Crisologo-Jose vs Court of Appeals (1989)

February 14, 2013 markerwins Corporation Law, Mercantile Lawcorpo, merc

Facts: Plaintiff Ricardo S. Santos, Jr. was the vice-president of Mover Enterprises, Inc. in-charge
of marketing and sales; and the president of the said corporation was Atty. Oscar Z. Benares.
Atty. Benares, in accommodation of his clients, the spouses Jaime and Clarita Ong, issued check
against Traders Royal Bank, payable to defendant Ernestina Crisologo-Jose. Since the check was
under the account of Mover Enterprises, Inc., the same was to be signed by its president, Atty.
Oscar Z. Benares, and the treasurer of the said corporation. However, since at that time, the
treasurer of Mover Enterprises was not available, Atty. Benares prevailed upon the plaintiff,
Ricardo S. Santos, Jr., to sign the aforesaid check. The check was issued to defendant Ernestina
Crisologo-Jose in consideration of the waiver or quitclaim by said defendant over a certain
property which the Government Service Insurance System (GSIS) agreed to sell to the spouses
Jaime and Clarita Ong, with the understanding that upon approval by the GSIS of the
compromise agreement with the spouses Ong, the check will be encashed accordingly. Since the
compromise agreement was not approved within the expected period of time, the aforesaid check
was replaced by Atty. Benares. This replacement check was also signed by Atty. Oscar Z.
Benares and by the plaintiff Ricardo S. Santos, Jr. When defendant deposited this replacement
check with her account at Family Savings Bank, Mayon Branch, it was dishonored for
insufficiency of funds. The petitioner filed an action against the corporation for accommodation
party.

Issue: WON the corporation can be held liable as accommodation party?

Held: No. Accommodation party liable on the instrument to a holder for value, although such
holder at the time of taking the instrument knew him to be only an accommodation party, does
not include nor apply to corporations which are accommodation parties. This is because the
issue or indorsement of negotiable paper by a corporation without consideration and for the
accommodation of another is ultra vires. Hence, one who has taken the instrument with
knowledge of the accommodation nature thereof cannot recover against a corporation where it is
only an accommodation party. If the form of the instrument, or the nature of the transaction, is
such as to charge the indorsee with knowledge that the issue or indorsement of the instrument by
the corporation is for the accommodation of another, he cannot recover against the corporation
thereon. By way of exception, an officer or agent of a corporation shall have the power to
execute or indorse a negotiable paper in the name of the corporation for the accommodation of a
third person only if specifically authorized to do so. Corollarily, corporate officers, such as the
president and vice-president, have no power to execute for mere accommodation a negotiable
instrument of the corporation for their individual debts or transactions arising from or in relation
to matters in which the corporation has no legitimate concern. Since such accommodation paper
cannot thus be enforced against the corporation, especially since it is not involved in any aspect
of the corporate business or operations, the inescapable conclusion in law and in logic is that the
signatories thereof shall be personally liable therefor, as well as the consequences arising from
their acts in connection therewith.

CRISOLOGO JOSE V. CA - Accommodation Party

177 SCRA 594

FACTS:

The president of Movers Enterprises, to accommodate its clients Spouses Ong, issued a
check in favor of petitioner Crisologo-Jose. This was in consideration of a quitclaim by
petitioner over a parcel of land, which the GSIS agreed to sell to spouses Ong, with the
understanding that upon approval of the compromise agreement, the check will be
encashed accordingly. As the compromise agreement wasn't approved during the expected
period of time, the aforesaid check was replaced with another one for the same value. Upon
deposit though of the checks by petitioner, it was dishonored. This prompted the petitioner
to file a case against Atty. Bernares and Santos for violation of BP22. Meanwhile, during
the preliminary investigation, Santos tried to tender a cashiers check for the value of the
dishonored check but petitioner refused to accept such. This was consigned by Santos with the
clerk of court and he instituted charges against petitioner. The trial court held that consignation
wasn't applicable to the case at bar but was reversed by the CA.

HELD:

Petitioner averred that it is not Santos who is the accommodation party to the instrument but the
corporation itself. But assuming arguendo that the corporation is the accommodation party, it
cannot be held liable to the check issued in favor of petitioner. The rule on
accommodation party
doesn't include or apply to corporations which are accommodation parties. This is because the
issue or indorsement of another is ultra vires. Hence, one who has taken the instrument with
knowledge of the accommodation nature thereof cannot recover against a corporation where
it is only an accommodation party. If the form of the instrument, or the nature of the
transaction, is such as to charge the indorsee with the knowledge that the issue or indorsement
of the instrument by the corporation is for the accommodation of another, he cannot
recover against the corporation thereon.

By way of exception, an officer or agent of a corporation shall have the power to

execute or indorse a negotiable paper in the name of the corporation for the
accommodation of a third party only is specifically authorized to do so. Corollarily,
corporate officers have no power to execute for mere accommodation a negotiable
instrument of the corporation for their individual debts and transactions arising from or
in relation to matters in which the corporation has no legitimate concern. Since such
accommodation paper cannot be enforced against the corporation, the signatories thereof
shall be personally liable therefore, as well as the consequences arising from their acts in
connection therewith.
 ERNESTINA CRISOLOGO-JOSE v. COURT OF APPEALS. G.R. No. 80599. September 15,
1989.
FACTS:

Oscar Benares and Ricardo Santos are the president and vice-president, respectively, of Mover
Enterprises, Inc., in accommodation of his clients the Ongs, issued a check payable to Jose. Since
the check was under the account of the Enterprise, it was signed by Benares and Santos.

The check was to be encashed after the approval of a compromise agreement which was
disapproved. The checks were then replaced and were signed by both. When Jose encashed the
checks, it was dishonored for insufficiency of funds.

Jose filed a complaint in the lower court citing that respondents were in violation of Art. 1256 of
the Civil Code. It was dismissed thus the petition to the SC.

Jose points out that the accommodation party in the case is the enterprise and not Santos.

ISSUE: Whether Mover Enterprises is an accommodation party.

RULING:

The SC ruled that a corporation cannot be an accommodation party. The law on accommodation
parties does not include corporation because it is ultra vires on their part.

Thus, if one knows and takes an instrument that was accommodated by a corporation cannot
recover against the corporation.

SALAS V. CA

181 SCRA 296

FACTS:

Petitioner bought a car from Viologo Motor Sales Company, which was secured by a
promissory note, which was later on indorsed to Filinvest Finance, which financed the
transaction. Petitioner later on defaulted in her installment payments, allegedly due to
the fraud imputed by VMS in
selling her a different vehicle from what was agreed upon. This default in payment prompted
Filinvest Finance to initiate a case against petitioner. The trial court decided in favor of
Filinvest, to which the appellate court upheld by increasing the amount to be paid.
It is the contention of petitioner that since the agreement between her and the motor company
was inexistent, none had been assigned in favor of private respondent.

HELD:

Petitioners liability on the promissory note, the due execution and genuineness of which
she never denied under oath, is under the foregoing factual milieu, as inevitable as it is clearly
established.

The records reveal that involved herein is not a simple case of assignment of credit as
petitioner would have it appear, where the assignee merely steps into the shoes of, is
open to all defenses available against and can enforce payment only to the same extent as,
the assignor-vendor.

The instrument to be negotiable must contain the so-called words of negotiability. There
are only 2 ways for an instrument to be payable to order. There must always be a specified
person named in the instrument and the bill or note is to be paid to the person designated in the
instrument or to any person to whom he has indorsed and delivered the same. Without
the words or order or to the order of, the instrument is payable only to the person
designated therein and is thus non-negotiable. Any subsequent purchaser thereof will not
enjoy the advantages of being a
holder in due course but will merely step into the shoes of the person designated in the
instrument and will thus be open to the defenses available against the latter.

In the case at bar, the promissory notes is earmarked with negotiability and Filinvest is a
holder in due course.

Salas vs CA

G.R. No. 76788 January 22, 1990

JUANITA SALAS, vs. HON. COURT OF APPEALS and FIRST FINANCE & LEASING
CORPORATION

Facts: Juanita Salas (Petitioner) bought a motor vehicle from the Violago Motor Sales
Corporation (VMS) for as evidenced by a promissory note. This note was subsequently endorsed
to Filinvest Finance & Leasing Corporation (private respondent) which financed the purchase.
Petitioner defaulted in her installments allegedly due to a discrepancy in the engine and chassis
numbers of the vehicle delivered to her and those indicated in the sales invoice, certificate of
registration and deed of chattel mortgage, which fact she discovered when the vehicle figured in
an accident.

This failure to pay prompted private respondent to initiate an action for a sum of money against
petitioner before the Regional Trial Court.

Issue: WON private respondent is a holder in due course?

Held: YES. The PN was negotiated by indorsement in writing on the instrument itself payable to
the Order of Filinvest Finance and Leasing Corporation and it is an indorsement of the entire
instrument.

Under the circumstances, there appears to be no question that Filinvest is a holder in due course,
having taken the instrument under the following conditions: [a] it is complete and regular upon
its face; [b] it became the holder thereof before it was overdue, and without notice that it had
previously been dishonored; [c] it took the same in good faith and for value; and [d] when it was
negotiated to Filinvest, the latter had no notice of any infirmity in the instrument or defect in the
title of VMS Corporation.

Accordingly, respondent corporation holds the instrument free from any defect of title of prior
parties, and free from defenses available to prior parties among themselves, and may enforce
payment of the instrument for the full amount thereof. This being so, petitioner cannot set up
against respondent the defense of nullity of the contract of sale between her and VMS.

Salas v. Court of Appeals [G.R. No. 76788. January 22, 1990]

FACTS

Petitioner claims she be released of liability because of fraud, bad faith and misrepresentation of
Violago Motor Sales (VMS) Corporation, which delivered the motor vehicle after she executed a
promissory note with private respondent.

ISSUE

Whether or not such fraud would relieve petitioner of her liability from private respondent.

RULING
NO. The fraud in this case is with the contractual relations with VMS and not to the promissory
note. Respondent corporation holds the instrument free from any defect of title of prior parties,
and free from defenses available to prior parties among themselves, and may enforce payment of
the instrument for the full amount thereof. This being so, petitioner cannot set up against
respondent the defense of nullity of the contract of sale between her and VMS.

PNB V. CA- Material Alteration

256 SCRA 491

FACTS:

DECS issued a check in favor of Abante Marketing containing a specific serial number,
drawn against PNB. The check was deposited by Abante in its account with Capitol and the
latter consequently deposited the same with its account with PBCOM which later
deposited it with petitioner for
clearing. The check was thereafter cleared. However, on a relevant date, petitioner PNB
returned the check on account that there had been a material alteration on it. Subsequent
debits were made but Capitol cannot debit the account of Abante any longer for the latter had
withdrawn all the money already from the account. This prompted Capitol to seek
reclarification from PBCOM and demanded the recrediting of its account. PBCOM
followed suit by doing the same against PNB. Demands unheeded,
it filed an action against PBCOM and the latter filed a third-party complaint against petitioner.

HELD:

An alteration is said to be material if it alters the effect of the instrument. It means an

unauthorized change in the instrument that purports to modify in any respect the obligation of
a party or an unauthorized addition of words or numbers or other change to an incomplete
instrument relating to the obligation of the party. In other words, a material alteration is
one which changes the items which are required to be stated under Section 1 of the NIL.

In this case, the alleged material alteration was the alteration of the serial number of the check
in issuewhich is not an essential element of a negotiable instrument under Section 1.
PNB alleges that the alteration was material since it is an accepted concept that a TCAA
check by its very
nature is the medium of exchange of governments, instrumentalities and agencies. As a
safety measure, every government office or agency is assigned checks bearing different
serial numbers.
But this contention has to fail. The checks serial number is not the sole indicia of its origin.
The name of the government agency issuing the check is clearly stated therein. Thus, the checks
drawer is sufficiently identified, rendering redundant the referral to its serial number.

Therefore, there being no material alteration in the check committed, PNB could not return the
check to PBCOM. It should pay the same.

