" , or "Either of us" promise to, pay, when signed by two or more
persons, makes them solidarily liable. 7 The fact that the singular pronoun is used indicates
that the promise is individual as to each other; meaning that each of the co-signers is deemed
to have made an independent singular promise to pay the notes in full.
In the case at bar, the solidary liability of private respondent FerminCanlas is made clearer
and certain, without reason for ambiguity, by the presence of the phrase "joint and several" as
describing the unconditional promise to pay to the order of Republic Planters Bank.
Also, the respondent Court made a grave error in holding that an amendment in a
corporation's Articles of Incorporation effecting a change of corporate name, from Worldwide
Garment manufacturing Inc to Pinch Manufacturing Corporation extinguished the personality
of the original corporation.
The corporation, upon such change in its name, is in no sense a new corporation, nor the
successor of the original corporation. It is the same corporation with a different name, and its
character is in no respect changed. A change in the corporate name does not make a new
corporation, and whether effected by special act or under a general law, has no affect on the
identity of the corporation, or on its property, rights, or liabilities.
As a general rule, officers or directors under the old corporate name bear no personal liability
for acts done or contracts entered into by officers of the corporation, if duly authorized.
Inasmuch as such officers acted in their capacity as agent of the old corporation and the
change of name meant only thecontinuation of the old juridical entity, the corporation bearing
the same name is still bound by the acts of its agents if authorized by the Board. Under the
Negotiable Instruments Law (Sec.20), where the agent signs his name but nowhere in the
instrument has he disclosed the fact that he is acting in a representative capacity or the name
of the third party for whom he might have acted as agent, the agent is personally liable to take
holder of the instrument and cannot be permitted to prove that he was merely acting as agent
of another and parol or extrinsic evidence is not admissible to avoid the agent's personal

On the private respondent's contention that the promissory notes were delivered to him in
blank for his signature, we rule otherwise. We chose to believe the bank's testimony that the
notes were filled up before they were given to private respondent FerminCanlas and
defendant Shozo Yamaguchi for their signatures as joint and several promissors. For signing
the notes above their typewritten names, they bound themselves as unconditional makers. We
take judicial notice of the customary procedure of commercial banks of requiring their
clientele to sign promissory notes prepared by the banks in printed form with blank spaces
already filled up as per agreed terms of the loan, leaving the borrowers-debtors to do nothing
but read the terms and conditions therein printed and to sign as makers or co-makers. When
the notes were given to private respondent FerminCanlas for his signature, the notes were
complete in the sense that the spaces for the material particular had been filled up by the bank
as per agreement. The notes were not incomplete instruments; neither were they given to
private respondent FerminCanlas in blank as he claims. Thus, Section 14 of the NegotiabIe
Instruments Law is not applicable.
14. Samsung Construction Company Philippines, Inc., petitioner, vs. Far East Bank and
Trust Company and Court of Appeals, respondents
Samsung Construction held an account with Far East Bank. The sole signatory of the account
was Jong, its project manager, while the checks remained with the companys accountant,
Kyu. In one occasion, a certain Roberto presented for payment a check payable to cash and
drawn against petitioners current account for 999,500.00 pesos. The bank tellers compared
the signature with the specimen signature of Jong as contained in the specimen signature card
with the bank. The bank ascertained the authenticity of the signature appearing on the check.
The check was again counter checked by another bank officer for approval. When the bank
officer saw the assistant accountant of petitioner, he asked the latter as to the genuineness of
the signature, who then vouched for its authenticity and confirmed the identity of Roberto.
The bank then encashed the check. Later, however, it was discovered that no such check was
ever approved by the Samsungs head accountant, and that the president of the company also
never signed any such check.
Whether or not Far East Bank is liable to reimburse Samsung for cashing out the
forged check, which was drawn from the account of Samsung
Whether or not Samsung is precluded from setting up the defense of forgery.
Yes, FEBTC is liable for reimbursement.
Under Section 23 of the Negotiable Instruments Law, forgery is a real or absolute defense by
the party whose signature is forged. On the premise that Jongs signature was indeed forged,

FEBTC is liable for the loss since it authorized the discharge of the forged check. Such
liability attaches even if the bank exerts due diligence and care in preventing such faulty
discharge. Forgeries often deceive the eye of the most cautious experts; and when a bank has
been so deceived, it is a harsh rule which compels it to suffer although no one has suffered by
its being deceived. The Forgery may be so near like the genuine as to defy detection by the
depositor himself, and yet, if the bank pays the check, it is paying out with its own money
and not of the depositors. This rule of liability can be stated briefly in these words: A bank
is bound to know its depositors signature.
No. In the absence of evidence to the contrary, we can conclude that there was no
negligence on Samsung Constructions part. The presumption remains that every person takes
ordinary care of his concerns, and that the ordinary course of business has been followed.
Negligence is not presumed, but must be proven by him who alleges it. While the complaint
was lodged at the instance of Samsung Construction, the matter it had to prove was the claim
it had alleged - whether the check was forged. It cannot be required as well to prove that it
was not negligent, because the legal presumption remains that ordinary care was employed.
15. Associated Bank v. CA [1996]
Gist: Where thirty checks bearing forged endorsements are paid, who bears the loss, the
drawer, the drawee bank or the collecting bank?
-The province of Tarlac has an account with the PNB, where the provincial funds are
deposited. A portion of the funds of the province is allocated to Concepcion Emergency
Hospital and drawn to the order of Concepcion Emergency Hospital, Tarlac or The Chief.
Later on, upon auditing, it was found out that 30 checks which are issued to the hospital
amounting to 203,300 pesos were encashed by Fausto Pangilinan, the former administrative
officer and cashier of Concepcion Emergency Hospital. He had forged the signature of the
Chief of the Hospital and encashed the checks after it was cleared and was paid by the drawee
bank, PNB. All the checks bore the stamp All prior endorsements guaranteed Associated
Bank. The Provincial Treasurer then sought restoration of the amounts from PNB, which
in turn impleaded Associated Bank. The latter also impleaded Adena Canlas [Chief of the
Hospital, whose signature was forged], and Pangilinan [Forger].
Issue: WON the drawer shall bear the loss of the forged checks.
Held: The court in this case held that the Province of Tarlac [drawer] is equally liable with
PNB for its negligence in releasing the checks to an unauthorized person, Pangilinan, being a
retired cashier. [50-50 basis] So, The province could only demand 50% reimbursement from
PNB. In turn, the collecting bank [where the check was deposited and the endorser] is also
liable to PNB for the 50% because of its breach of its warranty as endorser. It warranted the
genuineness of all prior endorsements.
-The general rule is that the drawee [PNB] has no right to pay a forged check and debit the

