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Negotiable Instruments - Atty.

Ampil
AY 2017 - 2018 - Term 1
Garcia, Pernes, Tagacay, Villasanta

01. MORAN v CA ​[G.R. No. 105836 March 7, 1994] ISSUE: ​WON the Citytrust (Bank) should be held liable upon the dishonor of the
REGALADO, ​J: checks due to insufficiency of funds?

FACTS: HELD: ​NO. It is clear from the foregoing that the available balance for the savings
- Petitioner Spouses George & Librada Moran are the owners of the Wack-Wack account on December 14, 1983 was only for PHP26,104.30, an amount obviously
Petron Gasoline Station located at Shaw Blvd. They maintain three joint accounts (1 insufficient to cover the two issued checks. It was only on December 15, 1983 at
current account & 2 savings account) with ​Citytrust Banking Corporation. around ten o'clock in the morning that the necessary funds were deposited, which
- As Petitioner Spouses were valued clients of Citytrust, a special privilege was unfortunately was too late to prevent the dishonor of the checks. Petitioner had no
given to them by allowing them to maintain a zero balance in their ​current account. reason to complain, for they alone were at fault. A drawer must remember his
- A ​Pre-authorized transfer (PAT) ​was arranged between the Spouses and responsibilities every time he issues a check. He must personally keep track of his
Citytrust wherein it was agreed upon that Citytrust should automatically transfer the available balance in the bank and not rely on the bank to notify him of the necessity to
funds from their ​Savings Account ​to their ​Current Account ​at any time whenever the fund certain checks he previously issued. A check, as distinguished from an ordinary
funds in their current account were insufficient to meet withdrawals from said current bill of exchange, is supposed to be drawn against a previous deposit of funds for it is
account. ordinarily intended for immediate payment. Moreover, between the time of the
- They regularly purchased bulk fuel and other related products from Petrophil issuance of said checks on December 12 and 13 and the time of their presentment on
Corporation on cash on delivery (COD) basis. Orders for bulk fuel and other related December 14, petitioners had, at the very least, twenty- four hours to replenish their
products were made by telephone & payments were effected by personal checks balance in the bank. Therefore, ​the bank had all the right to dishonor the checks
upon delivery. because there were no sufficient funds to speak of in the first place. If the
- On Dec 12, 1983, petitioners drew a check for ​PHP50,576 ​payable to Petrophil demand is by check, a drawer must have to his credit enough to cover the
Corporation and the next day another check in the amount of ​PHP56,090 ​also in favor demand. If his credit with the bank is less than the amount on the face of the
of Petrophil Corp. The total sum is ​PHP106,660.00​. check, the bank must lawfully refuse payment.
- On Dec 14, 1983 Petrophil then deposited the checks to its account in PNB
(Pandacan Branch), the collecting bank. NOTES:
- PNB then presented them for clearing with the Philippine Clearing House
Corporation on the same day and it was discovered that that the ​Current Account ​had - A check is a bill of exchange drawn on a bank payable on demand. Thus, a
zero balance while the ​Savings Account ​covered by the ​PAT ​had an available check is a written order addressed to a bank or persons carrying on the business of
balance of ​PHP26,104.30 & PHP 43,236.89. ​Since the amounts were insufficient to banking, by a party having money in their hands, requesting them to pay on
cover the checks, they were ​dishonored. presentment, to a person named therein or to bearer or order, a named sum of
- The following day (Dec 15, 1983), Petitioner George Moran went to the bank money.
and deposited to their Savings Account the total amount of ​PHP35,100.00. ​He also - By virtue of the contract of deposit between the banker and its depositor, the
transferred the amount of ​PHP40,000.00 & PHP 66,666.00 ​from their savings account banker agrees to pay checks drawn by the depositor provided that said depositor has
to their current account. money in the hands of the bank.
- Soon thereafter, George was informed by his wife that Petrophil refused to
deliver their orders on a credit basis because of the two dishonored checks which - Hence, where the bank possesses funds of a depositor, it is bound to honor his
caused the petitioners to temporarily stop business operations that resulted to loss of checks to the extent of the amount of his deposits. The failure of a bank to pay the
earnings. Petrophil also cancelled their credit accommodation. check of a merchant or a trader, when the deposit is sufficient, entitles the drawer to
- George was then informed by the Bank that the dishonor of the checks were substantial damages without any proof of actual damages.
committed due to operational error.
- As a way of curing the injury, Diaz (the branch manager) went to the Moran - Conversely, a bank is not liable for its refusal to pay a check on account of
residence to get their signatures on an application for a manager’s check so that the insufficient funds, notwithstanding the fact that a deposit may be made later in the
dishonored checks could be redeemed. Diaz then went to Petrophil to personally day. Before a bank depositor may maintain a suit to recover a specific amount from
present the checks in payment for the two dishonored checks. his bank, he must first show that he had on deposit sufficient funds to meet his
- 6 months later, Petitioners were asking for damages in the amount of demand.
PHP1,000,000.00 from the said bank for the dishonor of the checks caused them
besmirches business and personal reputation, shame and anxiety. Bank did not act
on their demands. FALLO: ​WHEREFORE, finding no reversible error in the judgment appealed from, the
- RTC dismissed the complaint. CA affirmed RTC’s dismissal. same is hereby AFFIRMED, with costs against petitioners.
- Hence this complaint.
Negotiable Instruments - Atty. Ampil
AY 2017 - 2018 - Term 1
Garcia, Pernes, Tagacay, Villasanta

02. PNB v. CFI JUDGE QUIMPO and FRANCISCO S. GOZON II Changco who erased the payees name on the instrument and replaced his own
Facts: name therein as payee.
1. Gozon, went to PNB, accompanied by his friend Ernesto Santos, whom he left in · Changco opened an account with the People’s bank and deposited the check to
the car while he transacted business in the bank. PB.
● When Santos saw that Gozon left his checkbook, he took a check, filled it up for o PB stamped on the check “all prior indorsements guaranteed”.
P5,000, forged the signature of Gozon, and encashed the check in PNB the same · The checks were cleared by HSBC, and the amount was deposited to Chanco’s
day. account. Upon discovery of the forgery, HSBC demanded from the collecting
● Gozon asked that the said amount of P5,000 should be returned to his account bank PB for reimbursement.
as his signature on the check was forged but the bank refused. o PB didn’t comply
2. Ernesto Santos was apprehended and found guilty. · HSBC filed an action for reimbursement, arguing that the checks were altered
● Hence, Gozon filed the complaint for recovery of the amount of P5,000 against and that the respondent is liable on account of its stamp “all prior indorsements
PNB. guaranteed”.
o Complaint was dismissed
Issue: Is it Gozon’s action that was the proximate cause of the loss, thereby § Reason: 24-hr clearing period. It took 27 days before
precluding him from setting up forgery? - NO. HSBC notified PB.