Associated Bank vs Court of Appeals (1996)

March 5, 2012
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252 SCRA 620 Mercantile Law Negotiable Instruments Law Liabilities of Parties
Forgery Collecting Bank vs Drawee Bank
The Province of Tarlac was disbursing funds to Concepcion Emergency Hospital via checks
drawn against its account with the Philippine National Bank (PNB). These checks were drawn
payable to the order of Concepcion Emergency Hospital. Fausto Pangilinan was the cashier of
Concepcion Emergency Hospital in Tarlac until his retirement in 1978. He used to handle checks
issued by the provincial government of Tarlac to the said hospital. However, after his retirement,
the provincial government still delivered checks to him until its discovery of this irregularity in
1981. By forging the signature of the chief payee of the hospital (Dr. Adena Canlas), Pangilinan
was able to deposit 30 checks amounting to P203k to his account with the Associated Bank.
When the province of Tarlac discovered this irregularity, it demanded PNB to reimburse the said
amount. PNB in turn demanded Associated Bank to reimburse said amount. PNB averred that
Associated Bank is liable to reimburse because of its indorsement borne on the face of the
checks:
All prior endorsements guaranteed ASSOCIATED BANK.
ISSUE: What are the liabilities of each party?
HELD: The checks involved in this case are order instruments.
Liability of Associated Bank
Where the instrument is payable to order at the time of the forgery, such as the checks in this
case, the signature of its rightful holder (here, the payee hospital) is essential to transfer title to
the same instrument. When the holders indorsement is forged, all parties prior to the forgery
may raise the real defense of forgery against all parties subsequent thereto.
A collecting bank (in this case Associated Bank) where a check is deposited and which indorses
the check upon presentment with the drawee bank (PNB), is such an indorser. So even if the
indorsement on the check deposited by the bankss client is forged, Associated Bank is bound by
its warranties as an indorser and cannot set up the defense of forgery as against the PNB.
EXCEPTION: If it can be shown that the drawee bank (PNB) unreasonably delayed in notifying
the collecting bank (Associated Bank) of the fact of the forgery so much so that the latter can no
longer collect reimbursement from the depositor-forger.
Liability of PNB
The bank on which a check is drawn, known as the drawee bank (PNB), is under strict liability to
pay the check to the order of the payee (Provincial Government of Tarlac). Payment under a
forged indorsement is not to the drawers order. When the drawee bank pays a person other than
the payee, it does not comply with the terms of the check and violates its duty to charge its
customers (the drawer) account only for properly payable items. Since the drawee bank did not
pay a holder or other person entitled to receive payment, it has no right to reimbursement from
the drawer. The general rule then is that the drawee bank may not debit the drawers account and
is not entitled to indemnification from the drawer. The risk of loss must perforce fall on the
drawee bank.
EXCEPTION: If the drawee bank (PNB) can prove a failure by the customer/drawer (Tarlac
Province) to exercise ordinary care that substantially contributed to the making of the forged
signature, the drawer is precluded from asserting the forgery.
In sum, by reason of Associated Banks indorsement and warranties of prior indorsements as a
party after the forgery, it is liable to refund the amount to PNB. The Province of Tarlac can ask
reimbursement from PNB because the Province is a party prior to the forgery. Hence, the
instrument is inoperative. HOWEVER, it has been proven that the Provincial Government of
Tarlac has been negligent in issuing the checks especially when it continued to deliver the checks
to Pangilinan even when he already retired. Due to this contributory negligence, PNB is only
ordered to pay 50% of the amount or half of P203 K.
BUT THEN AGAIN, since PNB can pass its loss to Associated Bank (by reason of Associated
Banks warranties), PNB can ask the 50% reimbursement from Associated Bank. Associated
Bank can ask reimbursement from Pangilinan but unfortunately in this case, the court did not
acquire jurisdiction over him.
Associated Bank v. Court of Appeals [G.R. No. 107382 G.R. No. 107612. January 31, 1996]

30JUL

FACTS
Respondent Province of Tarlac allowed a retired hospital cashier to receive checks for the payee
hospital for a period three years and in not properly ascertaining why the retired hospital cashier
was collecting checks for the payee hospital in addition to the hospitals real cashier. Associated
Bank, as collecting bank, received and indorsed the said checks.

ISSUE

Whether or not the doctrine of comparative negligence apply.

RULING

YES. The Court finds as reasonable, the proportionate sharing of fifty percent fifty percent
(50%-50%). Respondent Province contributed to the loss and shall be liable to the PNB for fifty
(50%), Province of Tarlac can only recover fifty percent (50%) from PNB. Associated Bank,
shall be liable to PNB for fifty (50%). It is liable on its warranties as indorser of the checks
which were deposited to it.

Associated Bank V. CA (1996)

G.R. No. 107382/G.R. No. 107612 January 31, 1996

Lessons Applicable: Forgery (Negotiable Instruments Law)

FACTS:
The Province of Tarlac maintains a current account with the Philippine National Bank
(PNB) Tarlac Branch where the provincial funds are deposited.

Checks issued by the Province are signed by the Provincial Treasurer and
countersigned by the Provincial Auditor or the Secretary of the Sangguniang Bayan.

A portion of the funds of the province is allocated to the Concepcion Emergency Hospital

drawn to the order of "Concepcion Emergency Hospital, Concepcion, Tarlac" or

"The Chief, Concepcion Emergency Hospital, Concepcion, Tarlac."

The checks are released by the Office of the Provincial Treasurer and received for
the hospital by its administrative officer and cashier.

January 1981:Upon post-audit by the Provincial Auditor, it was discovered that the
hospital did not receive several allotment checks
 February 19, 1981: After the checks were examined, they learned that 30 checks of
P203,300 were encashed by Fausto Pangilinan, with the Associated Bank acting as collecting
bank.

Fausto Pangilinan

administrative officer and cashier of payee hospital until his retirement on

February 28, 1978, collected the questioned checks from the office of the Provincial Treasurer

sought to encash the 1st check with Associated Bank

Jesus David, manager of Associated Bank refused and suggested that Pangilinan deposit
the check in his personal savings account with the same bank

Pangilinan was able to withdraw the money when the check was cleared and paid
by the drawee bank, PNB.

PNB did not return the questioned checks within twenty-four hours, but
several days later

After forging the signature of Dr. Adena Canlas who was chief of the payee
hospital, Pangilinan followed the same procedure for the other checks.

All the checks bore the stamp of Associated Bank which reads "All prior
endorsements guaranteed ASSOCIATED BANK.

CA affrimed RTC: Associated to reimburse PNB and ordering PNB to pay Province of
Tarlac

ISSUE: W/N PNB and Associated Bank should be held liable

HELD: YES. PARTIALLY GRANTED. The collecting bank, Associated Bank, shall be liable to
PNB for 50% of P203,300

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.
GR

A forged signature, whether it be that of the drawer or the payee, is wholly

inoperative and no one can gain title to the instrument through it.
 A person whose signature to an instrument was forged was never a party and
never consented to the contract which allegedly gave rise to such instrument.

EX: where "a party against whom it is sought to enforce a right is precluded from setting
up the forgery or want of authority."

Parties who warrant or admit the genuineness of the signature in question and
those who, by their acts, silence or negligence are estopped from setting up the defense of
forgery, are precluded from using this defense.

Indorsers, persons negotiating by delivery and acceptors are warrantors of

the genuineness of the signatures on the instrument

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

In order instruments, the signature of its rightful holder (here, the payee hospital) is
essential to transfer title to the same instrument. When the holder's indorsement is forged all
parties prior to the forgery may raise the real defense of forgery against all parties subsequent
thereto.

An indorser of an order instrument 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

A collecting bank where a check is deposited and which indorses the

check upon presentment with the drawee bank = indorser

So even if the indorsement on the check deposited by the banks's

client is forged, the collecting bank is bound by his warranties as an indorser and cannot set
up the defense of forgery as against the drawee bank.

The bank on which a check is drawn, known as the drawee bank, is under strict liability
to pay the check to the order of the payee.

The drawer's instructions are reflected on the face and by the terms of the check.

Payment under a forged indorsement is not to the drawer's order. then is

that the drawee bank may not debit the drawer's account and is not entitled to indemnification
from the drawer. 25 The risk of loss must perforce fall on the drawee bank.

GR: drawee bank may not debit the drawer's account and is not entitled to
indemnification from the drawer - risk of loss must perforce fall on the drawee bank
 EX:

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

In cases involving a forged check, where the drawer's signature is forged, the drawer can
recover from the drawee bank.

In cases involving checks with forged indorsements, the drawee bank canseek
reimbursement or a return of the amount it paid from the presentor bank or person

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

Under Section 4(c) of CB Circular No. 580, items bearing a forged

endorsement shall be returned within twenty-Sour (24) hours after discovery of the forgery
but in no event beyond the period fixed or provided by law for filing of a legal action by the
returning bank. Section 23 of the PCHC Rules deleted the requirement that items bearing a
forged endorsement should be returned within twenty-four hours.

Since PNB did not return the questioned checks within twenty-four
hours, but several days later, Associated Bank alleges that PNB should be considered
negligent and not entitled to reimbursement of the amount it paid on the checks.

More importantly, by reason of the statutory warranty of a general indorser in section 66

of the Negotiable Instruments Law, a collecting bank which indorses a check bearing a forged
indorsement and presents it to the drawee bank guarantees all prior indorsements, including
the forged indorsement

In this case, the checks were indorsed by the collecting bank (Associated Bank) to
the drawee bank (PNB)

The stamp guaranteeing prior indorsements is not an empty rubric which a

bank must fulfill for the sake of convenience
 It is within the bank's discretion to receive a check for no banking
institution would consciously or deliberately accept a check bearing a forged indorsement.
When a check is deposited with the collecting bank, it takes a risk on its depositor.
The Great Eastern Life Insurance Co. vs. Hongkong & Shanghai Banking Corp. [GR 18657, 23
August 1922] En Banc, Johns (J): 8 concur Facts: The Great Eastern Life Insurance Co. (GELIC)
is an insurance corporation, while Hongkong & Shanghai Banking Corp. (HSBC) and Philippine
National Bank (PNB) are banking corporations, and each is duly licensed to do its respective
business in the Philippine Islands. On 3 May 1920, GELIC drew its check for P2,000 on HSBC
with whom it had an account, payable to the order of Lazaro Melicor. E.M. Maasim fraudulently
obtained possession of the check, forged Melicor's signature, as an endorser, and then personally
endorsed and presented it to PNB where the amount of the check was placed to his credit. After
having paid the check, and on the next day, PNB endorsed the check to HSBC, which paid it, and
charged the amount of the check to the account of GELIC. In the ordinary course of business,
HSBC rendered a bank statement to GELIC showing that the amount of the check was charged
to its account, and no objection was then made to the statement. About 4 months after the check
was charged to the account of GELIC, it developed that Melicor, to whom the check was made
payable, had never received it, and that his signature, as an endorser, was forged by Maasim,
who presented and deposited it to his private account in PNB. With this knowledge, GELIC
promptly made a demand upon HSBC that it should be given credit for the amount of the forged
check, which the bank refused to do, and GELIC commenced the action to recover the P2,000
which was paid on the forged check. On the petition of HSBC, PNB was made defendant. HSBC
denies any liability, but prays that, if a judgment should be rendered against it, in turn, it should
have like judgment against PNB which denies all liability to either party. Upon the issued being
joined, a trial was had and judgment was rendered against GELIC and in favor HSBC and PNB
from which GELIC appealed. Issue: Whether GELIC can recover inasmuch as Melicors
indorsement was forged. Held: GELIC's check was drawn on HSBC payable to the order of
Melicor. In other words, GELIC authorized and directed HSBC to pay Melicor, or his order,
P2,000. It did not authorize or direct the bank to pay the check to any other person than Melicor,
or his order, and the testimony is undisputed that Melicor never did part with his title or endorse
the check, and never received any of its proceeds. Neither is GELIC estopped or bound by the
bank statement, which was made to it by HSBC. This is not a case where GELIC's own signature
was forged to one of its checks. The forgery was that of Melicor, who was the payee of the
check, and the legal presumption is that the bank would not honor the check without the genuine
endorsement of Melicor. In other words, when GELIC received its bank statement, it had a right
to assume that Melicor had personally endorsed the check, and that, otherwise, the bank would
not have paid it. Section 23 of the Negotiable Instruments Law is square in point. The money
was on deposit in HSBC, and it had no legal right to pay it out to anyone except GELIC or its
order. Here, GELIC ordered HSBC to pay the P2,000 to Melicor, and the money was actually
paid to Maasim and was never paid to Melicor, and he never personally endorsed Commercial
Law Negotiable Instruments Law, 2006 ( 39 ) Narratives (Berne Guerrero) the check, or
authorized any one to endorse it for him, and the alleged endorsement was a forgery. Hence,
upon the undisputed facts, it must follow that HSBC has no defense to the present action. It is
admitted that PNB cashed the check upon a forged signature, and placed the money to the credit
of Maasim, who was the forger. That PNB then endorsed the check and forwarded it to HSBC by
whom it was paid. PNB had no license or authority to pay the money to Maasim or anyone else
upon a forged signature. It was its legal duty to know that Melicor's endorsement was genuine
before cashing the check. Its remedy is against Maasim to whom it paid the money. The Supreme
Court reversed the lower court's judgment, and entered another in favor of GELIC and against
HSBC for P2,000, with interest thereon from 8 November 1920, at the rate of 6% per annum,
and the costs of the action, and a corresponding judgment will be entered in favor of HSBC
against PNB for the same amount, together with the amount of its costs in the action..