account of the drawer because as to the drawer, his forged signature is inoperative, and he
was never a party to the instrument. [Sec. 23, NIL] However, if the drawee can prove a
failure by the drawer [Tarlac] to exercise ordinary care that substantially contributed to the
forgery, the drawer is precluded from asserting the forgery.
Sec. 23. FORGED SIGNATURE, EFFECT OF. - When a signature is forged or made without
authority of the person whose signature it purports to be, it is wholly inoperative, and no right
to retain the instrument, or to give a discharge therefor, or to enforce payment thereof against
any party thereto, can be acquired through or under such signature unless the party
against whom it is sought to enforce such right is precluded from setting up the forgery or
want of authority.
I. The effect of a forged signature of a drawer is different from the effect of a forged
signature of an endorser/payee:
Nota Bene: These rules only applies to an order instrument.
A. Drawers signature is forged.
General Rule:
a. If the drawers signature is forged, it means that he was never a party to the instrument and
it is wholly inoperative as to him. Hence, the drawee cannot debit from his account using the
instrument where his [drawer] signature was forged. All liability falls on the drawee because
it violates its duty to charge its customers (the drawer) account only for properly payable
items and its obligation to know its clients signature. Therefore, the drawer can recover from
the drawee. The chain of liability ends with the drawee.
a. If the drawee bank can prove a failure by the customer/drawer to exercise ordinary care
that substantially contributed to the making of the forged signature, the drawer is precluded
from asserting the forgery. If at the same time the drawee bank was also negligent to the point
of substantially contributing to the loss, then such loss from the forgery can be apportioned
between the negligent drawer and the negligent bank.
B. Payee/Endorsers signature is forged.
General Rule:
a. Although the drawee bank may not debit the account of the drawer, it may generally pass
liability back to the party who took from the forger and, of course, to the forger himself, if
available. Therefore, the drawee [who paid, technically the acceptor] may seek
reimbursement from the collecting bank or to the endorsers who warrant the genuineness of
the instrument. The loss falls on the party who took the check from the forger, or on the
forger himself. Since a forged indorsement is inoperative, the collecting bank had no right to
be paid by the drawee bank. The former must necessarily return the money paid by the latter
because it was paid wrongfully.

a. The drawee bank can recover the amount paid on the check bearing a forged indorsement
from the collecting bank. However, a drawee bank has the duty to promptly inform the
presentor of the forgery upon discovery. If the drawee bank delays in informing the presentor
of the forgery, thereby depriving said presentor of the right to recover from the forger, the
former is deemed negligent and can no longer recover from the presentor.
II. Forgery in Bearer Instruments
In bearer instruments, the signature of the payee or holder is unnecessary to pass title to the
instrument. Hence, when the indorsement is a forgery, only the person whose signature is
forged can raise the defense of forgery against a holder in due course.
Facts: Respondent Eugene Ong maintained a current account with petitioner, formerly the
Associated Banking Corporation, but now known as Westmont Bank. He sold certain shares
of stocks through Island Securities Corporation, which in turn, purchased 2 Pacific Banking
Corporations Check to pay the former. Both checks were issued in the name of Ong but
before he could get hold of the checks, his friend Paciano Tanlimco got hold of them, forged
Ongs signature and deposited these with petitioner, where Tanlimco was also a depositor.
Even though Ongs specimen signature was on file, petitioner accepted and credited both
checks to the account of Tanlimco, without verifying the signature indorsements appearing at
the back thereof. Tanlimco then immediately withdrew the money and absconded.
Ong first sought the help of Tanlimcos family to recover the amount then reported the
incident to the Central Bank but both efforts unfortunately proved futile. Five months from
the discovery of the fraud, he filed a complaint and demanded that petitioner pay the value of
the two checks from the bank on whose gross negligence he imputed his loss. In his suit, he
insisted that he did not deliver, negotiate, endorse or transfer to any person or entity the
subject checks issued to him and asserted that the signatures on the back were spurious.
Both the trial court and the CA ruled in favor of Ong.
(1) W/N respondent Ong has a cause of action against petitioner Westmont Bank.
(2) W/N Westmont Bank shall be held liable.
(3) W/N Ong is barred to recover the money from Westmont Bank due to laches.
Held: (1) Yes. Respondent admitted that he was never in actual or physical possession of the
two checks of the Island Securities nor did he authorize Tanlimco or any of the latters
representative to demand, accept and receive the same. For this reason, petitioner argues,
respondent cannot sue petitioner because under Section 51 of the Negotiable Instruments Law
it is only when a person becomes a holder of a negotiable instrument can he sue in his own

Petitioners claim that respondent has no cause of action against the bank is clearly misplaced.
As defined, a cause of action is the act or omission by which a party violates a right of
another. The essential elements of a cause of action are: (a) a legal right or rights of the
plaintiff, (b) a correlative obligation of the defendant, and (c) an act or omission of the
defendant in violation of said legal right.
The complaint filed before the trial court expressly alleged respondents right as payee of the
managers checks to receive the amount involved, petitioners correlative duty as collecting
bank to ensure that the amount gets to the rightful payee or his order, and a breach of that
duty because of a blatant act of negligence on the part of petitioner which violated
respondents rights.
Therefore, Ong has a cause of action against petitioner Westmont Bank.
(2) Yes. As a general rule, a bank or corporation who has obtained possession of a check upon
an unauthorized or forged indorsement of the payees signature and who collects the amount
of the check from the drawee, is liable for the proceeds thereof to the payee or other owner,
notwithstanding that the amount has been paid to the person from whom the check was
obtained. Banks are engaged in a business impressed with public interest, and they have the
obligation to treat their clients account meticulously and with the highest degree of care,
considering the fiduciary nature of their relationship. The diligence required of banks,
therefore, is more than that of a good father of a family.
Given the substantial face value of the two checks, totalling P1,754,787.50, and the fact that
they were being deposited by a person not the payee, the very least defendant bank should
have done, as any reasonable prudent man would have done, was to verify the genuineness of
the indorsements thereon. However, defendant apparently failed to make such a verification
or, what is worse did so but, chose to disregard the obvious dissimilarity of the signatures.
The first omission makes it guilty of gross negligence; the second of bad faith. In either case,
defendant is liable to plaintiff for the proceeds of the checks in question.
(3) No. Laches may be defined as the failure or neglect for an unreasonable and unexplained
length of time, to do that which, by exercising due diligence, could or should have been done
earlier. It is negligence or omission to assert a right within a reasonable time, warranting a
presumption that the party entitled thereto has either abandoned or declined to assert it.
In the case at bar, it cannot be said that respondent sat on his rights. He immediately acted
after knowing of the forgery by proceeding to seek help from the Tanlimco family and later
the Central Bank, to remedy the situation and recover his money from the forger, Paciano
Tanlimco. Only after he had exhausted possibilities of settling the matter amicably with the
family of Tanlimco and through the CB, about five months after the unlawful transaction took
place, did he resort to making the demand upon the petitioner and eventually before the court
for recovery of the money value of the two checks. These acts cannot be construed as undue
delay in or abandonment of the assertion of his rights.
17. Republic Bank vs. Ebrada