Held: PETITION DISMISSED. Issue: WON HSBC can recover from PB


1. 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 Held: No , HSBC can’t recover. The 24 hour regulation of Central Bank requires that
ordinarily change the amount so paid to the account of the depositor whose name all cleared items must be returned not later than 3PM of the following business day.
was forged. Since it allowed 27 day to elapse, its failure to notify PB as to such alteration negates
● If the paper comes to the drawee in the regular course of business, and he, whatever right it may have had against the respondent.
having the opportunity of ascertaining its character, pronounces it to be valid and
pays it, it is not only a question of payment under mistake, but payment in neglect of 24-hour rule is not only applicable to forged checks but also to altered checks.
duty which the commercial law places upon him, and the result of his negligence must
rest upon him. All items cleared at 11am shall be returned not later than 2pm on the same day and
● PNB, however, interposed the defense that it exercised diligence in accordance all items cleared at 3pm shall be returned not later than 8:30am of the following
with the accepted norms of banking practice when it accepted and paid the check. business day, except for items cleared on Saturday which may be returned not later
2. A comparison of the signature on the forged check with Gozon’s exemplar than 8:30am of the following day
signatures with PNB would immediately show the negligence of its employees.
● The sample signatures of Gozon show marked differences with graceful lines 04. Metropolitan Bank v. First National City Bank, G.R. No. L-55079
which is completely different from those of the signature on the forged check. November 19, 1982
● The prime duty of a bank is to ascertain the genuineness of the signature of the Facts:
drawer or the depositor on the check being encashed. · August 25 - A check for P50,000 payable to CASH was drawn by Joaquin
● PNB was negligent in encashing said forged check without carefully examining Cunanan & Company on respondent First National City Bank (FNCB) deposited with
the signature which shows marked variation from the genuine signature of Gozon. petitioner Metropolitan Bank and Trust Company (Metro Bank) by a certain Salvador
3. The act of Gozon in leaving his checkbook in the car while he went out for a short Sales. (Drawee bank: FNCB, Drawer: Joaquin Cunanan & Company through
while can not be considered negligence sufficient to excuse PNB from its own Salvador Sales, Collecting Bank: Metro Bank)
negligence. · Metro Bank immediately sent the cash check to the Clearing House of the
● Ernesto was a long time classmate and friend remained in the same. Central Bank. Check cleared on same day. Respondent paid petitioner Metro Bank
● Gozon could not have been expected to know that Ernesto would remove a through clearing the amount of P50,000.00, and Sales was credited with the said
check from his checkbook because had trust in his classmate and friend. He had no amount in his deposit with Metro Bank. August 26 – Sales made first withdrawal
reason to suspect that the latter would breach that trust. (P480). August 28 – Sales made second withdrawal (P32,100). August 31 – Sales
withdrew (P17, 920) and closed account with Metro Bank.
· Sept 3 - 9 days later FNCB cancelled check of drawer Joaquin Cunanan &
03. HSBC v People’s Bank Company with monthly statement of company’s account with FNCB. Said company
· PLDT drew a check on HSBC with the latter being the payee as well. The check states that check has been altered. Actual amount of check was P50 but it was
was sent by mail to the payee. However, the check fell into the hands of altered to P50,000 and over the name of payee Manila Polo Club was superimposed
the word CASH.
Negotiable Instruments - Atty. Ampil
AY 2017 - 2018 - Term 1
Garcia, Pernes, Tagacay, Villasanta

· Respondent FNCB notified petitioner Metro Bank of alteration by phone and - On April 19,1966, SMC notified FNBC of the material alteration in the amount of
on Sept. 10, wrote a letter asking for reimbursement of the check. Petitioner refused. the check.
Thus, respondent went to court. - On May 19,1966, FNBC informed Republic in writing of the alteration and the
· CFI of Manila rendered decision ordering petitioner Metro Bank to pay forgery of the endorsement of Delgado, by then Delgado had already withdrawn his
respondent FNCB. CA affirmed. Hence, this petition. account from Republic.
- FNCB then demanded that Republic refund the amount on the basis of the
Issue:​ Which bank is liable for payment of an altered check – Drawee Bank pursuant latter’s endorsement and guaranty.
to 24 hour regulation - Republic refused, claiming there was delay in giving it notice of the alteration
and that it was not guilty of negligence. That it was the drawer’s (SMC’s) fault in
Held: drawing the check in such a way as to permit the insertion of numerals increasing the
The facts of this case fall within Section 4 of Central Bank Circular No. 9 (February amount.
17, 1949) as amended by Circular No. 138 (January 30, 1962), and Circular No. 169 - RTC rendered judgment ordering Republic to pay PHP9,240 with 6% legal
(March 30, 1964)*. interest per annum to FNCB the amount drawn on the check.
- CA affirmed the decision.
Under the procedure prescribed, the drawee bank (FNCB) receiving the check
for clearing from the Central Bank Clearing House must return the check to the ISSUE: ​WON Republic as collecting bank is protected by the 24 hour clearing house
collecting bank (Metro Bank) within the 24-hour period if the check is defective rule from liability to refund the amount paid by FNBC, as drawee of the SMC dividend
for any reason. Metro Bank invoked this regulation as a defense. check?

In this case, the check was not returned to Metro Bank in accordance with the HELD: ​YES. Republic Bank is protected by the 24 hour clearing house rule.
24-hour clearing house period, but was cleared by FNCB. Since both banks are part
of our banking system, they are bound by the Circular. Failure of FNCB, therefore, to The 24-hour clearing house rule embodied in Section 4(c) of Central Bank Circular
call the attention of Metro Bank to the alteration of the check in question until after the No. 9, as amended, provides:
lapse of nine days, negates whatever right it might have had against Metro Bank in "Items which should be returned for any reason whatsoever shall be
the light of the said Central Bank Circular. Its remedy lies not against Metro Bank, but returned directly to the bank, institution or entity from which the item was
against the party responsible for the changing the name of the payee and the amount received. For this purpose, the Receipt for Returned Checks (Cash Form
on the face of the check. No. 9) should be used. The original and duplicate copies of said Receipt
shall be given to the Bank, institution or entity which returned the items and
the triplicate copy should be retained by the bank, institution or entity
05. REPUBLIC BANK VS CA, ​[G.R. No. 42725 April 22, 1991] whose demand is being returned. At the following clearing, the original of
GRIÑO-AQUINO, ​J: the Receipt for Returned Checks shall be presented through the Clearing
Office as a demand against the bank, institution or entity whose item has
FACTS: been returned. Nothing in this section shall prevent the returned items from
- San Miguel Corporation (SMC) drew a dividend check for PHP240.00, Philippine being settled by direct reimbursement to the bank, institution or entity
Currency, on its account in the respondent ​First National City Bank ​(FNCB) in favor of returning the items. All items cleared at 11:00 o'clock A.M. shall be
J. Roberto C. Delgado​, a stockholder. returned not later than 2:00 o'clock P.M. on the same day and all items
- After the delivery of the check to Delgado, the amount on its face was cleared at 3:00 o'clock P.M. shall be returned not later than 8:30 A.M. of
fraudulently & without authority of the drawer SMC was altered by increasing it from the following business day except for items cleared on Saturday which may
PHP240 to PHP9,240. be returned not later than 8:30 A.M. of the following day."
- The check was indorsed and deposited on March 14, 1966 by Delgado in his
account with Republic Bank (Republic). The 24-hour clearing house rule is a valid rule applicable to commercial banks. It is
- Republic accepted the check for deposit without ascertaining its genuineness true that when an endorsement is forged, the collecting bank or last endorser, as a
and regularity. general rule, bears the loss (Banco de Oro Savings & Mortgage Bank vs. Equitable
- Republic then endorsed the check to FNCB by stamping on the back of the Banking Corp., 167 SCRA 188​). But the unqualified endorsement of the collecting
check “all prior and/or lack of indorsement guaranteed” and presented it to FNCB for bank on the check should be read together with the 24-hour regulation on clearing
payment through Central Bank Clearing House. house operation (Metropolitan Bank & Trust Co. vs. First National City Bank, supra).
- Relying on the guaranty & endorsement of Republic appearing on the back of Thus, ​when the drawee bank fails to return a forged or altered check to the
the check, FNCB paid PHP9,240.00 to Republic through the Central Bank Clearing collecting bank within the 24-hour clearing period, the collecting bank is
House on March 15, 1966.
Negotiable Instruments - Atty. Ampil
AY 2017 - 2018 - Term 1
Garcia, Pernes, Tagacay, Villasanta