Great Eastern Life Ins. Co. V. Hongkong Shanghai Bank (1922)

G.R. No. L-18657 August 23, 1922

Lessons Applicable: Forgery (Negotiable Instruments Law)

FACTS:
May 3, 1920: Great Eastern Life Ins. Co. (Eastern) drew its check for P2,000 on the
Hongkong and Shanghai Banking Corporation (HSBC) payable to the order of Lazaro
Melicor.

E. M. Maasim fraudulently obtained possession of the check, forged Melicor's signature,

as an endorser, and then personally endorsed and presented it to the Philippine National Bank
(PNB) and it was placed to his credit.

Next day: PNB endorsed the check to the HSBC who paid it

HSBC sent a bank statement to the Eastern showing the amount of the check was charged
to its account, and no objection was made

4 months after the check was charged, it developed that Lazaro Melicor, to whom the
check was made payable, had never received it, and that his signature, as an endorser, was
forged by Maasim,

Eastern promptly made a demand upon the HSBC to credit the amount of the forged
check

Eastern filed against HSBC and PNB

RTC: dismissed the case

ISSUES: W/N Eastern has the right to recover the amount of the forged check

HELD: YES. lower court is reversed. Eastern against HSBC who can claim against PNB
forgery was that of Melicor (payees and NOT the maker)

Eastern received it banks statement, it had a right to assume that Melicor had
personally endorsed the check, and that, otherwise, the bank would not have paid it

Section 23 of Negotiable Instruments Law:

When a signature is forged or made without the 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.
The Philippine National Bank had no license or authority to pay the money to Maasim or
anyone else upon a forge signature.

Its remedy is against Maasim to whom it paid the money.

Republic Bank v. Ebrada [G.R. No. L-40796. July 31, 1975]

30JUL

FACTS

Treasury of the Philippines issued a check payable to MARTIN LORENZO who was already
dead that time. Signature forged, the check was indorsed to RAMON LORENZO, then to
DELIA DOMINGUEZ, then to appellant, where it was encashed with the plaintiff-appellee
drawee bank.

ISSUE

Whether or not the drawee bank can recover from the one who encashed a check with forged
signature of payee.

RULING

YES. Defendant-appellant, upon receiving the check in question from Dominguez, was duty-
bound to ascertain whether the check in question was genuine before presenting it to plaintiff
Bank for payment. Her failure to do so makes her liable for the loss and the plaintiff Bank may
recover from her the money she received for the check. As reasoned out above, had she
performed the duty of ascertaining the genuineness of the check, in all probability the forgery
would have been detected and the fraud defeated.

Republic V. Ebrada (1975)

G.R. No. L-40796 July 31, 1975

Lessons Applicable: Forgery (Negotiable Instruments Law)

FACTS:
February 27, 1963: Mauricia T. Ebrada, encashed Back Pay Check dated January 15,
1963 for P1,246.08 at Republic Bank

check was issued by the Bureau of Treasury

Bureau advised Republic Bank that the indorsement on the reverse side of the check by
the payee, "Martin Lorenzo" was a forgery because he died as of July 14, 1952 and requested
a refund

July 11, 1966: Ebrada filed a Third-Party complaint against Adelaida Dominguez who, in
turn, filed on September 14, 1966 a Fourth-Party complaint against Justina Tinio.

March 21, 1967: City Court of Manila favored Republic against Ebrada, for Third-Party
plaintiff against Adelaida Dominguez, and for Fourth-Party plaintiff against Justina Tinio

CA: reversed Mauricia T. Ebrada claim against Adelaida Dominguez and

Domiguez against Justina Tinio

W/N: Ebrada should be held liable.

HELD: YES. Affirmed in toto.

under Section 65 of the Negotiable Instruments Law:

Every person negotiating an instrument by delivery or by qualified indorsement, warrants:

(a) That the instrument is genuine and in all respects what it purports to be.
(b) That she has good title to it.
xxx xxx xxx
 Every indorser who indorses without qualification warrants to all subsequent holders in due
course:
(a) The matters and things mentioned in subdivisions (a), (b), and (c) of the next preceding
sections;
(b) That the instrument is at the time of his indorsement valid and subsisting.
Under action 23 of the Negotiable Instruments Law (Act 2031):

When a signature is forged or made without the authority of the person whose signature it
purports to be, it is wholly inoperative, and no right to retain the instruments, or to give a
discharge 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.
Martin Lorenzo (forged as original payee) > Ramon R. Lorenzo (2nd indorser) = NO
EFFECT

Ramon R. Lorenzo(2nd indorser)> Adelaida Dominguez (third indorser)>Adelaida

Dominguez to Ebrada who did not know of the forgery = valid and enforceable barring any
claim of forgery

drawee of a check can recover from the holder the money paid to him on a forged
instrument

not its duty to ascertain whether the signatures of the payee or indorsers are
genuine or not

indorser is supposed to warrant to the drawee that the signatures of the

payee and previous indorsers (NOT only holders in due course) are genuine

RATIONALE: . indorsers own credulity or recklessness, or misplaced confidence

was the sole cause of the loss. Why should he be permitted to shift the loss due to his own
fault in assuming the risk, upon the drawee, simply because of the accidental circumstance
that the drawee afterwards failed to detect the forgery when the check was presented

Ebrada , upon receiving the check in question from Adelaida Dominguez, was duty-
bound to ascertain whether the check in question was genuine before presenting it to plaintiff
Bank for payment
 Based on the doctrine from Great Eastern Life Ins. Co. v. Hongkong Shanghai Bank
(1922) , bank should suffer the loss when it paid the amount of the check in question to
Ebrada, but it has the remedy to recover from the Ebrada the amount it paid

Ebrada immediately turning over to Adelaida Dominguez (Third-Party defendant and the
Fourth-Party plaintiff) who in turn handed the amount to Justina Tinio on the same date would
not exempt her from liability because by doing so, she acted as an accommodation party in the
check for which she is also liable under Section 29 of the Negotiable Instruments Law (Act
2031):

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.
Republic vs Ebrada

Republic Bank vs. Ebrada

GR L-40796, 31 July 1975

-forgery

FACTS:

Respondent Ebrada encashed a back pay check dated January 15, 1963 at Republic Bank. The
Bureau of Treasury, which issued the check advised the bank that the alleged indorsement of the
check by one Martin Lorenzo was a forgery as the latter has been dead since 14 July 1952; and
requested that it be refunded he sum deducted from its account. The bank refunded the amount to
the Bureau and demanded upon Ebrada the sum in question, who refused.

ISSUES:

1) Whether the bank can recover from Ebrada who was the last indorser of the check
with the forged indorsement.

2) Whether the existence of one forged signature in the check will render void all the
other negotiations of the check with respect to the other parties whose signature are genuine.
RULING:

1) Republic Bank should suffer the loss when it paid the amount of the check in
question to Ebrada but it has the remedy to recover from the latter the amount it paid to her
because as last indorser of the check, she has warranted that she has good title to it even if in fact
she did not because the payee of the check was already dead 11 years before the check was
issued.

2) The negotiation of the check in question from Martin Lorenzo, the original payee
whose indorsement was forged, to the second indorser, should be declared of no affect, but the
negotiation of the aforesaid check from the second indorser to the third indorser, and from the
third indorser to Ebrada who did not know of the forgery, should be considered valid and
enforceable, barring any claim of forgery.

**The existence of one forged signature in the check will not render void all the other
negotiations of the check with respect to the other parties whose signature are genuine. As last
indorser of the check, petitioner warranted that she has good title to it even if in fact she did not
because the payee of the check was already dead 11 years before the check was issued.

REPUBLIC V. EBRADA

65 SCRA 680

FACTS:

Ebrada encashed a Back Pay Check issued by the Bureau of Treasury at the Republic Bank
in Escolta Manila. The Bureau of Treasury advised the Republic Bank that the
instrument was forged. It informed the bank that the original payee of the check died 11
years before the check was issued. Therefore, there was a forgery of his signature.

This is the sequence:

Martin Lorenzo
The deceased person, original
payee, where the forgery
happened
Ramon Lorenzo

Delia Dominguez
Mauricia Ebrada
Defendant-appelant

Ebrada refuses to return the proceeds of the check claiming that she already gave it to
Delia Dominguez. She also claims that she is a HDC (holder in due course) and that the
bank is already estopped.

HELD:

Ebrada should return the proceeds of the check to Republic Bank. As an indorser of the
check, she was supposed to have warranted that she has good title to said check. See Section
65.

Section 23: When the signature is forged or made without the authority of the person whose
signature it purports to be, it is wholly inoperative, and no right to retain the instruments, or to
give a discharge 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.

It is only the negotiation based on the forged or unauthorized signature

which is inoperative. Therefore:

Martin Lorenzo
Signature inoperative
Ramon Lorenzo
To Dominguez: operative
Delia Dominguez
To Ebrada: operative
Mauricia Ebrada

Drawee bank can collect from the one who encashed the check. If Ebrada performed the duty
of ascertaining the genuiness of the check, in all probability, the forgery wouyld have been
detected and the fraud defeated.

Republic Bank vs Mauricia Ebrada

March 6, 2012
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ADVERTISEMENTS

65 SCRA 680 Mercantile Law Negotiable Instruments Law Consideration Forgery

Liability of Accommodation Party
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 Mauricia
Ebrada. 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.
Philippine National Bank v. Quimpo [G.R. No. L-53194. March 14, 1988]

30JUL

FACTS

A check from respondent Gozon was taken and forged by his trustee. It was drawn successfully
against the drawee bank. Gozon demands back credit from debited amount. Petitioner bank
argues that Gozon was negligent and precluded from setting up forgery.

ISSUE

Whether or not Gozon may recover from drawee bank.

RULING

YES. Gozons act in leaving his checkbook in the car while he went out for a short while can not
be considered negligence sufficient to excuse the defendant bank from its own negligence. His
trustee, a long time classmate and friend, remained in the same. Gozon could not have been
expected to know that the said trustee would remove a check from his checkbook. Gozon had
trust in his classmate and friend. He is therefore not precluded from setting up forgery as a
defense.

PNB V. QUIMPO

158 SCRA 582

FACTS:
While Gozon was in the bank with Santos left in the car, the latter stole a check and forged the
signature of the former. He was able to encash the check. He was later apprehended by the
police authorities and he admitted to stealing the check. The court decided in favor of Gozon.
The bank now posed the issue on whether Gozons act of leaving his checkbook in the car the
proximate cause of the loss.
HELD:
Where the private respondents check was removed and stolen without his knowledge and
consent, he cannot be considered negligent in this case.