On January 15, 1963, the Bureau of Treasury issued a back pay check to Martin Lorenzo in
the amount of P1,246.08. The drawee named therein was Republic Bank. The check was
subsequently indorsed to Ramon Lorenzo, then to Delia Dominguez and then to
MauriciaEbrada. Ebrada encashed the check with the Republic Bank. Republic Bank paid the
amount of the check to Ebrada. Ebrada, upon receiving the cash, gave it to Dominguez;
Dominguez in turn gave the cash to Ramon Lorenzo.
Later, the Bureau of Treasury notified that the check was a forgery because the payee named
therein (Martin Lorenzo) was actually dead 11 years ago before the check was issued.
Republic Bank refunded the amount to the Bureau of Treasury. The bank then demanded
Ebrada to refund them.
ISSUE: Whether or not Republic Bank may recover from Ebrada.
HELD: Yes. Ebrada, being the last indorser, warranted the genuineness of the signatures of
the payee and the previous indorsers. The drawee bank is not duty bound to ascertain whether
or not the signatures of the payee and the indorsers are genuine. One who purchases a check
or draft is bound to satisfy himself that the paper is genuine and that by indorsing it or
presenting it for payment or putting it into circulation before presentation he impliedly asserts
that he has performed his duty and the drawee (in this case Republic Bank) who has paid the
forged check, without actual negligence on his part, may recover the money paid from such
negligent purchasers.
But Ebrada did not profit from this because she, upon receiving the encashment, gave the
same to Dominguez.
She is still liable because she is considered as an accommodation party pursuant to Section
29 of the Negotiable Instruments Law. An accommodation party is 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.
18. Bank of PI v. Casa Montessori International 436 SCRA 261 (2004)
CASA Montessori International opened an account with BPI, with CASAs President as one
of its authorized signatories. It discovered that 9 of its checks had been encashed by a certain
Sonny D. Santos whose name turned out to be fictitious, and was used by a certain Yabut,
CASAs external auditor. He voluntarily admitted that he forged the signature and encashed
the checks.
RTC granted the Complaint for Collection with Damages against BPI ordering to reinstate the
amount in the account, with interest. CA took account of CASAs contributory negligence and
apportioned the loss between CASA and BPI, and ordred Yabut to reimburse both.

BPI contends that the monthly statements it issues to its clients contain a notice worded as
follows: If no error is reported in 10 days, account will be correct and as such, it should be
considered a waiver.
Whether or not waiver or estoppel results from failure to report the error in the bank
Such notice cannot be considered a waiver, even if CASA failed to report the error. Neither is
it estopped from questioning the mistake after the lapse of the ten-day period.
This notice is a simple confirmation or "circularization" -- in accounting parlance -- that
requests client-depositors to affirm the accuracy of items recorded by the banks. Its purpose is
to obtain from the depositors a direct corroboration of the correctness of their account
balances with their respective banks.
Every right has subjects -- active and passive. While the active subject is entitled to demand
its enforcement, the passive one is duty-bound to suffer such enforcement. On the one hand,
BPI could not have been an active subject, because it could not have demanded from CASA a
response to its notice. CASA, on the other hand, could not have been a passive subject, either,
because it had no obligation to respond. It could -- as it did -- choose not to respond.
Estoppel precludes individuals from denying or asserting, by their own deed or
representation, anything contrary to that established as the truth, in legal contemplation. Our
rules on evidence even make a juris et de jure presumption that whenever one has, by ones
own act or omission, intentionally and deliberately led another to believe a particular thing to
be true and to act upon that belief, one cannot -- in any litigation arising from such act or
omission -- be permitted to falsify that supposed truth.
In the instant case, CASA never made any deed or representation that misled BPI. The
formers omission, if any, may only be deemed an innocent mistake oblivious to the
procedures and consequences of periodic audits. Since its conduct was due to such ignorance
founded upon an innocent mistake, estoppel will not arise. A person who has no knowledge
of or consent to a transaction may not be estopped by it. "Estoppel cannot be sustained by
mere argument or doubtful inference x x x." CASA is not barred from questioning BPIs error
even after the lapse of the period given in the notice.
19. Metropolitan Bank vs. Philippine Bank of Communications
Sometime in 1978, Pipe Master Corporation (Pipe Master) represented by Yu Kio, its
president, applied for check discounting with Filipinas Orient Finance Corporation (Filipinas
Orient). The latter approved and granted the same. On July 1, 1978, the Board of Directors of
Pipe Master issued a Board Resolution authorizing Yu Kio, in his capacity as president,
and/or Tan Juan Lian, in his capacity as vice-president, to execute, indorse, make, sign,

deliver or negotiate instruments, documents and such other papers necessary in connection
with any transaction coursed through Filipinas Orient for and in behalf of the corporation.
Tan Juan Lian then executed in favor of Filipinas Orient a continuing guaranty that he shall
pay at maturity any and all promissory notes, drafts, checks, or other instruments or evidence
of indebtedness for which Pipe Master may become liable; that the extent of his liability shall
not at any one time exceed the sum of P1,000,000.00; and that in the event of default by Pipe
Master, Filipinas Orient may proceed directly against him.
On April 9, 1980, under the check discounting agreement between Pipe Master and Filipinas
Orient, Yu Kio sold to Filipinas Orient four Metropolitan Bank and Trust Company (Metro
Bank) checks amounting to P1,000,000.00. In exchange for the four Metro Bank checks,
Filipinas Orient issued to Yu Kio four Philippine Bank of Communications (PBCom) crossed
checks totaling P964,303.62, payable to Pipe Master with the statement for payees account
Upon his receipt of the four PBCom checks, Yu Kio indorsed and deposited in the Metro
Bank, in his personal account, three of the checks valued at P721,596.95. As to the remaining
check amounting to P242,706.67, he deposited it in the Solid Bank Corporation (Solid Bank),
also in his personal account. Eventually, PBCom paid Metro Bank and Solid Bank the
amounts of the checks. In turn, Metro Bank and Solid Bank credited the value of the checks
to the personal accounts of Yu Kio. Subsequently, when Filipinas Orient presented the four
Metro Bank checks equivalent to P1,000,000.00 it received from Yu Kio, they were
dishonored by the drawee bank. Pipe Master, the drawer, refused to pay the amounts of the
checks, claiming that it never received the proceeds of the PBCom checks as they were
delivered and paid to the wrong party, Yu Kio, who was not the named payee. Filipinas Orient
then demanded that PBCom restore to its (Filipinas Orients) account the value of the PBCom
checks. In turn, PBCom sought reimbursement from Metro Bank and Solid Bank, being the
collecting banks, but they refused. Thus, Filipinas Orient filed with the Regional Trial Court
(RTC), Branch 39, Manila a complaint for a sum of money against Pipe Master, Tan Juan
Lian and/or PBCom.
Whether Metro Bank and Solid Bank, petitioners, are liable to respondent Filipinas Orient for
accepting the PBCom crossed checks payable to Pipe Master.
A check is defined by law as a bill of exchange drawn on a bank payable on demand. The
Negotiable Instruments Law is silent with respect to crossed checks. Nonetheless, this Court
has taken judicial cognizance of the practice that a check with two parallel lines on the upper
left hand corner means that it could only be deposited and not converted into cash. The