absolved from liability. The following decisions of this Court are also relevant and ● Eustaquio 'made certain' that the caller was the real Eligia by 'verifying' that the
persuasive: details the caller gave about the placement tallied with BPI’s details of her. But
nobody in BPI, called up Eligia at her Philamlife office to verify the request for
In ​Metropolitan Bank & Trust Co vs First National City Bank: pretermination.
"The validity of the 24-hour clearing house regulation has been ● The caller still insisted on the pretermination despite knowing that it will yield
upheld by this Court in Republic vs. Equitable Banking less, and asked that 2 checks be issued for the proceeds, one for P1.8M and the
Corporation, 10 SCRA 8 (1964). As held therein, since both second for the balance, and that the checks be delivered to her office at Philamlife.
parties are part of our banking system, and both are subject to ● The checks went to the dispatcher for delivery.
the regulations of the Central Bank, they are bound by the 3. Later in the same morning, the caller changed the delivery instructions; she would
24-hour clearing house rule of the Central Bank. herself pick up the checks or send her niece, Rosemarie Fernando, to pick them up.
"In this case, the check was not returned to Metro Bank in ● Eustaquio was assured that the niece would pick it up so he hurriedly went to
accordance with the 24- hour clearing house period, but was the dispatcher, Bernardo Laderas, to tell him of the new delivery instructions;
cleared by FNCB. Failure of FNCB, therefore, to call the ● in fact, he changed the delivery instruction on the purchase order slip, writing
attention of Metro Bank to the alteration of the check in thereon 'Rosemarie Fernando release only with authority to pick up.'
question until after the lapse of nine days, negates whatever ● The delivery reciept showed Rosemarie got the two checks from the dispatcher.
right it might have had against Metro Bank in the light of the 4. But as it turned out, the same impersonated both Eligia and Rosemarie.
said Central Bank Circular. Its remedy lies not against Metro ● The dispatcher also failed to get the PN evidencing the placement.
Bank, but against the party responsible for changing the name 5. In the afternoon of October 13, 1981, a woman who represented herself to be
of the payee (Hongkong & Shanghai Banking Corp. vs. Eligia applied at CBC's Head Office for the opening of a current account, which was
People's Bank & Trust Co., 35 SCRA 140) and the amount on opened.
the face of the check." 6. On October 14, 1981, the woman holding herself out as Eligia deposited the 2
checks in the Current Account. Her endorsement on the two checks was found to
Every bank that issues checks for the use of its customers should know whether or conform with the depositor's specimen signature. CBC's guaranty of prior
not the drawer's signature thereon is genuine, whether there are sufficient funds in endorsements and/or lack of endorsement was then stamped on the 2 checks. CBC
the drawer's account to cover checks issued, and it should be able to detect sent to it to clearing and BPI cleared on the same day.
alterations, erasures, superimpositions or intercalations thereon, for these 7. On October 16, 1981, withdrawals began on the Current Account through 5
instruments are prepared, printed and issued by itself, it has control of the drawer's checks. The last withdrawal left the Current Account with a balance of only P571.61.
account, and it is supposed to be familiar with the drawer's signature. 8. On November 11, 1981, the real Eligia went to BPI for the roll-over of her
placement. She disclaimed having preterminated her placement by executing an
FALLO: ​WHEREFORE, the petition for review is granted. The decision of the Court of affidavit stating that while she was the payee of the 2 checks, she never received nor
Appeals is hereby reversed and set aside, and another is entered absolving the endorsed them and that her purported signature on the back of the checks was not
petitioner Republic Bank from liability to refund to the First National City Bank the sum hers but forged.
of P9,240, which the latter paid on the check in question. No costs. ● With her surrender of the original of PN evidencing the placement which
matured that day, BPI issued her a new PN to evidence a roll-over of the placement.
9. On November 12, 1981, BPI returned the 2 checks to CBC for the reason 'Payee's
06. BPI v. CA, CHINA BANKING CORP., and PHILIPPINE CLEARING HOUSE endorsement forged'. A ping-pong started when CBC, in turn, returned the checks for
CORPORATION reason 'Beyond Clearing Time', and the stoppage of this ping-pong, as we mentioned
at the outset, prompted the filing of this case.
Facts: 1. On October 9, 1981 (Fri), a phone call to BPI's Money Market Department
by a woman who identified herself as Eligia Fernando who had a money market Issues:
placement (evidenced by a PN with a maturity date of November 11, 1981 and a 1. When a bank (CBC) presents checks for clearing and payment, what is the extent
maturity value of P2,462,243.19). of the bank's warranty of the validity of all prior endorsements stamped at the back of
● The caller wanted to preterminate the placement, but Reginaldo Eustaquio, the checks?
Dealer Trainee in Dept., who received the call and was alone, told her 'trading time' 2. In the event that the payee's signature is forged, may the drawer/drawee bank
was over. (BPI) claim reimbursement from the collecting bank (CBC) which earlier paid the
● The PN that the caller wanted to preterminate was a roll-over of an earlier proceeds of the checks after the same checks were cleared by BPI through the
50-day money market placement that had matured on September 24, 1981. PCHC?
2. In the morning of October 12, 1981 (next Mon), the caller followed up with
Eustaquio, by phone again, on the pretermination of the placement. Held:
Negotiable Instruments - Atty. Ampil
AY 2017 - 2018 - Term 1
Garcia, Pernes, Tagacay, Villasanta