Philippine National Bank vs Romulo Quimpo

March 5, 2012

158 SCRA 582 Mercantile Law Negotiable Instruments Law Liabilities of Parties
Forgery Liability of the Drawee Bank
In June 1973, Francisco Gozon II went to the Philippine National Bank (Caloocan City)
accompanied by his friend Ernesto Santos. Gozon left Santos in his car and while Gozon was at
the bank, Santos took a check from Gozons checkbook. Santos forged Gozons signature and
filled out the check with the amount of P5,000.00. Santos was able to encash the check that day
with PNB. Gozon learned of this when his statement arrived. Santos eventually admitted to
forging Gozons signature. Gozon then demanded the PNB to refund him the amount. PNB
refused. Judge Romulo Quimpo ruled in favor of Gozon.
ISSUE: Whether or not PNB is liable.
HELD: Yes. A bank is bound to know the signatures of its customers; and if it pays a forged
check, it must be considered as making the payment out of its own funds, and cannot ordinarily
change the amount so paid to the account of the depositor whose name was forged. PNB failed to
meet its obligation to know the signature of its correspondent (Gozon). Further, it was found by
the court that there are glaring differences between Gozons authentic specimen signatures and
that of the forged check.
Gempesaw v. Court of Appeals [G.R. No. 92244. February 9, 1993]

30JUL

FACTS

Petitioner argues that respondent drawee Bank should not have honored the checks because they
were crossed checks.

ISSUE

Whether or not the issuance of crossed checks is restrictive indorsement.

RULING
NO. They are not the same. In restrictive indorsement, the prohibition to transfer or negotiate
must be written in express words at the back of the instrument, so that any subsequent party may
be forewarned that ceases to be negotiable. Crossed checks, on the other hand, is done by
drawing two parallel lines across the face of the check to mean that it cannot be presented for
payment in cash, but can only be deposited in payees account. Crossing of checks do not ipso
facto cause the cessation of its negotiable character.

Gempesaw V. CA (1993)
G.R. No. 92244 February 9, 1993
Lessons Applicable: Promissory Notes and Checks (Negotiable Instruments Law)

FACTS:
Gempesaw owns and operates four grocery stores
to pay their debts of her supplies, she draws checks against her account
she signed each and every crossed check without bothering to verify the accuracy
of the checks against the corresponding invoices because she reposed full and implicit trust
and confidence on her bookkeeper.
although the Bank notified her of all checks presented to and paid by the bank,
petitioner did not verify he correctness of the returned checks, much less check if the payees
actually received the checks in payment for the supplies she received
It was only after the lapse of more 2 years that petitioner found out about the
fraudulent manipulations of her bookkeeper
November 7, 1984: Gempesaw made a written demand on respondent drawee Bank to
credit her account with the money value of the 82 checks totalling P1,208.606.89 for having
been wrongfully charged against her account
January 23, 1985: Gempesaw filed against Philippine Bank of Communications (drawee
Bank) for recovery of the money value of 82 checks charged against the Gempesaw's account
on the ground that the payees' indorsements were forgeries
RTC: dismissed the complaint
CA: affirmed
Gempesaw gross negligence = promixate cause of the loss
ISSUE: W/N Gempesaw has a right to recover the amount attributable to the forgeries

HELD: NO. REMANDED to the trial court for the reception of evidence to determine the exact
amount of loss suffered by the petitioner, considering that she partly benefited from the issuance
of the questioned checks since the obligation for which she issued them were apparently
extinguished, such that only the excess amount over and above the total of these actual
obligations must be considered as loss of which one half must be paid by respondent drawee
bank to herein petitioner.
Petitioner completed the checks by signing them as drawer and thereafter authorized her
employee Alicia Galang to deliver to payees
 GR: drawee bank who has paid a check on which an indorsement has been forged cannot
charge the drawer's account for the amount of said check
EX: where the drawer is guilty of such negligence which causes the bank to honor such a
check or checks.
Under the NIL, the only kind of indorsement which stops the further negotiation of an
instrument is a restrictive indorsement which prohibits the further negotiation thereof.

Sec. 36. When indorsement restrictive. - An indorsement is restrictive which either chanrobles
virtual law library
(a) Prohibits further negotiation of the instrument; or
xxx xxx xxx

In this kind of restrictive indorsement, the prohibition to transfer or negotiate must be

written in express words at the back of the instrument, so that any subsequent party may be
forewarned that ceases to be negotiable.
However, the restrictive indorsee acquires the right to receive payment and bring
any action thereon as any indorser, but he can no longer transfer his rights as such indorsee
where the form of the indorsement does not authorize him to do so.
When it violated its internal rules that second endorsements are not to be accepted
without the approval of its branch managers and it did accept the same upon the mere
approval of Boon, a chief accountant, it contravened the tenor of its obligation at the very
least, if it were not actually guilty of fraud or negligence
drawee Bank did not discover the irregularity with respect to the acceptance of checks
with second indorsement for deposit even without the approval of the branch manager despite
periodic inspection conducted by a team of auditors from the main office constitutes
negligence on the part of the bank in carrying out its obligations to its depositors

GEMPESAW V. CA

218 SCRA 682

FACTS:
Gempensaw was the owner of many grocery stores. She paid her suppliers through the
issuance of checks drawn against her checking account with respondent bank. The
checks were prepared by her bookkeeper Galang. In the signing of the checks prepared by
Galang, Gempensaw didn't bother
herself in verifying to whom the checks were being paid and if the issuances were
necessary. She didn't even verify the returned checks of the bank when the latter notifies her
of the same. During her two years in business, there were incidents shown that the amounts
paid for were in excess of what should have been paid. It was also shown that even if the
checks were crossed, the intended payees didn't receive the amount of the checks. This
prompted Gempensaw to demand the bank to credit her account for the amount of the
forged checks. The bank refused to do so and this prompted her to file the case against the
bank.

HELD:
Forgery is a real defense by the party whose signature was forged. A party whose signature was
forged was never a party and never gave his consent to the instrument. Since his signature
doesnt appear in the instrument, the same cannot be enforced against him even by a holder in
due course. The drawee bank cannot charge the account of the drawer whose signature was
forged because he never gave the bank the order to pay.

In the case at bar the checks were filled up by petitioners employee Galang and were
later given to her for signature. Her signing the checks made the negotiable instruments
complete. Prior to signing of the checks, there was no valid contract yet. Petitioner
completed the checks by signing them and thereafter authorized Galang to deliver the same to
their respective payees. The checks were then indorsed, forged indorsements thereon.

As a rule, a drawee bank who has paid a check on which an indorsement has been forged
cannot debit the account of a drawer for the amount of said check. An exception to
this rule is when the drawer is guilty of negligence which causes the bank to honor such
checks. Petitioner in this case has relied solely on the honesty and loyalty of her
bookkeeper and never bothered to verify the accuracy of the amounts of the checks she
signed the invoices attached thereto. And though she received her bank statements, she
didn't carefully examine the same to double-check her
payments. Petitioner didn't exercise reasonable diligence which eventually led to the fruition of
her bookkeepers fraudulent schemes.

Natividad Gempesaw vs Court of Appeals

218 SCRA 682 Mercantile Law Negotiable Instruments Law Liabilities of Parties
Forgery Forged Indorsements
Natividad Gempesaw is a businesswoman who entrusted to her bookkeeper, Alicia Galang, the
preparation of checks about to be issued in the course of her business transactions. From 1984 to
1986, 82 checks amounting to P1,208,606.89, were prepared and were supposed to be delivered
to Gempesaws clients as payees named thereon. However, through Galang, these checks were
never delivered to the supposed payees. Instead, the checks were fraudulently indorsed to
Alfredo Romero and Benito Lam.
ISSUE: Whether or not the bank should refund the money lost by reason of the forged
indorsements.
HELD: No. Gempesaw cannot set up the defense of forgery by reason of her negligence. As a
rule, a drawee bank (in this case the Philippine Bank of Communications) who has paid a check
on which an indorsement has been forged cannot charge the drawers (Gempesaws) account for
the amount of said check. An exception to this rule is where the drawer is guilty of such
negligence which causes the bank to honor such a check or checks. If a check is stolen from the
payee, it is quite obvious that the drawer cannot possibly discover the forged indorsement by
mere examination of his cancelled check. A different situation arises where the indorsement was
forged by an employee or agent of the drawer, or done with the active participation of the latter.
The negligence of a depositor which will prevent recovery of an unauthorized payment is based
on failure of the depositor to act as a prudent businessman would under the circumstances. In the
case at bar, Gempesaw relied implicitly upon the honesty and loyalty of Galang, and did not even
verify the accuracy of amounts of the checks she signed against the invoices attached thereto.
Furthermore, although she regularly received her bank statements, she apparently did not
carefully examine the same nor the check stubs and the returned checks, and did not compare
them with the same invoices. Otherwise, she could have easily discovered the discrepancies
between the checks and the documents serving as bases for the checks. With such discovery, the
subsequent forgeries would not have been accomplished. It was not until two years after Galang
commenced her fraudulent scheme that Gempesaw discovered that eighty-two (82) checks were
wrongfully charged to her account, at which she notified the Philippine Bank of
Communications.

PCIB V. CA

350 SCRA 446

FACTS:
Ford Philippines filed actions to recover from the drawee bank Citibank and collecting bank
PCIB the value of several checks payable to the Commissioner of Internal Revenue
which were embezzled allegedly by an organized syndicate. What prompted this action
was the drawing of a check by Ford, which it deposited to PCIB as payment and was
debited from their Citibank account. It later on found out that the payment wasnt received by
the Commissioner. Meanwhile, according to the NBI report, one of the checks issued by
petitioner was withdrawn from PCIB for alleged mistake in the amount to be paid. This was
replaced with managers check by PCIB, which were allegedly stolen by the syndicate and
deposited in their own account.

The trial court decided in favor of Ford.

ISSUE:
Has Ford the right to recover the value of the checks intended as payment to CIR?

HELD:
The checks were drawn against the drawee bank but the title of the person negotiating the same
was allegedly defective because the instrument was obtained by fraud and unlawful means,
and the proceeds of the checks were not remitted to the payee. It was established that instead
paying the
Commissioner, the checks were diverted and encashed for the eventual distribution among
members of the syndicate.

Pursuant to this, it is vital to show that the negotiation is made by the perpetrator in
breach of faith amounting to fraud. The person negotiating the checks must have gone beyond
the authority given by his principal. If the principal could prove that there was no negligence in
the performance of his duties, he may set up the personal defense to escape liability and
recover from other parties who, through their own negligence, allowed the commission of the
crime.

It should be resolved if Ford is guilty of the imputed contributory negligence that would
defeat its claim for reimbursement, bearing in mind that its employees were among the members
of the syndicate. It appears although the employees of Ford initiated the transactions
attributable to the organized syndicate, their actions were not the proximate cause of
encashing the checks payable to CIR. The degree of Fords negligence couldnt be
characterized as the proximate cause of the injury to parties. The mere fact that the
forgery was committed by a drawer-payors confidential employee or agent, who by virtue of
his position had unusual facilities for perpetrating the fraud and imposing the forged paper upon
the bank, doesnt entitle the bank to shift the loss to the drawer-payor, in the absence of some
circumstance raising estoppel against the drawer.

Note: not only PCIB but also Citibank is responsible for negligence. Citibank was
negligent in the performance of its duties as a drawee bank. It failed to establish its payments
of Fords checks were made in due course and legally in order.

