Set 3

1. Republic Bank vs. Court of Appeals

FACTS: San Miguel Corporation (SMC) drew a check amounting to P240.00 on its account in First National
City Bank (FNCB) in favor of Delgado, a stockholder. Delgado fraudulently altered the amount of the check
to P9,240 after which he endorsed and deposited it with Republic Bank. Republic Bank endorsed the
check to First National City Bank (FNCB), the drawee bank, by stamping on the back of the check “all prior
and / or lack of indorsement guaranteed". Based on such endorsement, FNCB paid the amount to
Republic Bank. Later on, San Miguel informed FNCB of the material alteration of the amount. FNCB
recredited the amount to San Miguel’s account, and demanded refund from Republic Bank. Republic Bank
refused, claiming there was delay in giving it notice of the alteration.

ISSUE: Whether petitioner Republic Bank as the collecting bank should bear the loss resulting from the
altered check.

RULING: When an indorsement is forged, the collecting bank or last indorser, as a general rule, bears the
loss. But the unqualified indorsement of the collecting bank on the check should be read together with
the 24-hour regulation on clearing house operation. Hence, when a drawee bank fails to return a forged
or altered check to the collecting bank within the 24-hour clearing period, the collecting bank is absolved
from liability.
 2. Philippine Commercial International Bank vs. Court of Appeals

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 wasn’t 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NBI report, one of the checks issued by petitioner was withdrawn from PCIB for alleged mistake in the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 manager’s 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. 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 perpetrating the fraud and imposing the forged paper upon the bank, doesn’t entitle
the bank to shift the loss to the drawer-payor, in the absence of some circumstance raising estoppel
against the drawer.
 3. Ramon Ilusorio vs. Court of Appeals

FACTS: Petitioner was a prominent businessman who, because of different business commitments,
entrusted to his then secretary the handling of his credit cards and checkbooks. For a material
period of time, the secretary was able to encash and deposit in her personal account money from
the account of petitioner. Upon knowledge of her acts, she was fired immediately and criminal
actions were filed against her. Thereafter, petitioner requested the bank to restore its money but the
bank refused to do so.

Issue: Whether or not the bank is liable for the forged checks.

HELD: The petitioner doesn’t have a course of action against the bank. To be entitled to damages,
petitioner has the burden of proving negligence on the part of the bank for failure to detect the
discrepancy in the signatures on the checks. It is incumbent upon petitioner to establish the fact of
forgery. It was petitioner who was negligent in this case. He failed to examine his bank statements and
this was the proximate cause of his own damage. Because of this negligence, he is precluded from
setting up the defense of forgery with regard the checks.
 4. Samsung Construction Company Phils., Inc vs FEBTC

Facts: Petitioner maintains a current account with the respondent bank and authorized Jong to sign checks
in behalf of the company. The checks are in the custody of an accountant Kyu. On one occasion, a certain
Gonzaga presented a check to FEBTC purportedly drawn by the Company in the amount of P999,500. The
check was payable to cash and appeared to be signed by Jong. FEBTC upon ascertaining that there are
sufficient fund to cover the check and finding the signature of Jong appears to be genuine paid Gonzaga.
Later, the forgery was discovered. Samsung demanded that the amount paid to Gonzaga be credited back
to its account because they have not authorized the encashment of the check. On the other hand, the
respondent bank claimed negligence on the part of the petitioner in protecting its check.

Issue: Whether or not FEBTC should bear the loss.

Held: The SC held that the FEBTC should bear the loss. Under Sec. 62 of NIL, among the warranties to be
assumed by the acceptor is it admits the existence of the drawer, the genuineness of his signature, and
his capacity and authority to draw the instrument. It is incumbent upon the drawee bank to ascertain the
genuineness of the signature of its depositor. The respondent bank in this case did not exercise the degree
of diligence required to enable it to detect the forgery.
 5. Philippine National Bank vs. Court of Appeals

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.

Issue: Whether or not PBCOM should bear the loss for the check materially altered.

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
issue—which is not an essential element of a negotiable instrument under Section 1. Therefore, there
being no material alteration in the check committed, PNB could not return the check to PBCOM. It should
pay the same.
 6. Montinola vs. Philippine National Bank

Facts: Ramos, a disbursing officer of USAFE made cash advancements with the provincial Treasurer of
Lanao. The latter gave him a P500,000 check. Thereafter, Ramos presented the check to laya for
encashment. Laya in his capacity as Provincial Treasurer issued a check to Ramos in the sum of P100,000.
Ramos was assigned only P30000 of the value of the document to Montinola and to deposit the balance
to Ramos’s credit. This writing however, mysteriously obliterated and in its place, a supposed indorsement
appearing on the back of the check was made for the whole amount of the check “Agent, Phil. National
Bank” under the signature of Laya purportedly showing that Laya issued the check as agent of the PNB.

Issue: Whether the words, “Agent, Phil. National Bank” were added after Laya had issued the check and
thus constitutes a material alteration which discharges the instrument.