1. BPI first returned to CBC the 2 checks on the ground that "Payee's endorsement · The checks as thus endorsed were negotiated by Wilfredo Lagamon,
(was) forged." At that time the clearing regulation then in force under PCHC's accountant of Manila Lighter and relative of Luis Gaskell with Cao Pek
Clearing House Rules and Regulations. and Co., an electronic store, whose treasurer is Ko Lit. Most of the
● It allows a return of a check "bearing forged endorsement when such checks, with a total amount of P90,500.24, were deposited by Ko Lit in
endorsement is necessary for negotiation" even beyond the next regular clearing his account with China Banking Corp. Three checks with a total amount
although not beyond the prescriptive period "for the filing of a legal action by the of P1,115.05 were deposited in the account of Cao Pek & Co. while one
returning bank." check for P2,735.19 was deposited in the accounts of Lu Siu Po,
○ BPI's theory that the present clearing guarantee requirement imposed on the manager of Cao Pek & Co.
representing or collecting bank under the PCHC rules and regulations is independent · Proceeds were later withdrawn
of the Negotiable Instruments Law is not in order. · China Bank denied liability for the petitioner's loss which was due to its own
negligence. It alleged that petitioner is estopped from denying its collector's
2. In connection with Sec. 23, here, the payee's names in the 2 checks were forged. authority to receive the checks from the drawers/customers; that petitioner failed
Following the general rule, the checks are "wholly inoperative" and of no effect, which to give defendant Bank and the drawee Banks notice of the alleged forged or
is not applicable in this case. unauthorized indorsements within a reasonable time; and that its loss was
● BPI as drawee bank and CBC as representing or collecting bank were both occasioned by its own failure to observe the proper degree of diligence in the
negligent resulting in the encashment of the forged checks. supervision of its employees, particularly its collector, Augusta Perez
● The banks were negligent in the selection and supervision of their employees.
The issue as to whose negligence is graver is relevant. Now, whose negligence was Issue: WON China bank should bear the loss
the proximate cause of the payment of the forged checks by an impostor?
○ BPI's reliance on the doctrine of last clear chance is not well-taken as CBC had Held: No
no prior notice of the fraud perpetrated by BPI's employees on the pretermination of Since the petitioner was not a client of China Bank, it had no way of ascertaining the
Eligia's money market placement. Fernando is not a depositor of CBC. Hence, a authenticity of its indorsements on the checks which were deposited in the accounts
comparison of the signature of Eligia with that of the impostor, which CBC did, could of the third-party defendants.
not have resulted in the discovery of the fraud.
○ BPI's contention that CBC (doctrine of proximate cause) alone should bear the China Bank is not negligent because in accordance with banking practice, it caused
loss must fail. The gap of 1 day between the issuance and delivery of the checks the checks to pass through the clearing house before it allowed their proceeds to be
bearing the impostor's name as payee and the impostor's negotiating the said forged withdrawn by the depositors
checks by opening an account and depositing the same with CBC is not controlling. It
is not unnatural that after taking the risk of impersonating Eligia with the connivance
of BPI's employees, the impostor would complete her deception by encashing the 08 Tan vs. CA, G.R. No. 108555, December 20, 1994
forged checks. Thus, the proximate cause of the payment of the forged checks by an Facts:
impostor was due to the negligence of BPI. Petitioner Ramon Tan, a trader-businessman and community leader in Puerto
Princesa, had maintained since 1976 account with respondent Rizal Commercial
FINALLY: Banking Corporation (RCBC) Binondo branch.
● While it is true that BPI's negligence may have been the proximate cause of the
loss, CBC's negligence contributed equally to the success of the impostor in Before going to Manila, petitioner secured a cashier’s check to avoid carrying cash
encashing the proceeds of the forged checks. (Article 2179 mitigates loss of CBC). while enroute to Manila, he secured a Cashier's Check No. L 406000126 from the
● BPI is liable for 60% while CBC shall share 40% of the loss P2,413,215.16 and Philippine Commercial Industrial Bank (PCIB), Puerto Princesa branch, in the amount
the arbitration costs of P7,250. The PCHC is directed to effect the corresponding of Thirty Thousand (P30,000.00) Pesos, payable to his order. He deposited it to his
entries to the banks' clearing accounts. account in RCBC Binondo branch thereafter. RCBC erroneously sent the same
cashier's check for clearing to the Central Bank which was returned for having been
"missent" or "misrouted." RCBC then debited the amount covered by the same
07. Manila Lighter Transportation v CA cashier's check from the account of the petitioner.
Facts:
· 49 checks were issued by customers of the Manila Lighter in payment of Respondent bank at this time had not informed the petitioner of its action which the
brokerage services and were all delivered, without petitioner's knowledge, to its latter claims he learned of only 42 days after, when he received the bank's debit
collector, Augusto Perez. memo. Relying on the common knowledge that a cashier's check was as good as
o 26 – Payable to Manila Lighter or order cash, that the usual banking practice that local checks are cleared within three (3)
o 23 – Payable to Manila Lighter or bearer working days and regional checks within seven (7) working days, and the fact that the
Negotiable Instruments - Atty. Ampil
AY 2017 - 2018 - Term 1
Garcia, Pernes, Tagacay, Villasanta

cashier's check was accepted, petitioner issued two (2) personal checks both dated - Because Adelina did not have a dollar account, she asked Ofelia if she could
March 18 and both these checks bounced for insufficient funds. accommodate Filipina’s request since she has a joint dollar savings account with her
Malaysian husband with PNB Buendia Branch.
RTC ruled in favor of petitioner. CA reversed in favor of respondent. Hence, this - To exercise due diligence and caution, that same day (NOV 2, 1992) Ofelia &
petition. Adelina went to PNB Buendia Branch to inquire upon the process of the check. Garin
(PNB Division Chief) discussed with them the process of clearing the subject check
Issue: WON respondent bank liable to petitioner - YES and they were told that it normally takes ​15 days.
- Because of the assurance undertaken by the bank, Ofelia deposited Filipina’s
Held: check.
The respondent bank cannot exculpate itself from liability by claiming that its - PNB then sent it for clearing through its correspondent bank, Philadelphia
depositor "impliedly instructed" the bank to clear his check with the Central Bank by National Bank.
filling a local check deposit slip. Bank transactions pass through a succession of bank - On Nov 16, 1992, Garin called up Ofelia to inform her that the check had already
personnel whose duty is to check and countercheck transactions for possible errors. been cleared.
In the instant case, the teller should not have accepted the local deposit slip with the - The amounts were then withdrawn both Ofelia and Adelina (authorized by
cashier's check that on its face was clearly a regional check without calling the Ofelia).
depositor's attention to the mistake at the very moment this was presented to her. - In the mean time, the cable division of PNB Head office in Escolta, Manila
received on Nov. 16, 1992 a SWIFT message from Philadelphia National Bank dated
Immediate payment without awaiting clearance of a cashier's check is NOT Nov. 13, 1992 to return the subject check for insufficient funds.
discretionary with the bank to whom the check is presented. An ordinary check is not - On Nov 20, 1992: PNB Buendia Branch learned about the bounced check.
a mere undertaking to pay an amount of money. There is an element of certainty or - Ofelia upon receiving the information immediately contacted Filipina to get the
assurance that it will be paid upon presentation that is why it is perceived as a money back however the latter was told that all the money had already been given to
convenient substitute for currency in commercial and financial transactions. several people who asked for the check’s encashment.
- Spouses Cheah then sought the help of the NBI and the said agency’s
What was presented for deposit in the instant cases was not just an ordinary check Anti-Fraud & Action Division was later able to apprehend some of the beneficiaries of
but a cashier's check payable to the account of the depositor himself. ​A cashier's the proceeds of the check & recover from them $20,000.00.
check is a primary obligation of the issuing bank and ​accepted in advance​ by - PNB demanded payment of around PHP8,202,220.44 plus interests and
its mere issuance. ​By its very nature, a cashier's check is the bank's order to pay attorney’s fees.
drawn upon itself, committing in effect its total resources, integrity and honor behind - As their main defense, Cheah claimed that the proximate cause of PNB’s injury
the check. A cashier's check by its peculiar character and general use in the was its own negligence of paying a US dollar denominated check without waiting for
commercial world is regarded substantially to be as good as the money which it the 15 day clearing period, in violation of its bank practice as mandated by its own
represents. In this case, therefore, PCIB by issuing the check ​created an bank circular.
unconditional credit​ in favor of any collecting bank. - RTC ruled in favour of PNB.
- CA ruled that both parties are equally negligent and that it is right and just that
both of them should equally suffer & shoulder the loss.
09. PNB vs Spouses Cheah Chee Chong, ​[G.R. No. 170865 April 25, 2012] - Hence this appeal.
DEL CASTILLO, ​J:
ISSUE: ​WON the CA is correct in holding that both parties should suffer the loss?
*guys the dates are very important on this case so please take note J
*sorry guys mej mahaba but I don’t want to miss any important detail from the case. HELD: ​YES.
Peace!
1. PNB is liable because they failed to follow the 15 day clearing period. PNB
FACTS: Buendia Branch, upon calling up Ofelia that the check had been cleared, allowed the
- On November 2, 1992: Ofelia Cheah (Ofelia) & her friend Adelina were having a proceeds thereof to be withdrawn on November 17 and 18, 1992, a week before the
conversation when Adelina’s friend, ​FILIPINA TUAZON ​approached her to ask if she lapse of the standard 15-day clearing period. Hence, the 15th banking day from the
could have Filipina’s check cleared and encashed for a service fee of 2.5%. date of said deposit should fall on November 25, 1992.
- The check is Bank of America Check No. 190 under the account of Alejandria
Pineda and Eduardo Rosales and drawn by Atty. Eduardo Rosales against Bank of Also, in ​Associated Bank v. Tan​, wherein the bank allowed the withdrawal of the
America, Alhambra Branch in California, USA with an amount of $300,000.00, value of a check prior to its clearing, we said that "[b]efore the check shall have been
payable in cash.
Negotiable Instruments - Atty. Ampil
AY 2017 - 2018 - Term 1
Garcia, Pernes, Tagacay, Villasanta