Philippine Commercial International Bank V CA (2001)

G.R. No. 121413,121479,128604 January 29, 2001
Lessons Applicable: Liabilities of the Parties (Negotiable Instruments Law)

FACTS:
These consolidated petitions involve several fraudulently negotiated checks
October 19, 1977: Ford drew and issued its Citibank Check of P4,746,114.41, in favor of
the Commissioner of Internal Revenue (CIR) as payment of percentage or manufacturer's
sales taxes for the third quarter of 1977
check was deposited with the IBAA (now PCIBank) and was subsequently
cleared at the Central Bank
Ford, with leave of court, filed a third-party complaint before the trial court impleading
Pacific Banking Corporation (PBC) and Godofredo Rivera, as third party defendants
dismissed the complaint against PBC for lack of cause of action
dismissed the third-party complaint against Godofredo Rivera because he could
not be served with summons as a "fugitive from justice"
trial court: Citibank and IBAA (now PCI Bank), jointly and severally, to pay the Ford
April 20, 1979, Ford drew another Citibank Check of P6,311,591.73, representing the
payment of percentage tax for the first quarter of 1979 payable to the CIR
Both checks were "crossed checks" and contain two diagonal lines on its upper corner
between, which were written the words "payable to the payee's account only."
The checks never reached the payee, CIR
As far as the BIR is concernced, the said two BIR Revenue Tax Receipts were considered
"fake and spurious".
forced Ford to pay the BIR anew, while an action was filed against Citibank and
PCIBank for recovery
RTC: Mr. Godofredo Rivera was employed by FORD as its General Ledger Accountant.
He prepared the check for payment to the BIR. Instead, of delivering to the payee, he gave it
to Remberto Castro, a co-conspirator who was a pro-manager of PCIB. Castro opened a
Checking Account in the name of a fictitious person "Reynaldo Reyes" with connivance of
Dulay, assistant manager of PCIB
After an initial deposit of P100 to validate the account, Castro deposited a worthless
Bank of America Check in exactly the same amount as the first FORD check while this
worthless check was coursed through PCIB's main office enroute to the Central Bank for
clearing, replaced this worthless check with Ford's and accordingly tampered the
accompanying documents to cover the replacement. As a result, Ford's check was cleared by
CITIBANK, and the fictitious deposit account of 'Reynaldo Reyes' was credited at the PCIB
December 9, 1988: RTC Citibank (drawee bank) liable for the value of the 2 checks while
absolving PCIBank (collecting bank) from any liability
ISSUE: W/N Ford can hold both PCIB and Citibank liable

HELD: YES. CA AFFIRMED. PCIBank, know formerly as Insular Bank of Asia and America,
id declared solely responsible for the loss of the proceeds of Citibank Check in the amount
P4,746,114.41. However, MODIFIED as follows: PCIBank and Citibank are adjudged liable for
 and must share the loss, concerning the proceeds of Citibank Check Numbers SN 10597 and
16508 on a 50-50 ratio to pay Ford
GR: if the master is injured by the negligence of a third person and by the concuring
contributory negligence of his own servant or agent, the latter's negligence is imputed to his
superior and will defeat the superior's action against the third person, asuming, of course that
the contributory negligence was the proximate cause of the injury of which complaint is
made.
although the employees of Ford initiated the transactions attributable to an organized
syndicate, in our view, their actions were not the proximate cause of encashing the checks
payable to the CIR
degree of Ford's negligence, if any, could not be characterized as the proximate
cause of the injury to the parties
Rivera's instruction to replace the check with PCIBank's Manager's Check was not in the
ordinary course of business which could have prompted PCIBank to validate the same.
checks were made payable to the CIR
Both were crossed checks
These checks were apparently turned around by Ford's emploees, who
were acting on their own personal capacity.
Given these circumstances, the mere fact that the forgery was committed by a drawer-
payor's confidential employee or agent, who by virtue of his position had unusual facilities for
perpertrating the fraud and imposing the forged paper upon the bank, does not entitle the bank
to shift the loss to the drawer-payor, in the absence of some circumstance raising estoppel
against the drawer.
This rule likewise applies to the checks fraudulently negotiated or diverted by the
confidential employees who hold them in their possession.
Furthermore, it was admitted that PCIBank is authorized to collect the payment of
taxpayers in behalf of the BIR.
As an agent of BIR, PCIBank is duty bound to consult its principal regarding the
unwarranted instructions given by the payor or its agent
Otherwise stated, the diversion can be justified only by proof of authority from
the drawer, or that the drawer has clothed his agent with apparent authority to receive the
proceeds of such check.
it is the duty of the collecting bank PCIBank to ascertain that the check be
deposited in payee's account only. Therefore, it is the collecting bank (PCIBank) which is
bound to scruninize the check and to know its depositors before it could make the clearing
indorsement "all prior indorsements and/or lack of indorsement guaranteed".
PCIBank did not actually receive nor hold the 2 Ford checks at all. Neither is there any
proof that defendant PCIBank contributed any official or conscious participation in the
process of the embezzlement.
the switching operation (involving the checks while in transit for "clearing") were
the clandestine or hidden actuations performed by the members of the syndicate in their own
personl, covert and private capacity and done without the knowledge of the defendant
PCIBank
clearing stamps at the back of Citibank Check do not bear any initials
Citibank failed to notice and verify the absence of the clearing stamps
 For this reason, Citibank had indeed failed to perform what was incumbent upon
it, which is to ensure that the amount of the checks should be paid only to its designated
payee. The fact that the drawee bank did not discover the irregularity seasonably, in our view,
consitutes negligence in carrying out the bank's duty to its depositors.
invoking the doctrine of comparative negligence, both PCIBank and Citibank failed in
their respective obligations and both were negligent in the selection and supervision of their
employees resulting in the encashment
hold them equally liable for the loss of the proceeds of the checks issued by Ford
in favor of the CIR
The statute of limitations begins to run when the bank gives the depositor notice of the
payment, which is ordinarily when the check is returned to the alleged drawer as a voucher
with a statement of his account, and an action upon a check is ordinarily governed by the
statutory period applicable to instruments in writing.
Our laws on the matter provide that the action upon a written contract must be
brought within ten year from the time the right of action accrues hence, the reckoning time for
the prescriptive period begins when the instrument was issued and the corresponding check
was returned by the bank to its depositor (normally a month thereafter).
Applying the same rule, the cause of action for the recovery of the
proceeds of Citibank Check No. SN 04867 would normally be a month after December 19,
1977, when Citibank paid the face value of the check in the amount of P4,746,114.41. Since
the original complaint for the cause of action was filed on January 20, 1984, barely six years
had lapsed. Thus, we conclude that Ford's cause of action to recover the amount of Citibank
Check No. SN 04867 was seasonably filed within the period provided by law.
Failure on the part of the FORD depositor to examine its passbook, statements of
account, and cancelled checks and to give notice within a reasonable time (or as required by
statute) of any discrepancy which it may in the exercise of due care and diligence find therein,
serves to mitigate the banks' liability by reducing the award of interest from twelve percent
(12%) to six percent (6%) per annum.
Article 1172 of the Civil Code of the Philippines, respondibility arising from
negligence in the performance of every kind of obligation is also demandable, but such
liability may be regulated by the courts, according to the circumstances. In quasi-delicts, the
contributory negligence of the plaintiff shall reduce the damages that he may recover.

PCIB v. CA

Facts:

This case is composed of three consolidated petitions involving several checks, payable to the
Bureau of Internal Revenue, but was embezzled allegedly by an organized syndicate.

I. G. R. Nos. 121413 and 121479

On October 19, 1977, plaintiff Ford issued a Citibank check amounting to P4,746,114.41 in favor
of the Commissioner of Internal Revenue for the payment of manufacturers taxes. The check
was deposited with defendant IBAA (now PCIB), subsequently cleared the the Central Bank, and
paid by Citibank to IBAA. The proceeds never reached BIR, so plaintiff was compelled to make
a second payment. Defendant refused to reimburse plaintiff, and so the latter filed a complaint.
An investigation revealed that the check was recalled by Godofredo Rivera, the general ledger
accountant of Ford, and was replaced by a managers check. Alleged members of a syndicate
deposited the two managers checks with Pacific Banking Corporation. Ford filed a third party
complaint against Rivera and PBC. The case against PBC was dismissed. The case against
Rivera was likewise dismissed because summons could not be served. The trial court held
Citibank and PCIB jointly and severally liable to Ford, but the Court of Appeals only held PCIB
liable.

II. G. R. No. 128604

Ford drew two checks in favor of the Commissioner of Internal Revenue, amounting to
P5,851,706.37 and P6,311,591.73. Both are crossed checks payable to payees account only. The
checks never reached BIR, so plaintiff was compelled to make second payments. Plaintiff
instituted an action for recovery against PCIB and Citibank.

On investigation of NBI, the modus operandi was discovered. Gorofredo Rivera made the checks
but instead of delivering them to BIR, passed it to Castro, who was the manager of PCIB San
Andres. Castro opened a checking account in the name of a fictitious person Reynaldo Reyes.
Castro deposited a worthless Bank of America check with the same amount as that issued by
Ford. While being routed to the Central Bank for clearing, the worthless check was replaced by
the genuine one from Ford.

The trial court absolved PCIB and held Citibank liable, which decision was affirmed in toto by
the Court of Appeals.

Issues:

(1) Whether there is contributory negligence on the part of Ford

(2) Has petitioner Ford the right to recover from the collecting bank (PCIBank) and the drawee
bank (Citibank) the value of the checks intended as payment to the Commissioner of Internal
Revenue?

Held:

(2) The general rule is that if the master is injured by the negligence of a third person and by the
concuring contributory negligence of his own servant or agent, the latter's negligence is imputed
to his superior and will defeat the superior's action against the third person, asuming, of course
that the contributory negligence was theproximate cause of the injury of which complaint is
made. As defined, proximate cause is that which, in the natural and continuous sequence,
unbroken by any efficient, intervening cause produces the injury and without the result would not
have occurred. It appears that although the employees of Ford initiated the transactions
attributable to an organized syndicate, in our view, their actions were not the proximate cause of
encashing the checks payable to the CIR. The degree of Ford's negligence, if any, could not be
characterized as the proximate cause of the injury to the parties. The mere fact that the forgery
was committed by a drawer-payor's confidential employee or agent, who by virtue of his position
had unusual facilities for perpertrating the fraud and imposing the forged paper upon the bank,
does notentitle the bank toshift the loss to the drawer-payor, in the absence of some circumstance
raising estoppel against the drawer. This rule likewise applies to the checks fraudulently
negotiated or diverted by the confidential employees who hold them in their possession.

(2) We have to scrutinize, separately, PCIBank's share of negligence when the syndicate achieved
its ultimate agenda of stealing the proceeds of these checks.

a. G. R. Nos. 121413 and 121479

On record, PCIBank failed to verify the authority of Mr. Rivera to negotiate the checks. The
neglect of PCIBank employees to verify whether his letter requesting for the replacement of the
Citibank Check No. SN-04867 was duly authorized, showed lack of care and prudence required
in the circumstances. Furthermore, it was admitted that PCIBank is authorized to collect the
payment of taxpayers in behalf of the BIR. As an agent of BIR, PCIBank is duty bound to
consult its principal regarding the unwarranted instructions given by the payor or its agent. It is a
well-settled rule that the relationship between the payee or holder of commercial paper and the
bank to which it is sent for collection is, in the absence of an argreement to the contrary, that of
principal and agent. A bank which receives such paper for collection is the agent of the payee or
holder.

Indeed, the crossing of the check with the phrase "Payee's Account Only," is a warning that the
check should be deposited only in the account of the CIR. Thus, it is the duty of the collecting
bank PCIBank to ascertain that the check be deposited in payee's account only. Therefore, it is
the collecting bank (PCIBank) which is bound to scrutinize the check and to know its depositors
before it could make the clearing indorsement "all prior indorsements and/or lack of indorsement
guaranteed".

Lastly, banking business requires that the one who first cashes and negotiates the check must
take some precautions to learn whether or not it is genuine. And if the one cashing the check
through indifference or other circumstance assists the forger in committing the fraud, he should
not be permitted to retain the proceeds of the check from the drawee whose sole fault was that it
did not discover the forgery or the defect in the title of the person negotiating the instrument
before paying the check. For this reason, a bank which cashes a check drawn upon another bank,
without requiring proof as to the identity of persons presenting it, or making inquiries with
regard to them, cannot hold the proceeds against the drawee when the proceeds of the checks
were afterwards diverted to the hands of a third party. In such cases the drawee bank has a right
to believe that the cashing bank (or the collecting bank) had, by the usual proper investigation,
satisfied itself of the authenticity of the negotiation of the checks. Thus, one who encashed a
check which had been forged or diverted and in turn received payment thereon from the drawee,
is guilty of negligence which proximately contributed to the success of the fraud practiced on the
drawee bank. The latter may recover from the holder the money paid on the check.

b. G. R. No. 128604

In this case, there was no evidence presented confirming the conscious participation of PCIBank
in the embezzlement. As a general rule, however, a banking corporation is liable for the wrongful
or tortuous acts and declarations of its officers or agents within the course and scope of their
employment. A bank will be held liable for the negligence of its officers or agents when acting
within the course and scope of their employment. It may be liable for the tortuous acts of its
officers even as regards that species of tort of which malice is an essential element. In this case,
we find a situation where the PCIBank appears also to be the victim of the scheme hatched by a
syndicate in which its own management employees had participated. But in this case,
responsibility for negligence does not lie on PCIBank's shoulders alone.