crossing of a check with the phrase Payees Account Only is a warning that the check should
be deposited in the account of the payee. It is the collecting bank which is bound to scrutinize
the check and to know its depositors before it can make the clearing indorsement, all prior
indorsements and/or lack of indorsement guaranteed.
Here, petitioner banks have the obligation to ensure that the PBCom checks were deposited in
accordance with the instructions stated in the checks. The four PBCom checks in question
had been crossed and issued for payees account only. This could only mean that the drawer,
Filipinas Orient, intended the same for deposit only by the payee, Pipe Master. The effect of
crossing a check means that the drawer had intended the check for deposit only by the
rightful person, i.e., the payee named therein Pipe Master.
As what transpired in this case, petitioner banks accommodated Yu Kio, being a valued client
and the president of Pipe Master, and accepted the crossed checks. They stamped at the back
thereof that all prior indorsements and/or lack of indorsements are guaranteed. In so doing,
they became general endorsers. Under Section 66 of the Negotiable Instruments Law, an
endorser warrants that the instrument is genuine and in all respects what it purports to be; that
he has a good title to it; that all prior parties had capacity to contract; and that the instrument
is at the time of his indorsement valid and subsisting. Clearly, petitioner banks, being
endorsers, cannot deny liability.
PBCom, as the drawee bank, cannot be held liable since it mainly relied on the express
guarantee made by petitioners, the collecting banks, of all prior indorsements. Evidently,
petitioner banks disregarded established banking rules and procedures. They were negligent
in accepting the checks and allowing the transaction to push through. Since petitioner banks
negligence was the direct cause of the misappropriation of the checks, they should bear and
answer for respondent Filipinas Orients loss, without prejudice to their filing of an
appropriate action against Yu Kio.
Augusto Lim deposited in his current account with the PCIB branch at Padre Faura, Manila,
GSIS Check No. 645915- B, in the sum of P57,415.00, drawn against the PNB. Following an
established banking practice in the Philippines, the check was, on the same date, forwarded,
for clearing, through the Central Bank, to the PNB, which did not return said check the next
day, or at any other time, but retained it and paid its amount to the PCIB, as well as debited it
against the account of the GSIS in the PNB.
Subsequently, or on January 31, 1962, upon demand from the GSIS, said sum of P57,415.00
was re-credited to the latter's account, for the reason that the signatures of its officers on the
check were forged.
February 2, 1962, the PNB demanded from the PCIB the refund of said sum, which the PCIB
refused to do. Hence, the present action against the PCIB, which was dismissed by the Court
of First Instance of Manila, whose decision was, in turn, affirmed by the Court of Appeals.

It is not disputed that the signatures of the General Manager and the Auditor of the GSIS on
the check, as drawer thereof, are forged. That the person named in the check as its payee was
one Mariano D. Pulido, who purportedly indorsed it to one Manuel Go; that the check
purports to have been indorsed by Manuel Go to Augusto Lim, who, in turn, deposited it with
the PCIB, on January 15, 1962. Over two (2) months before, or on November 13, 1961, the
GSIS had notified the PNB, which acknowledged receipt of the notice, that said check had
been lost, and, accordingly, requested that its payment be stopped.
WON the indorsements at the back of the check are forged.
WON the PCIB is liable to the PNB by virtue of the formers warranty on the back of
the check.
WON the clearing is not acceptance in the context of NIL and since the check
has not been accepted by the PNB, the PNB is entitled to reimbursement therefor.
WON the PCIB is guilty of negligence and the PNB has a right to recover from the
First Issue- Forgery of indorsements is immaterial to the drawees liability.
The PNB refunded the amount of the check to the GSIS, on account of the forgery in the
signatures, not of the indorsers or supposed indorsers, but of the officers of the GSIS as
drawer of the instrument. In other words, the question whether or not the indorsements have
been falsified is immaterial to the PNB's liability as a drawee, or to its right to recover from
the PCIB, for, as against the drawee, the indorsement of an intermediate bank does not
guarantee the signature of the drawer, since the forgery of the indorsement is not the cause of
the loss.
Second Issue- PCIBs warranty of indorsements is irrelevant.
It should be noted that the PCIB thereby guaranteed "all prior indorsements," not the
authenticity of the signatures of the officers of the GSIS who signed on its behalf, because the
GSIS is not an indorser of the check, but its drawer. Said warranty is irrelevant, therefore, to
the PNB's alleged right to recover from the PCIB. It could have been availed of by a
subsequent indorsee or a holder in due course subsequent to the PCIB, but, the PNB is
neither. Indeed, upon payment by the PNB, as drawee, the check ceased to be a negotiable
instrument, and became a mere voucher or proof of payment.
Third Issue
In general, "acceptance", in the sense in which this term is used in the Negotiable Instruments
Law is not required for checks, for the same are payable on demand. Indeed, "acceptance"
and "payment" are, within the purview of said Law, essentially different things, for the former
is "a promise to perform an act," whereas the latter is the "actual performance" thereof. In the
words of the Law, "the acceptance of a bill is the signification by the drawee of his assent to
the order of the drawer," which, in the case of checks, is the payment, on demand, of a given
sum of money. Upon the other hand, actual payment of the amount of a check implies not

only an assent to said order of the drawer and a recognition of the drawer's obligation to pay
the aforementioned sum, but, also, a compliance with such obligation.
Fourth Issue- PNB has no right to recover reimbursement from PCIB.
Assuming that there had been such negligence on the part of the PCIB, it is undeniable,
however, that the PNB has, also, been negligent, with the particularity that the PNB had been
guilty of a greater degree of negligence, because it had a previous and formal notice from the
GSIS that the check had been lost, with the request that payment thereof be stopped. Just as
important, if not more important and decisive, is the fact that the PNB's negligence was the
main or proximate cause for the corresponding loss.
That the PNB did not return the check to the PCIB the next day or at any other time and that
said failure to return the check to the PCIB implied, under the current banking practice, that
the PNB considered the check good and would honor it; that, in fact, the PNB honored the
check and paid its amount to the PCIB; and that only then did the PCIB allow Augusto Lim to
draw said amount from his aforementioned current account.
Thus, by not returning the check to the PCIB, by thereby indicating that the PNB had found
nothing wrong with the check and would honor the same, and by actually paying its amount
to the PCIB, the PNB induced the latter, not only to believe that the check was genuine and
good in every respect, but, also, to pay its amount to Augusto Lim. In other words, the PNB
was the primary or proximate cause of the loss, and, hence, may not recover from the PCIB.
It is a well-settled maxim of law and equity that when one of two (2) innocent persons must
suffer by the wrongful act of a third person, the loss must be borne by the one whose
negligence was the proximate cause of the loss or who put it into the power of the third
person to perpetrate the wrong.
Lastly, Section 62 of Act No. 2031 provides:
The acceptor by accepting the instrument engages that he will pay it according to the tenor of
his acceptance; and admits:
(a) The existence of the drawer, the genuineness of his signature, and his capacity and
authority to draw the instrument; and
(b) The existence of the payee and his then capacity to indorse.
The prevailing view is that the same rule applies in the case of a drawee who pays a bill
without having previously accepted it.
Case is dismissed. Ruling of CA is affirmed.
22. Travel-On, Inc. vs Court of Appeals (G.R. No. L-56169 June 26, 1992)
-accommodation party
Petitioner Travel-On Inc. is a travel agency from which Arturo Miranda procured tickets on
behalf of airline passengers and derived commissions therefrom. Miranda was sued by
petitioner to collect on the six postdated checks he issued which were all dishonored by the
drawee banks. Miranda, however, claimed that he had already fully paid and even overpaid
his obligations and that refunds were in fact due to him. He argued that he had issued the