cleared for deposit, the collecting bank can only 'assume' at its own risk . . . that the She should have first verified the regularity of such hasty clearance considering that if
check would be cleared and paid out." something goes wrong with the transaction, it is she and her husband who would be
put at risk and not the accommodated party. However, Ofelia chose to ignore the
The delay in the receipt by PNB Buendia Branch of the November 13, 1992 SWIFT same and instead actively participated in immediately withdrawing the proceeds of
message notifying it of the dishonor of the subject check is of no moment, ​because the check.
had PNB Buendia Branch waited for the expiration of the clearing period and
had never released during that time the proceeds of the check, it would have FALLO: WHEREFORE, premises considered, the Petitions for Review on Certiorari in
already been duly notified of its dishonor. Clearly, PNB's disregard of its G.R. No. 170865 and in G.R. No. 170892 are both DENIED. The assailed August 22,
preventive and protective measure against the possibility of being victimized by bad 2005 Decision and December 21, 2005 Resolution of the Court of Appeals in CA-G.R.
checks had brought upon itself the injury of losing a significant amount of money. CV No. 63948 are hereby AFFIRMED in toto.

It bears stressing that "the diligence required of banks is more than that of a Roman
paler familias or a good father of a family. The highest degree of diligence is 10 . BANK OF AMERICA v. ASSOCIATED BANK, BA-FINANCE CORP., MILLER
expected." ​PNB miserably failed to do its duty of exercising extraordinary OFFSET PRESS, INC., UY KIAT CHUNG, CHING UY SENG, UY CHUNG GUAN
diligence and reasonable business prudence. ​The disregard of its own banking SENG, and CA
policy amounts to gross negligence, which the law defines as "negligence ASSOCIATED BANK v. BA-FINANCE CORP., MILLER OFFSET PRESS, INC., UY
characterized by the want of even slight care, acting or omitting to act in a situation KIAT CHUNG, CHING UY SENG, UY CHUNG GUAN SENG, and BANK OF
where there is duty to act, not inadvertently but wilfully and intentionally with a AMERICA
conscious indifference to consequences in so far as other persons may be affected."
Facts: This involves consolidated cases.
With regard to collection or encashment of checks, suffice it to say that the law 1. BA-Finance granted Miller Inc. (through its reps: Chung, Uy Seng, and Guan Seng)
imposes on the collecting bank the duty to scrutinize diligently the checks deposited a credit line facility through which the latter could assign or discount its trade
with it for the purpose of determining their genuineness and regularity. "The collecting receivables with the former.
bank, being primarily engaged in banking, holds itself out to the public as the expert ● The 3 reps executed a Continuing Suretyship Agreement with BA-Finance.
on this field, and the law thus holds it to a high standard of conduct." A bank is ● Miller discounted and assigned several trade receivables to BA-Finance.
expected to be an expert in banking procedures and it has the necessary means to ● BA-Finance issued 4 checks payable to the "Order of Miller Offset Press,
ascertain whether a check, local or foreign, is sufficiently funded. Inc." with the notation "For Payee's Account Only". These were drawn
against Bank of America.
2. The Spouses Cheah are guilty of contributory negligence and are bound to 2. The 4 checks were deposited by Uy Seng, corporate secretary of Miller, in
share the loss with the bank. Associated Bank.
● Associated Bank stamped the checks with the notation "all prior
"Contributory negligence is conduct on the part of the injured party, contributing as a endorsements and/or lack of endorsements guaranteed", and sent them
legal cause to the harm he has suffered, which falls below the standard to which he is through clearing.
required to conform for his own protection." ● Later, the drawee bank, Bank of America, honored the checks and paid the
proceeds to Associated Bank as the collecting bank.
Indeed, Ofelia failed to observe caution in giving her full trust in accommodating a 3. Miller failed to deliver to BA-Finance the proceeds of the assigned trade
complete stranger and this led her and her husband to be swindled. Considering that receivables.
Filipina was not personally known to her and the amount of the foreign check to be ● BA-Finance filed a Complaint against Miller and 3 reps for collection of sum
encashed was $300,000.00, a higher degree of care is expected of Ofelia which she, of money.
however, failed to exercise under the circumstances. ● BA-Finance also impleaded Bank of America for allowing encashment and
collection of the checks by person or persons other than the payee named
Another circumstance which should have goaded Ofelia to be more circumspect in thereon.
her dealings was when a bank officer called her up to inform that the Bank of America ● Bank of America filed a Third Party Complaint against Associated Bank.
check has already been cleared way earlier than the 15-day clearing period. The fact
that the check was cleared after only eight banking days from the time it was Issues:
deposited or contrary to what Garin told her that clearing takes 15 days should have Is Bank of America liable to pay BA-Finance the amount of the 4 checks? - YES.
already put Ofelia on guard. Is Associated Bank liable to reimburse Bank of America the amount of the 4 checks?
- YES.
Are the reps liable to pay Associated Bank the amount of the 4 checks? - YES.
Negotiable Instruments - Atty. Ampil
AY 2017 - 2018 - Term 1
Garcia, Pernes, Tagacay, Villasanta