Held: The insertion of the words “Agent, Phil. National Bank,” which converts the bank from a mere
drawer and therefore changes its liability, constitutes a material alteration of the instrument without the
consent of the parties liable thereon, and so discharges the instrument.
 7. Sadaya vs. Sevilla

FACTS: Sadaya, Sevilla and Varona signed solidarily a promissory note in favor of the bank. Varona was
the only one who received the proceeds of the note. Sadaya and Sevilla both signed as co-makers to
accommodate Varona. Thereafter, the bank collected from Sadaya. Varona failed to reimburse.

Consequently, Sevilla died and intestate estate proceedings were established. Sadaya filed a
creditor’s claim on his estate for the payment he made on the note. The administrator resisted the claim
on the ground that Sevilla didn't receive any proceeds of the loan.

Issue: Whether or not Sadaya had the right to demand payment.

HELD: A solidary accommodation maker—who made payment—has the right to contribution, from his
co-accomodation maker, in the absence of agreement to the contrary between them, subject to
conditions imposed by law. This right springs from an implied promise to share equally the burdens
thay may ensue from their having consented to stamp their signatures on the promissory note.
 8. Crisologo-Jose v. CA

Facts: The VP of Mover Enterprises, Inc. issued a check drawn against Traders Royal Bank, payable to
petitioner Ernestina Crisologo-Jose, for the accommodation of his client. Petitioner payee was charged
with the knowledge that the check was issued for the personal account of teh President who merely
prevailed upon the VP to act as co-signatory in accordance with the arrangement of the corporation with
its depository bank.

Issue: Whether or not private respondent, is an accommodation party under NIL and is liable for the
amount of said check.

Held: Yes. To be considered an accommodation party, a person must (1) be a party to the instrument, (2)
not receive value therefor, (3) sign for the purpose of lending his name for the credit of some other person.
It is not a valid defense that the accommodation party did not receive any valuable consideration when
he executed the instrument. He is liable to a holder for value as if the contract was not for
accommodation, in whatever capacity such accommodation party signed the instrument, whether
primarily or secondarily.
 9. Stelco Marketing vs. Court of Appeals

FACTS: Petitioner was engaged in the distribution and sale of structural steel bars. RYL bought on several
occasion large quantities of steel bars but the same were never paid for despite several demands by
petitioner. On a relevant date, RYL gave to Armstrong Industries a check in payment of its obligations.
That check was a company check of another corporation, Steelweld Corporation of the Philippines, signed
by its President, Peter Rafael Limson, and VP. The check was issued by Limson at the behest of his friend,
Romeo Y. Lim, President of RYL. Romeo Lim had asked Limson, for financial assistance, and the latter had
agreed to give Lim a check only by way of accommodation, "only as guaranty but not to pay for anything.
Stelco filed a complaint against RYL and Steelweld for the recovery of sum of money in payment of
the steel bars ordered on the ground that the said check has been given for payment of steel bars.

Issue: Whether or not petitioner as a holder for value may recover from the accommodation party.

HELD: No. An accommodation party is liable to a holder for value. However, Stelco cannot be considered
as a holder for value for there is no evidence whatsoever that the check was ever given to it, or indorsed
to it in any manner or form in payment of an obligation or as security for an obligation, or for any other
purpose before it was presented for payment. STELCO never became a holder for value and that nowhere
in the check itself does the name of Stelco Marketing appear as payee, indorsee or depositor thereof.
 10. Travel-On vs. Court of Appeals

Facts: Travel-On filed suit to collect on 6 checks issued by private respondent with a total face amount of
P115 ,000 as payment of various airline tickets sold to respondent. Private respondent claimed that he
had already fully paid the obligations. He argued that he had issued postdated checks for purposes of
accommodation, as he had in past accorded similar favors to petitioner.

Issue: Whether or not said checks were for accommodation and that private respondent is still liable
considering that petitioner is a holder for value.

Held: Travel-on is not an accommodated party; it realize no value on the checks bounced. It presented
these checks for payment at the drawee bank but the checks bounced. Thus private responded must be
held liable on the six checks here involved. Those checks in themselves constituted evidence of
indebtedness of private respondent.
 11. BPI vs. Court of Appeals

Facts: Private respondent Benjamin Napiza deposited in his foreign current deposit with BPI a dollar check
owned by Henry Chan in which he affixed his signature at the dorsal side thereof. For this purpose, Napiza
gave Chan a signed blank withdrawal slip. However, Gayon Jr. got hold of the withdrawal slip and used it
to withdraw the proceeds of the dollar check, even before the check was cleared and without the
presentation of the bank passbook.

Issues: Whether or not petitioner can hold private respondent liable for the proceeds of the check for
having affixed his signature at the dorsal side as indorser.

Held: A person ‘who has signed the instrument as maker, drawer, acceptor, or indorser, without receiving
value therefor, and for the purpose of lending his name to some other person.’ As such, she is under the
law ‘liable on the instrument to a holder for value, notwithstanding such holder at the time of taking the
instrument knew * * (her) to be only an accommodation party,’ although she has the right, after paying
the holder, to obtain reimbursement from the party accommodated, ‘since the relation between them is
in effect that of principal and surety, the accommodation party being the surety."