postdated checks not for the purpose of encashment to pay his indebtedness but for purposes
of accommodation, as he had in the past accorded similar favors to petitioner. Petitioner
however urges that the postdated checks are per se evidence of liability on the part of private
respondent and further argues that even assuming that the checks were for accommodation,
private respondent is still liable thereunder considering that petitioner is a holder for value.
Whether Miranda is liable on the postdated checks he issued even assuming that said checks
were issued for accommodation only.

entitled to the entire proceeds of the check. The trial court, holding that Asianbank was
negligent in allowing Bitanga to deposit the check to his account and to withdraw the
proceeds thereof, without his co-payee BA Finance having either indorsed it or authorized
him to indorse it in its behalf, found Asianbank and Bitanga jointly and severally liable to BA
Finance following Section 41 of the Negotiable Instruments Law. The appellate court,
affirming the trial courts decision, held that BA Finance has a cause of action against [it]
even if the subject check had not been delivered to BA Finance by the issuer itself. Hence, the
present Petition for Review on Certiorari filed by Metrobank to which Asianbank was, as
earlier stated, merged, faulting the appellate court.

There was no accommodation transaction in the case at bar. In accommodation transactions
recognized by the Negotiable Instruments Law, an accommodating party lends his credit to
the accommodated party, by issuing or indorsing a check which is held by a payee or indorsee
as a holder in due course, who gave full value therefor to the accommodated party. The
latter, in other words, receives or realizes full value which the accommodated party then must
repay to the accommodating party. But the accommodating party is bound on the check to
the holder in due course who is necessarily a third party and is not the accommodated party.
In the case at bar, Travel-On was payee of all six (6) checks, it presented these checks for
payment at the drawee bank but the checks bounced. Travel-On obviously was not an
accommodated party; it realized no value on the checks which bounced. Miranda must be
held liable on the checks involved as petitioner is entitled to the benefit of the statutory
presumption that it was a holder in due course and that the checks were supported by valuable

ISSUE: WON the petitioner is liable for the full value of the check?


Lamberto Bitanga obtained from respondent BA Finance Corporation a loan, to secure which,
he mortgaged his car to respondent BA Finance. Bitanga had the mortgaged car insured by
respondent 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",
drawn against China. 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, now merged with herein petitioner Metrobank.
Bitanga subsequently 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 Asian bank and withdrawing
the entire proceeds thereof. BA Finance thereupon demanded the payment of the value of the
check from Asianbank but to no avail, prompting it to file a complaint before the RTC for
sum of money and damages against Asianbank and Bitanga, alleging that, inter alia, it is

26. Yang v. Court of Appeals

On or before December 22, 1987, petitioner Yang and private respondent Chandiramani
entered into an agreement whereby the latter was to give Yang a PCIB managers check in the
amount of P4.2 million in exchange for two (2) of Yangs managers checks, each in the
amount of P2.087 million, both payable to the order of private respondent Fernando David.

Yes. Affirming the decision of the CA, the SC held that 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 petitioner
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. 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, petitioner, 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.

They also further agreed that the former would secure from FEBTC a dollar draft in the
amount of US$200,000.00, payable to PCIB FCDU Account, which Chandiramani would
exchange for another dollar draft in the same amount to be issued by Hang Seng Bank Ltd. of
Hong Kong.
On December 22, 1987, Yang procured the following:
Equitable Cashiers Check No. CCPS 14-009467 in the sum of P2,087,000.00, dated
December 22, 1987, payable to the order of Fernando David;b) FEBTC Cashiers Check No.
287078, in the amount of P2,087,000.00, dated December 22, 1987, likewise payable to the
order of Fernando David; andc) FEBTC Dollar Draft No. 4771, drawn on Chemical Bank,

New York, in the amount of US$200,000.00, dated December 22, 1987, payable to PCIB

P2,087,000.00 dated December 22, 1987, together with the earnings derived therefrom
pendente lite

At about 1pm of the same day, Yang gave the aforementioned cashiers checks and dollar
drafts to her business associate, Albert Liong, to be delivered to Chandiramani by Liongs
messenger, Danilo Ranigo.

2. Are the defendants FEBTC and PCIB solidarily liable to Yang for having allowed the
encashment of FEBTC Dollar Draft No. 4771, in the sum of US$200,000.00 plus interest
thereon despite the stop payment order of Cely Yang.

Chandiramani did not appear and Ranigo allegedly lost the two cashiers checks and the dollar
draft bought by petitioner. Ranigo reported the alleged loss of the checks and the dollar draft
to Liong at half past 4pm same day.

-RTC rules in favor of David, the trial court ratiocinated:

It transpired, however, that the checks and the dollar draft were not lost, for Chandiramani
was able to get hold of said instruments, without delivering the exchange consideration
consisting of the PCIB managers check and the Hang Seng Bank dollar draft.
At 3pm or some two (2) hours after Chandiramani and Ranigo were to meet in Makati City,
Chandiramani delivered to respondent Fernando David at China Banking Corporation branch
in San Fernando City, Pampanga, the following: (a) FEBTC Cashiers Check No. 287078,
dated December 22, 1987, in the sum of P2.087 million; and (b) Equitable Cashiers Check
No. CCPS 14-009467, dated December 22, 1987, also in the amount of P2.087 million. In
exchange, Chandiramani got US$360,000.00 from David, which Chandiramani deposited in
the savings account of his wife, Pushpa Chandiramani; and his mother, Rani Reynandas, who
held FCDU Account No. 124 with the United Coconut Planters Bank branch in Greenhills,
San Juan, Metro Manila. Chandiramani also deposited FEBTC Dollar Draft No. 4771, dated
December 22, 1987, drawn upon the Chemical Bank, New York for US$200,000.00 in PCIB
FCDU Account No. 4195-01165-2 on the same date.
Meanwhile, Yang requested FEBTC and Equitable to stop payment on the instruments she
believed to be lost.
On December 28, 1987, herein petitioner Yang lodged a Complaint for injunction and
damages against Equitable, Chandiramani, and David, with prayer for a temporary restraining
order, with the Regional Trial Court of Pasay City. The Complaint was subsequently amended
to include a prayer for Equitable to return to Yang the amount of P2.087 million, with interest
thereon until fully paid.
-Issues raised before the RTC
1. Who, between David and Yang, is legally entitled to the proceeds of Equitable Banking
Corporation (EBC) Cashiers Check in the sum of P2,087,000.00 dated December 22, 1987,
and Far East Bank and Trust Company (FEBTC) Cashiers Check in the sum of