Citibank failed to notice and verify the absence of the clearing stamps. For this reason, Citibank
had indeed failed to perform what was incumbent upon it, which is to ensure that the amount of
the checks should be paid only to its designated payee. The point is that as a business affected
with public interest and because of the nature of its functions, the bank is under obligation to
treat the accounts of its depositors with meticulous care, always having in mind the fiduciary
nature of their relationship. Thus, invoking the doctrine of comparative negligence, we are of the
view that both PCIBank and Citibank failed in their respective obligations and both were
negligent in the selection and supervision of their employees resulting in the encashment of
Citibank Check Nos. SN 10597 AND 16508. Thus, we are constrained to hold them equally
liable for the loss of the proceeds of said checks issued by Ford in favor of the CIR.

Papa v. AU Valencia (284 SCRA 643)

Post under case digests, Commercial Law at Sunday, February 05, 2012 Posted by Schizophrenic
Mind

Facts: Myron Papa, acting as attorney-in-fact of Angela Butte, allegedly sold a parcel of land in
La Loma, Quezon City to Felix Penarroyo. However, prior to the alleged sale, the land was
mortgaged by Butte to Associated Banking Corporation along with other properties and after the
alleged sale but prior to the propertys release by delivery, Butte died. The Bank refused to
release the property despite Penarroyos unless and until the other mortgaged properties by Butte
have been redeemed and because of this Penarroyo settled to having the title of the property
annotated.

It was later discovered that the mortgage rights of the Bank were transferred to one Tomas
Parpana, administrator of the estate of Ramon Papa Jr. and his since then been collecting rents.
Despite repeated demands of Penarroyo and Valencia, Papa refused to deliver the property which
led to a suit for specific performance. The trial court ruled in favor of Penarroyo and Valencia.

On appeal to the CA, and ultimately in relation to negotiable instruments, Papa averred that the
sale of the property was not consummated since the PCIB check issued by Penarroyo for
payment worth 40000 pesos was not encashed by him. However, the CA saw the contrary and
that Papa in fact encashed the checkby means of a receipt.

Finally on appeal to the SC, Papa cited that according to Art 1249 of the Civil Code, payment of
checks only produce effect once they have been encashed and he insists that he never encashed
thecheck. He further alleged that if check was encashed, it should have been stamped as such or
at least a microfilm copy. It must be noted that the check was in possession of Papa for ten (10)
years from the time payment was made to him.

Issue: Whether or not the check was encashed and can be considered effective as payment

Held: YES. The Court held that acceptance of a check implies an undertaking of due diligence in
presenting it for payment, and if he from whom it is received sustains loss by want of such
diligence, it will be held to operate as actual payment of the debt or obligation for which it is
given. In this case, granting that check was never encashed, Papas failure to do so for more than
ten (10) years undoubtedly resulted in the impairment of the check through his unreasonable and
unexplained delay.

After more than ten (10) years from the payment in part by cash and in part by check, the
presumption is that the check had been encashed.

Myron Papa vs A.U. Valencia and Co., Inc.

March 15, 2012
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284 SCRA 643 Mercantile Law Negotiable Instruments Law Consummation of Sale in Lieu
of Check Payment
Myron Papa is the administrator of the estate of Angela Butte. In 1973, he sold a portion of said
estate to Felix Pearroyo through A.U. Valencia and Co., Inc. Pearroyo gave Papa P5,000.00
plus a check worth P40,000.00. However, Papa was not able to deliver the certificate of title to
Pearroyo. A litigation ensued and ten years after, Papa argued that the sale between him and
Pearroyo was never consummated because he did not encash the P40,000.00 check and that the
P5,000.00 cash was merely earnest money.
ISSUE: Whether or not Papa is correct.
HELD: No. After more than ten (10) years from the payment in part by cash and in part by
check, the presumption is that the check had been encashed. Granting that Papa had never
encashed the check, his failure to do so for more than ten (10) years undoubtedly resulted in the
impairment of the check through his unreasonable and unexplained delay. While it is true that the
delivery of a check produces the effect of payment only when it is cashed, pursuant to Article
1249 of the Civil Code, the rule is otherwise if the debtor (Pearroyo) is prejudiced by the
creditors (Papas) unreasonable delay in presentment. The acceptance of a check implies an
undertaking of due diligence in presenting it for payment, and if he from whom it is received
sustains loss by want of such diligence, it will be held to operate as actual payment of the debt or
obligation for which it was given.
Papa v. Valencia Digest
Papa v. Valencia

G.R. No. 105188 January 23, 1998

Banking; Checks
Facts:

1. The case arose from a sale of a parcel of land allegedly made to private respondent Penarroyo
by petitioner acting as attorney-in-fact of Anne Butte. The purchaser, through Valencia, made a
check payment in the amount of P40,000 and in cash, P5,000. Both were accepted by petitioner
as evidenced by various receipts. It appeared that the said property has already been mortgaged
to the bank previously together with other properties of Butte.

2. When Butte passed away, the private respondent Penarroyo now demanded that the title to the
property be conveyed to him, however the bank refused. Hence, the filing of a suit for specific
performance by private respondents against the petitioner. The lower court ruled in favor of the
private respondents and ordered herein petitioner the conveyance or the property or if not, its
payment. The petitioner appealed the lower court's decision alleging that the sale was not
consummated as he never encashed the check given as part of the purchase price.

3. The Court of Appeals affirmed with modifications the lower court's decision. It held that there
was a consummated sale of the subject property despite.

Issue: Whether or not the check is a valid tender of payment/Whether or not there was a
valid sale of the subject property

RULING: Yes. While it is true that the delivery of check produces payment only when encashed
(pursuant to Art. 1249, Civil Code), the rule is otherwise if the debtor is prejudiced by the delay
in presentment. (Here in this case, the petitioner now alleges that he did not present the check,
ten years after the same was paid to him as part of the purchase price of the property.)

Check acceptance implied an undertaking of due diligence in presenting it for payment. If the
person who receives it sustains loss by want of this diligence, this will operated as actual
payment of the debt or obligation for which the check was given. The debtor cannot now be held
liable if non-presentment of the check was through the fault of the creditor.
 FAR EAST REALTY INVESTMENT INC. v. CA
G.R. No. L-36549 October 5, 1988
Paras, J.

Doctrine:
Where the instrument is not payable on demand, presentment must be made on the day it falls
due. Where it is payable on demand, presentment must be made within a reasonable time after
issue, except that in the case of a bill of exchange, presentment for payment will be sufficient if
made within a reasonable time after the last negotiation thereof.

Reasonable Time has been defined as so much time as is necessary under the circumstances for
a reasonable prudent and diligent man to do, conveniently, what the contract or duty requires
should be done, having a regard for the rights, and possibility of loss, if any, to the other party.

No hard and fast demarcation line can be drawn between what may be considered as a
reasonable or an unreasonable time, because reasonable time depends upon the peculiar facts
and circumstances in each case.

Facts:
Private respondents asked the petitioner to extend an accommodation loan in the sum of
P4,500.00. Respondents delivered to the petitioner a check for P4,500.00, drawn by Dy Hian Tat,
and signed by them at the back of said check, with the assurance that after one month from
September 13, 1960, the said check would be redeemed by them by paying cash in the sum of
P4,500.00, or the said check can be presented for payment on or immediately after one month.
Petitioner agreed and extended an accommodation loan

The aforesaid check was presented for payment to the China Banking Corporation, but said
check bounced and was not cashed by said bank, for the reason that the current account of the
drawer thereof had already been closed. Petitioner demanded payment from the private but the
latter failed and refused to pay notwithstanding repeated demands.

Both private respondents raised the defense that both have been wholly discharged by delay in
presentment of the check for payment.
The Lower Court ruled in favor of the petitioner. However, this was reversed by the CA upon
appeal by the respondents, ruling that the check was not given as collateral to guarantee a loan
secured since the check passed through other hands before reaching the petitioner and the said
check was not presented within a reasonable time. Hence this petition.
Petitioner argues that presentment for payment and notice of dishonor are not necessary as when
funds are insufficient to meet a check, thus the drawer is liable, whether such presentment and
notice be totally omitted or merely delayed.

Issues:
1. Whether or not presentment for payment can be dispensed with
2. Whether or not presentment for payment and notice of dishonor of the questioned check were
made within reasonable time

Held:
1. No. Where the instrument is not payable on demand, presentment must be made on the day it
falls due. Where it is payable on demand, presentment must be made within a reasonable time
after issue, except that in the case of a bill of exchange, presentment for payment will be
sufficient if made within a reasonable time after the last negotiation thereof (Section 71,
Negotiable Instruments Law).

2. No. It is obvious in this case that presentment and notice of dishonor were not made within a
reasonable time.

Reasonable time has been defined as so much time as is necessary under the circumstances
for a reasonable prudent and diligent man to do, conveniently, what the contract or duty requires
should be done, having a regard for the rights, and possibility of loss, if any, to the other party
(Citizens Bank Bldg. v. L & E. Wertheirmer 189 S.W. 361, 362, 126 Ark, 38, Ann. Cas. 1917 E,
520).

Notice may be given as soon as the instrument is dishonored; and unless delay is excused must
be given within the time fixed by the law (Section 102, Negotiable Instruments Law).

In the instant case, the check in question was issued on September 13, 1960, but was presented to
the drawee bank only on March 5, 1964, and dishonored on the same date. After dishonor by the
drawee bank, a formal notice of dishonor was made by the petitioner through a letter dated April
27, 1968. Under these circumstances, the petitioner undoubtedly failed to exercise prudence and
diligence on what he ought to do al. required by law. The petitioner likewise failed to show any
justification for the unreasonable delay.

No hard and fast demarcation line can be drawn between what may be considered as a reasonable
or an unreasonable time, because reasonable time depends upon the peculiar facts and
circumstances in each case (Tolentino, Commentaries and Jurisprudence on Commercial Laws
of the Philippines, Vol. I, Eighth Edition, p. 327).

VIOLET MCGUIRE SUMACAD, ET AL. vs. THE PROVINCE OF SAMAR, THE

PHILIPPINE NATIONAL BANK
Posted on February 14, 2013 by winnieclaire
S
tandard
[G.R. No. L-8155. October 23, 1956.]
Facts: While the province of Samar was still occupied by Japanese military forces, a check was
issued by said province to Paulino M. Santos (then the postmaster of Borongan) for the sum of
P25,000, drawn against the Philippine National Bank Cebu Branch. The payee negotiated the
check with James McGuire, an American citizen and resident of the municipality of Borongan.
James McGuire presented the check to the municipal treasurer of Borongan for payment, but the
latter (who merely noted it) was not able or did not choose to pay the same.
James McGuire wrote letters to the Bureau of Posts seeking payment of the check, which were in
turn referred to the PNB. As of this date the province of Samar still had a deposit of P84,287.47
in the PNB. PNB requested James McGuire to present the check to the provincial treasurer and
the provincial auditor for certification. Before the check could be certified by the authorities
concerned as being in order and entitled to priority of payment, the province of Samar, withdraw
the amount of P83,504.07, leaving a balance of only P743.43.
In the meantime, James McGuire transferred his rights to the check to the herein Plaintiffs who,
unable to cash it.
Issue: WON defendants herein are solidarily liable to pay the check.
Held: The obligation of the Appellant bank is merely subsidiary. An implied acceptance of
the check by the Appellant bank was thereby created. The request by the Appellant bank from
the Bureau of Posts for photostatic copies of the check and the subsequent requirement by it for
its presentation by James McGuire to the provincial treasurer and the provincial auditor for
certification, would be an empty gesture if the Appellant did not thereby mean to assume the
obligation of paying the check and holding sufficient deposit of the drawer for the purpose. Even
so, Appellants resulting obligation is merely subsidiary, the province of Samar being primarily
liable to pay the check.