It is thus clear that ordinarily private respondent may be held liable as an indorser of the check or even as
an accommodation party. However, to hold private respondent liable for the amount of the check he
deposited by the strict application of the law and without considering the attending circumstances in the
case would result in an injustice and in the erosion of the public trust in the banking system. The interest
of justice thus demands looking into the events that led to the encashment of the check.
 12. Agro Conglomerates, Inc. vs. Court of Appeals

FACTS: Petitioner sold to Wonderland Food Industries two parcels of land. They stipulated under a
Memorandum of Agreement that the terms of payment would be P1,000,000 in cash, P2,000,000 in
shares of stock, and the balance would be payable in monthly installments. Petitioner Soriano
signed as maker the promissory notes payable to the bank. However, the petitioners failed to pay
the obligations as they were due. During that time, the bank was in financial distress and this
prompted it to endorse the promissory notes for collection. The bank gave ample time to petitioners then
to satisfy their obligations.

Issue: Whether or not Agro Conglomerates is liable as accommodation parties.

HELD: Petitioners became liable as accommodation parties. They have the right after paying the
instrument to seek reimbursement from the party accommodated, since the relation between them
has in effect became one of principal and surety.

Furthermore, as it turned out, the contract of surety between Woodland and petitioner was
extinguished by the rescission of the contract of sale of the farmland. With the rescission, there was
confusion in the persons of the principal debtor and surety.
 13. De Ocampo vs. Gatchalian

Facts: Anita Gatchalian was interested in buying a car when she was offered by Manuel Gonzales to a car
owned by the Ocampo Clinic. Anita accepted the offer but Gonzales advised that the owners would only
comply only upon showing of interest on the part of the buyer. Relying on the latter’s representation,
Anita issued a check.

The next day, Gonzales never appeared. The failure of Gonzales to appeal resulted in Gatchalian to issue
a STOP PAYMENT ORDER on the check. It was later found out that Gonzales used the check as payment
to the Vicente de Ocampo for the hospitalization fees of his wife. De Ocampo now demands payment for
the check, which Gatchalian refused, arguing that de Ocampo is not a holder in due course and that there
is no negotiation of the check.

Issue: Whether or not De Ocampo is a holder in due course.

Held: No. De Ocampo is not a holder in due course. Under the circumstances of the case, instead of the
presumption that payee was a holder in good faith, the fact is that it acquired possession of the instrument
under circumstances that should have put it to inquiry as to the title of the holder who negotiated the
check to it. The holder did not show or tell the payee why he had the check in his possession and why he
was using it for the payment of his own personal account which shows that holder's title was defective or
suspicious.
 14. Mesina vs. IAC

FACTS: Jose Go purchased from Associate Bank a Cashier’s Check, which he left on top of the manager’s
desk when left the bank. The bank manager then had it kept for safekeeping by one of its
employees. The employee was then in conference with one Alexander Lim. He left the check in his desk
and upon his return, Lim and the check were gone. When Go inquired about his check, the same
couldn't be found and Go was advised to request for the stoppage of payment which he did. He executed
also an affidavit of loss as well as reported it to the police. Thereafter, petitioner demanded payment on
the said check which she acquired as payment from Alexander Lim in certain transaction.

Issue: Whether or not petitioner is a holder in due course and can demand payment.

HELD: No, petitioner is not a holder in due course. Admittedly, petitioner became the holder of the
cashier's check as endorsed by Alexander Lim who stole the check. He refused to say how and why it was
passed to him. He had therefore notice of the defect of his title over the check from the start. The holder
of a cashier's check who is not a holder in due course cannot enforce such check against the issuing bank
which dishonors the same.
 15. Metropol vs. Sambok

Facts: Dr. Javier executed a promissory note in favor of Ng Sambok Sons Motors Co., Ltd. On the same
date, Sambok Motors, a sister company negotiated and indorsed the note in favour of Metropol Financing
& Investment Corporation adding the word “with recourse”. When Dr. Villaruel failed to pay the
promissory note after the demand of Metropol, the latter notified Sambok of the dishonor and demand
payment. Sambok contended that it could not be obliged to pay until after its co-defendant Dr. Villaruel
has been declared insolvent.

Issue: Whether or not Sambok Motors Company, by adding the words “with recourse” becomes a
qualified indorser and therefor does not warrant that if said not is dishonored, it will pay the amount to
the holder.

Held: Recourse means resort to a person who is secondarily liable after the default of the person who is
primarily liable. Appellant, by indorsing the note “with recourse” does not make itself a qualified indorser
but a general indorser who is secondarily liable, because by such indorsement, it agreed that if Dr. Villaruel
fails to pay the note, plaintiff-appellee can go after said appellant. The effect of such indorsement is that
the note was indorsed without qualification.