The evidence shows that defendant David was a holder in due course for the reason that the
cashiers checks were complete on their face when they were negotiated to him. They were
not yet overdue when he became the holder thereof and he had no notice that said checks
were previously dishonored; he took the cashiers checks in good faith and for value. He
parted some $200,000.00 for the two (2) cashiers checks which were given to defendant
Chandiramani; he had also no notice of any infirmity in the cashiers checks or defect in the
title of the drawer. As a matter of fact, he asked the manager of the China Banking
Corporation to inquire as to the genuineness of the cashiers checks. Another proof that
defendant David is a holder in due course is the fact that the stop payment order on [the]
FEBTC cashiers check was lifted upon his inquiry at the head office. The apparent reason for
lifting the stop payment order was because of the fact that FEBTC realized that the checks
were not actually lost but indeed reached the payee defendant David.
Yang filed MR, denied.Appealed with CA, affirms RTC decision.Thus, this petition.
Petitioners contention/Issues raised in SC
Yang contends that private respondent David is not a holder in due course of the checks in
question. While it is true that he was named the payee thereof, David failed to inquire from
Chandiramani about how the latter acquired possession of said checks. Given his failure to do
so, it cannot be said that David was unaware of any defect or infirmity in the title of
Chandiramani to the checks at the time of their negotiation.
-Private respondents counter to petitioners contention
Private respondent Fernando David counters that the evidence on record shows that when he
received the checks, he verified their genuineness with his bank, and only after said
verification did he deposit them. David stresses that he had no notice of previous dishonor or
any infirmity that would have aroused his suspicions, the instruments being complete and
regular upon their face. David stresses that the checks in question were cashiers checks. From
the very nature of cashiers checks, it is highly unlikely that he would have suspected that
something was amiss. David also stresses negotiable instruments are presumed to have been
issued for valuable consideration, and he who alleges otherwise must controvert the
presumption with sufficient evidence. The petitioner failed to discharge this burden,

according to David. He points out that the checks were delivered to him as the payee, and he
took them as holder and payee thereof. Clearly, he concludes, he should be deemed to be their
holder in due course.

obligation to ascertain from Chandiramani what the nature of the latters title to the checks
was, if any, or the nature of his possession. Thus, we cannot hold him guilty of gross neglect
amounting to legal absence of good faith, absent any showing that there was something amiss
about Chandiramanis acquisition or possession of the checks.

Ruling of the Supreme Court

29. Bank of America NT & SA v. Associated Citizens Bank
Every holder of a negotiable instrument is deemed prima facie a holder in due course.
However, this presumption arises only in favor of a person who is a holder as defined in
Section 191 of the Negotiable Instruments Law, meaning a payee or indorsee of a bill or note,
who is in possession of it, or the bearer thereof.
In the present case, it is not disputed that David was the payee of the checks in question so
the presumption that he is a prima facie holder in due course applies in his favor. However,
said presumption may be rebutted. Hence, what is vital to the resolution of this issue is
whether David took possession of the checks under the conditions provided for in Section 52
of the Negotiable Instruments Law. All the requisites provided for in Section 52 must concur
in Davids case, otherwise he cannot be deemed a holder in due course.
We find that the petitioners challenge to Davids status as a holder in due course hinges on two
arguments: (1) the lack of proof to show that David tendered any valuable consideration for
the disputed checks; and (2) Davids failure to inquire from Chandiramani as to how the latter
acquired possession of the checks, thus resulting in Davids intentional ignorance tantamount
to bad faith. In sum, petitioner posits that the last two requisites of Section 52 are missing,
thereby preventing David from being considered a holder in due course. Unfortunately for the
petitioner, her arguments on this score are less than meritorious and far from persuasive. By
reason that:
Section 24of the Negotiable Instruments Law creates a presumption that every party
to an instrument acquired the same for a consideration or for value. Thus, the law itself
creates a presumption in Davids favor that he gave valuable consideration for the checks in
question. In alleging otherwise, the petitioner has the onus to prove that David got hold of the
checks absent said consideration. The petitioner must present convincing evidence to
overthrow the presumption. The petitioners averment that David did not give valuable
consideration when he took possession of the checks is unsupported, devoid of any concrete
proof to sustain it.
Petitioner failed to point any circumstance which should have put David on inquiry
as to the why and wherefore of the possession of the checks by Chandiramani. David was not
privy to the transaction between petitioner and Chandiramani. Instead, Chandiramani and
David had a separate dealing in which it was precisely Chandiramanis duty to deliver the
checks to David as payee. The evidence shows that Chandiramani performed said task to the
letter. Petitioner admits that David took the step of asking the manager of his bank to verify
from FEBTC and Equitable as to the genuineness of the checks and only accepted the same
after being assured that there was nothing wrong with said checks. At that time, David was
not aware of any stop payment order. Under these circumstances, David thus had no

BA-Finance Corporation (BA Finance) and Miller Offset Press, Inc. (Miller) entered into a
credit line facility agreement whereby Miller can discount and assign its trade receivables
with the BA Finance. At the same time, UyKiat Chung, ChingUySeng, and Uy Chung Guan
Seng, acting for Miller, executed a Continuing Suretyship Agreement with BA-Finance.
Under the agreement, they jointly and severally guaranteed the full and prompt payment of
any and all indebtedness which Miller may incur with BA-Finance.
Miller discounted and assigned several trade receivables to BA-Finance by executing Deeds
of Assignment in favor of the latter. In consideration of the assignment, BA-Finance issued
four checks payable to the Order of Miller Offset Press, Inc. with the notation For Payees
Account Only. The four checks in total amounted to P741,227.78. These checks were drawn
against Bank of America.
The four checks were deposited by ChingUySeng in Associated Citizens Bank with his joint
account with Uy Chung Seng. Associated Bank stamped the checks and guaranteed all prior
endorsements and/or lack of endorsements and sent them through clearing. Later, Bank of
America as drawee bank honored the checks and paid the proceeds to Associated Bank as the
collecting bank. When Miller failed to deliver to BA-Finance the proceeds of the assigned
trade receivables, BA-Finance filed a collection suit against Miller and impleaded the three
representatives of the latter. BA-Finance also impleaded Bank of America as additional party
for allegedly allowing encashment and collection of the checks by person or persons other
than the payee named thereon.
Bank of America filed a third party complaint against Associated Bank. In its answer to the
third party complaint, Associated Bank admitted having received the four checks for deposit
in the joint account of ChingUySeng and Uy Chung Guan Seng, but alleged that
ChingUySeng, being one of the corporate officers of Miller, was duly authorized to act for
and on behalf of Miller.
Whether or not Bank of America is liable to pay BA-Finance.
Whether or not Associated Bank should reimburse Bank of America the amount of the four