Asia Banking Corporation v. JavierG.R. No. L-19051, April 4, 1924 !"il ##9Avan$e
%a, J&
If, after a negotiable instrument is dishonored for non-acceptance of non-pa yment,
the endors er is not noti fied of the fact in the time and
manner prescribed by the law, said endorser is released from all liability upon thedocument.
FACTS:
On May 10, 1920, Salvador B. Chaves drew a check on the Philippine NationalBank for P11,000
in favor of la Insular, a concern doing business in this city. This check was endorsed by the
limited partners of La Insular, and then deposited by
Salvador B. Chaves in his current account with the plaintiff,
A s i a B a n k i n g Corporation (ABC) . The deposit was made on July 14, 1920.

On June 25, 1920, Salvador B. Chaves drew another check for P18, 785.30 on the Philippine
National Bank, in favor of the aforesaid La Insular. This check was also
endorsed b y the li mited partners of la ins ular, and w as likew is e depos ited b y
Salvador B. Chaves in his current account with ABC, on July 6, 1920.

After the checks were deposited in ABC bank, the amount represented by both checks
was used by Salvador B. Chaves by drawing checks on the plaintiff. Subsequently
these checks were presented by the ABC to the Philippine National Bank for
payments, but the latter refused to pay on the ground that the drawer, Salvador B.
Chaves, had no funds therein.

Lower court ruled in favor of the ABC, sentencing Javier to pay the value of both
checks ; hence the appeal.

ISSUE:
whether or not the liability of defendant Javier as endorser oF the checks in question was
extinguished?

HELD:
Yes. The Court ruled that the liability of the defendant never arose. Section
89 of the Negotiable Instruments Law
( a c t N o . 2 0 3 1 ) p r o v i d e s t h a t , w h e n a negotiable
instrument is dishonored for non-acceptance or non-payment, notice thereof must be
given to the drawer and of each of the endorsers, and those who
are not noti fied that the document was dis honored. Then, under the general
principle of the law of procedure, it will be incumbent upon the plaintiff, who seeks to enforce
the defendants liability upon these checks as endorser, to establish said liability by proving
that notice was given to the defendant within the time, and in the manner, required by
the law that the checks in question had been dishonored.

If t h e s e f a c t s a r e n o t p r o v e n , t h e p l a i n t i f f h a s n o t s u f f i c i e n t l y e s t a b l i e d
t h e defendants liability. There is no proof in the record tending to show that
plaintiff ABC gave any notice whatsoever to the defendant that the checks in question had been
dishonored, and therefore it has not established its cause of action.

Nyco Sales Corporation vs BA Finance Corporation

February 27, 2012
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200 SCRA 637 Mercantile Law Negotiable Instruments Law Notice of Dishonor
Assignment of Credit
Nyco Sales Corporation has discounting privileges with BA Finance Corporation. In 1978,
brothers Renato Fernandez and Santiago Renato (officers of Sanshell Corporation) approached
Nyco Sales Corporation for a credit accommodation in order for the brothers make use of Nycos
discounting privileges. Nyco Sales agreed and so, on November 15, 1978, Sanshell issued a post-
dated (November 17, 1978) BPI check to Nyco Sales in the amount of P60,000.00. Following the
discounting process agreed upon, Nyco Sales, thru its president Rufino Yao, endorsed the check
in favor of BA Finance. Thereafter, BA Finance issued a check payable to Nyco Sales which
endorsed it in favor of Sanshell. Sanshell then made use of and/or negotiated the check.
Accompanying the exchange of checks was a Deed of Assignment executed by Nyco Sales
(assignor) in favor of BA Finance (assignee) with the conformity of Sanshell. Under the said
Deed, the subject of the discounting was P60k BPI check.
The check bounced. BA Finance notified Sanshell. Sanshell substituted the BPI check with a
Security Bank and Trust Company check for P60k. This check again bounced. BA Finance made
repeated demands to Nyco Sales and Sanshell but neither of the two settled the obligation.
Hence, BA Finance sued Nyco Sales. Nyco Sales averred that it received no notice of dishonor
when the second check was dishonored.
ISSUE: Whether or not Nyco Sales is liable to pay BA Finance.
HELD: Yes. The relationship between Nyco Sales and BA Finance is one of assignor-assignee.
The assignor-vendor warrants both the credit itself (its existence and legality) and the person of
the debtor (his solvency), if so stipulated, as in the case at bar. Consequently, if there be any
breach of the above warranties, the assignor-vendor should be held answerable therefor. There is
no question then that the assignor-vendor is indeed liable for the invalidity of whatever he
assigned to the assignee-vendee. Considering now the facts of the case at bar, it is beyond
dispute that Nyco executed a deed of assignment in favor of BA Finance with Sanshell
Corporation as the debtor-obligor. BA Finance is actually enforcing said deed and the check
covered thereby is merely an incidental or collateral matter. This particular check merely
evidenced the credit which was actually assigned to BA Finance. Thus, the designation is
immaterial as it could be any other check. It is only what is represented by the said checks that
Nyco is being asked to pay.
Nyco Sales pretension that it had not been notified of the fact of dishonor is belied not only by
the formal demand letter issued by BA Finance but also by the fact that Nyco Sales and Sanshell
had frequent contacts before, during and after the dishonor. More importantly, as long as the
credit remains outstanding, Nyco Sales shall continue to be liable to BA Finance as its assignor.
The dishonor of an assigned check simply stresses its liability and the failure to give a notice of
dishonor will not discharge it from such liability. This is because the cause of action stems from
the breach of the warranties embodied in the Deed of Assignment, and not from the dishonoring
of the check alone.

Great Asian Sales Center Corp. V. CA (2002)

G.R. No. 105774 April 25, 2002
Lessons Applicable: Notice of Dishonor (Negotiable Instruments Law)

FACTS:
March 17, 1981: Great Asian BOD approved a resolution authorizing its Treasurer and
General Manager, Arsenio Lim Piat, Jr. (Arsenio) to secure a loan, not exceeding 1M, from
Bancasia
February 10, 1982: Great Asian BOD approved a resolution authorizing Great Asian to
secure a discounting line with Bancasia in an amount not exceeding P2M
also designated Arsenio as the authorized signatory to sign all instruments,
documents and checks necessary to secure the discounting line
Tan Chong Lin signed 2 surety agreements in favor of Bancasia
Great Asian, through its Treasurer and General Manager Arsenio, signed 4 Deeds of
Assignment of Receivables (Deeds of Assignment), assigning to Bancasia 15 postdated
checks:
9 checks were payable to Great Asian
3 were payable to "New Asian Emp."
3 were payable to cash
various customers of Great Asian issued these postdated checks in payment for
appliances and other merchandise.
Deed of Assignments of assignment:
January 12, 1982: 4 post-dated checks of P244,225.82 maturing March 17, 1982,
2 were dishonored
January 12, 1982: 4 post-dated checks of P312,819 maturing April 1, 1982, all 4
were dishonored
February 11, 1982: 8 postdated checks of P344,475 maturing April 30, 1982, all 8
checks were dishonored
March 5, 1982: 1 postdated checks of P200K maturing March 18, 1982 also
dishonored
Great Asian assigned the postdated checks to Bancasia at a discount rate of less than 24%
of the face value of the checks
Arsenio endorsed all the 15 dishonored checks by signing his name at the back of the
checks
 8 dishonored checks bore the endorsement of Arsenio below the stamped name of
"Great Asian Sales Center"
7 dishonored checks just bore the signature of Arsenio
The drawee banks dishonored the 15 checks on maturity when deposited for collection by
Bancasia, with any of the following as reason for the dishonor:
"account closed"
"payment stopped"
"account under garnishment"
"insufficiency of funds
March 18, 1982: Bancasia's lawyer,Atty. Eladia Reyes, sent by registered mail to Tan
Chong Lin a letter notifying him of the dishonor and demanding payment from him
June 16, 1982: Bancasia sent by personal delivery a letter to Tan Chong Lin
May 21, 1982: Great Asian filed a case before the CFI for insolvency listing Bancasia as
one of the creditors of Great Asian in the amount of P1,243,632.00
June 23, 1982: Bancasia filed a complaint for collection of a sum of money against Great
Asian and Tan Chong Lin
CFI: favored Bancasia ordering Great Asian and Tan Chong Lin to pay jointly and
severally
CA: deleted atty. fees
ISSUE: W/N Bancasia and Tang Chon Lin should be held liable under the Civil Code because it
was a separate and distinct deed of assignment

HELD: YES. Affirmed with Modification

As plain as daylight, the two board resolutions clearly authorize Great Asian to secure
a loan or discounting line from Bancasia
Clearly, the discounting arrangements entered into by Arsenio under the Deeds of
Assignment were the very transactions envisioned in the two board resolutions of Great Asian
to raise funds for its business.
There is nothing in the Negotiable Instruments Law or in the Financing Company Act
(old or new), that prohibits Great Asian and Bancasia parties from adopting the with
recourse stipulation uniformly found in the Deeds of Assignment. Instead of being negotiated,
a negotiable instrument may be assigned.
the endorsement does not operate to make the finance company a holder in due course.
For its own protection, therefore, the finance company usually requires the assignor, in a
separate and distinct contract, to pay the finance company in the event of dishonor of the
notes or checks. (only security)
Otherwise, consumers who purchase appliances on installment, giving their
promissory notes or checks to the seller, will have no defense against the finance company
should the appliances later turn out to be defective
As endorsee of Great Asian, Bancasia had the option to proceed against Great Asian
under the Negotiable Instruments Law. Had it so proceeded, the Negotiable Instruments Law
would have governed Bancasias cause of action. Bancasia, however, did not choose this
route.
 Instead, Bancasia decided to sue Great Asian for breach of contract under the
Civil Code, a right that Bancasia had under the express with recourse stipulation in the Deeds
of Assignment.
Great Asian, after paying Bancasia, is subrogated back as creditor of the
receivables. Great Asian can then proceed against the drawers who issued the checks. Even if
Bancasia failed to give timely notice of dishonor, still there would be no prejudice whatever to
Great Asian.
Under the Negotiable Instruments Law, notice of dishonor is not required if the drawer
has no right to expect or require the bank to honor the check, or if the drawer has
countermanded payment
In the instant case, all the checks were dishonored for any of the following
reasons:
"account closed"
"account under garnishment"
"insufficiency of funds"
drawers had no right to expect or require the bank to honor the
checks
"payment stopped"
drawers had countermanded payment
Moreover, under common law, delay in notice of dishonor, where such notice is required,
discharges the drawer only to the extent of the loss caused by the delay.
Again, we reiterate that this obligation of Great Asian is separate and distinct from its
warranties as indorser under the Negotiable Instruments Law.Civil Code are applicable and
not the Negotiable Instruments Law.
separate Deeds of Assignment - provisions of the Civil Code are applicable (NOT
Negotiable Instruments Law)
Great Asians four contracts assigning its fifteen postdated checks to Bancasia expressly
stipulate the suspensive condition that in the event the drawers of the checks fail to pay, Great
Asian itself will pay Bancasia
The stipulations in the Surety Agreements undeniably mandate the solidary liability of
Tan Chong Lin with Great Asian
Moreover, the stipulations in the Surety Agreements are sufficiently broad,
expressly encompassing "all the notes, drafts, bills of exchange, overdraft and other
obligations of every kind which the PRINCIPAL may now or may hereafter owe the Creditor"

LUIS WONG vs. CA

Posted on November 24, 2012
G.R. No. 117857
February 2, 2001
FACTS:
Wong was an agent of Limtong Press Inc. (LPI), a manufacturer of calendars. However,
petitioner had a history of unremitted collections. Hence, petitioners customers were required to
issue postdated checks before LPI would accept their purchase orders.
In early December 1985, Wong issued 6 postdated checks totaling P18,025, all dated December
30, 1985 and drawn payable to the order of LPI. The checks were drawn against Allied Banking
Corporation.