· Instead of going straight to the bank to stop or question the payment,


Held: PETITIONS DENIED. Ong first sought the help of Tanlimco‘s family reported the incident to
1. Bank of America (drawee bank), is under strict liability to pay the check only to the the Central Bank to recover the amount. Both attempts are futile
payee or the payee's order. When the drawee bank pays a person other than the · About five (5) months from discovery of the fraud, Ong demanded in his
payee named on the check, it violates its duty to charge the drawer's account only for complaint that petitioner pay the value of the two checks from the bank
properly payable items. on whose gross negligence he imputed his loss.
● BA-Finance (drawer) issued crossed checks. The 4 checks were drawn by · The bank did not present evidence to the contrary, but simply contended
BA-Finance and made payable to the "Order of Miller Offset Press, Inc." The that since plaintiff Ong claimed to have never received the originals of
checks were also crossed and issued "For Payee's Account Only". Clearly, the two (2) checks in question from Island
the drawer intended the check for deposit only by Miller Offset Press, Inc. in · Securities, much less to have authorized Tanlimco to receive the same, he never
the latter's bank account. acquired ownership of these checks. Thus, he had no legal personality to sue as
● Thus, when a person other than Miller, Uy Seng, presented and deposited he is not a real party in interest. Petitioner argues, respondent cannot sue
the checks in his own personal account, and Bank of America, paid the petitioner because under Section 51 of the Negotiable Instruments Law ​it is only
value of the checks, Bank of America is deemed to have violated the when a person becomes a holder of a negotiable instrument can he sue in his
instructions of the drawer, and therefore, is liable for the amount charged to own name. Petitioner also cites Article 1249 of the Civil Code explaining that a
the drawer's account. check, even if it is a manager‘s check, is not legal tender. Hence, the creditor
2. Associated Bank (collecting bank) where a check is deposited, and which endorses cannot be compelled to accept payment thru this means
the check upon presentment with the drawee bank, is an endorser, with warranties
under Sec. 66. Issues:
● When Associated Bank stamped the back of the 4 checks with the phrase 1. WON respondent Ong has a cause of action against petitioner Westmont Bank
"all prior endorsements and/or lack of endorsement guaranteed", that bank 2. WON Ong is barred to recover the money from Westmont Bank due to laches.
accordingly assumed the warranty of an endorser. Associated Bank cannot
deny liability on the checks. Ruling:
● The payee of the checks is a corporation while the person who deposited the 1. Yes
checks in his own account is an individual. Associated Bank is negligent, Petitioner‘s claim that respondent has no cause of action against the bank is clearly
thus, it should reimburse the amount of the 4 checks to Bank of America. misplaced. As defined, a cause of action is the act or omission by which a party
3. Since Uy Seng and/or Guan Seng received the proceeds of the checks as they violates a right of another. The essential elements of a cause of action are: (a) a legal
were deposited in their personal joint account with Associated Bank, right or rights of the plaintiff, (b) a correlative obligation of the defendant, and (c) an
● They’re obliged to reimburse Associated Bank for the amount it has to pay to act or omission of the defendant in violation of said legal right.
Bank of America; no person should be allowed to unjustly enrich himself at The complaint filed before the trial court expressly alleged respondent‘s right as
expense of another. payee of the manager‘s checks to receive the amount involved, petitioner‘s
correlative duty as collecting bank to ensure that the amount gets to the rightful
payee or his order, and a breach of that duty because of a blatant act of
11 Westmont Bank v Eugene Ong negligence on the part of petitioner which violated respondent‘s rights.
Facts: Since the signature of the payee, in the case at bar, was forged to make it
· Ong maintained an account with Associated Banking Corp (now appear that he had made an indorsement in favor of the forger, such signature should
Westmont Bank) be deemed as inoperative and ineffectual. Petitioner, as the collecting bank, grossly
· Ong sold shares of stock through Island Securities Corp. erred in making payment by virtue of said forged signature. The payee, herein
· Island Securities Corp paid Ong through 2 Pacific Banking Corp. respondent, should therefore be allowed to recover from the collecting bank.
manager‘s checks. Both indicated Ong as payee The collecting bank is liable to the payee and must bear the loss because it
· Before Ong could get hold of the checks, his friend Paciano Tanlimco is its legal duty to ascertain that the payee‘s endorsement was genuine before
got hold of them, forged Ong‘s signature and deposited these with cashing the check
petitioner, where Tanlimco was also a depositor. Even though Ong‘s
specimen signature was on file, petitioner accepted and credited both 2. No
checks to the account of Tanlimco, without verifying the ̳signature In the case at bar, it cannot be said that respondent sat on his rights. He immediately
indorsements‘ appearing at the back thereof. Tanlimco then immediately acted after knowing of the forgery by proceeding to seek help from the Tanlimco
withdrew the money family and later the Central Bank, to remedy the situation and recover his money from
the forger, Paciano Tanlimco.
Negotiable Instruments - Atty. Ampil
AY 2017 - 2018 - Term 1
Garcia, Pernes, Tagacay, Villasanta

Only after he had exhausted possibilities of settling the matter amicably with the There is no substantial difference between an actual forging of a name to a check as
family of Tanlimco and through the CB, about five months after the unlawful an endorsement by a person not authorized to make the signature and the affixing of
transaction took place, did he resort to making the demand upon the petitioner and a name to a check as an endorsement by a person not authorized to endorse it.​ It
eventually before the court for recovery of the money value of the two checks. These was petitioner-bank’s responsibility to inquire as to the authority of Rafael Sayson to
acts cannot be construed as undue delay in or abandonment of the assertion of his deposit crossed checks payable to Melissa's RTW upon a prior endorsement by
rights. Eddie Reyes.

Notes:
12. Associated Bank v. CA, G.R. No. 89802, May 7, 1992 The effects of crossing a check:
Facts: (1) that the check may not be encashed but only deposited in the bank
The private respondent is engaged in the business of ready-to-wear garments under (2) that the check may be negotiated only once — to one who has an account with a
the firm name "Melissa's RTW." Her clients (Robinson’s Department Store, Payless bank;
Department Store, Rempson Department Stores and Corona Bazzar) issued payment (3) that the act of crossing the check serves as a warning to the holder that the check
of their respective accounts crossed checks payable to her. has been issued for a definite purpose so that he must inquire if he has received the
check pursuant to that purpose. (State Investment House vs. IAC)
She went to collect but was informed of the issuance of crossed checks deposited to
petitioner-bank paid by it to one Rafael Sayon, a “trusted depositor” according to
co-petitioner and branch manager Conrado Cruz. Private respondent states Sayon 13. FAR EAST BANK & TRUST COMPANY vs GOLD PALACE JEWELLERY CO.
was not authorized by her to do so. Hence, private respondent went to court to sue [G.R. No. 168274 August 20, 2008]
petitioners. NACHURA, ​J:

RTC rendered a judgment favoring private respondent. CA affirmed. Hence, this FACTS:
petition. - Samuel Tagoe purchased from the respondent Gold Palace Jewellery Co’s
(Gold Palace’s) store at SM North Edsa several pieces of jewelry valued at
Issue:​ WON private respondent has cause of action against petitioners for PHP258,000.00.
encashment to another person of the crossed checks issued in her favor - YES - In payment of the same, he offered Foreign Draft No. M-069670 issued by the
United Overseas Bank (UOB) (Malaysia) BHD Medan Pasar, Kuala Lumpur,
Held: addressed to the Land Bank of the Philippines (LBP) and payable to Gold Palace
The petitioner-bank stamped thereon its guarantee that "all prior endorsements Jewellery.
and/or lack of endorsements (were) guaranteed." By such deliberate and positive act, - However, before receiving the draft, respondent Judy Yang, the assistant
it had for all legal intents and purposes treated the said checks as negotiable general manager of Gold Palace inquired from petitioner the nature of the draft.
instruments and, accordingly, assumed the warranties of an endorser. - The teller informed her that the same was similar to a manager’s check but
advised her not to release the pieces of jewelry until the draft has been cleared.
The petitioners were negligent when they permitted the encashment of the checks by - Yang then issued Cash Invoice No. 1609 to Tagoe and asked him to come back
Sayson. The petitioner-bank should have first verified his right to endorse the crossed when the check has been cleared so that the jewelries will be released to him.
checks, of which he was not the payee, and to deposit the proceeds of the checks to - Julie Yang-Go, the manager of Gold Palace consequently deposited the draft in
his own account. the company’s account with the petitioner.
- When Far East ( the collecting bank), presented the draft for clearing to LBP (the
The Bank was by reason of the nature of the checks put upon notice that they drawee bank), the latter cleared the same – UOB’s account with LBP was debited.
were issued for deposit ​only to the private respondent's account​. Its failure to - Relying on the information that the draft has been cleared, Yang released the
inquire into Sayson's authority was a breach of a duty it owed to the private pieces of jewelry to Tagoe and because the amount in the draft was more than the
respondent. value of the purchased goods, she issued as a change a check drawn against the
petitioner for PHP122,000.00 and was later on presented for encashment and was in
The petitioners insist that the private respondent has no cause of action against them fact paid by the said bank.
because they have no privity of contract with her. They also argue that it was Eddie - ​Three weeks later it has been discovered that the foreign draft had been
Reyes, the private respondent's own husband, who endorsed the checks. Assuming materially altered from PHP300.00 to PHP380,000.00.
that Eddie Reyes did endorse the crossed checks, or such endorsements were
forged, as alleged, the ​petitioner-bank would still be liable to the private
respondent for not verifying the endorser's authority​.
Negotiable Instruments - Atty. Ampil
AY 2017 - 2018 - Term 1
Garcia, Pernes, Tagacay, Villasanta

- It is noted at this point that the material alteration was discovered by UOB after - ​Gold Palace had no facility to ascertain with the drawer, UOB Malaysia, the
LBP had informed it that its funds were being depleted following the encashment of true amount of the draft. Hence it was left with no option but to rely on the
the subject draft. representations of LBP that the draft was good.
- Gold Palace is protected by Section 62 of the NIL, its collecting agent, Far
- Intending to debit the amount from respondent's account, Far East subsequently East, should not have debited the money paid by the drawee bank from respondent
refunded the P380,000.00 earlier paid by LBP. company's account. When Gold Palace deposited the check with Far East, it, under
the terms of the deposit and the provisions of the NIL, became an agent of the Gold
- Gold Palace in the meantime had already utilized portions of the amount. Thus, Palace for the collection of the amount in the draft.
on July 20, 1998, as the outstanding balance of its account was already inadequate,
Far East was able to debit only PHP168,053.36 but was done without prior written FALLO: ​WHEREFORE, premises considered, the March 15, 2005 Decision and the
notice to the account holder. Far East only notified by phone Gold Palace. May 26, 2005 Resolution of the Court of Appeals in CA-G.R. CV No. 71858 are
AFFIRMED WITH THE MODIFICATION that the award of exemplary damages and
- Petitioner demanded from respondents the payment of P211,946.64 or the attorney's fees is DELETED.
difference between the amount in the materially altered draft and the amount debited
from the respondent company's account.
14 SECURITY BANK AND TRUST COMPANY v. RCBC
RCBC v. SECURITY BANK AND TRUST COMPANY
- RTC ruled in favour of Far East. CA reversed. Hence this appeal.
Facts: This is a case of consolidated petitions.
ISSUE: ​WON Gold Palace should be liable for the altered Foreign Draft? 1. Security Bank issued a manager's check for P8M, payable to "CASH", as proceeds
of the loan granted to Guidon Construction & Development Corp.
HELD: ​NO. Act No. 2031, or the Negotiable Instruments Law (NIL), explicitly provides ● The check was deposited by Continental Manufacturing Corp with RCBC.
that the acceptor, by accepting the instrument, engages that he will pay it according RCBC honored the and allowed CMC to withdraw the same.
to the tenor of his acceptance. 2. GCDC issued a "Stop Payment Order" to Security Bank, claiming that the check
- This provision applies with equal force in case the drawee pays a bill without was released to a third party by mistake.
having previously accepted it. ● Security Bank dishonored and returned the manager's check to RCBC.
- His actual payment of the amount in the check implies not only his assent to the ● Thereafter, the check was returned back and forth between the two banks,
order of the drawer and a recognition of his corresponding obligation to pay the resulting in automatic debits and credits in each bank's clearing balance.
aforementioned sum, but also, his clear compliance with that obligation. 3. RCBC led a complaint for damages against Security Bank.
- Actual payment by the drawee is greater than his acceptance, which is merely a ● Meanwhile, following the rules of the Philippine Clearing House, RCBC and
promise in writing to pay. The payment of a check includes its acceptance. Security Bank stopped returning the checks to each other.
- ​Gold Palace was not a participant in the alteration of the draft, was not ● By way of a temporary arrangement pending resolution of the case, the P8M
negligent, and was a holder in due course — it received the draft complete and check was equally divided between, and credited to, RCBC and Security
regular on its face, before it became overdue and without notice of any Bank.
dishonor, in good faith and for value, and absent any knowledge of any
infirmity in the instrument or defect in the title of the person negotiating it. Issues:
Is Security Bank liable to RCBC for the remaining P4M? - YES.
- ​Having relied on the drawee bank's clearance and payment of the draft and Is Security Bank liable to pay for lost interest income on the remaining P4M? - YES.
not being negligent (it delivered the purchased jewelry only when the draft was
cleared and paid), respondent is amply protected by the said Section 62. Held: SECURITY BANK IS LIABLE.
1. The check issued by Security Bank is a manager's check.
- ​Commercial policy favors the protection of any one who, in due course, ● A manager's check is one drawn by a bank's manager upon the bank itself.
changes his position on the faith of the drawee bank's cl earance and payment It stands on the same footing as a certified check, which is deemed to have
of a check or draft. been accepted by the bank that certified it. A manager's check becomes the
primary obligation of the bank and is accepted in advance by the act of its
- ​LBP having the most convenient means to correspond with UOB should issuance.
have first verified the amount of the draft before it cleared and paid the same. 2. RCBC, in immediately crediting the amount of P8M to CMC's account, relied on the
integrity and honor of the check as it is regarded in commercial transactions.
Negotiable Instruments - Atty. Ampil
AY 2017 - 2018 - Term 1
Garcia, Pernes, Tagacay, Villasanta