Bank of America is liable to pay BA-Finance. The bank on which a check is drawn, known as
the drawee bank, is under strict liability, based on the contract between the bank and its
customer (drawer), to pay the check only to the payee or the payees order. The drawers
instructions are reflected on the face and by the terms of the check. When the drawee bank
pays a person other than the payee named on the check, it does not comply with the terms of
the check and violates its duty to charge the drawers account only for properly payable items.
The four checks were drawn by BA-Finance and made payable to the Order of Miller Offset
Press, Inc. The checks were also crossed and issued For Payees Account Only. Clearly, the
drawer intended the check for deposit only by Miller Offset Press, Inc. in the latters bank
account. Thus, when a person other than Miller, i.e., ChingUySeng, a.k.a. Robert Ching,
presented and deposited the checks in his own personal account (ChingUySengs joint account
with Uy Chung Guan Seng), and the drawee bank, Bank of America, paid the value of the
checks and charged BA-Finances account therefor, the drawee Bank of America is deemed to
have violated the instructions of the drawer, and therefore, is liable for the amount charged to
the drawers account.
However, Associated Bank should also reimburse Bank of America the amount of the four
checks. A collecting bank where a check is deposited, and which endorses the check upon
presentment with the drawee bank, is an endorser. Under Section 66 of the Negotiable
Instruments Law, an endorser warrants that the instrument is genuine and in all respects what
it purports to be; that he has good title to it; that all prior parties had capacity to contract; and
that the instrument is at the time of his endorsement valid and subsisting. This Court has
repeatedly held that in check transactions, the collecting bank or last endorser generally
suffers the loss because it has the duty to ascertain the genuineness of all prior endorsements
considering that the act of presenting the check for payment to the drawee is an assertion that
the party making the presentment has done its duty to ascertain the genuineness of the
endorsements. When Associated Bank stamped the back of the four checks with the phrase all
prior endorsements and/or lack of endorsement guaranteed, that bank had for all intents and
purposes treated the checks as negotiable instruments and, accordingly, assumed the warranty
of an endorser. Being so, Associated Bank cannot deny liability on the checks.
Associated Bank was also clearly negligent in disregarding established banking rules and
regulations by allowing the four checks to be presented by, and deposited in the personal
bank account of, a person who was not the payee named in the checks. The checks were
issued to the Order of Miller Offset Press, Inc., but were deposited, and paid by Associated
Bank, to the personal joint account of the representatives. It could not have escaped
Associated Banks attention that the payee of the checks is a corporation while the person who
deposited the checks in his own account is an individual. Accordingly, we hold that
Associated Bank is liable for the amount of the four checks and should reimburse the amount
of the checks to Bank of America.

In June 1998, when a foreigner named Samuel Tagoe, purchased from the respondent Gold
Palace Jewellery Co.s (Gold Palaces) store 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
But before receiving the draft, Respondent Judy Yang, the assistant general manager of Gold
Palace inquired from the petitioner Far East Bank the nature of the draft. The teller informed
her that the same was similar to a managers check, but advised not to release the jewelry
until the draft has been cleared. Yang followed the advised and issued a cash invoice to the
foreigner and asked him to come back that the jewelry will be released if the draft has already
been cleared. Julie Yang-Go, the manager of Gold Palace deposited the draft in the companys
account with the said petitioner bank.
When Far East, the collecting bank, presented the draft for clearing to LBP, the drawee bank,
the latter cleared the same UOBs account with LBP was debited, and Gold Palaces account
with Far East was credited with the amount stated in the draft.
The foreigner returned to the store and claimed the jewelry after the draft was cleared, and
because the amount of the draft was more than the value of the purchased goods, Yang issued,
as his change, Far East check for P122,000.00 and later was paid by the bank.
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 companys account. Because Gold Palace did not heed the demand, Far East
consequently instituted Civil Case for sum of money and damages.
RTC rendered a decision in favor of the Far East bank, ordering Gold Palace to pay the bank
for actual damages and attorneys fees. The trial court ruled that, on the basis of its warranties
as a general indorser, Gold Palace was liable to Far East.
CA reversed the ruling and awarded respondents counterclaim. It ruled that Far East failed to
undergo the proceedings on the protest of the foreign draft or to notify Gold Palace of the
drafts dishonor; thus, Far East could not charge Gold Palace on its secondary liability as an
indorser. It 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.
SC ruled in favor of the respondent.
Act No. 2031, or the Negotiable Instruments Law (NIL), explicitly provides that the acceptor,
by accepting the instrument, engages that he will pay it according to the tenor of his
acceptance. This provision applies with equal force in case the drawee pays a bill without
having previously accepted it. His actual payment of the amount in the check implies not only
his assent to the order of the drawer and a recognition of his corresponding obligation to pay
the aforementioned sum, but also, his clear compliance with that obligation. Actual payment

by the drawee is greater than his acceptance, which is merely a promise in writing to pay. The
payment of a check includes its acceptance.
Unmistakable herein is the fact that the drawee bank cleared and paid the subject foreign draft
and forwarded the amount thereof to the collecting bank. The latter then credited to Gold
Palaces account the payment it received. Following the plain language of the law, the drawee,
by the said payment, recognized and complied with its obligation to pay in accordance with
the tenor of his acceptance. The tenor of the acceptance is determined by the terms of the bill
as it is when the drawee accepts. Stated simply, LBP was liable on its payment of the check
according to the tenor of the check at the time of payment, which was the raised amount.
Because of that engagement, LBP could no longer repudiate the payment it erroneously made
to a due course holder. We note at this point that Gold Palace was not a participant in the
alteration of the draft, was not negligent, and was a holder in due course, it received the draft
complete and regular on its face, before it became overdue and without notice of any
dishonor, in good faith and for value, and absent any knowledge of any infirmity in the
instrument or defect in the title of the person negotiating it.
In this case, Gold Palace is protected by Section 62 of the NIL, its collecting agent, Far East,
should not have debited the money paid by the drawee bank from respondent companys
account. When Gold Palace deposited the check with Far East, the latter, under the terms of
the deposit and the provisions of the NIL, became an agent of the former for the collection of
the amount in the draft.
As the transaction in this case had been closed and the principal-agent relationship between
the payee and the collecting bank had already ceased, the latter in returning the amount to the
drawee bank was already acting on its own and should now be responsible for its own
actions. Neither can petitioner be considered to have acted as the representative of the drawee
bank when it debited respondents account, because, as already explained, the drawee bank
had no right to recover what it paid. Likewise, 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. 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 GoldPalace to Far East. Without any legal right to do so, the collecting bank, therefore,
could not debit respondents account for the amount it refunded to the drawee bank.
WHEREFORE, premises considered, the decision of the Court of Appeals are AFFIRMED
WITH THE MODIFICATION that the award of exemplary damages and attorneys fees be
DELETEDbecause respondents have not shown that they are entitled to moral, temperate or
compensatory damagesand neither was petitioner impelled by malice or bad faith in debiting
the account of the respondent company and in pursuing its cause.
31. Villanueva vs Nite 496 scra 549 (2006)