The checks were initially intended to guarantee the calendar orders of customers who failed to
issue post-dated checks. However, following company policy, LPI refused to accept the checks
as guarantees. Instead, the parties agreed to apply the checks to the payment of petitioners
unremitted collections for 1984 amounting to P18,077.07. LPI waived the P52.07 difference.

Before the maturity of the checks, petitioner prevailed upon LPI not to deposit the checks and
promised to replace them within 30 days. However, petitioner reneged on his promise. Hence, on
June 5, 1986, LPI deposited the checks with Rizal Commercial Banking Corporation (RCBC).
The checks were returned for the reason account closed.

On June 20, 1986, complainant notified the petitioner of the dishonor. However, petitioner failed
to make arrangements for payment within 5 banking days.

On November 6, 1987, petitioner was charged with 3 counts of violation of B.P. Blg. 22 under 3
separate Informations for the 3 checks amounting to P5,500.00, P3,375.00, and P6,410.00.

Petitioner was similarly charged in Criminal Case No. 12057 for ABC Check No. 660143463 in
the amount of P3,375.00, and in Criminal Case No. 12058 for ABC Check No. 660143464 for
P6,410.00. Both cases were raffled to the same trial court.

The version of the defense is that petitioner issued the 6 checks to guarantee the 1985 calendar
bookings of his customers, not as payment for any obligation. In fact, the face value of the 6
postdated checks tallied with the total amount of the calendar orders of the 6 customers of the
accused. Although these customers had already paid their respective orders, petitioner claimed
LPI did not return the said checks to him.

On August 30, 1990, the trial court found petitioner guilty beyond reasonable doubt with 3
counts of Violations of Sec.1 of B.P. Blg. 22.

Petitioner appealed his conviction to the CA. However, it affirmed the trial courts decision in
toto on October 28, 1994.

ISSUES:
1. Whether the checks were issued merely as guarantee or for payment of petitioners unremitted
collections.

2. WON the prosecution was able to establish beyond reasonable doubt all the elements of the
offense penalized under B.P. Blg. 22.
3. WON petitioners penalty may be modified to only payment of fine.

HELD:
1.This is a factual issue involving as it does the credibility of witnesses. Said factual issue has
been settled by the trial court and CA. Its findings of fact are generally conclusive, and there is
no cogent reason to depart from such. In cases elevated from the CA, the SCs review is confined
to alleged errors of law. Absent any showing that the findings by the respondent court are
entirely devoid of any substantiation on record, the same must stand. The lack of accounting
between the parties is not the issue in this case. As repeatedly held, the SC is not a trier of facts.

2. There are 2 ways of violating B.P. Blg. 22:

(a) by making or drawing and issuing a check to apply on account or for value knowing at the
time of issue that the check is not sufficiently funded; and

(b) by having sufficient funds in or credit with the drawee bank at the time of issue but failing to
keep sufficient funds therein, or credit with, said bank to cover the full amount of the check when
presented to the drawee bank within a period of 90 days.

The elements of B.P. Blg. 22 under the 1st situation, pertinent to the present case, are:

(a) The making, drawing & issuance of any check to apply for account or for value;

(b) The knowledge of the maker, drawer, or issuer that at the time of issue he does not have
sufficient funds in or credit with the drawee bank for the payment of such check in full upon its
presentment; and

(c) The subsequent dishonor of the check by the drawee bank for insufficiency of funds or credit
or dishonor for the same reason had not the drawer, without any valid cause, ordered the bank to
stop payment.

As to the 1st element, the RTC & CA have both ruled that the checks were in payment for
unremitted collections, and not as guarantee. What B.P. Blg. 22 punishes is the issuance of a
bouncing check, and not the purpose for which it was issued nor the terms and conditions
relating to its issuance.

As to the 2nd element, B.P. Blg. 22 creates a presumption juris tantum that the 2nd element
prima facie exists when the 1st & 3rd elements of the offense are present. Thus, the makers
knowledge is presumed from the dishonor of the check for insufficiency of funds.

An essential element of the offense is knowledge on the part of the maker/drawer of the check
of the insufficiency of his funds in, or credit with, the bank to cover the check upon its
presentment. Since this involves a state of mind difficult to establish, the statute itself creates a
prima facie presumption of such knowledge where payment of the check is refused by the
drawee because of insufficient funds in, or credit with, such bank when presented within 90 days
from the date of the check. The statute provides that such presumption shall not arise if within 5
banking days from receipt of the notice of dishonor, the maker/drawer makes arrangements for
payment of the check by the bank or pays the holder the amount of the check.

Nowhere in the said provision does the law require a maker to maintain funds in his bank
account for only 90 days. Rather, the clear import of the law is to establish a prima facie
presumption of knowledge of such insufficiency of funds under the following conditions: (1)
presentment within 90 days from date of the check, and (2) the dishonor of the check & failure of
the maker to make arrangements for payment in full within 5 banking days after notice thereof.
That the check must be deposited within 90 days is simply one of the conditions for the prima
facie presumption of knowledge of lack of funds to arise. It is not an element of the offense.
Neither does it discharge petitioner from his duty to maintain sufficient funds in the account
within a reasonable time thereof. Under Sec. 186 of the Negotiable Instruments Law, a check
must be presented for payment within a reasonable time after its issue or the drawer will be
discharged from liability thereon to the extent of the loss caused by the delay. By current
banking practice, a check becomes stale after more than 6 months (180 days).

Private respondent herein deposited the checks 157 days after the date of the check. Hence said
checks cannot be considered stale. Only the presumption of knowledge of insufficiency of funds
was lost, but such knowledge could still be proven by direct or circumstantial evidence. As found
by the RTC, private respondent did not deposit the checks because of the reassurance of
petitioner that he would issue new checks. Upon his failure to do so, LPI was constrained to
deposit the said checks. After the checks were dishonored, petitioner was duly notified of such
fact but failed to make arrangements for full payment within 5 banking days thereof. There is, on
record, sufficient evidence that petitioner had knowledge of the insufficiency of his funds in or
credit with the drawee bank at the time of issuance of the checks. And despite petitioners
insistent plea of innocence, the respondent court is not in error for affirming his conviction by the
trial court for violations of the Bouncing Checks Law.

3. Pursuant to the policy guidelines in Administrative Circular No. 12-2000, which took effect on
November 21, 2000, the penalty imposed on petitioner should now be modified to a fine of not
less than but not more than double the amount of the checks that were dishonored. The penalty
imposed on him is modified so that the sentence of imprisonment is deleted.

Luis Wong vs Court of Appeals

March 15, 2012
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351 SCRA 100 Mercantile Law Negotiable Instruments Law Batas Pambansa 22
Knowledge of Insufficiency
Luis Wong is a collector of Limtong Press, Inc., a company which prints calendars. Wong was
assigned to collect check payments from LPI clients. One time, six of LPIs clients were not able
to give the check payments to Wong. Wong then made arrangements with LPI so that for the
meantime, Wong can use his personal checks to guarantee the calendar orders of the LPIs
clients. LPI however has a policy of not accepting personal checks of its agents. LPI instead
proposed that the personal checks should be used to cover Wongs debt with LPI which arose
from unremitted checks by Wong in the past. Wong agreed. So he issued 6 checks dated
December 30, 1985.
Before the maturity of the checks, Wong persuaded LPI not to deposit the checks because he said
hell be replacing them within 30 days. LPI complied however Wong reneged on the payment.
On June 5, 1986 or 157 days from date of issue, LPI presented the check to RCBC but the checks
were dishonored (account closed). On June 20, 1986, LPI sent Wong a notice of dishonor. Wong
failed to make good the amount of the checks within five banking days from his receipt of the
notice. LPI then sued Wong for violations of Batas Pambansa Blg. 22.
Among others, Wong argued that hes not guilty of the crime of charged because one of the
elements of the crime is missing, that is, prima facie presumption of knowledge of lack of
funds against the drawer. According to Wong, this element is lost by reason of the belated
deposit of the checks by LPI which was 157 days after the checks were issued; that he is not
expected to keep his bank account active beyond the 90-day period 90 days being the period
required for the prima facie presumption of knowledge of lack of fund to arise.
ISSUE: Whether or not Wong is guilty of the crime charged.
HELD: Yes. Wong is guilty of violating BP 22. The elements of violation of BP 22 pertinent to
this case are:
1. The making, drawing and issuance of any check to apply for account or for value;
2. The knowledge of the maker, drawer, or issuer that at the time of issue he does not have
sufficient funds in or credit with the drawee bank for the payment of such check in full upon its
presentment; and
3. The subsequent dishonor of the check by the drawee bank for insufficiency of funds or credit
or dishonor for the same reason had not the drawer, without any valid cause, ordered the bank to
stop payment.
Under the second element, the presumption of knowledge of the insufficiency arises if the check
is presented within 90 days from the date of issue of the check. This presumption is lost, as in the
case at bar, by failure of LPI to present it within 90 days. But this does not mean that the second
element was not attendant with respect to Wong. The presumption is lost but lack of knowledge
can still be proven, LPI did not deposit the checks because of the reassurance of Wong that he
would issue new checks. Upon his failure to do so, LPI was constrained to deposit the said
checks. After the checks were dishonored, Wong was duly notified of such fact but failed to
make arrangements for full payment within five (5) banking days thereof. There is, on record,
sufficient evidence that Wong had knowledge of the insufficiency of his funds in or credit with
the drawee bank at the time of issuance of the checks.
The Supreme Court also noted that under Section 186 of the Negotiable Instruments Law, a
check must be presented for payment within a reasonable time after its issue or the drawer will
be discharged from liability thereon to the extent of the loss caused by the delay. By current
banking practice, a check becomes stale after more than six (6) months, or 180 days. LPI
deposited the checks 157 days after the date of the check. Hence said checks cannot be
considered stale.

State Investment House Inc. vs. CA

State Investment House Inc. vs. CA

GR No. 101163 January 11, 1993

Bellosillo, J.:

Facts:

Nora Moulic issued to Corazon Victoriano, as security for pieces of jewellery to be sold
on commission, two postdated checks in the amount of fifty thousand each. Thereafter,
Victoriano negotiated the checks to State Investment House, Inc. When Moulic failed to sell the
jewellry, she returned it to Victoriano before the maturity of the checks. However, the checks
cannot be retrieved as they have been negotiated. Before the maturity date Moulic withdrew her
funds from the bank contesting that she incurred no obligation on the checks because the
jewellery was never sold and the checks are negotiated without her knowledge and consent.
Upon presentment of for payment, the checks were dishonoured for insufficiency of funds.

Issues:
1. Whether or not State Investment House inc. was a holder of the check in due course

2. Whether or not Moulic can set up against the petitioner the defense that there was failure or
absence of consideration

Held:

Yes, Section 52 of the NIL provides what constitutes a holder in due course. The evidence shows
that: on the faces of the post dated checks were complete and regular; that State Investment
House Inc. bought the checks from Victoriano before the due dates; that it was taken in good
faith and for value; and there was no knowledge with regard that the checks were issued as
security and not for value. A prima facie presumption exists that a holder of a negotiable
instrument is a holder in due course. Moulic failed to prove the contrary.

No, Moulic can only invoke this defense against the petitioner if it was a privy to the purpose for
which they were issued and therefore is not a holder in due course.

No, Section 119 of NIL provides how an instruments be discharged. Moulic can only invoke
paragraphs c and d as possible grounds for the discharge of the instruments. Since Moulic failed
to get back the possession of the checks as provided by paragraph c, intentional cancellation of
instrument is impossible. As provided by paragraph d, the acts which will discharge a simple
contract of payment of money will discharge the instrument. Correlating Article 1231 of the Civil
Code which enumerates the modes of extinguishing obligation, none of those modes outlined
therein is applicable in the instant case.Thus, Moulic may not unilaterally discharge herself from
her liability by mere expediency of withdrawing her funds from the drawee bank. She is thus
liable as she has no legal basis to excuse herself from liability on her check to a holder in due
course. Moreover, the fact that the petitioner failed to give notice of dishonor is of no moment.
The need for such notice is not absolute; there are exceptions provided by Sec 114 of NIL.