● Where the check, payable to "Cash", appeared regular on its face, and the · Hi Tri contends that they were not notified.
bank found nothing unusual in the transaction, as the drawer usually issued · Allegedly, a copy of the Sworn Statement executed by Florentino N. Mendoza,
checks in big amounts made payable to cash, RCBC cannot be faulted in Manager and Head of RCBCs Asset Management, Disbursement & Sundry
paying the value of the check. Department (AMDSD) was posted within the premises of RCBC-Ermita.
2. Security Bank cannot escape liability by invoking Monetary Board Resolution No.
2202, prohibiting drawings against uncollected deposits because banks were Issue: Whether or not the escheat of the account of Hi-Tri in RCBC is proper.
given the discretion to allow immediate drawings on uncollected deposits of
manager's checks. Held:
● RCBC, in allowing the immediate withdrawal against the manager's check, 1. There are checks of a special type called managers or cashiers checks.
only exercised a prerogative expressly granted to it by the Monetary Board. These are bills of exchange drawn by the banks manager or cashier, in the
● Security Bank’s liability as drawer remains the same — by drawing the name of the bank, against the bank itself. Typically, a managers or a
instrument, it admits the existence of the payee and his then capacity to cashiers check is procured from the bank by allocating a particular amount
indorse; and engages that on due presentment, the instrument will be of funds to be debited from the depositors account or by directly paying or
accepted, or paid, or both, according to its tenor. depositing to the bank the value of the check to be drawn.
3. Concerning RCBC's claim for lost interest income on the remaining P4 million, this 2. Since the bank issues the check in its name, with itself as the drawee, the
is already covered by the amount of damages in the form of legal interest of 6%, check is deemed accepted in advance. Ordinarily, the check becomes the
based on Articles 2200 and 2209 of the Civil Code. primary obligation of the issuing bank and constitutes its written promise to
4. Security Bank is ordered to pay RCBC: (1) the remaining P4M with legal interest pay upon demand.
thereon at (6%); (2) exemplary damages of P50,000; and (3) attorney's fees of 3. Nevertheless, the mere issuance of a managers check does not ipso facto
P25,000. work as an automatic transfer of funds to the account of the payee. In case
the procurer of the managers or cashiers check retains custody of the
instrument, does not tender it to the intended payee, or fails to make an
15. RCBC v Hi-Tri effective delivery, an order to debit the account of respondents was never
Facts: made.
· Luz Bakunawa and her husband Manuel, now deceased (Spouses Bakunawa) 4. In fact, petitioner confirms that the Managers Check was never negotiated or
are registered owners of six (6) parcels of land presented for payment to its Ermita Branch, and that the allocated fund is
o These lots were sequestered by the Presidential Commission on still held by the bank. As a result, the assigned fund is deemed to remain
Good Government [(PCGG)]. part of the account of Hi-Tri, which procured the Managers Check. The
· Sometime in 1990, a certain Teresita Millan (Millan), through her representative, doctrine that the deposit represented by a managers check automatically
Jerry Montemayor, offered to buy said lots for ₱6,724,085.71, with the promise passes to the payee is inapplicable, because the instrument although
that she will take care of clearing whatever preliminary obstacles there may be to accepted in advance remains undelivered.
effect a completion of the sale. 5. Hence, respondents should have been informed that the deposit had been
· The Spouses Bakunawa gave to Millan the Owners Copies of said TCTs and in left inactive for more than 10 years, and that it may be subjected to escheat
turn, Millan made a downpayment of ₱1,019,514.29 for the intended purchase. proceedings if left unclaimed.
However, for one reason or another, Millan was not able to clear said obstacles.
As a result, the Spouses Bakunawa rescinded the sale and offered to return to
Millan her downpayment of ₱1,019,514.29 ​by Manager’s Check. 16. Equitable Banking v. Special Steel Products, GR No. 175350
· However, Millan refused to accept back the ₱1,019,514.29 downpayment. June 13, 2012
Consequently, the Spouses Bakunawa, through their company, the Hi-Tri Facts:
Development Corporation (Hi-Tri) took out on October 28, 1991, a Managers 1. Respondent Special Steel Products, Inc. (SSPI) is a private domestic
Check from RCBC-Ermita in the amount of ₱1,019,514.29, payable to Millan’s corporation selling steel products. Its co-respondent Augusto L. Pardo
company Rosmil Realty and Development Corporation (Rosmil) c/o Teresita (Pardo) is SSPI's President and majority stockholder. Jose Isidoro Uy, alias
Millan and used this as one of their basis for a complaint against Millan and Jolly Uy (Uy), is an International Copra Export Corporation (Interco)
Montemayor which they filed with the Regional Trial Court of Quezon City, employee, in charge of the purchasing department, and the son-in-law of its
Branch 99. majority stockholder.
· On January 31, 2003, during the pendency of the above mentioned case and 2. Petitioner Equitable Banking Corporation (Equitable or bank) is a private
without the knowledge of [Hi-Tri and Spouses Bakunawa], RCBC reported the domestic corporation engaged in banking and is the depository bank of
₱1,019,514.29-credit existing in favor of Rosmil to the Bureau of Treasury as Interco and of Uy.
among its unclaimed balances as of January 31, 2003 ​subject to escheat​.
Negotiable Instruments - Atty. Ampil
AY 2017 - 2018 - Term 1
Garcia, Pernes, Tagacay, Villasanta

3. Interco issued three checks for payment and each check was crossed with
the notation "account payee only" and was drawn against Equitable to SSPI
for welding electrodes. SSPI provided that Interco would pay interest at the
rate of 36%per annum in case of delay.
4. Eventually, Uy presented each crossed check to Equitable on the day of its
issuance and claimed that he had good title thereto and demanded the
deposit of the checks in his personal accounts in Equitable. The bank did so
on relying on Uy’s status as a valued client and as son-in-law of Interco’s
majority stock holder.
5. SSPI reminded Interco of the unpaid welding electrodes, and Interco replied
it had already issued three checks payable to SSPI and drawn against
Equitable, which was denied by SSPI. Later, it was determined that Uy, not
SSPI, received the proceeds of the three checks that were payable to SSPI.
Thus, on June 30, 1993 (23 months after the issuance of the three checks),
Interco paid the value of the three checks to SSPI, plus a portion of the
accrued interests.
6. Interco refused to pay the entire accrued interest of P767,345.64 on the
ground that it was not responsible for the delay. SSPI was unable to collect
P437,040.35 (at the contracted rate of 36% per annum) in interest income.
7. Hence, Pardo filed a complaint for damages against Uy and Equitable
alleging that the 3 the crossed checks, all payable to SSPI should only be
deposited and encashed by them.
8. RTC ruled in favor of SSPI. CA affirmed. Hence, this appeal.

Issue​: WON SSPI has a cause of action against Equitable Bank - YES

Held:
SSPI's cause of action is not based on the three checks. SSPI does not ask Equitable
or Uy to deliver to it the proceeds of the checks as the rightful payee. SSPI does not
assert a right based on the undelivered checks or for breach of contract. Instead, it
asserts a cause of action based on quasi-delict*.

The checks that Interco issued in favor of SSPI were all crossed, made payable to
SSPI's order, and contained the notation "account payee only." This creates a
reasonable expectation that the payee alone would receive the proceeds of the
checks and that diversion of the checks would be averted.

This expectation arises from the accepted banking practice that crossed checks are
intended for deposit in the named payee's account only and no other.

At the very least, the nature of crossed checks should place a bank on notice that it
should exercise more caution or expend more than a cursory inquiry, to ascertain
whether the payee on the check has authorized the holder to deposit the same in a
different account.

Notes:
A quasi-delict is an act or omission, there being fault or negligence, which causes
damage to another. Quasi-delicts exist even without a contractual relation between
the parties.