Nite loaned from Villanueva P409,000. As a security he issued an Asian Bank Corporation
(ABC) check of P325,500 dated February 8, 1994. It was consented to be changed to June 8,
1994. Check was dishonored due to a material alteration.
August 24, 1994: Nite while
abroad partially paid P235K through her representative Emily P. Abojada. The balance of
P174K was due on or before December 8, 1994. August 24, 1994: Villanueva filed an action
for a sum of money and damages against ABC for the full amount of the dishonored check
(despite the loan not being due and Nite away)
RTC: favored Villanueva
June 30, 1997: Nite went to ABC to withdraw but she was not able to because of the RTC
order. August 25, 1997: ABC remitted to the sheriff a managers check amounting to
P325,500 drawn on Nite's account.
CA: favored Nite's appeal
ISSUE: W/N ABC should be liable to Villanueva.
Negotiable Instruments Law
SEC. 185. Check, defined. A check is a bill of exchange drawn on a bank payable on
demand. Except as herein otherwise provided, the provisions of this Act applicable to a bill
of exchange payable on demand apply to a check
SEC. 189. When check operates as an assignment. A check of itself does not operate as an
assignment of any part of the funds to the credit of the drawer with the bank, and the bank is
not liable to the holder, unless and until it accepts or certifies the check
Rule 3, Sec. 7 of the Rules of Court states:
Sec. 7. Compulsory joinder of indispensable parties. Parties in interest without whom no
final determination can be had of an action shall be joined either as plaintiffs or defendants.
The contract of loan was between Villanueva and Nite. No collection suit could prosper
without Nite who was an indispensable party.
32. Bank of the Philippine Islands vs. Spouses Royeca
Facts: August 23, 1993, spouses Reynaldo and Victoria Royeca (respondents) executed and
delivered to Toyota Shaw, Inc. a Promissory Note for P577,008.00 payable in 48 equal
monthly installments of P12,021.00, with a maturity date of August 18, 1997. The Promissory
Note provides for a penalty of 3% for every month or fraction of a month that an installment
remains unpaid.
Toyota, with notice to respondents, executed a Deed of Assignmenttransferring all its rights,
title, and interest in the Chattel Mortgage to Far East Bank and Trust Company (FEBTC).
Claiming that the respondents failed to pay four (4) monthly amortizations covering the
period from May 18, 1997 to August 18, 1997, FEBTC sent a formal demand to respondents

on March 14, 2000 asking for the payment thereof, plus penalty.[6] The respondents refused
to pay on the ground that they had already paid their obligation to FEBTC.
On April 19, 2000, FEBTC filed a Complaint for Replevin and Damages against the
The respondents further averred that they did not receive any notice from the drawee banks or
from FEBTC that these checks were dishonored. They explained that, considering this and
the fact that the checks were issued three years ago, they believed in good faith that their
obligation had already been fully paid. They alleged that the complaint is frivolous and
plainly vexatious.
Mr. Vicente Magpusao testified that he had been connected with FEBTC since 1994 and had
assumed the position of Account Analyst since its merger with BPI. He admitted that they
had, in fact, received the eight checks from the respondents. However, two of these checks
(Landbank Check No. 0610947 and FEBTC Check No. 17A00-11551P) amounting to
P23,692.00 were dishonored.
MeTC dismissed the case.
RTC set aside the decision of MetC.
CA set aside RTC and reinstated MeTC decision.
The petitioner insists that the respondents did not sufficiently prove the alleged payment. It
avers that, under the law and existing jurisprudence, delivery of checks does not constitute
payment. It points out that this principle stands despite the fact that there was no notice of
dishonor of the two checks and the demand to pay was made three years after default.
Issue: W/N the respondentwere able to present sufficient evidence of payment?
whether the Acknowledgment Receipt was sufficient proof of payment?
Ruling: No, As correctly observed by the RTC, this is only proof that respondents delivered
eight checks in payment of the amount due. Apparently, this will not suffice to establish
actual payment.
Settled is the rule that payment must be made in legal tender. A check is not legal tender and,
therefore, cannot constitute a valid tender of payment. Since a negotiable instrument is only a
substitute for money and not money, the delivery of such an instrument does not, by itself,
operate as payment. Mere delivery of checks does not discharge the obligation under a
judgment. The obligation is not extinguished and remains suspended until the payment by
commercial document is actually realized.

To establish their defense, the respondents therefore had to present proof, not only that they
delivered the checks to the petitioner, but also that the checks were encashed. The
respondents failed to do so. Had the checks been actually encashed, the respondents could
have easily produced the cancelled checks as evidence to prove the same. Instead, they
merely averred that they believed in good faith that the checks were encashed because they
were not notified of the dishonor of the checks and three years had already lapsed since they
issued the checks.
Because of this failure of the respondents to present sufficient proof of payment, it was no
longer necessary for the petitioner to prove non-payment, particularly proof that the checks
were dishonored. The burden of evidence is shifted only if the party upon whom it is lodged
was able to adduce preponderant evidence to prove its claim
Further, it should be noted that the petitioner, as payee, did not have a legal obligation to
inform the respondents of the dishonor of the checks. A notice of dishonor is required only to
preserve the right of the payee to recover on the check. It preserves the liability of the drawer
and the indorsers on the check. Otherwise, if the payee fails to give notice to them, they are
discharged from their liability thereon, and the payee is precluded from enforcing payment on
the check. The respondents, therefore, cannot fault the petitioner for not notifying them of the
non-payment of the checks because whatever rights were transgressed by such omission
belonged only to the petitioner.
The creditors possession of the evidence of debt is proof that the debt has not been discharged
by payment. A promissory note in the hands of the creditor is a proof of indebtedness rather
than proof of payment
Nonetheless, the Court cannot ignore what the respondents have consistently raised that they
were not notified of the non-payment of the checks. Reasonable banking practice and
prudence dictates that, when a check given to a creditor bank in payment of an obligation is
dishonored, the bank should immediately return it to the debtor and demand its replacement
or payment lest it causes any prejudice to the drawer. In light of this and the fact that the
obligation has been partially paid, we deem it just and equitable to reduce the 3% per month
penalty charge as stipulated in the Promissory Note to 12% per annum
Partially Granted.